Tecnoglass Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The filing identifies the registrant as Tecnoglass Inc. (NASDAQ: TGLS). Financial amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless stated otherwise.
Business context
Tecnoglass manufactures and installs architectural glass, windows, and aluminum products, primarily for construction markets in the United States and Latin America. Colombia’s COVID-19 lockdown led the company to suspend production through April 13; it resumed operations on April 14 after being designated an essential supplier. The company cited slower reopening of customer job sites, particularly in Latin America.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $81.9m | $113.9m | $169.2m | $221.1m |
| Gross profit | $31.8m | $38.8m | $62.2m | $70.7m |
| Gross margin | 38.8% | 34.1% | 36.8% | 32.0% |
| Operating income | $15.2m | $18.3m | $28.4m | $32.5m |
| Net income (loss) | $16.1m | $7.7m | $(2.6)m | $15.0m |
| Net income (loss) attributable to parent | $16.2m | $7.5m | $(2.6)m | $14.8m |
| Basic EPS | $0.35 | $0.17 | $(0.06) | $0.35 |
| Cash from operating activities | Not separately presented | Not separately presented | $24.8m | $7.3m |
Balance sheet and liquidity
- At June 30, cash and cash equivalents were $63.4m, versus $47.9m at December 31, 2019. The company reported a further $73.4m available under existing credit facilities.
- Current assets were $303.7m and current liabilities $121.2m. Total assets were $540.7m; total liabilities $375.0m; shareholders’ equity $165.7m.
- Total borrowing obligations were $262.6m, including $18.7m current and $243.8m long-term debt, net of deferred financing costs. Debt was slightly higher than the $259.8m reported at year-end 2019. Credit facilities’ weighted-average interest rate was 7.07%.
- Operating cash flow was $24.8m; investing activities used $7.2m and financing activities provided $1.8m in the first half. Capital expenditures, including assets acquired with debt or supplier credit, were $8.3m.
Changes versus comparable periods
- Q2 revenue fell 28% year over year; first-half revenue fell 23.4%. U.S. sales declined 20.3% in Q2 and 17.5% for the half; Latin American sales fell 80.8% and 62%, respectively.
- Despite lower sales, gross margin improved, which management attributed to lower aluminum costs, automation and waste reduction, lower installation costs as manufacturing made up more of the mix, and favorable currency effects. Lower fixed-cost absorption partly offset these gains.
- Operating expenses fell 19.5% in Q2 and 11.5% in the first half, reflecting lower shipping costs, cost controls, and Colombian peso depreciation.
- First-half results shifted from $15.0m net income in 2019 to a $2.6m loss in 2020, mainly reflecting a $19.2m foreign-currency transaction loss, compared with a $2.1m gain in the prior-year period.
- Operating cash flow increased from $7.3m to $24.8m. The 2019 cash flow statement was revised to reclassify foreign-currency effects; the company said the revision did not affect the net change in cash and was not material to previously reported periods.
Outlook, risks, and notable items
- Management said working capital was expected to remain a net cash-flow benefit for 2020 and stated that cash, available credit, and anticipated cash generation provided flexibility to service obligations over the following 12 months. It reported no formal earnings or revenue guidance.
- Remaining performance obligations were $323.4m at June 30; management expected to recognize $173.0m in 2020 and $150.4m in 2021.
- COVID-19 impacts, customer-site reopening delays, and foreign-exchange volatility remain important uncertainties. The Colombian peso’s 15% first-half depreciation contributed to the large noncash currency loss; its 8% Q2 appreciation generated a $13.3m noncash gain.
- The company reported $73.4m of unused credit availability and had entered into currency collars covering $26m through February 2021; their June 30 fair value was a $1.4m net liability.
- The company’s 25.8% Vidrio Andino joint-venture investment includes a $10.9m land contribution obligation involving a related party owned by family members of the CEO. A proposed new plant could also require an additional company contribution of approximately $12.5m in 2020–2021 if needed. The filing also reports a minimum $14.4m raw-material purchase commitment through May 2026.
- Management said it identified no impairment of goodwill or long-lived assets as of June 30, while noting that pandemic-related forecasts remain uncertain. It reported ordinary-course legal matters and no indication that they would materially affect results based on information then available. Disclosure controls were deemed effective.
Important facts for investors to verify
- How much of the Q2 earnings increase came from the $13.3m noncash currency gain, and whether margins remain elevated as volumes recover.
- The pace of U.S. and Latin American demand recovery, including conversion of the $323.4m performance-obligation balance into recognized revenue and cash.
- Debt maturities and refinancing capacity: the filing lists $216.5m of maturities in 2022, alongside $73.4m of reported facility availability.
- Timing and funding requirements for the Vidrio Andino land contribution and potential $12.5m additional investment, including related-party terms.
- Cash conversion and working-capital trends, particularly receivables, payables, and contract assets and liabilities.