Tecnoglass Holdings Inc. Third Quarter 2026 Earnings Conference Call - TECNOGLASS HOLDINGS INC

Good morning and welcome to the Technoglass Holdings, Inc. 3rd Quarter 2026 Earnings Conference Call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Brad Cray, Investor Relations. Please go ahead. Thank you for joining us for Technoglass' third quarter 2026 conference call. A copy of the slide presentation to accompany this call may be obtained on the Investors section of the Technoglasses website. Our speakers for today's call are Chief Executive Officer Jose Manuel Diaz, Chief Operating Officer Chris Diaz and Chief Financial Officer Santiago Geraldo. 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 TechnoGlass' 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 Techno Glass' business. These risks, uncertainties, and contingencies are indicated from time to time in TechnoGlass'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 Techno Glass's financial results in any particular period may not be indicative of future results. Techno glass 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 four. Thank you, Brad, and thank you, everyone, for participating on today's call. We delivered record revenue in the third quarter, and both of our businesses grew as we successfully executed our strategy, which continues to allow for significant market share gains. More important than any single quarter is the direction of this business. A decade ago, we were primarily a commercial glass business concentrated in Florida. Today, we serve customers across the United States in single-family residential, as well as multifamily and commercial, in aluminum and in vinyl, through seven showrooms and a dealer network that keeps expanding. Our backlog has grown in every quarter since 2021. Demand for our products is healthy, and we continue to take share and expand geographically. That transformation is why I am confident about where we are heading. Single-family residential was not a business for us a decade ago, and today it grows well above its end market. Minel has more than doubled the market we can serve. Our geographic expansion is steadily reducing our dependence on any single market. Each of those was a deliberate investment, and each one is working. Our margins this year have been pressured by costs outside our control. Aluminum reached record prices. The Colombian peso strengthened to levels we have not seen in years, and new tariffs took effect on our products. I have not seeing all three move against us in the same year. Several of those pressures are now turning. We have secured aluminum at better levels into 2027. Our mid-year pricing is reaching revenue, and our automation program has reduced headcount while shipments continue to grow. An estimated $8.4 million of the unfavorable FX impact was a non-cash accounting effect that we believe is temporary given recent FX trends. We expect the third quarter to be the low point for our margins this year. We are also building a more efficient company for the years ahead. Automation is structurally lowering our cost base. The land we purchased this quarter preserves the option to add capacity in the United States if the returns are there. Our vertically integrated platform lets us respond to cost and trade changes faster than most companies in our industry. That model generates the durable cash flow that supports our ability to return capital to shareholders. And we remain as confident as ever in our ability to build long-term value. I will now turn the call over to Chris to provide additional operating highlights. Thank you, José Manuel. Moving to slide numbers five and six. Backlog ended the quarter at another record of $1.43 billion, up 13.2% year over year. We have grown backlog sequentially in every quarter since 2021, and a book-to-bill ratio of 1.2 times marks 24 straight quarters above 1.0 times. Multifamily and commercial revenues reached a record $192.4 million, up 31% year-over-year, we executed on our backlog and a number of projects progressed into later stages. Three factors underpin the quality of this backlog. First, cancellations are virtually non-existent since our windows typically go into buildings that are already far along in construction. Second, our project mix now leans toward larger, high-end developments like luxury condominiums and upscale hotels, which have proven less sensitive to interest rates. Third, we continue to diversify geographically, opening up new markets for the business. florida accounted for roughly three quarters of backlog at the end of the third quarter compared with over 85 percent a year earlier importantly our florida market remains strong booking several recent projects and in october we signed our largest project to date moving to slide number seven single family residential revenues were 118.1 million dollars up four percent from the prior year excluding orders pulled into the second quarter ahead of our may pricing actions single family revenues increased 17 percent market share gains from geographic expansion a growing vinyl contribution and higher pricing drove that growth. Roughly 65% to 70% of our single-family revenues come from repair and remodel activity, which tends to hold up better through the cycle and is less tied to mortgage rates. We continue to see several avenues to keep gaining share. Our dealer base outside Florida has grown by more than 25% over the past year, drawn by the quality of our products and our short lead times. In addition, our showroom expansion is paying off. Combining commercial projects and single-family residential, year-to-date revenues generated through our showrooms in newer geographies outside of florida are already approaching 60 million dollars the los angeles showroom we open in october is our fifth outside of Florida and seventh overall and it introduces our legacy line of aluminum windows to west coast customers Vinyl, which has more than doubled our addressable market, continues to ramp as we scale it across our footprint. Turning to slide number eight, our single-family revenues have grown 7% year-to-date, adding to our record of compounding growth since entering this market in 2018. We have consistently outperformed, even in today's muted environment, where residential improvement spending is expected to grow 2% this year, according to the leading indicator of remodeling activity. Our footprint is concentrated in the South Atlantic, Mid-Atlantic, and West-South Central regions which are expected to rank among the strongest for residential construction spending in 2026 that alignment together with our expanding dealer base and the ongoing vinyl ramp supports our confidence in total revenue growing double digits this year which is solidly above what our end markets are expected to deliver. I will now turn the call over to Santiago to discuss our financial results and full year outlook. Thank you, Christian. Turning to our financial results on slide numbers 10 to 12. Total revenues for the third quarter increased 19.2% year-over-year to a record $310.6 million. Growth came from continued execution on a record multifamily and commercial backlog and ongoing market share gains in single-family residential. Looking at the profit drivers, adjusted EBITDA for the third quarter of 2026 was $47.7 million compared to $79.1 million in the prior year quarter. Excluding a non-cash inventory revaluation I will cover in a moment, adjusted EBITDA for the quarter would have been approximately $8.4 million higher. SG&A was 23.8% of total revenues compared to 18.2% in the prior year quarter. Section 232 tariffs on finished aluminum windows accounted for approximately $15.5 million of the increase in the first full quarter with the 10% tariff in place. The rest came from higher transportation and commission expenses tied to revenue growth, along with higher personnel costs from annual salary adjustments and a stronger peso. Sequentially, SG&A was essentially flat on 5% higher revenue, which improved SG&As as a percentage of revenues by approximately 100 basis points versus the second quarter. Third quarter gross margin was 34.1% compared to 42.7% in the prior year quarter. The decline was driven primarily by the Colombian peso, which appreciated approximately 20% year-over-year and accounted for roughly 580 basis points of the change. That breaks into two pieces. Approximately 330 basis points came from our exposure on our peso-denominated costs and a stronger peso. The other 250 basis points came from an $8.4 million non-cash revaluation of inventory. We bought that product about 100 days earlier, when the peso was approximately 12% weaker and carried it on our books at that older rate, so when we sold it in the third quarter, it ran through at a higher cost when expressed in U.S. dollars. The effect is non-cash, since we bought and sold in U.S. dollars. At approximately $3,100 to the dollar, the peso is at its strongest level since September 2018, and stronger than our prior outlook assumed. We will keep adding currency hedges where we can, and our automation-related headcount reductions are lowering our peso denominated expenses. On aluminum, the average all-in U.S. price, which combines the LME benchmark and the Midwest premium, rose approximately 52% year-over-year and those costs reached us on a lag as earlier purchases flowed through inventory. Prices have since come off this year's peak and we have secured aluminum at lower levels for the rest of 2026 and into the first quarter of 2027. Two other factors weighed on gross margin in the quarter. Labor costs rose following the 23 percent minimum wage increase in Colombia at the start of the year and mix was unfavorable with more installation revenue as commercial projects reached more advanced stages. These pressures were partially offset by operating leverage on higher volume, the initial benefit of our May pricing actions and efficiencies from our automation initiatives. Our mid-year pricing actions now represent a higher share of invoicing on smaller projects and will continue to flow into revenue revenue as we invoice larger projects into next year. As a result, we expect Q4 gross margin to improve sequentially, as better pricing, lower aluminum costs, and a smaller inventory revaluation effect more than offset a peso that remains strong. Now moving to our cash flow and balance sheet on slide numbers 13 and 14. Cash provided by operating activities improved to approximately $21.5 million in the third quarter, reflecting working capital contributions from trade receivables and inventories and the seasonal impact of lower income tax payments and no significant inventory pre-purchases during the quarter. Capital expenditures were $66.1 million in the quarter, including the land purchase for the potential U.S. facility, scheduled payments on previously announced capacity and automation investments, and certain prepayments on ongoing investments, which we funded in part with our credit facilities. Our balance sheet remains solid. Total liquidity at quarter end was approximately $380 million, and we have no significant debt maturities before the end of 2030. At 0.9 times net leverage, we maintain a conservative profile that provides significant financial flexibility to continue investing in growth and returning capital to shareholders. Our investments in operational excellence and in our vertically integrated platform have consistently produced returns above the broader industry, supported by our profitability and working capital management. We expect those strengths to keep generating the cash flow behind our balanced high return approach to capital deployment. Now moving to our outlook on slide 16. Based on our first nine months and the visibility in our order book, we are raising our full year 2026 revenue outlook to $1.1 billion to $ 1.14 billion as demand trends remain encouraging and we continue to grow well above industry rates. We are revising our adjusted EBITDA outlook to 210 million dollars to 220 million dollars. The change mainly reflects the temporary non-cash 8.4 million dollar accounting effect of inventory revaluation during the third quarter and accounts for higher than expected revenues which are helping offset elevated raw material costs and a stronger local currency. Excluding this effect, our adjusted EBITDA outlook would have been approximately $8.4 million higher. While margins were pressured during the quarter, we consumed the peak priced aluminum during the period and absorbed the sharpest peso appreciation of the year, indicating that improved margins should be expected going forward as we also account for better pricing through year end. Our automation program continues to advance. Following the 10% headcount reduction completed in June, additional automation comes online by year end, bringing further efficiencies while preserving the capacity to serve a strong order book. The result is a more efficient cost structure and a stronger competitive position for years to come. With a full year of pricing and incremental automation savings, we remain committed to fully offsetting the tariff impact in 2027. In closing, we delivered record revenue and adjusted EBITDA excluding the temporary non-cash impact was ahead of our internal expectations. We also continue to gain share in new and existing geographies and have actions in place to address the cost pressures that weighed on the quarter. Our growing national presence in single-family residential and our solid balance sheet give us confidence in our ability to deliver on our objectives and outperform the market for years to come. With that, we will be happy to answer your questions. Operator, please open the lines for questions. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Tim Voyes with Baird. Please go ahead. Hey, guys. Good morning. Nice to see the revenue. Good morning, Tim. Hey, could you maybe just kind of talk about what you're seeing on the demand side, particularly in Florida and maybe some of the residential businesses outside of Florida? I mean, it seems like despite everything you read, Florida is still doing pretty well, both on the resi and the commercial side. So maybe just some kind of added flavor there would be helpful. well florida is not doing well it's doing extremely well and the demand is unbelievable i mean we have problems now with the quoting capacity on commercial we have too many jobs quoting at the moment and the startups are still going and we're moving a lot also to Tampa and Jacksonville where we didn't have a presence before and the panhandle. On the commercial side, I believe that we have worked for the next five years for sure. Now on the residential, we keep penetrating even though our competition keeps lowering the prices. What we offer the client is not only pricing, but the quality of the window, the on-time deliveries, the service. That's why they keep choosing ES windows over all our competitors. And that's helpful. And Santiago, I guess just two questions for me. So first, if I kind of sort through, you know, some of the numbers on the fourth quarter, I mean, it seems like you should be doing kind of like a 38, 39% kind of gross profit margin. I just kind of want to verify that. It seems like that should continue into 27. And then second, just as you've kind of gone through everything, how is everything tracking in terms of price, automation, you know, those types of things to give you the visibility and the confidence that you'll be able to kind to offset all of these headwinds you've seen in 26 into 27? Thanks. Yes. On the first question, you're right. That's how we are modeling. And if you look at what we did in Q2, that was approximately the same gross margin. Q3 was an outlier based on that inventory revaluation that we had because of the peso appreciation by 12% in less than 90 days. So that's just a pure accounting effect, but that as the peso stabilizes, that reverses, right? So we're expecting that number one. Number two, we're expect more of the new orders with the better pricing that started flowing in Q3, but you'll have more of that in Q4. Number three, you'll more automation, right? The headcount reduction starts taking shape and increasing. That gives us confidence that margins get back up there obviously 27 without having given guidance for that we were expecting that to be better obviously we still have some variables like fx the peso is slowly kind of depreciating back so that's nice to see we'll see what happened with aluminum prices right so there's there's a few variables but but the thought is that gross margins pick up back up sequentially when we don't have this outlier on the inventory evaluation And in 27, you know, with better pricing for essentially the whole portfolio for the full year and the automation in place, it should be even better than Q4. Okay. Awesome. Helpful. Thanks, guys. The next question comes from Will Gilday with CJS Securities. Please go ahead. Hi, good morning. Thanks for taking our questions. Can you hear me? Hello? You are audible. You can go ahead. Okay. So, yeah, first question, just can you give us an update on the vinyl ramp? And as we look into 2027, are there any gating factors on growing it significantly? I'm thinking of things like product development, certifications in different geographies, or, you know, having a dealer network built out. Sorry, Will, we seem to have the management line disconnected. Please stay with us while we await their joining in. Hey, guys, apologize. We got dropped off somehow. Tim, how long did you get to hear our answer? I think that's where we got dropped of. Pardon me. The question was asked. May I request here the participants to please repeat the question? because the answer was not heard. Yep, yeah. Yes, this is Will with CJS. Just was asking for an update on the vinyl ramp. You know, as we look into 2027, are there any gating factors on growing it significantly? I'm thinking of things like product development, certifications in different geographies, or, you know, building out the dealer network, just any color on vinyl. Yeah, sorry, Will. We got dropped off. So on that, the expectation for this year, Nothing changes on the previous expectation that we had given of about 15 mil for the year. Next year, we're still projecting between 3 to 5 mil per month, and that also depends on overall market conditions. But we essentially are expecting that to be up 4x versus what we're expecting to do in 2026. The product is now fully developed, which, as you know, had been kind of like the holdup on how revenues evolved this year. But with the full line being developed and out in the market, we expect a fuller rollout in the different geographies. Okay, great. Thank you. And then just on the non-cash inventory revaluation, just trying to understand that better, excluding that gross profit actually grew year over year. Is this, you know, one time or should we be expecting similar charges in the future? Yeah, no, no. This is related to our functional currency, which we're looking to change into U.S. dollars, right? Number one. So this is a pure accounting effect. It's a one-off, and it only happens when you see very rapid revaluation within the quarter. This has happened before. This happened in 2023. The peso revaluated almost 12% in less than 90 days. So when you book your inventory into your functional currency, which is the peso, 90 days ago, and you run it through Cox 90 days later with a stronger peso, when you re-express it into dollars, it's actually more dollars, right? So on a presentation basis, you see the reduction on gross margin, but essentially that is non-cash, it is pure accounting. Once we go into functional currency dollar, that will all go away. And then once you see the opposite effect with the peso devaluating, you start seeing the opposite effect. So this is just timing-wise. But essentially, once we become functional currency dollar, then that will just be streamlined. Okay, perfect. That makes sense. Then last one for me. Just on the Greenfield Manufacturing Facility in Florida, you bought the land, you've locked in the tax incentives. So what factors are going to drive the decision to go forward and when do you expect to make a decision? Nothing for the next six, nine months. I think as we have discussed before, the idea is to assess market conditions. We're testing the equipment as rolls into the factory in Colombia, and depending on how efficient that is, what the headcount needs are, and see what kind of returns we can achieve from those investments, a determination will be made. But then the next nine months will also give us a clear idea on what market conditions look like. So for the next 9 months, we'll stay input, we have the land in place, and we'll just focus on organic growth in our current factory in Columbia. Great. Thank you. Thank you The next question comes from Julio Romero with Studete and Company. Please go ahead. Great. Good morning. Thanks for taking my questions. The multifamily and commercial revenue growth bucket of 31% which you guys attributed to projects moving into more advanced stages does that reflect faster execution by the company, by Technoclass, across that backlog? Or is that specific to certain projects and customers? And then secondly, if you're working through the older backlog faster, does that pull forward when the May pricing reaches the commercial revenue in 27? I think the thought on pricing, Julio, is that at the end of this year, you're already starting to see better pricing on the light commercial construction projects, right? And the idea is that probably by Q2 and Q3 of next year, you start seeing some of the larger projects with better pricing. And obviously on residential, fully newly priced, probably starting January and most of Q4 of this year. I think that on the execution is just really, you know, strong timing and essentially no delays on projects, right? A lot of these projects that we're executing on that record backlog are in well advanced stages. So you don't have deals with permits or other holdups, and you can just essentially deliver on a weekly basis. We'll see how it continues to shape up the rest of the year. Obviously, we accounted for higher revenue guidance based on what happened in Q3. In Q4, we continue to see that cadence of execution, we probably end up at the higher end of that range. Okay, that's helpful. And I guess, Santiago, just to clarify, the 2027 price realization expectation on the portion related to the larger projects, right, which I think makes up like three-quarters of the backlog, that is still intact as mid-27, Q2, Q3, and that hasn't really changed over the last three months. That's right. That's why. Yes. Okay. And then I guess, you know, on the largest, congrats on signing the largest project to date after the quarter end. Is that outside Florida? And then more broadly, you Know, what visibility do you have beyond the backlog into kind of additional projects of that scale? And how is that kind of trending versus a year ago? I'll take the first one and let Jose talk about the pipeline. The project is actually included within the backlog reported because he had already an affirmed LOI. It was signed beyond the quarter, but it was already included. And it is a Florida project, not to give too many details for competitive reasons. It is a Florida project. And as far as pipeline and other activity going forward, I'll let Jose take that one. We are penetrating outside of Florida a lot too. I mean, we're doing the tallest tower in New York at the moment. And we keep penetrating. We have a few quotes in San Francisco, in the rest of California, in Texas. We keep growing. I mean we're going really good outside of Florida, slowly but surely. and in Florida, I mean, the demand is crazy. We, like I said before, we are hiring more people to quote because we cannot cope with all the quotes that we are getting every day. Excellent. Thanks very much. I'll pass it on. Thank you. The next question comes from Sam Darkatch with Raymond James. Please go ahead. Good morning, Jose Manuel, Chris, Santiago. How are you? Good morning. A few questions. First off, a follow-up. Talk about the prospects for incremental industry or technoglass pricing from here. I know there's been some industry capacity that's come out aluminum is off but the peso is still pressured um and and there's there's clearly a lot of inflation that the industry is seeing what what are the prospects for further pricing actions um going forward um in your view we have been increasing the pricing on the quotes on the new projects due to all those things that you mentioned. And on the residential, we are going to announce soon another increment because of those same reasons. So there's going to be another incremental price action taken shortly. Am I reading you correctly on the residential side? Yes, sir. You're correct. Okay. Something of similar magnitude as what we saw in May, May-June? Can you please repeat the question? Sure. I'm sorry. The price increase that you're contemplating, Would that be of a similar magnitude as what was seen earlier this year? Well, it's around that. Some products that require a lot of aluminum, it will be around that, and some products are going to be less. So it's a mix. It goes from 3% and sometimes even to 15% on some products. Got it. And then, Santiago, what is the general administrative expense line? What's the inflation rate that you're looking at for 27? I know there was an unusual labor rate increase last year, but what's a reasonable view for that? It's currently being negotiated, and we'll know more by year-end. It typically equates to inflation plus a couple of points. That's going to be high single-digit adjustment. We're not expecting to see anything abnormal like you saw at the beginning of this year. So I guess what I'm getting at is if we're looking at double-digits, sales growth next year, improvements in gross margins, maybe some pricing incrementally going through offset with obviously the pressures and the labor costs and there's automation in there. But I mean, incremental margins typically I think are, you know, what, 25, 30% normally. Are you looking at 27 as being a higher than normal incremental margin year or do all the confluence of factors make it more of a normal incremental margin year next year? Incremental margin like gross margins or operating margins? I'm sorry, operating, like on the EBITDA line, I'm sorry. Operating margins? Yes, incremental margins at the operating line, yes. Yeah, like I was saying earlier, based on everything being equal as it is today. On double-digit growth, you get operating leverage. You obviously have better pricing in a larger portion of the portfolio. You have more automation, less headcount. So we are baking in that we can get up to, you know, where we were in terms of gross margins, probably, you knows, around the 40% gross margin type profile. But we'll obviously give you more information and better details when we provide guidance for 27 during our next call. But as you know, there are other variables to consider. What happens with effects? What happens aluminum prices? We'll see what happens with tariffs, although we're expecting that to continue. But we will be in a better position to tell you everything in next call once we have also test the new equipment and then see what the automation efficiencies will be looking like. Gotcha. Then my last question, just a clarification. Within your implied fourth quarter sales guidance, Santiago, what are you assuming for single-family resi growth in the fourth quarter? We're assuming that to kind of get back to a more normalized level, maybe about 95 to 100 mil for the quarter. And obviously, you know, as you know in the last couple of quarters we had a significant benefit from all the orders that were put ahead of the price increase, right? So in terms of what that looks like against last year, you're still talking about high single digit growth. Very helpful. Thank you much. Appreciate it. All right, guys. Thank you. Thank you This concludes our question and answer session. I would like to turn the conference back over to Jose Manuel Diaz for any closing remarks. Well thanks everyone for participating I believe the best times are coming in the following years and we'll keep working to streamline the company and give better results to our investors. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.