Tecnoglass(TGLS) - 2023 Q4 - Annual Report

Part I Business Tecnoglass is a vertically integrated manufacturer of architectural glass, windows, and related aluminum/vinyl products for commercial and residential markets, primarily in the U.S. (95% of revenue) - Tecnoglass is a leading vertically integrated manufacturer of architectural glass and windows, with the United States accounting for 95% of its revenues[29] - The company operates from a 5.6 million square foot, state-of-the-art manufacturing complex in Barranquilla, Colombia[29][33] - Tecnoglass has significantly penetrated the U.S. residential market, with sales growing from less than 5% in 2017 to 40.3% of total sales in 2023[37][64] - A key competitive advantage is its vertically integrated model, strengthened by a joint venture with Saint-Gobain, providing a secure supply of float glass[40][41][43] - As of December 31, 2023, the company had 8,531 employees, none of whom are represented by a union[97] Risk Factors The company faces a range of risks, including intense market competition, volatility in raw material costs, reliance on third-party suppliers, and economic instability in Colombia - The company operates in highly competitive markets, facing pressure on pricing and margins from competitors like Viracon, PGT, and Oldcastle Glass[102] - Reliance on a single primary production facility in Barranquilla, Colombia, subjects the company to concentrated operational risks[126] - Operations are subject to economic, political, and currency risks associated with Colombia, with approximately 24% of 2023 expenses in Colombian pesos and 97% of revenues from outside Colombia[142][155][173] - The company is a "controlled company" as Energy Holding Corporation beneficially owns approximately 52.4% of outstanding ordinary shares, giving it significant influence over shareholder-approved transactions[149][206] - An anti-dumping duty investigation on aluminum extrusions from Colombia could adversely impact the company's results if duties are imposed[138] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[213] Cybersecurity Tecnoglass has implemented a cybersecurity risk management program based on the NIST Cybersecurity Framework, overseen by the Board's Audit Committee, and has not experienced material attacks to date - The company's information security framework is based on the NIST Cybersecurity Framework[214] - The Audit Committee of the Board oversees cybersecurity risk and receives regular reports from management[216] - To date, the company has not experienced any attacks that led to interruptions, delays in service, or loss of personal information[218] Properties The company owns and operates 5.6 million square feet of manufacturing facilities, including a 5.4 million square foot complex in Colombia and a 123,399 square foot facility in Florida - The main manufacturing complex in Barranquilla, Colombia, spans 5.4 million square feet[220] - The company also owns a 123,399 square foot manufacturing and warehousing facility in Miami-Dade County, Florida[220] Legal Proceedings The company is involved in various legal matters arising from the ordinary course of business, none of which are expected to have a material adverse effect - The company is involved in legal matters from the regular course of business, but there are no indications that such claims will result in a material adverse effect[223] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[224] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Tecnoglass's ordinary shares trade on the NYSE, and the company has paid regular quarterly dividends since August 2016, repurchasing 678,065 shares for approximately $23.5 million in Q4 2023 - The company's ordinary shares are listed on the New York Stock Exchange under the symbol "TGLS"[226] - The company has paid regular quarterly dividends since August 2016, with future payments contingent on financial condition and Board discretion[228] Share Repurchase Activity (Q4 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | Approx. Dollar Value Remaining in Program | |:---|---:|---:|---:|---:| | Q4 2023 Total | 678,065 | $34.7 | 676,515 | $26,527,637 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In fiscal year 2023, Tecnoglass's revenue grew 16.3% to $833.3 million, with net income rising to $183.5 million, maintaining strong liquidity and investing $87.3 million in capital expenditures Consolidated Results of Operations (in thousands) | | 2023 | 2022 | 2021 | |:---|---:|---:|---:| | Operating revenues | $833,265 | $716,570 | $496,785 | | Gross profit | $390,934 | $349,499 | $202,584 | | Operating income | $259,762 | $226,415 | $116,985 | | Net income | $183,510 | $156,412 | $68,428 | | Income attributable to parent | $182,882 | $155,743 | $68,151 | - Cash and cash equivalents increased to $129.5 million as of December 31, 2023, from $103.7 million in 2022, with cash from operating activities at $138.8 million in 2023[253][278] - Capital expenditures in 2023 were $87.3 million, primarily for automation of production lines, aluminum capacity expansion, and establishing new vinyl window assembly lines[256][259] Comparison of 2023 vs. 2022 For the year ended December 31, 2023, operating revenue increased by 16.3% to $833.3 million, while gross margin declined by 190 basis points to 46.9%, and net income rose to $183.5 million Financial Performance Comparison (2023 vs. 2022) | Metric | 2023 | 2022 | Change | % Change | |:---|---:|---:|---:|---:| | Operating Revenue | $833.3M | $716.6M | +$116.7M | +16.3% | | Gross Profit | $391.0M | $349.5M | +$41.5M | +11.9% | | Gross Margin | 46.9% | 48.8% | -190 bps | - | | Net Income | $183.5M | $156.4M | +$27.1M | +17.3% | - U.S. sales grew by $106.7 million (15.5%), with commercial sales up 20.3% and single-family residential sales up 9.5%[261] Comparison of 2022 vs. 2021 For the year ended December 31, 2022, operating revenue increased by 44.2% to $716.6 million, gross profit rose 72.5% to $349.5 million, and net income more than doubled to $156.4 million Financial Performance Comparison (2022 vs. 2021) | Metric | 2022 | 2021 | Change | % Change | |:---|---:|---:|---:|---:| | Operating Revenue | $716.6M | $496.8M | +$219.8M | +44.2% | | Gross Profit | $349.5M | $202.6M | +$146.9M | +72.5% | | Gross Margin | 48.8% | 40.8% | +800 bps | - | | Net Income | $156.4M | $68.4M | +$88.0M | +128.6% | - U.S. sales increased by $232.0 million (50.8%), driven by a 72.8% increase in single-family residential sales and a 36.9% increase in commercial sales[269] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, foreign currency exchange rates, and commodity prices, with a 100 basis point interest rate rise decreasing net earnings by $0.5 million and a 5% COP appreciation decreasing net earnings by $6.8 million - A 100 basis point increase in interest rates would decrease net earnings by approximately $0.5 million[295] - A 5% appreciation of the Colombian Peso relative to the U.S. Dollar would result in a $6.8 million decrease to net earnings[296] - The company is subject to market risk from volatility in aluminum prices, a principal raw material[299] Financial Statements and Supplementary Data This section contains the company's consolidated financial statements for fiscal years 2023, 2022, and 2021, along with the independent auditor's report from PwC - The consolidated financial statements and the report of the independent registered public accounting firm are included, starting on page F-1[301] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with PwC also issuing an unqualified opinion - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[304] - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO 2013 framework[307][308] - No material changes were made to internal control over financial reporting during the most recent fiscal quarter[309] Part III Directors, Executive Officers and Corporate Governance This section lists the company's directors and executive officers, confirms the adoption of a code of conduct, and identifies Julio Torres as the "audit committee financial expert" Directors and Executive Officers | Name | Position | |:---|:---| | José M. Daes | Chief Executive Officer and Director | | Christian T. Daes | Chief Operating Officer and Director | | Santiago Giraldo | Chief Financial Officer | | Lorne Weil | Non-Executive Chairman of the Board | | Luis Fernando Castro Vergara | Director | | Anne Louise Carricarte | Director | | Julio A. Torres | Director | | Carlos Alfredo Cure Cure | Director | - The company has a standing audit committee composed of independent directors Carlos Cure, Luis Fernando Castro, and Julio Torres[329] - The Board has determined that Julio Torres qualifies as an "audit committee financial expert"[330] Executive Compensation Executive compensation is designed to attract and retain talent, with CEO José M. Daes and COO Christian T. Daes each receiving $3,969,000 in total compensation for 2023, resulting in an 868 to 1 CEO-to-median-employee pay ratio 2023 Summary Compensation Table (Named Executive Officers) | Name and Principal Position | Year | Salary | Bonus | Total | |:---|---:|---:|---:|---:| | Jose M. Daes, CEO | 2023 | $2,940,000 | $1,029,000 | $3,969,000 | | Christian T. Daes, COO | 2023 | $2,940,000 | $1,029,000 | $3,969,000 | | Santiago Giraldo, CFO | 2023 | $594,000 | $207,900 | $801,900 | - The CEO pay ratio for 2023 was 868 to 1, with the CEO's total compensation at $3,969,000 and the median employee's at $4,579[351][352] - As of December 31, 2023, no outstanding equity awards had been granted to any executive officers[353] - Non-employee directors receive annual cash compensation of $75,522, with additional fees for committee chairs and members[357] Security Ownership of Certain Beneficial Owners and Management As of December 31, 2023, Energy Holding Corporation, controlled by the Daes family, is the largest beneficial owner, holding 52.4% of the company's ordinary shares, with 1,593,917 shares available for future issuance under the 2013 Long-Term Equity Incentive Plan - Energy Holding Corporation beneficially owns 24,628,108 ordinary shares, representing 52.4% of the company[364] - CEO José M. Daes and COO Christian T. Daes have indirect ownership interests through Energy Holding Corporation but hold no shares directly[364][366] - The 2013 Long-Term Equity Incentive Plan has 1,593,917 ordinary shares available for future issuance, with no awards granted as of year-end 2023[365][367] Certain Relationships and Related Transactions, and Director Independence The company engages in related-party transactions, including $32.0 million in material purchases from Vidrio Andino and $3.3 million in charitable contributions, with the board determining five directors are independent - In 2023, the company purchased $32.0 million of materials from its joint venture, Vidrio Andino, and had outstanding payables of $3.9 million at year-end[378] - The company made charitable contributions of $3.3 million to Fundacion Tecnoglass-ESWindows in 2023[370] - On November 10, 2023, the company acquired the remaining 30% of ESMetals from Incantesimo SAS, a company affiliated with a senior manager, for $5.5 million[372] - The Board has determined that Messrs. Weil, Cure Cure, Castro Vergara, Torres and Ms. Carricarte qualify as independent directors[385] Principal Accountant Fees and Services The company paid its independent registered public accounting firm, PwC, a total of $857,412 in fees for fiscal year 2023, primarily for audit services, all of which were pre-approved by the Audit Committee Accountant Fees (PwC) | Fee Type | 2023 | 2022 | |:---|---:|---:| | Audit Fees | $854,512 | $692,754 | | Audit-Related Fees | $0 | $376 | | All Other Fees | $2,000 | $2,900 | | Total Fees | $857,412 | $696,030 | - All audit and non-audit services provided by PwC were pre-approved by the company's audit committee[387][389] Part IV Exhibits, Financial Statement Schedules This section provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K, including articles of association, material contracts, and certifications - This section provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K[390][392] Financial Statements Report of Independent Registered Public Accounting Firm PwC issued an unqualified opinion on Tecnoglass's consolidated financial statements and internal control over financial reporting, identifying "Revenue Recognition - Estimated Costs to Complete Fixed Price Contracts" as a Critical Audit Matter - The auditor, PwC, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting[407] - A Critical Audit Matter was identified related to "Revenue Recognition - Estimated Costs to Complete Fixed Price Contracts" due to the significant management judgment required in estimating costs[414][415][416] Consolidated Balance Sheets As of December 31, 2023, total assets were $962.7 million, total liabilities $414.7 million, and total shareholders' equity grew substantially to $548.0 million Key Balance Sheet Items (in thousands) | | Dec 31, 2023 | Dec 31, 2022 | |:---|---:|---:| | Cash and cash equivalents | $129,508 | $103,671 | | Total Current Assets | $535,760 | $432,134 | | Total Assets | $962,717 | $734,308 | | Total Current Liabilities | $235,886 | $209,802 | | Total Liabilities | $414,697 | $383,983 | | Total Shareholders' Equity | $548,020 | $350,325 | Consolidated Statements of Operations and Comprehensive Income For the year ended December 31, 2023, total operating revenues were $833.3 million, operating income $259.8 million, net income $183.5 million, and diluted earnings per share $3.85 Key Income Statement Items (in thousands) | | 2023 | 2022 | |:---|---:|---:| | Total operating revenues | $833,265 | $716,570 | | Gross profit | $390,934 | $349,499 | | Operating income | $259,762 | $226,415 | | Net income | $183,510 | $156,412 | | Diluted income per share | $3.85 | $3.27 | Consolidated Statements of Cash Flows For the year ended December 31, 2023, net cash provided by operating activities was $138.8 million, with $76.0 million used in investing activities and $42.8 million in financing activities, resulting in a $25.8 million net increase in cash Key Cash Flow Items (in thousands) | | 2023 | 2022 | |:---|---:|---:| | Cash Provided by Operating Activities | $138,827 | $141,920 | | Cash Used in Investing Activities | ($76,017) | ($72,584) | | Cash Used in Financing Activities | ($42,768) | ($44,801) | | Net Increase in Cash | $25,837 | $18,660 | | Cash at End of Period | $129,508 | $103,671 |