Greetings. Welcome to Tecnoglass Third Quarter 2020 Earnings Conference Call. At this time, all participants will be in a listen-only mode. A brief 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. At this time, I'll turn the conference over to Rodny Nacier with ICR. You may now begin.
Thank you for joining us for Tecnoglass's Third Quarter 2020 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, José 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'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 Securities and Exchange Commission. The information discussed during the call is presented in light of such risks. Further, investors should keep in mind that Tecnoglass's financial results in any particular period may not be indicative of future results. Tecnoglass is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions, or otherwise. I will now turn the call over to José Manuel, beginning on slide number four.
Thank you, Rodny, and thank you everyone for participating on today's call. The positive momentum in our business continued into the second half of 2020, and I could not be more thrilled with our exceptional results. On a year-to-date basis, we delivered record adjusted EBITDA of $72.1 million, along with a solid 500 basis points improvement in adjusted EBITDA margin year-over-year, all while retaining our entire workforce throughout the pandemic. During the third quarter, we made tremendous progress with many of our operating metrics going to record levels, including gross profit, adjusted EBITDA, and operating cash flow. We are extremely proud of our team's dedication and ability to accomplish these results in this complex environment. Looking at our markets, we continue to deepen our presence in the U.S., which represents 93% of our third quarter revenues, compared to 86% just a year ago.
Our primary driver of our increasing U.S. presence has come from our decision to scale up our regional presence in residential end markets in recent years. Resilient demand from the strong residential recovery, supported by positive single-family housing fundamental, has contributed to our sequential revenue improvement since mid-year. In our business overall, our ability to innovate, adapt, and execute led to solid growth as we continue to penetrate new customer relationships through new products and geographies. Many projects have resumed across our footprint, and we have continued to see improving market conditions overall. To that point, our backlog remains strong at $536 million, which provides us with good visibility and a sturdy pipeline of projects through 2021, and now building even into 2022. We expect our expanding presence in the U.S. to continue offsetting the slower recovery from pandemic-related businesses disruption in Latin America.
In addition to enhancing our geographic presence and product mix, we are focused on generating a strong cash flow. Through tight working capital management, previous high return automation initiatives, and careful cost management, we have achieved two record cash flow quarters in a row. Year to date, we have converted over 70% of adjusted EBITDA to cash flow from operations, and we have achieved a net leverage of 1.9x , a level not seen since 2015. We are extremely excited that our consortium of mostly U.S. and European-based lenders have recognized our record of success as a U.S.-focused company where we source over 90% of our revenue. This is reflected in our recently announced $300 million credit facility, which was underwritten on terms comparable to, or better than many publicly traded U.S. companies of similar size.
Our weighted average interest rate went from a prior rate of 7.5% down to an expected rate of approximately 3.5%. This is a direct acknowledgement by our lenders of the power behind Tecnoglass's low risk and strategically located and vertically integrated operations. They expressed their confidence in our structural and sustainable advantages within our industry to continue producing attractive growth, margins, and cash flow. Our management team is highly aligned with shareholders, and our team sees the value in our company in the same light as our lenders. With the strength of our balance sheet and greater financial flexibility, we are in a better position to execute on our growth objectives. We expect to deliver strong industry-leading margins as we continue to reap the benefits of our previously completed automation projects. We have a highly efficient, vertically integrated, low-cost operation with a wide range portfolio and in-demand products.
This positions us for success as the recovery continues. For Tecnoglass, 2020 has been a milestone year on many fronts so far. We plan to continue driving additional value in our business in the years ahead. I will now turn the call over to Chris to provide additional details on our backlog.
Thank you, José Manuel. Moving to our backlog on slide five. Our third quarter results reflect the continued recovery in the U.S. and overall pent-up demand for our best-in-class architectural glass products. During the third quarter, we continued to broaden our customer relationships and strengthen our presence in new markets across an increasingly diversified footprint, allowing us to achieve growth in a complex environment. At the end of the quarter, backlog remained strong at $536 million, up 1% year-over-year, with 88% of that backlog represented by our business in the U.S. It is important to reinforce several factors. Our actual commercial work, which includes all non-residential project types, is approximately one-third of our backlog. The majority, or roughly two-thirds of our backlog is residential related. These mainly consist of medium-rise and high-rise multi-family projects. On the other hand, single-family housing is underrepresented in our backlog.
This is because of the shorter term nature of those orders. Therefore, I will point out that a significant portion of our growth trajectory is not getting fully captured in backlog like it was several years ago. This will continue to influence the relationship between backlog and forward revenue, given our increasing mix of revenue from single-family housing end markets. Our U.S. expansion continues to drive high margins in our business as we operate across an increasing number of highly attractive and resilient markets. This includes the Gulf Coast, an area that will most certainly gain increasing appreciation for the protection that our impact-resistant windows provide after experiencing a record number of hurricane landfalls this year. To date, we have had no material project cancellations in our backlog, even during this pandemic. That said, the rapid execution of backlog invoicing during the third quarter was faster than the replacement rate.
This created a temporary air pocket before our pipeline of pent-up demand started to repopulate backlog. We are having many conversations with customers and quoting activity remains very active. The ABI index continued to increase off its low point earlier this year. The September ABI improved to 47 from just 40 last month, reaching a seven-month high since the pandemic began. As an even more exciting point, the ABI's multi-family sub-index increased to 54 in September, which supports the favorable trends that we are seeing in the 2/3 of our backlog, which is tied to multi-family residential. Most of the positive trend occurred in the Southeast, where we enjoy our strongest market positions.
Additionally, recent data from IBISWorld suggests that U.S. glass and glazing contractor industry revenue is expected to increase at an annualized rate of 2% over the next five years to $14 billion. Following a decrease of 14% in 2020. For Tecnoglass, the majority of our above-market growth in recent years reflects our effort to use established position in the Southeast to expand into other U.S. markets through our enduring commitment to innovation, reputation, quality, and service. As this effort continues, we are confident in our ability to further grow our business through a combination of underlying market improvements and disciplined market share gains. Beyond our record of success in executing our projects in backlog, another important driver of the Tecnoglass story is our rapid expansion into the U.S. housing market, which I will detail further on slide six.
Our single-family residential operation is exceeding our expectations since we entered this market several years ago. Today, this business accounts for nearly a fifth of our U.S. revenue, compared to only 3% in 2017. As we look at the current environment, single-family macroeconomic tailwinds are exceptionally strong, evidenced by double-digit housing starts and existing home sales growth in recent months, low supply, and interest rates near all-time lows. This sets a sturdy foundation for continued share gains through new products and solid execution. Last quarter, we discussed additional steps that we have taken in recent months to expand our single-family business beyond South Florida into other markets in Central Florida and the Florida Panhandle. This expansion is on track and clearly benefiting our results, as we experience single-family revenue growth of 20% sequentially since quarter two 2020.
Additionally, an increasing single-family product mix provides us with greater manufacturing revenue, which bodes well for our margins and cash flow, as this business carries a lot shorter cash cycle. As an important point, our single-family portfolio of mainly impact-resistant windows are best suited for hurricane-prone coastal markets. We have largely grown by selling our products to contractors who primarily do renovation upgrades or build high-end custom homes in Florida. New single-family residential construction, particularly with large-scale production builders, has been largely on top for us. We are very excited to have recently introduced a new product line called Multimax that includes several models for home builders. This should help us generate additional organic growth by significantly expanding our addressable markets to a wider target market. We are pleased with the strength in our business and remain poised to capitalize on a strengthening recovery in the U.S.
I will now turn the call over to Santiago to discuss our financial results and outlook.
Thank you, Christian. I will start by discussing our financial highlights for the quarter on slide number eight. As José and Christian mentioned, we are extremely pleased with our outstanding results during the third quarter of 2020. We improved many metrics to the highest levels in our company's history. This includes record gross profit, adjusted EBITDA, and operating cash flow, driven by the focused execution of our team to unlock value through our vertically integrated structural advantages. Looking at our top line, U.S. revenues for the quarter were $95.7 million, or 93% of our revenues, compared to $92.8 million, or 86% of our revenues, in the prior year quarter. This represented a 3.1% increase year-over-year and 21% sequential growth compared to the second quarter, reflecting a strong U.S. recovery.
Growth in our single-family residential business outpaced growth in the rest of our business, but we were pleased to see supportive conditions in all of our end markets. Our strong performance in the U.S. has been the primary driver of our results and helped partly offset delayed activity at many customer job sites in Colombia and other Latin American markets, which still remain in the early stages of recovery due to the pandemic. Looking at the drivers of adjusted EBITDA on slide number nine. We continue to generate benefits from our prior high-return initiatives to improve our cost structure and increase efficiencies. Adjusted EBITDA in the quarter increased to $28.5 million, compared to $24 million in the prior year quarter. Adjusted EBITDA margin of 27.5% reflects an impressive 550 basis points improvement compared to the third quarter of 2019.
A 580 basis point improvement in gross margin to 38.8%, more than offset the impact of lower revenues. The improvement in gross margin was mainly related to lower raw material costs, greater operating efficiencies from prior automation initiatives, and a higher mix of revenue from manufacturing activity versus installation activity. The slight reduction in SG&A dollars was due to lower variable expenses related to shipping, commissions, and other personal expenses, as well as tight cost controls. As a percentage of sales, SG&A was unfavorable due to lower revenues. Our significant margin improvement in 2020 is a testament to the prudent investments in our business over the past several years to improve efficiencies and produce the highest quality products for our customers. This is further supported by our dedication to quality and innovation, which we are able to achieve in multiple areas of our vertically integrated platform.
Looking at our improved balance sheet and leverage profile on slide number 10. It has been a longstanding goal for us to improve the terms of our debt, and we were very pleased to announce earlier this week a new $300 million senior secured credit facility. This consists of a $250 million delayed draw term loan and a $50 million committed revolving credit facility. Our maturity schedule was extended by three years to 2025, compared to a weighted average of 2022 for our previous facilities. The new facility has an initial interest rate of LIBOR plus a spread of 3%. Beginning in April 2021, the spread will be based on our prevailing leverage ratio. We therefore expect the spread on LIBOR to decrease to a level of 2.75% in April, in accordance with our credit agreement.
This will represent an approximately 400 basis point reduction from a weighted average interest rate of 7.4% previously. Through this new facility, we intend to pay down all other existing indebtedness, starting with our previous facilities and lines of credit. Our existing $210 million of senior notes, which bear an interest of 8.2%, will be redeemed at the end of January of 2021 upon a step-down in redemption price. Following the paydown of previous facilities and redemption of the notes, we will significantly reduce our amortization schedule and cash interest expense. We estimate aggregate savings will be approximately $11 million per year. The recapitalization of our debt structure will significantly enhance our financial flexibility to execute on our growth objectives. We are grateful that our consortium of mostly U.S. and European lenders have recognized our strong track record of growth and cash generation as a U.S.-focused company.
As José mentioned, the terms of the deal reflect this fact and are comparable to or better than many similar sized publicly traded U.S. companies. During the third quarter, we generated record cash flow from operations of $26.2 million, bringing our year to date to approximately $101 million. This reflects our aggressive cash management, tight cost controls, working capital improvements, and automation benefits, with CapEx during the quarter largely limited to maintenance spend. In turn, we further deleveraged our balance sheet to end the third quarter with a very conservative net leverage ratio of 1.9x net debt to LTM adjusted EBITDA. From a capital allocation perspective, we remain committed to maintaining our defensible balance sheet, investing in value-enhancing opportunities, and returning a portion of capital to shareholders through our cash dividend. Moving to our outlook on slide number 12.
As we move into the month of October, single-family residential continued to represent a growing share of our revenues and is supported by strong trends in existing home sales and single-family housing starts. Based on our current invoicing schedule and underlying market demand, we are pleased to provide a full year 2020 adjusted EBITDA outlook of $95 million-$100 million, implying year-over-year growth of 6% at the midpoint of the range. This outlook also implies roughly 18% growth in the fourth quarter of 2020 adjusted EBITDA on revenues comparable to the prior year quarter. We expect to have a higher mix of product versus installation revenue. We continue to expect the U.S. to represent the significant majority of our growth through year-end, led by residential, with stronger demand in the U.S. expected to offset the slower recovery in our Latin American markets.
Given sustainable benefits related to our automation initiatives, a higher mix of manufacturing revenue, and weak local currency for the rest of the year, we expect our adjusted EBITDA margin for the fourth quarter of 2020 to be higher compared to the prior year quarter, albeit lower sequentially compared to the quite exceptional level in the third quarter of 2020. In regards to gross margin, as our markets and raw materials costs stabilize over the next several quarters, we expect gross margins to trend back toward a more normalized level in the mid-30s range. This normalized margin is slightly higher than our previously communicated low to mid-30s range, due in part to our previous CapEx investments in automation initiatives. We are very excited by our success so far in 2020, considering the unprecedented circumstances of this year. Moving forward, the momentum in our business is positive.
We expect to drive additional market share gains through the continued expansion of our business, and we are working closely with our customers to execute on our backlog and invoice single-family orders across our footprint. Our focus on attractive new project opportunities should allow us to continue gaining share through the recovery. Our innovative product portfolio, strong industry relationships, and structural competitive advantages provide us with the right foundation to continue growing faster than our end markets through 2021 and beyond. With that, we will be happy to answer your questions. Operator, please open the line for questions.
Thank you. At this time we will now be conducting a question-and-answer session. If you would like to ask a question please press star one from your telephone keypad and 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 a speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Thank you. Our first question is coming from the line of Michael Shlisky with Colliers Securities. Please proceed with your questions.
Good morning, gentlemen.
Morning, Mike.
Good morning. I'm glad to see you're finally getting some credit for the fact that your business is essentially a U.S. company. I'm glad it's finally showing up in your actual lending agreement. I wanted to ask for just a couple of details on that agreement. It doesn't seem like we're going to be seeing any kind of EBITDA slowdown anytime soon. You'll still be generating some decent free cash. Do you have any plan to repay this deal early at any point? Are you restricted from any debt paydown for the first few quarters or for a couple of years or so?
Thanks. Well, first of all, it is definitely encouraging to see how this deal was underwritten. I think, as you mentioned, one of the key factors in the financing was to see this company as a U.S.-based company. In the sense that our exposure is now 95% into the U.S. market. Clearly, that is showing based on how resilient that market has been vis-a-vis some other markets in LATAM, which now account for very little of what we do. That was a fundamental part of being able to get this deal done in the terms that we were able to get it done. That was very encouraging. As far as cash paydown or prepayments, we have flexibility to do so.
As we move forward and the company continues to generate a healthy amount of cash flow, if we see that from a capital allocation, that's what makes best sense, we are able to do so. We don't have any prepayment penalties to speak of. We'll manage our cash flow accordingly, and if it makes sense to prepay some of this debt ahead of time, we will. The nice thing is that the way that the credit agreement was negotiated, we do have flexibility on the amortization schedule based on amortizing at 5% of the capital for the first three years, and then 7.5% for years four and five. We do have ample flexibility, but if we continue generating this healthy amount of cash flow, we'll go ahead and use that accordingly.
Got it. Moving on to a different topic. I wanted to ask about the pricing dynamics in the industry in the third quarter and maybe in the start of the fourth quarter here. It sounds like not everyone's doing quite as well as Tecnoglass these days. I'm curious if you've seen any sharp elbows when it comes to bidding on anything new recently.
I'll let José take that.
Yes. Listen, we have been quoting tons and tons of new jobs and previously delayed jobs, especially in mid-rise and low-rise. The encouraging thing is that the large inventory that there was in high-rises has been selling really fast, and now all developers are calling to get quotes on high-rises, too. Because through the pandemic, people found out that they could work from home, and it's much nicer to be in a home in Florida with better weather and sunny skies than anywhere in the north of the U.S. We're getting a lot of migrants, and sales are skyrocketing of condos and houses. We're very happy. We're very pleased, and the amount of quoting and the amount of jobs that are closing is very encouraging.
Okay. Thanks for that. Maybe one last one from me. It wasn't really mentioned, maybe it's not worth mentioning at this point, can you update us on the impact of COVID-19 in Barranquilla as well as in your Asheville facility? Anything we should be aware of there?
Well, this is Christian. I'm in charge of operations, and we haven't had many cases in the last two months, probably five or six. We have over 5,000 employees. The situation in Barranquilla as a city is under control. As a matter of fact, we have one people die every two days in Barranquilla, and probably less than 100 cases a day when we used to have, back in June and July, above 1,000 cases a day. It's pretty much under control. It has been there for the last three months, and we hope that we'll continue to be on the same path.
Great. That's great news. I appreciate the color there. I'll pass it along. Thank you.
Thanks, Mike.
The next question is from the line of Tim Wojs with Baird. Please proceed with your question.
Hey, gentlemen. Good morning. Nice job on the quarter and the debt agreement.
Thanks. Thank you.
Maybe just a two-part question. First on residential. Just the builder products that you're introducing here, what are the kind of the operating things you need to do to go out and sell that product? Do you need to sign builders to get that product kind of going? Is that something that can meaningfully help the residential business as you look at 2021, or is that more of a 2022 type opportunity?
No, it's an opportunity even now. We have many requests from developers that do tract homes, and that is a very, very low-price product that we did not have in our portfolio. We developed the product in the last nine months. We tested it, and then we got it out. As soon as we got it out, we've been getting new requests, and we have sold a few jobs already with that product. It's an unbelievable product. It's much better than the competition and around the same price or lower in most cases.
Okay. Then I guess on your kind of existing R&R business on the residential side, one of your peers spoke about, I think, 20% order rates in Florida this quarter. Are you seeing kind of a similar level of order activity? Would you expect that to kind of convert over the next couple of quarters?
Yes, we do. We're growing. We are new in the business, and we're growing, and everybody's growing. I see our competition is doing better because there is a lot of movement into new housing in Florida. It's really encouraging, and we are penetrating the market. We are growing with our own existing clients and getting new clients, which is why we keep growing and growing.
Okay. Then maybe just on free cash flow, you've had really great performance the last couple of quarters. As you look at 2021 and incorporate the debt refinancing savings, is there a way to think about what kind of a normalized free cash flow number could look like going forward?
We'll basically assess that, Tim, as we close the year because we'll have much better visibility on what working capital will look like and what growth rate we can achieve next year. It's really going to depend on that. From a CapEx perspective, we don't anticipate to see a high CapEx number based on the fact that the automation initiatives have been completed. If we see other opportunities to further optimize, then we might have some CapEx in 2021, but nothing like you saw last year, for instance. My expectation is that we will continue generating free cash flow. I couldn't talk about the level that we would expect on a normalized basis without really kind of understanding what things look like with COVID, with the election out of the way, and everything else, because a key variable to that is going to be working capital, right?
The nice thing is that the more that we get into residential, the better that we cash flow because residential carries a much shorter cash cycle, right? It's a spot business where you get paid right away as opposed to having retainage or other things. The expectation is to continue the trend. I don't see any reason as to why not. I'll give you further clarity and more detail when we report next call.
Okay. That's helpful. Good luck on the rest of the year, and we'll see you next week.
All right. Thanks.
The next question is from the line of Joshua Wilson with Raymond James. Please proceed with your question.
Thanks. Good morning. Congrats on the quarter.
Good morning, Josh.
First question for me, could you give us a sense of how much of your backlog is for 2022?
Typically, the way it works, Josh, back of the envelope, is that two-thirds of the backlog gets executed within the next 12 months, and the remaining part of the backlog goes into the back end of 18 months, so from month 12- 18. That's kind of back of the envelope. It's also important to note that the more that we get into residential, the more unrepresented that the sales are in the backlog, because you're not accounting for all of that single family residential activity that is not captured there. For modeling purposes or whatnot, you'll have to account for that. On the commercial side, the back of the envelope calculation is two-thirds within 12 months and then one-third from months 12- 18.
Okay. I wanted to make sure there were no changes there. As it relates to your joint venture, we saw that you went ahead and made the land transfer. Is that an indication that the plans to begin building the plant are back online and you and Saint-Gobain have increased confidence in the outlook to go ahead and proceed there? Is it just a step, but you're still in a holding pattern?
Well, way it's going is that Colombia is sold out on glass. Vidrio Andino, which we are part of Vidrio Andino today, we're importing a lot of glass in order to supply the demand in Colombia. We still see it as a very good business. Saint-Gobain thinks the same. We are continuing to move with the permits, and we'll make a decision within the next few months. Obviously, we want to know how all this pandemic will play out finally and make sure that everything is in line. Yes, up to today, we're moving forward.
Got it. One of your competitors talked about labor availability issues, both in the factory and out in the field. Can you talk about to what extent that's having any throttling effect on your production or installations?
No, in Colombia, we have had high unemployment for a long time. In Barranquilla, we could grow to double or triple the size and still be enough labor to hire. We don't have that problem. Installation, we do very little installation in the U.S. through GMP, and we're doing fine. The rest of it, we sell to installers that they have their own crews and personnel. We don't see that happening to us at this moment.
Got it. Good luck with the next quarter.
Thanks, Josh.
Our next question comes from the line of Alex Rygiel with B. Riley Securities. Please proceed with your questions.
Thank you, really nice quarter, gentlemen.
Thanks, Alex.
Santiago, looking at 2021, backlog is up a little bit. Resi should grow nicely. Does low to mid-single digit revenue growth sound achievable in 2021?
Yes, I think so. As I was saying earlier, we like to have as much clarity as possible before we start talking about guidance for 2021. That's certainly achievable, especially with the growth that you heard from José and what we expect single family to continue doing over the next few quarters. So yes.
Then you made some comments about gross margins in the mid-30s. 2020 is going to come in closer to 37%. Are you expecting 2021 gross margins to be flat to down a little bit? If so, I suspect it's because of a shift in mix, but if you could clarify that.
Basically, there were a couple moving parts here in Q3, as it was the case in Q4. Raw materials, obviously, aluminum was still much cheaper at the beginning of the quarter. Now it's up to par to pre-COVID levels. We got a little bit of benefit from that. The quarter was also benefited from mix. As you just heard, Christian, we're doing much lower installation in the U.S., and have done for the next two quarters. A lot of other things are structural. We increased our kind of guidance on gross margin from last quarter to this quarter based on the fact that we're seeing what is structural related to efficiencies, related to the automation that was put in place. I think mid-30s could be the run rate.
It could be maybe another point here and there, but to be conservative, I think that absent a given quarter with a higher mix of installation, that should be a normalized run rate, 35%, 36%.
Lastly, can you expand upon your plans to take the residential product outside of Florida?
Yes, we do. Now that the hurricane season has been hitting hard Louisiana and Texas, we have a lot of requests, and we have made a couple of visits. We are in the way of establishing new distributors and dealerships all over the Gulf Coast. On the East Coast, we're all the way now to Jacksonville, and we plan to go up to South and North Carolina soon.
That's excellent. Thank you very much.
Thanks, Alex.
Our next question is from the line of William Jellison with D.A. Davidson. Please proceed with your questions.
Good morning, gentlemen.
Morning.
Morning.
Chris, I have a question for you about the backlog mix. I'm wondering, are you seeing a pretty significant shift away from office building projects towards those mid to high-rise condominiums you're talking about? Are the types of glass products installed different between those two project types?
Yes. We have seen less office buildings and less hotels, which are the hardest hit through the pandemic. We have seen a surge in mid-rise residential, a lot of rentals. The glass, since the code change took effect, and now they require a better shading coefficient for the environment. The glass is almost the same now in residential and commercial. We're very happy about that. We have the best product in the market for mid-rise. We are the preferred supplier. We're doing really good. We're very excited and happy.
Excellent. You mentioned also in the call that your products are well-suited towards hurricane-prone markets. I'm wondering, when you look at your competitors, are they offering a similar type glass that's specific to hurricane-prone buildings, or is that a fairly specialized niche that you guys alone occupy?
No, they offer a similar glass. Everybody offers a similar glass from a different supplier. We offer our own glass because we make everything. They offer from other suppliers that do make glass and soft coat glass. They are similar, the glass is not the only thing that affects a window. The performance of the glass is similar. You have the pressures of the window, the aluminum, and the whole system, and the capacity to retain water and noise. Our window performs much better than most of the competition.
Okay, great. Thank you. Pivoting, Santiago, I have a question for you about free cash flow. It's nice to see that it's been pretty strong so far this year. As you guys pay down debt and get to a comfortable leverage level, what are your focuses with reinvesting that cash flow into the business so that it can compound into more free cash flow next year?
Absolutely. I think that from a capital allocation perspective, it was very important for us to get to a very comfortable leverage position. I think being sub two times is getting us where we want to be. I think now we're going to have to find opportunities, right? Our install capacity is at a comfortable level after having completed the automation efforts last year, right? We have ample capacity to grow. Depending on what comes next and how things shape up, that is one of our focus, either to continue delevering the balance sheet or to reinvest in opportunities that are going to add value to the shareholders. More to come. I think there will be opportunities to reinvest that free cash flow that you're talking about.
That's helpful. Thank you. That's all I have. Thank you, gentlemen, for answering my questions.
Thanks.
Thank you.
Thank you. At this time, we've reached the end of our question and answer session. I'll turn the call over to José Manuel Daes for closing remarks.
Our reputation for excellence continues to strengthen in new markets with more customers and through more products. That has been recognized in a meaningful way by our lenders. We truly appreciate this vote of confidence in the capital markets. Thank you again to everyone on the line for participating in today's call. We appreciate your continued interest in Tecnoglass and look forward to speak again soon and give you always good and better news.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.