Greetings and welcome to the Tecnoglass Inc. First Quarter 2020 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. I would now like to turn the conference over to your host today, Rodny Nacier, Investor Relations. Thank you, sir. You may begin.

Thank you for joining us for Tecnoglass' first quarter 2020 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 Chief Executive Officer, Jose Manuel Daes; Chief Operating Officer, Chris Daes; and Chief Financial Officer, Santiago Giraldo. 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 regarding future financial performance, future growth and future acquisitions. These statements are based on Tecnoglass' current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary in a material nature from those expressed or implied by the statements herein due to changes in economic, business, competitive and/or regulatory factors, and other risks and uncertainties affecting the operation of Tecnoglass' business. These risks, uncertainties, and contingencies are indicated from time to time in Tecnoglass' filings with the Securities and Exchange Commission. The information discussed during the call is presented in light of such risks. Further, investors should keep in mind that Tecnoglass' financial results in any particular period may not be indicative of future results. Tecnoglass is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements whether as a result of new information, future events, changes in assumptions or otherwise. I will now turn the call over to Jose Manuel beginning on slide number 4.

Thank you, Rodny and thank you everyone for participating on today's call. To start, I would like to say that I'm incredibly proud of all of our team members, who have shown such incredible strength in the face of adversity during the COVID-19 outbreak. Our thoughts are with those impacted by this unfortunate situation. We're moving through unprecedented times and our top priority is protecting the health and safety of our employees and others. Fortunately, all of our operations along with most of our customers operations in the U.S. and Latin America are being deemed essential and we continue to serve customers safely and responsibly. . : On the operational side, our team delivered solid result. We produce our highest first quarter gross margin and adjusted EBITDA margin since 2016. Favorable material pricing and the higher mix of total revenue where the main reasons for the large improvement. We were also pleased to start realizing the benefits of high-return automation initiatives. Our selling efforts remains focused of further penetrating key U.S. markets and gaining foothold in a visual series. In the quarter, 90% of our revenue and 89% of backlog was in the U.S. and our expansion in residential continued, representing 19% of our U.S. business over the past year. While the world has changed a lot, since our last update recall, our diverse geographic footprint, lean cost structure and a strong balance sheet position give us confidence in our ability to continue when in business even in this uncertain environment. Over our 36-year history, we have successfully overcome difficult times. During the great recession of 2008, we grew the business and generated profits each year to emerge as a much stronger company. I have full confidence in our ability to do so again this time and are now larger and more vertically integrated platform. We are even better prepared to navigate through the current environment. While we are much bigger today, we still represent only around 1% of the U.S. architectural glass industry. So there remain many opportunities to capture revenue engaged, as demonstrated by our strong backlog. We expect to accelerate our advantages as the markets recover. We have a strong cash position and capital resources to avoid the bumpy road ahead. We are taking additional actions to improve our cost structure, cash flow and balance sheet to not only adapt our business to the current environment, but also effect any stock loss changes that we have shipped to aid our business for long-term success as we emerge from this volatile period. I'll now turn the call over to Chris to provide additional details on our COVID-19 response and backlog.

Thank you, Jose Manuel. Beginning with our COVID-19 response on slide number five. Over the last couple of months, we have implemented a robust response plans and have also taken many proactive measures to strengthen our business and balance sheets as the global economy experiences the impact of COVID-19 pandemic. Similar to the U.S., in Colombia, there are stay-at-home orders still widely in effect. We are operating under a special inception granted to companies that support the construction and infrastructure sector. As we continue to manufacture and install our critical products, in many cases, we have gone beyond guidelines from local governments and CDC to protect the well-being of our employees, customers and partners. We have implemented remote working policies, enhance sanitation practices and minimize group gatherings among other measures. We have also taken more in depth initiatives to protect our employees, such as the temporary suspension of manufacturing operations for three weeks in late March and early April. These enable us to successfully install workplace protections and implement a comprehensive plan to incorporate social distancing and other best practices into our production and logistical processes. The late March timing allow us to move more scheduled deliveries into April as some customer delayed shipments while they assess the varying patchwork of government orders getting interviews around that time. While these limits, our ability to invoice projects during that time, since mid-April, we have quickly ramp it back up and made up for a significant portion of the POS or in invoicing activity. We've retained the labor force while the plant was shut down by using vacation day slots were possible. So we were able to resume operations relatively efficiently. We entered these pandemic at the strong point in our company's history with a financial position along with the capital resources…

Thank you, Christian. Beginning with our capital resources on slide number eight. In recent years, we have made progress to reduce leverage, enhance cash flow and generally strengthen our balance sheet metrics. During the first quarter, we generated cash flow from operations of approximately 550,000. The first quarter is essentially a low point for cash flow given timing of interest and tax payments, but improved by $6.3 million compared to the prior year quarter. This partly reflects aggressive actions to preserve cash, including tight cost controls and working capital improvements. Our CapEx increased by approximately $2.5 million, mainly reflecting scheduled annual maintenance at our production facility cross approximately $3 million of final payments for high-return automation investments completed in 2019. As a result, we expect CapEx to be largely thrown loaded in 2020. Since the end of the first quarter, we have continued to build our liquidity position. Our cash preservation measures are paying off and our abundance of caution, we also drew down an additional $10 million on our available lines of credit to begin bay with approximately $50 million of cash and total liquidity of approximately $105 million, including available lines of credit. The structure of our long-term capital resources are set up well for the current environment. Our senior notes in the amount of $210 million do not mature until 2022. Beyond that, our credit facilities extend through 2024 in a weighted average maturity, on lines of credit are roughly 4.7 years out. Looking at our net leverage, we ended the quarter at 2.4 times, which was down 0.6 times compared to the prior year quarter and up slightly from December 31st. The sequential increase is partly due to $6.5 million of CapEx during the period to complete our automation initiatives and major maintenance. In $4 million…

Thank you. [Operator Instructions] One moment while we post our first question. Our first question comes from Mike Shlisky with Dougherty & Company. Please proceed with your question.

Good morning.

Morning, Mike.

So, I wanted to ask about your sort of near term invoicing schedule and where the real concerns on the backlog are? I mean, at this point, when you started a year into the springtime, if a building is halfway finished or even partially finished you're not going to start building that building at this point to kind of all the way through the end. So my guess is the current projects, the very near term backlog isn't going to change much other than maybe some timing differences. I guess my question is you're worrying more about the end of year backlog at this point or 2021 projects? Do you feel pretty good about what has to been delivered this year? Quarter-to-quarter, perhaps, there's not that much -- there's some question but sort of end the year is kind of the more concerning to you because of the new projects that might come on board?

Well, this is Jose. We feel very confident about this year. We have a strong backlog and all the projects are continuing. Especially there was even 20 30% up. We've seen a couple of delayed projects. But last week, for example, one of them just restated and said that they already logged the financing. So for this year, we she still a strong demand. And next year we have a good backlog for next year. And we are starting to see people talking again about closing, because they're going to open New York. In Boston, there is a lot of work. In Texas, they haven't closed anything. We are very confident that the world is going to keep going.

Okay. And then what's been your ability to kind of do business within the four walls in Colombia with other people who are outside those four walls. So things like getting trucking services, some of your outside contractors, food service and other items that have to be brought in every day. Because you're under an exemption, that might be okay for you. But have your various outside provider has been able to help you out as well, since April 14?

We haven't had any problems on tractors or anything, especially in Colombia, construction is already back to work. We were sent home for three weeks. We try to keep a piece open through those three weeks, unfortunately, obviously, that hit the sales been a little bit lower than expected. But it's all over now. We've been working for the last now four weeks, and we're doing record numbers of invoicing every day. So we expect to have a very decent quarter, for example, now the second quarter, obviously taking into consideration that the first 13 days of April we were close, but things look good, supply looks good, demand looks good, and we are trying to build 2021, the end of 2021 and that is going to be done also with a lot of retail, which is not in our backlog, but it is a residential event, but that is very strong today and is continued to grow in our company.

Okay. Maybe just one more for me. Obviously very, very strong job on EBITDA margins in the quarter. I guess, do you think you reached a whole new range or plateau for margins since you've made some of those improvements in the fourth and first quarter here to your automation? Or was there anything kind of cut on a kind of temporary basis to kind of offset some of the volume declines in the quarter?

Hi, Mike. This is Santiago. Basically some of it was done through raw material efficiency. We're seeing less raw material cost against contracts that were already in place. So we do expect that to continue moving forward. Another piece of that was the mix of business with installation business closing out some projects. So, you basically had some more manufacturing revenues rather than installation. So in large part it's going to depend on the mix quarter-over-quarter. But on a structural basis, I think that the rest of the year you can expect efficiencies both from lower raw material and efficiencies related to automation. As we had mentioned earlier in the year and even in previous conversations, we do expect to gain efficiencies on a gross margin basis. So I think it's going to depend more or less on what happens on mix quarter-over-quarter. But there are certainly structural things that would allow us to gain efficiencies from a gross margin perspective.

I just help this Santiago. The large amounts of drilling you had here just in the last few weeks in April, was that heavy on the closeout activity?

I missed the first part of your question, Mike. Could you repeat?

The high level of invoicing that's had in the last few weeks that you came back to work? And if there have been high on closeout?

Yes, it's been constant with what we've seen so far throughout the year. We've been in line.

Okay. Thanks so much. I'll pass it along.

Yes. Thank you.

Our next question comes from Tim Wojs with Baird. Please proceed with you question.

Yeah. Hey, hey, guys. Good morning. If you guys are all safe, sounds like you are. And appreciate all the detail on the on the slides. Maybe just my first question, the residential business, how would you kind of frame the performance in the first quarter relative to your expectations and have you seen that that same kind of -- but you have that same kind of expectation for month-over-month improvement through the second quarter?

Hello. This is Jose. We've been doing really good. We surpass our expectation for the first quarter, because even though we didn't work in the first two week in January, and we closed for [Indiscernible]. We can have almost two weeks in March. We invoiced a lot more than we did in the quarter -- in the first quarter of 2019. And we see a strong demand in April and we keep receiving. The residential businesses is our day-by-day business. And we've seen a lot of demand in the past couple of weeks that we're open. We expect to grow by 20% this year.

Okay. So despite everything the residential business should still grow pretty meaningfully in 2020. That's good to hear. And then maybe just, Santiago, under liquidity. I think he mentioned working capital and that should be positive in 2020 and it's been used the last couple years. I know it depends on a sales rate, but any sort of kind of big picture of guardrails that you might be able to give us in terms of what working capital might improve by?

Like you say, it's going to depend mainly on sales. I think we have pretty much our inventory is very efficient. You saw it coming down again this quarter. So it's really related to how efficient we're able to collect. The last couple of months, we've been able to collect normally. Our clients continue to work and that hasn't been an issues. So I think he's going to be related team to what sales shape up to be. But I certainly think that we should be able to build on what we deliver last year without kind of giving you an exact number. I think we are seeing that -- you already saw it in the first quarter we improve operating cash flow by almost 6.5 million and I think we should be able to build on that and deliver better operating cash flow than last year.

Okay. That's helpful. And then, I guess just last questions, just maybe a bigger picture one. But just given your low cost position, I'm just kind of curious how you would expect Tecnoglass to perform relative to the industry if things would kind of weaken from a backlog perspective as you got into 2020 and 2021?

Listen, we are in the -- I've been with the company 35, 36 years now. And every time there is a crisis, that's when we perform better. I mean, because we're in a low cost environment, we were born out of crisis. We love to handle them. And we have a lot of future. I mean, we see that our -- we could make Tecnoglass a winner in the middle of this pandemic situation, and we can sell more, be more efficient, improve our -- we are improving on deliveries efficiencies on everything and we expect to continue to better the numbers as we go along. We would have had easily if we would have invoice a complete quarter, we would have easily invoice $8 million more or $9 million and we have two or three of EBITDA additional to the number that you have seen today. So we are -- we feel very confident that the future ahead is for us. We obviously, we want to make sure that we have in our backlog for 2021, which we already have some, but we're going to build more, especially with residential. Jose, can add to my --?

When things go down and demand goes down, since we have better margins of all our peers, we're able to lower the price, be more competitive, get a lot of work and still make money. But we're not chasing that. As long as we see the demand enough to make a good profit we rather show the good businesses and not gain a lot of ground just on price. If we had idle capacity, of course, we will do it. But for the moment, we're growing with solid business with solid profit and that's what we're doing for now.

Okay. Thank you. Good luck on everything guys.

Thank you.

Thanks, Tim.

Our next question comes from Josh Wilson with Raymond James. Please proceed with your question.

Good morning, and thanks for taking my questions and hope you all are well.

Good morning, Josh.

Good morning, Josh.

Thank you. First one. Could you, Santiago, give us some sense of maybe what CapEx and D&A looks like for the year now?

Yes. So at the beginning we had talked about being less than 10 million. As you heard on the commentary, we expect CapEx to be heavily front loaded given the we had the remaining pieces of the automation initiatives in Q1. Moving forward, I still think is going to be less than the 10 million we talked about. We don't foresee any growth [ph] CapEx for the remaining of the year. It'll just be mainly maintenance topics and whatever's left on the automation, which is not much.

Okay. And then you mentioned some cost cutting efforts on the expense side as well. Can you give us a sense of what those might be and how much of it is volume based?

Yes. So obviously what you would expect is rationalizing, traveling expenses, professional fees, everything you can do from SG&A front. Obviously, on the cost side, there's only so much you can do since it's a lot of variable cost. The company has prioritized preserving employment. So we're keeping our employees and with the backlog for the short-term that Christian and Jose were talking about, we're going to need employees. So it's not related to headcount reduction. It's more what we can do on other fronts, mainly related to SG&A and also the efficiencies that are going to come or that are already kind of flowing through related to the automation, as far as having less material waste, and others that's going to help out.

Got it. And what sort of progress have you made in adding single family resi dealers?

Jose, you want to take that?

Yes. We are adding dealers day-by-day. We just opened a new distributor in Orlando, which in Orlando is a different breed because we didn't have even product for Orlando because is in a difference zone, it's in the middle of Florida. And we did -- it's not a hurricane -- most of it is no hurricane proof. So we took a bit of time to design the windows for that area. We already did. We opened our distributor in and is doing good. It's starting. We're opening also in the Panhandle another distributor. We didn't sell a one window there before. And we are having a lot of dealers in Miami, Dade Bauer [ph], and Palm Beach County and also in the West Coast, because they're seeing that we're reliable. Our product is the best by far. We have the widest range of windows of any company in the U.S. So we're very confident that we're going to keep growing in the residential.

One last clarification for me. So as far as your downtime goes, fair to say that you didn't lose any jobs or your customers weren't impacted because they chose to delay at the same time?

No. Thank God, we are -- we have gotten used to being head of the ball all the time. So we were like four weeks heading deliveries, because we like to stock the materials already finished in the Port of Miami. So if there is a strike, if a ship is broken or anything, it won't affect the jobs. So, we were able to take the three weeks off when the shelter order came in without a problem. Obviously, it hurt the volume a little bit, but no -- there was not one single delay in the whole process. Jose can amplify this.

And about the jobs, we have had two or three jobs in Florida that were delayed and one of them just restarted as I stated before. And two of them I believe as soon as -- because the other two are hotels and the hotel sector is suffering a lot. So I believe by the end of the year, they're going retake the hotels. And we believe that everything is going to come back to normal.

Good luck still. Stay well.

Thank you.

Our next question comes from Britt Tillman with D.A. Davidson. Please proceed with your questions. Our next question comes from Alex Rygiel with B. Riley. Please proceed with your question.

Thank you. Good morning, gentlemen.

Good morning, Alex. How are you?

Pretty good. Santiago, what portion of your sales don't get captured in backlog?

Just single family residential.

Okay. And then what was the exact single family number in the quarter?

About 30 million or so.

Perfect. And then, Jose Manuel could you -- or Christian, can you go back through kind of some of those key competitive advantages that you see developing due to COVID?

No, the advantages do not develop because of COVID. What my brother was stating is that, in the case of a down on the demand things, we have the lowest cost advantage. We can lower price and they still make money and keep [Indiscernible].

And also the other phase that is coincidental with the COVID is that we are -- the sorting system and the -- all the automation that we bought is coming into place precisely now in first and second quarter of 2020. For example, the sorting system for the aluminum for our window factory which will be a big impact, it will be operationally in June. So, you will need a lot less people that you could use to build more windows and be more efficient and lose less materials. So all that is coming into place. We already have in our extrusion plant the sorting system. And the we are now painting 20% more profiles than ever before with the less amount of people. So the costs have come down, prices of aluminum have come down. So there is a lot of efficiencies that will develop from now on that will help us maintain the competitive advantage and make us even better competitive.

It's very helpful. Thank you very much.

Thanks, Alex.

Thank you at this time, I would like to turn the call back over to Jose Manuel, Chief Executive Officer.

Well, thank you everyone for participating in today's call. We are very confident of our future. We work hard to satisfy our shareholders and to make sure that we keep gaining ground in the market in the U.S. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time.