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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

 

☐ 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: 001-35436

 

TECNOGLASS INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Cayman Islands   98-1271120

(State or other jurisdiction

of incorporation or organization)

  

(I.R.S. Employer

Identification No.)

 

Avenida Circunvalar a 100 mts de la Via 40, Barrio Las Flores Barranquilla, Colombia

(Address of principal executive offices)

 

(+57)(605) 373 4000

(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
Ordinary Shares   TGLS   The New York Stock Exchange

 

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.

 

Yes ☒ No ☐

 

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).

 

Yes ☒ No ☐

 

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 ☐ 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 ☐ No ☒

 

As of April 28, 2023, there were 47,674,773 ordinary shares, $0.0001 par value per share, outstanding.

 

 

 

  

 

 

TECNOGLASS INC.

 

FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2023

 

TABLE OF CONTENTS

 

  Page
Part I. Financial Information  
  Item 1. Financial Statements (Unaudited) 3
  Condensed Consolidated Balance Sheets 3
  Condensed Consolidated Statements of Operations and Other Comprehensive Income 4
  Condensed Consolidated Statements of Cash Flows 5
  Condensed Consolidated Statements of Shareholders’ Equity 6
  Notes to Condensed Consolidated Financial Statements 7
     
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
  Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
     
  Item 4. Controls and Procedures 24
     
Part II. Other Information  
  Item 1. Legal Proceedings 25
     
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
     
  Item 6. Exhibits 25
Signatures 26

 

2

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited).

 

Tecnoglass Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 

   March 31,   December 31, 
  

2023

   2022 
        
ASSETS          
Current assets:          
Cash and cash equivalents  $128,538   $103,671 
Investments   2,140    2,049 
Trade accounts receivable, net   167,137    158,397 
Due from related parties   772    1,447 
Inventories   143,057    124,997 
Contract assets – current portion   18,982    12,610 
Other current assets   40,364    28,963 
Total current assets  $500,990   $432,134 
Long-term assets:          
Property, plant and equipment, net  $223,554   $202,865 
Deferred income taxes   155    558 
Contract assets – non-current   4,415    8,875 
Long-term trade accounts receivable   -    1,225 
Intangible assets   2,614    2,706 
Goodwill   23,561    23,561 
Long-term investments   59,288    57,839 
Other long-term assets   4,880    4,545 
Total long-term assets   318,467    302,174 
Total assets  $819,457   $734,308 
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Short-term debt and current portion of long-term debt  $819   $504 
Trade accounts payable and accrued expenses   86,629    90,186 
Due to related parties   5,491    5,323 
Dividends payable   4,334    3,622 
Contract liability – current portion   58,591    49,601 
Other current liabilities   88,394    60,566 
Total current liabilities  $244,258   $209,802 
Long-term liabilities:          
Deferred income taxes  $5,732   $5,190 
Contract liability – non-current   11    11 
Long-term debt   169,076    168,980 
Total long-term liabilities   174,819    174,181 
Total liabilities  $419,077   $383,983 
SHAREHOLDERS’ EQUITY          
Preferred shares, $0.0001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively  $-   $- 
Ordinary shares, $0.0001 par value, 100,000,000 shares authorized, 47,674,773 and 47,674,773 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively   5    5 
Legal Reserves   1,458    1,458 
Additional paid-in capital   219,290    219,290 
Retained earnings   278,198    234,254 
Accumulated other comprehensive loss   (100,213)   (106,187)
Shareholders’ equity attributable to controlling interest   398,738    348,820 
Shareholders’ equity attributable to non-controlling interest   1,642    1,505 
Total shareholders’ equity   400,380    350,325 
Total liabilities and shareholders’ equity  $819,457   $734,308 

 

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)

 

   2023   2022 
   Three months ended 
   March 31, 
   2023   2022 
Operating revenues:          
External customers  $202,306   $134,022 
Related parties   333    526 
Total operating revenues   202,639    134,548 
Cost of sales   (94,884)   (74,215)
Gross profit   107,755    60,333 
Operating expenses:          
Selling expense   (16,320)   (13,368)
General and administrative expense   (17,755)   (12,999)
Total operating expenses   (34,075)   (26,367)
Operating income   73,680    33,966 
Non-operating income, net   1,287    342 
Equity method income   1,449    1,580 
Foreign currency transactions losses   (1,100)   (2,909)
Interest expense and deferred cost of financing   (2,273)   (1,468)
Income before taxes   73,043    31,511 
Income tax provision   (24,671)   (10,558)
Net income  $48,372   $20,953 
Income attributable to non-controlling interest   (137)   (100)
Income attributable to parent  $48,235   $20,853 
Comprehensive income:          
Net income  $48,372   $20,953 
Foreign currency translation adjustments   7,811    13,635 
Change in fair value of derivative contracts   (1,837)   2,622 
Total comprehensive income (loss)  $54,346   $37,210 
Comprehensive income attributable to non-controlling interest   (137)   (100)
Total comprehensive income (loss) attributable to parent  $54,209   $37,110 
Basic income per share  $1.01   $0.44 
Diluted income per share  $1.01   $0.44 
Basic weighted average common shares outstanding   47,674,773    47,674,773 
Diluted weighted average common shares outstanding   47,674,773    47,674,773 

 

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)

 

   2023   2022 
   Three months ended March 31, 
   2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $48,372   $20,953 
Adjustments to reconcile net income to net cash provided by operating activities:          
Allowance for credit losses   914    414 
Depreciation and amortization   4,767    5,251 
Deferred income taxes   156    (1,568)
Equity method income   (1,449)   (1,580)
Realized gain on derivative instruments   (1,951)   - 
Deferred cost of financing   312    363 
Other non-cash adjustments   (16)   5 
Unrealized currency translation losses   410    3,205 
Changes in operating assets and liabilities:          
Trade accounts receivable   (8,644)   6,099 
Inventories   (13,048)   (13,452)
Prepaid expenses   (864)   507 
Other assets   (14,338)   (1,841)
Trade accounts payable and accrued expenses   (9,681)   (5,551)
Taxes payable   25,488    11,591 
Labor liabilities   (447)   (331)
Other liabilities   (7)   (1,196)
Contract assets and liabilities   12,425    1,965 
Related parties   664    2,301 
CASH PROVIDED BY OPERATING ACTIVITIES  $43,063   $27,135 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of investments   (134)   (1,136)
Acquisition of property and equipment   (15,554)   (9,258)
CASH USED IN INVESTING ACTIVITIES  $(15,688)  $(10,394)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Cash dividend   (3,579)   (3,099)
Proceeds from debt   292    93 
Repayments of debt   -    (15,312)
CASH USED IN FINANCING ACTIVITIES  $(3,287)  $(18,318)
           
Effect of exchange rate changes on cash and cash equivalents  $778   $997 
           
NET INCREASE IN CASH   24,866    (580)
CASH - Beginning of period   103,672    85,011 
CASH - End of period  $128,538   $84,431 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION          
Cash paid during the period for:          
Interest  $2,717   $1,139 
Income Tax  $26,342   $2,927 
           
NON-CASH INVESTING AND FINANCING ACTIVITES:          
Assets acquired under credit or debt  $4,790   $2,678 

 

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)

 

   Shares   Amount   Capital   Reserve   Earnings   Loss   Equity   Interest   Interest 
   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, 2022   47,674,773    5    219,290    1,458    234,254    (106,187)   348,820    1,505    350,325 
                                              
Dividend   -    -    -    -    (4,291)   -    (4,291)   -    (4,291)
                                              
Derivative financial instruments   -    -    -    -    -    (1,837)   (1,837)   -    (1,837)
                                              
Foreign currency translation   -    -    -    -    -    7,811    7,811    -    7,811 
                                              
Net income   -    -    -    -    48,235    -    48,235    137    48,372 
                                              
Balance at March 31, 2023   47,674,773    5    219,290    1,458    278,198    (100,213)   398,738    1,642    400,380 

 

   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   47,674,773    5    219,290    2,273    91,045    (68,751)   243,862    836    244,698 
                                              
Dividend   -    -    -    -    (3,099)   -    (3,099)   -    (3,099)
                                              
Derivative financial instruments   -    -    -    -    -    2,622    2,622    -    2,622 
                                              
Foreign currency translation   -    -    -    -    -    13,635    13,635    -    13,635 
                                              
Net income   -    -    -    -    20,853    -    20,853    100    20,953 
                                              
Balance at March 31, 2022   47,674,773    5    219,290    2,273    108,799    (52,494)   277,873    936    278,809 

 

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 products 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. Alution’s 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, 2022. The year-end condensed balance sheet data was derived from the audited financial statements in the Annual Report on 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 products sold to the construction industry.

 

7

 

 

Principles of Consolidation

 

These unaudited condensed consolidated financial statements consolidate TGI and 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 and if we are not, 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 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 shareholders’ equity.

 

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 the London Interbank Offered Rate (“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. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 which deferred the effective date of Topic 848. As a result, this standard is effective beginning after December 15, 2024. 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.

 

8

 

 

Note 3. - Inventories, net

 

  

March 31,

2023

  

December 31,

2022

 
Raw materials  $101,067   $93,360 
Work in process   15,937    9,875 
Finished goods   8,185    6,409 
Spares and accessories   16,641    13,902 
Packing material   1,335    1,563 
Total Inventories, gross   143,165    125,109 
Less: Inventory allowance   (108)   (112)
Total inventories, net  $143,057   $124,997 

 

Note 4. – Revenues, Trade Accounts Receivable, Contract Assets and Contract Liabilities

 

Disaggregation of Total Net Sales

 

The Company disaggregates its sales with customers by the 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.

 

   2023   2022 
   Three months ended 
   March 31, 
   2023   2022 
Fixed price contracts  $29,093   $18,851 
Product sales   173,546    115,697 
Total Revenues  $202,639   $134,548 

 

The following table presents geographical information about revenues:

 

   Three months ended 
   March 31, 
   2023   2022 
Colombia  $5,740   $4,025 
United States   194,839    126,984 
Panama   270    799 
Other   1,790    2,740 
Total Revenues  $202,639   $134,548 

 

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.

 

9

 

 

Trade accounts receivable consist of the following:

 

   2023   2022
  

March 31,

2023

  

December 31,

2022

 
Trade accounts receivable   167,818    158,974 
Less: Allowance for credit losses   (681)   (577)
Total  $167,137   $158,397 

 

The changes in the allowance for credit losses for the three months ended March 31, 2023, are:

 

  

Three months ended

March 31, 2023

 
Balance at beginning of period  $577 
Provisions for credit losses   914 
Deductions and write-offs, net of foreign currency adjustment   (810)
Balance at end of period  $681 

 

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. In addition, a portion of the amounts billed on certain fixed price contracts are withheld by the customer as a retainage until a final good receipt of the complete project is delivered 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 long-term liabilities in the Company’s condensed consolidated balance sheets.

 

10

 

 

The table below presents the components of net contract assets (liabilities):

 

   March 31, 2023   December 31, 2022 
Contract assets — current  $18,982   $12,610 
Contract assets — non-current   4,415    8,875 
Contract liabilities — current   (58,591)   (49,601)
Contract liabilities — non-current   (11)   (11)
Net contract assets  $(35,205)  $(28,127)

 

The components of contract assets are presented in the table below:

 

   March 31, 2023   December 31, 2022 
Unbilled contract receivables, gross  $6,448   $5,738 
Retainage   16,949    15,747 
Total contract assets   23,397    21,485 
Less: current portion   18,982    12,610 
Contract Assets – non-current  $4,415   $8,875 

 

The components of contract liabilities are presented in the table below:

 

   March 31, 2023   December 31, 2022 
Billings in excess of costs  $18,292    14,724 
Advances from customers on uncompleted contracts   40,310    34,888 
Total contract liabilities   58,602    49,612 
Less: current portion   58,591    49,601 
Contract liabilities – non-current  $11    11 

 

During the three months ended March 31, 2023, the Company recognized $2,945 of sales related to its contract liabilities on January 1, 2023. During the three months ended March 31, 2022, the Company recognized $2,082 of sales related to its contract liabilities on January 1, 2022.

 

Remaining Performance Obligations

 

As of March 31, 2023, the Company had $499.1 million of remaining performance obligations, which represents the transaction price of firm orders minus sales recognized from inception to date. Remaining performance obligations exclude unexercised contract options, verbal commitments, Letters of Intent or written mandates, and potential orders under basic ordering agreements. The Company expects to recognize 100% of sales relating to existing performance obligations within three years, of which $358.1 million are expected to be recognized during the year ending December 31, 2023, $114.6 million during the year ending December 31, 2024 and $26.5 million during the year ending December 31, 2025.

 

11

 

 

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. Intangibles assets also include the intangibles acquired during the acquisition of GM&P.

 

   March 31, 2023 
   Gross   Acc. Amort.   Net 
Notice of Acceptances (NOAs), product designs and other intellectual property   10,281    (7,667)   2,614 

 

   December 31, 2022 
   Gross   Acc. Amort.   Net 
Trade Names  $980   $(980)  $- 
Notice of Acceptances (NOAs), product designs and other intellectual property   9,987    (7,281)   2,706 
Non-compete Agreement   165    (165)   - 
Customer Relationships   4,140    (4,140)   - 
Total  $15,272   $(12,566)  $2,706 

 

The weighted average amortization period is 5 years.

 

During the three months ended March 31, 2023, the amortization expense amounted to $322 and was included within the general and administration expenses in our unaudited Condensed Consolidated Statement of Operations. Similarly, during the three months ended March 31, 2022, the amortization expense amounted to $475.

 

The estimated aggregate amortization expense for each of the five succeeding years as of March 31, 2023, is as follows:

 

Year ending  (in thousands) 
2023  $793 
2024   722 
2025   416 
2026   320 
2027   253 
Thereafter   110 
Total  $2,614 

 

12

 

 

Note 6. Supplier Finance Program

 

Tecnoglass, Inc. has established payment terms to suppliers for the purchase of goods and services, which normally range between 30 and 60 days. In the normal course of business, suppliers may require liquidity and manage, through third parties, the advanced payment of invoices. The Company allows its suppliers the option to make payments in advance of an invoice due date, through a third-party finance provider or intermediary, with the purpose of allowing suppliers to obtain the required liquidity. For these purposes, suppliers present to the Company the third-party finance provider or intermediary with whom they will carry out the finance program and establish an agreement, through which the invoices will be paid by the third-party finance provider or intermediary once the Company has confirmed the invoices are valid. Once the Company confirms the invoices are valid, the third-party finance provider or intermediary proceeds with the payment to the supplier. Subsequently, the Company pays the invoices for goods or services to the third-party finance provider or intermediary selected by the supplier. Payment times do not vary from those initially agreed with the supplier, as stated in the invoices factored by the supplier (i.e. between 30 and 60 days). Pursuant to the supplier finance program, the Company has not been required to pledge any assets as security nor to provide any guarantee to third-party finance provider or intermediary.

 

As of March 31, 2023, the obligations outstanding related to the supplier finance program amount to $2,335, recorded as current liabilities, with $2,186 classified as Trade accounts payable and accrued expenses and $149 classified as Due to related parties.

 

Note 7. Debt

 

The Company’s debt is comprised of the following:

 

   March 31, 2023   December 31, 2022 
Revolving lines of credit  $620   $329 
Finance lease   387    395 
Senior Secured Credit Facility   172,500    172,500 
Less: Deferred cost of financing   (3,612)   (3,740)
Total obligations under borrowing arrangements   169,895    169,484 
Less: Current portion of long-term debt and other current borrowings   819    504 
Long-term debt  $169,076   $168,980 

 

In November 2021, the Company amended its Senior Secured 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 now bear interest at a rate of LIBOR with no floor plus a spread of 1.50%, 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%, resulting on total annual savings of approximately $15 million at current levels of outstanding borrowings, since entering into our inaugural US Bank syndicated facility in October of 2020. The effective interest rate for this credit facility including deferred issuance costs is 7.42%. In relation to this transaction, the Company accounted for costs related to fees paid of $1,496. This was accounted for as a debt modification and $1,346 of fees paid to banks were capitalized as deferred cost of financing and $150 paid to third parties recorded as an operating expense on the consolidated statements of operations for the year ended December 31, 2021. In March 2022, we voluntarily prepaid $15 million of capital to this credit facility which has decreased our net leverage ratio and triggered a step down in the applicable interest rate spread to 1.5%. Additionally, on September 30, 2022, we voluntarily prepaid $10.0 million of the term loan and $6.7 million under the revolving line of credit which remains fully unused as of March 31, 2023.

 

Maturities of long-term debt and other current borrowings are as follows as of March 31, 2023:

 

      
2024  $819 
2025   10,137 
2026   15,051 
2027   147,500 
2028   - 
Total  $173,507 

 

The Company’s loans have maturities ranging from a few weeks to 5 years. Our credit facilities bear a weighted average interest rate of 6.63% as of March 31, 2023. When considering the effect of our interest rate swap contracts that hedge $125 million of our outstanding debt through November 2026 (further described below in Note 8), the net average interest rate applicable to our credit facilities as of March 31, 2023 is 4.30%.

 

13

 

 

Note 8. Hedging Activity and Fair Value Measurements

 

Hedging Activity

 

During the quarter ended March 31, 2022, we entered into several interest rate swap contracts to hedge the interest rate fluctuations related to our outstanding debt. The effective date of the contracts are December 31, 2022, and, thus, we shall have payment dates each quarter, commencing March 31, 2023. During the quarter ended December 31, 2022, we entered into several foreign currency non-delivery forward contracts to hedge the fluctuations in the exchange rate between the Colombian Peso and the U.S. Dollar. Our contracts are designated as cash flow hedges since they are highly effective in offsetting changes in the cash flows attributable to forecasted LIBOR and Colombian Peso denominated costs and expenses, respectively.

 

In determining fair value, we 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. 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, 2023, the fair value of our interest rate swap and foreign currency non-delivery forward contracts was in a net asset position of $9.4 million. We had 15 outstanding interest rate swap contracts to hedge $125 million related to our outstanding debt through November 2026 and 2 non-delivery forward contracts to exchange $15 million U.S. Dollars to Colombian Pesos through April 2023. We assessed the risk of non-performance of the Company to these contracts and determined it was insignificant and, therefore, did not record any adjustment to fair value as of March 31, 2023.

 

We assess the effectiveness of our interest rate swap and foreign currency non-delivery forward contracts by comparing the change in the fair value of the interest rate swap and foreign currency non-delivery forward 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 and foreign currency non-delivery forward 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, 2023 that we expect will be reclassified to earnings within the next twelve months is $3.5 million.

 

The fair value of our interest rate swap hedges that are classified in the accompanying consolidated balance sheets as of March 31, 2023 are as follows:

 

    Derivative Assets       Derivative Liabilities  
    March 31, 2023       March 31, 2023  
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 and foreign currency non-delivery forwards   Other current assets   $ 9,357       Accrued liabilities   $ -  
Total derivative instruments   Total derivative assets   $ 9,357       Total derivative liabilities   $ -  

 

The ending accumulated balance for the interest rate swap contracts included in accumulated other comprehensive income was $7,350 as of March 31, 2023.

 

The following table presents the gains on derivative financial instruments, and their classifications within the accompanying consolidated financial statements, for the quarter ended March 31, 2023:

 

    Derivatives in Cash Flow Hedging Relationships  
    Amount of Gain or (Loss) Recognized in OCI (Loss) on Derivatives     Location of Gain or (Loss) Reclassified from Accumulated OCI (Loss) into Income   Amount of Gain or (Loss) Reclassified from Accumulated OCI (Loss) into Income  
    Three Months Ended         Three Months Ended  
    March 31,     March 31,         March 31,     March 31,  
    2023     2022         2023     2022  
                                     
Interest rate swap contracts and foreign currency non-delivery forwards contracts   $ 7,350     $   2,622     Interest expense and operating income   $  3,193     $  -  

 

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. The Company bases its fair value estimate for long term debt obligations on its internal valuation that all debt is floating rate debt based on current interest rates in Colombia.

 

The fair values of derivatives used to manage interest rate risks are based on LIBOR rates and interest rate swap curves. Measurement of our derivative assets and liabilities is considered a level 2 measurement. To carry out the swap valuation, the definition of the fixed leg (obligation) and variable leg (right) is used. Once the projected flows are obtained in both fixed and variable rates, the regression analysis is performed for prospective effectiveness test. The projection curve contains the forward interest rates to project flows at a variable rate and the discount curve contains the interest rates to discount future flows, using the one-month USD Libor curve.

 

As of March 31, 2023, financial instruments carried at amortized cost that do not approximate fair value consist of long-term debt. See Note 7 – Debt. The fair value of long-term debt was calculated based on an analysis of future cash flows discounted at current market rates, which are level 2 inputs.

 

The following table summarizes the fair value and carrying amounts of our long-term debt:

 

  

March 31, 2023

   December 31, 2022 
Fair Value   170,215    172,408 
Carrying Value   169,076    168,980 

 

15

 

 

Note 9. Income Taxes

 

The Company files income tax returns for TG, ES and ES Metals in the Republic of Colombia. GM&P, Componenti and ESW LLC are U.S. entities based in Florida subject to U.S. federal and state income taxes. The Company, which is a Cayman Islands exempted company, as well as all the other subsidiaries in the Cayman Islands do not currently have any tax obligations.

 

The components of income tax expense are as follows:

 

   2023   2022 
   Three months ended March 31, 
   2023   2022 
Current income tax          
United States  $(3,464)  $(1,102)
Colombia   (21,048)   (11,015)
Panama   (3)   (9)
Total current income tax   (24,515)   (12,126)
Deferred income Tax          
United States   (284)   120 
Colombia   128    1,448 
           
Total deferred income tax   (156)   1,568 
Total income tax provision  $(24,671)  $(10,558)
           
Effective tax rate   33.8%   33.5%

 

The weighted average statutory income tax rate for the three months ended March 31, 2023 and 2022 of 33.8% and 33.5%, respectively, approximate the statutory rate.

 

Note 10. Related Parties

 

The following is a summary of assets, liabilities and income transactions with all related parties:

 

  

March 31,

2023

  

December 31,

2022

 
Due from related parties:          
Alutrafic Led SAS   290    249 
Studio Avanti SAS   236    113 
Due from other related parties   247    1,085 
Total due from related parties  $773   $1,447 
           
Due to related parties:          
Vidrio Andino   4,826    4,853 
Due to other related parties   664    470 
Total due to related parties  $5,491   $5,323 

 

   2023   2022 
   Three months ended March 31, 
   2023   2022 
Sales to related parties:          
Alutrafic Led SAS   173    300 
Studio Avanti SAS   156    168 
Sales to other related parties   4    58 
Sales to related parties  $333   $526 

 

16

 

 

A Construir SA

 

On a recurring basis, we have engaged A Construir S.A., a heavy construction company operating in Barranquilla, Colombia, to carry out construction related to our ongoing capital expenditures at our production facilities in Colombia. Affiliates of Jose Daes and Christian Daes, the company’s CEO and COO, respectively, had an ownership stake in A Construir through June 1, 2022. We purchased $3,280 during the three months ended March 31, 2023 from A Construir S.A. for construction and facilities which have been capitalized on the Company’s balance sheet as property, plant and equipment. Given that A Construir is no longer considered a related party, amounts since June 1, 2022, are not reflected as balances due from and due to related parties on the face of the Consolidated Balance Sheet nor the summary table above as of March 31, 2023 and December 31, 2022.

 

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 have an ownership stake in Alutrafic. During the three months ended March 31, 2023, we sold $173, compared to $300 during the three months ended March 31, 2022. Additionally, we had outstanding accounts receivable from Alutrafic of $290 and $249 as March 31, 2023, and December 31, 2022, respectively.

 

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. During the three months ended March 31, 2023, we purchased $236 of fuel, compared to $244 purchased during the three months ended March 31, 2022.

 

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. We made charitable contributions during the three months ended March 31, 2023 of $664, compared to $356 during the three months ended March 31, 2022.

 

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, 2023 and December 31, 2022, the Company had outstanding accounts receivable from Avanti of $236 and $113, respectively. During the three months ended March 31, 2023, we sold $156 of products to Studio Avanti, compared to $168 during the three months ended March 31, 2022, respectively.

 

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 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 $45,000, of which $34,100 was paid in cash and $10,900 paid through the contribution of land on December 9, 2020. On October 28, 2020, we acquired said land from a related party and paid for it with the issuance of an aggregate of 1,557,142 ordinary shares of the Company, valued at $7.00 per share, which represented an approximate 33% premium based on the closing stock price as of October 27, 2020.

 

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 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 $12,500 if needed (based on debt availability as a first option).

 

In the ordinary course of business, we purchased $6,345 and $5,093 from Vidrio Andino during the three months ended March 31, 2023, and 2022, respectively. We also had outstanding payables to Vidrio Andino of $4,826 and $4,853 as of March 31, 2023 and December 31, 2022, respectively. We recorded equity method income of $1,448 and $1,580 on our Consolidated Statement of Operations during the three months ended March 31, 2023 and 2022, respectively.

 

17

 

 

Zofracosta SA

 

We have 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 recorded at $657 and $632 as of March 31, 2023 and December 31, 2022, respectively. Affiliates of Jose Daes and Christian Daes have a majority ownership stake in Zofracosta SA.

 

Note 11. Shareholders’ Equity

 

Dividends

 

In February 2023, the Company declared a regular quarterly dividend of $0.09 per share, or $0.36 per share on an annualized basis. The dividend was paid on April 28, 2023 to shareholders of record as of the close of business on March 31, 2023.

 

Earnings per Share

 

The following table sets forth the computation of the basic and diluted earnings per share for the three months ended March 31, 2023 and 2022:

 

   2023   2022 
   Three months ended 
   March 31, 
   2023   2022 
Numerator for basic and diluted earnings per shares          
Net Income  $48,372   $20,953 
           
Denominator          
Denominator for basic earnings per ordinary share - weighted average shares outstanding   47,674,773    47,674,773 
Effect of dilutive securities and stock dividend   -    - 
Denominator for diluted earnings per ordinary share - weighted average shares outstanding   47,674,773    47,674,773 
Basic earnings per ordinary share  $1.01   $0.44 
Diluted earnings per ordinary share  $1.01   $0.44 

 

Note 12. Commitments and Contingencies

 

Commitments

 

As of March 31, 2023, the Company had an outstanding obligation to purchase an aggregate of at least $72,172 of certain raw materials from a specific supplier before November 30, 2030.

 

On May 3, 2019, we consummated a joint venture agreement with Saint-Gobain whereby we acquired a 25.8% minority ownership interest in Vidrio Andino. The purchase price for our interest in Vidrio Andino was $45,000, of which $34,100 was paid in cash and $10,900 was contributed through a parcel of land to be used for the building of a second factory. 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 the Company´s share 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 $12,500 to be paid if needed (based on debt availability as a first option).

 

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 13. Subsequent Events

 

On April 4, 2023 we entered into a settlement agreement related to a completed project.. The conditions were determined to have existed as of the date of the balance sheet and therefore were recorded the related expenses as an accounts payable on the balance sheet as of March 31, 2023 and as an operating expense during the three months ended March 31, 2023.

 

18

 

 

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., 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 third largest glass fabricator serving the United States in 2022 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 40 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 4.1 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.

 

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.

 

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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 45% of our revenues for the full year 2022. 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 ensuring 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, we have voluntarily adhered to UN Global Compact Principles since 2017. In 2021, in pursuit of our cooperation with the attainment of the Sustainable Development Goals, or SDGs, we joined a program to strengthen and make visible the management of greenhouse gas emissions as a carbon neutral strategy set out by the Colombian government by 2050.

 

RESULTS OF OPERATIONS

 

   Three months ended 
   March 31, 
   2023   2022 
Operating Revenues  $202,639   $134,548 
Cost of sales   (94,884)   (74,215)
Gross profit   107,755    60,333 
Operating expenses   (34,075)   (26,367)
Operating income   73,680    33,966 
Non-operating income, net   1,287    342 
Equity method income   1,449    1,580 
Foreign currency transactions losses   (1,100)   (2,909)
Interest Expense and deferred cost of financing   (2,273)   (1,468)
Income tax provision   (24,671)   (10,558)
Net income   48,372    20,953 
Income attributable to non-controlling interest   (137)   (100)
Income attributable to parent  $48,235   $20,853 

 

Comparison of quarterly periods ended March 31, 2023 and 2022

 

Revenues

 

The Company’s operating revenues increased $68.1 million or 50.6%, from $134.5 million for the quarter ended March 31, 2022 to $202.6 million for the quarter ended March 31, 2023.

 

Strong sales during the first quarter of 2023 were driven by strong U.S. residential and commercial market activity, where sales increased $67.9 million, or 53.4%, from $127.0 million in 2022 to $194.8 million in 2023. U.S. commercial market sales increased $43.8 million, or 65.0%, from $67.4 million in 2022 to $111.2 million in 2023 as we continue to execute on our growing backlog. Single family residential market sales increased $24.0 million, or 40.1%, from $59.6 million in 2022 to $83.6 million in 2023, and accounted for 41.3% of total sales during the quarter ended March 31, 2023. Sales to Latin-American markets, including Colombia, increased $0.2 million, or 3.1%, from $7.6 million in 2022 to $7.8 million in 2023.

 

20

 

 

Gross profit

 

Gross profit increased by $47.4 million, or 78.6%, to $107.7 million during the three months ended March 31, 2023, compared with $60.3 million during the three months ended March 31, 2022. This resulted in gross profit margin reaching 53.2% during the first quarter of 2023, up from 44.8% during the first quarter of 2022. The 840-basis point improvement in gross margin is mainly attributable to operating leverage on higher sales, favorable product pricing dynamics, ongoing efficiency efforts, and favorable foreign exchange rates resulting from a depreciation of the Colombian Peso.

 

Expenses

 

Operating expenses increased $7.7 million, or 29.2%, from $26.4 million to $34.1 million for the quarters ended March 31, 2022 and 2023, respectively. The increase was mainly driven by by higher incremental administrative cost to ramp up our geographical expansion, which include $2.7 million higher personnel expense, $1.9 million, or 27.4%, increase in shipping expense as a result of a higher sales volume and a higher mix of sales going into the more atomized US residential market, along with other increased selling expenses, partially offset by $1.5 million decrease in services. Additionally, during the period ended March 31, 2023, we recorded a settlement payment associated with a dispute related to a completed project.

 

Non-operating income and expenses, net

 

During the three months ended March 31, 2023 and 2022, the Company recorded non-operating income of $1.3 million and $0.3 million, respectively. Non-operating income is comprised primarily of credit card charges made to customers for processing payments, 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.

 

Foreign currency transaction gains and losses

 

During the three months ended March 31, 2023, the Company recorded a non-operating loss of $1.1 million associated with foreign currency transactions compared to a net non-operating loss of $2.9 million during the three months ended March 31, 2022.

 

Interest Expense and deferred cost of financing

 

Interest expense and deferred cost of financing increased $0.8 million, or 54.8%, to $2.3 million during the quarter ended March 31, 2023, from $1.5 million during the quarter ended March 31, 2022, as a result of increasing floating interest rates, despite a lower debt balance.

 

Income Taxes

 

During the quarters ended March 31, 2023 and 2022, the Company recorded an income tax provision of $24.7 million and $10.6 million, respectively, reflecting an effective income tax rate of 33.8% and 33.5%, respectively, which approximate the statutory rate.

 

As a result of the foregoing, the Company recorded net income for the three months ended March 31, 2023 of $48.4 million compared to net income of $21.0 million for the three months ended March 31, 2022.

 

21

 

 

Liquidity

 

As of March 31, 2023 and December 31, 2022, we had cash and cash equivalents of approximately $128.5 million and $103.7 million, respectively. Additionally, we have approximately $170 million available under our committed lines of credit.

 

We anticipate that working capital will continue be a net benefit to cash flow for the full year ending December 31, 2023, which in addition to our current liquidity position, provides ample flexibility to service our obligations through the next twelve months. We expect our cashflow from operations to present a seasonality effect given the timing of income tax payments in the main jurisdictions where we operate.

 

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, 2023 and 2022, we made investments primarily in building and construction and machinery and equipment in the amounts of $20.3 million and $11.9 million, respectively. These investments across our vertically-integrated operations include further automating our glass and window assembly production lines, adding glass production lines and expanding our aluminum facilities, among other initiatives to generate high-returns. The Company expects the resulting increase in output to improve efficiency throughout its operations while reducing material waste and overall lead times.

 

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, 
   2023   2022 
Cash Flow provided by Operating Activities  $43,063   $27,135 
Cash Flow used in Investing Activities   (15,688)   (10,394)
Cash Flow used in Financing Activities   (3,287)   (18,318)
Effect of exchange rates on cash and cash equivalents   778    997 
Cash Balance - Beginning of Period   103,672    85,011 
Cash Balance - End of Period  $128,538   $84,431 

 

During the three months ended March 31, 2023 and 2022, operating activities generated approximately $43.1 million and $27.1 million, respectively. The positive cashflow from operations during the first three months of 2023 has been related to a much higher profitability year over year, enhanced working capital 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, 2023 were taxes payable, which generated $25.5 million related to higher income tax provision as a result of several record-breaking quarters, compared with $11.6 million during the three months ended March 31, 2022. Contract assets and liabilities generated $12.4 million during the three months ended March 31, 2023, resulting from a combination of a decrease in retainage as several jobs in the US were finalized, a reduction of unbilled receivables tied to our advance on projects currently in execution, and increase advances received from customers. Comparatively, contract assets and liabilities generated $2.0 million during the three months ended March 31, 2022. The largest use of cash in operating activities were other assets, which used $14.3 million during the three months ended March 31, 2023, compared with $1.8 million used during the three months ended March 31, 2022, comprised primarily of prepaid value added taxes of Colombian operations. Inventories used $13.1 million and $13.5 million during the three months ended March 31, 2023 and 2022, respectively, as we procure materials to meet our growing operations.

 

22

 

 

We used $15.7 million and $10.4 million in investing activities during the three months ended March 31, 2023 and 2022, respectively. The main use of cash in investing activities during the three months ended March 31, 2023, was related to the automation of our architectural system assembly processes further described above in the “Capital Resources” section. During the three months ended March 31, 2023, we paid $15.6 million to acquire property plant and equipment, which in combination with $4.8 million acquired under credit or debt, amount to total capital expenditures of $20.3 million. During the three months ended March 31, 2022, we used $9.2 million for the acquisition of property and equipment. Including assets acquired with debt or supplier credit, total capital expenditures during the period were $11.9 million.

 

Financing activities used $3.3 million and $18.3 million during the three months ended March 31, 2023 and 2022, respectively. We paid $3.6 million and $3.1 million of dividends to holders of our ordinary shares during the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2022, we voluntarily prepaid $15 million of capital to our credit facility which has decreased our net leverage ratio and triggered a step down in the applicable interest rate spread to 1.5% and later prepaid an additional $6.7 million under our revolving line of credit and $10 million under our term loan on September 30, 2022 with cash on hand.

 

Off-Balance Sheet Arrangements

 

None

 

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 $0.5 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 36% 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 their monetary assets, a 5% appreciation of the Colombian Peso relative to the US Dollar would result in our quarter revenues increasing by $0.3 million and our costs and expenses increasing by approximately $2.8 million, resulting in a $2.5 million decrease to net earnings based on results for the three months ended March 31, 2023.

 

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 the 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 $5.5 million, such that a 1% devaluation of the Colombian peso will result in a loss of less than $0.1 million recorded in the Company’s Consolidated Statement of Operations as of March 31, 2023.

 

Additionally, the results of the foreign subsidiaries must 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.

 

23

 

 

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, 2023, 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, 2023, 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.

 

24

 

 

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 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

Share repurchase activity during the three months ended March 31, 2023 was as follows:

 

Periods  Total Number of Shares Purchased   Average Price Paid Per Share   Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs   Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) 
January 1, 2023, to January 31, 2023                    
Open market and privately negotiated purchases   —    —    —      
                     
February 1, 2023 to February 28, 2023                    
Open market and privately negotiated purchases   —    —    —      
                     
March 1, 2023, to March 31, 2023                    
Open market and privately negotiated purchases   100   $40    0      
                     
Total   100   $40    0   $50,000,000 

 

  (1) On November 3, 2022, the Board of Directors authorized the purchase of up to $50 million of the Company’s common shares. As of March 31, 2023, the Company had not made any purchases under the program. The program does not obligate the Company to acquire a minimum amount of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

 

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, 2023, 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)

 

25

 

 

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 8, 2023    

 

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