Okay. Good morning, everyone, and thank you for joining the Sidoti & Company March 2025 Small Cap Conference. My name is Julio Romero, and I cover building products, industrials, engineering, and construction at Sidoti & Company. We're really pleased to be able to host Tecnoglass. Their ticker is TGLS. With us today, we have Eduardo Puche, Head of Financial Planning and Analysis for Tecnoglass. This is going to be a fireside chat, but if you do have any questions for the company, feel free to type them into the Q&A section at the bottom of your screen, and I will ask on your behalf if time permits at the end. Eduardo, thanks so much for being here.
Thank you, Julio.
Yeah, maybe I'll have you kind of kick it off with some prepared remarks about the company, and then we'll hop into Q&A after that.
Great. Yeah. Just for quick context for those that are new to the story, we're a leading supplier of high-end windows serving the U.S. commercial and residential markets. We're headquartered in Miami. We employ around 9,000, most of which are located in Colombia, where the bulk of our manufacturing happens. We have annualized revenues in the range of $900 million. This is a number that is growing. We did $890 million in 2024, but we sustained a 17% CAGR since we first started reporting as a public company in 2012. We have double-digit growth projected for this 2025 at midpoint of guidance. We're also a very profitable company. Our adjusted EBITDA for 2024 was $276 million, which is 31% of revenues, and it's growing faster than our top line. We do about 95% of our business in the U.S.
Historically, we're very strong in South Florida, where we're based out of. Virtually all of our single-family residential sales through 2024, or before 2024, were in Florida, and it's still less than 15% outside of Florida. So 56% of our business is commercial and multifamily, which we bucket together, and the other 44% is single-family residential, which has been the driver of growth over the past few years and is what we're betting on growing over the near future. However, we have also been growing commercial quite a bit, and we get a good visibility from backlog. I think it's important. There are sort of three things that I'd like to highlight about our company. One is our ability to grow the top line. So both historically and prospectively, we're well-positioned to continue growing.
We have a very robust backlog that affords us great visibility, and we're sort of well-positioned in markets to outperform national averages and indices against some not great macroeconomics indicators. The second, the reason why we're able to do that so well and be profitable is because of our structural competitive advantages, which come from our operation. We operate a vertically integrated state-of-the-art manufacturing facility out of Colombia, which comes with several costs and logistical advantages, although we have some impact of tariffs to talk about. We will get into that later. Because we've been able to grow our sales and we have these competitive advantages, we have a very strong balance sheet. We are, again, very profitable. We're generating cash and don't have a lot of commitments coming ahead, which gives us some good flexibility going forward. Is that good for now, Julio?
Yeah, I think you hit it. You know, a big part of it is the bulk of manufacturing is in Colombia, and there are several advantages to it, like you said, cost and other advantages. Maybe just to stay on that for a little bit, one major thing is the favorable shipping rates you get from Colombia. If you could talk about why that is and why that's kind of unlikely to change.
Yeah, yeah. You actually gave it easy to me, and we're starting by the easier ones, and then we'll get into the tariff ones.
There's the big one, so we're going to check it out.
There is a big trade imbalance between Colombia and the U.S., where the U.S. sends a lot of product to Colombia. Colombia does not manufacture a lot of product to ship back to the U.S. What comes back to the U.S. is mostly commodities like coal or agricultural products. Those do not travel by container ship, and those container ships are traveling back, or those containers are traveling back empty. We get them at a discount to ship our finished product from Colombia to the U.S. It is no secret that sea freight is cheaper than trucking. Along the coast, we are very cost competitive on the logistics side compared to a producer maybe in the Midwest or so. This trade imbalance is something structural, which sort of bridges into the tariff.
Because of that trade imbalance, it is unlikely that we'll be targeted for tariffs, not that we can know.
Yeah, yeah. It's very tough to know. One thing you mentioned, you're right about ocean freight versus land freight, but also oftentimes I get asked, you know, what about air freight? You can't ship your product over air because of the barometric pressure. Is that correct? It shatters the cost.
No, we can. It's just not a cost-effective way of doing. I mean, these are windows. They're not fresh organs.
Fair.
Right. It usually is scheduled ahead of time. We do, from time to time, ship by air. It is possible. It is just only sort of for emergencies, not really a regular. We also have, so typically we ship to the nearest sea port to minimize cost, which we can do because of our vertically integrated facility. We have very short manufacturing lead times. Even with the longer transit times, we are still very competitive on overall lead times. Sometimes when we need to speed it up, we will ship to Miami and then chart from there, which is not cost-efficient, but it is much quicker.
Makes sense. Okay. You know, want to talk about the new administration and the impact of Tecnoglass before going into tariffs, just any other non-tariff impacts of the new administration to touch on?
Yeah. I think there's a lot of mixed information out there. A lot of the anecdotal feedback that we're getting and the orders that are coming in, there is a positive market sentiment, at least in South Florida, where we do the bulk of our business. Orders for single-family residential are strong, and this other light commercial really has been strong since the second half of last year and continues. Despite permits and housing starts being down and even R&R trends not being there, we do get this anecdotal sort of positive feeling. We'll have to see how that changes. Affordability has been an issue, especially for sort of middle-of-the-road condos that were historically a big portion of our business, and that has been slower. We'll have to see how the other measures taken on by the administration play out.
Initially, there's sort of a positive sentiment amid also, I guess, we're going straight into tariffs, right?
Yep. Yeah. I'll let you take it because it's a.
Yeah. This is not the first time we're dealing with tariffs. Our windows are made of aluminum. The first time steel and aluminum tariff, or I guess not the first time, the first time recently was during the first Trump administration in 2018. It went away. It came back in 2024. For a brief time during 2024, we also had an anti-dumping duty levied on aluminum, which was later repealed by the International Trade Commission. We have seen these before. Historically, it leads to increases in price generally just because the U.S. is not self-sufficient in aluminum. Even U.S. peers who are not importing the totality of their product, they do import a lot of components. It impacts that way. Now, for this one, we do have the steel and aluminum tariff that went into effect last week.
Our strategy here is we are buying U.S. aluminum. We've already negotiated aluminum through the rest of the year for the most part, and the first shipment is already arriving at our factory. This will be U.S. sourced aluminum. We ship it to Colombia, extrude the frames, assemble them into window, and then ship them back into the U.S. with no tariff. This is obviously there's going to be an incremental cost associated, but it's nowhere near the price of the tariff on a full finished product. We are looking at somewhere in the range of $12 million on an annualized basis, which we're more than confident will be easy to compensate through price increases. Even if not, it's still not a huge, I mean, it's not great, but it's not a huge dent on our margins if we do have to assume it. That is extremely unlikely.
We still have not increased our selling prices just because we're holding put and seeing how the market reacts to this before we move forward. It does not take a very large market increase or a very large price increase to cover that differential.
Yeah. No, absolutely. Back to your competitive cost advantages of being in Colombia, you have the ability to kind of use pricing as a lever to offset tariff impact, maybe more so than some of your competitors, if you could speak to that.
I think a lot more than our competitors. Our adjusted EBITDA margin hovers in the low 30%, which is roughly twice that of our competitors. There is a lot of flexibility within our cost structure. We are also in a very advantageous position. We do have a lot of cash on hand. We do not have a lot of commitments coming up. We have a very flexible, we are ready to, we are quick on our feet, and we are able to make any adjustments as needed. The cost benefit is just, we have the cost on shipping that we have discussed already. Labor in Colombia is about $3 an hour, and we pay attractive wages, typically 15% above average for starting positions. We do not run into labor shortages or any of those difficulties that U.S.-based peers do run.
We have everything operating in one single facility. We are extruding aluminum. We are transforming raw glass into architectural glass, so coating, laminating, tempering to make architectural glass. That is happening right next to where it gets assembled into windows. We have been investing heavily in automating the process in between with sorting and centralized warehousing. That is a very efficient manufacturing process with very inexpensive labor. It is just a huge advantage compared to our competitors. Some do integrate some steps of the vertically integrated process, but most of them are buying glass from a third party. Even when they do have their own aluminum capacity, it is usually at a different facility that requires trucking from one place to the other.
We have all that in a very streamlined, very large manufacturing campus that by far outweighs any of the other positive headwinds that we feel. We definitely have the flexibility of lowering prices and still being more profitable than the competition. Absolutely. Strategically, we do not sell cheap windows because they are not. We work really hard on our quality. It is one of our biggest points of focus for everything operational. Focus on quality is number one. It is important that our price reflects that. We do sell at a discount when entering a new geography or to attract particularly new attractive accounts. We are in the process of gaining a lot of market share since we are growing, and I do not think markets are growing very much these days. We do sell at a slight discount.
The reason we have those margins is because we're not just selling cheap no-frills windows. This is a very high-end product and relatively well-priced.
Yeah. I think that's super important. I mean, historically, your strategy is not to compete on price. It's competing on quality. I think folks maybe don't know your product and then using price as a lever if needed, but strategically or on a shorter-term basis, but not obviously for the longer term.
In construction, it's important that we deliver quality products so we don't hold up the construction and they can deliver their construction. Also, customer service is one of the big ones. Because we are doing everything in one single vertically integrated facility, we're able to resolve issues very quickly. Mishaps happen all the time. Think of glass being broken or the plumber came and drilled too hard and scratched the frame. We're able to sort that out of our factory within a week where most of our competitors would then have to call their third-party suppliers to order in the scratched frame or the broken glass and then ship it to the job site. Within a week, we're able to get it out to the job site. That's also a big driver. It's not the price. It's having the quality product.
It's having the customer service to follow up. It is one of the reasons when we grow into a new geography, we take our time and we do it well so that we can build those relationships because ultimately, it is a relationship-driven business.
Absolutely. Maybe we could turn to the record backlog. You ended 2024 with a backlog of $1.1 billion. It was up both year over year and sequentially. You had a book- to- bill of 1.3 in the fourth quarter. How has conversion been looking? Do you think the backlog growth kind of continues?
Yeah. Yeah. Backlog is at its all-time high. You did not ask about this, but I think it is important to mention that we virtually do not get any backlog cancellations. By the time we are awarded a job, financial closing has already happened, and it is either broken ground or about to break ground by the time the general contractor gets to subcontracting the suppliers of windows. Virtually no cancellations. In the absolute worst case, we get some delays, but we have never had any material cancellations in the past, and that is not likely to change. Back on conversion rate. Historically, 65% of our commercial backlog rolls into revenues over the next 12 months. There are some shifting dynamics there. Our backlog has been growing mostly because we have been very active in a very attractive niche, which is the ultra-luxury residences in South Florida.
These are 80-plus-story buildings, all covered in glass. An individual project can be in the $30 million-$50 million range. These are multi-year projects, and they will stretch that backlog conversion rate out. If we stood at the $1.1 billion and did the 65%, we come up with commercial revenues in the range of $700 million. That is slightly above what we have guided just because of these longer-term projects.
Got it. It is important, what you said about the ultra-luxury residences. Historically, they have been more resilient to interest rate changes. You also mentioned earlier about the condos that are less luxury, I guess, let's say.
Yeah. We do not do any of the cheaper commoditized windows at our standard. Historically, the meat and potatoes of our business, what were those sort of middle-of-the-road condos, those are more sensitive to interest rates. Affordability is an issue. We do think there is a lot of demand in Florida for housing. There are a lot of people planning to retire in Florida. Population is projected to continue to grow. We do not see that changing. In the short term, it has been somewhat slow. Fortunately, there is this other light commercial side of our business. These are typically, think of storefronts, maybe car dealerships, or non-luxury hotels, so like three-star hotels that have more standard windows as opposed to the fancy curtain walls.
These have been doing very well, very strong level of demand since the second half of last year, and that continues going into this year. It's one of the variables why we have put out a broad range for guidance since these are spot orders, relatively spot orders, not as quick as single-family residential that usually gets delivered within six weeks or so. This will get delivered within three to four months, definitely less than six.
What do you think is driving that kind of light commercial? Are your three to four months quicker than competitors' too? Is that also a factor?
No, no. Lead times are a big deal on single-family residential. These are more on the schedule. They're usually having a big job performed. They need the windows delivered when they need the windows. It's not usually ASAP. It's not that we have three to four months lead times. Those are just the delivery schedules that they need so it fits when their job site is ready.
Gotcha. Last conference call, you mentioned robust activity in luxury lodging and class A office space. Can you just talk about that a little bit?
Yeah. With all this uncertainty, a lot of wealthy individuals are placing their cash in Florida real estate. That's been going on for some time and continues to go on. There are a lot of companies relocating and moving to Florida. They're creating their headquarters. That also requires that the people that work there are coming. It even brings more of that population growth that I mentioned earlier.
Excellent. Maybe if we can turn to single-family residential, a big part of the story for sure, and a big part of your cash flow story. You had fourth quarter single-family residential sales of $90 million. I think it was a record for the fourth quarter, record full-year sales too on the single-family front. You said first quarter single-family orders have been off to a strong start. Is that correct?
Yes. Yes. Now, we don't get the visibility of commercial, so it is much spot order. We have been able to sign over very attractive accounts in Florida, particularly Central and Panhandle, Central Florida and the Panhandle. Yeah, we're definitely expecting a year of growth. It is typically, as you mentioned, the fourth quarter is typically our slowest quarter. Now, we've been growing so much that that doesn't really hold out every year in the past. Sort of the cadence of deliveries does work that way where Q1 will be, then Q2 will be higher, then Q3 is typically the highest, and Q4 is probably somewhere in line with Q2 or Q3.
Absolutely. Within single-family residential, there are a couple of different buckets, right? I think one of the ways you have been kind of growing and diversifying the sales there is a twofold path of vinyl and showrooms, and there is some overlap between the two. Can you just touch on that for us?
Yeah. Yeah. I think I mentioned in my remarks earlier that before 2023, virtually all of our single-family residential was in Florida. In 2024, about 85% of our residential was in Florida. It is because our new growth initiatives are sort of starting to roll out. Beginning in 2023, we rolled out a series of showrooms. We got one in New York, one in South Carolina, and then later we got another one in Texas. We have plans for showrooms out of Arizona and California. These will be to offer our single-family residential, which we cannot offer single-family residential everywhere because it is small orders. We do need that volume for the logistics to make sense. They are starting to ramp up revenue. Now, on the product side, there are two. We rolled out vinyl, started bringing in revenues last year for the first time.
All the windows we did before were aluminum. Now we have the vinyl frames. During the year, we did gradually roll in the full product suite. That took us some time and held back the ramp-up of vinyl. Our product suites are now complete. We have a couple of product lines for a specific need and with all the products that are needed, which should help them ramp up. Our revenues in vinyl last year were in the range of $5 million. Three of those were in Q4. We are guiding between $15-$40 million for this year, which is a pretty broad range. The lower end, we are almost there already. We ended Q4 with $3 million, which is not quite there, but it has been increasing sequentially, not really linearly. We have onboarded a few very attractive accounts with a very high potential for revenues on those.
The showroom initiatives is sort of our other growth. These are presences where we are locations where we did not do any single-family residential business. Everything we grow is up from zero, meaning we do not need to take a very large market share. Just a few points here and there will bring us a lot of growth since the base is nothing.
Yeah. Goes back to your first point. You said at the beginning that the macro headlines of residential are a little bit different than you guys because of where you're growing off of your base. The showrooms are selling both vinyl and aluminum, right? Is that fair?
Initially, the showrooms, I guess they were conceived before vinyl. They were meant for the aluminum single-family residential. Actually, we have fitted them with commercial products as well because we found it is very beneficial for the commercial customers who come and look at their products. I think it is worth clarifying. These showrooms are not like retail stores. They are not for the homeowners who come in and look at windows. Rather, they are for the local window dealers or contractors who come in and get physical contact with our product. It is appointment only. Again, we do have vinyl. We have single-family residential aluminum, and we have commercial products on display.
Absolutely. Can you touch on the garage doors portion a little bit? That is something you mentioned a couple of conference calls ago. Just give us a refresher on kind of where that is.
Yeah. It's growing a lot. Now, it is a very small niche. As the numbers in general, every house has windows, but not many have garage doors. Every unit is very expensive. It does allow us to participate in those houses where we supply all the products. It's part of the importance of having the full product suite where we can also do the garage. Again, revenue-wise, we're only talking a couple of million just because it's a very niche product. It's a very high-end product as well. We need to consider that as part of the integral strategy that we want to do the whole side of the business. When we're talking one of these mansions, really, that have those doors, we get to do the whole house, and we also get to do the garage as well.
Really helpful there. Just turning to your financials a bit, your return on equity and return on invested capital are relatively multiples above kind of the building product sector averages. Just talk about what's driven your ability to kind of maintain that edge and how do you allocate investments towards that.
Yeah. Yeah. We do not anticipate that discipline in capital allocation to change anytime soon. It is very important. The way we invest is to keep growing organically, which we have been doing so successfully. We are more profitable because we have a very modern, automated, vertically integrated manufacturing platform. There is still some more room for automation. What we do is we take our existing glass furnace and laminator and cutting equipment, and we add automation between those steps and some centralized warehousing and sorting so that we can streamline the production process, basically doubling the output in a very similar footprint and gaining shorter lead times, which allow us to be more competitive. We are going to continue to be careful with cash allocation. I do know that we are sitting on a lot of cash.
One of the questions we get is, "What are you going to do with it?" Management is very careful not to burn through it. Yeah, we're betting on continuing to grow organically. We're still generating cash. We don't have a lot of commitments. It's sort of a good problem to have. There are a lot of moving pieces, especially with the whole political and macroeconomic environment. We want to be able to respond. This gives us the flexibility. Yeah.
Yeah. Makes sense that it's worth noting your net cash positive. I think for the first time since you've been public. That's a big deal. You have a share repurchase program. If you could talk to that a little bit and kind of how are you weighing kind of being opportunistic versus maintaining flexibility in the.
Yeah. We do anticipate, I guess, versus our expectations at the beginning of the year, we're going to have a slightly higher use of working capital since we are securing the US-sourced aluminum. I don't think it's not going to be something drastic. We're still going to be generating a lot of operating cash flow. We are seeing CapEx stepping down a little for this year. We're still going to be generating free cash flow going forward.
Excellent. Excellent. Before we wrap up here, any aspects of the Tecnoglass story that are often overlooked? Any kind of key messages you want folks to kind of take away from today?
No. I think I'm thankful that I think our story is getting across relatively well. We have been delivering great results quarter after quarter after quarter. I think we've sort of breached that gap that took us a very long time, to be honest, if you look at the long-term trajectory of how we've done. I think we're staying on quick feet, sort of staying ahead of the game. I think we're well prepared to navigate through tough situations. As our COO says, that's what we're made for. We have a light cost structure, very agile management that makes decisions quickly. We have a very healthy cash position. I think ultimately, I think that generally gets well understood. Thank you so much, Alberto.
Absolutely. Eduardo, thanks so much. Thanks to everyone at Tecnoglass and the ICR team. Appreciate y'all taking the time.
Good rest of the conference.
Bye.