Tecnoglass Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. The filing is for Tecnoglass Inc. (the company named in the request as Tecnoglass Holdings Inc.); amounts below are in U.S. dollars, generally millions unless stated otherwise.
Business context and financial results
Tecnoglass manufactures architectural glass, aluminum products, windows and building systems, primarily in Colombia, and sells across the Americas. It reported one operating segment. The United States was its largest reported sales market in the first half.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $58.1 | $51.9 | $110.1 | $99.8 |
| Gross profit / margin | $19.0 / 32.7% | $16.6 / 32.1% | $36.2 / 32.9% | $31.2 / 31.3% |
| Operating income | $9.3 | $8.4 | $17.3 | $16.3 |
| Net income (loss) | $(11.3) | $0.4 | $(1.5) | $(4.3) |
| Basic loss per share | $(0.45) | $0.02 | $(0.06) | $(0.18) |
| Operating cash flow | Not provided separately | Not provided separately | $7.2 | $(22.9) |
At June 30, cash was $16.0 million, current assets $168.6 million, and current liabilities $137.4 million. Total debt and borrowing arrangements, including current and long-term portions, were $114.9 million; reported shareholders’ equity was $68.2 million. Six-month cash used in investing was $15.9 million, including $15.2 million for property and equipment; financing provided $8.4 million. The company also disclosed $20.2 million of assets acquired under capital leases during the first half.
Changes versus comparable periods
- Q2 revenue increased 11.6%; six-month revenue rose 10.3%. U.S. sales grew 28.0% in Q2 and 35.7% in the first half, while first-half Colombia revenue declined 8.2% in dollars, which management attributed to unfavorable exchange rates despite local-currency growth.
- Operating income increased in both comparisons, while selling and administrative expenses rose 17.7% in Q2 and 26.1% in the first half, mainly due to commissions and shipping.
- Q2 swung from net income of $0.4 million to a loss of $11.3 million, principally reflecting a $16.4 million non-cash warrant-liability fair-value loss. First-half net loss narrowed from $4.3 million to $1.5 million; the first-half warrant-liability loss was $11.3 million, versus $13.5 million in 2014.
- Operating cash flow improved to $7.2 million from cash use of $22.9 million. Receivables and inventory consumed $13.6 million and $13.7 million, respectively, partly offset by higher payables and customer advances.
Outlook, risks and unusual items
- Management said operating cash flow and borrowing capacity were expected to cover cash needs for the next 12 months. It cited approximately $60 million of additional loan availability; separately, about $8.5 million remained available on two revolving credit lines at quarter-end. No specific revenue or earnings guidance was provided.
- The company invested in manufacturing expansion, including a jumbo-glass production line and four tempering ovens. Management reported approximately $35.3 million of capital expenditures for the first half; the filing separately reports cash property-and-equipment purchases and non-cash capital-lease acquisitions.
- Debt bears rates of 2.9% to 12.03%, is generally secured by substantially all accounts receivable and/or inventory, and includes mortgage covenants. Colombia’s 2015 total income-tax rate was reported as 39%, including a surtax.
- Currency exposure is significant: Colombian operations use the peso, and translation adjustments reduced equity by $5.6 million in the first half. Related-party balances included $31.3 million due from related parties; sales to related parties were $26.2 million in the first half. The company concluded two related-party-owned entities were not required to be consolidated.
- Management disclosed material weaknesses in financial close/reporting, entity-level and IT controls, and revenue accounting for fixed-price contracts. Remediation steps had been taken, but further work and staffing were planned.
- A Florida indemnification lawsuit remained pending; management and counsel viewed potential liability as remote and immaterial, with no significant estimable loss. The company also disclosed a $0.16 million guarantee of a related-party loan, which it was seeking to restructure.
- On July 9, 2015, the company filed an S-4 for a proposed warrant exchange: one ordinary share for every 2.6 warrants tendered, subject to the offer becoming effective. The board had authorized a quarterly dividend of $0.125 per share.
Important facts for investors to verify
- Whether the warrant exchange proceeds and its effects on dilution and the $31.3 million warrant liability differ from management’s expectations; the liability relies on Level 3 valuation inputs.
- Actual availability and terms of the stated $60 million borrowing capacity, revolving-line availability, debt maturities, and compliance with loan covenants.
- Collection timing and credit quality of the $31.3 million related-party receivable balance, including the payment arrangement with Ventanas Solar.
- Progress in remediating material weaknesses, especially controls over revenue recognition, related-party transactions, and cash-flow reporting.
- Whether U.S. sales growth, capital investment, and improved gross margins translate into sustained earnings and operating cash generation, given currency and working-capital pressures.