Good day, and welcome to the Tecnoglass, Inc. Second Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. 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's second quarter 2024 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, Christian Daes; and Chief Financial Officer, Santiago Giraldo. I'd like to remind everyone that matters discussed in this call, except for historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, future growth, and future acquisitions. These statements are based on Tecnoglass's current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may 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's business. These risks, uncertainties, and contingencies are indicated from time to time in Tecnoglass's filings with the SEC. The information discussed during the call is presented in light of such risks. Further, investors should keep in mind that Tecnoglass's financial results in any particular period may not be indicative of future results. Tecnoglass is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions, or otherwise. Finally, as previously announced on June 25, 2024, Tecnoglass's Board of Directors is conducting a review of strategic alternatives with the assistance of outside financial and legal advisors. There is no deadline or definitive timetable set for completion of the review process, and there can be no assurance that this process will result in the company pursuing a transaction or any other particular outcome. The company does not intend to make any further public comment regarding its review until the Board of Directors has approved a specific course of action where the company determines that additional disclosure is appropriate or necessary. I will now turn the call over to Jose Manuel, beginning on Slide number 4.

Thank you, Brad, and thank you, everyone, for participating in today's call. We are pleased to report another quarter of strong results to close out the first half of the year. We achieved record single-family residential revenues of $95.7 million and our second highest total revenue of $219.7 million. This demonstrates the resilience and adaptability of our business model in a complex macroeconomic landscape. These accomplishments reflect the strong demand and level of orders we saw towards the end of the first quarter. We remain confident in our ability to capitalize on attractive opportunities and to gain market share despite certain challenges related to inflation and higher interest rates. Record single-family residential revenues reached a quarterly record of $95.7 million, up 10.1% year-over-year. The solid growth in our residential business reflects our ability to capitalize on the strong demand we saw at the end of the quarter as well as improving market trends, which led to a record level of orders in the second quarter of the year. We also continue to expect vinyl orders to contribute more meaningfully during the second half of the year. Our multifamily commercial business saw sequential improvement but was impacted by higher interest and mortgage rates during the second quarter. Despite this trend, we are seeing a substantial amount of new activity, especially in the high-rise market, as evidenced by yet another record level of backlog. We anticipate this positive trend to continue through the second half of the year. Our forward-looking optimism is supported by the significant level of orders we received in June, with residential orders up over 60% year-over-year, contributing to a record backlog of approximately $1 billion at quarter end. As a reminder, our backlog reflects the pipeline of multifamily commercial activity and firm single-family residential orders in our key geographies, providing visibility through 2025 and building into 2026. Despite some year-over-year headwinds, including unfavorable foreign exchange impacts, we were pleased to see a sequential increase in gross margin and adjusted EBITDA margin. The sequential improvement in profitability and the relative stability in exchange rates over the past several quarters support our positive outlook. Our improved profitability also gives us confidence in our ability to navigate the evolving market landscape and continue to create value for our shareholders. The solid growth in our shorter cash cycle single-family residential business and careful working capital management resulted in robust cash flow generation of $34.5 million. Impressively, this was achieved even with the timing of seasonal tax payments during the quarter. Our solid cash generation continues to provide us with additional flexibility to return value to our shareholders through our share repurchases and dividends. Our cash flow has also allowed us to enhance our operational flexibility and balance sheet through another $50 million voluntary repayment of our term-loan during the quarter, totaling $30 million of debt repayments year-to-date. Overall, we are pleased with the improvement we see in our business, and we remain encouraged by recovering demand trends in our end markets. As we look to the remainder of the year, our positive growth outlook is supported by strong customer relationships, record backlog, and an innovative product portfolio. I will now turn the call over to Chris to provide additional operating highlights.

Thank you, Jose Manuel. Moving to Slide number 5. Our second quarter results reflect our focused execution on the growth initiatives in our business and our ability to generate solid cash flow. Our single-family residential business continued its strong trajectory, with revenues increasing 10% year-over-year to a record $95.7 million. This growth reflects improving market trends along with the benefit of some demand pull forward related to the recent expiration of a Florida window sales tax exemption in June. Our demand momentum, along with the favorable demographic trends we see in Florida and in the Southeast, positions us for strong single-family residential revenue through year-end. As it relates to our vinyl products, quoting activity remains strong and will remain on a schedule to increase deliveries in the second half of 2024. In our multifamily commercial business, at quarter end, we were pleased to report another record multi-year backlog of approximately $1 billion. Our backlog growth reflects an expanding pipeline of projects with visibility through 2025 and now building into 2026. This robust backlog represents 2.1 times our last twelve-month multifamily commercial business, providing us with a multi-year view on the multifamily commercial portion of our revenues. In our multifamily commercial business, we saw sequential growth in the second quarter of 2024, including a strong level of orders for light commercial projects. Revenues decreased compared to the prior year quarter given record activity during the second quarter of 2023 and higher interest and mortgage rates during 2024. That said, we were encouraged by the improving trends and expect continued positive momentum in the second half of the year. 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 keep a strong book-to-bill ratio, which stood at 1.5 times as of the second quarter of 2024. This adds to our track record of maintaining a book-to-bill ratio above 1.1 times over the past 14 consecutive quarters. Historically, roughly two-thirds of reported backlog are invoiced over the following 12 months. Historically, there are virtually no project cancellations, given the late-stage installation of windows into largely completed buildings. Therefore, we believe that this ratio provides strong visibility on invoicing despite the fact that certain external factors can cause temporary delays in deliveries. 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 number 7. We generated record single-family residential revenues of $95.7 million in the second quarter compared to $86.9 million in the prior year quarter. The year-over-year increase was primarily due to improving market trends and what we estimate to be a partial pull forward effect related to the Florida sales tax waiver, Christian mentioned. Additionally, we were thrilled to see second quarter residential orders up over 60% year-over-year reflecting solid traction in this business and supporting our expectation for solid single-family growth in the back half of the year. Looking ahead, we continue to see organic growth opportunities in our single-family residential business through several Tecnoglass specific tailwinds. First, our expanding dealer base driven by short lead times, innovative products, and demand for impact resistant and energy efficient solutions. Second, ongoing geographic expansion in Florida and increasing brand recognition across the U.S., supported by new showroom openings in key markets; and lastly, our strategic entry into the vinyl market, which has significantly expanded our addressable market and provides substantial runway for revenue growth and product diversification. Customer enthusiasm for our vinyl products remains strong with solid quoting activity, which we expect to translate into a ramp-up of deliveries as we move through the second half of the year. The overall enthusiasm for our vinyl offering strengthens our conviction in this strategic expansion and underscores the significant long-term opportunities we see in this category. Turning to drivers of revenue on Slide number 9. Total revenues for the second quarter decreased 2.5% year-over-year to $219.7 million. This represents our second highest revenue quarter in the company's history. The decrease was primarily due to lower multi-family and commercial revenues, partially offset by growth in single-family residential. Looking at the profit drivers on Slide number 10. Adjusted EBITDA for the second quarter was $64.1 million representing an adjusted EBITDA margin of 29.2%. SG&A was $38.4 million compared to $35.2 million in the prior year quarter with the increase primarily attributable to higher personnel expenses from annual salary adjustments that took place at the beginning of the year. As a percentage of total revenues, SG&A was 17.5%, up from 15.6% in the prior year quarter due to lower revenues and the aforementioned salary adjustments. Second quarter gross profit was $89.6 million representing a 40.8% gross margin. This compared to gross profit of $109.7 million and a 48.7% gross margin in the prior year quarter. Similar to recently reported quarters, the year-over-year change in gross margin primarily reflects an unfavorable FX impact of nearly 340 basis points, reduced operating leverage on lower revenues, and higher salary expenses. On a sequential basis, gross margin improved by 200 basis points compared to 38.8% in the first quarter of 2024. The unfavorable FX comparisons seen in the last few quarters should largely dissipate given the relative stability in currencies during the last 12 months and expectations through year-end. Now looking at our strong cash flow and improved leverage on Slide 11. We generated strong operating cash flow of $34.5 million in the second quarter, primarily driven by our disciplined working capital management. Our capital expenditures of $20.3 million included payments for previously purchased land for future potential capacity expansion as well as a down payment for our new Miami headquarters, which will include a new flagship showroom to help us drive incremental business activity. We were pleased to continue our track record of returning capital to shareholders through our recently increased cash dividend payment during the period. At quarter end, we also had approximately $26 million remaining in our share repurchase authorization with $30 million of debt prepayments year-to-date, driving our net leverage ratio to a record low near zero net debt to LTM adjusted EBITDA compared to 0.2 times in the prior year. As of June 30, 2024, we had total liquidity of approximately $300 million including $127 million in cash and $170 million available under our revolving credit facilities, giving us financial flexibility to drive additional value in our business. On slide number 12, we're proud to showcase our track record of delivering exceptional shareholder value. Over the last three years, our strategic initiatives have consistently yielded returns that surpass industry benchmarks. This outperformance is driven by our robust profitability and significantly improved cash flow generation. The superior returns we've achieved not only benefit our investors but also validate the effectiveness of our multifaceted growth strategy. Now moving to outlook on Slide number 14. Based on the momentum in our business and our visibility in the expected timing of deliveries through year-end in our residential and commercial markets, we are updating our outlook for the full year. We expect full year 2024 revenue to be in the range of $860 million to $910 million. This outlook represents entirely organic growth of 6% at the midpoint. Based on these sales outlook, our anticipated mix of revenues, and our expectations for cost and expenses, we expect full year adjusted EBITDA to be in the range of $260 million to $285 million. We also expect gross margins to be in the low to mid-40s range for 2024 and for healthy year-over-year cash flow growth given most capital expenditures related to facility upgrades and vinyl investments are now complete. Our outlook is predicated on a few key assumptions, namely growth in residential revenues based on the strong orders we received through June, a ramp up in vinyl related revenues through the second half of the year as well as stable FX rates between $3,900 and $4,000 million. This full year outlook is also anchored in our expectations for large multifamily and commercial projects staying within scheduled timetables and for stable activity in short-term small commercial projects. In summary, we are pleased with our results during the first half of the year, which demonstrated the resiliency of our business and our ability to capitalize on market opportunities. As we look to the remainder of the year, we remain confident in our ability to continue creating value for our stakeholders, given our low leverage profile and numerous avenues for market share expansion. With that, we will be happy to answer your questions.

Thank you. The first question comes from Sam Darkatsh from Raymond James. Please go ahead.

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

Good morning, Sam. Everything's well. Thank you.

Thank you. Good. A couple of questions. First off, Santiago, could you help us directionally think about third quarter sales, gross margin, and EBITDA expectations? And then the caveat to that or the addendum to that would be what are you seeing in single-family orders in July now that the incentives have expired?

So if you take the ranges, Sam, you're going to get to revenues in the neighborhood of $240 million to $250 million depending on where you are, and gross margins picking up probably to the range of 43%, in line with what we discussed earlier as to how you get operating leverage on those incremental sales. And then in terms of EBITDA, you could be getting to a range of around $75 million to $80 million depending on where you are in the range as well. In terms of orders, the July came in probably at about 75% to 80% of a normal month, but August month-to-date is in line with previous months. So the pull forward that we saw in June was partial in nature. I mean, we're seeing kind of normalized levels of orders as of today.

And then my follow-up question, prevailing aluminum prices look like they're down, I don't know, call it 15%, 20% or so over the past month or two. Are you expecting a favorable impact on gross margins? And what are you expecting for industry pricing as a result?

Well, this is Jose. We have bought most of our aluminum at a very favorable price for this year and for next, and the aluminum went from $2,200 to $2,500 and then to $2,700, but for a very short while because there was a plant down in Australia, but now the plant is back and aluminum went back to normal, but we have hedged before that.

And just to follow up on that, Sam, remember that on the residential orders it's kind of spot in nature, so you don't get a pickup; basically, it's a match based on how you quote versus how the LME behaves, and then on the commercial side as Jose was saying, we enter into forward contracts to hedge against what was quoted. So not necessarily a fact that we're kind of going long or short on inventory.

I guess the spirit of my question was your market intelligence in terms of how others that you compete against in the state or that use aluminum, how much they've hedged and whether the lower aluminum prices of late at least may have influenced pricing, especially in July and August after the incentives expired?

No. We have seen in the last six, seven months of this year that a couple of our competitors have increased prices because of the aluminum tariff more than the LME and most of them imported from Turkey, China, and from other places that were hit hard with the tariff. Also, gas prices are going a little up, and I believe by next year, they're going to go a lot up. So, we have very stable pricing. So we're very happy with that.

Thank you.

Thank you. The next question comes from Alex Rygiel with B. Riley. Please go ahead.

Good morning, gentlemen. Very nice quarters. Jose, can you provide us a little bit more color on the new orders and the strength in backlog in the quarter like geographically where are you seeing the strength come from?

Well, mostly it's coming from Florida, New York, Boston, and now since we have some sales in the Carolinas and Virginia. That's where most of the orders are coming from.

Excellent. And then how should we think about the mix in backlog today between installation and product sales and how that might affect margins over the coming 12 to 18 months?

Well, it's always around the same. We believe it's around half and half. Half is installed and half of it is or perhaps 40% is just product sales. But we are getting much better margins now in the installation side because we have cut a lot of overhead that we had and we have reached much better deals with the installation crews, etc.

Remember, Alex, that we only do go ahead.

No, finish your thought please.

No, just as a follow-up. Remember that we only do installations on certain commercial projects in Florida. All of the other geographies we only provide the windows. So to the extent that we continue growing outside of Florida, the mix there is more favorable as far as doing installation or not.

Sure. And lastly, as it relates to vinyl windows, have you started shipping yet? And how might we think about the cadence over the next two quarters and maybe even an early look into a revenue target for 2025?

We are shipping already, yes. This is slowly coming up. We had a couple of products that we were missing. They're going to be in line for next month, and we see that we can increase to maybe $5 million a month, and we hope for next year we can do from $5 million to $10 million.

Thank you very much.

Thank you. The next question comes from Julio Romero with Sidoti & Company. Please go ahead.

Good morning. This is Alex on for Julio. Thanks for taking questions. First question is on CapEx. Could you give us a quantified CapEx guide for 2024? And does that include any further capacity expansion?

Yes. We had already kind of provided at the beginning of the year CapEx guidance to be around $40 million to $45 million. So if you do the math, it's front loaded and it steps down in this in the third and fourth quarter. That includes investments in land that we had previously made, but there are also some things that are getting done to increase capacity to address the orders for 2025.

Yes. This is Christian. We are particularly focused on enhancing capacity in specific areas where we anticipate significant demand for 2025 and 2026. Instead of waiting until then, we are already working on the necessary facilities to ensure they are prepared. We are quite confident that 2025 will be an exceptionally busy year for us.

Thank you. Appreciate the context. And then one more for me. We touched on this a little bit earlier in the Q and A, but on the promotional activity from last quarter within single-family residential, did that have an impact at all in the second quarter? And do you think that there's some residual impact for the remainder of the year?

Not for the remainder of the year, I would say. The residual impact was already taken in Q2, and in line with what you're seeing with the effect of the expiration of the sales tax waiver in Q2, some of those orders were taken ahead of time. So people took advantage of the opportunity not to be delivered only in Q3, but a little bit in Q4. You get that same effect with the promotional stuff at the end of last year where a lot of it kind of went through in Q1, but a little bit in Q2. The expectation is for that to be completely through and not affected going forward.

Great. Thank you.

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

Hey, guys. Good morning. Nice job. Maybe just I guess on the first one, just on the backlog piece, obviously really strong performance this quarter. Just given the June kind of uptick in single-family, I mean, did that get captured a little bit in the backlog? I'm just kind of curious if you can quantify that and just also wanted to verify if you guys do expect backlog to continue to grow year-over-year in the back half of the year?

Yes, I'll take the first one and I'll let Jose speak on the backlog the rest of the year. Yes, there were firm orders that came in June that get added to the backlog. You saw the numbers that we provided; orders for Q2 were 60% higher than what they were the previous year. So if you take just a general benchmark, just take the revenues from last year and do the math as to what the orders were, and you probably get to the neighborhood of $50 million to $60 million that is still in the backlog. Despite that, there was a lot of pickup on the commercial side as well, and I'll kind of like use that as a segue for Jose to tell you what he's seeing in the markets the rest of the way.

Talking about the backlog in commercial, we will see an increase in the next two quarters for sure because every month, we invoice X, and we are closing at least 2X. It's unbelievable the amount of new buildings that we're getting. It's just crazy.

Okay, that's helpful and then maybe just on the backlog conversion. So I think historically, you talked about on the slides, you've converted about 2/3 of your backlog over the next 12 months. And so I know the mix of the backlog has changed a little bit, but if I would kind of apply that same conversion percentage to your trailing 12-month backlog, I have a non-res business that's probably going to be closer to $550 million to $600 million over the next 12 to 18 months versus the $450 million that you're reporting on a run rate basis today. So I just want to verify that the math I'm doing is okay, and if there's any change in that conversion timeline.

The one there's a couple of variables here. The first one is that there's more high-end luxury towers that are multi-year in nature, right? So you have these high rises that don’t take one year or two years; they sometimes go longer than that. If you're talking about an 80, 90, or 100 story tower, so you're going to have a little bit more of that mix in there. The other variable is what assumptions you make for the light commercial that kind of get booked on a month-to-month basis, but generally, I would say with a combination of how we're seeing both of those, I think that the 18-month formula still plays out. We don't see that kind of varying too much. If you look at the graph, I think that the range could be 90% to 105% conversion. So I would expect that range to hold through still.

Okay, great. And then just the last one for me. On the salary increases that you mentioned in the quarter, I guess, were those standard in nature or were those any sort of special increases? And I guess, as you think about the back half of the year, will you get some leverage on that as you just get better volumes?

Yes. Remember, we even discussed this in Q1. The way it works in Colombia is that you get salary increases adjusted for inflation at the beginning of the year for the rest of the year. So this was already a headwind in Q1 especially against lower revenues. But as you ramp up revenue sequentially, you start diluting those salaries more and more, and you get leverage, but it's not like you are to expect incremental salary adjustments the rest of the way. I mean, it was done once and it plays out for the rest of the year.

Got you. Okay. So it's kind of just the normal kind of salary increases you see?

Yes. That's right.

Awesome. Okay, great. Well, thanks for the time. Good luck in the back half.

Thank you. The next question comes from Jean Ramirez with D. A. Davidson. Please go ahead.

Good morning. Thank you for the time. Could you help me understand what the connection is between your third quarter guidance and the year-end? At the midpoint, it seems like there needs to be some kind of inflection point to achieve your gross margins and revenue guidance, but your gross margins this quarter, despite the 14% quarter-over-quarter revenue growth, were held at 40.8%. Could you clarify what needs to occur for that gross margin growth, especially considering the foreign exchange effects, which are now beginning to stabilize?

Okay. A couple of moving pieces. Just to clarify, sequentially gross margin didn't tick down. It went up 200 basis points. I don't know if that's what you meant, but in terms of what happens, I mean the guidance that we're providing is for low to mid-40s for the full year. That makes in, as I was mentioning earlier in the first question that came up that that implies gross margins get to a range of like 43%, 44% or so. Where that's coming from is a couple of things. Revenues going up and you get a substantial amount of operating leverage on that and what gives us a lot of visibility on revenues is the fact that we already have the orders in place on the residential side; the headline that you read 60% higher year-over-year gives us a lot of clarity as to what the second half of the year looks like, and we're already seeing that in July in August. And then you mentioned FX, FX is actually trending in the right way for us. FX was averaging close to $3,800 to $3,900 in the first half of the year; now it's closer to $4,100. So both of those factors are actually playing a favorable part in what we're projecting for the second half of the year.

Thank you. And for vinyl, can you provide some color on the shipment trends and invoice trends post 2Q? And do you still expect around $20 million in the second half in vinyl?

That looks reasonable. We expect vinyl to keep growing. I mean, this is a learning curve. It's normal, and I believe it should be around that figure. Next year is going to be much better, much, much better.

And just to follow up on that, the contribution from vinyl in the first half was non-material as we discussed earlier in the year. So all of the pickup and the record level of revenues that you saw on the residential side were still kind of the legacy aluminum product.

Thank you. And last one for me. If you could provide some update on that strategic review that was announced earlier in the quarter. Is there anything you can say regarding that?

No, not at this point in time. We will not provide comments on that and we will once it is warranted if there is something to announce.

Perfect. Appreciate the time. Thank you.

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

Well, thanks everyone for participating on today's call. And as I said the last time, the best is yet to come. We are doing great, and we see a very favorable future for the company, our shareholders and our employees. Thank you.

The conference is now concluded.