Tecnoglass(TGLS) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, detailed notes, management's discussion and analysis, market risk disclosures, and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Tecnoglass Inc., including the balance sheets, statements of operations, cash flows, and shareholders' equity, along with detailed notes explaining accounting policies, inventory, revenue recognition, intangible assets, debt, hedging activities, income taxes, related party transactions, and commitments Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific reporting dates Total Assets: | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :----------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total Assets | $819,457 | $734,308 | +$85,149 | | Total Current Assets | $500,990 | $432,134 | +$68,856 | | Total Long-term Assets | $318,467 | $302,174 | +$16,293 | Total Liabilities: | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :----------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total Liabilities | $419,077 | $383,983 | +$35,094 | | Total Current Liabilities | $244,258 | $209,802 | +$34,456 | | Total Long-term Liabilities | $174,819 | $174,181 | +$638 | Total Shareholders' Equity: | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :----------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total Shareholders' Equity | $400,380 | $350,325 | +$50,055 | Condensed Consolidated Statements of Operations and Other Comprehensive Income This section details the company's financial performance, including revenues, gross profit, net income, and earnings per share over specified periods Total Operating Revenues (Q1 2023 vs. Q1 2022): | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | YoY Growth | | :----------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Total Operating Revenues | $202,639 | $134,548 | +$68,091 | +50.6% | Gross Profit & Margin (Q1 2023 vs. Q1 2022): | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | YoY Growth | | :------------------ | :--------------------- | :--------------------- | :-------------------- | :--------- | | Gross Profit | $107,755 | $60,333 | +$47,422 | +78.6% | | Gross Profit Margin | 53.2% | 44.8% | +8.4 pp | | Net Income & EPS (Q1 2023 vs. Q1 2022): | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | YoY Growth | | :------------------ | :--------------------- | :--------------------- | :-------------------- | :--------- | | Net Income | $48,372 | $20,953 | +$27,419 | +130.9% | | Basic Income per Share | $1.01 | $0.44 | +$0.57 | +129.5% | | Diluted Income per Share | $1.01 | $0.44 | +$0.57 | +129.5% | Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow from Operating Activities (Q1 2023 vs. Q1 2022): | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | YoY Growth | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Cash Provided by Operating Activities | $43,063 | $27,135 | +$15,928 | +58.7% | Cash Flow from Investing Activities (Q1 2023 vs. Q1 2022): | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | YoY Growth | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Cash Used in Investing Activities | $(15,688) | $(10,394) | -$(5,294) | +50.9% | Cash Flow from Financing Activities (Q1 2023 vs. Q1 2022): | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | YoY Change | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Cash Used in Financing Activities | $(3,287) | $(18,318) | +$15,031 | -82.0% | Net Increase in Cash (Q1 2023 vs. Q1 2022): | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | | :------------------ | :--------------------- | :--------------------- | :-------------------- | | Net Increase in Cash | $24,866 | $(580) | +$25,446 | Condensed Consolidated Statements of Shareholders' Equity This section tracks changes in the company's equity attributable to controlling interest, reflecting net income, dividends, and other comprehensive income adjustments Shareholders' Equity Attributable to Controlling Interest: | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :------------------------------------------ | :----------------------------- | :------------------------------- | :-------------------- | | Balance at Period End | $398,738 | $348,820 | +$49,918 | - Key changes in shareholders' equity for Q1 2023 include a net income contribution of $48,235 thousand and positive foreign currency translation adjustments of $7,811 thousand, partially offset by dividends of $(4,291) thousand and derivative financial instrument losses of $(1,837) thousand[18] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. General This note describes Tecnoglass Inc.'s core business as a manufacturer of architectural glass and windows for global construction markets - Tecnoglass Inc. manufactures hi-specification, architectural glass and windows for the global residential and commercial construction industries[20] - Products include tempered, laminated, thermo-acoustic, curved, silk-screened, acoustic, and digital print glass, as well as aluminum profiles, rods, tubes, bars, and plates[21] - The company exports most of its products to North, Central, and South America[20] Note 2. Basis of Presentation and Summary of Significant Accounting Policies This note outlines the accounting principles, consolidation policies, and significant estimates used in preparing the financial statements - Unaudited condensed consolidated financial statements are prepared in accordance with US GAAP and SEC interim reporting rules, relying on management estimates[23] - The company operates as a single reporting segment: Architectural Glass and Windows, encompassing design, manufacturing, distribution, marketing, and installation[25] - Consolidates entities with a controlling financial interest (majority voting interest); uses the equity method for affiliates with significant influence but no effective control[27] - FASB ASU 2020-04 (Reference Rate Reform) effective date deferred to after December 15, 2024, impacting LIBOR-based debt and derivative contracts[29] Note 3. - Inventories, net This note details the composition and valuation of the company's inventories, including raw materials, work in process, and finished goods Total Inventories, net: | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :-------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total Inventories, net | $143,057 | $124,997 | +$18,060 | - As of March 31, 2023, raw materials constituted the largest portion of inventories at $101,067 thousand, followed by work in process at $15,937 thousand and finished goods at $8,185 thousand[31] Note 4. – Revenues, Trade Accounts Receivable, Contract Assets and Contract Liabilities This note provides a breakdown of revenues by type and geography, along with information on trade accounts receivable and remaining performance obligations Total Revenues by Type (Q1 2023 vs. Q1 2022): | Revenue Type | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | YoY Growth | | :------------------ | :--------------------- | :--------------------- | :-------------------- | :--------- | | Fixed price contracts | $29,093 | $18,851 | +$10,242 | +54.3% | | Product sales | $173,546 | $115,697 | +$57,849 | +50.0% | | Total Revenues | $202,639 | $134,548 | +$68,091 | +50.6% | Total Revenues by Geography (Q1 2023 vs. Q1 2022): | Geography | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (in thousands) | YoY Growth | | :------------------ | :--------------------- | :--------------------- | :-------------------- | :--------- | | United States | $194,839 | $126,984 | +$67,855 | +53.4% | | Colombia | $5,740 | $4,025 | +$1,715 | +42.6% | | Panama | $270 | $799 | -$(529) | -66.2% | | Other | $1,790 | $2,740 | -$(950) | -34.7% | | Total Revenues | $202,639 | $134,548 | +$68,091 | +50.6% | Trade Accounts Receivable, net: | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Trade accounts receivable, net | $167,137 | $158,397 | +$8,740 | - As of March 31, 2023, remaining performance obligations totaled $499.1 million, with $358.1 million expected to be recognized in 2023, $114.6 million in 2024, and $26.5 million in 2025[40] Note 5. Intangible Assets This note details the company's intangible assets, their net carrying value, and the associated amortization expense Net Intangible Assets: | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :-------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Net Intangible Assets | $2,614 | $2,706 | -$(92) | Amortization Expense: | Period | Amortization Expense (in thousands) | | :-------------------- | :-------------------------------- | | Q1 2023 | $322 | | Q1 2022 | $475 | Estimated Aggregate Amortization Expense (as of March 31, 2023): | Year ending | Amount (in thousands) | | :---------- | :-------------------- | | 2023 | $793 | | 2024 | $722 | | 2025 | $416 | Note 6. Supplier Finance Program This note describes the company's supplier finance program and the outstanding obligations related to it - The company allows suppliers to receive advanced payments from third-party finance providers, with payment terms to the finance provider remaining consistent with original supplier agreements (30-60 days)[46] - As of March 31, 2023, outstanding obligations related to the supplier finance program amounted to $2,335 thousand, recorded as current liabilities[47] Note 7. Debt This note provides information on the company's borrowing arrangements, interest rates, and debt maturity schedule Total Obligations under Borrowing Arrangements: | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | :-------------------- | | Total obligations under borrowing arrangements | $169,895 | $169,484 | +$411 | - The Senior Secured Credit Facility was amended in November 2021, increasing borrowing capacity to $150 million, reducing borrowing costs by approximately 130 basis points, and extending the maturity date to the end of 2026[48] - The weighted average interest rate for credit facilities was 6.63% as of March 31, 2023, which is 4.30% net of interest rate swap contracts[49] Debt Maturities (as of March 31, 2023): | Year | Amount (in thousands) | | :--- | :-------------------- | | 2024 | $819 | | 2025 | $10,137 | | 2026 | $15,051 | | 2027 | $147,500 | Note 8. Hedging Activity and Fair Value Measurements This note explains the company's use of derivative instruments for hedging interest rate and foreign currency risks, along with their fair value measurements - The company uses interest rate swap contracts to hedge interest rate fluctuations on $125 million of outstanding debt through November 2026 and foreign currency non-delivery forward contracts to hedge Colombian Peso exchange rate fluctuations[52] - As of March 31, 2023, the fair value of the company's interest rate swap and foreign currency non-delivery forward contracts was in a net asset position of $9.4 million[52][54] - An amount of $3.5 million from accumulated other comprehensive income is expected to be reclassified to earnings within the next twelve months[53] - Measurement of derivative assets and liabilities is considered a Level 2 measurement, based on LIBOR rates and interest rate swap curves[59] Note 9. Income Taxes This note details the company's income tax provision and effective tax rates for the reporting periods Total Income Tax Provision (Q1 2023 vs. Q1 2022): | Period | Income Tax Provision (in thousands) | | :-------------------- | :-------------------------------- | | Q1 2023 | $(24,671) | | Q1 2022 | $(10,558) | - The effective tax rate was 33.8% for Q1 2023 and 33.5% for Q1 2022, approximating the statutory rate[63] - The company files income tax returns in Colombia and the U.S.; Cayman Islands entities do not have tax obligations[62] Note 10. Related Parties This note discloses transactions and balances with related parties, including sales, purchases, and charitable contributions Sales to Related Parties (Q1 2023 vs. Q1 2022): | Related Party | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :------------------ | :--------------------- | :--------------------- | | Alutrafic Led SAS | $173 | $300 | | Studio Avanti SAS | $156 | $168 | | Total Sales | $333 | $526 | - Purchases from Vidrio Andino (joint venture) increased to $6,345 thousand in Q1 2023 from $5,093 thousand in Q1 2022[72] - Equity method income from Vidrio Andino was $1,449 thousand in Q1 2023, compared to $1,580 thousand in Q1 2022[72] - Charitable contributions to Fundacion Tecnoglass-ESWindows increased to $664 thousand in Q1 2023 from $356 thousand in Q1 2022[68] Note 11. Shareholders' Equity This note provides details on changes in shareholders' equity, including dividends declared and earnings per share - The company declared a regular quarterly dividend of $0.09 per share in February 2023, totaling $0.36 per share on an annualized basis[74] Earnings per Share (Q1 2023 vs. Q1 2022): | Metric | Q1 2023 | Q1 2022 | Change | YoY Growth | | :-------------------------- | :------ | :------ | :----- | :--------- | | Basic earnings per ordinary share | $1.01 | $0.44 | +$0.57 | +129.5% | | Diluted earnings per ordinary share | $1.01 | $0.44 | +$0.57 | +129.5% | Note 12. Commitments and Contingencies This note outlines the company's significant contractual commitments and potential legal contingencies - As of March 31, 2023, the company had an outstanding obligation to purchase at least $72,172 thousand of raw materials from a specific supplier before November 30, 2030[76] - The company has a 25.8% interest in a joint venture with Saint-Gobain to build a new float glass plant, with a potential additional contribution of approximately $12,500 thousand if needed[77][78] - The company is involved in routine legal matters, which management believes are not currently material and are not expected to have a material adverse effect on the business[79] Note 13. Subsequent Events This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On April 4, 2023, the company entered into a settlement agreement related to a completed project, with associated expenses recorded as an accounts payable on the March 31, 2023 balance sheet and as an operating expense for the three months ended March 31, 2023[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the quarter ended March 31, 2023. It covers an overview of the business, detailed analysis of revenues, gross profit, expenses, and net income, as well as discussions on liquidity, capital resources, and cash flow activities Overview This section provides a general description of Tecnoglass's business, competitive advantages, market expansion, and sustainability commitments - Tecnoglass is a vertically integrated manufacturer, supplier, and installer of architectural glass, windows, and associated aluminum products for global commercial and residential construction markets[83] - The company was ranked as the third-largest glass fabricator serving the United States in 2022 by Glass Magazine and is the leading glass transformation company in Colombia[83] - Its structural competitive advantage is underpinned by a low-cost manufacturing footprint, vertically integrated business model, and strategic geographic location in Barranquilla, Colombia[86] - The company is actively expanding its presence in U.S. residential markets, which grew from less than 5% of sales to nearly 45% of revenues for the full year 2022, and into other highly populated areas of the United States outside of Florida[88] - Tecnoglass is committed to sustainability (ESG), adhering to UN Global Compact Principles and pursuing a carbon-neutral strategy set by the Colombian government by 2050[89] RESULTS OF OPERATIONS This section analyzes the company's financial performance, including changes in revenues, gross profit, operating expenses, and net income - Operating revenues increased by $68.1 million, or 50.6%, to $202.6 million for Q1 2023, driven by strong U.S. residential and commercial market activity[91][92] - U.S. sales increased by $67.9 million (53.4%) to $194.8 million, with commercial market sales up 65.0% to $111.2 million and single-family residential sales up 40.1% to $83.6 million (41.3% of total sales)[92] - Gross profit increased by $47.4 million (78.6%) to $107.7 million, resulting in a gross profit margin of 53.2% (up 840 basis points) due to operating leverage, favorable product pricing, efficiency efforts, and favorable foreign exchange rates[94] - Operating expenses increased by $7.7 million (29.2%) to $34.1 million, mainly due to higher personnel expense ($2.7 million) and shipping expense ($1.9 million) related to geographical expansion and higher sales volume[95] - Net income for Q1 2023 was $48.4 million, compared to $21.0 million for Q1 2022[99] Liquidity This section discusses the company's ability to meet short-term obligations, focusing on cash, cash equivalents, and available credit lines Cash and Cash Equivalents: | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------ | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $128,538 | $103,671 | - The company has approximately $170 million available under its committed lines of credit[101] - Working capital is anticipated to be a net benefit to cash flow for the full year ending December 31, 2023, providing ample flexibility to service obligations[102] Capital Resources This section details the company's capital expenditures and investments in joint ventures for future growth - Total capital expenditures for Q1 2023 amounted to $20.3 million, primarily invested in building and construction and machinery and equipment to automate production lines, add glass production lines, and expand aluminum facilities[103][108] - The company maintains a 25.8% interest in the Vidrio Andino joint venture for a new float glass plant, with a potential additional contribution of approximately $12.5 million if needed[105] Cash Flow from Operations, Investing and Financing Activities This section provides a detailed breakdown of cash generated or used across operating, investing, and financing activities - Operating activities generated $43.1 million in Q1 2023, a significant increase from $27.1 million in Q1 2022, driven by higher profitability, enhanced working capital efforts, and a favorable mix of residential revenues[106] - The main source of operating cash in Q1 2023 was taxes payable, generating $25.5 million, while the largest uses were other assets ($14.3 million) and inventories ($13.1 million)[107] - Investing activities used $15.7 million in Q1 2023, primarily for the acquisition of property and equipment[108] - Financing activities used $3.3 million in Q1 2023, a substantial decrease from $18.3 million in Q1 2022, mainly due to lower debt repayments compared to the prior year[109] Off-Balance Sheet Arrangements This section confirms the absence of any material off-balance sheet arrangements - The company reported no off-balance sheet arrangements[110] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section outlines the company's exposure to market risks, including interest rate risk, foreign currency exchange rate risk, and commodity price risk, and discusses the potential impact of these risks on its financial performance - The company is exposed to interest rate risk due to variable interest rates on a significant portion of its debt; a 100 basis point increase in interest rates would decrease net earnings by approximately $0.5 million (net of hedging)[111] - Foreign currency exchange rate risk exists as approximately 3% of revenues and 36% of costs and expenses are denominated in Colombian pesos; a 5% appreciation of the Colombian Peso relative to the US Dollar would result in a $2.5 million decrease to net earnings[112] - The company is subject to commodity price risk, particularly for aluminum, and aims to mitigate this by aligning raw material costs with selling prices based on the London Metals Exchange plus a manufacturing premium[116] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section reports on management's assessment of the effectiveness of the company's disclosure controls and procedures - As of March 31, 2023, management, including the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective[118] Changes in Internal Control over Financial Reporting This section discloses any material changes in the company's internal control over financial reporting during the period - For the quarter ended March 31, 2023, there were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[119] PART II. OTHER INFORMATION This section covers legal proceedings, unregistered sales of equity securities, and a list of filed exhibits Item 1. Legal Proceedings This section addresses the company's involvement in legal matters arising in the ordinary course of business - The company is periodically involved in legal matters arising in the ordinary course of business, including disputes related to construction projects, employment practices, and general liability[122] - Management believes that such matters are not currently material and are not expected to have a material adverse effect on the business, financial condition, or results of operations[122] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides information on the company's share repurchase program and any related activity during the reporting period - On November 3, 2022, the Board of Directors authorized the purchase of up to $50 million of the company's common shares[123] - During the three months ended March 31, 2023, the company repurchased 100 shares at an average price of $40 per share[123] - As of March 31, 2023, $50,000,000 remained available under the share repurchase program[123] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including required certifications and XBRL financial data - The report includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[124] - Financial statements from the Quarterly Report are provided in XBRL format, including Condensed Consolidated Balance Sheets, Statements of Operations, Statements of Changes in Stockholders' Equity, Statements of Cash Flows, and Notes to Unaudited Condensed Consolidated Financial Statements[124] SIGNATURES This section provides the official signatures of the company's executive and financial officers, certifying the report's contents - The report was signed on behalf of Tecnoglass Inc. by Jose M. Daes, Chief Executive Officer, and Santiago Giraldo, Chief Financial Officer[129] - The signing date for the report was May 8, 2023[129]