Despite Temporary COVID-19 Plant Shutdown, Tecnoglass Reports Record Backlog, Margins

Barranquilla, Colombia based glass & aluminum manufacturer Tecnoglass (NASDAQ: TGLS) reported second quarter results yesterday, highlighting a record $550 million USD order backlog, up 4.8% over the previous year, and record cash flow from operations of $24.3 million, despite the factory closing for several weeks in the spring due to the Coronavirus COVID-19 Pandemic.

The exporter, which made 96.6% of its revenues from exports to and activities in the US last quarter, reported a significant rebound in demand in the US since April. The company reports total liquidity of $136 million including $63.4 million of cash on hand and available under existing lines of credit. All monetary figures in this article are US dollars.

Tecnoglass declared a quarterly cash dividend of $0.0275 per share for the second quarter of 2020, already paid on July 31 to shareholders of record as of July 8.

“I could not be more pleased with our talented employees for their ability to overcome this unprecedented environment while maintaining dedication to excellence, as demonstrated by our results. We achieved record gross margin, operating margin and Adjusted EBITDA margin in the second quarter without taking any headcount reductions related to the economic impacts of the COVID-19 crisis. Since reopening our production facilities in the second half of April, the pace of invoicing improved significantly as we progressed through the quarter, particularly in the U.S. which represented 97% of second quarter revenues. In June, we hit a monthly record level of residential orders, and that momentum carried into July. Our strong working capital management as well as benefits from our high return automation initiatives collectively allowed us to generate record levels of free cash flow. In turn, we were able to deleverage our balance sheet and continue strengthening our financial flexibility, with liquidity of $136 million at quarter end. As we look forward, we believe we have the financial resources to continue executing our growth strategy and further enhancing our position as a premier architectural glass leader,” said José Manuel Daes, the CEO of Tecnoglass (above right).

Total revenues for the second quarter of 2020 were $81.9 million compared to $113.9 million in the prior year quarter. The decrease was primarily attributable to two fewer weeks of invoicing in the first half of April as a result of the previously communicated suspension of plant operations. This proactive action was taken to assess global market conditions at the onset of the COVID-19 pandemic and timed in parallel with shelter-in-place guidelines by the Colombian government, during which time the production facilities were reconfigured to mitigate any potential risks of contagion. Since April, the Company experienced a positive sequential revenue trend in May and June. U.S. revenues were $79.1 million compared to $99.3 million in the prior year quarter and represented 96.6% of total revenues for the second quarter 2020. Revenues in Colombia and other Latin American regions were significantly impacted by delayed activity at many customer job sites that have required extensive preparations to adhere to varying COVID-19 guidelines. Changes in foreign currency exchange rates had a negligible impact on Colombia and total revenues in the quarter.

“For the second quarter, taking into account two non-invoicing weeks in early April, we estimate our U.S. revenues would have been down in the high-single digit percent range year-over-year. We believe that the worst of the pandemic-related economic crisis is behind us. In nearly all of our regions, economic lockdowns are easing, and business conditions have started to recover. Despite a recent uptick in COVID-19 cases in Florida and the rest of the United States, we are now seeing quoting and bidding activity that is in line with pre-pandemic levels, as reflected by our record backlog. On the residential side, our business has accelerated in recent months supported by low interest rates and de-urbanization trends driving new home starts. We believe these positive tailwinds coupled with our lean cost structure and strong liquidity leave us well positioned to maintain our industry leading margins as we work to deepen our presence and capture additional share in attractive U.S. markets,” added co-founder and COO Christian Daes (above left).

Gross profit for the second quarter of 2020 was $31.8 million, representing a 38.8% gross margin, compared to gross profit of $38.8 million, representing a 34.1% gross margin in the prior year quarter. The 470-basis point improvement in gross margin mainly reflected lower raw material costs, greater operating efficiencies from prior automation initiatives, and a higher mix of revenue from manufacturing vs installation activity. Selling, general and administrative expense (“SG&A”) was $16.5 million compared to $20.6 million in the prior year quarter, primarily attributable to lower variable expenses related to shipping, travel and commissions, as well as cost controls. As a percent of total revenues, SG&A was 20.2% compared to 18.1% in the prior year quarter due to lower revenues.

Santiago Giraldo, Chief Financial Officer of Tecnoglass, concluded, “The improving sequential monthly revenue trends that we experienced during the second quarter continued into July. Based on our current invoicing schedule and underlying market environment, we expect revenue in the third quarter to continue on a positive sequential monthly trend. As we execute our strategy during this extraordinary period, we will maintain our focus on safely serving customers, aggressively managing costs and delivering strong cash flow. While uncertainty persists associated with COVID-19 developments, we believe we are well situated to outperform our markets as global economic conditions further improve.”

Net income was $16.1 million, or $0.35 per diluted share, in the second quarter of 2020 compared to net income of $7.7 million, or $0.17 per diluted share, in the prior year quarter, including an after-tax non-cash foreign exchange transaction gain of $13.3 million in the second quarter 2020 and a $1.2 million loss in the second 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. Adjusted net income was $9.4 million, or $0.20 per diluted share, compared to adjusted net income of $9.2 million, or $0.20 per diluted share, in the prior year quarter. Adjusted net income, 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.

Adjusted EBITDA was $23.3 million, or 28.4% of revenues, compared to $25.8 million, or 22.6% of revenues, in the prior year quarter. The improvement was driven by stronger gross margin. Adjusted EBITDA in the second quarter 2020 included $0.9 million in contribution from the Company’s joint venture with Saint-Gobain, compared to $1.0 million in the prior year quarter.

Tecnoglass Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands, USD)
(Unaudited)

Revenues by Region
(Amounts in thousands)
(Unaudited)

Reconciliation of Non-GAAP Performance Measures to GAAP Performance Measures
(In thousands)
(Unaudited)

The Company believes that total revenues with foreign currency held neutral non-GAAP performance measures, which management uses in managing and evaluating the Company’s business, may provide users of the Company’s financial information with additional meaningful bases for comparing the Company’s current results and results in a prior period, as these measures reflect factors that are unique to one period relative to the comparable period. However, these non‑GAAP performance measures should be viewed in addition to, and not as an alternative for, the Company’s reported results under accounting principles generally accepted in the United States.

Currency impacts on total revenues for the current quarter have been derived by translating current quarter revenues at the prevailing average foreign currency rates during the prior year quarter, as applicable.

Reconciliation of Adjusted EBITDA and Adjusted net (loss) income to net (loss) income
(In thousands, except share and per share data)
(Unaudited)

Adjusted EBITDA and adjusted net (loss) income are not measures of financial performance under generally accepted accounting principles (“GAAP”). Management believes Adjusted EBITDA and adjusted net (loss) income, in addition to operating profit, net (loss) income and other GAAP measures, is useful to investors to evaluate the Company’s results because it excludes certain items that are not directly related to the Company’s core operating performance. Investors should recognize that Adjusted EBITDA and adjusted net (loss) income might not be comparable to similarly-titled measures of other companies. These measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with GAAP.

Reconciliations of the non-GAAP measures used in this press release are included in the tables attached to this press release, to the extent available without unreasonable effort. Because GAAP financial measures on a forward-looking basis are not accessible, and reconciling information is not available without unreasonable effort, we have not provided reconciliations for forward-looking non-GAAP measures.

A reconciliation of Adjusted net (loss) income and Adjusted EBITDA to the most directly comparable GAAP measure in accordance with SEC Regulation G follows, with amounts in thousands:

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