Tecnoglass Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; amounts below are in U.S. dollars unless noted. The filing identifies the registrant as Tecnoglass Inc. (rather than Tecnoglass Holdings Inc.). The company manufactures and installs architectural glass, windows, and aluminum products; it reports one operating segment.
Financial performance and position
- Revenue: $110.9 million, up 27.0% from $87.3 million. U.S. revenue rose 27.9% to $100.8 million; residential sales increased 71% to approximately $23 million and represented 21% of total sales.
- Profit and margins: Gross profit was $45.1 million, with a 40.7% gross margin versus 34.9%. Operating income was $25.4 million, versus $13.1 million; operating margin was approximately 22.9% versus 15.1%. Net income was $8.3 million versus a loss of $18.7 million; diluted EPS was $0.17 versus a loss of $0.40. Net income attributable to the parent was $8.2 million in the financial statements.
- Cash flow: Operating cash flow was $29.0 million versus $0.5 million. Investing outflow was $5.7 million, including $5.7 million of cash purchases of property and equipment; financing outflow was $2.1 million. Cash increased $18.3 million to $85.2 million. Operating cash flow included a $7.8 million benefit from changes in contract assets and liabilities.
- Liquidity: Current assets were $293.2 million and current liabilities $103.5 million at quarter-end. Cash was $85.2 million, compared with $66.9 million at year-end 2020.
- Debt: Borrowing obligations were $235.4 million, including $13.7 million current and $221.6 million long-term. The company replaced its $210 million, 8.2% unsecured notes with borrowings under a $300 million secured facility. The filing says the facility’s weighted-average rate declined from 3.75% at quarter-end to 3.25% in April 2021.
- Other indicators: Remaining performance obligations were $247.9 million; management expected $167.3 million to be recognized in 2021 and $80.6 million in 2022 or later. The company declared a $0.0275-per-share quarterly dividend.
Changes versus Q1 2020
- Revenue growth reflected stronger U.S. residential and commercial activity and a comparison with early-2020 COVID-19 disruptions, including a temporary Colombia manufacturing shutdown. Management attributed the gross-margin improvement mainly to a higher manufacturing mix and efficiencies from automation.
- Operating expenses rose 14.3% to $19.8 million, slower than revenue growth; expenses fell to 17.8% of revenue from 19.8%. Higher shipping costs were a key increase.
- Foreign-currency transaction losses in earnings fell to less than $0.1 million from $32.5 million in Q1 2020. Q1 2021 also included an $11.1 million debt-extinguishment loss, including an $8.6 million call premium and $2.3 million of noncash deferred-financing-cost write-off.
- Interest expense and deferred financing costs declined 37.6% to $3.5 million. The quarter did not reflect the full benefit of the refinancing, completed in January.
- Despite positive net income, total comprehensive income was a loss of $7.5 million, primarily reflecting $15.6 million of foreign-currency translation losses.
Outlook, risks, and notable items
- No quantified full-year revenue or earnings guidance is provided. Management expected working capital to remain a net cash-flow benefit in 2021 and said existing liquidity provided ample flexibility to meet obligations over the next 12 months.
- The new senior secured facility is secured by all company assets. Management estimated approximately $11.1 million in annual cash-interest savings on current borrowings. A further reduction in the facility spread took effect in April 2021.
- The company has a 25.8% interest in a Saint-Gobain joint venture planning a new Colombia plant. Tecnoglass may need to contribute approximately $12.5 million if needed, subject first to debt availability. It also had an $8.7 million minimum raw-material purchase obligation through May 2026.
- Risks noted include foreign-exchange exposure, construction-project and other ordinary-course litigation, and uncertainty in estimates such as receivable collectability, inventory valuation, and contract earnings. Management said current legal matters were not expected to have a material adverse effect, while cautioning outcomes cannot be assured.
- Related-party matters include sales to Ventana Solar, which is owned by family members of the CEO and COO, and payments to other related parties. Disclosure controls were assessed as effective; no material internal-control changes were reported.
Important facts for investors to verify
- Reconcile reported net income and parent-attributable income: the financial statements show $8.252 million and $8.166 million, respectively, while the MD&A gives slightly different figures ($8.254 million and $8.168 million) and a slightly different tax provision.
- Review the secured facility’s covenants, maturity schedule, collateral, and sensitivity to LIBOR and leverage; confirm the April rate reduction and realized refinancing savings.
- Assess whether the Q1 cash-flow strength and margin gains are sustainable, given the contribution from working-capital movements and the favorable product mix.
- Track conversion and timing of the $247.9 million performance-obligation backlog, including customer advances, retainage, and contract assets.
- Evaluate the potential timing and funding of the joint-venture plant contribution, supplier commitment, and related-party exposures.