Tecnoglass Inc. (TGLS) Q2 2016 Earnings Report, Transcript and Summary

Greetings, and welcome to the Tecnoglass Second Quarter 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, ICR. Thank you. You may begin.

Thank you for joining us for Tecnoglass' Second 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 will be José Manuel Daes, Chief Executive Officer; Christian Daes, Chief Operating Officer; and Santiago Giraldo, Deputy CFO. Moving to Slide 2. Before turning the call over to José 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 differ 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 operations 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 José Manuel.

Thank you, Rodny, and thanks, everyone for participating in today's call. I will begin with a review of our financial highlights; Christian will provide an update on our operations; and then Santiago will discuss in more details our financial results. Beginning with our financial highlights on the Slide #5. We continue to outpace industry growth in our primary U.S. and Colombia markets. We delivered a strong quarter of net sales and adjusted EBITDA. We firmly strengthened our position as the leading producer of architectural glass and windows in the U.S. and Latin America. In the second quarter, we produced total revenue growth of 43% on a constant-currency basis. We experienced a strong progress across our diversified footprint. In the U.S., we gained additional market share with revenues up 36% year-over-year, increasing for the positive straight quarter. In Latin America, we performed well with Colombia revenues up 63% (sic) [ 54.9% ] in local currency. On this positive momentum, we increased our adjusted EBITDA by 25% to $17.1 million the past quarter. This adjusted EBITDA growth was helped by our low-cost, efficient and vertically integrated operations, which continue to provide a substantial platform to drive industry-leading margin. Turning to Slide 6. We were especially pleased to grow our backlog for a seventh quarter, which reinforces the strength of our strategy, product diversity and widening customer relationships, which completed project [indiscernible] profile and our business [indiscernible] as a result, growing the mining [ph] and commercial construction and market [indiscernible]. As a result, our backlog at quarter end grew to a record $398 million, offsetting the [indiscernible] on the second quarter 2015. We also increased backlog from $305 million. At March 31, approximately 30% -- 70%, I'm sorry, 70% of our backlog was in the U.S. market, followed by Colombia at 30%, supporting our expectation for the U.S. to represent an increasing share of our business. We ended the quarter with good visibility on our multiyear project pipeline, and we are actively pursuing new projects to grow our business. The bidding environment was strong throughout the second quarter and remained active in July. Moving to Slide #7. Our improving backlog continued to translate into an upward trend of positive results in net sales and adjusted EBITDA. There has been a lot of noise in the media of a pullback of foreign investment dollars flowing into some of the key markets in which we operate, particularly South Florida. Today, we have not seen a material impact or a slowdown in our business, as the headlines suggest. Nevertheless, we see that there are no -- not a lot of movement in new job for 2019 and 2020. We have almost sold out in 2017 and probably '18 results. We bid in multi-large, multi-dollar projects, which have long lead times, allowing us to prepare for a timeline of low project activity. We sold also our diversified [indiscernible] windows, and now we see a lot of trend movement also in the residential area, which we had almost abandoned for the past 3 years. Even though we are largely commercially focused, we [indiscernible] residential for more than 3 years and provide some visibility of coming growth and contractual in revenue. The [indiscernible] commercial remains at well above 50 for 33 of the past 34 months in China [ph], flat to positive development in U.S. commercial [indiscernible] activity. We operate in several markets in the U.S., which is increasingly balancing our regional exposure. We now have jobs -- new jobs in Texas, New York and in Boston where there's largely 2 very nice-priced jobs. Our focus on new products is [indiscernible] ability to win new customers and increase business with current customers. Finally, our strategy manufactured capacity [indiscernible] access to talent and labor is a very sustainable, competitive cost advantage. While we cannot control the pace of the commercial recovery in the U.S., Colombia and Latin America, the factors I laid out above give us confidence that we can continue to grow in the U.S. and in South America. We are very nicely situated and truly believe we are in a unique position in the area of construction [ph] industry across the U.S. and Latin America. The entire [indiscernible] is pleased with the expectation to deliver value and positive growth in net growth and adjusted EBITDA, which is well ahead of [indiscernible] growth rate. We remain very excited about the opportunity to generate shareholder value in 2016 and beyond. Now I will turn the call to Christian to provide some highlights on our business and operation. Christian?

Good morning, José. Thank you, José, and good morning to all of you on the line. Moving to our operational update on Slide #9. We are actively investing our manufacturing facilities to address continued growth and incremental backlog. We are making enhancements in each of our vertically integrated operations to support growth. In Alution, we transform aluminum for the exterior lining of window system. We have a new aluminum press that became operational during quarter 2, providing increased available materials for our windows assembly. During the second quarter, we also started our new automatic paint line, which is used to finish the profiles of the new extrusion line. In Tecnoglass, we transform a variety of glass and aluminum products. We are installing 1 additional furnace in the second half of the year to process incremental volume. We are also installing a new insulating glass unit, which we expect to be operational during the third quarter. These addition will help us increase output of our glass-tempering facility mainly using our internal supply soft coat glass. Collectively, these investment across our business will help us more efficiently expand production capabilities to serve better our customers. Turning to Slide #10. We have a several production and operational enhancements, which we anticipate will generate attractive returns. First, our new soft coat facility added in 2015 has significantly enhanced our vertically integrated operations and places us among a handful of global manufacturers with this production capability. Internal demand is now consuming approximately 20% of the soft coat system, total 6 million square feet of capacity, which we now expect to generate net annualized savings in the range of $3 million to $5 million. The change in saving is mainly due to incremental cost to support research and development and part-time production crews, coupled with a longer-than-expected learning curve in the process. Beyond the soft coat facility, we also have several exciting energy-saving initiatives and productivity enhancements on their way to improve our processes. On the cost side, we are planning energy saving initiatives to improve efficiencies. This includes solar panels roof to generate low-cost energy. In addition, we are in the earlier stages of building a natural gas plant to generate reduce energy consumption and -- using our own emissions as coal generation. In our production processes, we have been working with Porsche Corporation [ph] in implementing lean manufacturing practices to gain manufacturing and logistical efficiencies across our 2.3 million square foot plant. The transformation process started with the production in Energia Solar in December of 2015. It is success -- its success will be replicated all over the processes with both companies. Employees are already trained to complete implementation route and start measuring its advantages. Turning to Slide #11. Looking at new innovative products, our ProBend product line introduced in November of 2015 continues to experience a strong demand. ProBend allows for the production of high-quality cylindrical safety glass and has the capability to produce large-size, bend temper, heat strengthened and laminated glass. We are now one of the few manufacturers in our industry with the ability to deliver these products. During Q2, we introduced our TecnoAir product line using a new technology to produce the thinnest safety architectural glass in the world. Beyond these products, our research and development pipeline remains healthy and a key part of our strategy, continue growing our business at industry-leading margins. We believe these collective enhancements that I discussed today are adding to our very sustainable, low-cost position in all of the regions that we serve. We expect our growth in the U.S. and Latin America markets to continue as we move forward in 2016 driven by a strong demand, the quality of our products and dedication of our entire team. As a result, we are investing in our new very efficient platform to drive additional margins and cash flow. With that, I will now turn the call to Santiago to provide additional color on all our financial results, balance sheet and outlook.

Thank you, Christian. During the second quarter of 2016, we produced considerable revenue growth to achieve a 25% expansion in adjusted EBITDA. I will provide an overview of our results beginning with Slide #13. Looking at our revenue bridges, increased sales reflect an accelerated pace of activity in the different regions within our footprint, partially offset by unfavorable FX. On a reported basis, total revenues increased 33.5%. For a more balanced comparison, on a constant-currency basis, with FX rates held flat at 2015 levels, revenue increased 43.1% year-over-year, excluding our $5.6 million impact from unfavorable foreign currency to Colombian sales. This was meaningful progress led by considerable strength in our Latin American operations and continued growth in the U.S. In the U.S., revenues improved 36.4% to $45.5 million for the second quarter, reflecting increased project activity in Florida and diversification to a range of projects in other states, including New York, New Jersey, Baltimore-Washington area and Texas. Overall, the U.S. represented over 59% of our second quarter revenues compared to 57% in the prior year quarter. The FX impact I mentioned earlier was primarily felt in our revenues from Colombia, which, in total local currency or on a constant-currency basis, increased 54.9% for the second quarter. Unfavorable foreign currency resulted in reported Colombia revenues up 29.4% compared to prior year quarter. Turning to Slide 14. Adjusted EBITDA grew 25.2% to $17.1 million for the second quarter. As a reminder, adjusted EBITDA excludes the impact of foreign exchange gains and losses related to monetary balance sheet accounts. Adjusted EBITDA in the second quarter excludes an FX loss of $1.3 million compared to an FX loss of $168,000 in the prior year quarter. Looking at the adjusted EBITDA bridge, improvement was mainly related to a $5.6 million increase in gross profit comprised of $7 million related to volume, partly offset by price and product mix. Cost for aluminum are lower year-over-year, benefiting results by remaining stable in recent months. This improvement more than offset $2.4 million of additional SG&A spend to support growth initiatives. Overall, we are very pleased with the core improvement in our adjusted EBITDA. Moving to Slide 15, we provide a more complete picture of our financial results. Q2 gross profit increased 27% to $26.4 million compared to the prior year quarter. Gross margin was 34% compared to 36% in the prior year quarter. The gross margin difference was primarily due to higher incremental electric and gas consumption costs related to unusually warm weather caused by El Niño and the effect on inventories related to the peso revaluation over the second quarter of the year. SG&A as a percent of revenues improved 180 basis points year-over-year to 18.1% with increased revenues more than offsetting higher shipping cost to serve more distant markets and to support lean manufacturing initiatives. Operating income increased to $12.5 million from $9.3 million with operating margin essentially stable at 16%. Reported operating income is impacted by FX exchange, but noncash items such as the gain or loss on earn-out shares and warrant liabilities are reported below the operating line. GAAP net income was $14.3 million or $0.47 per share as compared to a net loss of $21 million or $0.84 loss per share in the previous year quarter. Excluding the changes in noncash warrant and earn-out share liabilities, adjusted net income for the second quarter was $4.3 million or $0.14 per share compared to net income of $5 million or $0.20 per share in the prior year quarter. The difference was mainly due to higher operating income, which was more than offset by higher interest expense and foreign currency losses in the second quarter of 2016 compared to the prior year quarter. The implied tax rate to derive adjusted net income was approximately 46% compared to 42% in the prior year quarter, mainly due to the timing of nondeductible expenses under Colombian tax rules, which can vary from quarter-to-quarter. We continue to expect our long-term normalized tax rate to approximately 40%. Turning to the balance sheet on Slide #16. During the second quarter of 2016, the company ended with a net increase in cash of $11 million and capital expenditures of $16.5 million between the maintenance and growth CapEx, which were related to the new lines and furnaces already discussed and associated with the company's growth. At June 30, 2016, our cash position stood at $56.4 million, which includes a $26.9 million in short-term investments and a long-term debt figure of $140.9 million, which also includes capital leases. Moving to Slide #17. We have made continued strides to grow our business in each region since 2012 and through the first half of 2016. We expect positive momentum to continue into the second half of the year. Based on our improved commercial construction markets, continued market share gains and improving operating efficiencies, we continue to expect total revenues to grow approximately 20% to $288 million. We now expect adjusted EBITDA to increase to a range between $70 million to $75 million, implying roughly a 32% growth at the midpoint compared to $55 million in 2015, excluding FX gains and losses. We believe our revised adjusted EBITDA outlook represents a more prudent outlook based on our current mix of productivity and backlog, additional investments to support growth and better visibility on our margin profile into the back half of 2016 as compared to our initial full year 2016 outlook introduced in mid-2015. In closing, our strategic investments in capacity, products and people, combined with our business development activities and growing project portfolio, provide us with a firm foundation to achieve another year of very good adjusted EBITDA improvement. We thank you for your continued support. We'll be happy to answer any questions. Operator, please open the line for any questions.

[Operator Instructions] Our first question comes from Jeremy Hamblin from Dougherty & Company.

I guess I wanted to start with a high-level question and talk about the change in guidance. You obviously had a very strong Q2 on sales. You're reiterating your full year sales guidance of $288 million. But I want to just get a better understanding of the change in the EBITDA guidance from $85 million down to $70 million to $75 million. What transpired between today and where you were in May, in the middle of May, when the company reported last time? Because it sounds like trends continued to be very strong. Was this just simply a reflection of the changes in accounting policy and the work that's been done with your accountants that is causing this change? Or is there something directionally that's different on the margin profile that's making you lower that number?

Jeremy, this is Santiago. Thanks for your question. I will attempt to give you a bridge over the reconciliation that we went through. We basically kind of reguided on the soft coating savings, and we now assume 3.5 -- a range between $3 million and $5 million, and that's basically due to a longer-than-expected learning curve on the process and to additional expenses related to labor for that plant. So on that, we have revised that and expect that to be a base case going forward. Additionally, if you'll look at what happened with the weather over this year, we had the most severe El Niño phenomenon that has been seen in the last decade, a few decades. And that has caused us to increase in about $3 million or $4 million in additional energy cost, which are already starting to be reflected in the P&L of the company. On top of that, the company invested into consulting expenses for lean manufacturing and to make a more robust financial reporting team as well as hiring Deloitte to accompany us on a full-time basis to basically support all things related to U.S. GAAP reporting and SEC reporting. That was not originally contemplated in the guidance provided in the middle of last year, so that adds another $1 million or so that was not included. And then finally, what we have seen is that we have invested substantial amount in research and development over the year that were -- that was not contemplated either, and that would add another $1 million or so to the difference between the $85 million and the midpoint range of $72.5 million that was reported today. So in essence, what we see is that we're invested in the future as far as the lean manufacturing and the research and development as well as being able to bring additional support to make sure that the company is in a stronger financial position going forward as far as reporting and whatnot. And then on the other remaining costs, there were costs that were especially outside of what was planned. Nobody could have seen that the electric and natural gas costs were going to be higher than expected given the unforeseen weather that we had.

Okay, that's helpful. And I think that's great hiring Deloitte. Is this something that is likely to continue on into 2017 and beyond, the use of Deloitte to kind of ensure that the ship is steady on the accounting front?

Yes, yes. As far as the energy cost, we foresee things to be stable now. We actually are expecting the rainy season coming up, so I think that should be steady going forward for 2017. As far as the soft coating, we are assuming a conservative view, and we will start with -- yes?

He's asking about Deloitte. Deloitte is there for the long run. It's going to be...

Yes, my apologies.

That with the internal audit is going to be -- these people are going to be there for long run. We don't -- we're not going to use them just for 1 quarter or 2.

No, no, no. We actually entered into a 1-year engagement with them starting as of the first of July, and the idea would be to strengthen our finance team. We have already hired 2 or 3 seasoned professionals with U.S. GAAP experience. So the idea would be to have Deloitte with us for at least a year. And then based on the results that we see, we will determine as to whether we extend the contract or not.

That's helpful. And so in terms of on an annual basis, if I were to assume that they were going to be there in 2017 as well, should I be looking at that -- this being like a roughly $2 million cost per year in SG&A?

I would imagine that it's less than that, Jeremy. I can -- if you like, we can follow up offline, and I can provide a more precise number than you can work into your model.

Okay. And then just the other question that I had, obviously, there was a step-down on gross margins in the second quarter. Some of that obviously is related to the $3 million to $4 million in energy costs. Is there also a mix factor in terms of the product mix that you sold in the second quarter versus the fourth -- first quarter of why you saw that step down? How should I be thinking about gross margins in terms of the back half of the year?

Actually, yes, Jeremy, that's a good question. If you were to look at the first quarter over the second quarter, there is a difference. However, if you'll look at the second quarter year-over-year, you will see a stable amount, roughly 36%. And there were primarily 2 reasons for the difference in the first and second quarter of this year. First, there were opportunistic aluminum buys at the end of last year, which we used during the first quarter of the year. So we were able to attain a very good gross profit margin during the first quarter that was not translated to the second one. And second, the dollar -- the FX behavior between the dollar and the peso has an influence on the gross profit margin because basically, when you have revaluation as we did during the second quarter, the inventories that you carry from the first quarter are actually translated into more dollars. So basically, since our functional currency is peso, you bought some inventory in the first quarter that when you actually sold during the second quarter at a revaluated peso rate, when you translate that back into the U.S. GAAP, that accounts for more dollars affecting your gross margin. But if you look at that over a period of time, you will see that, that normalizes as you buy additional inventory over time. That's why I'm saying that if you were to look at the year-over-year comparison for June versus June, you're going to end up with basically the same number. You're going to end up with cost of sales being about the 64% of total revenues. So going forward, you could probably assume a more normalized number around that figure.

Okay, great. That's helpful. Two additional questions. The first is just on SG&A, and it looks like maybe your normalized run rate is closer to $14 million per quarter. It may be even closer to $15 million if you add in the consulting expense for Deloitte. Is that a fair assumption?

Yes. Yes, that is a fair assumption. I think that we had some of -- like one-off expenses this year related to consulting that should no longer be there. So I think the 14 number -- the $14 million number is a fair issue and a fair assumption.

Okay. And then this last question is for you, José and Christian as well. In terms of thinking about sales trends, I think, the most impressive aspect of this report is the size of your sales beat and the impressive acceleration you're seeing in the $398 million in backlog. It looks like your guidance implies about $75 million a quarter on sales for the -- for each of the Q3 and Q4. Should -- so first part of the question is should I be thinking that both of those quarters are going to be somewhat even in terms of sales or would Q3 be higher? And then the second part is you did $77 million plus in the second quarter. Is there anything you're seeing in the business that's making you feel a little more cautious about trends as we look to the second half of the year and into 2017?

No, no, no. We're happy with your question. Honestly, some of the guidance going down has to do also with 2 or 3 jobs that were delayed from beginning in August to January next year. They are firm projects, but they have some problems with the going down and coming up, so -- at the beginning of the job, so they delayed 3 to 4 months. They need for leave [ph] those. And that's why the sales for the second, the third, the fourth quarter are not going to be as high as I expected, but that's why the backlog grew because even though we are selling more -- I mean, we're shipping every day and these jobs were delayed, we keep selling at a strong pace, so that's why the backlog keeps growing. And I believe we’re going to do around $75 million this quarter, maybe the third quarter will do a little bit more than before. But if things are going to play out, if all these jobs are going -- windows in January, we might not be able to close the [indiscernible] because I have [indiscernible] in December and both quarters are going to be even. So we have to play out -- or let's put it better, we have [indiscernible], but we expect to keep growing. And next year, with all this jobs delayed, looks even better.

Okay, great. One last quick one. In terms of interest expense that I should be looking at that notched up to $4.2 million in the second quarter, how should I be thinking about interest expense specifically for Q3 and Q4? Similar levels to Q2?

Yes, these are more normalized number, Jeremy. And this basically includes the additional debt that we incurred to support the growth. As you saw throughout the presentation, we have brought up additional units and additional machinery to support growth. But we feel that with our level that we are where we need to be. So that should translate into a stable amount of debt going forward, and as such, you can model the Q2 amount. The other thing that was factored into this is that Colombian interest rates have increased roughly 300 to 400 basis points over the last 2 months because our inflation. But everybody expects the -- basically the Central Bank to start basically reducing rates going forward as inflation gets controlled and more in their hand. So this could be a lower amount, but to be a conservative, you may want to start with this number for your modeling purposes.

I want to add something else, Jeremy. We are looking to more stabilize all of that monthly dollars because now in Colombia, the rates are going at 13% to 14% instead of in the U.S. or Panama where we had money at 6% to 7%.

Our next question comes from Fang Li from Baleen Capital.

How much of your cost of your goods sold is energy costs?

Our energy costs year-to-date were approximately $13 million versus about $10 million -- $13.5 million this year versus about $10 million for the previous one.

Got it. And then, is that a cost that should stay relatively stable as you produce more? Or should it also continue growing just because you're producing more volume?

There's a variable component to that. So as we produce more, you obviously will see an increase. But there is also a factor that on the cost per kilowatt, as I had mentioned, we had the El Niño factor, which affected how that behaved. So as we grow production, you'll see an increase based on additional output. But also as the weather has normalized, you will see a decrease on prices yourself, so that could end up being a balanced allocation.

Got it. That's helpful. You mentioned that there were some onetime consulting costs so far this year. How much of your expenses in Q2 were related to the onetime consulting costs?

You can assume about $750,000 to $1 million related to lean manufacturing consulting as well as some of the one-off filings that we had to under carry during the second quarter of the year, mainly the S-1, S-4 and the other filings that you guys are all aware of. So going forward, that should not be the case. That's why I was saying that is a one-off expense.

That's helpful. The -- and for the lean manufacturing, is that kind of done? Or are you guys going to be spending more of that in Q3?

This is an ongoing process. The company is currently undergoing that on both companies with Energia Solar and in Tecnoglass, but that will continue. It will go on for the remaining of the year as we continue to ramp up the implementation of the practices.

Got it. And then Christian talked about the new projects you're working on to enhance the company -- the solar panels and the lean manufacturing. I was wondering, how much in CapEx do you have to invest for the solar panels and how much of savings you're expecting from those?

Well, the government came out with a new regulation here in Colombia. They will give us 50% of the cost, which is approximately like $2 million, back for the solar panels in 5 years. Discounting that amount from the net income, so -- and planning that we will have 30 years of free energy from the solar panels is very good business for the company. And on the other side, we're spending little CapEx now because mainly, we are done -- we are bringing the insulating line 1 that is installed now today, and today is the first day producing and the second 1 that will begin in end of October. And with that said, we will have another 20% in capacity to sell together with the new furnace that we're installing in that place.

Got it. So I mean, that's actually not bad if you're spending $2 million in CapEx and saving 7% of your energy cost. That's -- you're almost saving like -- I mean, it's going to be a lot of -- it's a pretty good payback on the panels, the solar panels.

Yes, it's good business. And if it works as good as they say that it will, by December -- we plan to have them installed by December, and if it's true that they -- that everything goes fine, we are planning on getting more panels installed and getting more of our energy from the sun because here in Barranquilla, we have 93% of the time the sun out, so not cloudy day, so that's perfect.

That's very good. On the lean manufacturing you're doing, what kind of margin improvements and inventory improvements do you think you can see if you're successful? Or what impact can it have on your business?

Well, we are going -- what we are seeing is that we are in need of less people, that we can do better processes and that we can reduce our inventories, and that's what we're working on right now. That's why we believe that quarter 3 is going to be -- that we're going to be able to reduce some costs and make more money this quarter because we are seeing the results. The results are clear. People are happy with the work, and that's why we're planning on using them more time down here until we get all 3 plants running with them.

Got it. On the CapEx, so it sounds like you've done a lot of upgrades. In order to support your 2017 growth, do you need to spend -- I guess, how much more CapEx do you need to spend?

We're not going to spend that much more. I mean, the 2017 and '18 are going to be low CapEx years, perhaps, at the most, $10 million each year just to consolidate some lines and -- but they're going to be very low. We have all the CapEx we need to spend in our [indiscernible] land, which is the most expensive, so now we can bring a few more equipment, and that's it.

Got it. That's great. And the -- perhaps a backdrop to that question is that over the last 2 quarters, even though you've been able to generate significant EBITDA and growth, it looks like between the CapEx and working capital, the -- you haven't generated that much cash, and so that's why debt has come up. So it sounds like -- is that -- would it be fair to say that over the rest of the year you should be generating cash to pay down the debt?

[indiscernible]

Yes. What I would say to that, if you were to look at the cash flow statement is that a lot of the cash demands come from working capital needs. And when you are working -- when you are growing 35%, 40% year-over-year and even on a quarterly basis, you are going to have this type of behavior from your cash flow from operations. And as Jose Manuel was saying, the CapEx that we needed to incur, we have incurred already. So going forward, this should be leveling off. And based on the sales guidance of $75 million, you would not expect as much of a demand from working capital sources as you have seen during the first 2 quarters. So we should expect that the cash flow balance should level of during the year -- during the quarters to come.

A few last questions. One is on 2017, given -- in your comments you said that 2017 is sold out. What type of growth -- or can you give any kind of color on '17? And when will you give official guidance for '17?

We will at the end of next quarter, not now.

Okay. And then, is there any difference in gross margins between your sales to U.S. versus sales to Colombia?

No, they basically are the same. We have measured the same margins in all of our sales except of the ECOMAX line windows, which is an economy line, we have a little lower margin. But that line is mainly 4% of our sales, so it's really irrelevant.

Great. That's helpful. My last question is to ask for an update on the dividend.

We're going to file. We believe we're 1 week away from getting the S-1 and S-4 approved. And we're going to do the dividend. We're going to do the warrant exchange. The dividends are sure thing. I mean, we're going to do it. We're going to announce it as soon as we are going to give the [indiscernible] similar to the [indiscernible] convert. And then we hope that by September, we're going to start the second [ph] leg of our dividend.

Yes, just to add up to that, we basically have complied with all the requirements that the SEC had asked for as far as the S-1 and S-4 filings go. So we are hopeful that we are close to launching the exchange offer. Without committing to any date in particular, we feel that we are close as we have advanced quite a bit on the process. And as Jose Manuel was saying, we want to carry out the dividend immediately after the warrant exchange is completed to further incentivate (sic) [ incentivize ] warrant holders to exercise their warrants. So depending on how fast we are able to complete the warrant exchange, we'll proceed with the dividend shortly thereafter.

I'd now like to turn the floor back over to management for any closing comments.

Okay. The quarter was good. The next 2 quarters, we expect them to be better. Next year, we announced next is going to be full of good full year results and better performance. We are -- our backlog is -- keeps growing, and we have a lot of business to close and have been awarded in the next months. Within this month, the current month of August, we plan to sign those contracts, and we're very positive of our outlook. The company looks better than ever and is going to be leaner than ever. So good-bye. Thank you for your support, and we hope to keep getting good news.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.