Tecnoglass Inc. (TGLS) Q1 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the Tecnoglass' first quarter 2017 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure 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' first quarter 2017 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 José Manuel Daes, Chief Executive Officer, Chris Daes, Chief Operating Officer and Santiago Giraldo, Deputy CFO. Moving to slide two. Before turning the call over to José, I would 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 our 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 operations of Tecnoglass' business. These risks, uncertainties and contingencies are indicated from time-to-time in Tecnoglass' filing 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. Now, I will turn the call over to José Manuel, beginning on slide number four. José Manuel Daes: Thank you Rodny and thanks everyone for participating on today's call. I will begin with a review of our first quarter highlights, Chris will then discuss our operating highlights in greater detail, followed by Santiago who take us through our market update, financial results and outlook. We have had a lot of exciting developments in our business since the beginning of 2017, including an expanded backlog, a very complementary acquisition, entry into several new markets and a strengthened capital position amongst other notable accomplishments. Collectively, our actions demonstrate our ability to further enhance our leadership positions in new and existing markets. As a result, we ended the quarter more situated to produce another year of outpaced growth on our highly efficient, low-cost operations. Our growth potential is reinforced by our quarter end backlog up 23% year-over-year to a record $474 million. The GM&P acquisition contributed $50 million to the quarter one backlog. The project pipeline in our legacy business expanded by $28 million to $424 million representing a 7% increase versus quarter four and 10% above the prior year quarter, mainly as a result of a strong activity in our key markets. We continue to feel good about our markets based on a stable volume and bidding activity. We have ample financial capacity to capitalize on our project pipeline following another quarter of positive free cash flow generation. This is made possible by our lean manufacturing initiatives and improving working capital metrics on our largely built out plant network. We are generating cash while investing in highly selective capacity enhancements for efficiency in business such as our recently installed solar panels on our soft coat facility. This represent the first phase of our multiyear investment to reduce energy consumption and lower our tax cost. Our GM&P acquisition is off to a great start with first quarter 2017 sales improvement reflecting our significantly strengthened and vertically integrated U.S. presence. The integration of these assets is progressing according to plan and we took an immediate step forward by establishing a GM&P west branch. We now have access to new opportunities in California and Washington state and we expect to start growing backlog in coming quarter. During the quarter, we also made progress on our global growth objectives by opening a sales office in Pordenone, Italy. From there, we can serve and new markets, mainly Europe and the Middle East. We have hit the floor running in the Europe and Middle East region with a contract already signed in Lusail, Qatar for a significant development work approximately $30 million, which gives us a foothold in a rapidly growing city that is preparing to host the 2022 World Cup. In regards to returns, yesterday we were very pleased to announce our plan to increase our dividend by 12% to an annualized rate of $0.56 per share beginning with our third quarter of 2017 distribution. We believe this augmented payout reinforces our commitment to our dividend policy which we continue to view as an effective means to return a portion of excess capital to shareholders. The refinancing of our debt during quarter one lowered our borrowing costs and improved our capital structure. We ended the quarter with a very flexible balance sheet to continue to a have value as we attribute on our growth objectives of maintaining a very attractive dividend policy. Overall, we are encouraged by the very sturdy foundation we continue to build for Tecnoglass, which supports our unchanged outlook for 2017. I will now turn the call over to Chris to provide additional details on our operating highlights.

Thank you, José Manuel and good morning to everyone on the line. Moving to our first quarter 2017 result summary on slide number five. We have grown our business significantly since 2014 with majority of that growth coming from the U.S. During the first quarter, we grew topline revenue by 3.1% compared to the prior year period. This growth was mainly attributable to the addition of one month of GM&P revenues in the U.S., which more than offset a shift in the timing of three large commercial U.S. projects in our backlog to subsequent quarters during the year and the late construction activity in Colombia. U.S. based revenues were 70% of total sales, compared to 63% in first quarter 2016. Adjusted EBITDA of $13.7 million continue to represent a strong margin at 20.9% of sales driven by our low cost vertically integrated operations. That being said, compared to the prior year quarter, EBITDA and the associated margins were adversely impacted by higher fixed cost to support our unchanged 2017 growth expectations, which should drive margin expansions as we progress through the year. Moving to our backlog on slide number six. Demand for our products was strong throughout the quarter resulting in a healthy backlog at quarter end up 23.1% to a record $474 million compared to $385 million at the end of the prior year quarter. These backlog growth includes a $50 million contribution from the GM&P acquisition and an expansion of legacy backlog by $39 million year-over-year. For a more balanced comparison, we also show fourth quarter backlog on a pro forma basis to demonstrate the significant traction for our products and services during first quarter. It is important to note that we have revised our first quarter 2016 pro forma backlog to $444 million versus the prior stated figure of $479 million, which we discussed last quarter. The revised figure of $444 million correctly excludes intercompany sales, which were inadvertently included in the $479 million figure on our prior call. With that said, on a pro forma basis backlog increased by an impressive $30 million compared to fourth quarter 2016, partly reflecting pent-up demand in addition to our ongoing efforts to expand our geographic footprint, enter the new niche markets and introduce new products. We ended the quarter with good visibility on a multiyear project pipeline and are already taking steps to further diversify our geographic and end market exposure in a disciplined manner. Looking to our end market mix in backlog on the slide number seven. Our end markets are more than 90% commercial, which include multifamily projects. We continue to experience a stable phase of quoting activity. Single-family residential represent about 4% of backlog and represents largely untapped markets for us. We are seeing good traction with our Prestige and Elite product lines, recently introduced in the first quarter of 2016. Year-to-date, we are trying to surpass our target of roughly $10 million of residential sales for the year. We expect to ramp up this quarter to a range of $20 million to $25 million of sales in 2018, given the strong interest in these new products. As we make larger inroads into the residential market, we expect this market to become a larger and more significant portion of our project backlog. Historically, our commercial focus has allowed us to maintain relatively long lead times in backlogs with higher visibility on coming growth or contraction in outer years. Along these lines, our bidding efforts on the residential side are mainly focused on larger regional and national builders where we get meaningful scale on order. Looking at our geographic breakdown on the slide number eight. As represented by first quarter 2017 backlog composition, the recent addition of GM&P reinforced our commitment to the Florida market while significantly enhancing our vertical integrated operations and providing a future opportunity to reach new markets in the U.S. To that point, we have already begun diversifying our bidding efforts in the West Coast and we expect to populate our backlog in time with a range of attractive projects. Additionally, the Europe and the Middle East feature significant upside to our business, which we will discuss shortly. In Colombia, during the coming quarters, we expect activity to ramp up over the year as we catch up on delayed construction activity. Turning to slide nine. I would like to share with you more details about recent energy and tax saving initiatives currently underway. In the first quarter 2017, we began a significant green initiative to reduce our external energy consumption. We completed the first stage of a multiphase project that will generate approximately 12 megawatts of solar panel power from over 30,000 solar panels on our flagship manufacturing facility in Barranquilla, Colombia. During the first phase, which is now fully operational, we installed nearly 8,000 panels or 2.5 megawatts of power on the soft coat facility. We expect each phase of the multiyear investment totaling $50 million to generate payback period of less than three years as we reduce energy consumption needs by over 20% and reap significant tax savings provided by the Colombian government's efforts to go green. A key element for our successful track record of producing industry leading margin has been our ability to source and execute high return projects focused on innovation, productivity and capacity expansion. This solar initiative is directly aligned with that aim and we look forward to exploring additional opportunities to improve our business. Moving to our market update on slide number 11. Before turning the call over to Santiago, I will provide a bit more color on some exciting new market expansions which we touched on earlier. With the addition of GM&P, we accelerated our path to entering a target list of new markets through GM&P's deep and expansive customer relationship. The West Coast represents a very attractive opportunity with a number of metro areas that we have studied for a very long time and that are experiencing strong commercial demand. With the immediate startup of GM&P West operation, we have already identified a number of projects that fit with our product offering. We are very encouraged by the bidding environment so far, particularly in San Francisco and Seattle where we now have projects in our backlog. These two cities are sound and the logistics make sense with the Panama Canal providing very efficient access to most West Coast markets. In the Europe and Middle East regions, we have an immense opportunity ahead of us. In March, we opened a sales branch in Pordenone, Italy, which marked our debut into European and the Middle East regions. This was made possible after years of cultivating a relationship with local partners with extensive market knowledge. The European community is showing signs of recovery with rising consumer confidence and a strong pent-up demand. In the Middle East, the growth opportunity lie in the ongoing cultural shift to higher end architectural glass which feature superior and customizable performance versus locally sourced commodity products traditionally used. We are very excited to sign a contract for a project in Lusail, Qatar for $30 million, which give us unique foothold a city being built from scratch at a total investment of $45 billion until 2020. Our measured approach to global expansion has worked very well for Tecnoglass. These new market entries are consistent with a successful track record and we look forward to scaling our [indiscernible] overtime. I would now turn the call to Santiago to give you an update on our core markets, financial results and outlook

Thank you Christian and good morning to everyone on the line. Turning to our U.S. market update on slide number 12. During the first quarter, we continued to broaden our customer relationships and strengthened our presence in new markets across an increasingly diversified footprint. Our backlog is benefiting from our expanding reach to new markets and project types including multifamily, office buildings, high-rises and hotels. Underlying U.S. demand is strong and reinforced by a positive outlook suggested by the ABI index for the sixth consecutive year, especially in our key regions. Additionally, SMI data continues to suggest a mid single digit growth environment for 2017 nonresidential spending. Turning to a Colombian market update on slide number 13. Underlying market dynamics are consistent with expectations at the beginning of the year with GDP growth outlook at about 2.3% for the year. In Colombia, sales were down during the first quarter of 2017, mainly due to delays in construction activity which we expect to create pent-up activity ramping up revenues over the rest of the year. Overall, builder sentiment remains strong and we expect economic activity in the future to rebound nicely as we move through the balance of the year. However, due to the first quarter impact, we believe a flattish market is a fair assumption in Colombia for 2017, which implies some acceleration of activity for the remaining of the year. Moving to our financial highlights on slide number 15. During the first quarter 2017, we operated on our cost structure built out to support our 2017 growth objectives with revenues expected to ramp up as we move through the year. Gross margin was primarily impacted by a higher mix of engineering and installation revenue from GM&P along with a $1.6 million in higher D&A expense resulting from the robust growth CapEx program finalized in 2016, as well as by higher direct labor costs. SG&A as a percentage of total revenue was 23.4% compared to 20.3% in the prior year quarter, mainly attributable to higher personnel cost as well as $1 million associated with nonrecurring cost related to the bond issuance and bad debt write-off. We consider this cost base to be adequate to address our expected growth and expect to gain operating leverage as we advance through the year. During the quarter, we continued to focus on improving working capital metrics, which resulted in improved cash generation from operations. Excluding GM&P, in order to normalize the effect of having one month of sales over a full receivable base, we saw meaningful improvement in days sales outstanding and inventory days year-over-year. In addition to our focus on working capital management through lean initiatives, our CapEx was significantly reduced with our capacity expansion phase virtually completed in 2016. As a result, we ended the quarter with a record cash balance along with ample liquidity and a conservative leverage profile o f2.5 times net debt to EBITDA on an LTM adjusted EBIT basis. Looking at the drivers of Q1 revenue and adjusted EBITDA on slide number 16. For the first quarter 2017, total revenue increased 3.1% to $65.8 million. As we discussed today, our U.S. revenues showed positive growth attributable to GM&P whereas Columbia revenues was pressured by temporary market factors were partially offset from favorable foreign currency benefit. The U.S. accounted for 70% of quarterly sales with Colombia contributing 25%. Adjusted EBITDA in the first quarter 2017 decreased by 14.7% to $13.7 million. The main catalyst for the decrease was a higher cost structure put in place during our seasonally lowest revenue quarter and a partial quarter impact from a higher mix of revenue from engineering, design and installation services, which adds greater stability and enhanced control of our manufactured product through the value chain, albeit at a relatively lower margin versus products shipped to the external customers. Our price was essentially flat year-over-year. SG&A, as discussed, was higher to support an expected ramp in project activity later in the year. Interest expense during the quarter was skewed by the fact that after the bond issuance at the end of February was completed, we took approximately a month to fully repay the peso denominated debt as foreign exchange rates were not favorable for monetizing the funds. Going forward, we expect to see normalized fixed interest expenses based on current debt levels. Turning toward cash flow metrics on slide number 17. I like to highlight a few items, which properly reflect our tighter management of capital. In the top two charts, you can see our LTM inventory days and LTM days sales outstanding are up compared to the fourth quarter of 2016 and prior year first quarter, on a reported basis, but this is mainly due to the addition of GM&P's working capital in March with only one corresponding month of revenues on reported figures. On the dash lines, we present this respective working capital metrics on a pro forma basis assuming a full year of GM&P revenue and separately on a legacy basis excluding GM&P altogether. The key take away is that our working capital metrics improved when adjusting for GM&P. LTM days sales outstanding on our legacy business improved by 22 days to 87 versus the fourth quarter 2016. On a pro forma basis, days sales outstanding improved on a sequential basis to 102 days. CapEx is down significantly versus prior year's given relatively low maintenance CapEx requirements on our modern state-of-the-art facility and the conclusion of our growth CapEx base in 2016. Moving to our 2017 outlook on slide number 18. For the full year 2017, we continue to expect to produce double-digit revenue growth based on improving commercial construction markets and market share gains. This expectation is supported by our higher backlog year-over-year. In 2017, we anticipate revenues to grow to a range of $362 million to $390 million, which will be largely weighted towards the back half of the year. As in prior years, we continue to expect our first quarter to be the seasonally lowest revenue quarter and then to build up in each successive quarter. On this revenue growth, we expect adjusted EBITDA to increase to a range of $82 million to $90 million. Based on these outlook, we expect to generate positive cash flow from operations for the full year. We thank you for your continued support. We will be happy to answer your questions. Operator, please open the line to questions.

[Operator Instructions]. Our first question comes from Jeremy Hamblin with Dougherty & Company. Please proceed with your question.

Good morning guys. Thanks for taking the questions. I wanted to first explore some of the revenue trends and you saw a pretty massive acceleration, 25% growth in the United States. In terms of thinking about that and looking at your backlog moving forward, is that is probably a good benchmark to use for what you are thinking on U.S. growth for most of this year? We looking at 25% just in your U.S. business? And in conjunction with that, should we be thinking that going forward, roughly two-thirds or more of your business is going to happen in the U.S.?

Jeremy?

Yes.

Can you hear José?

I cannot.

Give me just one second. José Manuel Daes: It seems like we have a telephone problem, sorry. Jeremy, how are you? Good to hear from you.

I am well. Thank you José Manuel. José Manuel Daes: Listen, Jeremy. We expect the business in the U.S. to keep growing as we are proliferating new markets, as I have been telling you. Now we have work in New York and Boston. We have work in the West Coast in California and also in Washington state. So we expect business in the U.S. to keep growing and that's a fair assumption.

So in terms of the total portion of business though, are we looking at, maybe 65% to 70% going forward? José Manuel Daes: Yes. 65%, yes.

Okay. José Manuel Daes: 65% to 70% on every quarter. And even though we are closing a lot of businesses also in Colombia, but when you take the whole picture, it will keep the same proportion.

Okay. And then in terms of thinking about just the next quarter, obviously, your guidance implies some pretty significant revenue acceleration. How does the flow of revenues, Santiago, look for the year? I mean, are we looking at $95 million to $100 million in Q2 and then accelerating further from there? Or can you give me anymore color on how Q2 trends are tracking?

Yes. Actually, Jeremy, it's going to be back-loaded into the second half. So we are expecting for the second quarter is closer to the $85 million figure and then ramping up over the last two quarters. And that's partially related to the backlog shift that we discussed earlier. So we think that sequentially, Q2 is going to be stronger and then Q3 and Q4 are going to be the strongest to get to the guidance that we provided.

Okay. So we are looking at -- is the breakdown for Q3 and Q4 relatively equal?

Yes.

Or is it slanted a little more towards -- okay. José Manuel Daes: So it is going to be Q3 and Q4 are going to very strong, because as I have been telling you, three to five large jobs in the U.S. got delayed and instead of starting in December, January, they are starting in June, July. And they will end up in June, July next year. So the second, the third and fourth quarter are going to be our strongest this year. They are usually the strongest, but the four is a little less than the third. But this year, I believe we are going to be along the same or maybe even more the fourth quarter.

Okay. And so can I assume that you are going to do at least $105 million then in Q3 and Q4? José Manuel Daes: Of course, we hope so. We need to do it.

All right. Okay. José Manuel Daes: And we need to be on time on the job. So if we don't deliver those amounts, then we are going to be late. And we are never late.

Okay. And the delays, now I also saw though that your international businesses or your business in Colombia and Panama was down in the first quarter. You mentioned some delays in the U.S. projects. What are you seeing in those local markets in Colombia and Panama as well? José Manuel Daes: Somehow, everything turned out to be the same way. In Panama, we got a slump like for three, four months. We didn't close any business and now we are closing a lot of business. But when you close a business, you have to do the shop drawings, you have to talk to the architect, many, many, many things that are open items. And then to deliver, in three to six months you start delivering the job. So what happened in the U.S. happened also in Panama and in Colombia. But by the same token, we see a lot of quoting going around. We are closing a lot of business. Our backlog is coming up. And at the end of the day, that means that we are going to deliver one day or another. So the third and fourth quarter are going to be strong and we look for 2018 to ramp up a lot too.

Okay. Great. And then in the last call. I think you mentioned that there was a little softness in the high-end luxury market in Florida. Wanted to just see if you could make a comment on whether or not you have seen some improvement in that end market? We are hearing that there has been some improvements in that market overall, which I think is encouraging for your business. But can you comment on that? José Manuel Daes: Yes. That is true. And that is the reason why a few of the jobs got delayed. For example, flat iron, which is around $20 million business got delayed. Now in the third or fourth quarter, we are going to be delivering around a month or two we start delivering the first windows is our goal. It is on a land which is a landmark because it's a job designed by a famous architect on the beach. Already got the approvals, already got the financing and by the end of the year, we are going to start delivering. And like that, I can imagine like five or six buildings in Miami bought. Let me tell you this, to my surprise, there are 20 new buildings going up, but for residential but rental. And this rental buildings, for example, Panorama, is an 87 floor building and is the highest, the tallest building south of New York and is already up all the way and is all for rentals. And the same person, the same owner is going to do two more buildings and we are already talking to them and both are around 80 to 100 floors.

Well, that's great to hear. I wanted to then shift gears to the new markets that you mentioned, which sounds very exciting and thinking about Europe and the Middle East and obviously lots of construction activity and pickup in those markets. You mentioned that you have staffed a sales branch out of Italy. How should I be thinking about the margins for that business given that it's a little bit further away for you to deliver? I am assuming that the product that provided to those regions is also coming out of Barranquilla. Are the margins going to be the same? Are they going to be a little bit lower little, a little bit better? Can you speak to the margin profile of that business that you are winning in Europe and the Middle East? José Manuel Daes: Okay. Well, let's talk about the Middle East, the one that we already closed. That business has the same margin as every other business. Believe it or not, from Barranquilla to Doha, which is the port in Qatar, we are paying only $1,000 more per container than to Miami. And so it is a minimal amount compared to the cost of the goods in the container. So the margins are going good. The margins are the same. At the beginning, for example, in Europe, the first or the second building are going to be a little lower margin in order to get in because a newcomer is not easy to get a business unless you show them a reason why. But after that, the margins in Europe are much better because they have triple panes, double insulated and then they have this really well-designed country walls and that cost a lot of money and since our labor is very cheap, it makes our margins improve.

Okay. Great. And then in terms of the, you mentioned the residential business. I recognize that's still a relatively small piece of your sales, but it sounds like that has seen some traction. Can you just speak to the end markets on your residential side in Florida? How attractive they look? The type of growth that you are expecting this year and next? José Manuel Daes: Yes. Well, the products have been so well received that we are seeing every month an increase in orders of around 20% to 25%. Even though it is very little, we were expected to sell around $10 million this year. I believe it's going to at least 40% to 50% more than that. And for next year, if things keep coming like this, we expect to do around $24 million to $25 million in that line. Our product, we believe is much better than the competition. The only thing is that we don't have a track record and people tend to prefer the track record business because they know they deliver and delivery is important in this business. But we are penetrating and that line in two, three years is going to be at least 20% to 25% of our business.

Right. Shifting gears a bit. Santiago and Christian, if you could talk a little bit more detail about the solar project, the $15 million investment? You mentioned that the natural gas savings could be 20% or more. What does that amount to on a cash savings basis? And then what would the cost tax savings be over time on an annualized basis?

Yes. Jeremy, so this is basically, the 20% that you are mentioning of the overall annual cost ends up being about $0.5 million for the first year. So that's basically based on the first phase, which we have now completed. The idea would be to complete subsequent phases. So for 2017, what we are estimating is between $400,000 and $500,000. But after a couple of years, that amount could be substantially higher. And the first phase has performed well. So the intention is to move forward with the second phase, which we are expecting to start next month and complete within the next three months. So it's a substantial saving amount on our SG&A.

So it could be over $2 million long-term on annualized savings, it sounds like?

Overtime?

Yes.

Right now we just completed three megawatts of our project that is 15 megawatts. So right now it's just a portion of what the overall project could end up being.

And then the savings on the tax side?

Yes. Basically, you get to write off 50% of your investment price and that tax savings, we are going to realize in 2018. So for your model, you wouldn't assume any tax savings for 2017, but that will be done for next great.

Great. And then the GM&P acquisition, I wanted to see after you a couple of months here of absorbing the deal, what types of synergies on the revenue front and what types of savings are you seeing from that deal?

So far we are still integrating the operation, Jeremy. We think we can save some SG&A basically, by integrating both operations. But the business are different in the sense that what they do provide is installation, engineering and designing which is not something that we have on our end as far as Tecnoglass goes. So the main synergy are going to come just from the administrative side and the selling side more than the operation itself. Right now for the first month, we are incorporating these savings into the results that you saw. Hopefully, as we move through the year, that's going to be ram ping up.

Okay. And then just one more and I will hop out of the queue and let others ask questions. In terms of CapEx, your CapEx is down meaningfully. What is the CapEx guidance for the year? And what's you depreciation and amortization guidance for the soap?

So basically we had estimated maximum of $10 million for the year. So if you see our results for the first quarter, we are definitely in line with those projections. We ended up with about $2 million, which is mainly associated with the solar panel project completion and very little maintenance CapEx. As you know, our equipment is less than five years old. So our maintenance CapEx is very limited. Given the fact that we are going to move forward with the second phase of the solar panel project, I think it's a fair assumption to assume maximum CapEx of $10 million for the year.

And depreciation and amortization?

About $4.5 million a quarter. So I will tell you, about $17.5 million for the year.

Okay. Great. Thanks guys and good luck this year. José Manuel Daes: Thanks Jeremy.

Our next question comes from Alex Rygiel with FBR Capital Markets. Please proceed with your question.

Good morning gentlemen. Nice quarter. José Manuel Daes: Good morning Alex. How are you?

Very good. José Manuel, could you expand a little bit upon how we should think about the timing of revenue from your new office in Italy as it relates to demand coming out of Europe and the Middle East? What should we be looking for in 2017? Is there a target that maybe we can look for in 2018? And then I have a follow-up. José Manuel Daes: Well, let me tell you, 2017 in Europe is going to be nonexistent because within the time that you quote you know all the engineering and the final design assist, you are going to be delivering at least in March to June of 2018. So we don't expect any business for this year. We expect around $10 million to $20 million for next year in Europe. And then on, it's going to go higher and higher. So we show that we can perform and that we can do the buildings, people will get more confident and we will get a lot more business. Now, in the Middle East, we already have a business and we expect this year to deliver $30 million and next year we hope to get at least another $20 million or $30 million from the Middle East. But that is uncertain. Until you have the business you cannot, but we expect around $20 million to $30 million a year from the Middle East in the next two to three years every year.

That's great. Could you also address raw material cost inflation, if you are seeing any? And any thoughts of that developing over the next 12 months?

This is Christian. We actually don't see any -- the only price going up is aluminum and we have already signed a deal for aluminum for all of 2017. We bought ahead of time around 700 tons of aluminum, which is what we consume every 700 hundred tons per month. That is what we take every month. And so the price is fixed. And we are not taking an increase in the price. Obviously, we are closing now having into account the new price of aluminum which is around $1,900. And in regards to glass and all other materials, we have stability for at least the next 12 months. There is no problem. We are right on track. And we expect to, with the ramp up of sales, invoicing now in second quarter, third quarter and fourth quarter to start seeing all the benefits of this.

And lastly, as it relates to the three to five projects that experienced some delays, was there anything common with regards to those delays? Was it weather-related? Permit related? Or financing related? José Manuel Daes: Well, there were a few reasons why they were delayed and each one is different. For example, the one in Brickell, which is Flatiron, they had some design changes because of the market change. So they delayed a little bit that job. It's already going up. Then the one in Paramount which is a huge tower in downtown Miami, they were having problems with the financing or not problems, delayed financing and finally they got it and they are they are going up also. We are released to deliver the windows. You can see the building going up. 8701, which is designed by Renzo Piano, the Italian architect, until they reach 70% of sales, the bank wouldn't give them the financing because of the tight conditions now implied by the banks in Miami. And now they reach their target. So the bank gave the financing. Many things, but the buildings are going up and we got the jobs that we already working on the windows to be delivered between June and July and on.

That's great. Thank you very much. Nice quarter.

Thanks Alex.

Ladies and gentlemen, we have reached the end of a question-and-answer session. I would like to turn the call back to José Manuel for closing comments. José Manuel Daes: Well, thank you everyone for being on the call. We are very enthusiastic to reach this year's targets. As we said before in the last call, this quarter was going to be the slowest one. The second quarter is going to be better and the third, the fourth are going to be record quarters for the company. And we believe that 2018 is going to be a record year too. We have many things going that we cannot share right now, but sooner than later we will. Keep it up. Thank you for being on the call. And thank you for investing with us.

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.