Tecnoglass Inc. — Q2 2021 Form 10-Q
Period: Three and six months ended June 30, 2021. The filing identifies the registrant as Tecnoglass Inc. (not “Tecnoglass Holdings Inc.”). Unless noted otherwise, figures below are in U.S. dollars, millions.
Business context and performance
Tecnoglass manufactures and installs architectural glass, windows and aluminum products, primarily for construction markets in the United States and Latin America. It reports one operating segment. The United States accounted for $109.9 million of Q2 revenue and $210.7 million for the first half.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $121.7 | $81.9 | $232.6 | $169.2 |
| Gross profit | $48.6 | $31.8 | $93.8 | $62.2 |
| Gross margin | 39.9% | 38.8% | 40.3% | 36.8% |
| Operating income | $28.4 | $15.2 | $53.8 | $28.4 |
| Net income (loss) | $19.3 | $16.1 | $27.5 | $(2.6) |
| Income (loss) attributable to parent | $19.2 | $16.2 | $27.4 | $(2.6) |
| Diluted EPS | $0.40 | $0.35 | $0.58 | $(0.06) |
Financial position, cash flow and debt
- Cash and cash equivalents were $100.3 million at June 30, up from $66.9 million at December 31, 2020. Current assets were $317.9 million and current liabilities $124.0 million.
- First-half operating cash flow was $60.8 million, versus $24.8 million a year earlier. Capital expenditures were approximately $19.3 million, versus $8.3 million; investing activities used $18.2 million. Financing activities used $6.8 million. Ending cash increased by $33.4 million.
- Debt obligations under borrowing arrangements, net of deferred financing costs, totaled $232.3 million, including $13.4 million current and $218.9 million long term. Cash less this carrying amount implies net debt of approximately $132.0 million.
- The company refinanced its 8.2% $210 million senior notes, due 2022, with a $300 million secured credit facility: a $250 million delayed-draw term loan and $50 million revolving facility, maturing in 2025. The facility’s reported effective rate was 4.37%; the June 30 weighted-average loan rate was 3.25%. All company assets secure the facility. Management reported compliance with leverage and fixed-charge coverage covenants.
Material changes and management commentary
- Q2 revenue rose 48.5% year over year; first-half revenue rose 37.4%. Management attributed growth to strong U.S. residential and commercial activity and recovering Latin American markets. U.S. single-family residential sales reached $40.9 million in Q2 and $64.3 million in the first half.
- Gross margin improved by 1.1 percentage points in Q2 and 3.5 points for the first half. Management cited a higher manufacturing mix, automation-related efficiencies and operating leverage. Operating expenses rose, mainly from higher shipping costs, but declined as a share of revenue.
- Interest expense and deferred financing costs fell to $2.4 million in Q2 and $6.0 million for the first half, reflecting the new facility. The first-half results include an $11.1 million debt-extinguishment loss, including an $8.6 million call premium and $2.3 million noncash write-off of deferred financing costs.
- Currency effects were volatile: first-half 2021 included a $0.1 million transaction gain in earnings, while a $9.1 million noncash loss on certain intercompany loans was recorded in other comprehensive income. First-half 2020 included a $19.2 million transaction loss in earnings.
- Remaining performance obligations were $267.3 million at June 30. The company expected to recognize $101.0 million in 2021 and $166.3 million in 2022 or later, with all expected within three years. This is not a full-year revenue forecast.
Outlook, risks and contingencies
Management stated that it expected working capital to remain a net cash-flow benefit for full-year 2021 and that available liquidity provided flexibility to meet obligations over the next 12 months. The filing provides no specific full-year revenue or earnings guidance. Management estimated annual cash interest savings of approximately $12 million on current borrowings from the refinancing.
- Risks include foreign-exchange exposure, interest-rate and LIBOR transition exposure, construction-project execution and collection risks, and dependence on U.S. and Florida markets. The filing notes that COVID-related shutdowns affected the prior-year comparison.
- The company had a $4.5 million minimum raw-material purchase commitment through May 2026. Its Vidrio Andino joint venture plans a new plant; Tecnoglass may need to contribute approximately $12.5 million if needed, after considering debt availability.
- Management said ordinary-course legal matters were not currently expected to have a material adverse effect, while noting outcomes cannot be assured. All assets are pledged to the credit facility.
- Disclosure controls were assessed as effective at June 30, 2021, and no material change in internal control over financial reporting was reported.
Key facts for investors to verify
- Whether revenue growth, residential demand and backlog conversion continued after June 30, and whether the stated backlog recognition schedule was achieved.
- How sustainable gross-margin gains are, particularly given higher shipping costs and changes in product and installation mix.
- Actual borrowing costs, covenant headroom, maturity and repayment terms, and the extent to which refinancing savings are realized.
- Cash-flow quality and working-capital drivers, including payables growth, customer advances and contract assets and liabilities.
- Foreign-exchange impacts, the potential joint-venture contribution, and developments in legal matters or raw-material commitments.