Tecnoglass Holdings Inc. (TGLS) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The
following discussion of the Company’s financial condition and results of operations should be read in conjunction with the Company’s
consolidated financial statements and notes to those statements included in this Form 10-K. This discussion contains forward-looking
statements that involve risks and uncertainties. Please see the section entitled “Forward-Looking Statements and Introduction”
in this Form 10-K.

Overview

We
are experienced and highly skilled in the vertical integration of architectural glass manufacturing, distribution, and professional fitting.
Our expertise extends to the production of top-quality windows, as well as the supply of aluminum, vinyl, and other components. Our dedicated
and knowledgeable team serves a diverse range of commercial and residential construction projects worldwide, guaranteeing outstanding
products and seamless installation services. With a focus on innovation, combined with providing highly specified products with the highest
quality standards at competitive prices, we have earned #1 spot in the Forbe’s list of America’s 100 most successful small-cap
companies for 2024, and developed a leadership position in each of our core markets. In the United States, which is our largest market,
we were ranked among the four largest glass fabricators serving the United States in 2023 by Glass Magazine. In addition, we believe
we are the leading glass transformation company in Colombia. Our customers, which include developers, general contractors or installers
for hotels, office buildings, shopping centers, airports, universities, hospitals and multi-family and residential buildings, look to
us as a value-added partner based on our product development capabilities, our high-quality products and our unwavering commitment to
exceptional service.

With
over 40 years of experience in architectural glass and aluminum assembly, we specialize in transforming various glass products. Our offerings
include tempered safety glass, double thermo-acoustic glass, and laminated glass. Our wide range of finished glass products are utilized
in diverse buildings for floating facades, curtain walls, windows, doors, handrails, as well as interior and bathroom spatial dividers.
In addition to glass, we manufacture aluminum and vinyl products such as profiles, rods, bars, plates, and other hardware specifically
designed for window manufacturing.

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Our
products are manufactured in a 5.8 million square foot, state-of-the-art manufacturing complex in Barranquilla, Colombia that provides
easy access to North, Central and South America, the Caribbean and the Pacific. Our products can be found on some of the most distinctive
buildings in these regions, including the Aston Martin Residences (Miami), Miami World Tower (Miami), 3ELEVEN (New York), Raffles Hotel
(Boston), Norwegian Cruise Line Terminal B (Miami), One Thousand Museum (Miami), Paramount Miami Worldcenter (Miami), Salesforce Tower
(San Francisco) and AE’O Tower (Honolulu).. Our track record of successfully delivering high profile projects has earned us an
increasing number of opportunities across the United States, evidenced by our expanding backlog and overall revenue growth.

Our
structural competitive advantage is underpinned by our low-cost manufacturing footprint, vertically integrated business model and geographic
location. Our integrated facilities in Colombia and distribution and services operations in Florida provide us with a significant cost
advantage in both manufacturing and distribution, and we continue to invest in these operations to expand our operational capabilities.
Our lower cost manufacturing footprint allows us to offer competitive prices for our customers, while also providing innovative, high
quality and high value-added products, together with consistent and reliable service. We have historically generated high margin organic
growth based on our position as a value-added solutions provider for our customers.

We
have a strong presence in the Florida market, which represents a substantial portion of our revenue stream and backlog. Our success in
Florida has primarily been achieved through sustained organic growth, with further penetration now taking place into other highly populated
areas of the United States. As part of our strategy to become a fully vertically integrated company, we have supplemented our organic
growth with some acquisitions that have allowed us added control over our supply chain allowed for further vertical integration of our
business and will act as a platform for our future expansion in the United States. In 2016, we completed the acquisition of ESW, which
gave us control over the distribution of products into the United States from our manufacturing facilities in Colombia. In March 2017,
we completed the acquisition of GM&P, a consulting and glazing installation business that was previously our largest installation
customer.

In
2019 we consummated the joint venture agreement with Saint-Gobain, acquiring a 25.8% minority ownership interest in Vidrio Andino, a
Colombia-based subsidiary of Saint-Gobain, solidifying our vertical integration strategy by acquiring an interest in the first stage
of our production chain, while securing ample glass supply for our expected production needs. Additionally, in April 2019, we acquired
a 70% equity interest in ESMetals, which has been consolidated in our financial statements since. In November 2023, we acquired the remaining
30% equity interest in ESMetals. ESMetals is a Colombian entity that serves as a metalwork contractor to supply us with steel accessories
used in the assembly of certain architectural systems as part of our vertical integration strategy.

The
continued diversification of the group’s presence and product portfolio is a core component of our strategy. In particular, we
are actively seeking to expand our presence in United States outside of Florida. We also launched a residential window offering which,
we believe, will help us expand our presence in the United States and generate additional organic growth. We believe that the quality
of our products, coupled with our ability to price competitively given our structural advantages on cost, will allow us to generate further
growth in the future.

We
have focused on working with The Power of Quality, always making sure that our vision of sustainability is immersed into every
aspect of our business, including social, environmental, economic and governance variables, that help us make decisions and create value
for our stakeholders. We carry out a series of initiatives based on our global sustainability strategy, which is supported on three fundamental
pillars: promoting an ethical and responsible continuous growth, leading eco-efficiency and innovation, and empowering our environment.
As part of this strategy we have voluntarily adhered to UN Global Compact Principles since 2017 and in pursuit of our cooperation with
the attainment of the SDGs joined in 2021 a program to dynamize, strengthen and make visible the management of greenhouse gas emissions
as a carbon neutral strategy set out by the Colombian government for 2050.

How
We Generate Revenue

We
are a leading manufacturer of hi-spec architectural glass and windows for the western hemisphere residential and commercial construction
industries, operating through our direct and indirect subsidiaries. Headquartered in Barranquilla, Colombia, we operate out of a 5.8
million square foot vertically integrated, state-of-the-art manufacturing complex that provides easy access to North, Central and South
America, the Caribbean, and the Pacific.

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Our
glass products include tempered glass, laminated glass, thermo-acoustic glass, curved glass, silk-screened glass, and digital print glass
as well as mill finished, anodized, painted aluminum and vinyl profiles, and produces rods, tubes, bars and plates. Window production
lines are defined depending on the different types of windows: normal, impact resistant, hurricane-proof, safety, soundproof and thermal.
We produce fixed body, sliding windows, projecting windows, guillotine windows, sliding doors and swinging doors. ES produces facade
products which include: floating facades, automatic doors, bathroom dividers and commercial display windows. In late 2023, we entered
into the vinyl window market, expanding our product portfolio to more than double our addressable market, and offering customers a wider
selection of solutions to meet their project needs. We intend to capitalize on our existing distribution base for our aluminum products
to obtain significant synergies given the number of dealers and distributors that already sell both aluminum and vinyl windows.

We
sell to over 1,000 customers using several sales teams based out of Colombia and the United States to specifically target regional markets
in South, Central and North America. The United States accounted for 96%, and 95% of our combined revenues in 2024 and 2023, respectively,
while Colombia accounted for approximately 2.8% and 3.0%, and other Latin-American destinations accounted for approximately 1.7% during
both years.

We
sell our products through our main offices/sales teams based out of Florida and different regions in the US, which is our largest sales
group and has strong relationships with glazing contractors, general contractors, real estate developers and specialty window dealers
in the region. In late 2022, we launched two showrooms, one in New York City and one in Charleston, SC, to serve primarily single-family
residential markets in their regions. New showrooms have been completed in Houston, TX, and Bonita Springs, FL. Additionally, showrooms
in Phoenix, AZ and Los Angeles, CA are in the lease negotiating stages and are expected to open in 2025. We also have sales forces located
in Colombia and Panama with long-standing business relationships in the region to serve Latin American markets. We have two types of
sales operations: contract sales, which are the high-dollar, customer tailored projects, and standard form sales, which reflect lower-value
orders that are of short duration.

We
expect to benefit from growth in our largest markets in the United States by gaining market share, broadening our geographic footprint.
Favorable demographics in states such as South Carolina, Florida, Texas, and North Carolina, where we have a strong presence, contribute
to continued growth. According to the U.S Census Bureau, average residential construction spending increased 6.2% in 2024, from $875
billion in 2023, to $930 billion in 2024. Addittionally, single family housing stars increased 6.5% in 2024. According to the FMI’s
2025 north American engineering and contruction overview, single family residential construction in the U.S is expected to increase at
a compound aunual growth rate of 6% until 2028, highly driven by interest rates buydowns. Remodeling and reparing activity, Is also expected
to trend up over the next years as new home prices remain at all-time high levels. On the other hand, the latest Nonresidential Construction
Index (NRCI) score of 56.9, 20% above the previous quarter, reflects improving economic conditions and expanding industry opportunities
from the commercial construction market for 2025. These stable to positive macro trends in our core markets and geographies combined
with a lean cost structure, leave us well positioned to maintain industry leading margins and further diversify our presence into the
U.S.

Liquidity

As
of December 31, 2024, and December 31, 2023, we had cash and cash equivalents of approximately $134.9 million and $129.5 million, respectively.
During the year ended December 31, 2024, the main source of cash was operating activities, which generated $170.5 million.

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As
of December 31, 2024, our liquidity position was comprised of $175.0 million available under committed lines of credit, in addition to
a cash balance of $134.9 million. We anticipate that working capital will continue to be a net benefit to cash flow in the near future,
which in addition to our current liquidity position, provides ample flexibility to service our obligations through the next twelve months.

Capital
Resources

We
transform glass and aluminum into high specification architectural glass and custom-made aluminum profiles which require significant
investments in state-of-the-art technology. During the years ended December 31, 2024, and 2023, we made investments primarily in building
and construction, and machinery and equipment in the amounts of $88.9 million, and $87.3 million, respectively. We believe our investments
in technology within recent years have positioned us well for continued growth given the flexibility afforded by our current installed
capacity, improved profitability and enhanced cash generation in the years ahead. Recent examples of our high return investments within
the last three years include:

In
2019 we entered into a joint venture agreement with Saint-Gobain, a world leader in the production of float glass, a key component of
our manufacturing process, whereby we acquired a 25.8% minority ownership interest in Vidrio Andino, a Colombia-based subsidiary of Saint-Gobain.
Income from this investment is recorded using the equity method and is presented within the Consolidated Statement of Operations as a
component of non-operating income as the Company is not subject to income tax over this investment. The joint venture agreement includes
plans to build a new plant that will be located approximately 20 miles from our primary manufacturing facility in Barranquilla Colombia,
in which we will also have a 25.8% interest. The new plant will be funded with proceeds from the original cash contribution made by us,
operating cash flows from the Bogota plant, debt incurred at the joint venture level that will not be consolidated into our company.

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Results
of Operations (Amounts in thousands)

Comparison
of years ended December 31, 2024 and December 31, 2023

Our
operating revenue increased $56.9 million, or 6.8%, from $833.3 million in the year ended December 31, 2023, to $890.2 million in the
year ended December 31, 2024. Strong sales during 2024 were driven by U.S. commercial and single-family residential market activity.
U.S. sales increased $54.8 million, or 6.9%, from $795.1 million in 2023 to $849.9 million in 2024. U.S. Commercial market sales increased
$18.1 million, or 3.9%, from $459.7 million in 2023 to $477.8 million in 2024 as we continue to execute on our growing backlog. U.S.
single family residential market sales increased $36.7 million, or 10.9%, from $335.4 million in 2023 to $372.1 million in 2024 and accounted
for 41.8% of total sales in the year ended December 31, 2024. Sales to Latin-American markets increased $2.1 million, or 5.4%, from $38.2
million in 2023 to $40.3 million in 2024.

Gross
profit during the year ended December 31, 2024, was $380.0 million, a decrease of $10.9 million, or 2.8%, from $390.9 million during
the year ended December 31, 2023. The gross profit margin during the year ended December 31, 2024, decreased to 42.7% from 46.9% during
the year ended December 31, 2023, primarily related to a 5.9% appreciation of the Colombian Peso impacting our costs denominated in Colombian
Pesos against our predominantly US Dollar revenue stream. Additionally, the year over year comparison was also impacted by our mix of
revenue, with sales from installation projects, wich bears lower margins, now accounting for 18.2% of our total revenues for the year
ended December 31, 2024, compared to 15.4% for the year ended December 31, 2023, as well as higher salaries which were adjusted by the
government at the beginning of the year and higher headcount to adjust for ongoing growth, which accounted for 210 basis points of our
gross margin deterioration. Despite the year over year reduction of gross profit margin, gross margin sequentially increased during the
year ended December 31, 2024.

Operating
expenses increased $21.8 million, or 16.6%, from $131.2 million to $153.0 million for the year ended December 31, 2023 and 2024, respectively.
The increase was mainly driven by personnel expense, up $9.4 million from $35.7 million during the year ended December 31, 2023, to $45.1
million during the year ended December 31, 2024, due to administrative salary adjustments, and operating headcount increase to support
our growing operation, resulting in 74 basis points deterioration of our operating margin; and by a negative effect in COP denominated
amounts related to a 5.9% appreciation of the Colombian Peso against US Dollar over the period.

During
the year ended December 31, 2024 and 2023, the Company recorded non-operating income of $5.9 and $5.1 million, respectively. Non-operating
income for the period is comprised primarily of interest income from short-term investments, income from rental properties and gains
on sale of scrap materials as well as non-operating expenses related to certain charitable contributions outside of the Company’s
direct sphere of influence.

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Interest
expense and deferred cost of financing decreased $1.7 million, or 19.0%, to $7.4 million during the year ended December 31, 2024, from
$9.2 million during the year ended December 31, 2023, as the Company voluntarily prepaid $62.0 million to reduce its debt balance and
benefited from having a favorable interest rate hedge in place for 100% of its outstanding debt.

During
the year ended December 31, 2024, the Company recorded a non-operating net loss of $5.7 million associated with foreign currency transactions,
compared to a net gain of $0.7 million during the year ended December 31, 2023.

The
effective income tax rate of 28.4% and 29.8% for the years ended December 31, 2024 and 2023, respectively, are below the average statutory
rates of 31.3% and 30.4% during each of those periods, respectively, as the proportion of our taxable income shifted jurisdictions resulting
from new developments of our product designs, trademarks and other intellectual property rights as well as from growing profit in US
subsidiaries.

As
a result of the foregoing, the Company recorded a net income for the year ended December 31, 2024 of $161.3 million compared to $183.5
million for the year ended December 31, 2023.

Comparison
of years ended December 31, 2023 and December 31, 2022

Our
operating revenue increased $116.7 million, or 16.3%, from $716.6 million in the year ended December 31, 2022 to $833.3 million in the
year ended December 31, 2023. Strong sales during 2023 were driven by U.S. commercial and single-family residential market activity.
U.S. sales increased $106.7 million, or 15.5%, from $688.4 million in 2022 to $795.1 million in 2023. U.S. Commercial market sales increased
$77.7 million, or 20.3%, from $382.0 million in 2022 to $459.7 million in 2023 as we continue to execute on our growing backlog. U.S.
single family residential market sales increased $29.0 million, or 9.5%, from $306.4 million in 2022 to $335.4 million in 2023 and accounted
for 40.3% of total sales in the year ended December 31, 2023. Sales to Latin-American markets increased $10.0 million, or 35.6%, from
$28.2 million in 2022 to $38.2 million in 2023.

Gross
profit increased $41.5 million, or 11.9%, to $391.0 million during the year ended December 31, 2023, compared with $349.5 million during
the year ended December 31, 2022. This resulted in gross profit margin reaching 46.9% during the year ended December 31, 2023, down from
48.8% during the year ended December 31, 2022. The 190-basis point decrease in gross margin can be mainly attributable to our revenue
mix which included more installation and stand-alone product sales during the current period. Installation and stand-alone product revenues
were up 21.4% and 9.5% respectively year over year, weighting down overall gross margin. Additionally, unfavorable currency exchange
dynamics impacted our costs denominated in the Colombian Peso against our predominantly US Dollar revenue stream.

Operating
expenses increased $8.1 million, or 6.6%, from $123.1 million for the year ended December 31, 2022, to $131.2 million for the year ended
December 31, 2023. Administrative and selling Personnel expense increased 27%, from $28.1 million in 2022 to $35.7 in 2023, related to
a larger operation and ongoing geographical expansion. Additionally, provision for accounts receivable increased $2.2 million, from $0.6
million in 2022 to $2.8 million in 2023. However, as a result of our continued effort to enhance our lean administrative structure and
tight cost controls, our operating expenses as a percentage of sales improved from 17.2% in 2022 to 15.7% in 2023.

During
the years ended December 31, 2023, and 2022, the Company recorded a net non-operating income of $5.1 million and $4.2 million, respectively.
Non-operating income is comprised primarily of interest income from short term investments and deposits, rental properties and gains
on sale of scrap materials and charges to customers on credit card payments, as well as non-operating expenses related to certain charitable
contributions outside of the Company’s direct sphere of influence.

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Interest
expense and deferred cost of financing increased $1.0 million, or 12.5%, to $9.2 million during the year ended December 31, 2023, from
$8.2 million during the year ended December 31, 2022, reflecting an increase in floating interest rates while our debt balance remained
stable.

During
the year ended December 31, 2023, the Company recorded a non-operating gain of $0.7 million associated with foreign currency transactions.
Comparatively, the Company recorded a net gain of $2.0 million during the year ended December 31, 2022, within the statement of operations
as the Colombian peso appreciated 20.5% during the period.

During
the years ended December 31, 2023 and 2022, the Company recorded an income tax provision of $77.9 million and $74.8 million, respectively,
reflecting an effective income tax rate of 30.4% and 33.3%, respectively.

As
a result of the foregoing, the Company recorded net income for the year ended December 31, 2023 of $183.5 million compared to $156.4
million in the year ended December 31, 2022.

Cash
Flow from Operations, Investing and Financing Activities

During
the years ended December 31, 2024 and 2023, operating activities generated approximately $170.5 million and $138.8 million, respectively.
The strong cashflow from operations during the year ended December 31, 2024, was mainly associatedwith our industry leading profitability,
and enhanced working capital efforts.

The
main sources of operating cash during the year ended December 31, 2024, were driven by trade accounts payable, and contract assets and
liabilities. Trade accounts payable generated $14.7 million during the year ended December 31, 2024, mainly as a result of our growing
operation, while our days payable outstanding increased only slightly, compared with $17.4 million used during the year ended December
31, 2023. In addition, contract assets and liabilities generated $14.3 million during the year ended December 31, 2024, mostly due to
an increase in billings in excess of costs, as main projects are being executed, and large projects from our backlog are starting operations;
compared to $13.9 million generated during the year ended December 31, 2023, as we executed on our growing backlog. The largest use of
cash in operating activities was trade accounts receivable, which used $44.4 million in the year ended December 31, 2024, compared with
a use of $0.8 million during the prior year period, driven by an increase in pace of large commercial installation jobs during the third
and fourth quarter of 2024, which entail longer cash cycles. Additionally, taxes payable used $3.5 million during the year ended December
31, 2024, resulted from taxes being paid during the period, as the Colombian subsidiaries fully paid their 2023 income tax during the
second quarter of 2024.

We
used $77.3 million and $76.0 million in investing activities during the years ended December 31, 2024, and 2023, respectively. The main
use of cash in investing activities during the year ended December 31, 2024 was related to scheduled payments on previous investments
to increase capacity and efficiency as well as new investments in land and equipment. During the year ended December 31, 2024, we paid
$79.6 million to acquire property plant and equipment, which in combination with $6.4 million acquired under credit or debt, amount to
total capital expenditures of $86.0 million. During the year ended December 31, 2023, we used $78.0 million for the acquisition of property
and equipment. Including assets acquired with debt or supplier credit, total capital expenditures during the period were $87.3 million.

Financing
activities used $84.5 million and $42.8 million during the year ended December 31, 2024, and 2023, respectively. On April 10, 2024, we
paid $2,500 to Incantesimo SAS, related to the acquisition of the remaining 31% equity interest of ES Metals. We paid $19.7 million and
$16.4 million of dividends to holders of our ordinary shares during the years ended December 31, 2024 and 2023, respectively. Additionally,
during the year ended December 31, 2024, we used $64.5 million to repay debt from our Senior Secured Line of Credit and other smaller
facilities.

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Off-Balance
Sheet Arrangements

We
did not have any material off-balance sheet arrangements as of December 31, 2024 or 2023.

Critical
Accounting Estimates

The
preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that
affect the assets, liabilities, revenues and expenses, and other related amounts during the periods covered by the financial statements.
Management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables
and assumptions affecting the future resolution of the uncertainties increases, these judgments become more subjective and complex. We
have identified the following accounting policies as the most important to the presentation and disclosure of our financial condition
and results of operations.

Revenue
Recognition

For
supply and installation contracts, the performance obligations are satisfied over time and control is deemed to be transferred when the
contract is accepted by our customers. Revenues from supply and installation contracts are recognized using the cost-to-cost method,
measured by the percentage of costs incurred to date to total estimated costs for each contract. Contract modifications routinely occur
to account for changes in contract specifications or requirements. In most cases, contract modifications are for goods or services that
are not distinct and, therefore, are accounted for as part of the existing contract. Transaction price estimates include additional consideration
for submitted contract modifications or claims when the Company believes it has an enforceable right to the modification or claim, the
amount can be reliably estimated, and its realization is reasonably assured. Amounts representing modifications accounted for as part
of the existing contract are included in the transaction price and recognized as an adjustment to sales on a cumulative catch-up basis.