Tecnoglass Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing is by Tecnoglass Inc. (NYSE: TGLS), not a separate entity named Tecnoglass Holdings Inc.
Business context
Tecnoglass manufactures, supplies and installs architectural glass, windows and aluminum products, primarily from its vertically integrated facilities in Barranquilla, Colombia. The United States generated 96% of 2022 revenue; residential sales represented approximately 43% of total sales. The company reported one operating segment.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $716.6 million | $496.8 million | +44.2% |
| Gross profit / margin | $349.5 million / 48.8% | $202.6 million / 40.8% | Margin +8.0 percentage points |
| Operating income | $226.4 million | $117.0 million | +93.5% |
| Net income | $156.4 million | $68.4 million | +128.6% |
| Income attributable to parent | $155.7 million | $68.2 million | — |
| Diluted earnings per share | $3.28 | $1.44 | — |
| Operating cash flow | $141.9 million | $117.3 million | +$24.7 million |
| Cash and cash equivalents, year-end | $103.7 million | $85.0 million | +$18.7 million |
Operating margin was approximately 31.6%. Capital expenditures were $83.2 million, including equipment acquired on credit. Investing activities used $72.6 million. At year-end, principal debt outstanding was $173.2 million; the balance sheet reported $169.5 million of borrowing obligations after deferred financing costs. The company reported $170 million available under committed credit lines. It prepaid $25 million of term debt and $6.7 million on the revolving facility during 2022; the revolver was fully unused at year-end.
Material changes and notable items
- U.S. revenue rose 50.8% to $688.4 million. U.S. single-family residential sales grew 72.8% to $306.4 million; commercial sales increased 36.9% to $382.0 million. Latin American sales declined 30.3% to $28.2 million.
- Management attributed the gross-margin increase to higher volume and operating leverage, favorable pricing, efficiency initiatives and Colombian peso depreciation.
- Operating expenses rose 43.8% to $123.1 million, including a $16.2 million increase in shipping costs. General and administrative expense included $3.4 million in non-recurring short-seller-report investigation costs and a $4.6 million one-time project-dispute settlement.
- Interest expense and deferred financing costs declined to $8.2 million from $9.9 million, despite higher market interest rates, as debt was reduced. FY2021 included a $10.7 million debt-extinguishment charge related chiefly to redemption of the prior $210 million notes.
- Operating cash flow benefited from higher earnings, working-capital management and a greater residential sales mix, but receivables used $54.2 million and inventory used $63.9 million of cash. Year-end days sales outstanding were 80, unchanged from 2021.
Outlook, risks and contingencies
The filing provides no specific company revenue or earnings guidance. Management cited expansion in U.S. markets, residential growth, automation and capacity investment as strategic priorities; investments made in 2022 were expected to be fully operational by mid-2023. Remaining performance obligations were $482.4 million at year-end, with $384.9 million expected to be recognized in 2023 and $97.5 million in 2024. Management said working capital was expected to remain a net cash-flow benefit and liquidity was sufficient to service obligations over the next twelve months.
Key risks include U.S. construction and housing-market cyclicality; concentrated production at the Barranquilla complex; competition and pricing pressure; raw-material, freight and supplier costs; customer credit and project execution; product quality, warranty and safety exposure; and Colombian political, tax, currency and regulatory conditions. The Colombian peso depreciated 21% against the U.S. dollar in 2022. The company estimates a 5% peso appreciation would reduce annual net earnings by approximately $10 million, based on 2022 results. A 100-basis-point interest-rate increase would reduce net earnings by approximately $0.5 million, net of hedges.
The company had a $77.2 million minimum raw-material purchase commitment extending through November 2030 and may need to contribute up to approximately $12.5 million to the Saint-Gobain joint venture, subject to funding needs. Ordinary-course legal matters were not expected by management to have a material adverse effect. PwC issued unqualified opinions on the financial statements and internal control; its critical audit matter concerned estimates of costs to complete fixed-price contracts, which generated $98.3 million of 2022 revenue.
Most important facts for investors to verify
- Whether backlog conversion, particularly the $384.9 million expected in 2023, proceeds on schedule and at expected margins.
- Whether the 2022 margin gains persist as construction demand, pricing, freight, raw-material costs and foreign exchange change.
- Debt terms, covenant headroom, LIBOR-transition arrangements, hedge effectiveness and the reported $170 million of available credit.
- Cash conversion and working-capital trends, especially the growth in receivables and inventory relative to sales.
- Execution, funding and expected benefits of capacity projects and the Saint-Gobain joint-venture plant, alongside disclosed related-party transactions.
- Warranty costs, fixed-price contract cost estimates, and the impact of Colombian peso movements and tax changes.