Good day, and welcome to the Tecnoglass, Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brad Cray, IR. Please go ahead.

Thank you for joining us for Tecnoglass' First Quarter 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 Chief Executive Officer, Jose Manuel Daes; Chief Operating Officer, Chris Daes; and Chief Financial Officer, Santiago Giraldo. I'd like to remind everyone that matters discussed in this call, except for historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, future growth and future acquisitions. These statements are based on Tecnoglass' current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary in a material nature from those expressed or implied by the statements herein due to changes in economic, business, competitive and/or regulatory factors and other risks and uncertainties affecting the operation of Tecnoglass' business. These risks, uncertainties and contingencies are indicated from time to time in Tecnoglass' filings with the SEC. The information discussed during the call is presented in light of such risks. Further, investors should keep in mind that Tecnoglass' financial results in any particular period may not be indicative of future results. Tecnoglass is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements whether as a result of new information, future events, changes in assumptions or otherwise. I will now turn the call over to Jose Manuel, beginning on Slide #4.

Thank you, Brad, and thank you, everyone, for participating on today's call. I am proud of our team's resilience to start off 2024. Despite a challenging macroeconomic environment, we maintained a steady course. We executed against a record multifamily commercial backlog, while navigating end market pressures in a single-family residential sales channel. This resulted in revenues of $192.6 million. Multifamily commercial revenues met our expectations and continues to look healthy based on continued backlog and pipeline growth in our main markets. Growth in this business helped to partly cushion softer single-family residential demand, which is now trending much better based on the level of orders seen during the last couple of months. Our record backlog of $916 million reflects growing demand for our product and healthy commercial activity in our key geographies, with visibility into 2025. While single-family residential performance lagged due to inflationary constraints on consumer spending, regular order trends in March and April were up over 12% compared to the same period in 2023, indicating an upward trajectory in this business. Additionally, our strategic entry into the vinyl window market is showing promising early results, as quoting activity is surpassing our expectations. We anticipate that vinyl orders will accelerate and become a more significant contributor to our results in the later half of the year. Our commitment to efficient working capital management was evident in our strong cash flow from operations of $33 million in the first quarter. This [ was most ] cash generation, coupled with an expected reduction in capital expenditures, yielded free cash flow of $24 million during the quarter. This was achieved despite facing headwinds from currency fluctuations and an unfavorable revenue mix. Furthermore, our solid capital position has provided us with the financial flexibility necessary to support our growth initiatives. This included ramping up production of vinyl windows and further enhancing our low net leverage profile. I am particularly pleased to report that we improved our net debt to adjusted EBITDA ratio to a record low of 0.1x as of March 31, 2024. Looking ahead, we remain optimistic about the underlying drivers of our business. The attractiveness of the vinyl window market, combined with a strengthened customer relationships and geographic diversification, positions us well to capture additional value. Despite the broader macro challenges affecting our industry, our robust pipeline of projects continues to support healthy activity across our end markets. We look forward to delivering stronger results as we move through 2024. I will now turn the call over to Chris to provide additional operating highlights.

Thank you, Jose Manuel. Moving to Slide #5. Our performance in the first quarter reflects our adaptability amidst a dynamic operating landscape. We ended the quarter with another record backlog of $916 million. This represented 1.8x our LTM multifamily and commercial revenues. Our backlog remains a key element of our growth strategy, providing us with a multiyear view of projects in our pipeline on the multifamily commercial portion of our revenues. This side of our business is historically less sensitive to higher interest rates. We continue to experience solid levels of multifamily and commercial quoting and bidding activity as well as favorable demographic trends in Florida and the Southeast U.S. in the first quarter. This reinforces our confidence in our overall growth trajectory. Notably, within the Miami, Fort Lauderdale and Palm Beach areas alone, Tecnoglass has substantial market share in approximately 750 ongoing and planned projects. This positions us well to capitalize on the secular demand within these key U.S. markets. Turning our attention to our product lines. Customers' response to our vinyl offering has been exceptionally positive. The quoting activity of these products is surpassing our expectations, and we are on a scale to increase deliveries in the later half of 2024. Our strategic move into the vinyl market, combined with the expansion of our showroom network, is poised to drive organic growth and significantly expand our addressable market. Moving to Slide #6. Our backlog has seen consistent sequential growth in each quarter since 2021. We expect this momentum in our project pipeline and the strong bidding activity we are seeing will help us maintain a strong book-to-bill ratio, which stood at 1.2x as of quarter 1, 2024. This adds to our track record of maintaining a book-to-bill ratio above 1.1x over the past 13 consecutive quarters. Historically, roughly 2/3 of our reported backlog are invoiced over the following 12 months. With virtually no project cancellation historically, even the late stage installation of windows into largely completed buildings, we believe that this ratio provides a strong visibility on invoicing despite the fact that certain external factors can cause temporary delays in deliveries. Looking at the favorable demographic trends we see in our key regions on Slide #7. Despite a mixed outlook for the U.S. housing market overall, our core markets in the Southern states are benefiting from positive demographic trends. Both multifamily and single-family housing starts are on an upward trajectory, driven by population growth and a pronounced housing shortage. While we mostly serve R&R channels today, these favorable demographics are expected to sustain robust activity in our primary markets through 2024 and 2025. I will now turn the call over to Santiago to discuss our financial results and outlook for 2024.

Thank you, Christian. Turning to single family residential on Slide #8. During the first quarter, we generated single-family residential revenues of $73 million compared to $84 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 and mortgage rates. As mentioned by Jose Manuel, however, this trend has reversed significantly based on the level of orders for March and April, which came at a record level, up over 12% year-over-year. While higher interest rates drove weakness during the quarter, we continue to see organic growth opportunities in our single-family residential business through a variety of tailwinds unique to Tecnoglass, namely, a widened dealer base enabled by short lead times, innovative product development and demand for energy saving products, geographic expansion in Florida, and growing brand recognition throughout the U.S. through showroom openings in key markets such as New York, Charleston and Houston. And our recent entry into the vinyl market, which significantly expanded our addressable market and provides a huge runway for revenue growth and product diversification once the business ramps up to full operating capacity. On Slide #9, I would like to reiterate a few key points from our recent strategic entry into vinyl windows. The enthusiasm and interest from our customers have been overwhelmingly positive, as evidenced by the high level of quoting activity. The favorable response from our customers reinforces our confidence in this strategic decision and underscores our potential for long-term success in this attractive market. Our showrooms now feature both our legacy aluminum window lines and our new vinyl designs. Additionally, we have successfully onboarded new distributors in Northern Florida since our last update, further solidifying our market presence. The opportunities we see within vinyl are incredibly promising given the vast size…

[Operator Instructions] The first question comes from Stanley Elliott with Stifel.

Could you help us a little bit in terms of kind of the -- let's just talk about the $875 million kind of the midpoint, the split between the commercial and the residential in that and then maybe some discussions around growth implied in the new guide.

Yes. I'll take that, Stan. We are baking in commercial being about 57% of the total revenue stream, with resi being 43%. And as you would see in the deck that we put together, that implies that we do about $20 million in vinyl in the second half of the year and we see some sequential growth based on the schedule of the projects that we have in line on the commercial segment, right? And then on the legacy business, basically non-vinyl on the legacy business, we assume that we obviously are going to invoice the orders that came in at record levels for March and April, and that's sustainable through June, stepping down to more normalized levels. If we are able to sustain the amount of orders that we're seeing right now, obviously, you get more towards the upside case.

And I guess, kind of talking about the full year guide. Maybe, I guess, what -- help us kind of -- what had changed, I guess, since February when you were looking at double-digit? We had -- it looks like it sounds like you had softer order growth before it picked up. Maybe just kind of help frame out some of the bigger changes within the overall top line expectations.

Well, I think the main thing is the change on the outlook on interest rates. I mean back then, we were really talking about definitely 3 cuts and better overall psychology, whereas right now, we're talking about no cuts or even a hike, right? So there's clearly been a change in overall macro conditions. That being said, as I just reiterated, April and March orders came in at record levels. So we'll see if that is definitely a trend reversal and we are able to get to the double-digit growth that we are outlining on the upside case. So we're still saying that, that is a possible case. It just needs to be that certain things are met.

Yes. And you guys had a nice showing at IBS. Curious kind of if that's what helped drive some of the strong orders in March and April? Or was that more from some of the retail and showrooms that are out there? Just any color there would be great.

Well, let me tell you this. This is Jose. Customers are appreciating the value proposition that we have in our windows. They are better performing, better looking, more modern. And also, all our glass is [ heat ] strengthened and it's been -- the shows gave a lot of people to see the products that they don't normally see them anywhere else. So we're very happy about what happens in those shows and we're going to increase the amount of space that we're going to get in the next ones.

The next question comes from Sam Darkatsh with Raymond James.

Three quick questions, if I could. I guess the obvious one would be Santiago, how would you -- can you give us a framework of what to expect for sales, gross margin and EBITDA for the second quarter?

Yes. So the base case assumes gross margin trending kind of in line with Q4 of last year, and we kind of highlighted the premises for that. And most of that pickup is coming from what we're expecting in terms of operating leverage, given sequential increase in revenues. And that is supported, obviously, by the orders that we discussed earlier, which on the residential side are coming at a record level in the last 2 months. From an SG&A perspective, we don't expect anything really out of the ordinary. So that should be flattish. The pickup comes from operating leverage on higher sales sequentially for Q2 over Q1.

So what sort of sequential bump might you expect in sales then in the second quarter?

I would say we're probably modeling around $210 million to $225 million, somewhere around there. I mean that's kind of a broader range. But at this point in time, I think that should be coming towards the higher end of that range.

Got you. And then the -- I know you were considering or you continue to consider hedging out your exposure to the Colombian peso. Obviously, there's sensitivity within the peso within the upper and lower band of your range. Can you talk about where you are right now in terms of the thinking, whether it's with you folks and/or the Board in terms of hedging out the peso so we don't have these volatility issues?

Yes. If you look at the volatility, I mean we're clearly [ lapsing ] really tough quarters. Last quarter and this quarter were completely outliers based on the all-time FX relationship of the currencies, right? I mean we hit an all-time low in Q4 and Q1 of this year. But if you look at how it's trended, Q2 steps down from 4,700 to 4,400 and Q3 is actually averaging -- since Q3 of last year, it has been averaging at the same kind of level for the last 9 months. right? So I think it's not expected that you see this type of volatility. It is clearly an outlier. And I think the comps definitely get much easier as we move along into the year. We don't have any reason to expect that the peso will vary the rest of the year based on the projections from macro economics.

So -- excuse me, and also let me add. This is Christian Daes. We have tried in the past 15, 20 years to hedge on aluminum, hedge on the dollar. And somehow, we have taken even the best banks that do the job. And in all of them, we ended up always losing. I mean 70% of the time, we missed the upside or the downside because we hedged it. So I told Santiago yesterday that the rate is at a place where it's not going to move. If you look at -- if you look back 24 months ago, it used to be at this rate, so when it went up to 5,000 or 5,300, it was a special case for a few months and then it went back to normal. So instead of wasting time, maybe, playing God, we want to let it play out because at the end, we don't -- so we don't start to make moves that we may end up losing even more money. So we feel very comfortable where we are. Obviously, we keep looking at the hedging to see when it would make sense. But right now, it looks like it doesn't -- there is no way it can go down anymore. I mean the country would not support that type of exchange rate.

And then my last question. Thank you for that color, Chris. My last question, there was no share repo in the quarter. I think there's a reasonable chance that you folks get included within the Russell 2000, at least, if not this quarter, certainly soon. Talk about your near-term capital allocation priorities, especially around share repurchase, knowing that, that might be on the horizon, so the stock would act accordingly.

Yes, that's always on the Board's mind and obviously, a topic of discussion in each one of them, and we'll definitely be opportunistic. I think there's a great chance to return value to shareholders via not only repurchases, but also dividends. In the balance sheet, it is as flexible as it's ever been. So just to answer that, I mean we'll be opportunistic. And obviously, we have more than half of that program still available to us to execute. So we'll see how it plays out. But definitely, there's a lot of value to be created there.

The next question comes from Tim Wojs with Baird.

Maybe just to step back, just Jose Manuel, I mean you talked about -- I mean your backlog continues to grow both sequentially and year-over-year. And you mentioned a pretty good pipeline of kind of activity around quoting and bidding and things like that. So I guess, could you just add a little bit of flavor in terms of kind of what you're seeing on the ground from both a quoting and maybe a pricing perspective? And would you expect the backlog to continue to grow here in the near term?

The backlog will continue to grow. I mean it is continuing to grow every day, because we invoice much less than the jobs that we're closing. I mean this past month we closed much more than what we invoiced. And we see the trend, I mean, flowing. It is booming everywhere. It's not only Miami, it's Fort Lauderdale, Boca Raton, Pompano Beach. West Palm Beach is crazy. And then you go up to Jacksonville, Tampa, we're seeing a lot of activity, and we are very enthusiastic because all the jobs are fully funded. It's not like they're playing games. So we see the backlog growing. And just remember that in the backlog, there is nothing of retail. And retail is coming up, I mean the residential. So we believe that after all the new products align from July on, everything is going to turn around. But we want to be conservative on the outlook. Anyhow, we believe we're going to do good, very good on the second semester.

Okay. Okay. Got you. No, that's helpful. And then I guess just -- Santiago, just on the residential side, I mean if you kind of plug in the residential kind of expectation for the year, I think you get something like $375 million or something like that for sales for resi. So is the math really just kind of $20 million or so in base case vinyl? And then you get -- would that be kind of 6%, 7% kind of legacy business? Is that kind of the math?

Yes. I mean your math is right on, Tim, based on the percentages that I just gave earlier. And that's a significant pickup from Q1, obviously. And as we mentioned in the presentation, sequential orders were up over 20%, right? So on Q2, we already have really good visibility on what's coming, right? I think the key ingredient here is whether that continues to be sustainable, and I think that's going to be partially related to what happens with the interest rate and overall psychology, and that's why we wanted to lay out the different cases. But on the base case, your math is right on.

Okay. Okay. Good. And then the last one I had, just you mentioned in the slides just smaller commercial projects. I guess what exactly -- I don't know if you want to just give some definitional examples of what that is and just how big of a percentage of the commercial business that is for you guys.

Yes. Think about that, Tim. I mean you have your like large projects, multifamily that are multiyear projects, but you also will have maybe like a car dealership or something like really small, like a street mall, something to that extent. And that comes in a much more spotty nature, right? I mean that's something that you could get in March and be invoiced in the same year. And typically, that will range between $10 million, $12 million, $10 million, $13 million per month. So depending on where we end up, at what kind of range on light commercial, we end up on the higher end or the lower end of these 3 different scenarios.

The next question comes from Alex Rygiel with B. Riley FBR.

A couple of questions here. First, could you provide a little bit greater detail as it relates to vinyl windows and the successes to date, maybe either quantify quoting or orders or number of dealers or manufacturing lines? Just a little bit more detail there.

Okay. Let me explain what happened. We launched the line. And since we didn't know everything about the new line, we made a few mistakes and it wasn't a complete line. So when we went to our dealers, they say, "Oh, yes, I like what you're doing, but you're missing this product. And if you don't have it, I cannot go to a complete line to my customers." And like that, we had a few hurdles even with the supplier of our extrusions and we are on the way of redeveloping everything. And like I said in the before question, we are going to be ready by the end of June with a complete line. And we know and we expect the second semester to be much, much better. And we are being very conservative on the outlook for the second semester, but this is going up tenfold by next year for sure.

That's very helpful. And then as it relates to residential, can you kind of remind us what your mix is there between new construction and R&R and then talk a bit about sales into homebuilders and how that has changed in the outlook?

I'll talk about the breakdown. It is roughly 2/3 repair and remodeling and 1/3 new home construction, Alex. I'll let Jose talk about the dynamics with homebuilders and such.

Well, we're seeing the new construction is stalling a little bit because of the interest rate. So R&R has taken more of the market. But we believe it should be a mix of 50-50 as soon as the interest rates start coming down.

The next question comes from Julio Romero with Sidoti & Co.

Just to clarify, I wanted to stay on vinyl for a little bit. The shipments of vinyl products in December, they were just samples or were they actually orders that did translate into revenues in the first quarter?

No, no. In the first quarter, we had minimum shipments because they were real orders. I mean we shipped the samples, don't even account, I mean we give them for free. They were real orders. But every day, we see the orders getting stronger and stronger and coming up more and more.

Just to give you an example. In the month of May, we're going to invoice more than we invoiced in the month of February, March, and April together in vinyl. And in June, we're supposed to invoice more than we did in May, April, March and February. So it is improving by the minute. But obviously, what Jose tried to explain before is that once we complete the line, we're going to see this exponentially go up, and we're going to be invoicing several million dollars a month. So that's what we're working for. That's what we're shooting for, and we're getting ready for it. We have already installed some window, some projects, and they look really good. I mean they are comparing to the previous windows they were buying and ours is -- it looks stronger, wider, better. So we're really happy, and we see a good future ahead of us in vinyl.

Got it. Very helpful. And you talked about the 2 new distributors signed in, I think, Sarasota, Florida, and then the new distributor in Northern Florida as well. Just talk a bit about what's the early feedback from those distributors. And also, how would you have us think about the ramp of additional distributors throughout the year?

Those distributors are ready to order, but like I said before, we don't have a complete line, and it's difficult for them sometimes to go into a job and then they have 9 different products, and we only have 7 and the other 2 are busy. So they'd rather wait until we have the complete line to really ramp up, so they can offer only one product and don't have to mix at one house, because it doesn't look good. That's what they said. That's why I've been telling you, and we know and we feel it, that the next 2 quarters are going to be great. I mean the end of the year 2025 is going to catapult crazy with the vinyl line, because people like the look, people like there is much better than what we see on the competition. And we have a better glass composition, so it's a win-win situation. We just have to wait a little bit.

Okay. Understood. And then last one for me is just on -- I appreciate the outlook scenarios you gave for '24 and how to think about each one, and you gave us the vinyl revenue for each scenario. Just curious, how much is embedded for showroom revenue relating to your legacy aluminum product in those scenarios?

It's kind of in line with what we had originally estimated, Julio, still just kind of ramping up. And the kind of holdup on the ramp-up is the full development of the products for those markets. So we'll be talking maybe around $10 million for the year out of those geographies. But also remember that we're shooting to sell vinyl in some of these other places as well. So it is not exclusively aluminum windows for you to model, right? I mean some of that is going to be interchangeable.

Perfect. And then just one more. If you could remind us how much the showroom sales were in '23, just to think about the year-over-year?

No, it's still not material. I mean that's still complete upside year-over-year. Julio, I mean it wasn't more than a couple of million dollars. So if you look at a percentage basis, it's going to look like a huge increase, right? It's just kind of on a nominal basis, it is still ramping up.

The next question comes from Jean Ramirez with D.A. Davidson.

You have kept gross margin guidance low to mid-40s across all scenarios. Aside from anything or what you've mentioned during this call, what sort of drives the confidence of keeping around this guidance during the second half. I just want to hear some more color around that.

Just to clarify, we're not baking in low to mid-40s in all 3 scenarios. If you look at the different ones, we're talking about low to mid-40s on the base case, mid-40s on the upside. So I just want to clarify that. And where it's coming from is essentially a lot more operating leverage as you move through the year. As we're ramping up the residential orders that we're seeing in March, April, if that is sustainable, all of that is going to improve the mix as well because it's more manufacturing revenue. So you essentially have operating leverage and better mix. But again, just to clarify, we are saying mid-40s on the upper -- upside case, low to mid-40s on the base case. So in any event, based on what we know that is coming as far as revenues, we're seeing a step-up from what you saw in Q1.

And so you said a ramp-up residential. What about commercial? What does the outlook look like there?

Growing as well. I mean -- and you have more visibility there based on the schedule of the projects that you're about to deliver on. So there shouldn't be so much more volatility as you will see on the spot nature of the business on the residential side, right? So you already have a schedule of product or projects that you're supposed to be delivering throughout the rest of the year. And the way that we're modeling this out is sequential growth throughout until year-end.

And just going back to the guidance. The EBITDA bridge sort of indicates around $11 million decline related to mix and price. How much is related to mix and how much is related to price?

Are you talking about Q1? Or are you talking about -- because when you're talking about guidance, we didn't provide an EBITDA bridge for that.

Just the full year.

On the full year, the main impact is going to be FX. We're projecting 4,000 on an average. Last year was roughly 4,350. So it's an 8% revaluation year-over-year. So you have an impact on negative FX and then the other 2 factors are mix and operating leverage. And essentially, if you are getting to the upside case, the operating leverage on incremental revenue nets out the mix effect, right? So on that scenario, your only variance is related to FX. On the base case, you have roughly what we're expecting is probably about 10% to 15% more mix and stand-alone product sales. And other than that, pricing should not be a factor from here on out, because the pricing impacts were only related to a promotional effect that was done in Q4 for Q1 sales, and that's essentially concluded. So it's going to be more of a mix effect.

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

Well, thanks, everyone, for participating on today's call. As I have reiterated, our company is going to do better things, penetrate more markets and give much better results to our shareholders and everybody. Thank you.

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