Tecnoglass Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparisons are with FY2018. This is an annual report, not a standalone fourth-quarter filing. The registrant named in the filing is Tecnoglass Inc.
Business context
Tecnoglass manufactures, supplies and installs architectural glass, windows and aluminum products, primarily from its vertically integrated Barranquilla, Colombia complex. The United States generated 85% of FY2019 revenue; Florida accounted for 89% of U.S. revenue. The company reported one operating segment.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $430.9 million | $371.0 million |
| Gross profit / margin | $135.8 million / 31.5% | $120.2 million / 32.4% |
| Operating income / margin | $58.8 million / 13.6% | $47.2 million / 12.7% |
| Net income | $24.3 million | $8.5 million |
| Income attributable to parent | $24.5 million | $9.0 million |
| Basic / diluted earnings per share | $0.55 / $0.55 | $0.22 / $0.21 |
| Operating cash flow | $26.7 million | $(5.0) million |
| Cash and cash equivalents at year-end | $47.9 million | $33.0 million |
| Total borrowings, as reported | $259.8 million | $242.3 million |
Revenue rose 16.2%, led by U.S. sales, which increased 24.1% to $368.1 million. Colombian sales declined 16.2% to $52.3 million. Revenue from windows and architectural systems increased to $364.7 million from $267.0 million, while glass and framing components fell to $66.2 million from $104.0 million.
Gross margin narrowed by 0.9 percentage points, which management attributed to an unfavorable sales mix and higher-than-expected installation and labor costs, partly offset by spreading fixed costs across higher sales. Operating expenses rose 5.4%, slower than revenue growth, and declined to 17.9% of revenue from 19.7%. The effective tax rate fell to 34.8% from 41.3%. Foreign-currency transaction losses improved to $1.0 million from $14.5 million, largely reflecting the peso’s much smaller depreciation in 2019.
Cash, liquidity and capital
Cash from operations was $26.7 million, compared with cash used of $5.0 million in 2018. Inventory management generated $8.4 million of operating cash, while higher receivables used $19.6 million. Current assets were $322.8 million and current liabilities $129.0 million at year-end, implying a current ratio of approximately 2.5.
Investing activities used $59.2 million, including $34.1 million paid for the Vidrio Andino investment and $25.0 million of cash purchases of property and equipment. The company reported capital expenditures of $26.2 million, including assets acquired with credit or debt. Financing activities provided $47.3 million, including $36.5 million net proceeds from a share offering and net debt proceeds. Cash dividends paid were $5.2 million.
Total borrowings increased to $259.8 million; the balance sheet shows $16.1 million current and $243.7 million long-term debt. A $30 million five-year syndicated facility carries interest at LIBOR plus 2.95%. The company reported compliance with applicable debt covenants and $57.3 million available under revolving facilities. The filing states that debt maturities include $217.4 million in 2022; investors should check the debt note for the full maturity schedule and terms.
Material developments and outlook
- In May 2019, Tecnoglass acquired a 25.8% interest in Saint-Gobain subsidiary Vidrio Andino for $45 million: $34.1 million cash and $10.9 million to be settled through a land contribution. The land contribution was still pending at year-end. The parties also planned a new float-glass plant near Barranquilla; Tecnoglass may contribute approximately $12.5 million in 2020–2021 if needed.
- Capacity and automation projects included a glass sorting and processing system and aluminum capacity expansion. Management expected the broader approximately $23 million investment program to be completed by the first quarter of 2020, funded mainly with cash on hand.
- Backlog was $541.7 million at year-end, compared with $515 million a year earlier. Separately, remaining performance obligations were $323.4 million; the company expected to recognize $245.1 million in 2020 and $78.4 million in 2021. Management cautions that backlog is not necessarily indicative of future results.
- The filing gives no company-specific numerical revenue or earnings guidance. It cites external forecasts of 1.5% U.S. nonresidential construction growth in 2020 and 0.9% in 2021, and 6% U.S. housing-start growth in 2020; these are market estimates, not company guidance.
Risks, contingencies and controls
Key risks include dependence on a major Barranquilla manufacturing site; exposure to U.S. construction and Florida demand; competitive pricing pressure; raw-material and transportation costs; customer credit and collection timing; foreign-exchange movements; and reliance on suppliers. Three suppliers each represented more than 10% of raw-material purchases and together accounted for 37%. U.S. steel and aluminum tariffs applied to certain exported aluminum products and cost $1.7 million in 2019; the company said it was passing the cost on to customers. Changes to the U.S.–Colombia trade agreement could also affect costs.
The company disclosed ordinary-course legal claims and said it had no indication they would have a material adverse effect. It reported product-warranty costs of $2.5 million, up from $1.0 million. A material weakness in income-tax controls identified in 2018 was reported as remediated by year-end 2019. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2019; the financial statements received an unqualified audit opinion.
Important facts for investors to verify
- Whether the $10.9 million land contribution for the Vidrio Andino investment was completed as planned, and the timing and funding of the proposed plant and any further contribution.
- Debt maturities, variable-rate exposure, covenant headroom and the basis for the reported $57.3 million of revolving availability.
- Whether gross-margin pressure from sales mix and installation and labor costs persisted, and whether capacity investments delivered expected efficiency and returns.
- Collection and credit quality of receivables, including related-party balances, and the effects of continued growth on operating cash flow.
- Actual tariff exposure and the extent to which costs were passed through, alongside any developments in U.S.–Colombia trade arrangements.
- Backlog conversion and contract cost estimates; backlog and remaining performance obligations are different measures and neither guarantees future revenue.