Tecnoglass Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2014. The filing is by Tecnoglass Inc. (formerly Andina Acquisition Corporation), rather than an entity named Tecnoglass Holdings Inc. The company manufactures architectural glass, aluminum products, windows and building systems, selling across the Americas. It completed its merger with Tecno Corporation in December 2013.
Financial results
Amounts below are in millions of U.S. dollars except per-share data. Figures may not sum due to rounding.
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $47.841 | $39.631 |
| Gross profit / gross margin | $14.596 / 30.5% | $11.913 / 30.1% |
| Operating income | $7.857 | $4.922 |
| Warrant fair-value loss | $8.880 | — |
| Interest expense | $1.973 | $1.669 |
| Income tax provision | $2.971 | $1.631 |
| Net income (loss) | $(4.681) | $2.501 |
| Basic and diluted EPS | $(0.20) | $0.12 |
| Operating cash flow | $11.138 | $0.012 |
- Revenue increased 20.7% year over year. U.S. sales rose 76.7% to $21.867 million; Colombia sales declined 8.7% in reported dollars, although local-currency sales grew 3.2%; Panama sales increased 35%.
- Gross margin improved slightly, and operating income rose about 60%. Selling and administrative expenses declined 3.6% to $6.739 million.
- The $8.880 million warrant remeasurement loss was non-cash and drove the reported quarterly net loss. The filing identifies this as non-deductible for tax purposes and attributes the tax-rate effect to the warrant loss.
- Cash and cash equivalents were $20.268 million at quarter-end, up from $2.866 million at year-end 2013. Including restricted cash, the MD&A reports approximately $23.8 million. Current assets were $175.209 million and current liabilities $122.245 million.
- Total borrowing arrangements were $83.174 million, including $38.579 million current and $44.595 million long term. Interest rates ranged from 5.6% to 10.2%; the debt was generally secured by receivables and/or inventory. Interest expense increased from $1.669 million.
- Investing cash outflow was $1.535 million and financing cash inflow was $7.699 million. The cash flow statement includes $15.908 million from the transfer agent and $6.611 million from subscription receivables among operating-asset changes; operating cash flow therefore warrants careful reconciliation to underlying business cash generation.
Liquidity, outlook and material items
- Management expected operating cash flow, credit-line borrowings and merger proceeds to fund cash requirements for the next 12 months. The filing provides no specific revenue or earnings guidance.
- The company reported non-compliance with certain Banco Colpatria financial covenants at March 31. In April, the bank said it would not accelerate payments, raise interest or take other action over the breach and was working with the company to revise the covenants.
- Two revolving credit lines had approximately $2.3 million available at quarter-end and were renewed April 3, 2014. The company also reported a $1.0 million share subscription completed in March.
- Capital spending was $1.185 million in Q1. The company reported $23.2 million of investment over the 12 months ended March 31; in May it closed on adjacent land for approximately $7.3 million.
- Related-party exposure is notable: receivables from related parties totaled $18.993 million, including $13.357 million from ESW LLC. Q1 sales to related parties totaled $8.618 million. The company concluded that related-party entities ESW LLC and Ventanas Solar did not require consolidation.
- Management identified material weaknesses in entity-level controls, financial closing and reporting, and revenue accounting for fixed-price percentage-of-completion contracts. It described remediation plans including finance staffing, revised procedures, training and stronger oversight.
- Contingencies include a wrongful-death case with $3.0 million of wasting insurance coverage and a separate glass-door indemnification claim. Counsel considered uninsured loss above coverage unlikely in the first case and liability unlikely in the second. The company also disclosed guarantees, including a $3.633 million guarantee released after repayment on April 1, 2014, and an approximately $0.3 million guarantee for its foundation issued in April.
- The filing reports no off-balance-sheet arrangements and no market-risk disclosures under Item 3. It cautions that interim results are not necessarily indicative of full-year results.
Most important facts to verify
- Reconcile the $11.138 million reported operating cash flow, including the large transfer-agent and subscription-receivable changes, to cash generated by ordinary operations.
- Confirm the status and revised terms of the Banco Colpatria covenants, and liquidity available under renewed credit lines.
- Assess the valuation assumptions and potential future earnings volatility of the $27.160 million Level 3 warrant liability.
- Monitor receivable collectability and commercial terms for related parties, particularly ESW LLC.
- Track remediation and independent validation of the disclosed material weaknesses, especially revenue recognition for fixed-price contracts.
- Review progress and ultimate exposure in the disclosed litigation and guarantees.