UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

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

 

For the quarterly period ended September 30, 2020

 

[  ] 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)(5) 3734000

(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 NASDAQ Stock Market LLC

 

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 [X] 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 [X] 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 [X]
Non-accelerated filer [  ] Smaller reporting company [X]
  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 [X]

 

As of October 31, 2020, there were 47,674,773 ordinary shares, $0.0001 par value per share, outstanding.

 

 

 

     
     

 

TECNOGLASS INC.

 

FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2020

 

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 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 20
     
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
     
  Item 4. Controls and Procedures 26
     
Part II. Other Information  
  Item 1. Legal Proceedings 27
     
  Item 6. Exhibits 27
Signatures 28

 

  2  
     

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Tecnoglass Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 

    September 30,     December 31,  
    2020     2019  
ASSETS                
Current assets:                
Cash and cash equivalents   $ 69,431     $ 47,862  
Investments     1,684       2,304  
Trade accounts receivable, net     87,794       110,558  
Due from related parties     8,667       8,057  
Inventories     73,763       82,714  
Contract assets – current portion     28,416       42,014  
Other current assets     12,171       29,340  
Total current assets   $ 281,926     $ 322,849  
Long-term assets:                
Property, plant and equipment, net   $ 134,643     $ 154,609  
Deferred income taxes     11,681       4,595  
Contract assets – non-current     7,814       7,059  
Due from related parties - long term     726       1,786  
Long-term trade accounts receivable     1,101       -  
Intangible assets     5,323       6,703  
Goodwill     23,561       23,561  
Long-term investments     46,385       45,596  
Other long-term assets     2,914       2,910  
Total long-term assets     234,148       246,819  
Total assets   $ 516,074     $ 569,668  
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current liabilities:                
Short-term debt and current portion of long-term debt   $ 174     $ 16,084  
Trade accounts payable and accrued expenses     46,605       61,878  
Accrued interest expense     2,911       7,645  
Due to related parties     4,056       4,415  
Dividends payable     1,309       67  
Contract liability – current portion     18,381       12,459  
Due to equity partners     10,900       10,900  
Other current liabilities     14,355       15,563  
Total current liabilities   $ 98,691     $ 129,011  
Long-term liabilities:                
Deferred income taxes   $ 447     $ 411  
Long-term payable associated to GM&P acquisition     -       8,500  
Long-term liabilities from related parties     639       622  
Contract liability – non-current     883       187  
Long-term debt     246,206       243,727  
Total long-term liabilities     248,175       253,447  
Total liabilities   $ 346,866     $ 382,458  
SHAREHOLDERS’ EQUITY                
Preferred shares, $0.0001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2020 and December 31, 2019 respectively   $ -     $ -  
Ordinary shares, $0.0001 par value, 100,000,000 shares authorized, 47,117,631 and 46,117,631 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively     5       5  
Legal Reserves     2,273       1,367  
Additional paid-in capital     208,390       208,283  
Retained earnings     17,181       16,213  
Accumulated other comprehensive (loss)     (59,150 )     (39,264 )
Shareholders’ equity attributable to controlling interest     168,699       186,604  
Shareholders’ equity attributable to non-controlling interest     509       606  
Total shareholders’ equity     169,208       187,210  
Total liabilities and shareholders’ equity   $ 516,074     $ 569,668  

 

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)

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2020     2019     2020     2019  
Operating revenues:                                
External customers   $ 102,980     $ 106,741     $ 270,676     $ 323,808  
Related parties     329       1,729       1,873       5,713  
Total operating revenues     103,309       108,470       272,549       329,521  
Cost of sales     63,188       72,729       170,205       223,051  
Gross profit     40,121       35,741       102,344       106,470  
Operating expenses:                                
Selling expense     (10,534 )     (11,334 )     (29,163 )     (32,115 )
General and administrative expenses     (9,381 )     (8,855 )     (24,601 )     (26,303 )
Total operating expenses     (19,915 )     (20,189 )     (53,764 )     (58,418 )
Operating income     20,206       15,552       48,580       48,052  
Non-operating income (expenses), net     (138 )     450       (232 )     1,078  
Equity method (loss) income     695       295       789       273  
Foreign currency transactions gains(losses)     (3,066 )     (12,006 )     (22,223 )     (9,921 )
Interest expense and deferred cost of financing     (6,147 )     (5,876 )     (17,236 )     (17,220 )
Income (Loss) before taxes     11,550       (1,585 )     9,678       22,262  
Income tax provision     (3,279 )     266       (4,021 )     (8,590 )
Net income (loss)   $ 8,271     $ (1,319 )   $ 5,657     $ 13,672  
Loss (Income) attributable to non-controlling interest     52       144       97       (30 )
Income (Loss) attributable to parent   $ 8,323     $ (1,175 )   $ 5,754     $ 13,642  
Comprehensive income:                                
Net income (loss)   $ 8,271     $ (1,319 )   $ 5,657     $ 13,672  
Foreign currency translation adjustments     (4,024 )     (8,486 )     (18,945 )     (8,768 )
Change in fair value derivative contracts     506       (941 )     (941 )     (941 )
Total comprehensive income (loss)   $ 4,753     $ (10,746 )   $ (14,229 )   $ 3,963  
Comprehensive loss (income) attributable to non-controlling interest     52       144       97       (30 )
Total comprehensive income (loss) attributable to parent   $ 4,805     $ (10,602 )   $ (14,132 )   $ 3,933  
Basic income (loss) per share   $ 0.18     $ (0.03 )   $ 0.12     $ 0.31  
Diluted income (loss) per share   $ 0.18     $ (0.03 )   $ 0.12     $ 0.31  
Basic weighted average common shares outstanding     46,117,631       46,291,032       46,117,631       44,395,504  
Diluted weighted average common shares outstanding     46,117,631       46,291,032       46,117,631       44,395,504  

 

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)

 

    Nine months ended September 30,  
    2020     2019  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net (loss) income   $ 5,657     $ 13,672  
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:                
Provision for bad debts     1,035       1,046  
Depreciation and amortization     15,421       17,189  
Deferred income taxes     (7,612 )     (5,140 )
Equity method (loss) income     (789 )     (273 )
Deferred cost of financing     1,306       1,213  
Other non-cash adjustments     158       41  
Unrealized currency translation losses (gains)     24,197       13,812  
Changes in operating assets and liabilities:                
Trade accounts receivables     6,353       (29,779 )
Inventories     (5,127 )     3,939  
Prepaid expenses     (686 )     (3,013 )
Other assets     12,455       (4,829 )
Trade accounts payable and accrued expenses     (14,612 )     3,576  
Accrued interest expense     (4,678 )     (4,362 )
Taxes payable     (569 )     3,645  
Labor liabilities     5       626  
Contract assets and liabilities     18,851       (5,099 )
Related parties     (341 )     2,965  
CASH PROVIDED BY OPERATING ACTIVITIES   $ 51,024     $ 9,229  
CASH FLOWS FROM INVESTING ACTIVITIES                
Proceeds from sale of investments     470       997  
Joint Venture investment     -       (34,100 )
Purchase of investments     (189 )     (1,172 )
Acquisition of property and equipment     (13,732 )     (19,887 )
CASH USED IN INVESTING ACTIVITIES   $ (13,451 )   $ (54,162 )
CASH FLOWS FROM FINANCING ACTIVITIES                
Cash dividend     (2,533 )     (3,714 )
Proceeds from equity offering             36,478  
Proceeds from debt     17,747       69,059  
Repayments of debt     (30,453 )     (47,168 )
CASH PROVIDED BY FINANCING ACTIVITIES   $ (15,239 )   $ 54,655  
Effect of exchange rate changes on cash and cash equivalents   $ (765 )   $ (1,023 )
NET INCREASE IN CASH     21,569       8,699  
CASH - Beginning of period     47,862       33,040  
CASH - End of period   $ 69,431     $ 41,739  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                
Cash paid during the period for:                
Interest   $ 18,650     $ 19,206  
Income Tax   $ 8,318     $ 11,090  
NON-CASH INVESTING AND FINANCING ACTIVITIES:                
Assets acquired under credit or debt   $ 919     $ 1,667  

 

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)

 

   

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 Diciembre 31, 2019       46,117,631            5       208,283       1,367       16,213       (39,264 )                186,604       606       187,210  
                                                                         
                                                                         
Stock dividend     -       -       107       -       (1,344 )     -       (1,237 )     -       (1,237 )
                                                                         
Financial instruments     -       -       -       -       -       (4,065 )     (4,065 )     -       (4,065 )
                                                                         
Foreign currency translation     -       -       -       -       -       (19,288 )     (19,288 )     -       (19,288 )
                                                                         
Net income     -       -       -       -       (18,766 )     -       (18,766 )     98       (18,668 )
                                                                         
Balance at March 31, 2020     46,117,631       5       208,390       1,367       (3,897 )     (62,617 )     143,248       704       143,952  
                                                                         
                                                                         
Stock dividend     -       -       -       -       (1,267 )     -       (1,267 )     -       (1,267 )
                                                                         
Legal Reserve     -       -       -       906       (906 )     -       -       -       -  
                                                                         
Financial instruments     -       -       -       -       -       2,618       2,618       -       2,618  
                                                                         
Foreign currency translation     -       -       -       -       -       4,367       4,367       -       4,367  
                                                                         
Net income     -       -       -       -       16,197       -       16,197       (143 )     16,054  
                                                                         
Balance at June 30, 2020     46,117,631       5       208,390       2,273       10,127       (55,632 )     165,163       561       165,724  
                                                                         
                                                                         
Stock dividend     -       -       -       -       (1,269 )     -       (1,269 )     -       (1,269 )
                                                                         
Financial instruments     -       -       -       -       -       506       506       -       506  
                                                                         
Foreign currency translation     -       -       -       -       -       (4,024 )     (4,024 )     -       (4,024 )
                                                                         
Net income     -       -       -       -       8,323       -       8,323       (52 )     8,271  
                                                                         
Balance at Sep 30, 2020     46,117,631       5       208,390       2,273       17,181       (59,150 )     168,699       509       169,208  

 

   

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, 2018       38,092,996            4       157,604       1,367       10,439       (37,058 )       132,356       872         133,228  
                                                                         
Issuance of common stock     5,000,000       -       33,050       -       -       -       33,050       -       33,050  
                                                                         
Stock dividend     538,657       -       5,162       -       (6,109 )     -       (947 )     -       (947 )
                                                                         
Foreign currency translation     -       -       -       -       -       1,770       1,770       -       1,770  
                                                                         
Net income     -       -       -       -       7,338       -       7,338       (7 )     7,331  
                                                                         
Balance at March 31, 2019     43,631,653       4       195,816       1,367       11,668       (35,288 )     173,567       865       174,432  
Issuance of common stock     551,423       -       3,428       -       -       -       3,428       -       3,428  
                                                                         
Stock dividend     675,366       -       4,416       -       (6,280 )     -       (1,864 )     -       (1,864 )
                                                                         
Foreign currency translation     -       -       -       -       -       (2,052 )     (2,052 )     -       (2,052 )
                                                                         
Net income     -       -       -       -       7,479       -       7,479       181       7,660  
                                                                         
Balance at June 30, 2019     44,858,442       4       203,660       1,367       12,867       (37,340 )     180,558       1,046       181,604  
                                                                         
Stock dividend     661,030       1       4,590       -       (6,372 )     -       (1,781 )     -       (1,781 )
                                                                         
Derivative financial instruments     -       -       -       -       -       (941 )     (941 )     -       (941 )
                                                                         
Foreign currency translation     -       -       -       -       -       (8,486 )     (8,486 )     -       (8,486 )
                                                                         
Net income     -       -       -       -       (1,175 )     -       (1,175 )     (144 )     (1,319 )
                                                                         
Balance at September 30, 2019     45,519,472       5       208,250       1,367       5,320       (46,767 )     168,175       903       169,078  

 

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 production 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. Alutions’ 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, 2019. The year-end condensed balance sheet data was derived from audited financial statements 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 inherent 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 product sold to the construction industry.

 

  7  
     

  

Principles of Consolidation

 

These unaudited condensed consolidated financial statements consolidate TGI, 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 (“Componenti”) and ES Metals SAS (“ES Metals”), 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, otherwise 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.

 

Derivative Financial Instruments

 

The Company recognizes all derivative financial instruments as either assets or liabilities at fair value on the consolidated balance sheet. The unrealized gains or losses arising from changes in fair value of derivative instruments that are designated and qualify as cash flow hedges, are recorded in the consolidated statement of comprehensive income. Amounts in accumulated other comprehensive loss on the consolidated balance sheet are reclassified into the consolidated statement of income in the same period or periods during which the hedged transactions are settled.

 

Impairment

 

We review goodwill and long-lived assets for impairment each year on December 31st or more frequently when events or significant changes in circumstances indicate that the carrying value may not be recoverable. The outbreak of COVID-19 and its associated economic impact, including a significant decrease in the market price of our ordinary shares, was considered a triggering event as of the first quarter of 2020, requiring us to reassess our goodwill and long-lived asset valuations, as well as assumptions of future income from underlying assets, and there was no new trigger in the second or third quarter of 2020.The extent of the impact of the pandemic depends on future developments which are highly uncertain. Accordingly, we will continue to evaluate in future periods whether these assumptions are reasonable and will update the forecasts and impairment analysis as appropriate.

 

Based on our analysis as of September 30, 2020 we concluded that no impairment needs to be recorded to our goodwill using the market approach as the market capitalization of our company, which has a single reporting unit, exceeds the book value of shareholders equity.

 

Based on our analysis as of September 30, 2020 we concluded that no impairment needs to be recorded to our long-lived assets as their carrying value are below their realizable values based on projected future cashflows estimated with assumptions deemed reasonable by management based on information currently available. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions by comparable companies, volatility in the Company’s market capitalization, and general industry, market and macro-economic conditions.

 

  8  
     

 

Recently Issued Accounting Pronouncements

 

In June 2016, FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326). This ASU represents a significant change in the allowance for credit losses accounting model by requiring immediate recognition of management’s estimates of current expected credit losses. Under the prior model, losses were recognized only as they were incurred, which FASB has noted delayed recognition of expected losses that might not yet have met the threshold of being probable. The new model is applicable to all financial instruments that are not accounted for at fair value through net income, thereby bringing consistency in accounting treatment across different types of financial instruments and requiring consideration of a broader range of variables when forming loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, (with early application permitted). The FASB issued ASU 2019-10 and ASU 2019-11 during the fourth quarter of 2019 that will postpone the effective date to the year beginning after December 15, 2022. In February 2020, the FASB issued ASU 2020-02 “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842), which amends SEC Staff Accounting Bulletin No. 119 (SAB119) which contains interpretative guidance from the SEC aligned to the FASB’s ASC 326. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.

 

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 8485): 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 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. The amendments in this Update is effective for the Company on December 31, 2022 with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.

 

Note 3. – Revised Presentation of Statement of Cash Flows

 

The Condensed Consolidated Statement of Cashflows for the nine months ended September 30, 2019 has been revised to correct errors in the classification of the impact of unrealized foreign currency transaction gains and losses resulting from the remeasurement of our monetary assets and liabilities denominated in any currency other than the functional currency. The Company assessed the materiality of the misstatement and concluded it was not material to any previously reported quarterly or annual period financial statements.

 

Unrealized foreign currency transaction gains and losses, which include currency translation differences on monetary items that form part of investing or financing activities, such as long-term loans, are presented as a reconciling item from net income to cashflow from operating activities in the Condensed Consolidated Statement of Cashflows as of September 30, 2020 and 2019 contained herein,. The effect of exchange rate changes on cash and cash equivalents denominated in currencies other than the reporting currency has been and continues to be presented in a separate line item as part of the reconciliation of the change in cash equivalents during the period.

 

The revisions to the Condensed Consolidated Statement of Cashflows as of September 30, 2019, which had no effect on the net change in cash and cash equivalents, are summarized in the following table:

 

    Nine months ended September 30, 2019  
    As previously reported     Revision adjustment     As revised  
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   $ 7,548     $ 1,680     $ 9,228  
CASH USED IN INVESTING ACTIVITIES     (54,301 )     138       (54,163 )
CASH PROVIDED BY FINANCING ACTIVITIES     56,476       (1,821 )     54,655  
Effect of exchange rate changes on cash and cash equivalents   $ (1,024 )   $ 2     $ (1,021 )
NET INCREASE (DECREASE) IN CASH     8,699       -       8,699  
CASH - Beginning of period     33,040       -       33,040  
CASH - End of period   $ 41,739     $ -     $ 41,739  

 

  9  
     

 

Note 4. – Long-term Investments

 

Saint-Gobain Joint Venture

 

On January 11, 2019, we entered into 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 Holdings S.A.S (“Vidrio Andino”), a Colombia-based subsidiary of Compagnie de Saint-Gobain S.A. (“Saint-Gobain”). The purchase price for our interest in this entity was $45 million, of which $34.1 was paid in cash, and $10.9 million is to be paid with a piece of land near our existing facility in Barranquilla, which we acquired in October 2020 from a related party and which was previously owned by members of our Chief Executive Officer´s family. In connection with this transaction, we conducted a third party valuation to ensure the transaction was on arm´s length terms. On October 28, 2020 we paid for the land through the issuance of an aggregate of 1,557,142 ordinary shares of the Company, at $7.00 per shares, which represents an approximate 33% premium based on the last sale price on 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. Vidrio Andino’s float glass plant located in the outskirts of Bogota, Colombia, has been one of our main suppliers of raw glass. We believe this transaction will solidify our vertical integration strategy by acquiring an interest in the first stage of our production chain, while securing ample glass supply for our expected production needs.

 

On May 3, 2019, we consummated the joint venture agreement acquiring a 25.8% minority ownership interest in Vidrio Andino with a cash payment of $34.1 million, and the land still to be contributed once a complete assessment of the project timing is completed based on the overall market conditions in relation to the ongoing COVID-19 pandemic. As of that date, the Company recorded the investment within Long-term assets on the Company’s Consolidated Balance Sheet for $45.0 million and a liability for $10.9 million within current liabilities on the Company’s Consolidated Balance Sheet to be settled with the contribution of the aforementioned piece of land. Since the date of the acquisition, we have recognized the proportionate share of Vidrio Andino’s net income using the equity method on the Consolidated Statement of Operations and Other Comprehensive Income as the Company is deemed to have significant influence, but does not have effective control of Vidrio Andino.

 

Establishment of a new subsidiary

 

In January 2019 we established E.S. Windows California, LLC., a wholly-owned U.S. entity to serve as a distributor of our products in certain jurisdictions within the U.S. markets.

 

In April 2019, ESMetals, a Colombian entity in which the Company has 70% equity interest began operations. ESMetals serves as a metalwork contractor to supply the Company with steel accessories used in the assembly of certain architectural systems as part of our vertical integration strategy. When the company owns a majority (but less than 100%) of a subsidiary’s stock, the Company includes in its Consolidated Financial Statements the non-controlling interest in the subsidiary. The non-controlling interest in the Consolidated Statements of Operations and Other Comprehensive Income is equal to the non-controlling interests’ proportionate share of the subsidiary’s net income and, as included in Shareholders’ Equity on the Consolidated Balance Sheet, is equal to the non-controlling interests’ proportionate share of the subsidiary’s net assets. In determining the fair value, we used the income approach and the market approach which was performed by third party valuation specialists under management.

 

Note 5. - Inventories, net

 

    September 30, 2020     December 31, 2019  
Raw materials   $ 42,125     $ 44,175  
Work in process     18,131       24,262  
Finished goods     5,245       5,203  
Stores and spares     7,614       8,130  
Packing material     717       981  
      73,832       82,751  
Less: Inventory allowance     (69 )     (37 )
    $ 73,763     $ 82,714  

 

  10  
     

 

Note 6. – Revenues, Contract Assets and Contract Liabilities

 

Disaggregation of Total Net Sales

 

The Company disaggregates its sales with customers by 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.

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2020     2019     2020     2019  
Fixed price contracts   $ 27,307     $ 37,352     $ 73,867     $ 126,249  
Product sales     76,002       71,118       198,682       203,272  
Total Revenues   $ 103,309     $ 108,470     $ 272,549     $ 329,521  

 

The following table presents geographical information about revenues.

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2020     2019     2020     2019  
Colombia   $ 5,650     $ 13,037     $ 13,942     $ 38,190  
United States     95,680       92,848       253,626       284,208  
Panama     20       668       850       2,344  
Other     1,959       1,917       4,131       4,779  
Total Revenues   $ 103,309     $ 108,470     $ 272,549     $ 329,521  

 

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 and a portion of the amounts billed on certain fixed price contracts that are withheld by the customer as a retainage until a final good receipt of the complete project 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 other liabilities in the Company’s consolidated balance sheets.

 

  11  
     

 

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

 

    September 30, 2020     December 31, 2019  
Contract assets — current   $ 28,416     $ 42,014  
Contract assets — non-current     7,814       7,059  
Contract liabilities — current     (18,381 )     (12,459 )
Contract liabilities — non-current     (883 )     (187 )
Net contract assets   $ 16,966     $ 36,427  

 

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

 

    September 30, 2020     December 31, 2019  
Unbilled contract receivables, gross   $ 12,761     $ 20,729  
Retainage     23,469       28,344  
Total contract assets     36,230       49,073  
Less: current portion     28,416       42,014  
Contract Assets – non-current   $ 7,814     $ 7,059  

 

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

 

    September 30, 2020     December 31, 2019  
Billings in excess of costs   $ 4,421       2,077  
Advances from customers on uncompleted contracts     14,843       10,569  
Total contract liabilities     19,264       12,646  
Less: current portion     18,381       12,459  
Contract liabilities – non-current   $ 883       187  

 

During the three and nine months ended September 30, 2020, the Company recognized $330 and 1,979 of sales related to its contract liabilities on January 1, 2020, respectively. During the three and nine months ended September 30, 2019, the Company recognized $1,903 and $6,381 of sales related to its contract liabilities on January 1, 2019, respectively.

 

Remaining Performance Obligations

 

As of September 30, 2020, the Company had $260.8 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 $86.2 million are expected to be recognized during the year ending December 31, 2020, $156.6 million during the year ending December 31, 2021 and the remaining $19.4 million thereafter.

 

Note 7. 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. Also, it includes the intangibles acquired during the acquisition of GM&P.

 

    September 30, 2020  
    Gross     Acc. Amort.     Net  
Trade Names   $ 980     $ (702 )   $ 278  
Notice of Acceptances (NOAs), product designs and other intellectual property     8,924       (4,974 )     3,950  
Non-compete Agreement     165       (118 )     47  
Customer Relationships     4,140       (3,092 )     1,048  
Total   $ 14,209     $ (8,886 )   $ 5,323  

 

  12  
     

 

    December 31, 2019  
    Gross     Acc. Amort.     Net  
Trade Names   $ 980     $ (555 )   $ 425  
Notice of Acceptances (NOAs), product designs and other intellectual property     8,903       (4,323 )     4,580  
Non-compete Agreement     165       (94 )     71  
Contract Backlog     3,090       (3,090 )     -  
Customer Relationships     4,140       (2,513 )     1,627  
Total   $ 17,278     $ (10,575 )   $ 6,703  

 

The weighted average amortization period is 5.4 years.

 

During the nine months ended September 30, 2020 and 2019, the amortization expense amounted to $1,635 and $2,088, respectively, and was included within the general and administrative expenses in our Condensed Consolidated Statement of Operations. Amortization expense for the three months ended September 30, 2020 and 2019, the amortization expense amounted to $536 and $603, respectively

 

The estimated aggregate amortization expense for each of the five succeeding years as of September 30, 2020 is as follows:

 

Year ending   (in thousands)  
2020   $ 556  
2021     2,108  
2022     1,105  
2023     794  
2024     482  
Thereafter     278  
    $ 5,323  

 

Note 8. Debt

 

The Company’s debt is comprised of the following:

 

    September 30, 2020     December 31, 2019  
Revolving lines of credit   $ 9,493     $ 17,455  
Finance lease     383       493  
Unsecured senior note     210,000       210,000  
Other loans     13,405       15,578  
Syndicated loan     14,999       19,999  
Less: Deferred cost of financing     (1,900 )     (3,714 )
Total obligations under borrowing arrangements     246,380       259,811  
Less: Current portion of long-term debt and other current borrowings     174       16,084  
Long-term debt   $ 246,206     $ 243,727  

 

  13  
     

 

As a subsequent event, on October 30, 2020, we entered into a new $300 million Senior Secured Credit Facility, consisting of a $250 million delayed draw term loan and a $50 million committed revolving credit facility, with a maturity date of October 31, 2025. The Credit Facility has an accordion feature allowing the Company to increase the borrowing capacity to $325 million. We intend to use the net proceeds to repay all outstanding borrowings under our previous credit facilities. The Company’s existing $210 million unsecured senior notes, which bear interest at a rate of 8.2% and mature in 2022, are expected to be redeemed in full following a step down in redemption price at the end of January 2021. We plan to use the remaining proceeds and available cash for ongoing working capital needs and general corporate purposes. This new facility, with its improved pricing, should significantly reduce our cost of capital, including anticipated annual cash interest savings of approximately $11 million on current outstanding borrowings.

 

The Company’s consolidated balance sheets as of September 30, 2020 reflects the effect of this refinancing of the Company’s current portion of long term debt and other current borrowings into long term debt based on the Company’s intent as of that date, as per guidance of ASC 470, which states that a short-term obligation shall be excluded from current liabilities if the entity intends to refinance the obligation on a long-term basis and the intent to refinance the short-term obligation on a long-term basis is supported by a post-balance-sheet-date closing of this credit agreement.

  

As of September 30, 2020, and December 31, 2019, the Company had $245,943 and $259,574, respectively, of debt denominated in US Dollars with the remaining amounts denominated in Colombian Pesos.

 

The Company had $6,430 and $6,979 of property, plant and equipment pledged as collateral for various lines of credit as of September 30, 2020 and December 31, 2019, respectively.

 

The Company was obligated under various finance leases under which the aggregate present value of the minimum lease payments amounted to $383 and $493 as of September 30, 2020 and December 31, 2019, respectively. In line with this, the Company recorded right-of-use assets related to computing equipment for $199 and $378 as of September 30, 2020 and December 31, 2019, respectively. The lease agreements include terms to extend the lease, however the Company does not intend to extend its current leases. The weighted average remaining lease term approximates 2 years. The right-of-use assets’ depreciation and interest expense from the lease liability are recorded on our Condensed Consolidated Statement of Operations.

 

Additionally, as of September 30, 2020, the Company had a commitment for $11 under operating leases related to short term apartment leases, installation equipment and computing equipment which expire during the current year that have not been capitalized due to their short-term nature. Rental expense from these leases is recognized on our Condensed Consolidated Statement of Operations as incurred.

 

Maturities of long-term debt and other current borrowings, without the impact of repayments intended with proceed from the above described new $300 million Senior Secured Credit Facility, are as follows as of September 30, 2020:

 

2021   $ 3,276  
2022     216,465  
2023     14,176  
2024     10,578  
2025     2,389  
Thereafter     1,396  
Total   $ 248,280  

 

The Company’s loans have maturities ranging from a few weeks to 10 years. Our credit facilities bear interest at a weighted average of rate 7.37%.

 

Note 9. Hedging Activity and Fair Value Measurements

 

Hedging Activity

 

During the quarter ended September 30, 2019, we entered into several foreign currency non-delivery forward and collar 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 Colombian Peso denominated costs and expenses.

 

Guidance under the Financial Instruments Topic 825 of the Codification requires us to 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, in determining fair value. 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.

 

  14  
     

 

As of September 30, 2020, the fair value of foreign currency collar contracts was in a net liability position of $635. We had 14 outstanding collar contracts to exchange 14 million U.S. Dollars to Colombian Pesos through February 2021. 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 September 30, 2020.

 

We assess the effectiveness of our foreign currency collar contracts by comparing the change in the fair value of the collar 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 foreign currency collar contracts is reported as a component of accumulated other comprehensive loss 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 losses, net, recognized in the “accumulated other comprehensive loss” line item in the accompanying condensed consolidated balance sheet as of September 30, 2020, that we expect will be reclassified to earnings within the next eight months, is $635.

 

The fair value of our foreign currency hedges is classified in the accompanying consolidated balance sheets as of September 30, 2020, are as follows:

 

   

Derivative Assets

     

Derivative Liabilities

 
   

September 30, 2020

     

September 30, 2020

 
Derivatives designated as hedging instruments under Subtopic 815-20:   Balance Sheet Location  

Fair

Value

      Balance Sheet Location  

Fair

Value

 
                       
Derivative instruments:                          
Non-Delivery Collar Contracts   Other current assets   $      -       Accrued liabilities   $ (635 )
Total derivative instruments   Total derivative assets   $ -       Total derivative liabilities   $ (635 )

 

The fair value of our foreign currency hedges is classified in the accompanying consolidated balance sheets as of December 31, 2019, are as follows:

 

   

Derivative Assets

     

Derivative Liabilities

 
   

December 31, 2019

     

December 31, 2019

 
Derivatives designated as hedging instruments under Subtopic 815-20:   Balance Sheet Location   Fair
Value
      Balance Sheet Location   Fair Value  
                       
Derivative instruments:                          
Non-Delivery forward and collar contracts   Other current assets   $ 749       Accrued liabilities   $      -  
Total derivative instruments   Total derivative assets   $ 749       Total derivative liabilities   $ -  

 

The ending accumulated balance for the foreign currency collar contracts included in accumulated other comprehensive losses, net of tax, was $435 as of September 30, 2020, comprised of a derivative loss of $635 and an associated net tax benefit of $203.

 

  15  
     

 

The following table presents the gains (losses) on derivative financial instruments, and their classifications within the accompanying condensed consolidated financial statements, for the three and nine months ended September 2020:

 

    Derivatives in Cash Flow Hedging Relationships  
    Amount of Gain or (Loss)    

Location of Gain or
(Loss)

Reclassified from

Accumulated

 

Amount of Gain or (Loss)

Reclassified from

 
    Recognized in OCI (Loss) on     OCI (Loss) into   Accumulated  
    Derivatives     Income   OCI (Loss) into Income  
    Three Months Ended         Three Months Ended  
    September 30,     September 30,         September 30,     September 30,  
    2020     2019         2020     2019  
                                     
Non-delivery Collar Contracts   $   (635 )   $ (1,390 )   Operating Revenues   $   (610 )   $     (28 )

 

    Derivatives in Cash Flow Hedging Relationships  
    Amount of Gain or (Loss)    

Location of Gain or

(Loss)

Reclassified from

Accumulated

 

Amount of Gain or (Loss)

Reclassified from

 
    Recognized in OCI (Loss) on     OCI (Loss) into   Accumulated  
    Derivatives     Income   OCI (Loss) into Income  
    Nine months Ended         Nine months Ended  
    September 30,     September 30,         September 30,     September 30,  
    2020     2019         2020     2019  
                                     
Non-delivery Collar Contracts   $ (7,242 )   $ (1,390 )   Operating Revenues   $     1,397     $    (28 )

 

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.

 

As of September 30, 2020, financial instruments carried at amortized cost that do not approximate fair value consist of long-term debt. See Note 8 - Debt. The fair value of long-term debt was calculated based on an analysis of future cash flows discounted with our average cost of debt, which is based on market rates, which are level 2 inputs.

 

  16  
     

 

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

 

    September 30, 2020     December 31, 2019  
Fair Value     256,631       259,814  
Carrying Value     246,207       243,727  

 

Note 10. 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 estimated combined state and federal income tax rate is estimated at a rate of 26.5% based on the recently enacted U.S. Tax Reform. Tecnoglass Inc. 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:

 

    Three months ended
September 30,
    Nine months ended
September 30,
 
    2020     2019     2020     2019  
Current income tax                                
United States   $ (338 )   $ (146 )   $ (682 )   $ (1,561 )
Colombia     (4,069 )     (4,411 )     (10,945 )     (12,169 )
      (4,407 )     (4,557 )     (11,627 )     (13,730 )
Deferred income Tax                                
United States     218       349       (38 )     1,475  
Colombia     910       4,474       7,644       3,665  
      1,128       4,823       7,606       5,140  
Total income tax (provision) benefit   $ (3,279 )   $ 266     $ (4,021 )   $ (8,590 )
                                 
Effective tax rate     28 %     17 %     42 %     39 %

 

The weighted average statutory income tax rate for the three months ended September 30, 2020 and 2019 was 28% and 17%, respectively. The effective income tax rates of 42% and 39% for the nine months ended September 30, 2020 and 2019, respectively, reflect the impact of unrealized foreign currency transaction losses related to the remeasurement of long-term liabilities of our Colombian subsidiaries which are expected to be realized at a later year in which a lower income tax rate is expected to apply. The Company’s effective income tax rate of 17% for the quarter ended September 30, 2019 differs from the weighted average statutory rate primarily as a result of a 17.3% decrease related to permanent differences, a 10.8% decrease related to non-deductible expense, partially offset by unrealized foreign currency transaction losses which contribute to an increase of 12.1% in the reconciliation of effective income tax rate to statutory rate.

 

Note 11. Related Parties

 

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

 

    Three months ended September 30,     Nine months ended September 30,  
    2020     2019     2020     2019  
Sales to related parties   $ 329     $ 1,729     $ 1,873     $ 5,713  
                                 
Fees paid to directors and officers   $ 1,010     $ 836     $ 3,189     $ 2,658  
Payments to other related parties   $ 1,114     $ 964     $ 2,831     $ 2,797  

 

  17  
     

 

    September 30, 2020    

December 31,

2019

 
Current Assets:                
Due from VS   $ 6,717     $ 4,203  
Due from other related parties     1,950       3,854  
    $ 8,667     $ 8,057  
                 
Long Term due from VS     726       1,786  
                 
Liabilities:                
Due to related parties - current   $ 4,056     $ 4,415  
Due to related parties – Non-current   $ 639     $ 622  

 

As of December 31, 2019, the Company also had a note payable which matured in 2022 related to the acquisition GM&P for $8,500 due to the former owner (“the Seller”), who holds shares of the Company and a management position within the Company. In August 2020, the outstanding balance of $9,605, including $1,105 accrued interest, was fully settled. Subsequently, the Company agreed to sell certain receivables of GM&P through a factoring agreement on a non-recourse basis to the Seller, receiving cash netted by a financial discount over the notional amount of the receivables sold.

 

Ventana Solar S.A. (“VS”), a Panama Sociedad anónima, is an importer and installer of the Company’s products in Panama. Family members of the Company’s CEO and COO and other related parties own 100% of the equity in VS. The Company’s sales to VS for the three months ended September 30, 2020 and 2019 were $16 and $631, respectively. The Company’s sales to VS for the nine months ended September 30, 2020 and 2019 were $810 and $1,119, respectively.

 

Payments to other related parties during the three and nine months ended September 30, 2020 and 2019 include the following:

 

   

Three months ended

September 30,

   

Nine months ended

September 30,

 
    2020     2019     2020     2019  
Charitable contributions   $ 255     $ 354     $ 817     $ 959  
Sales commissions   $ 364     $ 357     $ 911     $ 1,119  

 

Charitable contributions are donations made to the Company’s foundation, Fundación Tecnoglass-ESW.

 

Note 12. Shareholders’ Equity

 

Dividends

 

On September 14, 2020, the Company declared a regular quarterly dividend of $0.0275 per share, or $0.11 per share on an annualized basis, for the third quarter of 2020. The quarterly dividend will be paid in cash on October 20, 2020 to shareholders of record as of the close of business on September 30, 2020.

 

Follow-on Equity Offering

 

On March 25, 2019, the Company closed an underwritten follow-on public offering of 5,000,000 ordinary shares at a price to the public of $7.00 per share. As a result of this offering, the Company received net proceeds of $33,050 after deducting underwriting and other related fees, which were credited to share capital and additional paid in capital. Additionally, the Company granted the underwriters a 30-day option to purchase up to an additional 750,000 ordinary shares at the public offering price, less the underwriting discount, which option was exercised on April 3, 2019 with respect to 551,423 ordinary shares.

 

Proceeds from the offering were subsequently used to complete the joint venture transaction with Saint-Gobain discussed in “Note 4. Long-term Investments – Saint-Gobain Joint Venture.”

 

  18  
     

 

Earnings per Share

 

The following table sets forth the computation of the basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2019:

 

   

Three months ended

September 30,

   

Nine months ended

September 30,

 
    2020     2019     2020     2019  
Numerator for basic and diluted earnings per shares                                
Net Income (loss)   $ 8,271     $ (1,319 )   $ 5,657     $ 13,672  
                                 
Denominator                                
Denominator for basic earnings per ordinary share - weighted average shares outstanding     46,117,631       46,291,032       46,117,631       44,395,504  
Effect of dilutive securities and stock dividend     -       -       -       -  
Denominator for diluted earnings per ordinary share - weighted average shares outstanding     46,117,631       46,291,032       46,117,631       44,395,504  
Basic earnings (loss) per ordinary share   $ 0.18     $ (0.03 )   $ 0.12     $ 0.31  
Diluted earnings (loss) per ordinary share   $ 0.18     $ (0.03 )   $ 0.12     $ 0.31  

  

Note 13. Commitments and Contingencies

 

Commitments

 

As of September 30, 2020, the Company had an outstanding obligation to purchase an aggregate of at least $12,215 of certain raw materials from a specific supplier before May 2026.

 

On May 3, 2019, we consummated the 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 this entity was $45 million, of which $34.1 was paid in cash, and $10.9 million is to be paid with a piece of land near our existing facility in Barranquilla, which we acquired in October 2020 from a related party and which was previously owned by members of our Chief Executive Officer´s family with a third party valuation was conducted to ensure arm´s length terms. 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 on October 27, 2020.The land will be contributed 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. 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 between 2020 and 2021 if needed (based on debt availability).

 

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 14. Subsequent Events

 

On October 30, 2020, the Company entered into a new $300 million Senior Secured Credit Facility, consisting of a $250 million delayed draw term loan and a $50 million committed revolving credit facility, with a maturity date on October 31, 2025. The Credit Facility has an accordion feature allowing the Company to increase the borrowing capacity to $325 million. Until March 31, 2021, the Credit Facility will bear interest at a rate of LIBOR, with a 0.75% floor, plus a spread of 3.00%. Thereafter, the applicable spread will have a range between 2.50% and 3.50%, based on the Company’s net leverage ratio.

 

The Company’s consolidated balance sheets as of September 30, 2020 reflects the effect of this refinance of the Company’s current portion of long term debt and other current borrowings into long term debt based on the Company’s intent as of that date, as per guidance of ASC 470, which states that a short-term obligation shall be excluded from current liabilities if the entity intends to refinance the obligation on a long-term basis and the intent to refinance the short-term obligation on a long-term basis is supported by a post-balance-sheet-date closing of this credit agreement.

 

On October 28, 2020 the Company acquired a lot of land from a related party owned by members of our Chief Executive Officer´s family to be contributed as payment for the Saint Gobain Joint Venture further discussed in Note 3. The land was paid for through the issuance of 1,557,142 ordinary shares of the Company, at $7.00 per share, which represented an approximate 33% premium based on the last sale price on October 27, 2020.

 

  19  
     

 

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. (formerly Andina Acquisition Corporation), 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 second largest glass fabricator in 2019 by Glass Magazine. In addition, we believe we are the leading glass transformation company in Colombia. Based on our analysis of third-party industry sources we had an estimated market share of over 49% of the Colombian market in 2019. 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 more than 30 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, 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 2.7 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 El Dorado Airport (Bogota), 50 United Nations Plaza (New York), Trump Plaza (Panama), Icon Bay (Miami), and Salesforce Tower (San Francisco). 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 now 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 allowed us added control over our supply chain allowed for further vertical integration of our business and will act as a platform for our future expansion in the United States. 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.

 

  20  
     

 

On May 3, 2019, we consummated the joint venture agreement with Saint-Gobain, acquiring a 25.8% minority ownership interest in Vidrio Andino, a Colombia-based subsidiary of Saint-Gobain, solidifying our vertical integration strategy by acquiring an interest in the first stage of our production chain, while securing ample glass supply for our expected production needs. Additionally, in April 2019, ESMetals, a Colombian entity in which the Company has 70% equity interest began operations. ESMetals serves as a metalwork contractor to supply the Company with steel accessories used in the assembly of certain architectural systems as part of our vertical integration strategy.

 

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. We also launched a residential windows offering which, we believe, will help us expand our presence in the United States and generate additional organic growth. We believe that the quality of our products, coupled with our ability to price competitively given our structural advantages on cost, will allow us to generate further growth in the future.

 

On March 24, 2020, Colombia went into a mandatory lockdown as a result of the novel coronavirus outbreak. As a result, the Company temporarily suspended production at its facilities in Colombia through April 13, 2020 during the initial phase of the nationwide shelter-in-place order. While the shelter-in-place order was subsequently extended to May 25, 2020, the Company 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. At the same time as most of our customers in the United States and Colombia are resuming their activities. 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. The Company entered the pandemic with a strong financial position along with the flexibility required to support its global operations during this volatile period. We have implemented strict cost controls, reduced operating expenses and limited all non-critical capital expenditures beyond the completion of initiatives started in 2019. We anticipate that working capital will continue to be a net benefit to cash flow for the full year 2020.

 

As of September 30, 2020, we had had cash of $69.4 million and sufficient access to credit, providing sufficient access to capital. On October 30, 2020, we entered into a new $300 million Senior Secured Credit Facility, consisting of a $250 million delayed draw term loan and a $50 million committed revolving credit facility, with a maturity date in 2025. The Credit Facility has an accordion feature allowing the Company to increase the borrowing capacity to $325 million. We intend to use the net proceeds to repay all outstanding borrowings under its previous credit facilities. The Company’s existing $210 million unsecured senior notes, which bear interest at a rate of 8.2% and mature in 2022, are expected to be redeemed in full following a step down in redemption price at the end of January 2021. We plan to use the remaining proceeds and available cash for ongoing working capital needs and general corporate purposes. This new facility, with its improved pricing, should significantly reduce our cost of capital, including anticipated annual cash interest savings of approximately $11 million on current outstanding borrowings.

 

RESULTS OF OPERATIONS

 

   

Three months ended

September 30,

   

Nine months ended

September 30,

 
    2020     2019     2020     2019  
Operating Revenues   $ 103,309     $ 108,470     $ 272,549     $ 329,521  
Cost of sales     63,188       72,729       170,205       223,051  
Gross profit     40,121       35,741       102,344       106,470  
Operating expenses     (19,915 )     (20,189 )     (53,764 )     (58,418 )
Operating income     20,206       15,552       48,580       48,052  
Non-operating income and expenses, net     (138 )     450       (232 )     1,078  
Foreign currency transactions losses     (3,066 )     (12,006 )     (22,223 )     (9,921 )
Equity method income     695       295       789       273  
Interest Expense and deferred cost of financing     (6,147 )     (5,876 )     (17,236 )     (17,220 )
Income tax provision     (3,279 )     266       (4,021 )     (8,590 )
Net income(loss)     8,271       (1,319 )     5,657       13,672  
Loss (Income) attributable to non-controlling interest     52       144       97       (30 )
Income (Loss) attributable to parent   $ 8,323     $ (1,175 )   $ 5,754     $ 13,642  

 

  21  
     

 

Comparison of quarterly periods ended September 30, 2020 and 2019

 

Revenues

 

The Company’s operating revenues decreased $5.2 million or 4.8% to $103.3 million from $108.5 million for the quarter ended September 30, 2020 compared with the quarter ended September 30, 2019. Since the outbreak of COVID-19 in early 2020, lockdowns and other preventive measures slowed down our business, especially in Latin America where sales decreased $8.0 million, or 51.1%, from $15.6 million to $7.6 million. In contrast, stronger activity in US markets turned positive growth year over year, with $95.7 million in sales during the quarter ended September 30, 2020, up $2.8 million, or 3.0%, from $92.8 million in the prior year quarter. U.S. Sales growth was driven by increase in Single Family Residential sales, which increased $0.8 million, or 4.0%, from $18.2 million to $19.0 million, as well as multi-family and commercial market sales.

 

Since the initial impact of COVID-19 in early 2020, our invoicing increased sequentially month-to-month through the third quarter of 2020. Sales for the quarter ended September 30, 2020 increased $21.4 million, or 26.1%, over $81.9 million in sales during the immediately preceding quarter ended June 30, 2020.

 

Gross profit

 

Gross profit increased $4.4 million, or 12.3%, to $40.1 million during the three months ended September 30, 2020, compared with $35.7 million during the same period of 2019 despite decreasing sales. This resulted in gross profit margin reaching 38.8% during the third quarter of 2020, up from 33.0% during the third quarter of 2019.

 

The margin enhancement was the result of increased raw material efficiency derived from advantageous aluminum commodity prices, waste reduction benefit from our automation initiatives and better control efforts, a reduction in cost of installation work as manufacturing represented a higher portion of our revenue mix, and a reduction of labor costs driven by the automation of manufacturing processes paired with favorable foreign currency exchange rates. These margin improvements were partially offset by a negative effect of fixed cost being diluted over a lower revenue base.

 

Expenses

 

Operating expenses decreased $0.3 million, or 1.4%, from $20.2 million to $19.9 million for the quarters ended September 30, 2019 and 2020, respectively. The decrease was the result of our efforts to enhance our lean administrative structure and tight cost controls paired with favorable exchange rates as a significant portion of our general and administrative expenses are denominated in Coombian Pesos which experienced a significant depreciation during the period.

 

Non-operating income and expenses, net

 

During the three months ended September 30, 2020 and 2019, the Company recorded a non-operating expense of $0.1 million and non-operating income of $0.5 million, respectively. Non-operating income is comprised primarily of 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.

 

  22  
     

 

Foreign currency transaction gains and losses

 

During the quarter ended September 30, 2020, the Company recorded a non-cash loss of $3.1 million associated with foreign currency transactions. Most of this impact is associated with the remeasurement of a net liability position of $109.2 million U.S. dollar denominated monetary assets and liabilities held by the Company’s subsidiaries with the Colombian peso as their functional currency while the Colombian peso depreciated 3.2% during the quarter. Comparatively, the Company recorded a net loss of $12.0 million during the three months ended September 30, 2019.

 

Interest Expense

 

Interest expense and deferred cost of financing increased $0.3 million to $6.1 million during the quarter ended September 30, 2020 from $5.9 million during the quarters ended September 30, 2019.

 

Income Taxes

 

During the quarters ended September 30, 2020 and 2019, the Company recorded an income tax provision of $3.3 million and a net income tax benefit of $0.3 million, respectively, reflecting an effective income tax rate of 28% and 17%, respectively. The Company’s effective income tax rate of 17% for the quarter ended September 30, 2020 differs from the weighted average statutory rate of 32%, related to unrealized non-deductible expenses, which given the net loss, decrease effective tax rate and permanent differences, was partially offset by foreign currency transaction losses.

 

As a result of the foregoing, the Company recorded a net income for the three months ended September 30, 2020 of $8.3 million compared to net loss of $1.3 million in the three months ended September 30, 2019.

 

Comparison of nine-month periods ended September 30, 2020 and 2019

 

Revenues

 

The Company’s operating revenues decreased $57.0 million or 17.3% to $272.5 million from $329.5 million for the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019. The decrease in sales was impacted by three weeks less of work in March and April as we shut down our manufacturing facility in Colombia during the initial stages of the COVID-19 nationwide shelter-in-place order. Additionally, our Latin American markets have been impacted by a slow return to operations as job sites are getting prepared to operate on a safely manner given COVID-19 restrictions.

 

Sales in the U.S. markets decreased $30.6 million or 10.8% in the first nine months of 2020 to $253.6 million compared with $284.2 during the same period of 2019. US Single Family residential sales decreased $2.5 million, or 5%, from $51.0 million in 2019 to $48.5 million in 2020 mainly as a result of having three full weeks of less work related to the aforementioned mandatory shelter in place.

 

Sales in Latin American markets, including Colombia, have been slow to return to activity after mandatory Coronavirus lockdowns in March and April. Despite construction having been deemed essential businesses, construction sites have been slow to prepare to operate under new safety standards, sales to these regions decreased $26.4 million, or 58.2%, from $45.3 million in the first nine months of 2019 to $18.9 million in 2020.

 

Gross profit

 

Gross profit decreased $4.1 million, or 3.9% to $102.3 million during the nine months ended September 30, 2020, compared with $106.5 million during the same period of 2019. Gross profit margins increased notoriously to 37.5% during the first nine months of 2020, from 32.3% during the first nine months of 2019. The margin enhancement was the result of increased raw material efficiency derived from advantageous aluminum commodity prices, waste reduction benefit from our automation initiatives and better control efforts, a reduction in cost of installation work as manufacturing represented a higher portion of our revenue mix, and a reduction of labor costs driven by the automation of manufacturing processes paired with favorable foreign currency exchange rates. These margin improvements were partially offset by a negative effect of fixed cost being diluted over a lower revenue base.

 

Expenses

 

Operating expenses decreased $4.7 million, or 8%, from $58.4 million to $53.8 million for the nine months ended September 30, 2019 and 2020, respectively. The decrease has been the result of our efforts to enhance our lean administrative structure and tight cost controls paired with favorable exchange rates as a significant portion of our general and administrative expenses are denominated in Colombian Pesos.

 

Non-operating income and expenses, net

 

During the nine months ended September 30, 2020 and 2019, the Company recorded net a non-operating expense of $0.2 million and non-operating income of $1.1 million, respectively. Non-operating income is comprised primarily of 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 nine months ended September 30, 2020, the Company recorded a non-cash loss of $22.2 million associated with foreign currency transactions. Most of this impact is associated with the remeasurement of a net liability position of $109.2 million U.S. dollar denominated monetary assets and liabilities held by the Company’s subsidiaries with the Colombian peso as their functional currency while the Colombian peso depreciated by 18.4% during the nine-month period. Comparatively, the Company recorded a foreign currency transaction loss of $9.9 million during the nine months ended September 30, 2019.

 

  23  
     

 

Interest Expense

 

Interest expense and deferred cost of financing remained stable at $17.2 million during both nine-month periods ended September 30, 2020 and 2019.

 

Income Taxes

 

During the nine months ended September 30, 2020 and 2019, the Company recorded an income tax provision of $4.0 million and $8.6 million, respectively. The effective rate of 42% is related to the large loss on foreign currency transactions during the period.

 

As a result of the foregoing, the Company recorded net income of $5.7 million and $13.7 million for the nine months ended September 30, 2020 and September 30, 2019, respectively.

 

Liquidity

 

As of September 30, 2020, and December 31, 2019, we had cash and cash equivalents of approximately $69.4 million and $47.9 million, respectively.

 

On October 28, 2020, we entered into a new $300 million Senior Secured Credit Facility, consisting of a $250 million delayed draw term loan and a $50 million committed revolving credit facility, with a maturity date of October 31, 2025. The Credit Facility has an accordion feature allowing the Company to increase the borrowing capacity to $325 million. We intend to use the net proceeds to repay all outstanding borrowings under our previous credit facilities. The Company’s existing $210 million unsecured senior notes, which bear interest at a rate of 8.2% and mature in 2022, are expected to be redeemed in full following a step down in redemption price at the end of January 2021. We plan to use the remaining proceeds and available cash for ongoing working capital needs and general corporate purposes. This new facility, with its improved pricing, should significantly reduce our cost of capital, including anticipated annual cash interest savings of approximately $11 million on current outstanding borrowings.

 

We anticipate that working capital will continue be a net benefit to cash flow for the full year 2020, which in addition to our current liquidity position, provides ample flexibility to service our obligations through the next twelve months.

 

  24  
     

 

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 nine months ended September 30, 2020 and 2019, we made investments primarily in building and construction, and machinery and equipment in the amounts of $14.7 million, and $21.4 million, respectively.

 

In 2019, we carried out enhancements at our glass and aluminum facilities to increase production capacity and automate operations. The Company completed this aluminum capacity expansion in July 2019 and implemented its glass transformation process automation initiative in the first quarter of 2020.

 

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 between 2020 and 2021 if needed (based on debt availability).

 

Cash Flow from Operations, Investing and Financing Activities

 

    Nine months ended September 30,  
    2020     2019  
Cash Flow provided by Operating Activities   $ 51,024     $ 9,229  
Cash Flow used in Investing Activities     (13,451 )     (54,162 )
Cash Flow (used in) provided by Financing Activities     (15,239 )     54,655  
Effect of exchange rates on cash and cash equivalents     (765 )     (1,023 )
Cash Balance - Beginning of Period     47,862       33,040  
Cash Balance - End of Period   $ 69,431     $ 41,739  

 

During the nine months ended September 30, 2020 and 2019, operating activities generated $51.0 million and $9.2 million, respectively. The positive cashflow from operations during 2020 has been related to a much higher profitability year over year, enhanced working capital efforts, easing working capital requirements to serve tapered sales during the period, and our efforts to preserve cash and solidify our liquidity position and preparedness as we continue to weather through the pandemic.

 

The main source of operating cash during the nine months ended September 30, 2020 were contract assets and liabilities which generated $20.5 million, 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 on fixed price contracts. In contrast, Contract assets and liabilities used $5.0 million during the nine months ended September 30, 2019.

 

Trade accounts receivables generated $6.4 million and used $29.8 million during the nine months ended September 30, 2020, and 2019, respectively. The change in trend from a steep use in 2019 to a positive cashflow in 2020 generated is related to accelerated sales growth in the previous year in contrast with tapered sales during the current year. Additionally, the cashflow from Trade Accounts receivable does not reflect the impact of a $9.6 million reduction of trade accounts receivable that were sold to the previous owner of GM&P on a non-recourse basis to the Seller, receiving cash netted by a financial discount over the notional amount.. The largest use of cash in operating activities was trade accounts payable, which used $16.3 million during the nine months ended September 30, 2020, compared with $3.6 million generated during the nine months ended September 30, 2019.

 

  25  
     

 

For the period ended September 30, 2019 we have modified the way we present the impact of foreign currency transactions on our Statement of Cash Flows as there has been volatility and significant fluctuations in the exchange rates between the U.S. Dollar and the Colombian Peso, which is the functional currency of our subsidiaries that carry most of our operations. Previously, the impact of unrealized non-cash foreign currency transaction gains and losses resulting from the remeasurement of our monetary assets and liabilities denominated in any currency other than the functional currency have been included within the individual line item affected within cashflows from operating activities, investing activities or financing activities, as appropriate. As of September 30, 2020, unrealized foreign currency transaction gains and losses, which include currency translation differences on monetary items that form part of investing or financing activities, such as long-term loans, are presented as a reconciling item from net income to cashflow from operating activities. While during prior periods, unrealized currency translation differences on monetary items that form part of operating activities, such as trade accounts receivables and payables, were presented within each line item, we are now presenting them within the reconciliation of net income to cashflow from operations, so as to better present the economic reality of the cashflows during the period. As a result of this, we have revised the cash flows from operating activities for the nine months ended September 30, 2019 and are currently reporting cashflow of $9.2 million generated, compared with an originally reported cashflow of $7.5 million generated.

 

We used $13.4 million and $54.2 million in investing activities during the nine months ended September 30, 2020 and 2019, respectively. The main use of cash in investing activities during the nine months ended September 30, 2020 was related to scheduled maintenance Capex and the completion of our previously announced expansion and automation initiatives that are now mostly completed. During 2019, the main use of cash in investing activities was a payment for the acquisition of 25.8% equity interest in Vidrio Andino Holding, a joint venture with Saint-Gobain described above under Capital Resources. Additionally, during the first nine months of 2019, the company paid $19.9 million to acquire property plant and equipment, which in combination with $1.5 million acquired under credit, amount to total Capital Expenditures of $21.4 million. During 2020, we used $13.7 million for the acquisition or property and equipment. Including assets acquired with debt or supplier credit, total capital expenditures during the period were $14.7 million.

 

Financing activities used $15.2 million, mainly due to repayments of debt. During the nine months ended September 30, 2019, financing activities generated $54.7 million as a result of an underwritten follow-on public offering of 5,551,423 ordinary shares, including the underwriters’ over-allotment option, for net proceeds of $36.5 million, in addition to net proceeds from debt minus repayments amounting to $21.9 million, mostly related to a $30 million five-year term facility, proceeds which were mostly used to repay then existing short-term debt we had accumulated to fund working capital required to support sales growth over fiscal year 2018.

 

Off-Balance Sheet Arrangements

 

None

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

None

 

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 September 30, 2020, 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 September 30, 2020, 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.

 

  26  
     

 

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 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 September 30, 2020, 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   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

  27  
     

 

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: November 6, 2020    

 

  28  

 

Tecnoglass (NASDAQ:TGLS)
Historical Stock Chart
From Sep 2021 to Oct 2021 Click Here for more Tecnoglass Charts.
Tecnoglass (NASDAQ:TGLS)
Historical Stock Chart
From Oct 2020 to Oct 2021 Click Here for more Tecnoglass Charts.