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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

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

 

For the quarterly period ended March 31, 2021

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes ☒ No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer ☐ Accelerated filer
Non-accelerated filer ☐ Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐ No

 

As of April 30, 2021, there were 47,674,773 ordinary shares, $0.0001 par value per share, outstanding.

 

 

 

 

 

 

TECNOGLASS INC.

 

FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2021

 

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 17
     
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
     
  Item 4. Controls and Procedures 21
     
Part II. Other Information  
  Item 1. Legal Proceedings 22
     
  Item 6. Exhibits 22
Signatures 23

 

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)

 

   March 31,   December 31, 
   2021   2020 
ASSETS          
Current assets:          
Cash and cash equivalents  $85,160   $66,899 
Investments   2,235    2,387 
Trade accounts receivable, net   90,033    88,368 
Due from related parties   7,420    8,574 
Inventories   71,317    80,742 
Contract assets – current portion   23,530    26,288 
Other current assets   13,537    13,545 
Total current assets  $293,232   $286,803 
Long-term assets:          
Property, plant and equipment, net  $141,967   $152,266 
Deferred income taxes   1,989    268 
Contract assets – non-current   11,023    10,228 
Due from related parties - long term   121    484 
Long-term trade accounts receivable   3,435    2,985 
Intangible assets   4,713    5,112 
Goodwill   23,561    23,561 
Long-term investments   48,626    47,535 
Other long-term assets   3,942    2,783 
Total long-term assets   239,377    245,222 
Total assets  $532,609   $532,025 
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Short-term debt and current portion of long-term debt  $13,748   $1,764 
Trade accounts payable and accrued expenses   44,969    42,178 
Accrued interest expense   6    7,175 
Due to related parties   4,333    4,750 
Dividends payable   1,352    1,352 
Contract liability – current portion   29,287    24,694 
Other current liabilities   9,778    9,630 
Total current liabilities  $103,473   $91,543 
Long-term liabilities:          
Deferred income taxes  $1,735   $3,170 
Long-term liabilities from related parties   651    645 
Contract liability – non-current   999    977 
Long-term debt   221,635    222,722 
Total long-term liabilities   225,020    227,514 
Total liabilities  $328,493   $319,057 
SHAREHOLDERS’ EQUITY          
Preferred shares, $0.0001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively  $-   $- 
Ordinary shares, $0.0001 par value, 100,000,000 shares authorized, 47,674,773 and 47,674,773 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively   5    5 
Legal Reserves   2,273    2,273 
Additional paid-in capital   219,290    219,290 
Retained earnings   41,181    34,326 
Accumulated other comprehensive (loss)   (59,305)   (43,512)
Shareholders’ equity attributable to controlling interest   203,444    212,382 
Shareholders’ equity attributable to non-controlling interest   672    586 
Total shareholders’ equity   204,116    212,968 
Total liabilities and shareholders’ equity  $532,609   $532,025 

 

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)

 

   2021   2020 
   Three months ended 
   March 31, 
   2021   2020 
Operating revenues:          
External customers  $110,259   $86,106 
Related parties   621    1,192 
Total operating revenues   110,880    87,298 
Cost of sales   65,737    56,871 
Gross profit   45,143    30,427 
Operating expenses:          
Selling expense   (11,081)   (9,668)
General and administrative expense   (8,669)   (7,610)
Total operating expenses   (19,750)   (17,278)
Operating income   25,393    13,149 
Non-operating income (expenses), net   159    (101)
Equity method income   1,091    260 
Foreign currency transactions losses   (45)   (32,466)
Loss on extinguishment of debt   (11,147)   - 
Interest expense and deferred cost of financing   (3,522)   (5,643)
Income (loss) before taxes   11,929    (24,801)
Income tax (provision) benefit   (3,677)   6,133 
Net income (loss)  $8,252   $(18,668)
Income attributable to non-controlling interest   (86)   (98)
Income (Loss) attributable to parent  $8,166   $(18,766)
Comprehensive income:          
Net income (loss)  $8,252   $(18,668)
Foreign currency translation adjustments   (15,634)   (19,288)
Change in fair value derivative contracts   (159)   (4,065)
Total comprehensive income  $(7,541)  $(42,021)
Comprehensive income attributable to non-controlling interest   (86)   (98)
Total comprehensive income (loss) attributable to parent  $(7,627)  $(42,119)
Basic income (loss) per share  $0.17   $(0.40)
Diluted income (loss) per share  $0.17   $(0.40)
Basic weighted average common shares outstanding   47,674,773    46,117,631 
Diluted weighted average common shares outstanding   47,674,773    46,117,631 

 

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)

 

   2021   2020 
   Three months ended March 31, 
   2021   2020 
         
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income (loss)  $8,252   $(18,668)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:          
Allowance for bad debts   537    368 
Depreciation and amortization   5,289    5,241 
Deferred income taxes   704    (9,031)
Equity method income   (1,091)   (260)
Deferred cost of financing   255    440 
Other non-cash adjustments   (3)   40 
Debt extinguishment   2,333    - 
Unrealized currency translation losses   2,411    37,533 
Changes in operating assets and liabilities:          
Trade accounts receivables   (3,419)   664 
Inventories   2,564    (2,848)
Prepaid expenses   (592)   69 
Other assets   (3,933)   (4,940)
Trade accounts payable and accrued expenses   12,911    (6,274)
Accrued interest expense   (7,169)   (4,546)
Taxes payable   1,699    3,113 
Labor liabilities   (559)   (1,270)
Contract assets and liabilities   7,849    2,352 
Related parties   926    (1,435)
CASH PROVIDED BY OPERATING ACTIVITIES  $28,964   $548 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Proceeds from sale of investments   -    193 
Purchase of investments   (42)   (137)
Acquisition of property and equipment   (5,696)   (6,469)
CASH USED IN INVESTING ACTIVITIES  $(5,738)  $(6,413)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Cash dividend   (1,311)   - 
Debt extinguishment - Call Premium   (8,610)   - 
Deferred financing transaction costs   (89)   - 
Proceeds from debt   221,118    14,353 
Repayments of debt   (213,180)   (15,073)
CASH USED IN FINANCING ACTIVITIES  $(2,072)  $(720)
           
Effect of exchange rate changes on cash and cash equivalents  $(2,893)  $(4,453)
           
NET INCREASE (DECREASE) IN CASH   18,261    (11,038)
CASH - Beginning of period   66,899    47,862 
CASH - End of period  $85,160   $36,824 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION          
Cash paid during the period for:          
Interest  $10,268   $9,282 
Income Tax  $2,507   $1,986 
           
NON-CASH INVESTING AND FINANCING ACTIVITES:          
Assets acquired under credit or debt  $745   $991 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 

 

Tecnoglass Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(Amounts in thousands, except share and per share data)

(Unaudited)

 

   Shares   Amount   Capital   Reserve   Earnings   Loss   Equity   Interest   Interest 
   Ordinary Shares, $0.0001
Par Value
  

Additional

Paid in

   Legal   Retained  

Accumulated

Other

Comprehensive

  

Total

Shareholders’

  

Non-

Controlling

  

Total

Shareholders’

Equity and Non-Controlling

 
   Shares   Amount   Capital   Reserve   Earnings   Loss   Equity   Interest   Interest 
Balance at December 31, 2020   47,674,773    5    219,290    2,273    34,326    (43,512)   212,382    586    212,968 
                                              
Dividend   -    -    -    -    (1,311)   -    (1,311)   -    (1,311)
                                              
Derivative financial instruments   -    -    -         -    (159)   (159)   -    (159)
                                              
Foreign currency translation   -    -    -    -    -    (15,634)   (15,634)   -    (15,634)
                                              
Net income   -    -    -    -    8,166    -    8,166    86    8,252 
                                              
Balance at March 31, 2021   47,674,773    5    219,290    2,273    41,181    (59,305)   203,444    672    204,116 

 

   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, 2019   46,117,631    5    208,283    1,367    16,213    (39,264)   186,604    606    187,210 
                                              
Dividend   -    -    107    -    (1,344)   -    (1,237)   -    (1,237)
                                              
Derivative 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 

 

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, 2020. The year-end condensed balance sheet data was derived from the audited financial statements in the Form 10-K but does not include all disclosures required by US GAAP.

 

The preparation of these unaudited condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Company’s financial statements. Actual results may differ from these estimates under different assumptions and conditions. Estimates utilized in the preparation of these unaudited condensed consolidated financial statements relate to the collectability of account receivables, the valuation of inventories, estimated earnings on uncompleted contracts, useful lives and potential impairment of long-lived assets. Changes in estimates are reflected in the periods during which they become known. Actual amounts may differ from these estimates and could differ materially. These financial statements reflect all adjustments that in the opinion of management are necessary for a fair statement of the financial position, results of operations and cash flows for the period presented, and are of a normal, recurring nature.

 

The Company has one operating segment, Architectural Glass and Windows, which is also its reporting segment, comprising the design, manufacturing, distribution, marketing and installation of high-specification architectural glass and window 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, if it is determined it is not, the entity is evaluated under the voting interest model. All significant intercompany accounts and transactions are eliminated in consolidation, including unrealized intercompany profits and losses. The equity method of accounting is used for investments in affiliates and other joint ventures over which the Company has significant influence but does not have effective control.

 

TGI and certain wholly owned subsidiaries with functional currency different than the U.S. dollar have long-term intercompany loan balances denominated in foreign currencies that are remeasured at the current exchange rate in effect at the balance sheet date. Such loan balances are not expected to be settled in the foreseeable future. Any gains and losses relating to these loans are included in the accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders’ equity.

 

Derivative Financial Instruments

 

The Company recognizes all derivative financial instruments as either assets or liabilities at fair value on the condensed 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 condensed consolidated statement of comprehensive income. Amounts in accumulated other comprehensive loss on the condensed consolidated balance sheet are reclassified into the condensed consolidated statement of income in the same period or periods during which the hedged transactions are settled.

 

Recently Issued Accounting Pronouncements

 

In June 2016, Financial Accounting Standards Board (“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 condensed consolidated financial statements.

 

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The amendments in this Update provide optional expedients and exceptions for contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference 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 are effective for the Company through December 31, 2022 with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its condensed consolidated financial statements.

 

Note 3. - Inventories, net

 

   March 31, 2021   December 31, 2020 
Raw materials  $41,026   $47,282 
Work in process   16,826    19,345 
Finished goods   4,186    4,434 
Stores and spares   8,601    8,981 
Packing material   779    783 
 Total Inventories, gross   71,418    80,825 
Less: Inventory allowance   (101)   (83)
 Total inventories, net  $71,317   $80,742 

 

8

 

 

Note 4. – 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 
   March 31, 
   2021   2020 
Fixed price contracts  $22,433   $25,027 
Product sales   88,447    62,271 
Total Revenues  $110,880   $87,298 

 

The following table presents geographical information about revenues.

 

   Three months ended 
   March 31, 
   2021   2020 
Colombia  $7,665   $6,472 
United States   100,807    78,798 
Panama   256    680 
Other   2,152    1,348 
Total Revenues  $110,880   $87,298 

 

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 condensed consolidated balance sheets.

 

9

 

 

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

 

   March 31, 2021   December 31, 2020 
Contract assets — current  $23,530   $26,288 
Contract assets — non-current   11,023    10,228 
Contract liabilities — current   (29,287)   (24,694)
Contract liabilities — non-current   (999)   (977)
Net contract assets  $4,267   $10,845 

 

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

 

   March 31, 2021   December 31, 2020 
Unbilled contract receivables, gross  $11,324   $13,534 
Retainage   23,229    22,982 
Total contract assets   34,553    36,516 
Less: current portion   23,530    26,288 
Contract Assets – non-current  $11,023   $10,228 

 

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

 

   March 31, 2021   December 31, 2020 
Billings in excess of costs  $9,978    7,191 
Advances from customers on uncompleted contracts   20,308    18,480 
Total contract liabilities   30,286    25,671 
Less: current portion   29,287    24,694 
Contract liabilities – non-current  $999    977 

 

During the three months ended March 31, 2021, the Company recognized $1,468 of sales related to its contract liabilities at January 1, 2021. During the three months ended March 31, 2020, the Company recognized $1,279 of sales related to its contract liabilities at January 1, 2020.

 

Remaining Performance Obligations

 

As of March 31, 2021, the Company had $247.9 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 $167.3 million are expected to be recognized during the year ending December 31, 2021, $80.6 million during the year ending December 31, 2022 or thereafter.

 

Note 5. Intangible Assets

 

Intangible assets include Miami-Dade County Notices of Acceptances (NOA’s), which are certificates issued for approved products and required to market hurricane-resistant glass in Florida. Also, it includes the intangibles acquired during the acquisition of GM&P.

 

   March 31, 2021 
   Gross   Acc. Amort.   Net 
Trade Names  $980   $(800)  $180 
Notice of Acceptances (NOAs), product designs and other intellectual property   9,325    (5,500)   3,825 
Non-compete Agreement   165    (135)   30 
Customer Relationships   4,140    (3,462)   678 
Total  $14,610   $(9,897)  $4,713 

 

10

 

 

   December 31, 2020 
   Gross   Acc. Amort.   Net 
Trade Names  $980   $(751)  $229 
Notice of Acceptances (NOAs), product designs and other intellectual property   9,236    (5,255)   3,981 
Non-compete Agreement   165    (126)   39 
Customer Relationships   4,140    (3,277)   863 
Total  $14,521   $(9,409)  $5,112 

 

The weighted average amortization period is 5.35 years.

 

During the three months ended March 31, 2021 and 2020, the amortization expense amounted to $552 and $550, respectively, and was included within the general and administration expenses in our Condensed Consolidated Statement of Operations.

 

The estimated aggregate amortization expense for each of the five succeeding years as of March 31, 2021 is as follows:

 

Year ending  (in thousands) 
2021  $1,637 
2022   1,184 
2023   869 
2024   553 
2025   246 
Thereafter   221 
 Total  $4,710 

 

Note 6. Debt

 

The Company’s debt is comprised of the following:

 

   March 31, 2021   December 31, 2020 
Revolving lines of credit  $924   $377 
Finance lease   269    350 
Unsecured senior notes   -    210,000 
Other loans   462    31 
Syndicated loan   239,796    22,835 
Less: Deferred cost of financing   (6,068)   (9,107)
Total obligations under borrowing arrangements   235,383    224,486 
Less: Current portion of long-term debt and other current borrowings   13,748    1,764 
Long-term debt  $221,635   $222,722 

 

11

 

 

On October 2020, the Company entered into a $300 million five-year term Senior Secured Credit Facility consisting of a $250 million delayed draw term loan and a $50 million committed revolving credit facility which bears interest at a rate of LIBOR, with a 0.75% floor, plus a spread of between 2.50% and 3.50%, based on the Company’s net leverage ratio. The effective interest rate for this credit facility including deferred issuance costs is 4.37%. In December 2020, we drew $23.1 million and used the proceeds of the long-term debt facility to repay several credit facilities. In January 2021, we drew an additional $220 million and used the proceeds to redeem the Company’s existing $210 million unsecured senior notes, which had an interest rate of 8.2% and matured in 2022. In relation to this, the Company accounted for debt extinguishment cost of $11.1 million which included a call premium charge of $8.6 million paid to exercise the call option, and $2.3 million non-cash expenses corresponding to the unamortized portion of deferred cost of financing related to fees paid when the unsecured senior notes were originated in 2017. Subsequent to the end of the first quarter and based on Tecnoglass’ leverage ratio as of March 31, 2021, the interestrate spread on the Company’s $300 million Senior Secured Credit Facility decreased 50 basis points to a spread of 2.50% in April 2021.

 

As of March 31, 2021 and December 31, 2020, all assets of the company are pledged as collateral for the $300 million Senior Secured Credit Facility.

 

The Company was obligated under various finance leases under which the aggregate present value of the minimum lease payments amounted to $269 and $350 as of March 31, 2021 and December 31, 2020, respectively. In line with this, the Company recorded right-of-use assets related to computing equipment for $223 and $321 as of March 31, 2021 and December 31, 2020, 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 1,5 years. The right-of-use assets’ depreciation and interest expense from the lease liability are recorded on our Condensed Consolidated Statement of Operations.

 

Maturities of long-term debt and other current borrowings are as follows as of March 31, 2021:

 

    - 
2022  $13,748 
2023   12,220 
2024   15,195 
2025   18,234 
2026   182,055 
Thereafter   - 
Total  $241,452 

 

The Company’s loans have maturities ranging from a few weeks to 5 years. Our credit facilities bear an interest at a weighted average of rate 3.75% as of March 31, 2021 and have subsequently stepped down to 3.25% in April 2021.

 

Note 7. 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.

 

12

 

 

As of March 31, 2021, the fair value of foreign currency collar contracts was not measured contracts since these contracts were settled in January and February 2021.

 

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 income and is reclassified into earnings in the same line item in the income statement as the hedged item in the same period or periods during which the transaction affects earnings. The amount of gains, net, recognized in the “accumulated other comprehensive income” line item in the consolidated balance sheet as of December 31, 2020, were reclassified to earnings during the first quarter of 2021 for $185.

 

The fair value of our foreign currency hedges classified in the consolidated balance sheets as of December 31, 2020, are as follows:

 

    Derivative Assets     Derivative Liabilities  
    December 31, 2020     December 31, 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   $ 230     Accrued liabilities   $ ( - )
Total derivative instruments   Total derivative assets   $ 230     Total derivative liabilities   $ ( - )

 

The ending accumulated balance for the foreign currency collar contracts included in accumulated other comprehensive income, net of tax, was $159 as of December 31, 2020, comprised of a derivative gain of $230 and an associated net tax liability of $71.

 

The following table presents the gains (losses) on derivative financial instruments, and their classifications within the accompanying condensed consolidated financial statements, for the three months ended March 2021 and 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)   OCI (Loss) into  Accumulated 
   on Derivatives   Income  OCI (Loss) into Income 
   Three Months Ended      Three Months Ended 
   March 31,   March 31,      March 31,   March 31, 
   2021   2020      2021   2020 
                    
Non-delivery Forwards and Collar Contracts  $-   $(5,228)  Operating Revenues  $185   $677 

 

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 March 31, 2021, financial instruments carried at amortized cost that do not approximate fair value consist of long-term debt. See Note 6 - 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.

 

13

 

 

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

 

   March 31, 2021   December 31, 2020 
Fair Value   224,192    238,753 
Carrying Value   221,635    222,722 

 

Note 8. 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. 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:

 

   2021   2020 
   Three months ended 
   March 31, 
   2021   2020 
Current income tax          
United States  $(678)  $(151)
Colombia   (2,295)   (2,747)
 Total current income tax   (2,973)   (2,898)
Deferred income Tax          
United States   30    (319)
Colombia   (734)   9,350 
 Total deferred income tax   (704)   9,031 
Total income tax (provision) benefit  $(3,677)  $6,133 
           
Effective tax rate   30.8%   25%

 

The weighted average statutory income tax rate for the three months ended March 31, 2021 and 2020 was 31% and 31%, respectively. The effective income tax rate of 30.8% as of March 31, 2021 approximates the statutory rate. The effective income tax rate of 25% as of March 31, 2020 reflects 4.2 percentage point favorable impact of unrealized foreign currency transaction losses related remeasurement of to 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.

 

Note 9. Related Parties

 

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

 

   2021   2020 
   Three months ended March 31, 
   2021   2020 
Sales to related parties  $621   $1,192 
           
Fees paid to directors and officers  $1,179   $961 
Payments to other related parties  $962   $814 

 

14

 

 

   March 31, 2021   December 31, 2020 
Current Assets:          
Due from VS  $5,515   $6,387 
Due from other related parties   1,905    2,187 
 Due from related parties, current  $7,420   $8,574 
           
Long Term due from VS   121    484 
           
Liabilities:          
Due to related parties - current  $4,333   $4,750 
Due to related parties – Non-current  $651   $645 

 

Ventana Solar S.A. (“VS”), a Panama Sociedad anonima, 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 March 31, 2021 and 2020 were $241 and $643, respectively.

 

Payments to other related parties during the three months ended March 31, 2021 and 2020 include the following:

 Schedule of Payments to Other Related Parties

  

Three months ended

March 31,

 
   2021   2020 
Charitable contributions  $277   $349 
Sales commissions  $382   $259 

 

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

 

Note 10. Shareholders’ Equity

 

Dividends

 

On March 9, 2021, the Company declared a regular quarterly dividend of $0.0275 per share, or $0.11 per share on an annualized basis. The dividend was paid on April 30, 2021 to shareholders of record as of the close of business on March 31, 2021.

 

15

 

 

Earnings per Share

 

The following table sets forth the computation of the basic and diluted earnings per share for the three months ended March 31, 2021 and 2020:

 

   2021   2020 
   Three months ended 
   March 31, 
   2021   2020 
Numerator for basic and diluted earnings per shares          
Net Income (loss)  $8,252   $(18,668)
           
Denominator          
Denominator for basic earnings per ordinary share - weighted average shares outstanding   47,674,773    46,117,631 
Effect of dilutive securities and stock dividend   -    - 
Denominator for diluted earnings per ordinary share - weighted average shares outstanding   47,674,773    46,117,631 
Basic earnings (loss) per ordinary share  $0.17   $(0.40)
Diluted earnings (loss) per ordinary share  $0.17   $(0.40)

 

Note 11. Commitments and Contingencies

 

Commitments

 

As of March 31, 2021, the Company had an outstanding obligation to purchase an aggregate of at least $8,654 of certain raw materials from a specific supplier before May 2026.

 

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 was contributed through a parcel of land to be used for the building of a second factory. On October 28, 2020, the land was paid for through the issuance of an aggregate of 1,557,142 ordinary shares of the Company, at $7.00 per share, which represented an approximate 33% premium based on the Company´s share price as of October 27, 2020.

 

The joint venture agreement includes plans to build a new plant in Galapa, Colombia that will be located approximately 20 miles from our primary manufacturing facility, in which we will also have a 25.8% interest. The new plant will be funded with proceeds from the original cash contribution made by the Company, operating cashflows from the Bogota plant, debt incurred at the joint venture level that will not consolidate into the Company and an additional contribution by us of approximately $12.5 million to be paid if needed (based on debt availability as a first option).

 

General Legal Matters

 

From time to time, the Company is involved in legal matters arising in the regular course of business. Some disputes are derived directly from our construction projects, related to supply and installation, and even though deemed ordinary, they may involve significant monetary damages. We are also subject to other type of litigations arising from employment practices, worker’s compensation, automobile claims and general liability. It is very difficult to predict precisely what the outcome of these litigations might be. However, with the information at our disposition as this time, there are no indications that such claims will result in a material adverse effect on the business, financial condition or results of operations of the Company.

 

Note 12. Subsequent Events

 

Management concluded that no additional subsequent events required disclosure other than those disclosed in these financial statements.

 

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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 2020 by Glass Magazine. In addition, we believe we are the leading glass transformation company in Colombia. Our customers, which include developers, general contractors or installers for hotels, office buildings, shopping centers, airports, universities, hospitals and multi-family and residential buildings, look to us as a value-added partner based on our product development capabilities, our high-quality products and our unwavering commitment to exceptional service.

 

We have 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.

 

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The continued diversification of the group’s presence and product portfolio is a core component of our strategy. In particular, we are actively seeking to expand our presence in United States outside of Florida. 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.

 

RESULTS OF OPERATIONS

 

   Three months ended 
   March 31, 
   2021   2020 
Operating Revenues  $110,880   $87,298 
Cost of sales   65,737    56,871 
Gross profit   45,143    30,427 
Operating expenses   (19,750)   (17,278)
Operating income   25,393    13,149 
Non-operating income and (expenses), net   159    (101)
Equity method income   1,091    260 
Foreign currency transactions losses   (45)   (32,466)
Loss on extinguishment of debt   (11,147)   - 
Interest Expense and deferred cost of financing   (3,522)   (5,643)
Income tax (provision) benefit   (3,675)   6,133 
Net income (loss)   8,254    (18,668)
Income attributable to non-controlling interest   (86)   (98)
Income (Loss) attributable to parent  $8,168   $(18,766)

 

Comparison of quarterly periods ended March 31, 2021 and 2020

 

Revenues

 

The Company’s operating revenues increased $23.6 million or 27.0% from $87.3 million to $110.9 million for the quarter ended March 31, 2021 compared with the quarter ended March 31, 2020. In early 2020, initial COVID-19 lockdowns and other preventive measures slowed down our business, especially in Latin America as several customers halted activities and we shut down our manufacturing facilities in Colombia between March 24, 2020 and April 13, 2020 during the nationwide shelter-in-place order.

 

In contrast, strong sales during the first quarter of 2021 were driven by U.S. residential and commercial market activity, where sales increased $22.0 million, or 27.9%, from $78.8 million in 2020 to $100.8 million in 2021. Residential market sales increased $9.7 million, or 71%, from $13.7 million in 2020 to $23. million in 2021, and account for 21% of total sales during the quarter ended March 31, 2021.

 

Sales to Latin-American markets, including Colombia increased $1.6 million, or 18.5%, as our customers return to activities after lockdowns in slowly recovering markets.

 

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Gross profit

 

Gross profit increased $14.7 million, or 48.4%, to $45.1 million during the three months ended March 31, 2021, compared with $30.4 million during the same period of 2020. This resulted in gross profit margin reaching 40.7% during the first quarter of 2021, up from 34.9% during the first quarter of 2020. The nearly 600-basis point improvement in gross margin mainly reflected a higher mix of revenue from manufacturing versus installation activity as we continue to grow into single family residential and a full quarter of greater operating efficiencies from prior automation initiatives.

 

Expenses

 

Operating expenses increased $2.5 million, or 14.3%, from $17.3 million to $19.8 million for the quarters ended March 31, 2020 and 2021, respectively. The increase was driven by $1.0 million, or 26.1% increase in shipping expense on increasing sales, along with smaller increases in personnel and services, which along with our efforts to enhance our lean administrative structure and tight cost controls and higher sales, led to operating expenses as a percentage of sales improving from 19.8% to 17.8%.

 

Non-operating income and expenses, net

 

During the three months ended March 31, 2021 and 2020, the Company recorded non-operating income of $0.2 million and non-operating expense of $0.1 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. During the quarter ended March 31, 2021, the Company also recorded a loss in debt extinguishment of $11.1 million, comprised of a one-time $8.6 million call premium paid on the $210 million senior notes redemption, along with a $2.3 million non-cash amortization of deferred cost of financing related to said notes plus a $0.2 million foreign currency adjustment.

 

Foreign currency transaction gains and losses

 

During the quarter ended March 31, 2021, the Company recorded a non-cash loss of less than $0.1 million associated with foreign currency transactions loss, which excludes a non-cash $8.7 million foreign currency transaction loss from remeasurement of certain intercompany loans reclassified to other comprehensive income. Comparatively, the Company recorded a net loss of $32.5 million during the three months ended March 31, 2020 within the statement of operations as the Colombian peso depreciated 24% during the quarter.

 

Interest Expense

 

Interest expense and deferred cost of financing decreased $2.1 million, or 37.6%, to $3.5 million during the quarter ended March 31, 2021 from $5.6 million during the quarters ended March 31, 2020 as a result of our new financing arrangement further described below in the liquidity section. The current period does not fully capture the full effect of the decrease in interest rates associated to the new syndicated facility given that the senior notes were taken out on January 30, 2021.

 

Income Taxes

 

During the quarters ended March 31, 2021 and 2020, the Company recorded an income tax provision of $3.7 million and a net income tax benefit of $6.1 million, respectively, reflecting an effective income tax rate of 31% and 25%, respectively. The effective income tax rate of 31% as of March 31, 2021 approximates the statutory rate.

 

As a result of the foregoing, the Company recorded a net income for the three months ended March 31, 2021 of $8.3 million compared to net loss of $18.7 million in the three months ended March 31, 2020.

 

Liquidity

 

As of March 31, 2021 and December 31, 2020, we had cash and cash equivalents of approximately $85.2 million and $66.9 million, respectively.

 

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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 used the net proceeds to repay all outstanding borrowings under our previous credit facilities during the last quarter of 2020 and redeemed in full the $210 million unsecured senior notes, which bear interest at a rate of 8.2% and matured in 2022, following a step down in redemption price at the end of January 2021. This new facility, with its improved pricing, significantly reduces our cost of capital, including anticipated annual cash interest savings of approximately $11.1 million on current outstanding borrowings.

 

We anticipate that working capital will continue be a net benefit to cash flow for the full year 2021, which in addition to our current liquidity position, provides ample flexibility to service our obligations through the next twelve months.

 

Capital Resources

 

We transform glass and aluminum into high specification architectural glass and custom-made aluminum profiles which require significant investments in state-of-the-art technology. During the three months ended March 31, 2021 and 2020, we made investments primarily in building and construction, and machinery and equipment in the amounts of $6.4 million, and $7.5 million, respectively.

 

On May 3, 2019, we consummated a joint venture agreement with Saint-Gobain, a world leader in the production of float glass, a key component of our manufacturing process, whereby we acquired a 25.8% minority ownership interest in Vidrio Andino, a Colombia-based subsidiary of Saint-Gobain. The purchase price for our interest in Vidrio Andino was $45 million, of which $34.1 million was paid in cash and $10.9 million to be paid through the contribution of land once a complete assessment of the project timing is completed based on the overall market conditions as they relate to the ongoing COVID-19 pandemic. On October 28, 2020 the land was paid for through the issuance of an aggregate of 1,557,142 ordinary shares of the Company, at $7.00 per share, which represented an approximate 33% premium based on last sale price as of October 27, 2020.

 

The joint venture agreement includes plans to build a new plant in Galapa, Colombia that will be located approximately 20 miles from our primary manufacturing facility, in which we will also have a 25.8% interest. The new plant will be funded with proceeds from the original cash contribution made by the Company, operating cashflows from the Bogota plant, debt incurred at the joint venture level that will not consolidate into the Company and an additional contribution by us of approximately $12.5 million to be paid toward the end of the two-year construction period, if needed (based on debt availability as a first option).

 

Cash Flow from Operations, Investing and Financing Activities

 

   Three months ended March 31, 
   2021   2020 
Cash Flow provided by Operating Activities  $28,964   $548 
Cash Flow used in Investing Activities   (5,738)   (6,413)
Cash Flow used in Financing Activities   (2,072)   (720)
Effect of exchange rates on cash and cash equivalents   (2,893)   (4,453)
Cash Balance - Beginning of Period   66,899    47,862 
Cash Balance - End of Period  $85,160   $36,824 

 

During the three months ended March 31, 2021 and 2020, operating activities generated approximately $29.0 million and $0.5 million, respectively. The positive cashflow from operations during 2021 has been related to a much higher profitability year over year, enhanced working capital efforts, reduced interest expense and a more favorable mix of revenues in the single-family residential space which carries a shorter cash cycle and no retainage.

 

The main source of operating cash during the three months ended March 31, 2021 were contract assets and liabilities which generated $7.9 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. Comparatively, Contract assets and liabilities generated $2.4million during the three months ended March 31, 2020. The largest use of cash in operating activities was accrued interest expense, which used $7.2 million during the three months ended March 31, 2021, compared with $4.5 million generated during the three months ended March 31, 2020, with the increase mostly due to our new $300 million senior secured credit facility for which we paid the full balance of accrued interests on March 31, 2021.

 

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We used $5.7 million and $6.4 million in investing activities during the three months ended March 31, 2021 and 2020, respectively. The main use of cash in investing activities during the three months ended March 31, 2021 was related to the automation of our architectural system assembly processes. During the first three months of 2021, we paid $5.7 million to acquire property plant and equipment, which in combination with $0.7 million acquired under credit, amount to total Capital Expenditures of $6.4 million. During 2020, we used $6.5 million for the acquisition or property and equipment. Including assets acquired with debt or supplier credit, total capital expenditures during the period were $7.5 million.

 

Financing activities used $2.1 million and $0.7 million during the three months ended March 31, 2021 and 2020, respectively. Outflows during the first quarter of 2021 include the full redemption of the $210 million unsecured senior notes, which bore interest at a rate of 8.2% and matured in 2022, following a step down in redemption price at the end of January 2021, along with $8.6 million for the corresponding call premium. These payments were made with proceeds of the new Senior Secured Credit Facility for up to $300 million, of which we received proceeds of $220 million during the quarter.

 

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 March 31, 2021, in order to provide reasonable assurance that the information disclosed in our reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

For the quarter ended March 31, 2021, 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.

 

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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 March 31, 2021, 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 Stateme