Tecnoglass Holdings Inc. (TGLS) FY 2021 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The
following discussion of the Company’s financial condition and results of operations should be read in conjunction with the Company’s
consolidated financial statements and notes to those statements included in this Form 10-K. This discussion contains forward-looking
statements that involve risks and uncertainties. Please see the section entitled “Forward-Looking Statements and Introduction”
in this Form 10-K.

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 as well as the second largest metal
company serving the United States in 2021 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 35 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,
and 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 3.5 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 One Thousand Museum (Miami), Paramount Miami Worldcenter (Miami), Hub50House (Boston), Via 57 West
(New York), AE’O Tower (Honolulu), Salesforce Tower (San Francisco), Trump Plaza (Panama), and Departmental Legislative Assembly
(Bolivia). 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.

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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.

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 and has been consolidated in our financial statements since. 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.

Our
company has focused on working with The Power of Quality, always making sure that our vision of sustainability is immersed into
every aspect of our business, including social, environmental, economic and governance variables, that help us make decisions and create
value for our stakeholders. We carry out a series of initiatives based on our global sustainability strategy, which is supported on three
fundamental pillars: promoting an ethical and responsible continuous growth, leading eco-efficiency and innovation, and empowering our
environment. As part of this strategy the Company has voluntarily adhered to UN Global Compact Principles since 2017 and in pursuit of
our cooperation with the attainment of the Sustainable Development Goals (SDGs) joined in 2021 a program to dynamize, strengthen and
make visible the management of greenhouse gas emissions as a carbon neutral strategy set out by the Colombian government for 2050.

How
We Generate Revenue

We
are a leading manufacturer of hi-spec architectural glass and windows for the western hemisphere residential and commercial construction
industries, operating through our direct and indirect subsidiaries. Headquartered in Barranquilla, Colombia, we operate out of a 3.5
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.

Our
glass products include tempered glass, laminated glass, thermo-acoustic glass, curved glass, silk-screened glass, and digital print glass
as well as mill finished, anodized, painted aluminum profiles and produces rods, tubes, bars and plates. Window production lines are
defined depending on the different types of windows: normal, impact resistant, hurricane-proof, safety, soundproof and thermal. We produce
fixed body, sliding windows, projecting windows, guillotine windows, sliding doors and swinging doors. ES produces facade products which
include: floating facades, automatic doors, bathroom dividers and commercial display windows.

We
sell to over 1,000 customers using several sales teams based out of Colombia and the United States to specifically target regional markets
in South, Central and North America. The United States accounted for 92%, and 91% of our combined revenues in 2021 and 2020, respectively,
while Colombia accounted for approximately 5% and 6%, and Panama accounted for approximately 1% and less than 1% in those years, respectively.

We
sell our products through our main offices/sales teams based out of Colombia and the United States. The Colombia and Latin America sales
team is our largest sales group, which has deep contacts throughout the construction industry. The Colombia and Latin America sales team
markets both our products as well as our installation services. In the United States, we sell out of subsidiaries established in Florida,
which have an expanding customer base and provide installation service in addition to our products. Sales forces in Panama are not via
subsidiaries but under agreements with sales representatives. We have two types of sales operations: Contract sales, which are the high-dollar,
customer tailored projects, and standard form sales. Standard form sales reflect low-value installations that are of short duration.

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We
expect to benefit from growth in our largest markets in the United States. One indicator of the non-residential construction outlook
in the United States, the Architectural Billing Index, has increased to 52.0 for the month of December 2021 mostly related to a strong
rebound from the 2020 downturn. Despite a variety of concerns in the industry, firm billings increased every month of the year except
for January. Inquiries into new projects and the value of new design contracts both remaining strong, and backlog remaining near the
highest levels ever reported since the AIA started collecting this data. Since 2018 Tecnoglass is actively seeking business in the U.S.
residential market. US housing starts increased 1.4% month-over-month to an adjusted annual rate of 1,702 thousand units in December
of 2021, led by Single-family construction, up 2.3% to 1,172. An estimated 1,595 thousand housing units were started in 2021, 15.6% above
the 2020 figure of 1,380. The current housing boom is directly driven by the intense demand and low mortgage rates.

Liquidity

As
of December 31, 2021, and 2020, we had cash and cash equivalents of approximately $85.0 million and $67.7 million, respectively. During
the year ended December 31, 2021 the main source of cash was operating activities, which generated $117.3 million.

In
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 bore 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. In December 2020, we used $23.1 million proceeds
of the long-term debt facility to repay several credit facilities. Subsequently, in January 2021 we redeemed the Company’s existing
$210 million unsecured senior notes, which had an interest rate of 8.2% and matured in January 2022 using proceeds from this new facility
and incurred in an extinguishment cost of $10.9 million including $8.6 of call premium to exercise the call option.

In
November 2021, the Company amended its Senior Secured Credit Facility to (i) increase the borrowing capacity under its committed Line
of credit from $50 million to $150 million, (ii) reduce its borrowing costs by an approximate 130 basis points, and (iii) extend the
initial maturity date by one year to the end of 2026. The modification also included a re-sizing of the term loan to $200 million for
a total facility size of up to $350 including the revolving credit facility. Borrowings under the credit facility will now bear interest
at a rate of LIBOR with no floor plus a spread of 1.75%, based on the Company’s net leverage ratio, compared to a prior rate of
LIBOR with a floor of 0.75% plus a spread of 2.50%. The facility was led by PNC Bank N.A as Administrative Agent; with Citizens Bank
N.A, BBVA USA, CIT Bank and Wells Fargo Bank N.A serving as Joint Lead Arrangers. The effective interest rate for this credit facility
including deferred issuance costs is 2.81%. We recorded total costs and fees of $1.5 million related to this transaction, of which
$1.4 million of fees paid to banks were capitalized as deferred cost of financing, and $0.2 million paid to third parties
recorded as an operating expense on the consolidated statements of operations for the year 2021. This transaction was accounted for as
a debt modification.

We
anticipate that working capital will continue to be a net benefit to cash flow in the near future, 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 years ended December 31, 2021 and 2020, we made investments primarily in building
and construction, and machinery and equipment in the amounts of $53.3 million, and $20.6 million, respectively. We believe our investments
in technology within recent years have positioned us well for continued growth given the flexibility afforded by our current installed
capacity, improved profitability and enhanced cash generation in the years ahead. Recent examples of our high return investments within
the last two years include:

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 paid through the contribution of land on December 9, 2020. On October 28, 2020 we acquired said land from a related party and
paid for it with the issuance of an aggregate of 1,557,142 ordinary shares of the Company, valued at $7.00 per share, which represented
an approximate 33% premium based on the closing stock price as of 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, 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 if
needed (based on debt availability).

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Results
of Operations (Amounts in thousands)

Comparison
of years ended December 31, 2021 and December 31, 2020

Our
operating revenue increased $120.2 million, or 31.9%, from $376.6 million in the year ended December 31, 2020 to $496.8 million in the
year ended December 31, 2021. 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.

Strong
sales during 2021 were driven by U.S. single family residential and commercial market activity. U.S. sales increased $115.9 million,
or 34.0%, from $340.4 million in 2020 to $456.3 million in 2021. Single family residential market sales increased $106.7 million, or
151.1%, from $70.6 million in 2020 to $177.3 million in 2021, and accounted for 35.7% of total sales in the year ended December 31, 2021.

Sales
to Latin-American markets, including Colombia increased $4.3 million, or 11.9%, as our customers continue to return to activities after
lockdowns in slowly recovering markets.

Gross
profit increased $63.1 million, or 45.3%, to $202.6 million during the year ended December 31, 2021, compared with $139.4 million during
the same period of 2020. This resulted in gross profit margin reaching 40.8% during the year ended December 31, 2021, up from 37.0% during
the year ended December 31, 2020. The 380-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, greater operating efficiencies from prior automation
initiatives and operating leverage on higher revenues.

Operating
expenses increased $11.9 million, or 16.1%, from $73.7 million to $85.6 million for the year ended December 31, 2020 and 2021, respectively.
The increase was driven by $7.0 million, or 43.5% increase in shipping expense resulting from sale increasing 31.9% along with some increases
in shipping rates and more shipping into the US, a $2.6 million, or 31.6% increase in sales commissions, $1.6 million or 9.9% increase
in personnel expense partially offset by a reduction in certain taxes and other expenses. Operating expenses as a percentage of sales
improved from 19.6% in 2020 to 17.2% in 2021, as a result of operating leverage from higher sales and our continued effort to enhance
our lean administrative structure and tight cost controls.

During
the year ended December 31, 2021 and 2020, the Company recorded a net non-operating income of $0.6 million and non-operating income 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.

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Interest
expense and deferred cost of financing decreased $11.8 million, or 54.5%, to $9.9 million during the year ended December 31, 2021 from
$21.7 million during the year ended December 31, 2020 as a result of our new financing arrangement further described above in the liquidity
section. The current period does not fully capture the 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.

During
the year ended December 31, 2021, the Company recorded a non operating loss of $4.3 million associated with a foreign currency transactions,
which excludes a non-cash $8.5 million foreign currency transaction loss from remeasurement of certain intercompany loans reclassified
to other comprehensive income. Comparatively, the Company recorded a net loss of $8.6 million during the year ended December 31, 2020
within the statement of operations as the Colombian peso depreciated 16.0% during the period.

During
the year ended December 31, 2021 and 2020, the Company recorded an income tax provision of $28.5 million and $13.0 million, respectively,
reflecting an effective income tax rate of 29.4% and 35.3%, respectively. The effective income tax rate of 29.4% as of December 31, 2021,
approximates the statutory rate. The effective income tax rate for the year ended December 31, 2020, of 35.3% reflects the impact of
unrealized foreign currency transaction losses related to the remeasurement of long-term liabilities of our Colombian subsidiaries which
were expected to be realized at a later year in which a lower income tax rate was expected to apply per tax regulation at the time.

As
a result of the foregoing, the Company recorded a net income for the year ended December 31, 2021 of $68.4 million compared to $23.8
million in the year ended December 31, 2020.

Cash
Flow From Operations, Investing and Financing Activities

During
the year ended December 31, 2021 and 2020, operating activities generated approximately $117.3 million and $71.7 million, respectively.
The main source of operating cash during the year ended December 31, 2021 was trade accounts payables, which generated $38.0 million
in contrast with a use of $20.8 during the same period of 2020. The increase in trade accounts payables as of December is related to
increasing purchases to support ongoing growth and to obtaining better payable terms as the Company has gained scale and improved terms.
Additionally, contract assets and liabilities which generated $28.6 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 $22.8 million during the year
ended December 31, 2020. The largest use of cash in operating activities was trade accounts receivable, which used $38.5 million as a
result of our record sales during the year 2021 while days sales outstanding decreased to 80 days as December 31, 2021 compared with
85 days as of December 31, 2020 (which include transit times into the US and other places) as a larger portion of our sales now comes
from residential sales which have a shorter collection cycle.

We
used $50.8 million and $18.1 million in investing activities during the year ended December 31, 2021 and 2020, respectively. The main
use of cash in investing activities during the year ended December 31, 2021 was related to the automation of our architectural system
assembly processes and several other growth initiatives to increase the plant´s operational capacity. During the year 2021, we
paid $51.5 million to acquire property plant and equipment, which in combination with $1.8 million acquired under credit, amount to total
capital expenditures of $53.3 million. During 2020, we used $18.3 million for the acquisition or property and equipment. Including assets
acquired with debt or supplier credit, total capital expenditures during the period were $20.6 million. Based on current installed capacity,
it is expected that overall capital expenditures will take a step down in the short term.

Financing
activities used $43.8 million and $33.5 million during the year ended December 31, 2021 and 2020, respectively. Outflows during the year
2021 include the full redemption of the $210 million unsecured senior notes, which bore interest at a rate of 8.2% and were to mature
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 first quarter of 2021. Additionally, we used $30 million of our available cash balance to voluntarily prepay
a portion of the senior secured credit facility during the third quarter of 2021.

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Off-Balance
Sheet Arrangements

We
did not have any material off-balance sheet arrangements as of December 31, 2021 or 2020.

Critical
Accounting Estimates

The
preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that
affect the assets, liabilities, revenues and expenses, and other related amounts during the periods covered by the financial statements.
Management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables
and assumptions affecting the future resolution of the uncertainties increases, these judgments become more subjective and complex. We
have identified the following accounting policies as the most important to the presentation and disclosure of our financial condition
and results of operations.

Revenue
Recognition

For
supply and installation contracts, the performance obligations are satisfied over time and control is deemed to be transferred when the
contract is accepted by our customers. Revenues from supply and installation contracts are recognized using the cost-to-cost method,
measured by the percentage of costs incurred to date to total estimated costs for each contract. Contract modifications routinely occur
to account for changes in contract specifications or requirements. In most cases, contract modifications are for goods or services that
are not distinct and, therefore, are accounted for as part of the existing contract. Transaction price estimates include additional consideration
for submitted contract modifications or claims when the Company believes it has an enforceable right to the modification or claim, the
amount can be reliably estimated and its realization is reasonably assured. Amounts representing modifications accounted for as part
of the existing contract are included in the transaction price and recognized as an adjustment to sales on a cumulative catch-up basis.

Trade
Accounts Receivable

Trade
accounts receivable are recorded net of allowances for cash discounts for prompt payment, doubtful accounts and sales returns. The Company’s
policy is to reserve for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to determine whether an allowance for doubtful accounts is necessary
based on an analysis of past due accounts and other factors that may indicate that the collectability of an account may be in doubt.
Other factors that the Company considers include its existing contractual obligations, historical payment patterns of its customers and
individual customer circumstances, and a review of the local economic environment and its potential impact on the collectability of accounts
receivable. Account balances are deemed to be uncollectible and are charged off within 90 days of having recorded an allowance and all
means of collection have been exhausted and the potential for recovery is considered remote.

Inventories

Inventories
of raw materials, which consist primarily of purchased and processed glass, aluminum, parts and supplies held for use in the ordinary
course of business, are valued at the lower of cost or market. Cost is determined using a weighted-average method. Inventory consisting
of certain job specific materials not yet installed (work in process) are valued using the specific identification method. Cost for finished
product inventory are recorded and maintained at the lower of cost or market. Cost includes raw materials and direct and applicable indirect
manufacturing overheads. Also, inventories related to contracts in progress are included within work in process and finished goods, and
are stated at using the specific identification method and lower of cost or market, respectively, and are expected to turn over in less
than one year.

Reserves
for excess or slow-moving raw materials inventories are updated based on historical experience of a variety of factors including sales
volume and levels of inventories at the end of the period. The Company does not maintain allowances for the lower of cost or market for
inventories of finished products as its products are manufactured based on firm orders rather than built-to-stock.

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Income
taxes

The
Company is subject to income taxes in some jurisdictions. Significant judgment is required when determining the worldwide provision for
income taxes. The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under
this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities
are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in
deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of the Company’s assets
and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. For each tax jurisdiction in which the
Company operates, deferred tax assets and liabilities are offset and are presented as a single noncurrent amount within the consolidated
balance sheets.

There
are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for
anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters
is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and
liabilities in the period in which such determination is made.

The
Company recognizes the financial statement effects of uncertain income tax positions when it is more likely than not, based on the technical
merits, that the position will be sustained upon examination. The Company accrues for other tax contingencies when it is probable that
a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. Interest accrued related
to unrecognized tax and income tax related penalties are included in the provision for income taxes. The uncertain income taxes positions
are recorded in “Taxes payable” in the consolidated balance sheets.

Long
Lived Assets

The
Company periodically reviews the carrying values of its long-lived assets when events or changes in circumstances would indicate that
it is more likely than not that their carrying values may exceed their realizable values, and record impairment charges when considered
necessary.

When
circumstances indicate that an impairment may have occurred, the Company tests such assets for recoverability by comparing the estimated
undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their carrying amounts.
If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured as the excess of the
carrying value of the asset over its estimated fair value, is recognized. Fair value is determined through various valuation techniques,
including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Property,
plant and equipment are recorded at cost. Significant improvements and renewals that extend the useful life of the asset are capitalized.
Interest incurred while acquired property is under construction and installation are capitalized. When property is retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the accounts and any related gains or losses are included
in income as a reduction to or increase in selling, general and administrative expenses. Depreciation is computed on a straight-line
basis, based on the following estimated useful lives:

Based
on our analysis as of December 31, 2021 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 December 31, 2021 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.