Tecnoglass Inc. (TGLS) Q1 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the Tecnoglass, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 Tecnoglass' First Quarter 2026 Conference Call. A copy of the slide presentation to accompany this call may be obtained on the Investors section of the Tecnoglass website. Our speakers for today's call are Chief Executive Officer, 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' 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' business. These risks, uncertainties and contingencies are indicated from time to time in Tecnoglass' 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' 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 #4.

Thank you, Brad, and thank you, everyone, for participating on today's call. We are pleased with how our business performed to start 2026 and more importantly, with our positioning heading into the rest of the year. The demand environment for our products is favorable. Our backlog is at a record level and order activity across both our commercial and single-family residential businesses continues to build momentum. The fundamentals of what we do, the quality of our products, our vertically integrated model and our customer relationships are as strong as they have ever been. That underlying momentum is important context for how we view the recent trade policy changes affecting aluminum-containing imports. The trade policy changes do not change our competitive position in the market, and they do not reflect any softening in demand for our products. We have been preparing for and navigating a dynamic cost and trade environment for a handful of years now. We have invested in our supply chain to structure our sourcing and built a platform with the flexibility to adapt. Our industry-leading cost structure and vertically integrated model allows us to respond to these changes with more agility than most competitors. We have implemented pricing actions and remain confident in our ability to execute these increases while preserving our competitive position. We are confident in our trajectory because we are not just reacting to macro conditions. We are investing in the long-term growth of the business. Our vinyl expansion and geographic expansion are gaining traction. We are opening new showrooms and entering new geographies. Projects outside of Florida accounted for almost 1/4 of the total backlog as of the end of the first quarter. We are advancing the U.S. re-domiciliation, which will further align our corporate structure with where we operate and invest. And we continue to evaluate the potential construction of a new U.S. facility based on the potential returns and market conditions meeting our thresholds. If we decide to move forward, this automated facility will expand capacity, improve lead times and position us for expansion opportunities we do not fully serve today while expecting to preserve a strong margin profile. We have built Tecnoglass over many years by focusing on product quality, customer service and operational excellence. Our business generates strong cash flow, and we remain committed to returning capital to shareholders while investing in growth initiatives that will drive long-term value. We are confident in our ability to deliver on our full year objectives and continue building long-term value for our shareholders. I will now turn the call over to Chris to provide additional operating highlights.

Thank you, Jose Manuel. Moving to Slide #5 and 6. Our backlog grew 19.1% year-over-year to a record $1.36 billion. Multifamily and commercial revenues up 20.4% year-over-year to a record $160.5 million, reflecting consistent execution on an expanding project pipeline and market share gains. Our backlog has grown sequentially every quarter since 2021, and our book-to-bill ratio of 1.3x extends our track record to 21 consecutive quarters above 1.1x. We have virtually no project cancellations as we install windows in buildings already well advanced in construction. In recent years, our mix has shifted toward larger high-end projects such as luxury condominiums and upscale lodging, which are less sensitive to interest rate fluctuations. Our growing geographic diversification also reduces regional concentration risk. Moving to Slide #7. Single-family residential revenues were essentially flat year-over-year in the first quarter, mainly reflecting the timing of invoicing. Demand was better represented by orders, which grew 3.4% year-over-year and 14.1% sequentially with additional momentum into April. Approximately 65% of our single-family revenues are tied to repair and remodel demand, which is more resilient and less correlated with mortgage rates. This provides a more stable demand base regardless of new construction activity. We see multiple avenues to continue gaining share. Our dealer network has expanded over 20% in the last 12 months. Our vinyl line continues to gain traction with robust quoting activity as evidenced by the highest monthly order level to date in April. Our Los Angeles showroom is on track to open in the coming weeks, bringing our legacy light aluminum window line to the Southwest market and marking our fifth showroom outside of Florida and seventh overall. Turning to Slide #8. Despite a muted residential market, Tecnoglass has consistently outperformed industry benchmarks with our single-family revenues growing at a roughly 40% organic CAGR since entering the market in 2018. This outperformance comes even as the national residential construction spending and remodeling activity have remained muted during the last couple of years. We are well positioned to continue performing. Our business and geographic penetration strategy is concentrated in regions which are projected to lead residential construction and spending growth in 2026. Combined with our expanding dealer base, new showroom openings and the ongoing vinyl ramp, this underpins our confidence in achieving double-digit revenue growth guidance, which is well above expected end market growth expectations. I will now turn the call over to Santiago to discuss our financial results and full year outlook.

Thank you, Christian. Turning to the drivers of revenue on Slide #10. Total revenues for the first quarter increased 12% year-over-year to a first quarter record of $249 million. The growth was driven by positive momentum in our multifamily and commercial business, which grew 20.4% year-over-year, reflecting strong execution on our record backlog and market share gains. This was partially offset by roughly flat single-family residential revenues, mainly reflecting the timing of order conversion into revenue with modest invoicing in January and February, giving away to a strong pickup in March and continued positive momentum into April. Looking at the profit drivers on Slide #11. Adjusted EBITDA for the first quarter of 2026 was $61.5 million, representing an adjusted EBITDA margin of 24.7% compared to $70.2 million or 31.6% in the prior year quarter. First quarter gross margin was 38.5% compared to 43.9% in the prior year quarter. The year-over-year decline reflected the continuation of several dynamics that persisted into 2026, an unfavorable revenue mix from a higher proportion of installation revenues in commercial and multifamily, elevated U.S. aluminum costs with aluminum LME plus U.S. premium spot rates increasing approximately 48% year-over-year and a 12% year-over-year appreciation of the Colombian peso further pressured margin. We also realized higher salary expenses related to the annual salary adjustments at the beginning of the year. These headwinds were partially offset by stronger pricing and operating leverage on higher volume. SG&A for the first quarter was 20.4% of revenue compared to 19.1% of revenue in the prior year quarter. The increase primarily reflected aluminum and reciprocal tariff expenses, higher personnel expense from annual salary adjustments at the beginning of the year and a stronger peso during the period, higher transportation and commission expenses associated with revenue growth. We also had a onetime $2.9 million expense related to a government-imposed wealth tax on large companies in Colombia to address a government declared climate-related emergency. We provide a closer look at the margin dynamics on Slide #12, namely aluminum and FX. With respect to aluminum, it is important to distinguish between 2 separate dynamics. The first is the escalation in underlying aluminum cost, which was the primary driver of margin pressure in the first quarter. Global aluminum LME rates and U.S. Midwest premiums reached record highs during the quarter, increasing approximately 48% year-over-year and creating industry-wide cost pressure. The second dynamic is the 10% Section 232 tariff on finished aluminum window imports, which was enacted April 2026 after the close of the first quarter. We are proactively addressing this new tariff through pricing actions effective on early May orders and are advancing additional operational efficiencies, including logistics optimization, increased automation and headcount rationalization to further mitigate the impact as we move through the year and expect to fully neutralize it in 2027. Looking at the foreign exchange dynamics, the Colombian peso appreciated approximately 12% year-over-year. Given that approximately 25% of our costs are peso-denominated, primarily representing labor cost, this appreciation pressured margins, compounded by annual salary adjustments in Colombia at the beginning of the year. On average, a 5% movement in the Colombian peso impacts our gross margins by approximately 110 basis points. To partially mitigate the exposure, we executed additional hedges during the quarter on a portion of our Colombian peso exposure and will continue to be opportunistic in adding incremental coverage throughout 2026. Now examining our cash flow and balance sheet on Slide #13 and 14. First quarter operating cash flow of $6.7 million reflected a strategic decision to secure approximately $34 million of U.S. sourced aluminum as part of our tariff mitigation and supply chain resilience strategy, which is expected to provide cost benefits in the middle of the year. Capital expenditures of $17.3 million in the quarter included scheduled payments on previous investments and early investments on additional automation. Our balance sheet remains solid. Total liquidity of approximately $425 million at quarter end, including over $330 million of availability under our revolving credit facility. We have no significant debt maturities until the end of 2030. With net debt to LTM adjusted EBITDA approximately 0.4x, we maintain a conservative leverage profile that provides significant financial flexibility to continue investing in growth and returning capital to shareholders. Our disciplined investments in operational excellence and our vertically integrated platform have consistently delivered superior returns relative to the broader industry, supported by our leading profitability and working capital management. These strengths continue to generate sustainable cash flow and shareholder value while preserving financial flexibility to pursue additional growth opportunity. Consistent with that approach, we are pleased to have returned substantial capital to shareholders during the first quarter. We repurchased approximately $16.5 million in shares under our $250 million program with approximately $92.5 million of remaining repurchase capacity as of May 7, 2026, and paid $6.7 million in dividends, returning a combined $23.2 million to shareholders during the quarter. Now moving to our outlook on Slide 16. Our first quarter 2026 performance came in line with our expectations, supported by record revenues, all-time high backlog of $1.36 billion and positive momentum across both our residential and commercial platforms. Based on the strength of our top line results and the visibility provided by our backlog order trends, we are reaffirming our full year 2026 guidance. We expect revenue in the range of $1.06 billion to $1.13 billion and adjusted EBITDA in the range of $225 million to $245 million. This is unchanged from our guidance communicated in April, which incorporated the incremental impact of the recently enacted 10% tariff on finished aluminum window imports into the U.S. With our guidance range, the primary factors remain the timing of project invoicing from our commercial backlog, the pace of residential market recovery, execution in new geographies and vinyls and the trajectory of aluminum cost and foreign exchange. The high end of the range assumes a more constructive demand and cost backdrop, while the low end contemplates a more measured recovery and continued pressure from the current aluminum and FX conditions. Importantly, both scenarios assume continued market share gains, strong backlog execution and disciplined cost management across the business. Our May price increase is expected to begin contributing to results by early July, providing a meaningful mitigation to the tariff headwinds already discussed. As we execute on our pricing and efficiency initiatives throughout the year, we see potential for additional margin expansion as we move through the year and see a clear path to full neutralization of the tariff impact 2027 when full year pricing across both businesses and incremental automation savings are expected to fully offset the tariff-related headwinds. We expect another year of strong cash generation, albeit with more use of working capital given upcoming tariff payments, strategically securing U.S. aluminum ahead of production times and longer cash conversion cycles given the increase in installation work, which has less upfront payments and more retainage. As in years past, the second quarter of the year is expected to have the seasonal impact related to income tax payments for our Colombian-based subsidiary. Capital expenditures are projected to be in the range of $60 million to $70 million, which includes maintenance CapEx at approximately 1% of revenues, plus planned investments in efficiency initiatives and amortization payments of previous investments. Separately, we expect to invest approximately $20 million to $25 million for the purchase of the land related to the potential new U.S. facility, which we would plan to finance with our available credit facilities. Executing the land purchase now preserves our optionality as the feasibility study continues, and we have already secured substantial state and local tax credits that would significantly enhance project economics. If we decide to move forward with construction, the project would proceed in phases, with each stage evaluated based on demand trends, return profiles and overall market conditions. We would only move forward if the project meets our high return thresholds. In conclusion, our results demonstrate the durability of our business model and the strength of our competitive position, even as we navigate a dynamic operating environment. We are executing on a record backlog, gaining share in new and existing geographies, building momentum in vinyl and taking targeted pricing and operational actions to mitigate tariff headwinds. With a record backlog, a growing national presence in single-family residential and a solid balance sheet, we remain confident in our ability to deliver on our full year objectives and outperform the market for years to come. With that, we will be happy to answer your questions. Operator, please open the line for questions.

[Operator Instructions] The first question comes from Rohit Seth with B. Riley.

Just on the price increase, are you seeing your competitors also raising prices? And what gives you confidence that it's going to be the take rate from competitors?

Yes. Everybody has raised prices because of the increases in aluminum and the increases in glass. All the products that we buy to make the windows are subject to increases due to the oil and gas increases. So everybody has raised prices, some more than us and a couple a little less than us.

Okay. And then on the aluminum, it looks like you built some inventory. I imagine that's the aluminum. How are you positioned now going into the second half on aluminum?

Right now, Seth, we're buying it on the spot. And if you kind of listen to what we said a couple of weeks ago when we reguided, we also baked in the impact of higher than the beginning of the year pricing, right? So at this point in time, we're buying it at spot, even though it has gone up roughly 12% since the beginning of the year. That's already baked into projections.

Your next question comes from Julio Romero with Sidoti & Co.

Can you guys expand on how April has trended since you guys have announced price increases, as competitors have announced price increases and specifically with regards to customer receptivity and how they're managing through rising input costs on their end? Are they changing anything from order size or project scope, both on the residential and the commercial side?

Well, April was extremely strong. And as you saw in the press release, obviously, you see some orders of clients anticipating the price increase that took place in May 4. I think what we'll be telling is how orders continue to trend in May. So far, so good. Nothing really to speak of in terms of drop in demand, but April was abnormally high. I mean, we're talking about 40% more of a normal month. But obviously, some of that is pulled forward of orders that probably would have taken place in May and June.

Helpful. And where are you guys on the U.S. re-domiciling? Is that -- I guess, that's expected to close in the second quarter?

Yes. The expectation is that, that will be done by mid-June. Proxy cards should be going out for voting likely around mid- to end of May. And effectively, we should be re-domiciled if the vote goes through by the middle of June.

[Operator Instructions] Your next question comes from Tim Wojs with Baird.

Maybe just to start, just kind of just big picture question. Obviously, the tariffs, I think, obviously surprised you, surprised the market. You guys obviously still have a pretty meaningful cost advantage even with the tariffs in the marketplace. And I'm just kind of curious, as you've talked to your customers and these have obviously kind of come into the market, have you noticed any change from your perspective in terms of share gains or just kind of incrementally working with customers? I'm just kind of curious if the tariff dynamic has really changed your position in the market at all or not?

No, not at all. I mean everybody has raised their prices and the raising of the prices came from a local competitor or local competitors before we did it. We follow the trend. We were going to absorb the tariff if nobody else increases the prices to keep competitive and not lose market share. But on the contrary, we -- everybody raised the prices, and we have gained market share, and we're going to keep gaining market share. Now as we said on the press release, around 20% to 25% of all our sales are outside Florida. That's going to keep gaining momentum, and we hope in a year or 1.5 years from now, 50% of the growth is going to be outside of Florida. And we're doing really good. I mean, our product mix is great. Our service is great. The customers love the performance. So we plan to keep gaining market share for sure.

And this is Christian. And we also plan to make up for the tariffs with more volume and also with cost -- cutting costs. We have implemented a program to cut our costs significantly in the next few months. And we'll be -- by the end of the year, we'll be back to the levels of profitability that we have before.

Okay. That's really helpful. And then Santiago, just I was hoping maybe you could kind of dial in Q2 for us maybe a little bit, just given, obviously, the tariffs are kind of coming into the P&L. And I think typically, you do see kind of a step-up in revenue just from a seasonality perspective. So any kind of broad kind of comments on how we should think about the model for the second quarter, please?

Yes. As we have discussed previously, you're going to have a quarter in which you have the impact of the newly established tariffs, but yet you don't have the impact of the pricing actions that took place in May, right? So you're going to have a step down Q2 just based on the fact that you have the incremental costs associated with tariffs, but the offsetting on pricing starts taking place in late June, early July, right? So from that perspective, you will see a step down, albeit at a higher revenue base. And essentially, as you saw in the press release, we saw acceleration in terms of revenues and orders in March, and we're seeing that in April as well. So we're seeing a step-up in revenues. On the backlog side, obviously, we know where we are, and you saw what happened with the commercial construction segment growing 20%. We expect that trend somewhat to continue. And on the resi side, we did see acceleration at the end of Q1 and beginning of Q2. So from a top line perspective, we're expecting Q2 to be higher than Q1. You will have the impact, however, of the tariffs not being fully offset by pricing on this quarter, but that will be partially offset in Q3 once orders placed in May start hitting P&L.

Okay. And then mechanically, the tariffs fall, I believe, for you in SG&A. So do you -- would you actually see gross profit pick up a little bit sequentially and then kind of offset by the higher SG&A, so EBITDA actually goes down?

I think it's going to be more or less in line. You will have some impact of higher aluminum cost that wasn't prebought. Remember that we were expecting aluminum to cover us through May. So you're going to have aluminum flowing through the P&L at newly spot prices, not at the levels that we bought it earlier in the year. So I think that probably balances out, and we end up with somewhat similar gross profit margins. If we're able to get more operating leverage on higher sales, maybe a little bit higher. But I would say base case, we end up around the 39% gross margin profile.

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

Well, thanks, everybody, for participating on today's call. We are doing our best to keep growing and having the best margins in the industry and wait for the better news. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.