Shiloh Industries, Inc. (SHLO) CEO Ramzi Hermiz on Q3 2018 Results - Earnings Call Transcript

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About: Shiloh Industries, Inc. (SHLO)
by: SA Transcripts

Shiloh Industries, Inc. (NASDAQ:SHLO) Q3 2018 Earnings Conference Call September 7, 2018 8:00 AM ET

Executives

Gary DeThomas - VP, Corporate Controller

Ramzi Hermiz - President & CEO

Lillian Etzkorn - SVP & CFO

Analysts

John Murphy - Bank of America Merrill Lynch

Richard Carlson - BMO Capital Markets

Alan Weber - Robotti & Company Advisors

George Casper - Private Investor

Operator

Good day, ladies and gentlemen. Welcome to the Shiloh Industries’ Third Quarter 2018 Conference Call. Today’s call is being recorded, and we will be conducting a question-and-answer session immediately following management’s prepared remarks.

I’d now like to turn the call over to Mr. Gary DeThomas, Vice President, Corporate Controller of the Company. Please go ahead, sir.

Gary DeThomas

Good day. Thank you, operator and thank you all for participating in Shiloh Industries’ third quarter 2018 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 will begin by reviewing our legal disclosure regarding forward-looking statements. I would like to remind all participants that certain statements made during this conference 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 might differ from the statements made today and in our management discussion and analysis of financial condition, as well as the results of operations in our Form 10-Q for the 3 and 9 months ended July 31, 2018 and other filings with the SEC.

Our earnings press release was issued today and has been posted to our Web site at shiloh.com on our Investor Relations page. The 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-Q will be filed later today 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 Hermiz, our President and Chief Executive Officer. Ramzi?

Ramzi Hermiz

Thank you Gary, and thank you to all for participating on the call. I will begin with some comments on our business performance and how we prepared the company to face certain geopolitical and industry trends. Throughout the call, Lillian and I will be discussing the progress Shiloh has made in driving financial and operational improvements as well as how Shiloh continues to position ourselves as an industry leader in delivering lightweighting product technology to the marketplace.

We delivered a solid quarter. As global revenue grew by 15% year-over-year to $295 million and adjusted EBITDA increased by 21% year-over-year to $22 million, driven in part by favorable product mix and continued transformation of the business.

Next, I would like to address three topics that have received much attention in the news recently: tariffs, trade, and regulation. I will discuss how Shiloh is strategically positioned to effectively manage these challenges and also pursue opportunities they may bring.

Tariffs. First, we continue to closely monitor the ever-changing tariff landscape and analyze the potential impacts on the company and the industry. From a Shiloh perspective, we feel confident that our strategy of the in-market, for-market has reduced our potential risk. We've aligned our supply chain such that raw material supply is sourced within the same region as we manufacture the product, with customer delivery also completed in the same region, allowing Shiloh to avoid cross-border tariffs.

In addition, we've material resale programs and material pass-through agreements with our customers to minimize the increased market pricing. While we expect to be relatively protected from the negative impacts of the tariffs, the same cannot always be said for our customers. As a high performing supplier and one who is focused on the customer, our teams are collaborating with our customers to develop lightweighting solutions that can offset the negative impacts from tariffs.

Our laser welding technology, for example, reduces steel or aluminum material consumption requirements which offsets the material price increases related to the tariffs. This is an example of lightweighting without compromise, or as we've stated in the past, lightweighting with benefit. The benefit is an example of Shiloh's ability to find opportunities within what is considered more broadly as a challenge to our industry. We will continue to update you as the tariff situation evolves.

Second, on trade. Last week there was news of an updated trade agreement with Mexico, potentially replacing the current NAFTA agreement. We are continuing to evaluate the new agreement in principle, and we are optimistic about the outlook and potential implications for Shiloh and the industry.

And third on the regulatory front. There has been discussion of potential changes to CAFE standards in the U.S. We continue to believe that the lightweighting will remain a compelling value proposition to help OEMs boost battery range and fuel efficiency, even if these regulatory standards are reached. The bottom line is that Europe and China are driving forward with increasing standards and the OEMs that supply vehicles to the global marketplace, which are our targeted customers, are going to continue to invest in vehicle attributes that comply with the most challenging standards.

Shiloh works every day in pursuit of its vision to enable sustainable mobility, creating a safer and healthier environment, which directly aligns with helping our customers comply with these increasing standards.

Turning to our recent targeted acquisitions from Brabant, we continue to be pleased with the pace of integration and impressed with our new team, and the quality of the assets as they become part of the Shiloh family. As a reminder, this transaction advance the execution of our strategic transformation by increasing our geographic, customer and product footprint. Our CastLight brand is now approximately one-third of our revenues.

Shiloh is now one of the largest structural magnesium providers globally and we are now manufacturing magnesium products on three different continents. The acquisition also increases our European revenue to approximately 30% on an annualized basis from 20% prior to the transaction, and more importantly providing additional growth opportunities with premium customer.

We believe both points are important for Shiloh, given the European OEMs are continuing to expand globally and the premium sector tends to hold up better in a downturn as we saw during the last cycle providing us with a more favorable mix.

During the quarter, we generated new business wins representing $275 million over the life of the programs, driven by Shiloh's disruptive door inner products, manufacturing with our proprietary laser welding technology as well as other products in our portfolio. These represent exciting new business wins for growth across all regions.

Launch activity continued during the third quarter as we made progress converting a portion of our $3.2 billion backlog into production. We expect that level of launch activity to increase going forward. On the operational improvement front, our restructuring activities progressed during the quarter, which will drive fixed costs out of the business and derisk the impact from potential changes in the cycle.

Before I turn it over, I'd like to officially welcome Lillian Etzkorn to the Shiloh team. Lillian is a seasoned executive that brings significant financial and automotive experience making her a natural fit for Shiloh. Most recently, she was CFO of CPI Card Group and prior to that held senior financial positions with both Dana Incorporated and Ford Motor Company. I am very excited that Lillian has joined us.

With that, I will hand it over to her to address the financials in more detail.

Lillian Etzkorn

Thank you, Ramzi. I’m very excited as well to have joined the company. I believe that Shiloh is uniquely positioned in the marketplace with a differentiated product offering and a long runway for growth. I look forward to helping the company achieve its objectives and developing relationships with our investors and the analysts.

I will turn to the financials now. Our results this quarter include a full quarter contribution from the Brabant acquisition. Revenue in the third quarter increased by 14.8% to $294.9 million compared to $256.8 million in the third quarter of 2017. This is comprised of approximately 5% organic growth compared to market growth of 1.4% and approximately 10% contribution from acquisition.

If you recall in 2013, 100% of our revenue was from North America. In our most recent quarter 72% of the revenue was from the U.S and 28% was from the rest of the world. Gross profit was $32.9 million in the third quarter compared to $29.2 million in the prior year period, representing a gross margin of 11.2%.Margins were favorably impacted in the quarter as a result of product mix and this was partially offset by launch expenses.

As we move into the fourth quarter, we will have an even heavier launch schedule. We continue to expect these launches to benefit future periods, particularly as we move into fiscal 2019 and beyond. We remain focused on our product strategy, while pursuing opportunities for operational improvements. Our restructuring activities remained on plan during the third quarter incurring approximately $2 million of costs.

As outlined in previous quarters, the total charge over the 24-month period is expected to be approximately $17 million, of which we’ve incurred nearly $10 million to date. As a reminder, the benefits from this initiative are expected to generate annualized savings of $7 million to $10 million by 2020, with savings beginning in 2019, generating less than a 3-year payback on a cash basis.

For the third quarter, net income of $11.1 million represented a significant improvement from the prior year period, which recorded a net loss of approximately $2 million. Favorably impacting net income were improved operating results of about $5 million, a favorable adjustment to the estimated annual tax rate of $5.5 million, and a favorable net return to provision due to a change in estimate of $2.3 million. Overall, it was a very solid quarter with strong year-over-year improvements.

Third quarter adjusted earnings per diluted share increased to $0.23 compared to $0.07 in the prior year period, reflecting a stronger earning. For the third quarter, adjusted EBITDA was $22.2 million compared to $18.4 million in the prior year period.

Third quarter adjusted EBITDA margin was 7.5%, an improvement of 30 basis points compared to the third quarter of 2017. Year-to-date, we generated operating cash flow of $50.9 million and we invested $38.7 million in capital equipment. Net borrowings under our revolving line of credit were $217.8 million and our leverage ratio was 2.9x on a net debt to trailing 12 months adjusted EBITDA basis. This represents a sequential reduction from 3.2x in the second quarter of 2018 and compares to 2.2x in the year-ago period, which was prior to the Brabant acquisition.

We continue to see leverage returning to the mid-2s over the next several quarters and we believe that our capital structure provides us for the flexibility to pursue growth opportunities including additional acquisitions.

With that, I will now turn the call back over to Ramzi for commentary on our outlook and some summary remarks.

Ramzi Hermiz

Thank you, Lillian. We remain confident that Shiloh can continue to perform in line with our expectations. We are closely watching the tariffs and other macro developments and continue to manage the potential impact. We believe that we can generate business opportunities by providing our customers with products that can assist them in improving performance, while reducing costs through lightweighting with our disruptive technology and our mixed material solutions.

Our strategy to transform Shiloh is delivering results. We are growing the business, strengthening our customer relationships and focused on improving profitability. We are demonstrating a consistent ability to deliver breakthrough technology and we believe we are well positioned to succeed in this dynamic market.

Operator, we are now ready to go to Q&A.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question today will be coming from the line of John Murphy with Bank of America Merrill Lynch. Please proceed with your question.

John Murphy

Good morning, guys and Lillian welcome to the team. It's great to hear your voice again.

Lillian Etzkorn

Good morning.

John Murphy

Just a first question on the rationalization efforts. I mean, you guys indicated that the benefits will begin in 2019. I’m just curious if you look at the third quarter of '18 and even the fourth quarter that’s upcoming. Will there be any benefits or drags from these efforts outside of what you're calling out as the charges and expenses go along with it?

Ramzi Hermiz

Good morning, John. When you look at the business and the activities, we are actually at a very exciting point with a number of new vehicle launches that are ongoing, and/or are happening now. So when you look at the activity in our Clarksville facility, what's going on in China, what’s going on in some structural castings in some of our squeeze cast technology, there is a lot of activity. I mean, we have a number of launches in trucks and SUVs and cars actually and so there's positive momentum. It is the general headwinds from an industry standpoint as we mentioned on tariffs and trade. And I’m more confident that there will be positive resolutions to many of these discussions. It will take some time. So there is some general macro activities, but I think Shiloh's as I mentioned earlier in the comments is I feel we are very prepared for that with our in-market, for-market strategy. And so it is primarily, I would say, launch activity and then the macro general geopolitical type of discussion.

John Murphy

And I’m sorry, on the operating base for the rationalization efforts, you said 2019, so I mean, we’re looking at two quarters out before there's any benefits that kick in, is that correct? And/or is there any sort of operational drag above and beyond what you guys are talking about as far as the rationalization efforts, specifically though?

Ramzi Hermiz

From a rationalization side, from restructuring side, I would say, we're -- we will go into 2019 fairly for the second quarter will be moving more to a full clip. So I feel good about our -- one, our restructuring initiatives and the progress we are making and we will see that at the end of the year. And then also even the product transformation, the mix shift as we launched these new products and some of the other technologies begin to sunset, I think that will be a good transition. So we feel good about what's going to go into 2019.

John Murphy

Okay. I think …

Ramzi Hermiz

I mean, when we look at 2018, we feel good, when we even look at what has occurred in through the course of the year taking on the acquisition of Brabant and the cost and the integration of that higher, I will say more geopolitical headwinds and still feeling that we are delivering our guidance is -- as a positive 2018.

John Murphy

And then just a second question around business wins, it sounds like they’re accelerating to some degree, the backlog is accelerating, just curios you can sort of dimension the magnitude of the increases in business wins and just talk about maybe sort of the business that you’re bidding on and sort of how much that opportunities that has opened up with the Brabant acquisition as well as your technology more recently?

Ramzi Hermiz

Our targeted pursuit plan that we’re going after -- specific vehicle, specific customers and driving that win, that strategy and what the team, our business development teams putting together is a structure of pursuit plan, planning is moving forward. When you look at the technology wins even within the quarter, we saw them in -- even in our BlankLight product category, door inners and lightweighting of doors, albeit our stamp related products, our seat structures. So we are seeing a good mix of content in the vehicle. As one of the messages I’ve tried to deliver is our focus on driving content per vehicle and that in getting deeper and stronger relationships and broader relationships with our targeted customers. And that content per vehicle, the new technology that we are putting in place is helpful. And really I can't stress enough the opportunity that Shiloh creates with our lightweighting technologies. With raw material price increases and -- while we -- we feel we’ve put a strong strategy in place and the way our contracts are structured, we are fairly well protected on that front. But the reality is our customers are not. They’re feeling that pain on the resale. And so from a Shiloh's perspective, we need to make sure that we're bringing added benefits to them so that we can reduce that pain and we can drive that cost reduction and our lightweighting technologies just do that. We can't take out of a monolithic door inner, we can't take 15%, 20% of the material content out of that offsetting that material price increase that they may be seeing. So we feel that this is actually a very good opportunity and our customers are looking at that as an added benefit and what Shiloh can bring as a global supplier.

John Murphy

And that sort of leads into my next question. As far as raws, the large majority is on pass-through or directed buy for you, is that correct? And if you can maybe give us a roundhouse percentage of what is on the -- sort of on the books of the automakers versus what you might have to absorb?

Ramzi Hermiz

The -- I would say super majority of our material -- of raw material content comes under a some type of contract where Shiloh is protected on the raw material costs, either through the customer resale programs, material escalators, or an opportunity at -- be it quarterly or monthly type of review on that material costs. So we feel we’re fairly well protected.

John Murphy

And then just lastly on the …

Ramzi Hermiz

We are [indiscernible] our customer has been cooperative with that. We found a way collaboratively with our customers to try to make this work for both companies and while we’re really committed in finding ways to help them reduce cost. And again, it's an opportunity for us to take share and bring disruptive technologies to the marketplace that are now may be look more competitive, because there's higher raw material increases.

John Murphy

Yes, it seems like more of an opportunity than a risk at this point for you. Then just lastly on the leverage target. I think you guys said in the -- within the mid 2x of net leverage was where you felt comfortable. That’s a bit higher than other suppliers are talking about. Is that something that you yourself, your cost structure and the way you’re operating it is something that is something you can handle, I mean, most folks in the supply base you’re talking about 1 to maybe 2 turns of leverage, the net leverage being their target. I’m just curious how you’re coming up with that. And if maybe you can get worked down over time below that number?

Ramzi Hermiz

I view us as still remaining a -- an acquisitive related company and continue to drive growth. And so as I look at the -- what's going on in the sector and what I see as potential opportunities in the marketplace, I see that there is an opportunity for consolidation. I believe that is going to continue to present itself. And so in that discussion similar to with the acquisition of Brabant, where we slightly tick up and then quickly drive down I see that there's other opportunities for Shiloh going forward. The next question being is there -- can you tell us about anything? No, I can't tell you about anything, but be sure that we've made a number of acquisitions, we’re looking at what we can do and so our eyes and ears are always open.

John Murphy

So then the next question would be, what would be the [indiscernible] leverage you would take on to do an acquisition though?

Ramzi Hermiz

We’ve traditionally try to stay below three. And we’ve been …

John Murphy

Okay.

Ramzi Hermiz

…able to do that. So if it was a steady state to answer your question, John, if it was a steady state and we weren't looking at doing something, being active out there, yes, I agree that in the low 2s. And you saw that last year we're 2.2. So you saw us on the lower end of 2s. I just see that there's opportunities in the horizon.

John Murphy

That’s very helpful. Thank you, guys.

Ramzi Hermiz

Thank you.

Operator

The next question is from the line of Richard Carlson with BMO Capital Markets. Please proceed with your question.

Richard Carlson

Hi. Good morning, guys, and congrats on a great quarter.

Ramzi Hermiz

Thank you, Richard.

Richard Carlson

So just, I guess, quickly on the guide, I was a little surprised not to see a little bump there and if I do the back of the envelope math, it sounds like you're -- it's implying a down, but pretty sharp down quarter for revenue but a decent quarter for margin, I would expect that to actually be opposite with your comments on the launch activity in 4Q. So how about just kind of reconcile those -- the guide with some of those comments?

Ramzi Hermiz

When we look at the full-year, I mean let's start with a full-year view. When you look at the full-year view and I mentioned this a little bit earlier, with the amount of activity that has gone on through the course of the year and what we see happening in Q4 from the launch activity, there is a lot of effort being put forth and that obviously we're confident that we will still deliver our full-year guidance where many of our peers have obviously backed off on their full-year guidance. When you look at the timing on revenue, you see quarter three many of our customers as they're getting ready for their vehicle launches have pulled forward in the quarter and show -- and I think you see some of that a little bit of that in quarter three as they get ready for their product transition, line changeover something like that, that means quarter -- they will be selling through some of their inventory and not necessarily pulling forward. We don't see full production for many customers, total 3 to 6 months after launch. And as you know there is BFGM, FCA, BMW and the like are launching a number of vehicles in -- at the -- after September and in the fourth quarter of the calendar year. So that's part of what you see, a little bit of a pull ahead into quarter three, but then also see heavy launch activities and really plant openings when you look at our facilities like Clarksville and China and Pierceton are basically -- the Pierceton and Clarksville virtually Brownfield facilities going online. So that's really what you see happening in quarter four.

Richard Carlson

Got it. And then I believe the Meridian fire happened in your fiscal 3Q. I think that was in May, so was there any impact that you guys are assuming would have been positive impact if you're picking up some business that you saw this quarter?

Ramzi Hermiz

You can see that -- you saw a little bit of that in quarter three when we supported our customers. In some cases those who are -- we were picking up next generation products of those products anyways, so what you have is that is a transition of some of the customer base. So there was a benefit in that in quarter three.

Richard Carlson

Got it. And then, I think you mentioned there is an adjustment for your full-year tax rate assumption. What is that assumption now?

Lillian Etzkorn

So what we had was some change in estimates in the quarter which is what we saw coming through. That’s related to both the reduction in U.S corporate tax rate, but also some change in estimates for credits that we had.

Richard Carlson

Got it. Okay. And then, I guess, just lastly, and as we kind of think about the target for fiscal 2020 of double-digit EBITDA margin and you answered on John's question kind of a little bit of trajectory there. When I start thinking kind of bringing that in with the goal of getting your leverage ratio down to the 2s, I mean, how do we think about maybe free cash flow over the next couple of years, because you have a 4% to 5% CapEx expenditures go right now, I mean, is that something that's going to come down over the next couple of years that would actually then help that leverage you have more cash in the balance sheet?

Ramzi Hermiz

When you look at where we see that going will -- as we're going EBITDA, the revenue line -- the EBITDA line is going to be growing faster than the revenue line if we do, let's say, broad math. So we see that as an opportunity to obviously increase free cash flow going forward and continue to paydown debt. But at the same time, I guess I’m putting out there that we do see some activity in the marketplace that can create opportunities in the supply sector that we are probably going to be redeploying that cash into driving growth.

Richard Carlson

Yes.

Ramzi Hermiz

And …

Richard Carlson

So just as far as the CapEx, you’re going to still need to keep spending [multiple speakers]?

Ramzi Hermiz

Yes, I feel -- yes, I feel 4% to 5% is a reasonable number going forward. It allows us room to keep our equipment in tiptop shape as well as room to support the book business that we have our backlog of $3 billion plus. They’re 4% to 5%, it's encapsulated in that number and forward outlook.

Richard Carlson

Yes, thank you guys.

Ramzi Hermiz

Thank you.

Lillian Etzkorn

Thanks, Richard.

Operator

[Operator Instructions] The next question is from the line of Alan Weber with Robotti & Company. Please proceed with your question.

Alan Weber

Good morning.

Ramzi Hermiz

Good morning, Alan.

Alan Weber

Hi. Ramzi, when you talk about -- can you just talk about in general term the $3.2 billion of book business, I think that’s all since '15. Kind of when you look at that, over what period of time will that convert to revenue? And was this kind of -- have we now seen kind of where that book business as you talk about it coming online is exceeding that sunsetting that you’ve talked about for a period of time?

Ramzi Hermiz

Answering those two-part question, answering the first part on the $3.2 billion. With that when we started really highlighting that in 2015, if you look at moving from a process oriented company to a product oriented, you see us move booking business 3 and 4 years in advance of actually going into production. So what you see is that business that we're booking in '15 is now starting to come online, and that's what you see that with for example the Clarksville launch for the magnesium structural products. So now that business is starting to come online. So when you look at the cadence of what we've been articulating of on that $3.2 billion is starting to happen in every year, a portion of that is rolling out. And again, when we look at that business these are life of program wins, so we're taking the annual revenue of $25 million program over a 5 years, a $125 million of contractual business. So that's how that number goes -- its calculated. And you see that starting to come on board. And, yes, simultaneously what you are seeing and what we’ve seen over the last couple of years is the -- that transition of in essence what was falling off is starting on a new product coming on. And now what we see is a -- more of a cadence of new business starting to come on when in a slow -- a slower rate of the technologies we're trying to exit are falling off, because we’ve -- we’ve really moved -- we progressed that, where before, I was seeing, if we think about a year-ago, I was talking about third, fourth inning, and midyear I was saying sixth inning, so we’ve kind of moved to the seventh inning of that, of exiting of some of that business that we want and that will be a little bit more gradual. But we’re bringing on some of the new technologies as they go forward.

Alan Weber

Okay.

Ramzi Hermiz

And then we do have -- and then with that, I mean, interesting we do see -- and some of that on the customer activities, we are seeing some -- our customers are launching a lot of products. So we do see -- I will see a few delays on their front where they push some production or launch dates out, but for the most part people have -- we are pretty pleased with the cadence our customers are moving at. There's a number of launches that they have over the next two and three years and that’s going to continue to keep opportunities in front of us. And again, its managing those launches. It is always -- it is an important part of any business relationship with our customers.

Alan Weber

Okay. And just a follow-up. When you talk about kind of the products that you bid on in '15 are starting to come on in '19. You talked about -- if you put aside the content per vehicle, when you -- as we were into '19, if those '15 -- you’re going to start looking at renegotiating those '15 contracts you follow what I’m saying, right? [Multiple speakers] the next generation which will come on in a few years.

Ramzi Hermiz

Correct.

Alan Weber

So when you at that on an apples-to-apples basis, how do you see pricing, EBITDA, kind of the -- where do you think you stand in terms of that replacement of kind of the next generation of what you bid after '15?

Ramzi Hermiz

That’s actually -- that’s a great question. I liked that one. When you look at the transition it really depends on is it going to be a carryover type of program. In other words, similar technology going and moving forward on the vehicle. So that is going to have more of the end of life of profitability, which again we structured our new contracts where you’re not -- you still got at the end of the program, you still got to make a reasonable -- you got to have a reasonable profit, because it could be extended and you don't want to be caught having something that's extended and have a poor pricing. So there's one version of does it stay in that. The next is, is there a change of technology or changes of design and really what we try to work with our customer over that period of time is there a way to identify opportunities to take cost out. And taking cost out doesn't necessarily mean less margin. It's actually in many cases should be an opportunity for us to improve margin on that exit rate where we could say, hey, we've looked at this design, we were doing a straight line linear weld. We could take a little, we can do something differ -- different with our curvilinear technology or if we on this structural casted part, if we designed this, we can get higher throughput or if we can make this change or tweak, so then the second category is what can we do to redesign our productivity on both sides. So there's carryover. There's redesign for productivity with a similar technology and then there's the category of disruptive technology. And then where you introduce something different where you had a stamping and we can replace it with structural die-casting or you were at aluminum, we said, do a mag structure or there's a -- our competitor has part one, we of part two and three. How do you bundle it, so we get part 1, 2, and 3 in a simplified design. So we really -- I put them in three broad categories of how we attack that next generation of product or that carryover product.

Alan Weber

Okay, great. Thank you very much.

Ramzi Hermiz

Thank you, Alan.

Operator

The next question is from the line of George Casper, Private Investor. Please proceed with your question.

George Casper

Thank you. Good morning.

Ramzi Hermiz

Good morning, George.

George Casper

Good morning and very, very good report. First off, can you identify in your new order wins that you reported here, what was the division of that between domestic and foreign? Do you have a number on that?

Ramzi Hermiz

This quarter is strong -- strong, a lot of activity, I would say, out of U.S OEMS and from a standpoint of and for production in the U.S.

George Casper

Okay. All right. And now can you …

Ramzi Hermiz

And also -- and I should say, and then I said North America, but in that is a fair amount of opportunity in Mexico. So when you look at back to our in-market, for-market strategy, so this is -- I mean, again, we worked hard with these -- one with our acquisitions and if you recall in quarter four of last year when we announced our restructuring plan, what you saw in that was us taking product that was made in Mexico and sold in the U.S. We moved it, we took what was made in North America and put in Mexico. Again, so we not knowing how the NAFTA agreement was going to be structured or where we ultimately we’re going to be, we really started our in-market, for-market strategy really 12 months ago and plus. So that's actually created opportunities for growth in Mexico, because we have more of a broader portfolio of technology and our team in Mexico is doing a great job in bringing on some product launches and helping us -- secure business. And again, the challenge that a lot of suppliers have with China, everything that we do in China is -- or China, our raw material supply, our production and our sales are within the region. The U.S is the same way Mexico and then Europe as a whole. So we look at the -- our restructuring strategy that we announced last year really has helped us secure what we feel will be a more of a regional type of structure and business. Mexico, Canada, that should be resolved shortly. I think Canada's issues are, it's down to three issues in that trade discussion and China is going to be out there for a bit. And if we’re going to see a little protracted discussion between our two governments.

George Casper

Right. Okay. And then, just you mentioned that China there, can you go on to further outline of how you’re coming along in terms of getting into manufacturing now in China, and you have multiple locations for some manufacturing, of course and the new plant assume is getting close to really get started. How do you view the remainder of the calendar year here to get you -- your momentum up there?

Ramzi Hermiz

First off -- first part of that question, how is our activities perform in China? Again, I couldn’t be prouder -- more proud of my team in China. They're doing a great job. As we look at our of the activities around our ShilohCore technology, dash panel technology, that’s continuing to move forward. The launch of the Nantong facility is continuing to progress, working with our customers from a startup production as we said it was going to be 2019. And that would be going into production, but prototype sampling all continues to go well and the plant and bringing on board talented people is continuing to move forward. So we like what we see there. And also what I -- what again is the opportunity in the market in itself, when you look at what is happening on the electric vehicle front and the new technology with companies like Neo and others it is pretty exciting opportunity from a lightweighting side. So I look at our future opportunities in the region as something very strong. Our technology from -- our NVH technologies, our ShilohCore and NVH portfolio helps as you take out mass out of vehicle, which we're very good at doing is how do you manage the sound in NVH and we have a perfect line of products. So we're excited about the -- when our launches, the business that we’ve booked about the challenges for our sales and business development team to continue that and move that forward. And when you look at the number of new vehicles that are being launched, the electric vehicles in China they’re talking about 165 different variants of vehicles for 2025. So there is, I mean, it is an exciting market separate from just number of units, the opportunities for lightweighting we're very optimistic on it.

George Casper

Yes. And also Ramzi, what’s interesting about your company is these -- this backlog that's been building now and new wins for the last, the 3, 4 years, a lot of that -- you’re really at the starting line in the 2019 model runs into 2020, which is very favorable for some momentum here for the company overall. And could you comment on this? In the last 48 hours, Mercedes has announced the new electric vehicle and In Sweden is it -- that it was discussed publicly here and the news, can you comment about what you're going to be seeing in the European market on the growth in electric vehicles?

Ramzi Hermiz

So when we look at and why the focus on our European business and the most recent acquisition and what we've been developing here is to position ourselves for that growth. We do feel that we -- our customers have been doing a great job and has really pushed the industry forward and has been disrupted in their our own right on creating a different view, a different architecture to the vehicle. And what you're seeing -- and a simplified architecture that I’m going to say on the premium side of that vehicle, if you look at more, the Model S. And now what you're seeing coming out of the Europeans is more of that -- it's been termed or put a skateboard approach where you're really building on layers in a simplified vehicle structure. And that simplified vehicle structure actually creates opportunities for Shiloh on the aluminum casting front, the magnesium casting front, our NVH products. So the strategy that we've been executing in Europe as Lillian said in her comments, in 2013 we had zero revenue in Europe. Now that’s going to be approaching 30% and what is to align ourselves with those premium vehicle. So we now have a relationships with Volvo. And as you also saw, they’re clearly a leader on the autonomous side, on the safety side part of our core [indiscernible] those on a safety and the environment. You have BMW relationship, we’ve Jaguar Land Rover relationship, we have BMW relationships, so you have that premium sector where they’re all targeting growth in the electrical vehicle front. And this is where regulation and really I hope the U.S continues to have a higher standard and moves forward on increasing our standards on performance on emissions and CAFE is, Europe's driving that and the global OEMS are based out and headquartered out of Europe, that's why we've aligned ourselves in that front. The European standards are already more stringent than what we have here in the U.S. China is following Europe and they’re continuing to drive down on the electric vehicle front. So our position and our focus on Europe is for that next generation technologies and we feel that what we brought on board now with aluminum casting capabilities to complement our steel stamping and steel and aluminum stamping capabilities and our magnesium capabilities, that agnostic multi-material approach to the industry, clearly creates opportunities. And this is why we see opportunity and we have a -- again, part of the Brabant acquisition was not only the physical assets, which helped us reduce capital expenditures because we had available capacity, but we got a very talented group of people that are also in-market, for-market to develop that growth. And we're leading a lot of our global relationships from the European front are led by our European team and so we are excited about that. So it's not -- it's been purposeful strategy over the last two years of developing that network in Europe and developing that opportunity in Europe. Now we got to convert that. We got to get those business wins, but we are now in a much better position to do that than we've ever been before.

George Casper

Great. And then just elaborate on one of your comments on this whole [indiscernible] we’re talking about. Can you identify for us the start date on the axle -- the aluminum axle system? How much of a market do you see that you can carve into on that side of the business? And I assume it's going to be U.S related initially?

Ramzi Hermiz

Well, when you look at the axle housing that we are launching and that is starting to go -- that will be a fourth quarter launch activity, that is for a particular OEM. They're doing roughly 25% of their business will be out of that axle housing. And so it is a new technology that’s being put in place. I will say that many of our competitors in that truck market are actively looking at Shiloh's technology to see if it can be incorporated into their market. So it is disruptive, So in this case we’ve -- as soon as that vehicle comes out, it will be much more -- we will brag about the work the -- where the customer did, but right now we are honoring our confidentiality agreements. But again it is disruptive technologies, it's exciting technology. We are going to look for them to roll it out to their course of their portfolio. Similarly, if you look at our ShilohCore dash panel, we started at one vehicle and this particular technology is with GM in 2013 and today we are on 1.5 million different vehicles that are produced in three continents for General Motors. So we see the same opportunity with our ShilohCore -- with our casting technology and saw the axle being to be able to do the same type of growth opportunities.

George Casper

Okay. And if I could -- go ahead.

Ramzi Hermiz

Nope. Go ahead, please.

George Casper

Okay. One additional question and could you identify the -- what you've accomplished in the last two acquisitions, Italy and the Netherlands. And how you are working those units into may be connectiveness with Poland and Sweden?

Ramzi Hermiz

From an integration standpoint, what we brought on board was again, for those in the call was structural cast and capability with aluminum and magnesium. And so that’s continuing to round out our portfolio and our footprint in Europe and that would be able to casting [indiscernible] and we did this prior to the acquisition of Brabant. We do not have aluminum capacity, casting capacity or aluminum in Europe. So now we have our portfolio of steel -- coil steel, coil aluminum capability from a stamping side. We had casting capabilities on aluminum and magnesium. So from a structural portfolio aspect, we now have that portfolio complete in Europe. What we would also brought is -- was additional capacity. We were -- I will say, matches in Poland on the magnesium front, where it's -- what we brought on board with the acquisition was the -- we need to expand our client of building plant, we got our plant for magnesium capacity which will allow us somewhat the content Poland because they’re working seven days a week, 24 hours a day to get there more to a standard shift and leveraging that footprint there. From an integration standpoint, this is again where -- again a business is based off on its people. And our -- the leadership -- actually in many cases from our casting group, came out of the Poland acquisition is Shiloh team member is managing the integration, use regionally sponsored multiples with casting group, but also what we got out of the Brabant acquisition, our Head of European sales became -- our new Head of European sales came out of Brabant and doing a great job bringing that together the team, the sales team out of Italy and engineering team have all come together. So it is we've done a nice job on the integration side. I’m pleased with the progress the team has made. But that’s also been one of Shiloh's strength over the last few years is that the ability to integrate our acquisitions and make them part of the Shiloh family. I mean, we are creating everything -- we are a personality say, that everyday where the personality is maturing, as we get a little bit older, as we get a little more connected and little bit more global, we continue to make progress and the -- a lot of the leadership typically has remained with Shiloh and have bigger and broader, in many cases now global job. So integration is going well from a physical asset side as well as from a human capital side, the teams are making progress.

George Casper

Okay. All right. Thank you. It looks like you're really on the leading edge here going towards the latter part of this year, and good luck going forward. Thank you.

Ramzi Hermiz

Thank you, George.

Operator

Thank you. At this time, I will turn the floor back to management for closing remarks.

Ramzi Hermiz

Again thank you everybody for your participation today. Again a solid quarter for Shiloh. Again, we spent a lot of time today talking about the team and the people and again our success is built on those individuals, and those individuals working together as one as a team. So I’m pleased with that. We are looking forward to a busy quarter four, a lot of activities are going on. We will keep you informed and abreast of any situations as you guys read about what’s going on the trade front. But as you look at Shiloh as an investment and Shiloh's ability to, I will say, derisk some of these challenges -- broader macroeconomic challenges, I think that is something that clearly differentiates us from many of our peer group, and something you should continue to consider. So with that, I would like to thank everybody for their time. Wish everybody a great weekend and we will talk to you soon. Thank you.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.