Greetings, and welcome to the Tecnoglass Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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 introduce your host, Rodny Nacier, Investor Relations. Thank you. Sir you may begin.

Thank you for joining us for the Tecnoglass' third quarter 2017 conference call. A copy of the slide presentation to accompany this call may be obtained on the Investor 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, Chief Financial Officer. Moving to slide two. Before turning the call over to José Manuel, I'd like to remind everyone that matters discussed in the call, except for historical information, are forward-looking statements within the meaning of 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 these statements herein due to changes in economic, business, competitive and/or regulatory factors, and other risk and uncertainties affecting the operations of Tecnoglass' business. These risks, uncertainties and other 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, beginning on slide number four. José Daes: Thank you, Rodny, and thank you, everyone, for participating on today's call. I will begin with a review of our third quarter results. Chris will then discuss our backlog, followed…

Thank you, José Manuel, and good morning to everyone on the line. Moving to our backlog on slide number five. We expanded backlog by 22% year-over-year to a record $488 million. We are pleased to accomplish this during the quarter of record revenues, which means the new additions to backlog fully replace record invoicing during the quarter. Additions to backlog include a combination of attractive project wins from GM&P and additional success in our legacy business in both the U.S. and Columbia, where we are seeing increased coring activity. Compared to the second quarter 2017, backlog expanded by $1 million sequentially. This represents our ongoing efforts to expand our geographic footprint, broadening customer relationships, and introduce new cutting-edge projects, such as our Prestige and Elite residential product lines in 2017. Sticking with Residential, we remain on track to hit our roughly $10 million sales targeted 2017, which we continue to expect to ramp to a range of $20 million to $25 million of sales in 2018, given the strong interest in these new products. Overall, we continue to feel confident of our market base on increasing coat and bidding activity, particularly, in the U.S., which is now providing us with a stronger revenue visibility through 2019. Looking at our geographic breakdown on the slide number six. We are sourcing from a more diverse number of regions within the U.S., where our structural glass and curtain wall systems continue to lead the architectural glass trend. We'll continue to invest and expand our presence into many additional U.S. markets with quarter three backlog representing additional project wins across more than 10 states. Some recent project wins have elevated our profile in the Northeast, West Coast, Chicago and Texas. Our expanded service capabilities through GM&P are providing a lot of these opportunities to…

Thank you, Christian and good morning to everyone on the line. Turning to our GM&P update on slide number nine. Given the contribution of GM&P to our U.S. market region capabilities, I'd like to spend a moment discussing the strategic benefits of this acquisition to our combined operation and the attractive opportunity ahead. In March 2017, we completed this deal at a very attractive multiple of near four times pro forma LTA and EBITDA. As a result, during the first nine months of 2017, our U.S. sales increased 26% year-over-year to a record $174.8 million. We have now more control of many projects, with our in-house engineers working hand-in-hand with architects. Our in-house installers are ensuring best-in-class installation of our manufactured glass windows and doors systems. GM&P also generates external sales to enhance relationships through our engineers and installers; more efficiently expands our channels to more U.S. customers than previously available. As a combined company, we construct additional benefits from strong U.S. construction activity and continue our expansion into other previously untapped U.S. markets. With our vertically integrated business model, strategic location, and low cost footprint, we can continue to grow and drive superior margin performance compared to industry peers. Looking at the U.S. construction demand on slide number 10. We continue to see favorable construction activity in many markets in the U.S. Additionally; we continue to diversify our mix of projects, which include multi-family, office buildings, high-rise hotels, and more recently, single-family homes. Looking at commercial, which still represents the majority of our business; underlying U.S. demand remains positive despite the flattish non-residential construction starts year-to-date. While the ABI reading dipped below 50 in September after seven months of steady growth in the demand for design services, the indicators showed healthy expansion in three regions and the LTM trend…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Jeremy Hamblin with Dougherty & Company. please proceed with your question.

Good morning gentlemen. It's great to see the improved margin performance in the quarter. And I want to start my first question with that. In terms of gross margins, you had a sizable sequential jump from what we saw in Q2. And I think as you absorbed the GM&P acquisition and get a better understanding of what the impact overall will be on a long-term basis for your business, how should we be thinking about gross margins on an absolute basis moving forward? I think you had indicated on the last call that you expected kind of low 30%s and now you just put up 32.6%, really in a quarter that wasn't particularly strong on the sales front. As you continue to see your sales grow, where do you think is a reasonable range over the next couple of years on gross margins that you could achieve?

Hi Jeremy, this is Santiago. So, basically, we've estimated that the GM&P acquisition is basically a 200 basis point or so effect on gross margins. The 32.6% that you're seeing there does include some efficiencies on fees and services and installation cost. For the remaining part of the year, we expect gross margins to be basically in line with Q3 and what we have said in Q2 was -- low 30s was a fair estimate. That being said, we think that through operating leverage, we could improve that over time and we'll provide more detail once we come out with the 2018 guidance in our next call. But for the time being, this is a more normalized margin profile rather than what you guys saw in Q2, which did account for a significant amount of fixed cost that we have seen trending down.

Okay. Well, somewhat related to that question, I wanted to come back to the solar energy project, which sounds like it's nearing completion in this phase. You've had a couple of big investments that you've made, the -- certainly, the soft coating capability and equipment. I think that you had initially expected that to yield $6 million to $8 million of annual savings. And I think you're calling out some additional savings that you expect related to the solar project. But in terms of thinking of these investments on a return on investment standpoint, how do we kind of bridge that gap of the total expected savings from these projects on a long-term -- or, let's say, with -- as it relates to the soft coating, that you've maybe just not been able to achieve the kind of capacity utilization that you had initially anticipated and that's why we haven't seen quite as much improvement? José Daes: Jeremy, José Daes. How are you?

I'm well. Thank you and yourself? José Daes: Good, good. Thank you. Listen Jeremy, the soft coat has been a little possible for us at the beginning. Even though we're getting better coatings and better product, the saving hasn't reflected yet because we're doing very, very low volume. And we expect next year to increase by 30% to 40% and then the year after another 30% to 40% and then we will see mixed savings into the soft coat line. As I told you on the previous call, most of our costs are fixed. And when we increase sales, the margins increase because the SG&A remains mostly the same. And as we are going to increase next year the sales, the margins are going to improve. That's what we believe.

Okay, great. That's helpful. Let me come back to where you mentioned sales and one of the areas, obviously, that's been very weak is your local business in Colombia. You called out several macro factors related to that, noting that statutory tax rates are clicking down to about 33% in 2019. If the tax rates have been a significant driver along with the interest rate hikes that started a year ago, is there a concern that some of the effects in the Colombian operations could linger in 2018 until we get to that full tax break in 2019? I mean, what is the expectation in terms of Colombia, specifically, bouncing back here over the next four or five quarters? José Daes: Colombia is going to bounce back. We already have the backlog. The point Jeremy was that the interest rates were really, really high. And the interest rates have a direct affection to the construction business. People don't buy that much when they cannot finance the homes or the offices. And there was really a big gap for a year, year and a half of new construction. Now, interest rates are back to normal for Colombian rates, which is 5.5% the prime rate and around 10% for financing. And we believe that -- I mean we have the backlog for next year improving around 20% to 30% from this year for Colombia sales. And we believe 2019 is going to be even stronger than that. What happened was -- I mean, the interest rate killed the business.

Let me apply that then a little bit to the U.S. markets. Obviously, we have seen a very, very slow gradual rise in interest rates that I think at this point are expected to continue at least into 2018. What do you think is -- when you look back at the cycle from the past decade or so, in the U.S., specifically, where is the tension point on interest rates where you think that could potentially stunt some of the construction activity and growth within the United States? I mean, is it when fed funds rate gets to 3%? Is it something higher than that? Do you have a sense of where you might start to see interest rate increases in the U.S. start to have a negative impact? José Daes: I believe if the government raises by two to three points. I don't believe a quarter raise or a half a point is going to kill anything. It might slow down a little bit residential side. But interest rates are very, very low, I mean, historically now, so I believe 4% to 6% of mortgage financing is normal. 3.5% that we're seeing now to 4% is very, very low historically. And let me tell you, we have seen in the past three to four months a quoting activity that we haven't seen before. And we expect to close most of those businesses in the next six to nine months for delivery in 2019. And -- I mean, that is very encouraging for our business.

Yes, absolutely. Well, let me further ask about the U.S. And you noted that you have -- I think, it calculates to about $260 million to $265 million of your backlog, specifically, tied to Florida. One of the things that we've heard in discussions with distributors and other construction-related businesses in Florida is that they have tons of business that it's hard to keep up with the amount of inbound calls, partially related to the rebuilding. But one of the challenges appears to be labor supply shortages. You certainly -- you just don't have enough qualified personnel really to keep up with some of the demand. And I recognize that's a high-class problem to have. But what do you see in terms of the potential risk factor of labor supply shortages on your projects? Does that raise the concern about projects being in Florida, specifically, being completed on time? And then I have a follow-up after that related to it. José Daes: No, we don't. We're not seeing that in our side. Because I mean the first six months were very low in sales even in Florida because most of our buildings are tapping up and the new ones got delayed or haven't started or this or that. So, we have the labor to do all the buildings that we have contracted and even the labor to do the ones that we are going to contract. We're not worried about that. That might be on the Residential side because the Residential side is very split up. I mean, if you're going to do a house in Palm Beach, you have to send three, four people to each house and that requires a lot more people than doing the building. But on the building side, we're fine. We're very equipped to do all the buildings that we have contracted. We're not seeing any problem on that side.

Okay. And then what about on the materials front. I know that you have some pass-through pricing in your contracts. But there has been call-outs that development costs have risen significantly since the rebuild efforts have started over the last month or so or month and a half. And that is also another potential risk factor that there have been some delays simply because where contract pricing is not in place to account for the increase in demand for raw materials that that has been another challenge for some development projects. What are you seeing on that front in terms of material costs? José Daes: No, the only material that has increased price is the aluminum has been increasing for the last six months. It went from $1,600 to $1,700 to around $2,050, $2,070 this week. But as you know, we already have bought everything for 2017 and we have bought around six months of 2018 at a very preferable price of $1,700 per ton. So, we're not concerned about that. And the labor cost to us has remained flat. The glass -- since we source most of our glass now, the flat glass in Colombia has remained flat, so we're not seeing that. That's why maybe our margins are improving.

Okay, great. And then I wanted to ask Santiago. As we look at your future depreciation and amortization expectations, you've seen a kind of level out in this kind of mid $5 million plus range. How should I be thinking about that moving forward? I think you had guided to $18 million or $19 million. I may have missed it actually in the guidance on depreciation and amortization. How should we be thinking about that for the remainder of this year and into 2018? And then the same question on interest expense?

Yes. So, basically, what you saw in Q3 is pretty much a good benchmark, Jeremy, about $5 million to $5.5 million, out of which roughly $4.7 million is depreciation. And as you know, our CapEx this year has been very much reduced. And then you have about $500,000 of amortization related to the acquisition of GM&P and other intangibles that are amortizing. So, what you saw in Q3 has been benchmark going forward. We don't expect any significant differences from that. And then on interest, also, what you saw in Q3 is a good benchmark on a nominal basis. The amount of debt that we have in the balance sheet, we're expecting to keep it basically the same. So, what you see really with most of our debt being fixed interest rate should continue to be pretty much in line with what you just saw in Q3.

Okay. So a little bit of a step down on the interest expense moving forward?

Yes, yes. And as you recall, when we announced the bond issuance, one of the benefits was that our weighted average cost of debt was going to come down. So, even if you compare it year-over-year with a higher amount of nominal debt, our interest cost is actually coming down a bit.

Okay. And then last question and appreciate your generosity in taking the questions. In terms of your cash flows, you haven't generated a ton of cash over the last couple of years, some of that's investment related. But in terms of thinking about free cash flow moving forward, it does look like you're going to have lower overall CapEx needs both this year and into next. Can you give me a sense of what we should be thinking about on a free cash flow basis?

Sure. So, this year, the expectation would be to end up between $10 million to $12 million of free cash flow. We had previously guided that the CapEx was going to be less than $10 million this year and about the same the next year. And if you look at what we've done in CapEx through September, we're pretty much in line. The expectation for next year would be depending on how working capital demands end up playing out would be to also generate cash flow as we're doing this year and as we expect to close the full 2017.

Okay, great. Thanks so much for taking all my questions guys. And best of luck moving forward here.

Thank you, Jeremy. José Daes: Thank you.

Thank you. We have no further questions at this time. Mr. Daes, I would now like to turn the floor back over to you for closing comments. José Daes: Thank you, again, everybody for participating in today's call and for your continued interest in Tecnoglass. We look forward to speaking again soon. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. And have a wonderful day.