Tecnoglass Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. Unless noted, financial figures below are in U.S. dollars and millions. Tecnoglass manufactures architectural glass, windows, doors, and aluminum products, primarily for construction markets. The United States is its largest market; the company reports one operating segment.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $130.4 | $103.3 | $363.0 | $272.5 |
| Gross profit | $51.6 | $40.1 | $145.4 | $102.3 |
| Gross margin | 39.6% | 38.8% | 40.1% | 37.6% |
| Operating income | $30.2 | $20.2 | $83.9 | $48.6 |
| Net income | $20.9 | $8.3 | $48.5 | $5.7 |
| Income attributable to parent | $20.9 | $8.3 | $48.3 | $5.8 |
| Diluted earnings per share | $0.44 | $0.18 | $1.02 | $0.12 |
- Q3 revenue grew 26.2%; nine-month revenue grew 33.2%. U.S. sales rose 28.8% in Q3 and 31.7% year to date. Single-family residential sales were a major driver, reaching $59.4 million in Q3 and $123.7 million for the nine months.
- Management attributed improved gross margin to a higher manufacturing mix, operating efficiencies from automation, and operating leverage. Operating expenses were 16.5% of Q3 sales and 16.9% of nine-month sales, down from 19.3% and 19.7%, respectively, in the prior-year periods.
- Nine-month results included a $10.8 million debt-extinguishment loss related mainly to the redemption premium and write-off of deferred financing costs. Interest expense and deferred financing costs declined to $8.1 million from $17.2 million year to date.
Cash flow, balance sheet, and debt
- Nine-month operating cash flow was $93.4 million, versus $51.0 million in 2020. Investing used $32.0 million, including $32.1 million of property and equipment purchases; financing used $38.5 million. Cash increased $19.6 million to $86.5 million.
- Management said operating cash generation benefited from higher profitability, working-capital measures, lower interest costs, and a greater residential-sales mix. Cash flow also received substantial support from a $41.3 million increase in trade payables and $15.6 million from contract assets and liabilities; receivables used $17.0 million.
- At September 30, cash was $86.5 million, current assets $317.4 million, and current liabilities $147.0 million. Total assets were $574.2 million and shareholders’ equity $236.5 million.
- Debt obligations under borrowing arrangements were $202.4 million, including $13.0 million current and $189.3 million long term. The $300 million secured facility bears a weighted-average rate of 3.25%; all company assets are pledged as collateral. The company reported compliance with its leverage and fixed-charge covenants.
- In January 2021, the company used new-facility proceeds to redeem its $210 million unsecured notes bearing 8.2% interest and maturing in 2022. Management estimated annual cash-interest savings of approximately $12 million on current borrowings. In Q3, it voluntarily prepaid $30 million of the secured facility.
Outlook, risks, and notable items
- No specific revenue or earnings guidance is provided. Management said working capital, together with current liquidity, was expected to provide flexibility to meet obligations over the next 12 months.
- Remaining performance obligations were $270.4 million at quarter-end. The filing says all are expected to be recognized within three years, including $92.5 million during 2021 and $171.2 million in 2022 or later.
- Capital expenditures were $33.7 million for the first nine months, directed primarily to automation and capacity expansion. A planned Saint-Gobain joint-venture plant may require an additional company contribution of approximately $12.5 million if needed; management said current conditions did not indicate that further funding would be required.
- Colombia enacted a corporate income tax rate of 35% for 2022 and thereafter, up from 31% in 2021. Foreign-exchange movements remain relevant: the company reported a $0.3 million nine-month transaction gain in earnings, while certain intercompany-loan remeasurement losses were recorded in other comprehensive income.
- After quarter-end, Tecnoglass agreed to acquire approximately 95% of Ventanas Solar, a Panama distributor affiliated with family members of the CEO and COO, for approximately $4.0 million through capitalization of receivables. The filing describes the transaction as expected to close in December 2021 and to be accounted for as a common-control acquisition; the agreement date appears as “November __, 2021” in the supplied filing text.
- The company disclosed ordinary-course legal matters and stated that, based on information available, it did not expect them to have a material adverse effect. It also had a $1.7 million minimum raw-material purchase commitment through May 2026. Disclosure controls were reported effective, with no material change in internal control during the quarter.
Most important facts for investors to verify
- Whether residential demand, U.S. market growth, and the $270.4 million backlog convert to revenue and cash on the expected timetable.
- The sustainability and quality of operating cash flow, particularly the contribution from higher payables and customer advances, alongside receivables growth.
- Debt balances, repayment schedule, collateral and covenant terms, and realized interest savings following refinancing and the Q3 prepayment.
- The actual funding needs and timing for the Saint-Gobain joint-venture plant and the related-party Ventanas Solar acquisition, including transaction terms and post-acquisition results.
- The earnings and cash implications of Colombia’s higher corporate tax rate and foreign-currency exposure.