Tecnoglass Inc

NYSE:TGLS

Earnings Call Analysis

Technoglass Reports Strong Quarter, Raises 2023 Outlook

In its third-quarter earnings call, Technoglass achieved record revenues of $210.7 million, driven by robust growth in multi-family and commercial business by 6% year-over-year to $122.9 million, and by a 70% increase compared to the third quarter of 2021. Adjusted EBITDA margins stood at an impressive 30%, with expectations of margins between 47-49% for the full year. Backlog soared to a record $836 million, signaling a strong pipeline. Notably, the company announced its foray into the vinyl window market, expecting to significantly bolster growth, and adjusted its full-year 2023 revenue projections to $835 million to $848 million, representing an organic growth of 17% at the midpoint. Adjusted EBITDA is forecasted at $300 million to $308 million for the year, anticipating another year of double-digit growth in 2024.

New Market Entry and Early Traction

The company is on the verge of starting production for a new market segment with the first orders set to be delivered by year-end. The entry into this market is already showing promise, having garnered orders for 2024 and significant customer interest in the form of sample requests and product demos, highlighting the immense growth potential perceived by the company.

Revenue Growth and Market Share Expansion

For the third quarter, the company posted a 4.4% increase in total revenues year-over-year, reaching $210.7 million. This growth primarily came from the multifamily and commercial sectors, alongside gains in single-family residential revenues—indicating that the company is successfully capturing additional market share.

Profitability and Margin Analysis

Adjusted EBITDA was reported at $71.3 million, or 33.8% of revenues, which is a decrease from the same quarter the previous year. This decline was mostly due to non-cash foreign exchange impacts but was mitigated by reduced sales, general and administrative (SG&A) expenses, which improved by 340 basis points to 14% as a percentage of total revenues. The gross profit stood at $90.5 million with a gross margin of 43%, down from the prior year due to foreign exchange fluctuations, particularly related to the Colombian peso. However, with most of this FX-impacted inventory accounted for, and some stabilization in currency rates, the company anticipates less volatility moving forward.

Operational Efficiency and Shareholder Returns

The company has managed to generate strong free cash flow, attributed to efficient working capital management and a favorable mix of higher-margin revenues, which also allowed for significant share repurchases totaling more than $13 million within the quarter and soon thereafter. With a continued focus on operational efficiency, they maintain a low leverage ratio of 0.2x net debt to LTM adjusted EBITDA, and substantial liquidity resources, fortifying their ability to invest in growth opportunities while rewarding shareholders.

Comparative Performance and Strategic Validation

Over the past three years, the company's profitability and improved cash flow generation have driven significant returns—outpacing the performance metrics of their U.S. building product peers. This showcases the success of their strategic investments and the reinvestment into the business, further validating their approach towards generating shareholder value.

Future Growth and Outlook

Looking to the future, the company has a positive trajectory in revenue and adjusted EBITDA. Recent capacity enhancements and the venture into the vinyl window market are expected to propel the company past $1 billion in annual revenue. For the full year 2023, they've adjusted their revenue outlook to the range of $835 million to $848 million, marking a substantial organic growth rate. While delivery timings are somewhat delayed, impacting invoicing schedules, the company has a strong backlog and is positioned for continued growth in multifamily, commercial, and single-family residential spaces. Adjusted EBITDA expectations have been set at $300 million to $308 million, anticipating growth and strong cash flow, as major capital expenses are now concluded. This sets the stage for another year of robust growth and sizeable cash generation in 2024.

Earnings Call Transcript 2023-Q3

[Operator]

Greetings, and welcome to the Tecnoglass' Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference being recorded. It is now my pleasure to introduce your host, Brad Cray, Investor Relations. Thank you. You may begin.

[Brad Cray]

Thank you for joining us for Tecnoglass' Third Quarter 2023 Conference Call. A copy of the slide presentation to accompany this call may be obtained on the Investors section of the Tecnoglass website. Our speakers for today's call are Chief Executive Officer, José Manuel Daes, Chief Operating Officer, Chris Daes; and Chief Financial Officer, Santiago Giraldo. I'd like to remind everyone that matters discussed in this call, except for historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, future growth and future acquisitions.

These statements are based on Tecnoglass' 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 José Manuel, beginning on Slide #4.

[Jose Daes, executive]

Thank you, Brad, and thank you, everyone, for participating on today's call. We are pleased to report yet another quarter of strong results, underscoring the resiliency of our business in the volatile macroeconomic environment. Our revenues increased to a third quarter record of $210.7 million, marking our 12th straight quarter of entirely organic year-over-year growth. Our multifamily and commercial business was again the main driver of our top line growth, expanding 6% year-over-year to $122.9 million even in a tough year-over-year comp.

Compared to the third quarter of 2021, multifamily commercial revenue increased by 70%. We continue to see healthy commercial demand, from both high demand for our products and increased commercial activity in our key geographies. This drove an increase in backlog to a record of $836 million at quarter end. Sales of a highly innovative single-family residential products grew 2% year-over-year to a record of $87.8 million as we gain market share in key geographies, despite a tough comp in the prior year period and overall challenging macroeconomic conditions.

Compared to 2021, single-family residential revenues increased 48% in the quarter. Looking at our bottom line results, we produced an industry-leading adjusted EBITDA margin above 30%, which we attribute to our disciplined cost controls and previously implemented high-return facility enhanced. Year-over-year, our margins were impacted by a non-cash effect related to the appreciation of the Colombian peso, which has partially reversed course since the end of the quarter. our proven working capital management as well as the continued growth in our shorter cash cycle, single-family residential business drove a strong third quarter cash flow from operations of $51.3 million.

With external cash generation, we executed approximately 40% of our 50 million share repurchase program since midyear. This is in line with our commitment to return value to shareholders. Our strong capital position is also giving us the flexibility to capitalize on attractive and strategic growth opportunities, such as our recently announced entrance into the vinyl windows market. We expect this move to widen the reach of our innovative product portfolio and provide a high return on investment capital. We have already invested a significant portion of the anticipated CapEx required to add an additional $300 million in annual revenues to our business in the coming years.

In summary, we are proud of our strong track record of returns and remain as confident as ever in our ability to continue delivering above-market performance while generating robust cash flow and value to our shareholders.

I will now turn the call over to Chris to provide additional operating highlights.

[Christian Daes, executive]

Thank you, José Manuel. Moving to Slide #5. In October, we were pleased to announce the relocation of our global headquarters to Miami, Jorida. This strategic move aligns with over 95% of our revenues being sourced from the U.S., and it aligns with our long-term strategy to become and even more U.S.-centric company as we continue our organic geographical penetration into this market. .

[ Please ] move has been very well received so far by customers, employees and other stakeholders. We look forward to fostering the long-term partnerships in the U.S. that will continue to fuel our growth strategy. Looking at our results during the quarter, we saw positive momentum in our multifamily commercial business as healthy bidding activity and project wins continued during the quarter. Our backlog grew 20% year-over-year to a record of $136 million. This was an acceleration in growth in the second quarter of 2023. Despite the high interest rate environment, we continue to see favorable trends in our key markets, particularly in the Southeastern U.S..

New business wins and the resumption of projects that were previously put on hold in the planning stages during the pandemic are driving the acceleration of our backlog. As a reminder, approximately 2/3 of our backlog is mainly composed of medium and high-rise residential buildings, which are currently outperforming most other commercial sectors. The last 1/3 is related to a wide variety of commercial projects where demand remains firm. Our single-family residential growth trajectory is not fully captured in our backlog given the shorter-term spot ration of projects. The strong bidding activity we are seeing also signals attractive project opportunities in the near future, helping to maintain our positive book-to-bill ratio above 1.1x over the past 11 consecutive quarters.

Our strong book-to-bill of 1.3x at quarter end and our demonstrated ability to convert backlog into revenue is contributing to our expectation for another year of double-digit growth in 2024. Our pipeline gives us visibility on projects into 2025. We also see additional avenues for growth in our single-family residential business through our showrooms, expansion and recent entrants into the vinyl windows market, which represents an estimated 60% of the $26 billion architectural windows market.

Moving to Slide #6. The static entry into vinyl windows and the expansion of our showrooms should help us generate additional organic growth as we significantly expand our addressable market. These factors, in conjunction with our growing backlog give us confidence in our ability to grow share. Our accomplishments during the quarter and the strategic moves we are taking reflect our commitment to value creation, strengthening our customers' relationship and streamlining our operations to generate meaningful returns for all our stakeholders.

I will now turn the call over to Santiago to discuss our results and updated outlook for 2023.

[Santiago Giraldo, executive]

Thank you, Christian. Turning to Slide #7. During the third quarter, we achieved record single-family residential revenues which grew organically by 2.4% year-over-year and by 47.7%, compared to the third quarter of 2021. Our ability to grow single-family revenues on a difficult prior year comparison, while navigating a complex macro environment, is a testament to the resilience of our verily integrated business model and strategically located operations. We are also benefiting from the favorable secular trend of population migration into the Southern U.S., where we conduct a significant portion of our business.

These factors are helping to differentiate our business despite higher interest rates in a broader macro pressures. As we've highlighted in recent quarters, we see market share upside to our single-family revenues to our broadening dealer base, driven by the interest in our low lead times and new product introductions. We are expanding geographically throughout the highly attractive soda market, adding showrooms in other geographies, and our new vinyl initiative provides significant avenues for revenue growth and end market diversification.

To that point on Slide #8, I would like to highlight a few key points from our recent strategic entry into vinyl windows, as José Manuel and Christian touched on early. During the quarter, we were thrilled to announce our entry into the vinyl window market, which represents an estimated 60% of the $26 billion architectural window market and solidifies our position as an industry leader in architectural windows and glass products. We have already made a significant portion of the anticipated CapEx investments to add an incremental $300 million in annual revenues in the coming years, providing a strong foundation to grow our vinyl presence. Our entry into the vinyl window market is expected to provide a range of benefits to Tecnoglass and our customers.

This strategic move more than doubles our addressable market makes geographical expansion easier given the end customer preference for vinyl products in many U.S. regions, leverages our current distribution base given that many existing dealers already sell both aluminum and vinyl windows, creates a more efficient thermal performance, aligning well with ongoing sustainability trends and increased demand for energy-efficient products. And we have the technical expertise to produce vinyl products and capture an attractive margin on incremental revenues. Production will commence in a couple of weeks for the first orders to be delivered by year-end, and we already have orders for 2024 with many other customers requesting samples and product demos. This early traction with existing customers validates our strategic entry into this market. We are excited by the reception so far and for the immense growth opportunities we see in this end market.

Turning to the drivers of revenue on Slide #10. Total revenues increased 4.4% year-over-year to $210.7 million for the third quarter. This increase was led by growth in our multifamily and commercial activity, as well as growth in single-family residential revenues, largely reflecting additional market share gains.

Looking at the profit drivers on Slide #11 and 12. Adjusted EBITDA for the third quarter of 2023 was $71.3 million or 33.8% of revenues. Compared to $78.5 million or 38.9% of revenues in the prior year quarter. The change was primarily attributable to a noncash foreign exchange impact on gross margins related to the peso as functional currency, but partially offset by lower SG&A dollars. SG&A was $29.5 million compared to $35.2 million in the prior year quarter, with the decrease attributable to lower shipping and commission expenses in a nonrecurring settlement charge in the third quarter of 2022, partially offset by increased corporate costs to support a larger operation. As a percentage of total revenues, SG&A for the third quarter improved 340 basis points to 14%.

Third quarter gross profit was $90.5 million, representing a 43% gross margin. This compared to gross profit of $105.3 million, representing a 52.2% gross margin in the prior year quarter. The year-over-year change in gross margin mainly reflected a non-cash 660 basis point unfavorable FX impact. This was due to the markup of inventory in our functional currents attributable to the significant and rapid depreciation of the Colombian peso.

Specifically, inventories purchased during the second quarter of 2023 at a weaker Colombian peso, ran through the P&L during the third quarter of 2023 at a much stronger Colombian peso. These accounting dynamics related to the currency translation from the functional currency and had no cash flow effect given that both the actual inventory purchase and the subsequent sale took place in U.S. dollars.

Separately, approximately 25% of our cost and expenses do get paid in the Colombian peso. So the recent currency revaluation, we have an additional margin impact of 150 to 200 basis points year-over-year. Looking forward, the majority of the impacted inventory has been worked down and FX rates on an average have partially reversed course since quarter end. That should allow for less accounted variability results through year-end. We expect to produce gross margins around normalized levels through the remainder of the year with no significant FX volatility outside from 150 to 200 basis point effect from peso-denominated cost and expenses against similar to 22 FX comparables to year-end. Therefore, we now expect gross margins will be in the range of 47% to 49% and for the full year 2023.

Now, looking at our strong cash flow and improved leverage on Slide #13. In the third quarter, we delivered exceptional cash flow generation of $51.3 million, bringing our trailing 12-month operating cash flow to a record level of $144 million. During the quarter, we had capital expenditures of $24.3 million, which included payments for previously purchased land for future potential capacity expansion. CapEx also included a significant portion of the previously disclosed investments in facilities and operational infrastructure to enter the vinyl window market. We expect strong free cash flow to continue through year-end, largely given an expected decrease in capital expenditures in the fourth quarter. Our impressive cash generation has been made possible by our careful working capital management, more favorable mix of revenues, higher profitability and reduced interest expense, providing us with significant financial flexibility to drive additional value in our business.

This includes our recent investments to enter into the highly attractive vinyl window market and share repurchases. In total, we returned $4.3 million in cash dividends and $8.9 million in share repurchases during the quarter and repurchased an additional $11.2 million of shares after the quarter ended with approximately $30 million remaining under the current repurchase authorization as of November 6, 2023. At quarter end, our leverage ratio remained near a record low level of 0.2x net debt to LTM adjusted EBITDA, down from 0.6x in the prior year quarter. As of September 30, we had a cash balance of $119 million and availability under our committed revolving credit facilities of $170 million, resulting in total liquidity of approximately $289 million, giving us significant financial flexibility to execute growth, invest in our business and return cash to shareholders.

On Slide #14, I would like to reiterate our success in generating strong returns for our shareholders. On average, over the past 3 years, our stronger profitability and meaningful step-up in cash flow generation, have driven significant average returns. When comparing our ROE and ROIC metrics to those of U.S. building product peers, the returns on reinvestment into our business plus dividends have driven substantially higher value to our shareholders, further validating our strategic approach to driving returns.

As you can see on Slide 16, the upward trajectory of our revenue and adjusted EBITDA remains positive, and there is a lot of runway for growth with the recent capacity additions and entrance into the vinyl window market to get us over $1 billion of annual revenue. We are as confident as ever in our ability to maintain our track record of exceptional growth and above market returns.

Now moving to our outlook on Slide 17. Based on our strong results so far and the expected timing of deliveries through year-end in our residential and commercial markets, we are adjusting our outlook for revenue. We now expect full year 2023 revenue to be in the range of $835 million to $848 million. This outlook represents entirely organic growth of 17% at the midpoint. While our backlog has maintained a strong growth trajectory, the timing of deliveries for the rest of the year has been impacted by customer project delays carrying some invoicing into the first half of 2024. Accounting for the impact of unfavorable foreign currency, mainly in the third quarter, and the expectation for a higher mix of installation revenue during the fourth quarter as a result of the aforementioned order delays, we are updating our expectations for adjusted EBITDA to be in the range of $300 million to $308 million, representing a 14% growth at the midpoint of the range.

As I discussed earlier, we expect gross margins to be in the range of 47% to 49% for full year 2023. As previously discussed, cash flow from operations and free cash flow are expected to be strong for the remainder of the year, given the majority of capital expenditures related to facility automation, expansion and vinyl related investments having been completed.

In summary, we are pleased with our results year-to-date. Our backlog of multifamily and commercial projects has accelerated in our single-family residential expansion strategy continues to gain traction. With our latest round of facility enhancements completed and the incredible opportunity in vinyl windows, we have confidence in our ability to produce another year of double-digit revenue growth with industry-leading margins and significant cash flow generation in 2024.

With that, we will be happy to answer your questions. Operator, please open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from Alex Rygiel with B. Riley.

[Alexander Rygiel, analyst]

José, Christian, very nice quarter. A few questions here. As it relates to 2024, I understand you're guiding towards double-digit growth. Can you be a little bit more specific here? Is this revenue or EPS or both? And how do you look at the growth rates within residential and commercial?

[Jose Daes, executive]

Hello. We are looking at a very strong growth in both areas because the backlog of of commercial is very high, and we know we're going to increase. Not double digits but higher double digits. And then there was a surgically because we have a new line in line and with the minor line, everything is now we hope 3 or 4 years, [indiscernible] is going to be power with the aluminum. So we are expecting a big increase in residential and commercial.

[Santiago Giraldo, executive]

Alex, just as a follow-up, the projection is for top line revenue. We haven't drilled down to get to the EPS level, but you'll sure get that after the next call, obviously.

[Alexander Rygiel, analyst]

And then secondly, as it relates to the vinyl Windows strategy, do you expect this to be more of an R&R product or -- is this -- are you going after the sort of the new residential market as well? And maybe talk about the margin profile of that vinyl product versus your traditional aluminum product.

[Jose Daes, executive]

The margin is about the same. And the vinyl line goes everywhere that we are not today. I mean from the north, most of the sales for residential are vinyl. 60% of the of the sales of [indiscernible] nationwide are vinyl and only 30% aluminum. So we expect very high growth on the vinyl and also, we expect high growth on the commercial side of the aluminum.

[Operator]

Sam, your line is live.

[Sam Darkatsh, analyst]

This is Sam Darkatsh from Raymond James. So a couple two, three questions, if I could. First, the customer project delays that you cited Santiago, can you put a little more color on this in terms of quantification in sales, what fourth quarter EBITDA impact of that delay or those delays might be? And also give a little bit of color as to why is this going to be a 4Q into 1Q delay? Or is it a little bit more protracted than that?

[Santiago Giraldo, executive]

I'll let José take the question as to why and see is so much closer to the market and then I'll follow up with the numbers and EBITDA impact, if you like.

[Jose Daes, executive]

Yes. Well, a lot of commercial projects are delay around $10 million a month, that delayed. And the main reason was because the banks for 3, 4 months, we're not lending. Somehow, they opened the [ valve ] again and now all the projects are going and we still have the same backlog and more and we keep getting lots of work on the pipeline. I mean, I believe commercial is going to hit it really, really good next year.

[Santiago Giraldo, executive]

So I'll follow up with the numbers then. Essentially, if you take $20 million to $30 million, which José referring to, let's take the midpoint of that $25 million the operating leverage that we get on the manufacturing revenues is -- equates to about $8 million to $9 million in EBITDA, given the fact that about 30% to 35% of our costs and expenses are fixed costs. So if you do the math, that equates to about $8 million to $9 million that is moving into '24. As far as the timing, I would say, but I'll let José reiterate that, that's probably revenue that we'll be realized in the first half of '24.

And then as you heard on the call, some of that revenue is being replaced by some installation revenue that carries a much lower margin. So when you're having about $10 million of installation in the mix, the impact to EBITDA is about $3 million on that. But the brunt of the effect is coming from the operating leverage that we're not seeing based on those revenues moving into 2024.

[Sam Darkatsh, analyst]

Which leads me perfectly to my next question. Thank you, Santiago. There's a lot of moving parts in gross margin right now, and you gave some color around expectations for normalization in the fourth quarter. Can you be a bit more specific though in terms of what you think the actual gross margin might be since the implied guidance range is really wide?

[Santiago Giraldo, executive]

So the implied margin range for the full year equates to 47% to 49%. So depending on where you are in that new guidance I would say that Q4 would be about 45%, so sequentially better than Q3. But the run rate would continue to be high 40s going forward. It's just that Q4 is impacted by deleveraging from those revenues that are moving out a quarter or 2. On a run rate basis, for '24, obviously, there's also moving pieces on mix and whatnot. But the normalized gross margins should continue to be kind of in the high 40% type range.

[Sam Darkatsh, analyst]

And my last question, so you compete obviously against PGT in the Southeast and in Florida. And it's not a perfect comparable because they've got different lead times and a different vinyl mix and a different builder versus R&R mix. But this quarter, it was the first time you didn't out comp them in Florida in single family. Could you give some color as to what you're seeing in the Florida market from a market share standpoint and what your single-family orders are looking like right now?

[Jose Daes, executive]

Yes. We are penetrating the market. we have made big gains. Now the gains cannot be 20% or 30% year-per-year now. But what we're seeing is that we have a steady and growing market share at least in the Southeast. Now we're going full speed with the Southwest, where we have made good penetration. And as we go north, where we have nothing, everything is icing on the cake.

[Sam Darkatsh, analyst]

So Santiago, if you look at your orders all in single family, what's the year-on-year growth rate right now look like?

[Santiago Giraldo, executive]

Since earlier in the year, we have said that on a quarterly basis, the residential revenues were going to be somewhat stable throughout the year and you saw that in Q3 as well. So based on what we have today, I would not expect anything too different than what you saw in Q3, Sam. I would say that it's going to be somewhat stable with a pickup more into 2024, once some of the vinyl product is actually already getting invoiced. As you heard earlier, that is already in production probably starting next week with the first orders delivered by year-end. So you don't get to capture necessarily the benefit of that in Q4, but you will start capturing that in Q1, Q2 and so on.

[Operator]

Our next question comes from Tim Wojs with Baird.

[Timothy Wojs, analyst]

Maybe just to make sure I'm totally clear on the EBITDA guide. So I think the midpoint of your prior guide versus the midpoint of this guide is maybe about $24 million lower. So you've got about $14 million from the revaluation that hit the gross margins in Q4, about $8 million to $9 million or so from the project pushouts and then a couple of million dollars from some higher installation mix? Are those kind of the 3 pieces to kind of bridge that gap?

[Santiago Giraldo, executive]

Are you -- sorry, Tim, are you talking about versus the previous guidance that we gave during Q2?

[Timothy Wojs, analyst]

Yes. So your prior midpoint would have been $328 million. Now it's $304 million. And so I just want to make sure I ever completely understand the moving pieces between those items.

[Santiago Giraldo, executive]

So not all of it is from Q4, obviously because the Q3 results came below that guidance that we gave after Q2 as well, right? So you have to take out the below previous guidance results that was mainly resulting from that inventory markup that is non-cash, right? So if you take out the effect of that, the actual difference between the new guidance and the previous guidance is about $12 million, $13 million. And as I was just mentioning, when Sam asked the question, if you do the math on operating leverage for Q4, taking $25 million, $30 million of revenues being pushed out, you get to about $9 million of that $12 million, $13 million and then the remaining is more related to mix than anything else because some of that revenue, if you look at the revenue, the revenue is not coming down as much as the EBITDA, right? .

But that's because of some revenue from mix, some revenue from installation is actually going to hit Q4. So it's essentially about $9 million from operating leverage and $3 million from mix. If you do the math, the midpoint now is 63%. The previous midpoint was about 75% for Q4, right? I mean I think you're looking at it for the full second half of the year. which you have to take out the Q3 mix.

[Timothy Wojs, analyst]

Yes. Yes. Exactly. Okay. Okay. Perfect. And then the revaluation doesn't recur and the pushouts you should realize next year, right? These are both timing-related items is what is kind of what I'm going to add.

[Christian Daes, executive]

Since we always carry a lot of inventory, that has been our tradition. That's why during COVID, we didn't suffer to invoice because we had all supplies in-house for 3, 4 months. Obviously, we bought -- we had inventory at [ 4,800 ] and the peso came down to [ 4,000 ]. The last 20% revaluation, just then, and we're still eating some of that higher price inventory. But this is all obviously by year-end, we will all be clean out will be at the current rate, which hasn't moved much in the last 45 days, which is good. We actually believe that it will rebound and go back up. But so far, we will clean it up by year-end, the latest.

[Santiago Giraldo, executive]

Just to follow up, Tim, it is a timing issue. Obviously, we wanted to highlight that the inventory effect is completely non-cash because you purchase the inventories in dollars and you sell them in dollars. It's just a function of the functional currency being the Colombian peso, right? So those inventories that were purchased during Q2 are essentially all having been sold already, right? So you shouldn't have any more of that in Q4 and the impact on the operating leverage is a timing issue as well because those are projects that are up and going already. They're not getting cancellations. It's just revenues that are being pushed out into '24. So it's a timing issue, as you said.

[Timothy Wojs, analyst]

Okay. Okay. Very good. And then just the last piece on the market. It does sound like you guys are a little bit more constructive on the market this quarter than maybe you were last quarter. Is that just because of some of the financing starting to roll through with banks? And are you actually seeing better bidding? So I'm just -- I guess, just kind of curious how you see the market today than maybe 3 months ago.

[Jose Daes, executive]

The prices have been good for us. The problem that we had last quarter was less invoicing because of the $30 million I mentioned postponed to first quarter of next year and second quarter. And then -- but the pricing and then the peso revaluation, but the pricing has been steady. I don't see other small competition lowering the prices simply, the biggest competitor is PGT and their subsidiaries and they haven't done so. So we have a steady pricing and next year, we have lower costs in aluminum. So everything should be par again next year.

[Operator]

Our next question comes from Stanley Elliott with Stifel.

[Stanley Elliott, analyst]

I apologize if this got asked before I had bouncing around a little bit. Can you help us with the build on top line for the double-digit revenue growth into next year for starters?

[Santiago Giraldo, executive]

Are you talking about the breakdown as to how that's composed spend?

[Stanley Elliott, analyst]

Yes. Roughly, just trying to get a sense for kind of what are going to be the main drivers to get to that.

[Santiago Giraldo, executive]

Well, if you do the math on the backlog that we reported, you know that typically, that gets executed over the following 18 months, right? And that's why we wanted to highlight that graph on our latest slide. to show that the backlog is really sticky and obviously gets executed, right? So if you do the math and just take about 2/3 of that, you come up with what the commercial side of things should be for 2024, right? And that gives you a lot of visibility.

And on the other hand, I'll let José kind of reiterate the opportunity on the single-family residential side. But obviously, when you have this new vinyl product, where we have no revenues this year, and you have these showrooms now operational for 12 months, where you also have no revenues in '23 that provides confidence that achieving double-digit growth next year is very doable. I don't know, José, if you want to add to that.

[Jose Daes, executive]

Yes. Well, like I said before, anything that we get next year for vinyl is new. I mean, we have a lot of people lining up and they are very happy with our product with our service, with the relationship. Let me give you an example. Somebody in Orlando, I mean, one of our clients buy $500,000 a month in aluminum. He buys around $1 million a month from vinyl suppliers. So we are ready -- he wants to turn everything to one vendor. And like him, there are many, many, many clients that we actually have today that buy very little for us. Now on the other hand, we have nobody north of Orlando, we're not selling to anybody now. So let's say Jacksonville as Panama City, that's only in Florida. And now with the [ Milo ] we can penetrate New York, New Jersey, Carolina, Texas, all the things. And we see -- I mean, everybody is really excited about our mine line because we know.

[Stanley Elliott, analyst]

Perfect. And then kind of picking back to the inventory piece, understanding is not cash. Did something happen? You from the beginning of August to now to where you had to have the revaluation. I'm just curious, since most of it sounds like most of the cost of goods there were purchased in the second quarter.

[Santiago Giraldo, executive]

No, nothing happens then. We ended up having more inventory that flew through the Q3 than originally expected. And again, this is more a function of the functional currency. So I'll give you the exact numbers when we bought the inventory, the peso was at about $4,700 per dollar. And when you cost it out 30, 45 and even 60, 75 days later, the average for the quarter was 4,000. So all of a sudden, you have a non-cash impact of 15%, 20% just by function of running more dollars through the P&L because the dollar weakened during that period. But it was more a function of dimensioning how much inventory was going to impact Q3 and ended up being more than we had expected. But as we said on the call, it's essentially all kind of worked out in Q4 should have very little of that.

[Stanley Elliott, analyst]

And then lastly, nice to see the repurchase activity. What are the plans for completing that and then should we think about potentially the Board upsizing that at some point, given where the share price is today?

[Santiago Giraldo, executive]

Yes. We certainly feel that there's an opportunity there, and we still have 60% of that original approval available to us. So to the extent that we continue to see opportunities to execute, we will. As we said, our cash flow generation the way that we're projecting it now that a lot of the CapEx is out of the way should be very strong. And we certainly think that this is a good way to return cash to shareholders, especially at today's prices.

[Operator]

Our next question comes from Julio Romero with Sidoti.

[Julio Romero, analyst]

I guess my first question is just for José Manuel. On the order delays, what are your customers saying in terms of maybe why the banks stopped lending and why the financing dried up for a little bit? And are those project delays at least partially driven by customer hesitation, customers reworking projects or changing their project scope at all?

[Jose Daes, executive]

No, Julio. Actually, the main reason for the delays is that they increased the percentage the banks increase the percentage that they have to have under contract in other to release the money before the 2008 was 20% to 30%. After 2008, it was 50%. And now we're asking for 60% to 75%. So all the projects that are ongoing today are going. That's on the commercial side for condominiums.

Now on apartments, which are for rental seems the interest rate went up, they are more [ car ] for 2. The numbers met the demand and the payment for interest. So all that has been clear to most of the projects. We haven't had any cancellations. We have postponed postponement and everything looks good. Like I said, for next year, both sides are going to be moving.

[Julio Romero, analyst]

That's good color there. I appreciate it there. And so it sounds like higher lending standards from the banks. I guess just really what I'm trying to get at is are the customers -- are the higher rates and higher hurdle rates, I guess, causing customers to have any sort of hesitation or any sort of second thoughts or reworking or anything of that nature in terms of their projects. You mentioned no cancellations, which is good, but just a little more color on the demand front, if I could.

[Jose Daes, executive]

The demand in South Florida, I refresh, the demand from Tampa and Orlando down in [indiscernible] or still high, the cancellations has been -- or the postponing by clients have been on the lower end, and we don't serve that much of that market. But to my surprise, now, when I asked the developers who are they selling to, who is the largest buyer is Mexico and Brazil. So that's good. There's a lot of Mexican coming here that before travel to Texas and Southern California. And on the other hand, I learn from the track homebuilders, the production homes that they -- half of their sales are 100% cash. A lot of people retiring in Florida the cash. And they don't want to take 8% interest rate. So the amount keeps going up. I mean, steady or going up. And also, what's surprising, anything above $3.5 million is what we're selling the most. So that's good. I mean, a lot of windows in those buildings.

[Julio Romero, analyst]

Great. Great. Good color there. And then just last one for me is just on SG&A. Santiago, you mentioned SG&A was low to lower shipping and commission expenses. Is that kind of a one-off thing? And then how do you expect SG&A to trend in the fourth quarter?

[Santiago Giraldo, executive]

That was part of it. And then we made the comparison to nonrecurring settlement charge in the Q3 of 2022 volume. So you have to also incorporate that in there. And obviously, with more installation, the flip side of the lower gross margin is that you don't have transportation costs on installation, right? So the expectation would be that SG&A for next quarter is much more in line with Q3. So we'll be able to offset some of the variables that are impacting gross margin by having lower SG&A. But for modeling purpose, it would be similar to Q3 for what Q4 should be.

[Operator]

Our next question comes from John Ramirez with D.A. Davidson.

[Unknown Analyst]

Thank you for your time. You mentioned that over the 18 months period for backlog, 2/3 is commercial. Can we -- how much of the remaining is vinyl -- and in terms of the cadence of growth, what does the step-up look like in Q4 and throughout 2024?

[Santiago Giraldo, executive]

Just to can clarify something. 2/3 of the backlog is related to multifamily and not single family residential nor vinyl. Everything that you see reflected in the backlog is strictly on the commercial side with 2/3 of that being multifamily, right? So that's the way to look at it. So to your second question, no vinyl is included in that backlog. And for that matter, no single-family residential revenues are included in the backlog because that is very quick and is very spot in nature.

So you get an order and it's out the door in 4, 5 weeks. So a lot of it gets worked intra-quarter. So all of what you see from a backlog perspective is related to the commercial segment. Sorry, you had a follow-up to that. Can you repeat?

[Unknown Analyst]

Yes. I was -- first of all, thank you for the clarification. I was just focusing on the single-family residential product and I know you already mentioned that it's not in there, but what sort of expectations in terms of growth do you have for Q4 and into the first half I just kind of want to get a sense of what you're seeing and sort of what are you expecting in the first half of '24?

[Santiago Giraldo, executive]

Well, we will want to go into too many details in '24 until we're able to formally complete our budgeting process. So you'll hear much more details after the Q4 call. As far as the Q4 projection for residential, as I was saying earlier, we're expecting that to be kind of flattish sequentially. So for modeling purposes, again, if you look at the previous quarters, they've been kind of stable quarter-over-quarter, and that's what we would be expecting in Q4 as well.

Again, this vinyl related revenues are not really going to start hitting the P&L until the first quarter, second quarter of next year. So you don't have the benefit of that in 2023. So we're still just projecting that based on current orders to be stable sequentially.

[Unknown Analyst]

Got it. And if I could just ask one more. Are you seeing any -- are you continuing to see any pricing pressure in that residential?

[Santiago Giraldo, executive]

I'll let José take that.

[Jose Daes, executive]

No, we haven't seen -- like I said before, the pricing has been steady. Only there is a couple of major vendors that have to reduce their prices by 5%, 10% in order to get any work. Otherwise, they would go compete.

[Operator]

At this time, I would like to turn the call back over to José Manuel for closing remarks.

[Jose Daes, executive]

Thanks, everyone, for participating on today's call. we are very, very excited. We cannot tell you enough about the future of the company. Our sales are increasing by the day for next year. and we hope to give you much better results. Thank you.

[Operator]

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.