Tecnoglass(TGLS) - 2021 Q4 - Annual Report

PART I Item 1. Business Tecnoglass manufactures architectural glass and aluminum products, primarily serving the U.S. construction market - Tecnoglass is a leading vertically-integrated manufacturer of architectural glass and aluminum products, with its main manufacturing complex in Barranquilla, Colombia[23] - The United States is the company's largest market, accounting for 92% of revenues in 2021[23] - In May 2019, the company formed a joint venture with Saint-Gobain, acquiring a 25.8% interest in Vidrio Andino for $45 million to secure a key raw material supply[24] - In January 2021, the company redeemed its $210 million senior notes (8.2% interest) using proceeds from a new, lower-cost Senior Secured Credit Facility, which was later amended in November 2021 to increase borrowing capacity and reduce interest rates[27][29] - The company has significantly penetrated the U.S. residential market, with sales growing from less than 5% in 2017 to nearly 36% in 2021[36][59] Competitive Strengths Vertical integration, cost advantages from Colombia, and strategic port proximity are key competitive strengths - Vertical integration allows the company to control the supply chain, maintain strict quality control, reduce dependence on third parties, and generate strong margins[39][40] - Manufacturing in Colombia provides significant cost advantages due to lower labor and energy costs compared to the U.S. The company has also invested in solar power to reduce energy expenses[42] - The Barranquilla facility's proximity to major ports enables low-cost and efficient distribution to the U.S., with shipping times of three days to Miami and one week to New York[43][44] - Since 2012, the company has invested nearly $350 million in technology to enhance production efficiency, improve product quality, and expand its capabilities[46] Strategy Strategy focuses on U.S. geographic expansion, deeper residential market penetration, and continuous technology investment - The company is focused on organic growth in the U.S. outside of Florida, targeting coastal markets like New York, Boston, and the Gulf Coast. In 2021, sales in Florida comprised 82% of U.S. revenue[55][56][58] - A key strategic priority is penetrating the U.S. residential market, which represented 35.7% of total sales in 2021, up from less than 5% in 2017[59] - Continued investment in technology and automation is central to the strategy, aimed at increasing production capacity, improving efficiency, and reducing lead times[60][62] Products, Sales, and Operations Tecnoglass offers diverse glass and aluminum products, serves over 1,000 customers, and holds key industry certifications - The company manufactures a diverse portfolio of glass and aluminum products, including specialized items like low-e glass, thermo-acoustic glass, and hurricane-proof windows[65] - Tecnoglass serves over 1,000 customers, with the 100 largest representing over 81% of sales. No single customer exceeded 10% of revenues in 2021 or 2020[72] - In 2021, two suppliers accounted for 26.6% of total raw material purchases, including a 10% share from its joint venture partner, Vidrio Andino SAS[74] - The company holds key industry certifications, including the Miami-Dade County Notice of Acceptance (NOA), which is critical for marketing hurricane-resistant glass in Florida[77] - Total employee count increased to 6,908 as of December 31, 2021, up from 5,666 at the end of 2020[89] Item 1A. Risk Factors The company faces operational, international, securities, and pandemic-related risks, including competition and supply chain reliance - The company operates in highly competitive markets, facing pressure on pricing and margins from both large and small competitors[94] - Reliance on a single manufacturing facility in Barranquilla, Colombia, concentrates risks related to equipment failures, catastrophic loss, or other production shutdowns[117][118] - The top ten third-party customers accounted for 35% of total sales revenue in 2021, indicating a degree of customer concentration risk[119] - Operations are subject to risks from economic, political, and tax conditions in Colombia, including currency fluctuations, as approximately 39% of expenses in 2021 were denominated in Colombian pesos[134][148] - The company is a "controlled company" as Energy Holding Corporation beneficially owned approximately 54.8% of outstanding ordinary shares as of December 31, 2021[142][195] - The global COVID-19 pandemic continues to pose risks related to workforce availability, supply chain disruptions, and volatility in global capital markets[200] Item 2. Properties Tecnoglass operates 3.5 million square feet of manufacturing facilities, primarily in Barranquilla, Colombia, and Miami-Dade County, Florida - The main manufacturing complex in Barranquilla, Colombia, spans 3.3 million square feet and is vertically integrated with glass, aluminum, and assembly plants[208] - The company owns a 123,399 square foot manufacturing and warehousing facility in Miami-Dade County, Florida, which also houses administrative and sales offices[208] Item 3. Legal Proceedings The company is involved in routine legal matters, none expected to materially impact its financial condition - The company is subject to routine litigation related to its business operations but does not expect any current proceedings to have a material adverse effect[211] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's ordinary shares trade on Nasdaq under 'TGLS', with a declared quarterly dividend - The company's ordinary shares trade on Nasdaq under the symbol "TGLS"[214] - A regular quarterly dividend of $0.065 per share was declared for Q4 2021, continuing the company's practice of paying quarterly dividends since August 2016[216][196] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2021, Tecnoglass achieved significant revenue and net income growth, driven by U.S. market strength and improved margins Results of Operations (FY 2021 vs 2020) Operating revenues grew 31.9% to $496.8 million, with gross margin improving to 40.8% and net income nearly tripling Consolidated Results of Operations (in thousands) | | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Operating Revenues | $496,785 | $376,607 | | Gross profit | $202,584 | $139,441 | | Operating income | $116,985 | $65,707 | | Interest Expense | ($9,850) | ($21,671) | | Loss on extinguishment of debt | ($10,699) | - | | Net income | $68,428 | $23,841 | | Income attributable to parent | $68,151 | $23,875 | - Operating revenue increased by 31.9% YoY, driven by a 34.0% increase in U.S. sales. Sales to the U.S. single-family residential market grew 151.1% to $177.3 million, accounting for 35.7% of total sales[245][246] - Gross margin improved by 380 basis points to 40.8% in 2021 from 37.0% in 2020, attributed to a higher mix of manufacturing revenue, operational efficiencies, and operating leverage[248] - Interest expense decreased by 54.5% to $9.9 million due to the refinancing of high-cost senior notes with a new, lower-rate credit facility[251] Liquidity, Capital Resources, and Cash Flow The company maintained strong liquidity, generated $117.3 million from operations, and refinanced debt to enhance financial flexibility Cash Flow Summary (in millions) | | Year Ended Dec 31, 2021 ($) | Year Ended Dec 31, 2020 ($) | | :--- | :--- | :--- | | Cash from Operating Activities | $117.3 | $71.7 | | Cash used in Investing Activities | ($50.8) | ($18.1) | | Cash used in Financing Activities | ($43.8) | ($33.5) | | Net Increase in Cash | $17.3 | $19.3 | | Cash at End of Period | $85.0 | $67.7 | - The company invested $53.3 million in capital expenditures in 2021, focusing on automation of assembly processes and other growth initiatives to increase plant capacity[240][256] - In November 2021, the Senior Secured Credit Facility was amended to increase the revolving credit line from $50 million to $150 million, reduce borrowing costs by ~130 basis points, and extend maturity to 2026[238] Item 9A. Controls and Procedures Management and auditor confirmed effective disclosure and internal controls over financial reporting as of December 31, 2021 - Management concluded that both disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2021[276][280] - There were no material changes to the company's internal control over financial reporting during the most recent fiscal quarter[281] PART III Item 10. Directors, Executive Officers and Corporate Governance This section details the company's directors, executive officers, and audit committee composition - The company's key executive officers are José M. Daes (CEO), Christian T. Daes (COO), and Santiago Giraldo (CFO)[285] - The audit committee is composed of independent directors Carlos Cure (Chairman), Luis Fernando Castro, and Julio Torres. Mr. Cure is designated as the audit committee financial expert[299][300] Item 11. Executive Compensation Executive compensation for 2021 included base salaries and bonuses, with increases approved for 2022 2021 Named Executive Officer Compensation | Name and principal position | Year | Salary ($) | Bonus ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Jose M. Daes, CEO | 2021 | $1,512,000 | $453,600 | $1,965,600 | | Christian T. Daes, COO | 2021 | $1,512,000 | $453,600 | $1,965,600 | | Santiago Giraldo, CFO | 2021 | $189,162 | $47,634 | $236,796 | - For 2022, the Board approved increased base salaries of $2,100,000 for both the CEO and COO, and $444,000 for the CFO, plus potential performance bonuses[310] - As of December 31, 2021, no equity awards were outstanding for any executive officers[312] Item 12. Security Ownership of Certain Beneficial Owners and Management Energy Holding Corporation is the largest beneficial owner with 54.8% of shares, and no equity awards were granted Security Ownership of Major Holders (as of Dec 31, 2021) | Name of Beneficial Owner | Amount of Beneficial Ownership (Shares) | Approximate Percentage (%) | | :--- | :--- | :--- | | All directors and executive officers as a group (8 persons) | 693,240 | 1.5% | | Energy Holding Corporation | 26,103,937 | 54.8% | | American Century Companies, Inc. | 3,405,196 | 7.1% | - The 2013 Long-Term Equity Incentive Plan has 1,593,917 ordinary shares available for future issuance, with no awards granted as of December 31, 2021[322] Item 13. Certain Relationships and Related Transactions, and Director Independence The company engaged in related-party transactions, subject to audit committee review, and has independent directors - In 2021, the company purchased $9.3 million in construction services from A Construir S.A., a company in which affiliates of the CEO and COO have an ownership stake[325] - The company purchased $15.3 million of materials from its joint venture, Vidrio Andino, in 2021[335] - The company has a policy for the audit committee to review and approve related-party transactions exceeding $120,000[338][339] - The Board of Directors has determined that five of its directors are independent[343] Item 14. Principal Accounting Fees and Services The company paid PwC $777,358 in 2021 for audit and audit-related services, pre-approved by the audit committee Accountant Fees (2021 vs 2020) | | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Audit Fees | $669,158 | $662,577 | | Audit-Related Fees | $105,300 | $20,697 | | All Other Fees | $2,900 | $3,787 | | Total Fees | $777,358 | $687,061 | PART IV Item 15. Exhibits, Financial Statement Schedules This section lists consolidated financial statements and exhibits filed with the Form 10-K - This section provides an index of the consolidated financial statements and a list of all exhibits filed with the Form 10-K[349][351] Financial Statements and Independent Auditor's Report Report of Independent Registered Public Accounting Firm PwC issued an unqualified opinion on financial statements and internal controls, noting a Critical Audit Matter for fixed-price contracts - The auditor issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2021[363] - A Critical Audit Matter was identified concerning Revenue Recognition for fixed-price contracts. This was due to the significant management judgment involved in estimating the total costs to complete these contracts, which directly impacts the timing and amount of revenue recognized[369][370][371]