Tecnoglass Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are to December 31, 2019. Amounts below are in U.S. dollars, generally millions. Tecnoglass manufactures architectural glass, windows, and aluminum products, primarily for construction markets in the United States and Latin America. The United States accounted for about 90% of Q1 revenue.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $87.3 | $107.2 |
| Gross profit / margin | $30.4 / 34.9% | $31.9 / 29.8% |
| Operating income | $13.1 | $14.2 |
| Net income (loss) | $(18.7) | $7.3 |
| Net income (loss) attributable to parent | $(18.8) | $7.3 |
| Basic and diluted EPS | $(0.40) | $0.18 |
| Cash from (used in) operations | $0.5 | $(5.6) |
| Capital expenditures, including assets acquired on credit | $7.5 | $5.2 |
- Revenue fell 18.5% year over year. Gross profit declined 4.6%, but gross margin improved by 5.1 percentage points. Operating expenses were $17.3 million, down 2.1%; operating margin was approximately 15.1%, versus 13.3%.
- The net loss principally reflected a $32.5 million foreign-currency transaction loss, largely noncash, as the Colombian peso depreciated 24% during the quarter. The company recorded a $6.1 million income-tax benefit.
- Cash and cash equivalents were $36.8 million at quarter-end, down from $47.9 million at year-end. The company reported $66.4 million of availability under committed and uncommitted credit facilities. In April, it drew $9.2 million from non-committed lines as a precaution.
- Debt obligations under borrowing arrangements were $258.9 million, including $15.2 million current and $243.7 million long-term. The company reported compliance with the covenant on its $30 million term facility. Weighted-average interest rates on credit facilities were 7.24%.
- Total current assets were $284.1 million and current liabilities $119.6 million. Total shareholders’ equity was $144.0 million, down from $187.2 million at year-end.
Material changes and management commentary
- U.S. revenue declined 14.4% to $78.8 million; Colombian revenue declined 50.1% to $6.5 million. Management cited scheduled maintenance, fewer production days, project-installation timing, slower Colombian construction activity, and the late-March pandemic shutdown. U.S. residential sales increased 12% year over year.
- Management attributed improved gross margin to raw-material efficiency, $1.7 million lower labor costs following process streamlining, and favorable currency effects on Colombian labor costs.
- Colombia’s mandatory restrictions led the company to temporarily suspend production through April 13. It reported resuming full operations April 14 under an exemption for suppliers to essential sectors. Management described cost controls, reduced operating expenses, limits on non-critical capital spending, and measures to preserve liquidity.
- Operating cash flow improved year over year, but included a $6.3 million cash use from trade payables, partly because the company made anticipated supplier payments, and a $4.5 million use from accrued interest payments. Cash declined by $11.0 million during the quarter, including a $4.5 million adverse exchange-rate effect.
- The 2019 cash-flow statement was revised to correct foreign-currency cash-flow classifications. The company said the revision was not material and did not change the reported net change in cash.
Outlook, risks, and contingencies
- No formal revenue or earnings guidance is provided. Management expected working capital to be a net benefit to 2020 cash flow and stated that liquidity was sufficient to meet obligations for the next 12 months. These statements were made amid substantial uncertainty related to COVID-19.
- Remaining performance obligations were $302.4 million at March 31, 2020; the company expected to recognize approximately $227.4 million in 2020 and $74.7 million in 2021. These are firm-order obligations, not guaranteed revenue.
- The company had 34 foreign-currency forward and collar contracts covering exchanges of $48 million through February 2021. Their net fair-value liability was $5.2 million; the company expected that loss to be reclassified into earnings within 12 months.
- The Saint-Gobain joint venture investment included a $10.9 million land contribution still outstanding, involving land contributed on the company’s behalf by a related party connected to the CEO’s family. The company also could make an additional contribution of approximately $12.5 million in 2020–2021, depending on joint-venture debt availability.
- The company had a minimum raw-material purchase commitment of $17.1 million through May 2026. Management said ordinary-course litigation was not expected to have a material adverse effect, while noting outcomes cannot be assured.
- COVID-19 risks include weaker demand, restrictions or workforce disruption, market volatility and reduced access to capital. The filing also identifies cybersecurity and remote-work risks. Management reported no material change in internal control over financial reporting and concluded disclosure controls were effective.
- Management reported no goodwill or long-lived-asset impairment as of March 31, 2020, but said pandemic-related uncertainty would be monitored and could affect future assumptions and impairment assessments.
Important facts for investors to verify
- Whether customer demand, production, and collections recovered after the temporary shutdown, and how subsequent pandemic conditions affected orders and backlog conversion.
- How much of the reported $66.4 million credit availability was committed, remained drawable, and was subject to conditions; also track the April $9.2 million draw and cash needs.
- The drivers and cash implications of currency exposure, including the $32.5 million transaction loss and $5.2 million hedge liability.
- Timing and terms of the outstanding related-party land contribution and any additional joint-venture funding requirement.
- Whether the $302.4 million of remaining performance obligations converted to recognized revenue on the expected schedule, and whether any impairment indicators emerged.