Tecnoglass Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. The filing identifies the registrant as Tecnoglass Inc. (ticker TGLS); the request metadata names Tecnoglass Holdings Inc.
Business context
Tecnoglass manufactures and installs architectural glass, windows, and aluminum products for commercial and residential construction. It operates mainly from Colombia and exports most production; the United States is its largest market. The company reports one operating segment.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $108.5 million | $97.0 million | $329.5 million | $273.1 million |
| Gross profit | $35.7 million | $34.7 million | $106.5 million | $86.1 million |
| Gross margin | 33.0% | 35.8% | 32.3% | 31.5% |
| Operating income | $15.6 million | $15.3 million | $48.1 million | $32.9 million |
| Net income (loss) | $(1.3) million | $6.2 million | $13.7 million | $12.9 million |
| Net income (loss) attributable to parent | $(1.2) million | $6.3 million | $13.6 million | $13.3 million |
Q3 basic and diluted loss per share was $0.03; nine-month basic and diluted earnings per share were $0.31. U.S. revenue grew 13% in Q3 and 32.1% for the nine-month period. Nine-month Colombian revenue fell from $49.5 million to $38.2 million, partly offsetting U.S. growth. The U.S. represented 86% of Q3 revenue and 86.2% of nine-month revenue.
Quarterly operating expenses rose 3.9% to $20.2 million. Management cited higher commissions, a specific-project warranty cost, and increased receivables provisions, partly offset by lower shipping expense. For the nine months, operating expenses increased 9.8% to $58.4 million.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $7.5 million, versus a $9.5 million use in 2018. Receivables absorbed $30.0 million; payables and accrued expenses provided $16.5 million. Days sales outstanding increased to 92 from 90 at year-end 2018.
- Investing cash outflow was $54.3 million, including $34.1 million for the Saint-Gobain joint venture interest and $19.9 million for property and equipment. Financing provided $56.5 million, including $36.5 million net equity proceeds and debt activity.
- Cash was $41.7 million at September 30, compared with $33.0 million at December 31, 2018. Current assets were $315.5 million and current liabilities $130.9 million.
- Total debt obligations under borrowing arrangements were $263.9 million, including $16.2 million current and $247.8 million long-term debt on the balance sheet. The company reported $62.5 million of available borrowing capacity and compliance with the new facility’s covenants.
- The weighted-average interest rate on credit facilities was 7.35%. A $30 million five-year term facility closed in May at LIBOR plus 2.95%; reported long-term debt fair value was $266.9 million versus $247.8 million carrying value.
Material changes, outlook, and risks
- Q3 results were materially affected by a $12.0 million non-cash foreign-currency transaction loss, versus a $2.5 million loss in Q3 2018. Management attributed most of it to remeasurement of a $126.3 million net U.S.-dollar monetary liability position at Colombian subsidiaries amid peso depreciation. The nine-month loss was $9.9 million.
- Nine-month revenue growth and improved gross margin reflected higher sales and fixed-cost absorption. Quarterly gross margin declined to 33.0%; the filing attributes the change to sales mix, though its narrative comparison refers to “the second quarter of 2018,” making that specific comparison unclear.
- The company acquired a 25.8% interest in Vidrio Andino for $45 million: $34.1 million cash and $10.9 million of land still to be contributed by January 2020. The land contribution involves the CEO and COO and is subject to third-party valuation. The joint venture also plans a new Colombian plant; Tecnoglass expects to contribute about $12.5 million in 2020–2021.
- Management described capacity expansion and automation investments totaling approximately $23 million, expected to be completed by Q1 2020. Aluminum capacity expansion was completed in July 2019; other automation was expected by year-end 2019.
- Remaining performance obligations were $269.1 million, with $92.8 million expected to be recognized in 2019, $136.8 million in 2020, and $39.6 million thereafter. This is a reported order measure, not a revenue forecast or formal earnings guidance; the filing provides no formal financial guidance.
- Foreign-currency forwards and collars hedge forecast Colombian-peso costs. At quarter-end, derivatives had a net liability fair value of $1.39 million; 20 contracts covered exchange of $44 million through August 2020.
- A material weakness in accounting for income taxes remained, and management concluded disclosure controls were not effective as of September 30. The company was implementing remediation and targeted remediation by fiscal year-end 2019.
- Commitments included at least $21.8 million of raw-material purchases from a supplier before May 2026. Management said ordinary-course legal matters were not expected to be material based on currently available information, while noting outcomes are uncertain.
Most important facts to verify
- Whether the sharp Q3 earnings swing is principally attributable to foreign-exchange remeasurement and how that exposure may change.
- Collection and working-capital trends, particularly receivables growth, 92-day DSO, and operating cash generation.
- Debt maturities, borrowing availability, interest costs, covenant headroom, and funding for planned capital spending and joint-venture contributions.
- Completion, valuation, and related-party terms of the $10.9 million land contribution, and the expected additional $12.5 million joint-venture contribution.
- Progress in remediating the income-tax control weakness and whether controls are effective at year-end.
- The sustainability of U.S. growth, the recovery assumptions for Colombia, and conversion timing of the $269.1 million remaining performance obligations.