UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission
file number:
(Exact Name of Registrant as Specified in Its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Issuer’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report):
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller
reporting company |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
As of April 30, 2022, there were ordinary shares, $0.0001 par value per share, outstanding.
TECNOGLASS INC.
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2022
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Tecnoglass Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investments | ||||||||
| Trade accounts receivable, net | ||||||||
| Due from related parties | ||||||||
| Inventories | ||||||||
| Contract assets – current portion | ||||||||
| Other current assets | ||||||||
| Total current assets | $ | $ | ||||||
| Long-term assets: | ||||||||
| Property, plant and equipment, net | $ | $ | ||||||
| Deferred income taxes | ||||||||
| Contract assets – non-current | ||||||||
| Long-term trade accounts receivable | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Long-term investments | ||||||||
| Other long-term assets | ||||||||
| Total long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Short-term debt and current portion of long-term debt | $ | $ | ||||||
| Trade accounts payable and accrued expenses | ||||||||
| Due to related parties | ||||||||
| Dividends payable | ||||||||
| Contract liability – current portion | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | $ | $ | ||||||
| Long-term liabilities: | ||||||||
| Deferred income taxes | $ | $ | ||||||
| Contract liability – non-current | ||||||||
| Long-term debt | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred shares, $ par value, shares authorized, shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | $ | $ | ||||||
| Ordinary shares, $ par value, shares authorized, and shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | ||||||||
| Legal Reserves | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive (loss) | ( | ) | ( | ) | ||||
| Shareholders’ equity attributable to controlling interest | ||||||||
| Shareholders’ equity attributable to non-controlling interest | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
Tecnoglass Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Other Comprehensive Income
(In thousands, except share and per share data)
(Unaudited)
| Three months ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating revenues: | ||||||||
| External customers | $ | $ | ||||||
| Related parties | ||||||||
| Total operating revenues | ||||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling expense | ( | ) | ( | ) | ||||
| General and administrative expense | ( | ) | ( | ) | ||||
| Other professional fees | ( | ) | - | |||||
| Total operating expenses | ( | ) | ( | ) | ||||
| Operating income | ||||||||
| Non-operating income, net | ||||||||
| Equity method income | ||||||||
| Foreign currency transactions losses | ( | ) | ( | ) | ||||
| Loss on debt extinguishment | - | ( | ) | |||||
| Interest expense and deferred cost of financing | ( | ) | ( | ) | ||||
| Income before taxes | ||||||||
| Income tax provision | ( | ) | ( | ) | ||||
| Net income | $ | $ | ||||||
| Income attributable to non-controlling interest | ( | ) | ( | ) | ||||
| Income attributable to parent | $ | $ | ||||||
| Comprehensive income: | ||||||||
| Net income | $ | $ | ||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Change in fair value of derivative contracts | ( | ) | ||||||
| Total comprehensive income (loss) | $ | $ | ( | ) | ||||
| Comprehensive income attributable to non-controlling interest | ( | ) | ( | ) | ||||
| Total comprehensive income (loss) attributable to parent | $ | $ | ( | ) | ||||
| Basic income per share | $ | $ | ||||||
| Diluted income per share | $ | $ | ||||||
| Basic weighted average common shares outstanding | ||||||||
| Diluted weighted average common shares outstanding | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
Tecnoglass Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Allowance for bad debts | ||||||||
| Depreciation and amortization | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Equity method income | ( | ) | ( | ) | ||||
| Deferred cost of financing | ||||||||
| Other non-cash adjustments | ( | ) | ||||||
| Loss on debt extinguishment | - | |||||||
| Unrealized currency translation losses | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Trade accounts receivables | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Trade accounts payable and accrued expenses | ( | ) | ||||||
| Accrued interest expense | ( | ) | ( | ) | ||||
| Taxes payable | ||||||||
| Labor liabilities | ( | ) | ( | ) | ||||
| Other liabilities | ( | ) | ( | ) | ||||
| Contract assets and liabilities | ||||||||
| Related parties | ||||||||
| CASH PROVIDED BY OPERATING ACTIVITIES | $ | $ | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of investments | ( | ) | ( | ) | ||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| CASH USED IN INVESTING ACTIVITIES | $ | ( | ) | $ | ( | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Cash dividend | ( | ) | ( | ) | ||||
| Loss on debt extinguishment - Call Premium | - | ( | ) | |||||
| Deferred financing transaction costs | - | ( | ) | |||||
| Proceeds from debt | ||||||||
| Repayments of debt | ( | ) | ( | ) | ||||
| CASH USED IN FINANCING ACTIVITIES | $ | ( | ) | $ | ( | ) | ||
| Effect of exchange rate changes on cash and cash equivalents | $ | $ | ( | ) | ||||
| NET (DECREASE) INCREASE IN CASH | ( | ) | ||||||
| CASH - Beginning of period | ||||||||
| CASH - End of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income Tax | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Assets acquired under credit or debt | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
Tecnoglass Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity
(Amounts in thousands, except share and per share data)
(Unaudited)
| Ordinary Shares, $0.0001 Par Value | Additional Paid in | Legal | Retained | Accumulated Other Comprehensive | Total Shareholders’ | Non-Controlling | Total Shareholders’ Equity and Non-Controlling | |||||||||||||||||||||||||||||
| Shares | Amount | Capital | Reserve | Earnings | Loss | Equity | Interest | Interest | ||||||||||||||||||||||||||||
| Balance at December 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||
| Dividend | - | - | - | - | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| Derivative financial instruments | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ||||||||||||||||||||||||||||||||||
| Ordinary Shares, $0.0001 Par Value | Additional Paid in | Legal | Retained | Accumulated Other Comprehensive | Total Shareholders’ | Non-Controlling | Total Shareholders’ Equity and Non-Controlling | |||||||||||||||||||||||||||||
| Shares | Amount | Capital | Reserve | Earnings | Loss | Equity | Interest | Interest | ||||||||||||||||||||||||||||
| Balance at December 31, 2020 | ( |
) | ||||||||||||||||||||||||||||||||||
| Dividend | - | - | - | - | ( |
) | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||
| Derivative financial instruments | - | - | - | - | - | ( |
) | ( |
) | - | ( |
) | ||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | ( |
) | ( |
) | - | ( |
) | ||||||||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | ( |
) | ||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
Tecnoglass Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
(Unaudited)
Note 1. General
Business Description
Tecnoglass Inc., a Cayman Islands exempted company (the “Company”, “Tecnoglass,” “TGI,” “we, “us” or “our”), manufactures hi-specification, architectural glass and windows for the global residential and commercial construction industries. Currently the Company offers design, production, marketing, and installation of architectural systems for buildings of high, medium and low elevation size. Products include windows and doors in glass and aluminum, office partitions and interior divisions, floating facades and commercial window showcases. The Company exports most of its production to foreign countries, selling to customers in North, Central and South America.
The Company manufactures both glass and aluminum products. Its glass products include tempered glass, laminated glass, thermo-acoustic glass, curved glass, silk-screened glass, acoustic glass and digital print glass. Its Alutions plant produces mill finished, anodized, painted aluminum profiles and rods, tubes, bars and plates. Alutions’ operations include extrusion, smelting, painting and anodizing processes, and exporting, importing and marketing aluminum products.
The Company also designs, manufactures, markets and installs architectural systems for high, medium and low-rise construction, glass and aluminum windows and doors, office dividers and interiors, floating facades and commercial display windows.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting purposes. The results reported in these unaudited condensed consolidated financial statements are not necessarily indicative of results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the information contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The year-end condensed balance sheet data was derived from the audited financial statements in the Form 10-K but does not include all disclosures required by US GAAP.
The preparation of these unaudited condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Company’s financial statements. Actual results may differ from these estimates under different assumptions and conditions. Estimates utilized in the preparation of these unaudited condensed consolidated financial statements relate to the collectability of account receivables, the valuation of inventories, estimated earnings on uncompleted contracts, useful lives and potential impairment of long-lived assets. Changes in estimates are reflected in the periods during which they become known. Actual amounts may differ from these estimates and could differ materially. These financial statements reflect all adjustments that in the opinion of management are necessary for a fair statement of the financial position, results of operations and cash flows for the period presented, and are of a normal, recurring nature.
The Company has one operating segment, Architectural Glass and Windows, which is also its reporting segment, comprising the design, manufacturing, distribution, marketing and installation of high-specification architectural glass and window product sold to the construction industry.
| 7 |
Principles of Consolidation
These audited condensed consolidated financial statements consolidate TGI, its subsidiaries Tecnoglass S.A.S (“TG”), C.I. Energía Solar S.A.S E.S. Windows (“ES”), ES Windows LLC (“ESW LLC”), Tecnoglass LLC (“Tecno LLC”), Tecno RE LLC (“Tecno RE”), GM&P Consulting and Glazing Contractors (“GM&P”), Componenti USA LLC, ES Metals SAS (“ES Metals”), and Ventanas Solar S.A (“VS”), which are entities in which we have a controlling financial interest because we hold a majority voting interest. To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity (“VIE”) model to the entity, otherwise the entity is evaluated under the voting interest model. All significant intercompany accounts and transactions are eliminated in consolidation, including unrealized intercompany profits and losses. The equity method of accounting is used for investments in affiliates and other joint ventures over which the Company has significant influence but does not have effective control.
TGI and certain wholly owned subsidiaries with functional currency different than the U.S. dollar have long-term intercompany loan balances denominated in foreign currencies that are remeasured at the current exchange rate in effect at the balance sheet date. Such loan balances are not expected to be settled in the foreseeable future. Any gains and losses relating to these loans are included in the accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ equity.
Recast of Prior Year Period Financial Statements
On
November 8, 2021, we announced that we entered into a purchase agreement with Ventanas Solar S.A. (“VS”) a Panama domiciled
company that acts as an importer and distributor of the Company’s products in the Republic of Panama. VS is affiliated with family
members of Jose M. Daes, the Company’s Chief Executive Officer, and Christian T. Daes, the Company’s Chief Operating Officer.
Pursuant to the Agreement, the Company through ES acquired
The acquisition of VS was deemed to be a transaction between entities under common control. As a result, the assets and liabilities were transferred at the historical cost of VS, with prior periods retroactively adjusted to include the historical financial results of the acquired company for the period they were controlled by the previous owners of VS in the Company’s financial statements.
The following table includes the financial information as originally reported and the net effect of the VS acquisition after elimination of intercompany transactions:
| March 31, 2021 | ||||||||||||
| Prior to acquisition | Effect of acquisition | After acquisition | ||||||||||
| Total Sales | ||||||||||||
| Operating Income | ( | ) | ||||||||||
| Income attributable to parent | ( | ) | ||||||||||
| Basic income per share | ( | ) | ||||||||||
| Diluted income per share | ( | ) | ||||||||||
Derivative Financial Instruments
The Company recognizes all derivative financial instruments as either assets or liabilities at fair value on the condensed consolidated balance sheet. The unrealized gains or losses arising from changes in fair value of derivative instruments that are designated and qualify as cash flow hedges, are recorded in the condensed consolidated statement of comprehensive income. Amounts in accumulated other comprehensive loss on the condensed consolidated balance sheet are reclassified into the condensed consolidated statement of income in the same period or periods during which the hedged transactions are settled.
| 8 |
Adoption of New Accounting Standards
In June 2016, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326). This ASU represents a significant change in the allowance for credit losses accounting model by requiring immediate recognition of management’s estimates of current expected credit losses. Under the prior model, losses were recognized only as they were incurred, which FASB has noted delayed recognition of expected losses that might not yet have met the threshold of being probable. The new model is applicable to all financial instruments that are not accounted for at fair value through net income, thereby bringing consistency in accounting treatment across different types of financial instruments and requiring consideration of a broader range of variables when forming loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, (with early application permitted). The FASB issued ASU 2019-10 and ASU 2019-11 during the fourth quarter of 2019 that postponed the effective date to the year beginning after December 15, 2022 for smaller reporting Companies. In February 2020, the FASB issued ASU 2020-02 “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842), which amends SEC Staff Accounting Bulletin No. 119 (SAB119) which contains interpretative guidance from the SEC aligned to the FASB’s ASC 326.
We adopted this standard using the modified retrospective approach at the beginning of fiscal year 2022 as we lost the smaller reporting company status. The adoption of this ASU did not have a significant impact on earnings or financial condition. Refer to additional disclosures in Notes 4.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The amendments in this Update provide optional expedients and exceptions for contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this Update are effective for the Company through December 31, 2022 with early adoption permitted. The Company’s outstanding debt which bears interest based on LIBOR contains provisions for transitioning into a benchmark reference rate prior to the discontinuation of LIBOR in 2023. Our interest rate swap derivative contract will be adjusted accordingly.
Note 3. - Inventories, net
| March 31, 2022 | December 31, 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Stores and spares | ||||||||
| Packing material | ||||||||
| Less: Inventory allowance | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| 9 |
Note 4. – Revenues, Trade Accounts Receivable, Contract Assets and Contract Liabilities
Disaggregation of Total Net Sales
The Company disaggregates its sales with customers by revenue recognition method for its only segment, as the Company believes these factors affect the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows.
| Three months ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Fixed price contracts | $ | $ | ||||||
| Product sales | ||||||||
| Total Revenues | $ | $ | ||||||
The following table presents geographical information about revenues.
| Three months ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Colombia | $ | $ | ||||||
| United States | ||||||||
| Panama | ||||||||
| Other | ||||||||
| Total Revenues | $ | $ | ||||||
Trade Accounts Receivable
In the ordinary course of business, we extend credit to customers on a generally non-collateralized basis. The Company maintains an allowance for expected credit losses which is based on management’s assessments of the amount which may become uncollectible in the future and is determined through consideration of our write-off history, specific identification of uncollectible accounts based in part on the customer’s past due balance (based on contractual terms), and consideration of prevailing economic and industry conditions. Uncollectible accounts are written off after repeated attempts to collect from the customer have been unsuccessful.
Trade accounts receivable consist of the following:
March 31, 2022 | December 31, 2021 | |||||||
| Trade accounts receivable | ||||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
The changes in the allowance for credit losses for the three months ended March 31, 2022:
Three months ended March 31, 2022 | ||||
| Balance at beginning of period | $ | |||
| Additions charged to costs and expenses | ||||
| Deductions and write-offs, net of foreign currency adjustment | ( | ) | ||
| Balance at end of period | $ | |||
Contract Assets and Liabilities
Contract assets represent accumulated incurred costs and earned profits on contracts with customers that have been recorded as sales, but have not been billed to customers and are classified as current and a portion of the amounts billed on certain fixed price contracts that are withheld by the customer as a retainage until a final good receipt of the complete project to the customers satisfaction. Contract liabilities consist of advance payments and billings in excess of costs incurred and deferred revenue, and represent amounts received in excess of sales recognized on contracts. The Company classifies advance payments and billings in excess of costs incurred as current, and deferred revenue as current or non-current based on the expected timing of sales recognition. Contract assets and contract liabilities are determined on a contract by contract basis at the end of each reporting period. The non-current portion of contract liabilities is included in other liabilities in the Company’s condensed consolidated balance sheets.
| 10 |
The table below presents the components of net contract assets (liabilities).
| March 31, 2022 | December 31, 2021 | |||||||
| Contract assets — current | $ | $ | ||||||
| Contract assets — non-current | ||||||||
| Contract liabilities — current | ( | ) | ( | ) | ||||
| Contract liabilities — non-current | ( | ) | ( | ) | ||||
| Net contract assets | $ | ( | ) | $ | ( | ) | ||
The components of contract assets are presented in the table below.
| March 31, 2022 | December 31, 2021 | |||||||
| Unbilled contract receivables, gross | $ | $ | ||||||
| Retainage | ||||||||
| Total contract assets | ||||||||
| Less: current portion | ||||||||
| Contract Assets – non-current | $ | $ | ||||||
The components of contract liabilities are presented in the table below.
March 31, 2022 | December 31, 2021 | |||||||
| Billings in excess of costs | $ | |||||||
| Advances from customers on uncompleted contracts | ||||||||
| Total contract liabilities | ||||||||
| Less: current portion | ||||||||
| Contract liabilities – non-current | $ | |||||||
During
the three months ended March 31, 2022, the Company recognized $
Remaining Performance Obligations
As
of March 31, 2022, the Company had $
Note 5. Intangible Assets
Intangible assets include Miami-Dade County Notices of Acceptances (NOA’s), which are certificates issued for approved products and required to market hurricane-resistant glass in Florida. Also, it includes the intangibles acquired during the acquisition of GM&P.
| March 31, 2022 | ||||||||||||
| Gross | Acc. Amort. | Net | ||||||||||
| Trade Names | $ | $ | ( | ) | $ | |||||||
| Notice of Acceptances (NOAs), product designs and other intellectual property | ( | ) | ||||||||||
| Non-compete Agreement | ( | ) | ||||||||||
| Customer Relationships | ( | ) | ||||||||||
| Total | $ | $ | ( | ) | $ | |||||||
| 11 |
| December 31, 2021 | ||||||||||||
| Gross | Acc. Amort. | Net | ||||||||||
| Trade Names | $ | $ | ( | ) | $ | |||||||
| Notice of Acceptances (NOAs), product designs and other intellectual property | ( | ) | ||||||||||
| Non-compete Agreement | ( | ) | ||||||||||
| Customer Relationships | ( | ) | ||||||||||
| Total | $ | $ | ( | ) | $ | |||||||
The
weighted average amortization period is
During
the three months ended March 31, 2022 and 2021, the amortization expense amounted to $
The estimated aggregate amortization expense for each of the five succeeding years as of March 31, 2022 is as follows:
| Year ending | (in thousands) | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| $ | ||||
Note 6. Debt
The Company’s debt is comprised of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Revolving lines of credit | $ | $ | ||||||
| Finance lease | ||||||||
| Other loans | - | |||||||
| Syndicated credit - term loan facility | ||||||||
| Less: Deferred cost of financing | ( | ) | ( | ) | ||||
| Total obligations under borrowing arrangements | ||||||||
| Less: Current portion of long-term debt and other current borrowings | ||||||||
| Long-term debt | $ | $ | ||||||
| 12 |
On
October 2020, the Company closed a $
In
November 2021, the Company amended its senior secured revolving credit facility to
In
March of 2022 we voluntarily prepaid $
As
of March 31, 2022, the Company was obligated under various finance leases under which the aggregate present value of the minimum lease
payments amounted to $
The table below shows maturities of debt as of March 31, 2022.
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ |
| 13 |
The
Company’s loans have maturities ranging from a
Note 7. Hedging Activity and Fair Value Measurements
Hedging Activity
During the quarter ended March 31, 2022, we entered into an interest rate swap contract to hedge the interest rate fluctuations related to our outstanding debt. The effective date of the contract is December 31, 2022 and, thus, we shall have payment dates each quarter, commencing March 31, 2023. Our contracts are designated as cash flow hedges since they are highly effective in offsetting changes in the cash flows attributable to forecasted LIBOR.
Guidance under the Financial Instruments Topic 825 of the Codification requires us to record our hedge contracts at fair value and consider our credit risk for contracts in a liability position, and our counter-party’s credit risk for contracts in an asset position, in determining fair value. We assess our counter-party’s risk of non-performance when measuring the fair value of financial instruments in an asset position by evaluating their financial position, including cash on hand, as well as their credit ratings.
As
of March 31, 2022, the fair value of interest rate swap contracts was in a net asset position of $
We
assess the effectiveness of our interest rate swap contracts by comparing the change in the fair value of the interest rate swap contracts
to the change in the expected cash to be paid for the hedged item. The effective portion of the gain or loss on our interest rate
swap contracts is reported as a component of accumulated other comprehensive income and is reclassified into earnings in the same
line item in the income statement as the hedged item in the same period or periods during which the transaction affects earnings. The
amount of gains, net, recognized in the “accumulated other comprehensive income” line item in the accompanying consolidated
balance sheet as of March 31, 2022, that we expect will be reclassified to earnings within the next twelve months, is $
The fair value of our interest rate swap hedges is classified in the accompanying consolidated balance sheets as of March 31, 2022, are as follows:
| Derivative Assets | Derivative Liabilities | |||||||||||||||
| March 31, 2022 | March 31, 2022 | |||||||||||||||
| Derivatives designated as hedging instruments under Subtopic 815-20: | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||
| Derivative instruments: | ||||||||||||||||
| Interest Rate Swap Contracts | Other current assets | $ | Accrued liabilities | $ | ( | ) | ||||||||||
| Total derivative instruments | Total derivative assets | $ | Total derivative liabilities | $ | ( | ) | ||||||||||
The
ending accumulated balance for the interest rate swap contracts included in accumulated other comprehensive income was $
The following table presents the gains (losses) on derivative financial instruments, and their classifications within the accompanying consolidated financial statements, for the quarter ended March 31, 2022:
| Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||||
| Amount of Gain or (Loss) Recognized in OCI on | Location of Gain or (Loss) Reclassified from Accumulated OCI (Loss) into | Amount of Gain or (Loss) Reclassified from Accumulated | ||||||||||||||||||
| Derivatives | Income | OCI (Loss) into Income | ||||||||||||||||||
| Quarter Ended | Quarter Ended | |||||||||||||||||||
| March 31, | December 31, | March 31, | December 31, | |||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
| Interest Rate Swap Contracts | $ | $ | Interest Expense | $ | $ | |||||||||||||||
| 14 |
Fair Value Measurements
The Company accounts for financial assets and liabilities in accordance with accounting standards that define fair value and establish a framework for measuring fair value. The hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and advances from customers approximate their fair value due to their relatively short-term maturities.
As of March 31, 2022, financial instruments carried at amortized cost that do not approximate fair value consist of long-term debt. See Note 6 - Debt. The fair value of long-term debt was calculated based on an analysis of future cash flows discounted with our average cost of debt, which is based on market rates, which are level 2 inputs.
The following table summarizes the fair value and carrying amounts of our long-term debt:
| March 31, 2022 | December 31, 2021 | |||||||
| Fair Value | ||||||||
| Carrying Value | ||||||||
Note 8. Income Taxes
The Company files income tax returns for TG, ES and ES Metals in the Republic of Colombia. GM&P, Componenti USA LLC and ESW LLC are U.S. entities based in Florida subject to U.S. federal and state income taxes. VS files income tax returns in the Republic of Panama. Tecnoglass Inc. does not currently have any tax obligations.
The components of income tax expense are as follows:
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Current income tax | ||||||||
| United States | $ | ( | ) | $ | ( | ) | ||
| Colombia | ( | ) | ( | ) | ||||
| Panama | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
| Deferred income Tax | ||||||||
| United States | ||||||||
| Colombia | ( | ) | ||||||
| Panama | - | |||||||
| ( | ) | |||||||
| Total income tax provision | $ | ( | ) | $ | ( | ) | ||
| Effective tax rate | % | % | ||||||
The
weighted average statutory income tax rate for the three months ended March 31, 2022 and 2021 was
| 15 |
Note 9. Related Parties
The following is a summary of assets, liabilities, and income transactions with all related parties:
March 31, 2022 | December 31, 2021 | |||||||
| Due from related parties: | ||||||||
| Alutrafic Led SAS | ||||||||
| Studio Avanti SAS | ||||||||
| A Construir SA | ||||||||
| Due from other related parties | ||||||||
| Total due from related parties | $ | $ | ||||||
| Due to related parties: | ||||||||
| Vidrio Andino | ||||||||
| Bancaplus SAS | - | |||||||
| A Construir SA | ||||||||
| Due to other related parties | ||||||||
| Total due to related parties | $ | $ | ||||||
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Sales to related parties: | ||||||||
| Alutrafic Led SAS | ||||||||
| Studio Avanti SAS | ||||||||
| Sales to other related parties | ||||||||
| $ | $ | |||||||
A Construir SA
On
a recurring basis, we engage A Construir S.A. a heavy construction company operating in Barranquilla, Colombia to carry out construction
related to our on-going capital expenditures at our production facilities in Colombia. Affiliates of Jose Daes and Christian Daes, the
Company’s CEO and COO, respectively, have an ownership stake in A Construir. As of March 31, 2022 and March 31, 2021, the Company
purchased $
| 16 |
Alutrafic Led SAS
In
the ordinary course of business, we sell products to Alutrafic Led SAS (“Alutrafic”), a fabricator of electrical lighting
equipment. Affiliates of Jose Daes and Christian Daes, the Company’s CEO and COO, respectively, have an ownership stake in Alutrafic.
We sold $
Bancaplus SAS
As
of March 31, 2022, we had deposited the Colombian Peso equivalent to $
Santa Maria del Mar SAS
In
the ordinary course of business, we purchase fuel for use at our manufacturing facilities from Estación Santa Maria del Mar SAS,
a gas station located in the vicinity of our manufacturing campus which is owned by affiliates of Jose Daes and Christian Daes, the Company’s
CEO and COO. During the three months ended March 31, 2022 and 2021, we purchased $
Fundacion Tecnoglass-ESWindows
Fundacion
Tecnoglass-ESWindows is a non-profit organization set up by the Company to carry out social causes in the communities around where we
operate. During the quarters ended March 31, 2022 and 2021 we made charitable contributions for $
Studio Avanti SAS
In
the ordinary course of business, we sell products to Studio Avanti SAS (“Avanti”), a distributer and installer of architectural
systems in Colombia. Avanti is owned and controlled by Alberto Velilla, who is director of Energy Holding Corporation, the controlling
shareholder of the Company. As of March 31, 2022 an December 31, 2021, The Company had outstanding accounts receivable from Avanti for
$
Vidrio Andino Joint Venture
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
The
land will serve the purpose of developing a second float glass plant nearby our existing manufacturing facilities which we expect will
carry significant efficiencies for us once it becomes operative, in which we will also have a
In
the ordinary course of business, we purchased $
| 17 |
Zofracosta SA
Our
subsidiary ES has an investment in Zofracosta SA, a real estate holding company and operator of a tax free zone located in the vicinity
of the proposed glass plant being built through our Vidrio Andino joint venture for $
Note 10. Shareholders’ Equity
Dividends
In
March 2022, the Company declared a regular quarterly dividend of $ per share, or $ per share on an annualized basis. The dividend
was paid on
Earnings per Share
| Three months ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Numerator for basic and diluted earnings per shares | ||||||||
| Net Income | $ | $ | ||||||
| Denominator | ||||||||
| Denominator for basic earnings per ordinary share - weighted average shares outstanding | ||||||||
| Effect of dilutive securities and stock dividend | - | - | ||||||
| Denominator for diluted earnings per ordinary share - weighted average shares outstanding | ||||||||
| Basic earnings per ordinary share | $ | $ | ||||||
| Diluted earnings per ordinary share | $ | $ | ||||||
Note 11. Commitments and Contingencies
Commitments
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
| 18 |
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
General Legal Matters
From time to time, the Company is involved in legal matters arising in the regular course of business. Some disputes are derived directly from our construction projects, related to supply and installation, and even though deemed ordinary, they may involve significant monetary damages. We are also subject to other type of litigations arising from employment practices, worker’s compensation, automobile claims and general liability. It is very difficult to predict precisely what the outcome of these litigations might be. However, with the information at our disposition as this time, there are no indications that such claims will result in a material adverse effect on the business, financial condition or results of operations of the Company.
Note 12. Subsequent Events
On April 21, 2022, the board of directors of the Company authorized management of the Company to take all actions necessary to transfer the listing of the Company’s ordinary shares, par value $ per share, from the Nasdaq Stock Market LLC (“Nasdaq”) to the New York Stock Exchange (“NYSE”).
On April 22, 2022, the Company provided written notice to Nasdaq of its intention to voluntarily delist its ordinary shares on Nasdaq and to list its ordinary shares on the NYSE. The ordinary shares on Nasdaq ceased trading on Nasdaq at market close on May 6, 2022, and commenced on the NYSE on May 9, 2022. The ordinary Shares has been approved for listing on the NYSE, with the ordinary shares continuing to trade under the symbol “TGLS.
| 19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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.
| 20 |
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.
| 21 |
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.
| 22 |
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).
Cash Flow from Operations, Investing and Financing Activities
| Three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flow provided by Operating Activities | $ | 27,135 | $ | 28,652 | ||||
| Cash Flow used in Investing Activities | (10,394 | ) | (5,740 | ) | ||||
| Cash Flow used in Financing Activities | (18,317 | ) | (2,072 | ) | ||||
| Effect of exchange rates on cash and cash equivalents | 996 | (2,893 | ) | |||||
| Cash Balance - Beginning of Period | 85,011 | 67,668 | ||||||
| Cash Balance - End of Period | $ | 84,431 | $ | 85,615 | ||||
During the three months ended March 31, 2022 and 2021, operating activities generated approximately $27.1 million and $28.7 million, respectively. The positive cashflow from operations during 2022 resulted from an increased profit year over year, enhanced collection efforts, reduced interest expense and a more favorable mix of revenues in the single-family residential space which carries a shorter cash cycle and no retainage.
The main source of operating cash during the three months ended March 31, 2022 were Trade Accounts Receivables, which generated $6.1 million as our days sales outstanding improved from 80 at fiscal year end to 74 as of March 31, 2022 as a greater portion of our business is coming from single family residential market which has a shorter cash cycle than commercial market. In contrast, Trade Accounts receivable used $3.8 million during the three months ended March 31, 2021.The main use of cash was the purchase of inventories, which used $13.5 million during the three months ended March 31, 2022 as we procure materials to support our ongoing growth.
| 23 |
We used $10.4 million and $5.7 million in investing activities during the three months ended March 31, 2022, and 2021, respectively. The main use of cash in investing activities during the three months ended March 31, 2022, was related to the automation of our architectural system assembly processes. During the first three months of 2022, we paid $9.3 million to acquire property plant and equipment, which in combination with $2.7 million acquired under credit, amount to total Capital Expenditures of $11.9 million. During 2021, we used $5.7 million for the acquisition or property and equipment. Including assets acquired with debt or supplier credit, total capital expenditures during the period were $6.4 million.
Financing activities used $18.3 million and $2.1 million during the three months ended March 31, 2022 and 2021, respectively. During the first quarter 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. During the first quarter of 2021 outflows were related the full redemption of the $210 million unsecured senior notes, which bore interest at a rate of 8.2% and matured in 2022, following a step down in redemption price at the end of January 2021, along with $8.6 million for the corresponding call premium. These payments were made with proceeds of the new Senior Secured Credit Facility for up to $300 million, of which we received proceeds of $220 million during the quarter.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to ongoing market risk related to changes in interest rates, foreign currency exchange rates and commodity market prices.
A rise in interest rates could negatively affect the cost of financing for a significant portion of our debt with variable interest rates. If interest rates were to increase over the next 12 months by 100 basis points, net earnings would decrease by approximately $0.6 million based the current composition of our indebtedness. This market risk exposure is net of the effect from interest rate hedging derivative financial instruments further described in the footnotes to the financial statements.
We are subject to market risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. dollar. Some of our subsidiaries’ operations are based in Colombia, and primarily transact business in local currency. Approximately 3% of our consolidated revenues and 32% of our costs and expenses are denominated in Colombian pesos, thereby mitigating some of the risk associated with changes in foreign exchange rates. However, as our costs and expenses in Colombian Pesos exceed, a 5% appreciation of the Colombian Peso relative to the US Dollar would result in our annual revenues increasing by $0.2 million and our annual costs and expenses increasing by approximately $1.8 million, resulting in a $1.6 million decrease to net earnings based on results for the twelve months ended March 31, 2022.
Similarly, a significant portion of the monetary assets and liabilities of these subsidiaries are generally denominated in US Dollars, while their functional currency is the Colombian peso, thereby resulting in gains or losses from remeasurement of assets and liabilities using end of period spot exchange rate. These subsidiaries have both monetary assets and monetary liabilities denominated in US Dollars, thereby mitigating some of the risk associated with changes in foreign exchange rate. Furthermore, we record a portion of the non-cash foreign currency transaction gains and losses from remeasurement of certain intercompany loans as other comprehensive income. Net of this, the Colombian subsidiaries’ US Dollar denominated monetary assets exceed their monetary liabilities by $43.3 million, such that a 1% devaluation of the Colombian peso will result in a loss of $0.4 million recorded in the Company’s Consolidated Statement of Operations as of March 31, 2022.
Additionally, the results of the foreign subsidiaries have to be translated into US Dollar, our reporting currency, in the Company’s consolidated financial statements. The currency translation of the financial statements using different exchange rates, as appropriate, for different parts of the financial statements generates a translation adjustment, which is recorded within other comprehensive income on the Company’s Consolidated Statement of Comprehensive Income and Consolidated Balance Sheet.
| 24 |
We are also subject to market risk exposure related to volatility in the prices of aluminum, one of the principal raw materials used for our manufacturing. The commodities markets, which include the aluminum industry, are highly cyclical in nature, and as a result, prices can be volatile. Commodity costs are influenced by numerous factors beyond our control, including general economic conditions, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions. Our selling prices are also impacted by changes in commodity costs base our pricing of aluminum products based on the quoted price on the London Metals Exchange plus a manufacturing premium with the intention of aligning cost of our raw materials with selling prices to attempt to pass commodity price changes through to our customers.
We cannot accurately estimate the impact a one percent change in the commodity costs of would have on our results of operation, as the change in commodity costs would both impact the cost to purchase materials and our selling prices. The impact to our results of operations depends on the conditions of the market for our products, which could impact our ability to pass commodities costs to our customers.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We performed an evaluation required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of Tecnoglass, Inc.´s design and operating effectiveness of the internal controls over financial reporting as of the end of the period covered by this Quarterly Report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, were effective as of March 31, 2022, in order to provide reasonable assurance that the information disclosed in our reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
For the quarter ended March 31, 2022, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
General Legal Matters
From time to time, the Company is involved in legal matters arising in the ordinary course of business. While management believes that such matters are currently not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations.
Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32 | Certification of Chief Executive Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101 | Financial statements from the Quarterly Report on Form 10-Q of Tecnoglass Inc. for the quarter ended March 31, 2022, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statement of Cash Flows and (v) Notes to Unaudited Condensed Consolidated Financial Statements, as blocks of text and in detail. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TECNOGLASS INC. | ||
| By: | /s/ Jose M. Daes | |
| Jose M. Daes | ||
| Chief Executive Officer | ||
| (Principal executive officer) | ||
| By: | /s/ Santiago Giraldo | |
| Santiago Giraldo | ||
| Chief Financial Officer | ||
| (Principal financial and accounting officer) | ||
| Date: May 10, 2022 | ||
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