Greetings, and welcome to the Tecnoglass Third Quarter 2018 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rodny Nacier, with Investor Relations. Please go ahead.

Thank you for joining us for Tecnoglass' Third Quarter 2018 Conference Call. A copy of the slide presentation to accompany this call may be obtained on the Investors section of the Tecnoglass website. 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 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 these 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 the contingencies are indicated from time to time in the 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 4. José Manuel Daes: Thank you, Rodny, and thank you, everyone, for participating on today's call. I will begin with a review of our operating highlights. 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 6. We were pleased to end the quarter with a record backlog at $506 million, up 3.6% year-over-year. This compared to $497 million at the end of the second quarter. The third quarter backlog level represent more than 1.4x our trailing 12 months revenue. Attractive project wins allow us to fully replace 4 consecutive quarters of record invoicing, enhancing our position for 2019 and now building 2020. Quoting and bidding activity in the U.S. was strong, and Latin America continues to improve. We feel good about the composition of our project pipeline and the good visibility from our backlog. The U.S. market continues to represent our largest region, comprising almost 80% of our backlog. This reflects our ongoing efforts to further penetrate the U.S. and to expand our mix of business in very good markets. Our ramp up in single family has been impressive. Also many of those projects are typically shorter cycle and underrepresented in our backlog. We also continue to diversify our project categories with more retail, midrise condos and our fixed projects to supplement our strong high-end condo business. This includes two of the largest projects to come to the market in both in Miami and the Tampa areas. While we were growing backlog, we are being mindful to carefully balance volume and price with a focus on the strong margins. We're experiencing a more favorable pricing environment in the U.S. partly as a result of production and labor cost inflation for U.S.-based manufacturers. We have not experienced either of those two cost headwinds, so we are confident that our U.S. strategy will continue to drive benefits to our results. We are seeing the impact of higher ground transportation costs, along with the rest of the industry. In Colombia, we ended the quarter with some sequential backlog growth, largely attributable to a strong bookings in the third quarter. We are seeing the improvement building resulting from pent-up activity, strengthening economy conditions and more certainty on a favorable business climate, following recent presidential elections. The progress we are seeing on the ground takes some time to show up in embossing, but we are optimistic for 2019. Overall, we are actively enhancing the quality of our backlog to expand our business in a disciplined manner. The addition of Schüco product lines to our portfolio should enable us to attract new customers and rule of reputation for excellence even more in the architectural glass industry. This is an exciting time for Tecnoglass. We are poised to win more new projects and take advantage of our vertically integrated operations to achieve our visions of becoming a worldwide leader of high-quality architectural products and novelty solutions for a sustainable future. We look forward to generate additional value in our business. I will now turn the call over to Santiago to discuss our financial results and market.

Thank you, Christian, and good morning to everybody on the line. Beginning with our financial highlights on Slide 8. Over the past several years, we have expanded our business into new geographies, captured an increasing amount of the value chain through our vertically integrated model, invested in our facilities and implemented cost-savings initiatives. The benefits of these efforts were evident in the third quarter with double-digit growth in sales, gross profit and adjusted EBITDA. We hit record levels in each of those metrics. Adjusted EBITDA increased 29% to $22.8 million from the prior year quarter, which produced and adjusted EBITDA margin of 23.5%, up 240 basis points from the prior year quarter. We remain confident in our ability to generate incremental margins on higher sales and will continue to source additional avenues to improve efficiencies and reduce our cost base. Our operating cash flow performance reflects working capital investments. This includes account receivables in connection with strong sales growth in the third quarter, along with our build-up of inventories to support future growth. CapEx remained fairly low at approximately 2.3% of sales, primarily dedicated to maintenance and minor efficiency initiatives. We continue to benefit from prior CapEx investments, which have created ample install capacity to address future growth. We ended the quarter with a strong cash position of $28 million and a conservative leverage profile of 2.7x net debt to adjusted EBITDA, a slight improvement from 2.8x at the end of the second quarter of 2018 and a positive trend that we expect to expand into year-end. This balance sheet strength supports our growth initiatives and operational enhancements moving forward. Looking at the drivers of revenue on Slide 9. U.S. revenues increased by 20.7% to $82.2 million for the third quarter. A portion of the increase came from single family…

[Operator Instructions]. Our first question comes from Alex Rygiel with FBR Company.

A couple round of questions here. So the last 12, 18 months, you've been pushing into a number of new regions and cities in the United States. Can you talk about some of those successes, whether or not Chicago or Boston? And talk about how they've been building the momentum in any other new cities that have been added to that list of recent success stories would be helpful? José Manuel Daes: This is José Daes. We are finishing two very nice projects in Boston. And Boston Properties is the owner, they are very, very happy with it. And we are finishing jobs in Washington, New York. We have entered California market with some small jobs, and that's out on the West Coast. We're finishing jobs in Texas. And we now even are closing a job in Phoenix. We are expanding, you know it's not easy for people to toast a new company while after the way they perform and the quality of the product, those open very quickly.

Could you also comment on how you think the U.S. tariffs are affecting some of your competitors? Clearly, it's limited affect to your business. But how do you think it's affecting your competition? Are you seeing that in the marketplace when you're bidding on projects? José Manuel Daes: Well, actually, everybody is increasing prices because of the momentum of the economy. There is leveling off aluminum or windows or glass supply and demand, the demand is very strong. And I don't see the tariffs are affecting anyone. Everybody is making a lot of money, and everybody is happy.

And as it relates to the residential product and the success it had to date in the markets. What was the revenue contribution in the quarter from residential? And where do we think that could go to in 2019?

Alex, this is Santiago. Basically, for the quarter, we estimate it to be about $8 million. We are on target to surpass the full year guidance of $20 million to $25 million that we had guided to as first. And over time, in 2019, we think this to become a more meaningful part of the overall business. We have obviously come out with guidance for 2019, but the expectation is for that to continue to grow next year.

Our next question comes from Jeremy Hamblin with Dougherty & Company.

It's actually David on for Jeremy. So just on U.S. outlook in 2019. And how should we be thinking about the growth in that segment? And then, stepping over to Colombia, it seems like it saw some pressure in the quarter. Could you just discuss kind of what is going on down there after the decent growth in the first half of the year? And then also maybe the outlook in that segment in both Q4 and 2019?

Sure. On the U.S., we'll come out with guidance here in the next call, but the expectation is for that to continue growing over a record year 2018. The percentage growth is to be determined once we have more information at year-end. But that is expected to be - to continue to be our strongest market. If you look at Q3, it accounted for 85% of overall sales. And in line with what José Daes said, we continue to take market share and growing to other regions. So the expectation would be for the U.S. to continue this growth trajectory. In Colombia, we had said that, a lot of activity was delayed and pent-up activity was caused by the presidential elections. And what we're seeing is basically in line with what we expected. We think that the rest of 2018 is going to be probably a 2% growth year-over-year for the full year. So very much flattish. But the good news is that we are seeing growth in the Colombia backlog and actual business is getting close after the presidential elections. So we certainly expect Colombia to grow at a good pace for 2019 versus this year.

Okay, good deal. And then SG&A in the quarter jumped to that assuming some of that is a function of the higher revs, but can you just maybe break down that for us? And what is causing that jump? And is there a kind of a range we should expect moving forward?

No. I mean, basically, the main contributor to SG&A increase and especially as a percentage of sales because you have some cost in there that are variables. So when you have this much higher sales, you are also going to have an incremental in nominal SG&A. But the one factor that contributed more than sales was land transportation in the U.S., which every other company is also seeing out there. José Manuel Daes: And we are going to observe that. We're shipping directly to the ports of North. We were shipping to Miami. And from Miami land to New York and to Washington and to Chicago. And now we have found a different route and next year the cost of transportation is a little bit lower.

Okay. That's helpful, very helpful. And then my biggest surprise was upside on gross margins, jumping to nearly 36%. We haven't seen those levels in a while. Can you just kind of break down the details of this? And how much of this improvement is favorable pricing versus favorable mix?

We haven't really taken a lot of margins from incremental pricing. The main contributor was the mix of products that was sold with the manufacturing companies. Basically getting the brunt of the sales for the quarter. So when you have a favorable mix of sales, with manufacturing taking a large portion of that, you're going to see these type of margin profile, which is kind of what you saw prior to the services acquisition of GM&P. But then also you have some operating leverage in there. Some of the fixed costs that are associated to the cost of the products, we gain about 50 basis points on leverage. So it's a mix of all, the main thing was the mix of sales.

Our next question comes from Julio Romero with Sidoti & Company.

So can we talk about pricing? I know last call, you mentioned, your competitors were raising prices to offset some of that input cost headwinds, some of that may or may not be related to the tariff situation. But are you still kind of holding price relatively steady? And can you give us any color on how that's translating to share gains in your business? José Manuel Daes: Yes. This is José. We are going to increase prices on some products, especially the high-end products because the product is actually on the price compared to our peers. And on the lower line, even though our product is superior to the other ones, we still see a strong competition in pricing. So we can increase those in order to keep gaining market share. And on the big buildings, it's - most of those are biddings and then negotiations, and we will control that, but we see the competition is having higher prices, and that's good to all because we can increase our margins.

Okay. And on Schüco, I appreciate the color you gave earlier about timing, expecting that maybe starting mid-2019. But what do you think is a conservative estimate for the incremental revenues we can expect from that partnership going forward? José Manuel Daes: Well, in the first year, which is 2019 because we are now developing products there because the products that they have deliver mostly for the European market. So we have to take those products and convert them a little bit, I mean minor design engineering to convert them for example, the hurricane windows and for the American market of north we're doing that. So for the first year, by the $3 million to $5 million and then for the second year, which is 2020, we expected it be 3 or 5x that.

Helpful. And given the best sort of a luxury product in the market, I mean, should we expect you to be able to manufacture those incremental revenues at more or less the same gross margin that you're currently at? José Manuel Daes: Oh, yes, even more. Even more because they are unique products. I mean, you have no coemption. Once you have a product like that, people - they want the product, they're paying the products.

Okay. And just not cash flow here. I know you saw some inventory tick-up in the quarter. What should we expect for cash flow in the fourth quarter? And what's kind of driving that inventory number heading upwards?

The inventory number is mainly products that are being sold in the next few months. So it's not like you're seeing raw materials in there. It's already products and finished goods. So the incremental inventory is basically just associated with the work that is coming in the next few months with you. As far as what we're expecting on operating cash flow is going to depend on how much we are able to grow for the next few months. If you look at it, the main use of cash is obviously AR and inventory. But if you look at the turnover ratio, they are basically staying flat. We're just selling quite a bit more. That being said, there are some seasonal payments that do not take place in Q4. So our expectation would be to be able to generate positive cash flow for the overall year.

Okay. And then just lastly, on backlog. I know you saw a tick-up sequentially and year-over-year. Any key projects that have entered that recently? And any color into the margin profile that you're seeing in that backlog? José Manuel Daes: Well, we have landed a couple of jobs, opened doors in Florida. I mean, we were mainly in the three counties, Dade, Broward and Palm Beach. We move up north to Orlando, Tampa. And we have been getting jobs up there. And from here to the end of the year, we are negotiating, I mean, a ton of projects that we believe we're going to get. We're 95% near to closing, and we believe the backlog has still increased potential.

Our next question comes from Hans van der Burg with Logos Investment Management.

I had one additional question on the Schüco deal. Most of my questions on that are already answered. But I was wondering, do you see any increases in capital expenditures or operational expenditures as you're preparing for launching these new products in mid-2019? José Manuel Daes: No. It's minor expenditure in the new dies. I mean, every window, you have to have the dies. See, as we're going to change of a few, I mean, a minor details of the designs, we have to develop those dies. But it is nothing major. I mean, a couple of hundred...

Okay. Yes, that's good color. I had one other question, and that's related to the shelf registration the company did last month. Can you provide some color or some thinking about the reasoning behind that? And why is that movement?

Sure. That's actually something that have been in the works for a while. Just this corporate practice, something that we wanted to do to have flexibility for the next several years. But nothing imminent. You would just - good practice to have the flexibility to have the capital markets, different opportunities come our way.

Okay. So - but it's not - so it's not related to specific plans, for example, acquisitions or for reduction of that or something like that?

No. If you look at the shelf, it's a universal shelf. So you have - basically, the language from general corporate purposes, is working capital or whatever it may be. We left it very broad. Obviously, if there was a transaction, it would have to be a companion by a supplemental prospectus related to a transaction. This is just a general filing to give us flexibility over the next 3 years.

There are no further questions. I would like to turn the floor over to José Manuel for closing comments. José Manuel Daes: Okay. Thank you, everybody, for attending the call. We believe we will have very good news in the next quarter and the years to come. Thank you.

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