Tecnoglass Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing is Tecnoglass Inc.’s annual report; the quarterly figures below are unaudited.
Business context
Tecnoglass manufactures, supplies and installs architectural glass, windows and aluminum products, primarily from its 2.7 million-square-foot facility in Barranquilla, Colombia. The United States generated 80% of 2018 revenue; the company operates as one reportable segment.
Key financial metrics
Amounts in USD millions, except per-share data and percentages.
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Revenue | $371.0 | $314.5 | +18% |
| Gross profit / margin | $120.2 / 32.4% | $99.2 / 31.5% | Margin +0.9 pts |
| Operating income / margin | $47.2 / 12.7% | $34.4 / 10.9% | +37% |
| Net income | $8.5 | $5.7 | +48% |
| Net income attributable to parent | $9.0 | $5.4 | +66% |
| Diluted EPS | $0.22 | $0.15 | — |
| Operating cash flow | $(5.0) | $14.2 | Cash use in 2018 |
| Capital expenditures | $13.6 | $8.8 | — |
- Fourth quarter, as presented in the unaudited quarterly table: revenue $97.9 million; gross profit $34.1 million; net loss $4.4 million; and reported net loss attributable to parent of $22.4 million. The quarterly table does not reconcile to the annual results; see investor verification items.
- Liquidity: cash and equivalents were $33.0 million, down from $40.9 million. Current assets were $293.4 million and current liabilities $122.6 million.
- Debt: reported debt obligations were $242.3 million, versus $224.3 million in 2017; the balance included a $210 million senior note bearing 8.2% interest. The company reported $18.3 million available under revolving facilities.
- Other balance-sheet items: total assets were $489.8 million and total liabilities $356.5 million. Inventory increased to $91.8 million from $71.7 million.
Material changes versus the prior year
- U.S. revenue grew 24% to $296.5 million; Colombian revenue declined 2% to $62.4 million amid slower construction activity.
- Gross margin improved as higher sales leveraged the fixed-cost base. Operating expenses rose 13%, slower than revenue, though shipping expense increased 42% to $18.6 million.
- Foreign-currency transaction losses increased to $14.5 million from $3.0 million, reflecting peso depreciation and U.S.-dollar liabilities at Colombian subsidiaries.
- Operating cash flow shifted from $14.2 million provided to $5.0 million used, principally due to growth-related inventory and receivables. Inventory absorbed $28.1 million and receivables $23.7 million; increased payables provided $34.6 million.
- Revenue recognition standard ASC 606 was adopted in 2018. FY 2018 revenue was $1.2 million lower under ASC 606 than it would have been under the prior standard; prior-year comparisons were not restated.
Outlook, risks and unusual items
- Management highlighted continued U.S. geographic expansion, residential-window growth, product development and technology investment. No specific company revenue or earnings guidance is provided in the filing.
- Firm remaining performance obligations were $251.7 million at year-end; the company expected to recognize $217.4 million in 2019 and $34.4 million in 2020. Management cautioned backlog is not necessarily indicative of future results.
- In January 2019, Tecnoglass agreed to acquire an approximately 25% interest in Saint-Gobain’s Vidrio Andino business for $34.1 million cash and land valued at $10.9 million, with an additional approximate $12.5 million contribution expected in 2020–2021 for a planned plant. Completion was expected by May 2019; benefits, execution and funding remain uncertain.
- Risks include concentration in one principal Colombian manufacturing site, reliance on construction activity and suppliers, raw-material and transportation costs, currency exposure, high indebtedness, and potential changes to U.S.–Colombia trade arrangements. A 10% U.S. tariff on certain Colombian aluminum products resulted in a $1.5 million expense, which management said was passed through to customers.
- The auditor gave an unqualified opinion on the financial statements but concluded internal control over financial reporting was ineffective because of a material weakness in income-tax controls. Management planned remediation during 2019. The filing says identified 2018 tax adjustments were immaterial.
- Legal matters arising in the ordinary course were disclosed; management reported no indication they would materially adversely affect the company.
Important facts for investors to verify
- Reconcile the unaudited quarterly table to audited annual results: quarterly net income sums to $7.5 million versus annual net income of $8.5 million, and quarterly parent-attributable results include a fourth-quarter loss of $22.4 million despite annual parent-attributable income of $9.0 million.
- Review the debt maturity schedule, interest costs, covenant headroom and ability to fund working capital and the Saint-Gobain investment; the senior note is due in 2022.
- Assess the quality and conversion timing of the $251.7 million remaining performance obligations, including contract assets and the company’s estimates on fixed-price contracts.
- Monitor remediation and independent testing of the material weakness in income-tax controls.
- Confirm completion, valuation and related-party terms of the Saint-Gobain transaction, including the land contribution by the CEO and COO and the future plant funding commitment.