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Edited Transcript of SHLO earnings conference call or presentation 19-Dec-19 9:30pm GMT

Q4 2019 Shiloh Industries Inc Earnings Call

VALLEY CITY Jan 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Shiloh Industries Inc earnings conference call or presentation Thursday, December 19, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lillian Etzkorn

Shiloh Industries, Inc. - Senior VP & CFO

* Ramzi Y. Hermiz

Shiloh Industries, Inc. - President, CEO & Director

* Scot S. Bowie

Shiloh Industries, Inc. - VP, Corporate Controller & Principal Accounting Officer

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Conference Call Participants

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* John Joseph Murphy

BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Welcome to the Shiloh Industries Fourth Quarter and Full Year 2019 Result Conference Call. Today's call is being recorded. (Operator Instructions)

I would now like to turn the conference over to Mr. Scot Bowie, Vice President, Corporate Controller of the Company. Please go ahead, sir.

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Scot S. Bowie, Shiloh Industries, Inc. - VP, Corporate Controller & Principal Accounting Officer [2]

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Good day. Thank you, operator, and thank you all for participating in Shiloh Industries Fourth Quarter and Full Year 2019 Results Conference Call.

I'm joined on today's call by Ramzi Hermiz, our President and Chief Executive Officer; and Lillian Etzkorn, our Senior Vice President and Chief Financial Officer.

I'll begin by reviewing our legal disclosure regarding forward-looking statements. I would like to remind all participants that certain statements made during this call may constitute forward-looking statements. Although such statements reflect our current reasonable judgment regarding the direction of our business, actual results might differ materially from those in the forward-looking statements. You can find information concerning why the actual results may differ from statements made today and in our filings with the SEC.

Our earnings press release was issued today and has been posted to our website at www.shiloh.com on our Investor Relations page. The earnings press release contains reconciliations of certain non-GAAP numbers presented on this call today, including adjusted EBITDA, adjusted EBITDA margin and adjusted earnings per share. Our Form 10-K is expected to be filed tomorrow with the SEC.

A replay of today's call will be available. Instructions for the replay are included in today's press release.

I will now turn the call over to Ramzi, our President and Chief Executive Officer.

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [3]

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Thank you, Scott, and welcome to everyone participating on the call.

Today, I will highlight 2019 accomplishments, provide our views on industry dynamics and discuss how we have improved our position for 2020. Lillian will then provide a more detailed review of our financials and introduce our 2020 guidance.

Overall, I'm pleased with Shiloh's performance during our fiscal 2019. We delivered our guidance commitments, with full year revenue within our range at more than $1 billion and delivered adjusted EBITDA at the high end of our range at nearly $70 million.

I recognize we had a number of challenges, such as premium launch expenses that we overcame. We also managed a number of unplanned challenges such as the UAW strike at General Motors.

We made tough decisions, remained focused and delivered on our plan. We ended the year with good momentum. Q4 saw the realization of strategic operational initiatives beginning to have a positive impact on our margins. We generated higher gross profit and EBITDA dollars on lower revenue, expanding our gross margin by 160 basis points and our adjusted EBITDA margin by 140 basis points. We've demonstrated our ability to deliver results in 2019, positioning us for continued improvement in 2020. We made progress on a number of key initiatives that will allow the company to grow profitably and improve the capabilities of our organization. We took restructuring activities to better align our business with market conditions, and we created a more variable cost structure and a lower breakeven point.

Specific to SG&A, our restructuring efforts reduced SG&A by $17 million or nearly 20% compared to 2018. We will continue to control costs in 2020, positioning Shiloh for healthy growth in EBITDA dollars and margin expansion.

The year was very active for product launches. We delivered on these programs and improved and upgraded our launch process. These improvements will prove to be valuable for reducing the premium costs of future programs. The launches represent higher-value-add products with strong reoccurring revenue that will improve our mix and contribute to our profitability going forward.

We executed our launch of the Nantong facility on time and on budget and are now moving into full production. The China launch is significant when you consider Shiloh outperformed the market by 29%, growing nearly 17% while the broader market declined by 12%.

In Europe, our customer deliverables are on track, and we completed additional launch activity in the fourth quarter.

In North America, we remain very excited about the upcoming sports car program launch that leverages our proprietary Fintech technology. We engineered a differentiated solution that reduced the number of components, allowed for significant cost reductions, assembly simplification, complexity reduction and an overall weight savings of nearly 35%.

Our new business wins totaled approximately $630 million in 2019, with more than $150 million occurring during the fourth quarter for U.S., Asian and European OEMs, with a strong mix of pickup trucks, SUV, CUV and premium cars. We are proud of the progress made during the year as these programs will provide attractive revenue streams.

A number of the awards during the quarter include laser-welded body side inner panels for FCA; clean mobility stampings for Jeep-brand vehicles; and propulsion parts for multiple GM vehicles, including the GMC Silverado. These wins will utilize existing facilities and equipment, reducing capital investment. These are examples of how we are focusing on product and customer growth opportunities while staying equally focused on returns on capital. With a current market uncertainly, we are taking an even more prudent approach to deploying incremental capital as we focus on maximizing reuse and redeployment.

Our restructuring actions are reducing fixed cost and streamlining our business. Since we began this initiative, we have consolidated 3 manufacturing sites, made geographical shifts to place production closer to our customer facilities, centralized departments and optimized our product portfolio. We accelerated our restructuring actions in Europe, given the decline in the commercial vehicle market as well as ongoing weaknesses in passenger vehicles. Acknowledging the challenging market conditions and weaker performance of select customers, we have taken a noncash goodwill impairment charge that Lillian will discuss in more detail.

Overall, our restructuring has created a more flexible and variable cost structure. The success of our strategy was validated as we flexed our operations in North America to manage through the recent GM strike by controlling costs and improving throughput. As we look forward, we will continue to evaluate targeted restructuring actions in 2020.

As critical as investing in new product technology is investing in manufacturing technology. During the year, we continued to upgrade our technology and systems to improve operational and supply chain efficiency and create competitive advantages through digital transformation. This transformation includes system consolidation and process simplification which will deliver improvements in capacity planning, customer support, along with improved efficiency and business satisfaction. We flawlessly launched our second site under the new ERP system, and we will continue to roll out across our North American manufacturing footprint with the conversion of 5 additional sites over the next 12 months.

Shiloh has been diligent in our dedication to improving the environment and the importance of sustainability. Our vision statement is clear. We believe in creating innovative solutions for sustainable mobility and a safer, healthier environment. Our vision statement is more than just aspirational. We are delivering with real numbers. Let me share some of our progress.

Our products are now 100% sustainable, made of materials that can be recycled at the end of use. Our products are produced in our global network of landfill-free facilities. In fact, in 2018 alone Shiloh was able to eliminate approximately 340 million pounds of waste from landfills. Additionally, our lightweighting strategy drives the use of less raw material, which lowers steel and aluminum mill production and raw material in transit.

The combination of our focus on the environment, and our lightweighting technology ultimately result in lower energy consumption and the reduction of greenhouse gases throughout the value chain.

We are pursuing additional ways to reduce our carbon footprint. We are excited to announce that Shiloh, through a strategic partnership with DTE Energy, is converting 3 facilities to 100% renewable energy. The conversion will include 2 stamping plants and our Plymouth technical center. This will occur by January 2021 and make Shiloh the first automotive supplier in the Michigan Green Power program. We will continue this effort across our global network.

Equally as important, Shiloh embraces diversity and inclusion. Earlier this year, we welcomed Ms. Gena Lovett to our Board of Directors. With nearly 30 years of operational experience in automotive and aerospace industries, Ms. Lovett brings a wealth of knowledge and experience to our Board. We are happy to have her as part of the Shiloh team.

In addition, we recently announced our partnership with CADIA, the Center for Automotive Diversity, Inclusion and Advancement. CADIA is a collaborative organization dedicated to doubling the number of diverse leaders in the automotive industry by 2030.

We are excited about the positive impact that our products and our manufacturing processes have on the environment, the expanding nature of our sustainability efforts and the diversity within our organization. We will continue to educate the market about our broader ESG efforts and key accomplishments.

To recap, we delivered on our guidance, we won new business, we increased organizational flexibility, we improved our launch process and we exited the year with good momentum, setting the stage for an even stronger 2020.

With that, I'll hand it over to Lillian to address the financials in greater detail.

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Lillian Etzkorn, Shiloh Industries, Inc. - Senior VP & CFO [4]

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Thank you, Ramzi.

We delivered results that were consistent with our guidance. Our full year revenue of $1.05 billion was within guidance and consistent with global production when considering key factors. A key factor impacting our revenue for the full year was the GM strike, which occurred during our fiscal fourth quarter and reduced revenue by approximately $24 million. Additionally, we had negative currency effects of approximately $20 million, prior year non-repeating customer emergency orders of $20 million, and the exit of certain unprofitable products of $24 million.

Reviewing revenue by region. In Europe, we performed slightly better than the market, with Shiloh down 4.1% compared to the market decline of 4.3%. Excluding currency translation and non-repeating emergency customer orders, we outperformed meaningfully in Europe with a growth of 4.8%.

In China, Shiloh significantly outperformed, delivering 16.9% growth versus the market which contracted by 12.2%.

Our 2019 performance in North America, excluding the impact of the GM strike, the nonrepeating emergency customer orders and product exits, was down 1.6%, outperforming the market which declined by 3.4%.

We improved our gross profit during the fourth quarter as a result of effective cost management actions, better mix and our success moving past the elevated launch costs earlier in 2019.

Gross profit was $24.6 million in the fourth quarter, an increase of $800,000 against a $41 million decline in revenue. Gross margin of 9.5% expanded by 160 basis points compared to 7.9% in the year-ago quarter.

We remain focused on our product strategy while pursuing opportunities for operational improvement and asset optimization. We incurred $17.1 million of restructuring costs for the full year across North America and Europe. As we look forward, we will assess market conditions, customer actions and other factors and continue to proactively align our operations and business structure.

Full year net loss of $19.9 million compared to a net income of $11.5 million in 2018 largely impacted by the $17.1 million restructuring previously mentioned and a noncash asset impairment of $5.7 million.

As Ramzi mentioned, during 2019, we continue to restructure and realign our European business to optimize future performance for recent industry and forecasted declines in volume. Related to those developments, we evaluated our goodwill position, considering changes in macroeconomic conditions, industry trends, Brexit, operating results and the timing of the transformation.

We recognized a $5.7 million noncash impairment in the fourth quarter due to the reduction in calculated fair value.

Full year loss per share was $0.85 compared to earnings per share of $0.49 in 2018, while adjusted earnings per share of $0.13 compared to $0.62 in 2018.

Adjusted EBITDA was $69.8 million for the full year for an adjusted EBITDA margin of 6.6%, a 10 basis point improvement over 2018. Adjusted EBITDA came in at the top of our guidance range of $65 million to $70 million. We ended the year with good momentum as fourth quarter adjusted EBITDA of $16.6 million increased by 11% year-over-year, overcoming the GM strike impact in the fourth quarter. The adjusted EBITDA margin of 6.4% improved by 140 basis points year-over-year as a result of the disciplined cost control efforts and productivity improvements and improved mix, given our recent launches moving into production.

As of October 31, 2019, cash and cash equivalents were $14.3 million. Cash generated from operating activities for the year was $31.2 million, and we invested $55.2 million in capital equipment. We anticipate an improvement in cash generation in 2020, while our investments in capital equipment will remain targeted and focused, with an emphasis on maximizing reuse and redeployment.

Net borrowings under our revolving line of credit were $248.7 million, and the leverage ratio was 3.4x on a net debt to trailing 12-month adjusted EBITDA basis. Longer term, we continue to target leverage in the mid-2s while managing investments to grow the business.

Turning to our initial outlook for fiscal 2020. And industry forecasters expect full year automotive production volume to be down 1% to 2% in North America and China and down 3% in Europe. While certain program delays will have an impact on 2020, overall we feel we are well aligned with our customers' demand trends. In addition, the commercial market is anticipated to decline in 2020. This has a meaningful impact on our European business. We have accelerated our restructuring efforts in Europe to better align our operations with market conditions and help drive profitability going forward.

We are introducing our 2020 revenue guidance of approximately $1 billion and adjusted EBITDA guidance range of $75 million to $80 million. While the top line is expected to decline approximately 5% largely in line with the earlier-mentioned market conditions, we expect to build on our fourth quarter performance and grow our adjusted EBITDA dollar by approximately 7% to 15% compared to 2019. This represents approximately 90 to 140 basis point improvement of margin expansion over 2019. The expected improvement is a result of the strong cost control, restructuring, productivity action, contribution from the ramp-up of our China operation and the mix of higher-value product.

I will now turn the call back to Ramzi for some summary remarks.

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [5]

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Thank you, Lillian.

I am pleased with Shiloh's progress during the year. We delivered on our revenue and adjusted EBITDA guidance, continued the rollout of major product launches while improving the efficiency of our process, won new business, strengthened the organization through investments in technology and continued to execute restructuring efforts to optimize our assets. All of these efforts position the company for continued success.

As we enter 2020, we are well positioned to navigate market conditions and improve profitability.

With that, operator, we are now ready to go to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of John Murphy with Bank of America.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [2]

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First question, Lillian, when you're talking about the GM strike, you gave us numbers, $24 million of lost revenue in the fourth quarter. Then you also gave us $20 million of lost -- of revenue that you exited that loss that you walked away from. What was the margins or the EBITDA that was lost in the course of that GM strike? And if we think about that revenue that you exited of $20 million in the quarter, what roughly was the margin on that? Was that significantly below average?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [3]

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First, John, on the exited business, that was over -- through the course of the full year, not necessarily just in quarter 4. So if you think about it, in the case of General Motors, that was only in quarter 4. So when walking through those numbers, those were the full year numbers. But since the general Motor Strike, because of our calendar year being November 1, the strike from September 16 to October 28, that was 100% in our fourth quarter. So the fourth quarter impact for GM was 24.

When you look at from a margin basis, we don't really speak to it on a margin side, but GM's obviously a good, robust customer of ours. And what we really wanted to highlight with quarter 4 was the ability that we've really dropped down our breakeven point and increased the flexibility and I'll say the variable cost structure of the business. So -- and that's in part -- if you think about margin improvement year-over-year and -- or I should say, quarter-over-quarter, you see that strength of the activities that we've taken, the improvement of the launches is that momentum going into 2020 we feel really good about.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [4]

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Okay. But I mean, it's pretty impressive that you're -- you've had this kind of improvement year-over-year in EBITDA margins and you had that kind of lost revenue in the fourth quarter. I'm just trying to gauge -- I mean, it seems like the improvement that you made sort of on an organic basis, stripping that out in the fourth quarter, was even better than what we're seeing in the printed adjusted numbers, right? The adjusted numbers still include the hit from the GM strike. Is that correct?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [5]

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That is correct. And the adjusted numbers include that. So again, we -- it was robust -- it was a good quarter. We had -- I think as you look at where we were going and if you think about our guidance through the course of the year, each quarter we had raised the midpoint of the guidance. We're really proud of the fact we came in at the high end of the guidance. And really, when you look at it from the response of the organization, you begin with the dedication of our employees with the GM strike and really how everybody rallied around a situation that was outside of everybody's control operations, flexed labor. We -- collaboratively with our workforce to leverage that. We took advantage of opportunity to perform maintenance on equipment, take advantage of that.

And when we went in, we went in pretty hard and focused. We went in with the assumption it would be a protracted strike. We did not know, but we prepared as if it was. And I think that really highlights what we've been working on over the last couple of years with our restructuring efforts is that variable cost structure. Yes, there's uncertainty in the market going forward, and we want to make sure we're positioned.

I mean as you look at the market going forward, with the USMCA being passed or at least moved on to the Senate today, I think that removes a little bit of uncertainty. But at the same time, if you look at the European market, with what's going on with commercial vehicle, you're very familiar with the new standards that are going to go in place, moving from 120 to 95 grams of CO2, there's still a lot of market uncertainty. And what we want to build for Shiloh is that variable cost structure that -- and that is a mindset of response. And so yes, we are proud of what we did in quarter 4. We're focused on what we're going to do and deliver in 2020.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [6]

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Okay. And then a second question, and you just alluded to this on trade already, USMCA. But because you're so close to this, I'm just curious what you think about trade going into 2020. It seems like the risk has gone down reasonably dramatically, particularly around USMCA. And it seems like 232 may be off the table. But just being very close to it, Ramzi, I mean, what are you kind of thinking about for trade going into 2020?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [7]

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Well, starting with -- when we look at it from a Shiloh perspective, what we've built, and we've commented this in prior calls, an in-market/for-market strategy. So what we do in China remains in China; Europe, Europe; North America, North America. Actually, U.S., U.S.; Mexico, Mexico.

When you look at USMCA, that's moving forward. I think that's going to be important because many of our peer group or our customers, we're not clear on where they want to put capital investment. So from a region standpoint, I think you'll see movement in investment and more surety in where people are placing their capital dollars. And I think that is going to bring stability on that standpoint.

It was mid-November when the administration was supposed to comment on 232. They have not yet. And so there are still open-ended questions of what that means if they have the right to launch 232 or not. But as you said, that has, I'll say, quieted down a little bit from a conversation piece.

China, you see positive news, but I think that's settled, and they're not looking at putting in some of the additional tariffs that they were discussing. So I'd say there is a settling, but there's still uncertainty.

When you go to Europe with Brexit, we have the end of January. We have the Brexit decision that's going to happen. What is that transition for the year, and then what does North America or U.S. do with the U.K.? I mean there's talk that the U.S. will be very quick to form a trade alliance with the U.K. and arrangements, which for customers like JLR that we're -- they're important customers, I think that brings surety around customers like that.

So I would say we're at a pretty good -- we're settling. And I think piece by piece, there's a confidence being built. There's other uncertainties like Brexit, W -- the new emission standards in Europe that are going to still leave some question out there.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [8]

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Okay. And then also on the backlog, you mentioned the fourth quarter was pretty strong. I think you mentioned $150 million of wins. If we think about your backlog in aggregate, what have you booked in 2019 full year, and as we think about what rolls on in 2020, I mean how should we think about the backlog?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [9]

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Well, total for the year was approximately $630 million, so a robust year. What was in a good mix of products from a standpoint of mix of technologies on our side of lightweighting technologies. Also a good mix of Asian, European and U.S. OEMs. So a nice balance there. And then when you look at pickups, SUVs and premium pass car a good -- again, a nice mix on it. So we feel good about that.

What we really like is the technologies that were successful are curvilinear laser welding, which again takes out a lot of weight. You look at our structural die-cast products, both mag and aluminum, again, weight reduction, battery extension. So that process continues to go forward.

So pleased with the efforts of the sales team and the business development team and engineering on what they did. We're still pushing them for more. The challenge that we have and one of the things, as we look at uncertainty is, also what the team is that focused on reuse and redeployment of capital. We want to be extremely capital conscious as we go forward because of market uncertainty. And you've commented this in your own work papers of there's still that -- be it used car pricing, be it age of vehicle that there's risks in the marketplace. And so we want to be sure back to their variable cost structure as well as continuing to increase that content per vehicle and drive that opportunity forward and really push more in select vehicles.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [10]

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Okay. And then just lastly, real quick on M&A. I mean what kind of capacity do you have both on sort of a capital standpoint, if you saw something really attractive, human capital perspective and then also sort of opportunities in the market? Is that something you would consider? I know, obviously, leverage is something you want to focus on taking down, but there may be opportunities that avail themselves. Just curious how you feel on your capacity and the opportunities in the market.

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [11]

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I would -- I'd start with, right now, we're primarily focused on operational efficiencies and continuing the flawless launch. We have a number of launches even going into 2020 that -- they're significant. So right now, it is -- the primary focus is operational efficiency, flawless launch, net new business with our structure.

When you look at the recent acquisition in Europe that we made in '18, for the casting -- structural casting and aluminum, that those were distressed businesses. We bought them, I'll say, very competitively, and we have opportunity to take on additional business in those operations. We had a huge success. As you remember, the first quarter, couple of hundred million dollar win of contract value in -- for our Oss facility in Europe, which came from an acquisition.

So our acquisition strategy of providing technology and growth capital is continuing to work. I see the market -- you're seeing a higher number of distressed companies out there. So I think the opportunity for us is really more to compete and take and win that way than necessarily acquire and really focus on the business going forward. It's -- again, we don't normally comment on acquisition. So if there's something out there, it doesn't -- I think, the priority and where we want to stay focused is the operational efficiency. And I think that's going to be the fastest, most accretive way for us to increase our margin and shareholder value.

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Operator [12]

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Next question comes from the line of [George Gaspar], private investor.

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Unidentified Participant [13]

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First question, back on China. Can you identify how many auto manufacturers you're selling components for now? And how many -- can you identify the components that you're producing at this point? And how is that going to change the rest of this fiscal year that you're now in?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [14]

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From my -- from multiple customers, it would be 5 different customers that we're working with. We have our ShilohCore dash panel product line, which is an NVH product, and it's going very well. We'll continue to increase growth in that and expanding that business. We have our magnesium structure cross car beams, IP structures, again, multi customers. That business continues to progress. The Nantong facility, which is focused on aluminum transmission components, that's the one that we've just -- we're in launch -- the launch is going great. We're really pleased with the success of our team in China. And really with the support with our American team because this was a product we launched in the U.S., then brought it to China. Again, great collaboration between the Shiloh activity. So I'm proud of them.

And that business is really launching in -- right now and through 2020. If you think about where we stood 3 or 3 years-plus ago, we had 0 revenue in China. We'll be approaching now 4% of our revenue in 2020. So we're still seeing that progress going forward. But again, I was just in China at the end of August, and the facility looks great. The team is doing some really nice work. I'm proud of them.

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Unidentified Participant [15]

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Okay. And so if I -- back a couple of quarters ago, you answered a question I asked about what you are targeting for revenue stream on a year-to-year basis going forward. And I believe that you indicated it would be about $25 million the first year and $50 million in the second year. With what you just referred to 4% of revenue stream that would be in the $40 million range. Is that something that you would potentially be able to do $40 million in the current fiscal year, or are you talking calendar year?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [16]

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No, that's kind of where we see ourselves in the current fiscal year. So 2020.

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Unidentified Participant [17]

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Okay. Well, that looks like you're running very nicely ahead of where you initially had expected. So that's positive.

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [18]

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When you think about it this way, George, if I may, we're up nearly 17% year-over-year. The market was down 12%. So from a -- so we're -- the -- and it's a technology product. It's a high-end, high-value-add type of technology. It makes -- it allows our customers make a better transmission. The sound management.

And really, when you look at our ShilohCore technology, with the expansion of EVs, noise is even more important or the ability to minimize outside noise, be it wind noise and wheel -- ambient noise from the vehicle wheels. This technology has a strong place in the marketplace. So again, our product opportunity is EV and internal combustion engines, and we feel Shiloh's well positioned with our lightweighting technology.

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Unidentified Participant [19]

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Yes, okay. And then in terms of magnesium versus aluminum or aluminum versus magnesium in the parts generation, the new parts that you're signing contracts on, is there any substantial percentage that's moving towards the magnesium side versus aluminum? Can you highlight a little bit of that?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [20]

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Well, one of the benefits of magnesium is its strength. It's stronger than steel. It's a very stiff product. So you find it in product categories like an IP structure, an instrument panel structure; a front-end carrier, and that is where stiffness makes a difference. And you see that use.

The aluminum has -- you see a wider range of applications where it's used in. And we -- the benefit that Shiloh has is when we put together a value proposition, we can propose to a customer, "Do you want -- you can have steel at this cost at this weight, you can have aluminum at this cost at this weight or magnesium." And in some cases, it's part reduction or complexity reduction.

So when you look at our -- we still don't talk about the name yet, but that 2-seat mid-engine sports car from an American OEM that's coming out soon, this is where we eliminated stamping -- steel stampings, aluminum parts, carbon fiber parts. And we simplified it with an aluminum heat -- our fintech technology. So that was being able to put a value proposition together for a customer that saved 35% of the weight but also saved significant amount of cost and tooling investment.

So the strength -- or one of the many strengths of Shiloh is that ability to look at a value prop and design it with the customer in mind on how they assemble a vehicle and what's their architecture vehicle. So our strength is the variability, the flexibility of design.

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Unidentified Participant [21]

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Okay. All right. And I have a question on the makeup of how the auto manufacturers are moving in the United States here. Do you -- can you highlight how you see maybe some further consolidation, plant to plant in North America, particularly the U.S.?

And I see that -- it looks like Ford's going to try to concentrate on expansion in factory jobs in Michigan here by 3,000 or so going forward. And it looks like there will be some new models coming out broadly. How do you see yourselves in Michigan? Do you -- can you -- do you anticipate that you're going to have to adjust your facilities in Michigan? Or are you going to be able to concentrate on the facilities that you have outside of Michigan to supply into any new auto manufacturing facilities?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [22]

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Well, when you think about it from a Michigan standpoint, we do have 4 facilities in Michigan. And actually, as I mentioned, I'm proud to, again, emphasize, 3 of them will be carbon-free, or in the sense of energy, 100% renewable energy. So we're excited about the progress we're making with the state of Michigan and DTE Energy.

So Shiloh is extremely focused on sustainability and the environment. When I -- as I mentioned earlier, I mean, our vision is to support sustainable mobility and cleaner, healthier environment. So we are environmentally focused on that, and we're able to do that in our plants in Michigan. Again, 100% renewable stamping plants. I'd say that's pretty impressive, and we're really proud of that, backed from an environmental side.

So that investment in -- that some of the OEMs are putting in Michigan are -- FCA is also expanding and building their first assembly plant in Michigan probably in over 20 years. So the OEMs are making investments in Michigan. But at the same time, you have GM and LG announced their joint venture for battery production in Ohio. So we still see that there's -- this is the geographic shift we're going to see. And again, part of our restructuring efforts were really to align with the forward product plans of customers. So we are taking that restructuring and looking out that 5-year, 10-year window of where we think production will be and how do we align our capacity with that.

At the same time, the recent announcement of the PSA and FCA merger we actually -- FCA is a top customer of ours. So we're looking at this as while there's always risk with a merger on -- are you on the winning side or the losing side of depending on that mix, we historically have had a good relationship with PSA. So what we don't do, Shiloh does not do a substantial amount of business with them, so we're viewing that as an opportunity. We'll see how it shakes out in Europe with both of them having capacity there. But from a PSA standpoint in North America, they don't have that infrastructure. So could that be a win for Shiloh as well as in Europe? We'll see. We're going to stay close with them. So I see that consolidation.

There will be a shakeout in the supply base. There needs to be. The announcement of PSA and FCA, they talked about a significant amount of the savings coming from purchasing savings and leveraging of the supply base. So how do we make sure that we have the technology that they need? But where again our strength comes in, if you look at the European market and needing to get to 95 grams of CO2, that's from the 120 mark right now, you're not going to get that by engines alone or propulsion systems alone. And so this is where our lightweighting portfolio is perfect for this, and this is where we see there's opportunity on that front.

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Unidentified Participant [23]

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Okay. And one question on Mexico and the interplay with your operations in the United States with this tariff situation going back and forth and some indications of variances in how Mexico looks overall. Can you comment on how you think you can do there?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [24]

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Well, this goes back to a few years ago when we launched -- not that we knew that this was going to become an issue, but as focused on efficiency, we established our in-market/for-market strategy. And that -- again, to clarify, in-market/for-market is how do we vertically integrate raw material supply through our manufacturing process to the customer within that region. So we have worked on and -- some of our restructuring was supporting moving what we make in Mexico remains -- we ship it in Mexico, what we make in the U.S. stays in the U.S.

So the cross-border trade is not a risk to us. What was a risk was more of what was going to happen to a customer depending on the resolution of USMCA. So from our standpoint, it just gives our customers more surety about their investment. Really didn't have a risk to us.

Now where it becomes an opportunity is as some of the trucks that are manufactured in Mexico today remain in Mexico versus being brought up to the U.S. So the labor value content and some other things, the regional value content, some of the product that may be imported from outside of Mexico or the U.S. now there's a higher threshold for what would be considered North American vehicle. And that means there will be some localization in 1 or 2 regions, either -- primarily Mexico or the United States. BMW announced the localization of their transmission to the U.S. So that's an opportunity for us as we have a strong relationship with BMW. So these are opportunities I think USMCA can create for Shiloh with our global footprint, but our North American footprint, and we can supply these companies globally.

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Unidentified Participant [25]

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All right. Okay. And one last on the financial side. Can you comment on how you view your flexibility in terms of having sufficient capital to do the expansion and changes that you view that you need to do, this going-forward process and then, of course, putting more parts into the field in terms of buying the compression systems and whatever else goes with that? Do you see yourselves having the financial capability without going into the market, let's say, on the equity side?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [26]

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We do. As Lillian mentioned, we see positive cash flow for 2020 and then with what we feel with the booked business that we have and the capacity that we have in place, we have plenty -- we have the liquidity to go forward to support our growth as we look at it.

We did comment that year-over-year we'll see sales soften, really tied to the market. Commercial vehicle, we made that in the prepared remarks. I mean commercial vehicle is down around the world. So that's something that we'll manage through. But from a CapEx side, we feel we have the right mix of capital. We'll still continue to invest in maintenance capital and growth capital to support the businesses that were booked. We talked about the $630 million. And we feel comfortable with -- we'll still be in the same, similar range of CapEx -- we're in this year.

But keep in mind, some of that capital is associated -- I talked about the ERP launches and really the -- there's product technology and product investment and then there's systems and infrastructure in a manufacturing facility. And so by upgrading our plants and the -- really, the data -- the digital transformation, manufacturing 4.0 to really drive that operational efficiency as we go forward, we are putting dollars in that capital to move that forward. And we'll simply -- by the end of -- in the next 12 months, we'll have eliminated 3 ERP systems. Again, we grew a lot through acquisitions, so we had a lot of multi systems. Those will be eliminated, again, creating more efficiency for the organization. And really, as we look at propelling the business and really driving that speed going forward, we're going to drive more momentum.

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Unidentified Participant [27]

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Okay. All right. Well, thank you very much for all the explanations, and wish you the best going forward here and really pick up some momentum during 2020.

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Operator [28]

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(Operator Instructions) Since there are no further questions left in the queue, I would like to turn the call back over to Mr. Ramzi Hermiz, CEO. Thank you.

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Ramzi Y. Hermiz, Shiloh Industries, Inc. - President, CEO & Director [29]

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Thank you.

As we mentioned, 2019, we made a lot of progress and continued to move the business forward. We're excited about 2020. We see that there are a lot of opportunities for us as we focus on our launches again, flawless launch. That's something that we're going to continue to focus on. We've improved the process. We feel we have a much more robust process. We're going to drive that new business wins. We feel that there's opportunities for our technology, and that this technology has a place, and it's continuing to be sought-after.

When you look at the environmental side, and it's becoming more and more of an opportunity. And when you look at Shiloh from a standpoint of our renewable energy use, the value our product brings from lightweighting and reducing greenhouse gases, it continues to extend battery range, we feel that that portfolio of -- that we bring both -- not only from our product but how we make our product and the value that we can bring to our customers is going to be important and something we're going to continue to market as we go forward.

Business is becoming more and more global. The world is getting bigger, and it's getting smaller at the same time, and Shiloh is well positioned with our in-market/for-market strategy, and we're excited about that.

And we're going to continue to perform. We've provided guidance only for the last 2 years. Each year, we've delivered on our guidance. That's our expectation, is we are going to continue to perform. And we will perform in 2020.

So with that, I would like to wish everybody a merry Christmas and happy holidays, and wish everybody a safe and happy and healthy New Year.

So thank you very much.

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Operator [30]

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This concludes today's teleconference. You may now disconnect your lines at this time.

Thank you for your participation, and have a wonderful day.