Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to known and unknown risks, uncertainties and assumptions
about us that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "could," "would," "expect,"
"plan," "anticipate," "believe," "estimate," "continue," or the negative of such
terms or other similar expressions. Factors that might cause or contribute to
such a discrepancy include, but are not limited to, those described in our other
Securities and Exchange Commission ("SEC") filings. References to "we", "us" or
"our" are to Tecnoglass Inc. (formerly Andina Acquisition Corporation), except
where the context requires otherwise. The following discussion should be read in
conjunction with our unaudited condensed consolidated financial statements and
related notes thereto included elsewhere in this report.
Overview
We are a vertically integrated manufacturer, supplier and installer of
architectural glass, windows and associated aluminum products for the global
commercial and residential construction markets. With a focus on innovation,
combined with providing highly specified products with the highest quality
standards at competitive prices, we have developed a leadership position in each
of our core markets. In the United States, which is our largest market, we were
ranked as the second largest glass fabricator as well as the second largest
metal company serving the United States in 2021 by Glass Magazine. In addition,
we believe we are the leading glass transformation company in Colombia. Our
customers, which include developers, general contractors or installers for
hotels, office buildings, shopping centers, airports, universities, hospitals
and multi-family and residential buildings, look to us as a value-added partner
based on our product development capabilities, our high-quality products and our
unwavering commitment to exceptional service.
We have more than 35 years of experience in architectural glass and aluminum
profile structure assembly. We transform a variety of glass products, including
tempered safety, double thermo-acoustic and laminated glass. Our finished glass
products are installed in a wide variety of buildings across a number of
different applications, including floating facades, curtain walls, windows,
doors, handrails, and interior and bathroom spatial dividers. We also produce
aluminum products such as profiles, rods, bars, plates and other hardware used
in the manufacturing of windows.
Our products are manufactured in a 3.5 million square foot, state-of-the-art
manufacturing complex in Barranquilla, Colombia that provides easy access to
North, Central and South America, the Caribbean, and the Pacific. Our products
can be found on some of the most distinctive buildings in these regions,
including One Thousand Museum (Miami), Paramount Miami Worldcenter (Miami),
Hub50House (Boston), Via 57 West (New York), Ae'o Tower (Honolulu), Salesforce
Tower (San Francisco), Trump Plaza (Panama), and Departmental Legislative
Assembly (Bolivia). Our track record of successfully delivering high profile
projects has earned us an increasing number of opportunities across the United
States, evidenced by our expanding backlog and overall revenue growth.
Our structural competitive advantage is underpinned by our low-cost
manufacturing footprint, vertically integrated business model and geographic
location. Our integrated facilities in Colombia and distribution and services
operations in Florida provide us with a significant cost advantage in both
manufacturing and distribution, and we continue to invest in these operations to
expand our operational capabilities. Our lower cost manufacturing footprint
allows us to offer competitive prices for our customers, while also providing
innovative, high quality and high value-added products, together with consistent
and reliable service. We have historically generated high margin organic growth
based on our position as a value-added solutions provider for our customers.
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We have a strong presence in the Florida market, which represents a substantial
portion of our revenue stream and backlog. Our success in Florida has primarily
been achieved through sustained organic growth, with further penetration taking
place into other highly populated areas of the United States. As part of our
strategy to become a fully vertically integrated company, we have supplemented
our organic growth with some acquisitions that have afforded us incremental
control over our supply chain while maintaining efficient lead times. In 2016,
we completed the acquisition of ESW, which gave us control over the distribution
of products into the United States from our manufacturing facilities in
Colombia. In March 2017, we completed the acquisition of GM&P, a consulting and
glazing installation business that was previously our largest installation
customer.
The continued diversification of the group's presence and product portfolio is a
core component of our strategy. In particular, we are actively seeking to expand
our presence in United States outside of Florida. Since 2017, we have been
expanding our presence in U.S. residential markets which went from less than 5%
of our sales to nearly 36% of our revenues for the full year 2021. We believe
that the quality of our products, coupled with our ability to price
competitively given our structural advantages on cost and our efficient lead
times given our vertical integration, will allow us to generate further growth
in the future.
Our company has focused on working with The Power of Quality, always making sure
that our vision of sustainability is immersed into every aspect of our business,
including social, environmental, economic and governance variables (ESG), that
help us make decisions and create value for our stakeholders. We carry out a
series of initiatives based on our global sustainability strategy, which is
supported on three fundamental pillars: promoting an ethical and responsible
continuous growth, leading eco-efficiency and innovation and empowering our
environment. As part of this strategy the Company has voluntarily adhered to UN
Global Compact Principles since 2017 and in pursuit of our cooperation with the
attainment of the Sustainable Development Goals (SDGs) joined in 2021 a program
to dynamize, strengthen and make visible the management of greenhouse gas
emissions as a carbon neutral strategy set out by the Colombian government for
2050.
RESULTS OF OPERATIONS
Three months ended
March 31,
2022 2021
Operating Revenues $ 134,548 $ 111,555
Cost of sales 74,215 66,246
Gross profit 60,333 45,309
Operating expenses (26,367 ) (19,876 )
Operating income 33,966 25,433
Non-operating income, net 342 159
Equity method income 1,580 1,091
Foreign currency transactions losses (2,909 ) (45 )
Loss on extinguishment of debt - (11,147 )
Interest Expense and deferred cost of financing (1,468 ) (3,522 )
Income tax provision
(10,558 ) (3,688 )
Net income 20,953 8,281
Income attributable to non-controlling interest (100 ) (89 )
Income attributable to parent
$ 20,853 $ 8,192
Comparison of quarterly periods ended March 31, 2022 and 2021
Revenues
The Company's operating revenues increased $23.0 million or 20.6% from $111.6
million to $134.5 million for the quarter ended March 31, 2022, compared with
the quarter ended March 31, 2021.
Strong sales during the first quarter of 2022 were driven by U.S. residential
market activity, where sales increased $36.3 million, or 155.1%, from $23.4
million in 2021 to $59.7 million in 2022, and account for 44.3% of total sales
during the quarter ended March 31, 2022. Commercial market sales decreased $13.3
million, or 15.1%, from $88.2 million in 2021 to $74.9 million in 2022. Sales to
Latin-American markets, including Colombia, decreased $3.2 million, or 30%, from
$10.7 million in 2021 to $7.6 million in 2022.
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Gross profit
Gross profit increased $15.0 million, or 33.2%, to $60.3 million during the
three months ended March 31, 2022, compared with $45.3 million during the same
period of 2021. This resulted in gross profit margin reaching 44.8% during the
first quarter of 2022, up from 40.6% during the first quarter of 2021. The
420-basis point improvement in gross margin mainly reflected a higher mix of
revenue from manufacturing versus installation activity as we continue to grow
into single family residential, greater operating efficiencies from prior
automation initiatives and operating leverage on higher sales.
Expenses
Operating expenses increased $6.4 million, or 32.7%, from $19.9 million to $26.4
million for the quarters ended March 31, 2021, and 2022, respectively. The
increase was driven by $2.7 million in non-recurring professional fees and other
costs related to a Special Committee assessment in response to a short seller's
report issued on December 2021. Additionally, shipping expense increased $1.9
million, or 38.1%, as a result of a higher sales volume and higher shipping
rates with a higher mix of sales going into the US market.
Non-operating income and expenses, net
During the three months ended March 31, 2022 and 2021, the Company recorded a
non-operating income of $0.3 million and $0.2 million, respectively.
Non-operating income is comprised primarily of income from rental properties and
gains on sale of scrap materials as well as non-operating expenses related to
certain charitable contributions outside of the Company's direct sphere of
influence. During the quarter ended March 31, 2021, the Company also recorded a
loss in debt extinguishment of $11.1 million, comprised of a one-time $8.6
million call premium paid on the $210 million senior notes redemption, along
with a $2.3 million non-cash amortization of deferred cost of financing related
to said notes plus a $0.2 million foreign currency adjustment.
Foreign currency transaction gains and losses
During the quarter ended March 31, 2022, the Company recorded a non-operating
foreign currency translation loss of $2.9 million associated with the
remeasurement of monetary assets and liabilities in currencies different than
certain subsidiaries´ functional currencies. This excludes a non-cash $6.5
million foreign currency transaction gain from remeasurement of certain
intercompany loans reclassified to other comprehensive income. Comparatively,
the Company recorded a net loss of less than $0.1 million during the three
months ended March 31, 2021 within the statement of operations.
Interest Expense
Interest expense and deferred cost of financing decreased $2.0 million, or
58.3%, to $1.5 million during the quarter ended March 31, 2022 from $3.5 million
during the quarter ended March 31, 2021, as a result of our new financing
arrangement further described below in the liquidity section.
Income Taxes
During the quarters ended March 31, 2022, and 2021, the Company recorded an
income tax provision of $10.6 million and $3.7 million, respectively, reflecting
an effective income tax rate of 33.5% and 30.8%, respectively. The effective
income tax rates for both periods approximates the statutory rates. rate.
As a result of the foregoing, the Company recorded a net income for the three
months ended March 31, 2022 of $21.0 and $8.3 million in the three months ended
March 31, 2022 and 2021, respectively.
Liquidity
As of March 31, 2022 and December 31, 2021, we had cash and cash equivalents of
approximately $84.4 million and $85.0 million, respectively.
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On October 2020, the Company closed a $300 million five-year term Senior Secured
Credit Facility consisting of a $250 million delayed draw term loan and a $50
million committed revolving credit facility which bore interest at a rate of
LIBOR, with a 0.75% floor, plus a spread of between 2.50% and 3.50%, based on
the Company's net leverage ratio. In December 2020, we used $23.1 million
proceeds of the long-term debt facility to repay several credit facilities.
Subsequently, in January 2021 we redeemed the Company's existing $210 million
unsecured senior notes, which had an interest rate of 8.2% and was to mature in
January, 2022 using proceeds from this new facility and incurred in an
extinguishment of debt cost of $10.9 million including $8.6 related to a premium
to exercise its call option. In November 2021, the Company amended its senior
secured revolving credit facility to (i) increase the borrowing capacity under
its committed Line of credit from $50 million to $150 million, (ii) reduce its
borrowing costs by an approximate 130 basis points, and (iii) extend the initial
maturity date by one year to the end of 2026. Borrowings under the credit
facility will now bear interest at a rate of LIBOR with no floor plus a spread
of 1.75%, based on the Company's net leverage ratio, compared to a prior rate of
LIBOR with a floor of 0.75% plus a spread of 2.50%. In March of 2022 we
voluntarily prepaid $15 million of capital to this credit facility which has
decreased our net leverage ratio and should trigger a further step down in the
applicable interest rate spread to 1.5% upon delivering the compliance
certificate containing the financial metrics as of March 31, 2022 based on the
financial statements contained in the Quarterly Report on Form 10-Q.
We anticipate that working capital will continue be a net benefit to cash flow
for the full year 2022, which in addition to our current liquidity position,
provides ample flexibility to service our obligations through the next twelve
months.
Capital Resources
We transform glass and aluminum into high specification architectural glass and
custom-made aluminum profiles which require significant investments in
state-of-the-art technology. During the three months ended March 31, 2022 and
2021, we made investments primarily in building and construction, and machinery
and equipment in the amounts of $11.9 million, and $6.4 million, respectively.
On May 3, 2019, we consummated a joint venture agreement with Saint-Gobain, a
world leader in the production of float glass, a key component of our
manufacturing process, whereby we acquired a 25.8% minority ownership interest
in Vidrio Andino, a Colombia-based subsidiary of Saint-Gobain. The purchase
price for our interest in Vidrio Andino was $45 million, of which $34.1 million
was paid in cash and $10.9 million to be paid through the contribution of land
once a complete assessment of the project timing is completed based on the
overall market conditions as they relate to the ongoing COVID-19 pandemic. On
October 28, 2020 the land was paid for through the issuance of an aggregate of
1,557,142 ordinary shares of the Company, at $7.00 per share, which represented
an approximate 33% premium based on last sale price as of October 27, 2020.
The joint venture agreement includes plans to build a new plant in Galapa,
Colombia that will be located approximately 20 miles from our primary
manufacturing facility, in which we will also have a 25.8% interest. The new
plant will be funded with proceeds from the original cash contribution made by
the Company, operating cashflows from the Bogota plant, debt incurred at the
joint venture level that will not consolidate into the Company and an additional
contribution by us of approximately $12.5 million to be paid toward the end of
the two-year construction period, if needed (based on debt availability as a
first option).
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