Tecnoglass Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; financial statements are unaudited. The filing identifies the registrant as Tecnoglass Inc. (rather than Tecnoglass Holdings Inc.). Amounts below are in U.S. dollars; financial statement figures are generally in millions unless noted.
Business context and results
Tecnoglass manufactures architectural glass, windows and aluminum products, and provides related design and installation services. It operates primarily from Colombia and sells across the Americas. The United States represented about 72% of Q1 revenue. Results include GM&P, acquired in March 2017, for a full quarter in 2018 versus only one month in the 2017 quarter.
| Metric | Q1 2018 | Q1 2017 | Change / context |
|---|---|---|---|
| Revenue | $87.2 | $65.8 | Up 32.4% |
| Gross profit | $26.7 | $22.3 | Gross margin 30.7% vs. 33.8% |
| Operating expenses | $16.8 | $15.4 | Up 8.9%; 19.2% of revenue vs. 23.4% |
| Operating income | $10.0 | $6.9 | Operating margin 11.5% vs. 10.4% |
| Income before tax | $16.0 | $2.1 | Includes $10.0 foreign-currency transaction gain in 2018 |
| Income tax provision | $5.4 | $1.0 | 2018 effective tax rate 33.7% |
| Net income attributable to parent | $10.7 | $1.0 | Reported EPS of $0.30 vs. $0.03 |
| Operating cash flow | $(10.2) | $11.4 | Cash used in Q1 2018 |
Financial position and liquidity
- Cash and cash equivalents were $30.6 at March 31, down from $40.9 at year-end. Net cash decreased $10.3 during the quarter.
- Current assets were $272.5 and current liabilities $122.4, implying a current ratio of about 2.2. Trade receivables were $83.3; contract assets were $47.4; inventories were $79.6.
- Debt obligations under borrowing arrangements were $225.6, including a $210.0 senior unsecured note with an 8.2% coupon; reported long-term debt, net of current maturities and deferred financing costs, was $219.8. A separate $29.0 current payable for the GM&P acquisition was also on the balance sheet.
- Interest expense was $5.1. The filing reports a 7.8% weighted-average rate for credit facilities. Cash paid for interest was $8.9.
- Operating cash use reflected, among other items, payments against trade payables and accrued expenses ($20.2), interest accruals ($4.4), and contract assets and liabilities ($6.7). Receivables provided $5.1 of cash.
Material changes, outlook and risks
- Revenue growth was led by the United States, where sales increased 36.0% to $63.0, and Colombia, where sales increased 32.8% to $21.8. Fixed-price contract revenue rose to $42.2 from $21.7.
- Management attributed lower gross margin partly to GM&P’s larger mix of installation and engineering revenue in 2018. Higher sales and export activity increased shipping expense; operating expenses nevertheless declined as a share of revenue.
- The company reported $269 of remaining performance obligations and expected to recognize all related sales within three years. Management said existing installed capacity was expected to support backlog and anticipated sales through 2018. The filing provides no quantified revenue or earnings guidance.
- The $10.0 foreign-currency transaction gain was described as cashless and resulted from peso revaluation against the company’s U.S.-dollar net monetary liability position. The filing estimates that a 1% peso devaluation would cause a $1.5 loss on that position; a 1% appreciation would have the opposite effect. A 200-basis-point interest-rate increase was estimated to reduce net earnings by about $0.2 over 12 months.
- The company identifies exposure to construction-market cycles and foreign-exchange and interest-rate movements. It reported ordinary-course legal matters and stated that, based on information available, it did not expect them to have a material adverse effect. It also disclosed a raw-material purchase commitment of at least $39.1 through May 2026.
- Effective January 1, 2018, the company adopted ASC 606 using the modified retrospective method, reducing opening retained earnings by $0.187. Q1 2017 was not restated. The company’s ASC 606 reconciliation shows Q1 2018 revenue lower by $1.926 and gross profit lower by $0.193 than under ASC 605.
- After quarter-end, Tecnoglass completed the remaining $29.0 GM&P purchase-price payment using $6.0 cash, a $10.0 subordinated note due in 2022 at 6%, and 1,238,095 shares. Management describes the share issuance value inconsistently in different parts of the filing.
Important facts for investors to verify
- Reconcile the filing’s gross-profit discussion: the financial statements show $26.748 versus $22.252 (about 20.2% growth), while MD&A cites $26.4 and 18.5% growth.
- Reconcile net-income presentation: the statements report $10.619 consolidated net income and $10.691 attributable to the parent, while cash-flow and EPS disclosures use $10.691 as net income; prior-year figures also vary between $1.031 and $1.019.
- Confirm the final GM&P settlement terms and share value: the subsequent-events note describes 1,238,095 shares valued at $10 million, while MD&A states $13 million aggregate value, both at $10.50 per share.
- Assess the sustainability of earnings excluding the $10.0 foreign-currency gain, the ASC 606 effects, and the cash demands of working capital and the GM&P settlement.
- Monitor customer contract estimates, including cost-to-complete assumptions, contract assets, remaining performance obligations and any changes in expected margins or cash collection.