Get 40% Off
🚀 AI-picked stocks soar in May. PRFT is +55%—in just 16 days! Don’t miss June’s top picks.Unlock full list

Earnings call: Tecnoglass reports robust Q1 with record backlog

EditorAhmed Abdulazez Abdulkadir
Published 05/10/2024, 07:40 AM
© Reuters.
TGLS
-

In the first quarter of 2024, Tecnoglass, Inc. (NYSE:TGLS) reported strong financial results, with revenues reaching $192.6 million and a record-high backlog of $960 million. Despite experiencing some challenges in the single-family residential market due to inflation, the company saw an improvement in demand in this sector in March and April with a significant year-over-year increase.

A surge in the multifamily commercial business, combined with optimistic growth projections in the vinyl window market, contributed to the company's positive outlook for the remaining year. Tecnoglass also achieved a record low net debt-to-adjusted EBITDA ratio of 0.1x, underlining its robust financial health.

Key Takeaways

  • Tecnoglass's Q1 2024 revenue stood at $192.6 million with a record backlog of $960 million.
  • Strong performance in the multifamily commercial sector; residential market shows recovery signs.
  • The company anticipates growth in the vinyl window market to boost second-half results.
  • Operating cash flow was strong at $33.4 million, with net debt-to-adjusted EBITDA hitting a record low of 0.1x.
  • Management remains confident in achieving revenue growth and expanding market share.

Company Outlook

  • Tecnoglass expects mid-single-digit revenue growth of 5%, targeting revenues around $875 million and adjusted EBITDA of $267 million for the full year.
  • The company is optimistic about the second half of 2024 due to a strong backlog, particularly in Florida.
  • Showroom revenue for legacy aluminum products is estimated at $10 million for the year.
  • The company is developing a complete line of vinyl windows expected to significantly increase sales.

Bearish Highlights

  • Single-family residential demand faced challenges earlier in the year due to inflationary pressures.
  • Impact of foreign exchange rates and increased energy costs due to dry weather in Colombia affected margins.
  • Temporary promotional activities and higher operating costs also pressured gross margins.

Bullish Highlights

  • Improvement in single-family residential demand observed in March and April.
  • Record-high backlog and growth in the multifamily commercial business.
  • Strong cash flow from operations and a healthy cash balance of $136 million.

Misses

  • Temporary increase in energy costs and impact of foreign exchange rates resulted in a 150 basis points impact on margins.
  • Gross margins were affected by lower revenues and higher operating costs.

Q&A Highlights

  • Santiago Giraldo provided guidance for the next quarters, expecting growth in both residential and commercial sectors.
  • The company's wider product line and showroom sales are anticipated to outperform the competition.
  • Gross margin guidance for the base case is in the low to mid-40s range, with the upside case in the mid-40s.

Tecnoglass's strong Q1 performance and strategic initiatives, including the expansion of its vinyl window offerings and showroom openings, have positioned the company for continued growth. With a solid financial foundation and a clear strategic direction, Tecnoglass is well-equipped to navigate the challenges and opportunities that lie ahead in the global market.

InvestingPro Insights

Tecnoglass, Inc. (TGLS) has not only reported strong financial results for Q1 2024 but also exhibits several positive indicators in its InvestingPro data and tips that suggest a promising outlook. With a market capitalization of $2.43 billion and a robust revenue of $823.25 million in the last twelve months as of Q1 2024, the company's financial health is evident.

InvestingPro Tips highlight that TGLS has raised its dividend for 3 consecutive years, signaling confidence in its financial stability and commitment to shareholder returns. Additionally, the company boasts impressive gross profit margins, with a gross profit of $357.84 million and a margin of 43.47% in the same period. This is particularly noteworthy as it aligns with the company's strong performance mentioned in the article, especially in the multifamily commercial sector and anticipated growth in the vinyl window market.

The solid financial metrics are further supported by a low P/E ratio of 13.35, which, when adjusted for the last twelve months as of Q1 2024, stands at 13.04. This low earnings multiple suggests that the company's stock might be undervalued relative to its earnings growth, presenting a potential opportunity for investors.

For readers interested in a deeper analysis, there are additional InvestingPro Tips available that could provide further insights into Tecnoglass's performance and outlook. For instance, the company's ability to cover interest payments with its cash flows and the fact that it has maintained dividend payments for 9 consecutive years are indicators of financial resilience.

To explore more about Tecnoglass and gain access to these insights, readers can visit their specific InvestingPro page at https://www.investing.com/pro/TGLS. Plus, for those looking to enhance their investment research tools, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes numerous additional InvestingPro Tips to guide investment decisions.

Full transcript - Andina Acquisition Corp (TGLS) Q1 2024:

Operator: Good day, and welcome to the Tecnoglass, Inc. First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [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.

Brad Cray: Thank you for joining us for Tecnoglass's first 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, 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 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. I will now turn the call over to Jose Manuel, beginning on Slide number 4.

Jose Manuel Daes: 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 our 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 softness in 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 $960 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 manual window market is showing promising early results as quoting activity surpassing our expectations. We anticipate that vinyl orders will accelerate and become a more significant contributor to our results in the latter 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 robust 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 31st, 2024. Looking ahead, we remain optimistic about the underlying drivers of our business. The attractiveness of the manual window market combined with 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 deliver strong results, as we move through 2024. I will now turn the call over to Chris to provide additional operating highlights.

Chris Daes: Thank you, Jose Manuel. Moving to Slide number 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 US 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 the approximately 750 ongoing and planned projects. This positions us well to capitalize on the secular demand within these key US markets. Turning our attention to our product lines. Customers' response to our vinyl offering has been surpassing our expectations, and we are on a scale to increase deliveries in the latter 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 number 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 one 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 two-thirds of our reported backlog are invoiced over the following 12 months. With virtually no project cancellation historically given 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 the Slide number 7. Despite a mixed outlook for the US 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.

Santiago Giraldo: Thank you, Chris. Turning to single-family residential on Slide number 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 widening 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. With 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 number 9, I would like to reiterate a few key points from our recent strategic entry into vinyl with 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 of the addressable market across the US. Turning to drivers of revenue on Slide number 11. Total revenues for the first quarter decreased 4.9% year-over-year to $192.6 million in line with our expectations. Due to lower single-family residential revenues and downtime related to maintenance in January, our multifamily and commercial business continued to perform in line with internal expectations, as we executed on our growing backlog. Looking at the profit drivers on Slide number 12. Adjusted EBITDA for the first quarter of 2024 was $51 million, representing an adjusted EBITDA margin of 26.5%. SG&A was $33.6 million compared to $34.1 million in the prior year quarter, with a decrease attributable to lower shipping and commission expenses, partially offset by higher personnel expenses given annual salary adjustments that took place at the beginning of the year. As a percentage of total revenues, SG&A for the first quarter was 17.5% of revenue compared to 16.8% of revenue in the prior-year quarter. The increase in SG&A as a percentage of revenue was primarily due to lower revenues year-over-year. First quarter gross profit was $74.7 million, representing a 38.8% gross margin. This compared to gross profit of $107.8 million representing a 53.2% gross margin in the prior year quarter. The year-over-year change in gross margin is primarily related to four main factors. First, we had an unfavorable FX impact of nearly 800 basis points. This is related to a non-cash accounting effect on inventory with the peso as a functional currency and the effect on peso-denominated costs and expenses against a steep devaluation of approximately 18% year-over-year. Excluding the FX impact on a constant-currency basis with the prior-year quarter, gross margin will have been 46.3%. Second, we saw a 200 basis points impact from temporary promotional activity implemented in the fourth quarter that was subsequently invoiced in the first quarter on certain single-family residential products, which has mostly concluded. Third, we had an unfavorable revenue mix that included more installation and standalone product sales. Fourth, softer revenues resulted in lower operating leverage. To a lesser extent, gross margin was also impacted by a temporary increase in energy costs due to dry weather conditions in Colombia. As a reminder, we estimate that each movement of 5% in FX equates to approximately 150 basis points in operating margins. While the year-over-year FX impact was pronounced, given the relative stability of the currencies over the last several months, the sequential impact from FX was much lower, with an estimated 150 basis points impact to margins from a 4% to 5% appreciation in the peso from the fourth quarter of 2023 to the first quarter of 2024. Other factors impacting our sequential gross margin compared to 42.6% last quarter, included a decrease in operating leverage given lower revenues, the temporary promotional activity in residential, and higher operating costs for personnel given higher salary costs from company-wide annual salary increases, which take place at the beginning of each year, and a temporary increase in energy costs. Now looking at our strong cash flow and improved leverage on Slide number 13. The first quarter showcased another period of solid operating cash flow amounting to $33.4 million, primarily driven by effective working capital management. Our capital expenditures totaled $9.9 million, encompassing investments in land, our entry into the vinyl window market and past investments in automation and increase in operational capacity. With our increased install capacity, we anticipate a significant reduction in capital expenditures for the remainder of 2024. We were pleased to continue our track record of driving additional value for our shareholders through our cash dividend. We have returned capital to shareholders through $4.2 million in dividend payments during the quarter and continue to have roughly $26 million available for share repurchases within our current authorization. Net leverage remained at a record low 0.1x net debt to LTM adjusted EBITDA, unchanged from the prior year quarter. As of March 31st, we had a cash balance of $136 million and availability under our committed revolver credit facilities of $170 million, resulting in total liquidity of approximately $306 million. This gives us significant financial flexibility to drive additional value in our business. On Slide 14, we highlight our success in generating superior return for our shareholders, outperforming the industry average. Our profitability and enhanced cash flow generation over the past three years have yielded significant above-average returns, further validating our strategic approach. Now moving to our outlook on Slide number 16. The themes we highlighted during our last earnings call remain very consistent with what we are seeing right now with several updates to certain dynamics. We remain confident in our ability to produce another year of revenue growth, based on the visibility from our growing backlog and by the organic growth drivers we highlighted earlier, including our vinyl initiative, showroom openings, and geographical expansion. That being said, given the current lack of clarity on US macroeconomic factors, mainly the trajectory of interest rates going forward, we are providing three different scenarios for how we see our results playing out for the full year. These scenarios are predicated on a few main factors. First, a slower start to the year for single-family residential revenues and the durability of the expected pickup later in the year, given recent record order trends coupled with the expected ramp-up in vinyl sales in the second half of the year. Second, we anticipate an increased mix of revenues from installation and a standalone product sales compared to 2023. Third, a less volatile FX rate since the end of 2023 results in a Colombian peso that is roughly 8% to 12% stronger than the average FX rate for 2023, based on the current and projected 2024 FX levels. And fourth, all scenarios assume the execution of large projects within our multifamily and commercial backlog staying within current scheduled timelines, and provide different levels of activity for smaller short-term duration projects, which tend to be more rate-sensitive. In addition, our scenarios incorporate a range of outcomes for US Fed interest rate decisions through year-end. Our base case scenario assumes mid-single-digit revenue growth of 5%, resulting in full-year 2024 revenues of approximately $875 million and adjusted EBITDA of $267 million. Based on the range of scenarios we have laid out, we are also factoring both a downside and an upside case. These scenarios assume revenue growth of 2% and up to 9% year-over-year, delivering adjusted EBITDA of $250 million and $285 million respectively. As mentioned earlier, we have seen a more robust pace of activity in single-family residential with orders reaching record levels in March and April. While we are optimistic on the strength of our key geographies, the momentum within our new vinyl products, and share gain opportunities, we acknowledge that higher interest rates could continue to weigh down on consumer purchasing decisions. Combined with our higher expected growth in installation and a standalone product sales, this has a residual effect of a less favorable mix, which in turn pressures gross margins year-over-year, which we expect to partially or fully offset through operating leverage depending on the revenue scenario. On a sequential basis, we expect gross margins to step up from the levels seen in first quarter, based on a more stable FX rate and favorable operating leverage from a sequential increase in revenues. Therefore, based on our scenarios, we factor in an expectation for full-year gross margin to be in the low to mid-40s range, accounting for a softer-than-expected first quarter. All three scenarios assume healthy free cash flow growth year-over-year, given the majority of capital expenditures related to facility automation, expansion, and vinyl-related investments having been completed. In summary, we remain optimistic in the overall strength of our business. Our growing backlog of multifamily and commercial projects and promising activity in our vinyl business should support market share expansion and value creation in the quarters and years to come. With that, we will be happy to answer your questions. Operator, please open the line for questions.

Operator: Thank you. We will now begin the question-and-answer session [Operator Instructions]. The first question comes from Stanley Elliott with Stifel. Please go ahead.

Stanley Elliott: Hey, good morning, everybody. Thank you for the question. Could you all help us a little bit in terms of, let's just talk about the 875 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?

Santiago Giraldo: 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 inline 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 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.

Stanley Elliott: I guess 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 looked like it, sounds like you had softer order growth before it picked up. Maybe just help frame to out some of the bigger changes within the overall top-line expectations?

Santiago Giraldo: 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 three cuts and better overall psychology, whereas right now, we're talking about no cuts or even a hike, right. 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.

Stanley Elliott: Yes. And you guys had a nice showing at IBS. Curious, if that's what helped to 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.

Jose Manuel Daes: 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 shows gave a lot of people to see the products that they don't normally see them anywhere else. 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.

Operator: The next question comes from Sam Darkatsh with Raymond James. Please go ahead.

Sam Darkatsh: Jose Manuel, Chris, Santiago, how are you this morning?

Santiago Giraldo: Good morning, Sam. How are you?

Sam Darkatsh: I'm well. Thank you. 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?

Santiago Giraldo: Yes. The base case assumes gross margin trending in line with Q4 of last year and we highlighted the premises for that and most of that pickup is coming from what we're expecting in terms of operating leverage, given the 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 two months. From an SG&A perspective, we don't expect anything really out of the ordinary. That should be flattish. The pickup comes from operating leverage on higher sales sequentially for Q2 over Q1.

Sam Darkatsh: So, what sort of sequential bump might you expect in sales in the second quarter?

Santiago Giraldo: I would say, we're probably modeling around $2.10 to $2.25 somewhere around there. I mean, that's a broader range, but at this point in time, I think that should be coming towards the higher end of that range.

Sam Darkatsh: Got you. And then, I know you were considering or you continue to consider hedging out your exposure to the Colombian peso. Obviously, there is 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 pesos, we don't have these volatility issues.

Santiago Giraldo: Yes. If you look at the volatility, I mean, we're clearly lapsing really of quarters. Last quarter and this quarter were completely outliers, based on the all-time FX relationship of 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's been averaging at the same kind of level for the last nine months. I think it's not expected that you see this type of volatility 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 economies.

Chris Daes: And also, let me add. This is Chris Daes. We have tried in the past 15, 20 years to hedge on have taken even the best banks that do the job. 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. So, I told Santiago yesterday that, the rate is at a place where it's not going to move. 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 that, we want to let it play out, because at the end, 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, there is no way it can go down anymore. I mean, the country will not support that type of exchange rate.

Sam Darkatsh: 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 might be on the horizon so the stock would act accordingly.

Santiago Giraldo: Yes. That's always on the board's mind and obviously a topic of discussion in each one of them and will definitely be opportunistic. I think there's a great chance to return value to shareholders via not only repurchases but also dividends. The balance sheet 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 them. We'll see how it plays out, but definitely there's a lot of value to be created there.

Operator: The next question comes from Tim Wojs with Baird. Please go ahead.

Tim Wojs: Hey, everybody. Good morning. Maybe just to step back, just Jose Manuel, you talked about, your backlog continues to grow both sequentially and year-over-year. You mentioned a pretty good pipeline 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 what you're seeing on the ground from both a quoting and maybe pricing perspective and would you expect the backlog to continue to grow in the near term?

Jose Manuel Daes: The backlog will continue to grow. 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. We see the trend, I mean, Florida is booming everywhere. It's not only Miami. It's for Florida, Boca Raton, Pompano Beach. Western Beach is crazy. And then, you go up to Jackson Beach, Tampa. We are seeing a lot of opportunities. 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. 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 are aligned 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.

Tim Wojs: Okay. Got you. That's helpful. I guess, Santiago, just on the residential side. If you 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. Is the math really just kind of $20 million or so in base case vinyl and then you get will that be kind of 6%, 7% legacy business? Is that kind of the math?

Santiago Giraldo: 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. 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. 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 interest rate and overall psychology. That's why we wanted to lay out the different cases. But on the base case, your math is right on.

Tim Wojs: Okay. The last one I had, just you mentioned in the slides just smaller commercial projects. I guess, what exactly, and 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?

Santiago Giraldo: Yeah, think about that, Tim. You have your, 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 much more spot in nature, right? I mean, that's something that you could get in March and be invoicing the same year. Typically, that will range between $10 million, $12 million, $10 million, $13 million per month. So, depending on where we end up. What kind of range on light commercial, we end up on the higher end or the lower end of these three different scenarios?

Operator: The next question comes from Alex Rygiel with B. Riley FBR. Please go ahead.

Alex Rygiel: Good morning, gentlemen. Thank you for taking my question. 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.

Jose Manuel Daes: So, 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. When we went to our dealers, they said, oh, yes, I like what you are doing it, but you are doing a mistake, if you don't have it, I cannot go to a complete line to my customers. Like that, we had a few hurdles even with the supplier of our extrusions and we are on the way of redeveloping everything. Like I said in the before question, we are going to be ready by the end of June with a complete line. We know and we expect the second semester to be much, much better and we're being very conservative on the outlook for the second semester, but this is going tenfold by next year for sure.

Alex Rygiel: It's very helpful. As it relates to residential, can you 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?

Santiago Giraldo: I'll talk about the breakdown. It's roughly two-thirds repair and remodeling and one-third, new home construction, Alex. I'll let Jose talk about the dynamics with home builders and such.

Jose Manuel Daes: We are seeing the new construction is stalling a little bit because of the interest rate. 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.

Operator: The next question comes from Julio Romero with Sidoti and Co. Please go ahead.

Julio Romero: Hey, 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?

Jose Manuel Daes: No, no. In the first quarter, we had minimum shipments because there were real orders. We shipped the samples don't even account. We keep them for free. There were real orders, but every day, we see the orders getting stronger and stronger and coming up more and more.

Chris Daes: Just to give you an example, in the month of May, we're going to invoice more than we invoice 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, 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 windows, some projects and they look really good. I mean, they are comparing to the previous windows they were buying and ours it looks stronger, wider, better. So, we are really happy and we see a good future ahead of us.

Julio Romero: Very helpful. You talked about the two new distributors signed in, I think, Sarasota and 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?

Jose Manuel Daes: 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 nine different products and we only have seven and the only two are busy. They rather wait until we have the complete line to really ramp up so they can go for only one product and don't have to mix in 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 two quarters are going to be great, I mean, the end of the year and 2025 is going to catapult crazy with the wider line because people like the look, people like that 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.

Julio Romero: Okay. Understood. Last one for me is just on, I appreciate the outlook scenarios you gave for '24 and how to think about each one. 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.

Santiago Giraldo: It's kind of in line with what we had originally estimated. We are still just kind of ramping up and the hold-up on the ramp-up is the full development of the products for those markets. We'd 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's not exclusively aluminum windows for you to model, right. Some of that is going to be interchangeable.

Julio Romero: Perfect. Just one more, if you can remind us how much the showroom sales were in 2023, just to think about the year-over-year?

Santiago Giraldo: No. Still not material. I mean, that's still complete upside year-over-year. 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. It's just on a nominal basis. It's still ramping up.

Operator: The next question comes from Jean Ramirez with D. A. Davidson. Please go ahead.

Jean Ramirez: Hi. Thank you for the time. 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.

Santiago Giraldo: Just to clarify, we're not baking in low to mid 40s in all three 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. 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 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.

Jean Ramirez: Thank you for that. And so you said a ramp-up in residential. What about commercial? What is the outlook look like there?

Santiago Giraldo: Growing as well. I mean, you have more visibility there based on the schedule of the projects that you are about to deliver on. So, there shouldn't be much more volatility as you will see on the spot nature of the business on the residential side like you already have a schedule of products 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.

Jean Ramirez: Thank you. 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?

Santiago Giraldo: Are you talking about the Q1 or are you talking about, because when you're talking about guidance, we didn't provide an EBITDA bridge for that.

Jean Ramirez: Just the full year?

Santiago Giraldo: 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. It's an 8% revaluation year-over-year. So, you have an impact on negative FX and then the other two factors are mix and operating leverage. And then 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 effect. On the base case, you have roughly what we're expecting is probably about 10% to 15% more mix and standalone 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.

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

Jose Manuel Daes: 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.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.