Greetings, and welcome to the Tecnoglass Inc.'s Fourth Quarter and Full Year 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Rodny Nacier, Investor Relations. Thank you. You may begin.

Thank you for joining us for Tecnoglass' fourth quarter 2016 conference call. A copy of the slide presentation to accompany this call may be obtained on the Investors section of the Tecnoglass website at www.tecnoglass.com. Our speakers for today's call are Jose Manuel Daes, Chief Executive Officer; Chris Daes, Chief Operating Officer; and Santiago Giraldo, Deputy CFO. Moving to Slide #2. Before turning the call over to Jose Manuel, I'd like to remind everyone that matters discussed in this call, except for historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, future growth and future acquisitions. These statements are based on Tecnoglass' current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary in a material nature from those expressed or implied by the statements herein due to changes in economic, business, competitive and/or regulatory factors and other risks and uncertainties affecting the operation of Tecnoglass' business. These risks, uncertainties and contingencies are indicated from time to time in Tecnoglass' filings with the Securities and Exchange Commission. The information discussed during the call is presented in light of such risks. Further, investors should keep in mind that Tecnoglass' financial results in any particular period may not be indicative of future results. Tecnoglass is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. I will now turn the call over to Jose Manuel, beginning on Slide #3.

Thank you, everyone, for participating on today's call. I will begin with a review of our operating highlights. Chris will then discuss our markets, followed by Santiago, who will take us through our financial results and outlook. Beginning with a summary of our 2016 accomplishments on Slide #4. 2016 was a very productive year for Tecnoglass on many different fronts. We have a lot of accomplishments within our core operations, while also taking conservative steps to enhance our alignment with shareholders. On the operational front, during 2016, we further cemented our position as the #1 architectural glass transformation company in Latin America and the second largest glass fabricator serving the United States. We grew our total revenues by 26% to a record $305 million, producing an increase in EBITDA to $72 million. Building on that momentum, we first [indiscernible] business, which allowed us to end the year with a backlog of 6% year-on-year and including GM&P on a pro forma basis up 28%. Since the beginning of 2016, we have continued to diversify our business and strengthened our vertical integration and improved our capital structure. During 2016, our U.S. revenue as percent of total grew 230 basis points to over 62%, helped by winning new customers, entering new markets and introducing new cutting-edge products. Our U.S. market opportunity remains extremely compelling and is further reinforced by our expectation for strong U.S.-Colombia free trade relations to persist, as Chris will discuss further. Since December, we have completed 2 strategic acquisitions in the U.S., which have both allowed us to strengthen our vertical integrated value chain. In December, we acquired our largest importer in the U.S. on very favorable terms to Tecnoglass. Earlier this week, in March, we purchased GM&P, a U.S.-based window and glass designer and installer in the U.S., which…

Turning to our U.S. market update on Slide 11. Thank you, Jose Manuel, and good morning to everyone on the line. During the fourth quarter, we continue to broaden our customer relationships and strengthen our presence in new markets across and increasingly diversified footprint. We are further diversifying our business and asset types from multifamily into office buildings, high rises and hotels. A portion of our expansion is also riding the positive tailwinds of improved demand. The ABI index continues to support our expansionary environment, including a lot of what of that growth in the Southeast, where we enjoy our strongest leadership positions. The ABI readings is further supported by FMI data, which shows U.S. construction activity was up single digits in 2016 and poised for mid-single-digit growth in 2017, including office and retail, which represent 2 of our largest end markets. Turning to Slide 12. We had a lot of success in Colombia during 2016 with our sales up 21% for the year. Overall, consumer sentiment is strong for the construction segment and the Colombian economy is expected to continue expanding, mainly driven by construction and infrastructure spending. Leading investment banks indicate that Colombia is attracting more investors' inflows compared to other emerging markets, especially Mexico. This is consistent with increased spending on infrastructure, construction and industrial activity, which drove local GDP up 2% in 2016, including nonresidential construction up 10%. In 2017, the Colombian GDP is expected to grow another 2.5%. This GDP outlook is consistent with expected construction growth in 2017 based on higher permitting activity, which is anticipated to grow at 4% and ahead of overall GDP. As the #1 glass and windows company in Colombia, we have an advantage position to capitalize on these favorable trends, given our local manufacturing footprint, deep customer relationship and…

Thank you, Christian. Turning to Slide #19. 2016 was up pivotal year for our company. And the activity that Jose Manuel and Chris discussed today represents the combination of the many positive attributes of our business. In September, we completed the warrant exchange offer and subsequently concluded the exchange of other non-tendering holders with the expiration on December 20. Shortly after, we initiated our quarterly dividend program at an annualized rate of $0.50 per share. During 2016, we reduced our CapEx spend by half compared to the prior year, as we completed an intensive multiyear CapEx phase, which has allowed us to stay ahead of sustained growth in customer orders. We accomplished this while improving our working capital metrics and cash flow profile, generating a healthy amount of cash from operations during the last quarter of the year. In addition to our focus on working capital management, we were also able to gain added financial flexibility by reprofiling our debt into a nonamortizing long-term structure, which provides us with an overall lower cost of funding. We ended the year with prudent debt levels, a stronger cash position and conservative leverage metrics with a net debt to adjusted EBITDA of 2.6x as of year-end on a pro forma basis. Looking at drivers of revenue in 2016 on Slide #20. For the full year 2016, we drove revenue expansion of 25.9% to $305 million, reflecting a strong pace of activity in our different regions. The U.S. accounted for 71% of full year growth with Colombia contributing 28%. On a constant currency basis, revenues increased 30.5% for the full year. In the fourth quarter, total revenues increased 21.1% to $80.3 million. On a constant currency basis, revenue increased 20.6% year-over-year with less significant impacts of foreign currency translations to Colombian sales. This sales…

[Operator Instructions] Our first question comes from the line of Jeremy Hamblin with Dougherty & Company.

Congratulations on the strong results in the fourth quarter and a great year and the GM&P deal. I wanted to first ask a question about just kind of the implied organic growth within your guidance range for this year. What is the expected organic growth for the Tecnoglass business to legacy business versus the GM&P business?

Jeremy, what we're assuming an organic growth is at least 10% at the midpoint of the range. Basically, when the guidance that we gave and on the range that is upside, but on the midpoint of that, we are implying a 10% growth year-over-year.

And Jeremy, is that we prefer? This is Christian Daes. We prefer to under promise and over deliver that toward the other way around. And we don't want everyone [ph] to adjust our EBITDA, our sales volumes in our projected forecast.

Understood. So in terms of the organic growth, you are expecting about 10% both on the Tecnoglass side of the business as well as GM&P?

No, on the GM&P, we are assuming a flat revenue year and that is again being conservative. So on the consolidated results and guidance that you see in there, you have a flat GM&P for 10 months, as we acquired this company starting March, and then 10% growth on the legacy business.

Okay. Great. That's helpful. And then in terms of thinking about the gross margin outlook for this year, I noticed that in the fourth quarter, you saw raw material costs were up fairly significantly year-over-year, about 180 basis points. Was that primarily due to aluminum scrap or that increase in raw material cost, it was 38% of sales in Q4 this year -- in Q4 '16 versus 36.2% in Q4 '15? Can you just speak to what caused that difference? Was it more breakage within the production facility? Or was it input costs that were higher?

No. Actually, Jeremy, this is Jose Daes. We -- at the end of the year, we took a lot of material that was either defective or out of use, and we took it out because of a consideration from the auditors. So that's why it went a little up. But is now -- that we don't foresee that happening anymore.

Okay. And then so just thinking about 2017, I know aluminum costs have moved higher on a year-over-year basis, and I would expect that could be couple of million dollars of drag on EBITDA year-over-year. Wondering if you could provide a little bit more clarity on whether you expect gross margins overall up or down on a year-over-year basis, given your implied EBITDA margin range of about 23% for the year?

No. On that, Jeremy, we actually have passthrough on to clients. So increased aluminum prices will not affect us. What we're expecting for gross margin is roughly to be at 35% this year and that is basically wading out the GM&P acquisition, which is a business in which we expect EBITDA margins of about 20%. That counter effects with the E.S. Windows acquisition, which has an EBITDA margin closer to 40%. So all in all, we expect margins to be about the same. But from a gross margin perspective, we're expecting this to be 35%, 36%. But we're certainly going to look to implement -- identify synergies from the GM&P acquisition going forward. So this could be conservative. But again, we want to be prudent as we report results. So to answer your question, 35% would be a fair number to model.

Okay. And actually just on the -- a follow-up on that last point. In terms of the acquisitions themselves, are there any synergies that are actually built into your guidance at this point in time?

Not as of now, not as of now. Just like I said, we want to be able to be conservative on this. We have identified the synergies that will result from the acquisition. So there is upside there.

Understood. One other question, and then I'll hop out of the queue. You mentioned the introduction of some new residential window products. It sounds like fairly positive initial reception. In terms of contribution for 2017 and 2018, what kind of incremental sales growth can come from those new residential window products?

We do not...

Excuse me, go ahead, Jose.

No. We expect around $10 million from the residential lines for this year. We are very positive for around $20 million to $25 million for next year because everybody is so happy with the new line. We're getting great results from the clients. And the orders -- the problem is that the orders will start coming perhaps in April, May, and they will go on into next year. So around probably $10 million this year, which is optimistic and then $25 million for next year, which is conservative.

Our next question comes from the line of Michael Morosi with Avondale Partners.

I guess, yes, first off, the continued diversification within the United States is a key factor here. So I wonder if you could just talk a little bit more about some of the go-to-market changes you're making both in the Northeast, but also in California and how those business development, market development activities have progressed?

Well, we have introduced our products in Washington, Philadelphia, New York, Boston, Texas. And now, we're doing some small things in California with great reception. And we are getting a lot of forward calls. We have a lot of backlog now for next year of around $50 million for the Northeast. We plan to double that for 2018.

That's great. So when we look at your usage of cash going forward, obviously, CapEx as a percentage of sales has declined significantly. Is this a new sustainable level? Or how should we think about either maintenance CapEx or future growth CapEx?

Let me -- this is Christian. Let me answer that. We have built enough capacity to roll up 25% this year or 30% this year and 30% next year without having to do too much CapEx. And when I mean too much CapEx is less than $2 million, probably $2 million or $3 million for this year. We have a good capacity and a good setup ready for all the orders that we have in our backlog.

That's great. And then as we look at the write-off for the change in scope, yes, it's my understanding that, that was a Colombian project. Do you feel that, that was just kind of a one-off scenario? Or are there any kind of other read-throughs that we should make?

The next phase of this Colombian project will come up in April or May. But since it's delayed and it's been delayed 8 or 9 months, it's a must do, because it's a very important project in Colombia and it's going. And we have the money and everything underneath. But we have to take it now from our accounting so the auditors will feel comfortable. And when they come back, we'll use everything that we have for that job.

All right. And then, yes, just one last one from me on the refinancing and maybe this one is for Santiago. But you obviously -- the paper has performed well in the aftermarket. And, I guess, so I was just wondering if you could give us, yes, just a little more color on how that transaction came together, how that process went, kind of the types of and nature of demand and anything you can add there, understanding there?

Sure. So basically this was a 2-phase approach. We went out to the market in November, right before the elections. And unfortunately, due to all the volatility that came about at that point in time, we went back to the market in January and were available to execute the deal. But it was a very well-executed transaction. It was oversubscribed. The accounts that participated in there are some of the largest funds out there that participate in emerging markets. So all in all, it was a great result. We were basically able to refinance virtually all of our debt into, obviously, a longer tenure with no amortizing structure. So it gives us a lot of financial flexibility. I think at that time, we were charged a premium basically on the volatility that the markets were having in regards mainly to the Trump effect. But all in all, a very successful result, and we're certainly very happy with the outcome.

Our next question comes from the line of Alex Rygiel with FBR Capital Markets.

Jose Manuel and Christian, could you talk a little bit about your expectation for price in 2017 versus 2016? And also talk a little bit about sort of product mix and how you expect that to impact your results?

Well, price, we expect to be around the same as 2016. But we are in a cost-cutting venture. We are cutting every extra spend that we can cut. So we can have even better numbers with good results. And we do expect the -- our backlog to continue to increase for the next 2 years, because we have our hands full quoting everything that they are sending to us. And we have a very good chance of growing our backlog through the future.

And with your move into the residential market, have you seen any reactions by competitors? And even not just residential, but moving your nonresidential product into new markets like California, have you seen any abnormal reaction by your competitors?

Well, you have to remember that we have -- margins in the industry. So we can always go down. We are affecting too much our profit. And we have -- we do -- we have seen a reaction. We have heard that competition are saying that we will match any price. But this is not only our price. We don't want to be a cheap competitor. We want to be a good-quality competitor that we can deliver on time, be responsible and at the same time, give a good price to our customers.

Not only that, but we have the best product in the market. Our product is outperforming every other product. So we are very happy with what we have. We developed a product watching every other competitor, and we reached a better window for lower residential, mid-residential and high-end residential.

Our next question comes from the line of Tony Snow with Red Oak Partners.

Just want to drill a little deeper on your guidance, which sounds from you guys is a bit conservative and on the face of it, to me, seems very conservative. Santiago, just wanted to walk through kind of the following math and make sure I'm thinking about this the right way. The company reported $72 million of EBITDA for '16. After the third quarter -- on the third quarter call, you guys called out that '16 would have $5 million of onetime charges from energy, consulting, auditing and the lean manufacturing initiatives. I think you also said after the third quarter that the soft coat line savings of $6 million to $8 million would be pushed out as well into '17. So let's say that adds $3 million to savings, you get half that, half the $6 million to $8 million. And then on the acquisitions, if I layer that on top of the $72 million, for E.S. Windows and GM&P paid $48 million, and I'm going to assume that you guys pay, let's call it, a 6x multiple. You probably did better than that, knowing how you guys think and that you buy things cheap. So layer that on and up another $8 million. So kind of before I even get to 2017 base business organic growth, I'm at kind of $88 million of adjusted EBITDA. If I take kind of the midpoint of your organic growth rate, which is at 10%, that's going to add $30 million of revenue and using kind of the incremental margins you guys have been getting, which is kind of mid-$30 million that should drop about $10 million to the EBITDA line. So if you take kind of the $88 million from the onetime adjustments and the additions of the acquisitions plus another $10 million from organic, I get to kind of $98 million to $100 million of kind of adjusted EBITDA for '17. And that's again, I think, what I think is conservative assumption. Is that the right math, Santiago?

I think, Tony, on your calculation from the organic business, our EBITDA margin is not on the $30 million like you just mentioned. If you look at the year-end, we're going to end up with 23.5% EBITDA margin. So if you do that math, on $30 million of added sales, you basically get to $7 million. So that takes you from $72 million to about $79 million. And then what we're assuming is that we are going to derive about $7 million or $8 million additional million dollars from both acquisitions given the fact that GM&P will only get to consolidate for 10 years -- for 10 months, I'm sorry. So that gets you to $86 million or so and that's our midpoint, that's our base case.

Tony, on the market for us last year -- last year, the market for us to be conservative and not to expect too much, and we don't want to overpromise and only deliver [indiscernible] to be cautious to go slowly. Like we said, the first quarter is going to be a flat quarter, because all the work is pushed back to second quarter, third quarter, fourth quarter. So we prefer not to overpromise and under deliver because then we're going to get punished for that.

Christian, I understand that. But Santiago, if I could, the 23% incremental margin that you called out for full year '16. Doesn't that include kind of the $5 million of onetime that you called out after the third quarter? So if you add that back, you're really at kind of 32% to 33%? Or were those -- do you expect some of that $5 million or all of that $5 million to kind of reoccur this year?

No, we're not modeling that the add back of that 5-year, Tony. So that could be certainly an upside on energy cost, which was one of the drivers that we stated in Q3. We're actually seeing sustained higher energy cost. So for once, we're not modeling lower energy costs for next year. And for 2, we are not modeling significantly efficiencies from the soft coating facility. Like Chris said, there is definitely upside in there, but we'll be in conservative and prudent on that front. So you're right. I mean, it could be higher. We are being prudent and kind of modeling a double-digit EBITDA growth on the organic business and about $7 million to $8 million derived from the acquisitions that we made in the last couple of months.

Not only that, Tony, but you can be sure that we go out there and try to make it what you think it should be. So that's what we are working on. Believe me, we don't sleep. We work 24 hours. We work Saturdays and Sundays, because we want to make the -- best company in the industry, and we are working on it. If you see 2016 compared to 2015, we are a much better company. Now, our 10-K is ready. The accounting is ready. We have the material weaknesses already out. We don't have related companies. So we are completing the work that we have to do to make sure that it is a best company in the industry, because remember, we have our money at stake in this company.

Our next question is from the line of Josh Goldberg with G2 Investment Partners.

I just want to better understand the acquisition and the possible benefits on your cost side. I mean, I would assume that, as you've worked with this company in a pretty big way, you would probably kind of removing them as they probably bought your product and then added on additional amount for their own profits. You don't pay that additional amount anymore and that would probably help you both on the, I guess, on the gross margin side. So I just wanted to hear from you about what opportunities there are to improve your gross margin because of the vertical integration that you're doing? And then I have a follow-up.

Well, here, what you have is some part of the revenues are inter-company revenues. So in other words, Tecnoglass sells into GM&P and that GM&P sells into the end customers. So you have to eliminate those sales when you consolidate. On the remaining sales that they have, their business basically, the incremental revenue that we get, like I say, is going to have a lower margin. This business is typically closer to 18% to 20% EBITDA margin. And that's why I was stating that on a consolidated basis, we expect EBITDA margin to be around 24%-or-so and that is netted against the E.S. Windows' revenues. So that's basically already baked in into the projection that we made for 2017, having this business incorporated for 10 months out of the year.

Right. Okay. And when you look at their backlog, which increases your backlog by about $85 million. How much of their backlog is, let's say, the next 12 months? And how much is further out? And based on what you are seeing on their backlog of orders, is it fair to say that those are all similar margin to what you are expecting on the revenue side? I mean, there is no low-margin business that they took.

Jose Manuel, would you like to take that?

Yes. Well, out of the around $1,200 million, we have around $260 million for this year plus the day-to-day business, which we cannot include in our backlog, which will be the balance. And I'm talking only about Tecnoglass without GM&P included. For the year after, we have the balance, which would be $140 million, and we see that trend growing up again because we're getting lot of jobs and the margin [indiscernible] if we don't see the margin going down, as a matter of fact, we're getting better jobs with better margins [indiscernible] more difficult, so less people can get into those jobs. And we want them to stay flat.

Okay. And in terms of your level of confidence, you said that the first quarter is going to be flat. Did you mean that was going to be flat year-over-year or just versus the fourth quarter?

Flat versus the fourth quarter last year.

No, year-over-over.

Yes. This is always the lowest revenue quarter of the year for us.

Well, we have -- let me explain. We only work 15 days in January and we work only around 20 days in February because of local festivities, which are called carnivals. And in carnivals, [indiscernible] people won't work, they want to dance and they want to drink.

I'm saying with the acquisition, you're going to be flat in March versus March? Or is it going to be higher?

No, no.

No, no. [indiscernible] no, no. We're talking about business-to-business, Tecnoglass-to-Tecnoglass.

Yes, on the comparative business...

I'm hearing a couple of things. Just help me understand. You're saying it's going to be flat on the March '17 versus '16 number, then you add the acquisitions?

Yes. You will...

No, no.

Retroactively you add the acquisition as if it will have taken place in 2016, so you compare apples-to-apples. So we're expecting a flat year-over-year, quarter-over-quarter, including both acquisitions already incorporated into it.

Okay. And what was that number in March of '16, incorporating those acquisitions?

What was -- what number? The sales?

Yes.

It was closer to $67 million, I believe. So we ended up with $80 million in fourth quarter of the year and the second and third were closer to $75 million, $77 million apiece.

Right. So what you're saying is, if you do, call it, $68 million to $70 million in the first quarter, you are expecting very strong ramp into second half of the year. It's going to be north of $100 million to get to your numbers for '17.

I'm giving you the number on the legacy business. I'm not giving you the number with GM&P. So the $67 million was a legacy number for this year. But once you include GM&P on top of that, to answer your question, yes, the second, third and fourth quarter will be substantially stronger than the first.

Our last question is a follow-up question from Jeremy Hamblin.

I want to just make sure to clarify on the taxes. What is the effective tax rate that you're expecting for 2017? And then, Santiago, you mentioned the change in tax relief for corporate taxes moving forward. How should we be thinking about those in 2018?

Sure. It goes down to 38% this year, Jeremy. Falls down to 37% next year and then every year thereafter, it goes down to 33%.

Okay. Great. And then one last on the pro forma. If you're looking at where balance sheet stands post the deal, how -- where is your pro forma debt? Where is your cash balance? And then what is your approximate diluted share count post-GM&P deal?

So on the debt, we don't expect to be anywhere -- on neither acquisition, we acquired any debt. So basically the consolidated debt that we have in hand right now is just related to the bonds for $210 million and a small ECA facility that we have for $18 million. So that's all the debt that we have right now and what we expect to have for the remaining of the year. On the cash, we are currently running at about $45 million. So you can model your leverage that way and expect to be free cash flow positive during the year. And then thirdly, I'm sorry, Jeremy, what's your third question?

Diluted share count post-GM&P deal.

Okay. So right now you're running at 33.1 million. On the acquisition like we released this morning, we are still determining the most appropriate structure to do this. We already paid roughly 20% of the acquisition with cash upfront. So on the earnings structure, this is going to be accretive to shareholders. On the remaining payment, we are basically analyzing the best way of handling. It could be partially through cash. All of our credit line facilities are open since we repaid all of our banks. So we have financial flexibility in there. But if it make sense, we could also consider doing some part of share. So to answer your question, I couldn't give you a precise fully diluted amount right now. We'll certainly be sure to kind of tell you guys once a final decision has been made as to how the remaining of the acquisition is going to be funded.

But maximum diluted share count would be in the kind of 35.5 million range, something like that?

Yes, that's right depending on share prices. Yes.

Ladies and gentlemen, that does conclude our question-and-answer session. With that, this also concludes today's conference. We thank you for your participation. You may disconnect your lines at this time.