José Manuel Daes, Chief Executive Officer of Tecnoglass, commented, “We closed out the first half of 2019 with record levels of gross profit, adjusted EBITDA and backlog, along with our 9th straight quarter of record revenues. This success was largely driven by continued expansion in single family residential and market share gains in the U.S., which represented 87% of our second quarter revenues. In addition, we generated cash flow from operations of $14 million in the quarter, reflecting increased profitability and enhanced working capital management. Overall, we are very pleased with our positive momentum, combined with continued backlog growth which provides us with strong visibility on our project pipeline over the coming years. Our year-to-date progress supports our upwardly revised full year outlook for revenue and adjusted EBITDA growth.”
Christian Daes, Chief Operating Officer of Tecnoglass, stated, “We ended the quarter with an attractively positioned backlog across a growing number of U.S. markets. Our strategic footprint, continued penetration into the residential market, and structural competitive advantages continue to support our ability to capitalize on strong bidding activity while maintaining our industry-leading margins. Additionally, the continued outperformance in our key operating metrics is underpinned by our high-return projects focused on innovation, strategic partnerships, improved productivity and capacity expansion. To that point, we were thrilled to complete the expansion of our aluminum extrusion facilities in July, and are well on track to fully complete our automation initiatives by year end. In conclusion, we are very pleased with our results so far in 2019 as we continue to target new customer relationships and leverage our growing and diversified U.S. footprint.”
Second Quarter 2019 Results
Total revenues for the second quarter of 2019 improved 28.0% to $113.9 million compared to $89.0 million in the prior year quarter. Excluding the impact of unfavorable foreign currency, total revenues increased 29.9% compared to the prior year quarter. U.S. revenues increased 42.2% to $99.3 million compared to $69.9 million in the prior year quarter, driven by stronger residential invoicing, healthy commercial construction activity, market share gains and slight pricing improvement. Colombia revenue, a majority of which is represented by long-term contracts priced in Colombian Pesos but indexed to the U.S. Dollar, was $12.2 million compared to $15.6 million in the prior year quarter, primarily attributable to slower construction activity.
Gross profit increased 57.6% to $38.8 million, representing a 34.1% gross margin, compared to gross profit of $24.6 million, representing a 27.7% gross margin, in the prior year quarter. The improvement in gross margin mainly reflected greater operating efficiencies and a favorable mix of higher margin products. Gross margin improved approximately 240 basis points year-over-year, excluding non-recurring costs of approximately $3.6 million in the prior year quarter. Operating expenses were $20.6 million compared to $17.0 million in the prior year quarter. As a percent of total revenues, operating expenses were 18.1% compared to 19.1% in the prior year quarter, primarily due to higher sales, and better operating leverage on personnel and professional fees. Excluding one-time items, operating expenses would have been 17.8% as a percent of total revenues compared to 18.9% in the prior year quarter. Operating income more than doubled to $18.3 million compared to $7.6 million in the prior year quarter.
Net income was $7.7 million, or $0.17 per diluted share in the second quarter of 2019, compared to a net loss of $3.9 million, or a $0.10 loss per diluted share in the prior year quarter, including non-cash foreign currency transaction gains in both periods related to the re-measurement of USD denominated assets and liabilities against the Colombian Peso as functional currency. Adjusted net income1 increased 24.0% to $9.2 million, or $0.20 per diluted share, compared to adjusted net income of $7.3 million, or $0.19 per diluted share in the prior year quarter. Adjusted net income1, as reconciled in the table below, excludes the impact of non-cash foreign exchange transaction gains or losses and other non-core items, along with the tax impact of adjustments at statutory rates, to better reflect core financial performance.
Adjusted EBITDA1, as reconciled in the table below, increased 41.1% to $25.8 million, or 22.6% of sales, compared to $18.3 million, or 20.5% of sales, in the prior year quarter, primarily attributable to sales growth and higher operating income. Adjusted EBITDA in the second quarter 2019 included $1.0 million in contribution from the Company’s joint venture with Saint-Gobain.
In May 2019, the Company entered into a new 5 year $30 million facility, with a portion of available borrowings used to repay existing short-term working capital facilities. The new facility will extend the average maturity of the Company’s debt, reduce its weighted average cost of funding and provide added financial flexibility to execute strategic initiatives.
Strategic Joint Venture and High-Return Initiatives
In May 2019, the Company completed its previously announced strategic joint venture with Saint-Gobain, through the purchase of a minority ownership interest in Vidrio Andino, a Colombia-based float glass manufacturing subsidiary of Saint-Gobain with annualized sales of approximately $100 million. The $34 million cash portion of the transaction was funded with cash on hand.
In July 2019, the Company completed its previously announced aluminum production capacity expansion in response to strong customer demand for aluminum products. The Company’s other high-return investments to automate key operations at several glass and aluminum facilities remain on track to be completed by the end of 2019. As of June 30, 2019, the Company has deployed approximately 60% out of the total anticipated growth and efficiency capital investment of approximately $20 million, and intends to fund the remaining portion with cash on hand.
The Company declared a regular quarterly dividend of $0.14 per share, or $0.56 per share on an annualized basis, for the second quarter of 2019, which will be paid on August 30, 2019 to shareholders of record as of the close of business on July 31, 2019.
Full Year 2019 Outlook
For the full year 2019, the Company has increased its outlook for revenues to grow to a range of $415 to $430 million, based on its solid first half performance, a favorable growth environment on its construction end markets and additional anticipated market share gains in the U.S. The Company has also raised its Adjusted EBITDA outlook to a range of $90 million to $98 million, representing growth of 16.4% at the midpoint year-over-year, driven by higher revenues and greater operational efficiencies.
Tecnoglass Inc. is a leading manufacturer of architectural glass, windows, and associated aluminum products for the global commercial and residential construction industries. Tecnoglass is the leading architectural glass transformation company in Colombia and the second largest glass fabricator serving the United States. Headquartered in Barranquilla, Colombia, the Company operates out of a 2.7 million square foot vertically‐integrated, state‐of‐the‐art manufacturing complex that provides easy access to North, Central and South America, the Caribbean, and the Pacific. Tecnoglass supplies over 1,000 customers in North, Central and South America, with the United States accounting for over 80% of revenues. Tecnoglass' tailored, high‐end products are found on some of the world’s most distinctive properties, including the El Dorado Airport (Bogota), 50 United Nations Plaza (New York), Trump Plaza (Panama), Icon Bay (Miami), and Salesforce Tower (San Francisco).