Today, Colombian glass & aluminum building products manufacturer Tecnoglass (NASDAQ: TGLS) reported strong results, though the company is feeling the impact of the Coronavirus COVID-19 Pandemic and related economic slowdown. To protect the health of its workers, the Barranquilla-based fabricator decided to shut down completely for several weeks in order to avoid contagion.
Tecnoglass resumed full operations at its facilities on April 14, 2020 given its exempted designation as a supplier of critical products to essential business sectors such as infrastructure and construction. The company is committed to its talented workforce and at this time has retained all of its labor force, of which approximately 60% are contracted through staffing agencies that provide significant contractual flexibility. During the period that production was suspended, vacation days were used to retain eligible employees and the company used the time to implement broad safety measures before returning to normal operations.
Total revenues for the first quarter of 2020 were $87.3 million compared to $107.2 million in the prior year quarter. Revenues in January and February were comparable to the same period in the prior year despite five days of scheduled maintenance in January 2020, which did not occur in the prior year quarter. Changes in foreign currency exchange rates had an adverse impact of $0.8 million on Colombia and total revenues in the quarter. U.S. revenues were $78.8 million compared to $92.0 million in the prior year quarter.
The company declared a quarterly cash dividend of $0.0275 per share for the first quarter of 2020, which was paid on April 30, 2020 to shareholders of record as of the close of business on March 31, 2020.
“Our thoughts are with all those impacted by the COVID-19 pandemic. In this moment, our top priority is safeguarding our employees, customers, partners and the communities where we operate. All of our operations have been deemed vital and we continue to serve customers safely and responsibly. We were pleased to deliver our highest first quarter gross margin and Adjusted EBITDA margin since 2016, despite the pandemic’s temporary impact on our invoicing and business operations late in the quarter. Since our founding in 1984, we have successfully managed through difficult times, including growing and generating profits during the great recession of 2008. On our now larger and more vertically integrated platform, we are even better positioned to successfully navigate the current environment. We have a strong cash position and the capital resources to face the challenges ahead and situate our business for long-term success as we emerge from this volatile period, said CEO José Manuel Daes.
Gross profit for the first quarter of 2020 was $30.5 million, representing a 34.9% gross margin compared to gross profit of $31.9 million, representing a 29.8% gross margin in the prior year quarter. The improvement in gross margin mainly reflected lower raw material costs, a higher mix of revenue from manufacturing vs installation, and greater operating efficiencies from prior automation initiatives. Operating expenses were $17.3 million compared to $17.7 million in the prior year quarter. As a percent of total revenues, operating expenses were 19.8% compared to 16.5% in the prior year quarter, primarily due to lower sales.
“As the COVID-19 crisis continues, we are closely monitoring its impact on the broader macro-environment and tailoring our operations accordingly. Our existing commercial backlog remains strong and many projects are progressing in all markets where construction activity is permitted. That being said, we are also bracing for a slower year as some projects get delayed or temporarily put on hold. We have implemented business continuity measures across our vertically integrated operations to address safety, cost reductions and non-critical spend while protecting existing jobs to the extent possible. In light of the uncertain times ahead, we are focused on maintaining financial flexibility and generating cash flow. We believe that our lean cost structure and diversified geographic presence leave us well prepared to manage through this unprecedented environment,” commented COO Christian Daes.
Tecnoglass entered the pandemic with a strong financial position along with the flexibility required to support its global operations during this volatile period. As of March 31, 2020, Tecnoglass had cash of $36.8 million plus an additional $58 million of availability under its existing lines of credit, providing sufficient access to capital. In addition, the company has implemented strict cost controls, reduced operating expenses and limited all non-critical capital expenditures beyond the completion of initiatives started in 2019. The company anticipates that working capital will be a net benefit to cash flow for the full year 2020.
Net loss was $18.7 million, or $0.40 loss per diluted share in the first quarter of 2020 compared to a net income of $7.3 million, or $0.18 per diluted share in the prior year quarter, including an after-tax non-cash foreign exchange transaction loss of $22.1 million of in the first quarter 2020 and a $2.2 million gain in the first quarter 2019. As with previous periods, these gains and losses are related to the accounting re-measurement of U.S. Dollar denominated assets and liabilities against the Colombian Peso as functional currency. During the first quarter 2020, the Peso devaluated 23% against the U.S. Dollar. Adjusted net income1 was $4.5 million, or $0.10 per diluted share compared to adjusted a net income of $5.9 million, or $0.14 per diluted share in the prior year quarter. Adjusted net income1, as reconciled in the table below, excludes the impact of non-cash foreign exchange transaction gains or losses and other non-core items, along with the tax impact of adjustments at statutory rates, to better reflect core financial performance.
Most of Tecnoglass’ U.S. and Latin American customers remain operational with many construction projects typically considered by jurisdictions to be essential business activities. However, the company’s sales are dependent on nonresidential construction activity and housing starts. The company’s backlog has historically provided a high degree of visibility for commercial revenues over a twelve month period. The company’s prior outlook issued on March 2, 2020, before the COVID-19 pandemic, represented existing projects in backlog plus anticipated demand from the company’s continued expansion into the single-family residential end market. On the commercial side, net sales for the remainder of 2020 will be influenced by the timing, length or any delays of projects related to the pandemic. In residential, U.S. housing starts are expected to be unfavorably affected by the crisis.
Santiago Giraldo, Chief Financial Officer of Tecnoglass, concluded, “We entered this pandemic operating on a larger scale and with a better capital structure than at any point in our company’s history. As we move through the uncertain period ahead, we are focused on cost management, delivering strong cash flow and safely serving customers. As of May 1, 2020, our liquidity further improved to approximately $105 million, including cash of approximately $50 million, as a result of proactive measures to build cash. We will continue to monitor and adjust plans for our business that are aligned with our expectation to emerge as a stronger company when global market conditions begin to improve.”