Shiloh Industries, Inc. (SHLO) CEO Ramzi Hermiz on Q2 2019 Results - Earnings Call Transcript

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About: Shiloh Industries, Inc. (SHLO)
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Earning Call Audio

Shiloh Industries, Inc. (NASDAQ:SHLO) Q2 2019 Earnings Conference Call June 10, 2019 8:00 AM ET

Company Participants

Gary DeThomas - Vice President, Corporate Controller

Ramzi Hermiz - President & Chief Executive Officer

Lillian Etzkorn - Senior Vice President & Chief Financial Officer

Conference Call Participants

John Murphy - Bank of America

Alan Weber - Robotti Advisors

Operator

Good day, ladies and gentlemen. Welcome to Shiloh Industries' Second Quarter 2019 Results 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 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' second quarter 2019 results conference call. I am 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 statement. I would like to remind all participants that certain statements made during the conference call may constitute forward-looking statement. 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 statement. You can find information concerning why the actual results might differ from statements made today and in our filings with the SEC.

Our earnings press release was issued today and has been posted on our website at 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-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. Welcome to everyone participating on today's call. I will begin with some financial highlights, discuss current market trends, highlight progress with our launches, and provide an update on some of our important initiatives. Lillian will then walk you through our financials in more detail and discuss our outlook.

I'm very pleased to report that Shiloh's comparable revenue outperformed the market during the second quarter. We also meaningfully improved our profitability compared to the first quarter. We benefited from better mix as we converted more of our higher value-add business into production, contained cost through our restructuring efforts, and made significant progress advancing key product launches into production.

Sequentially, our gross margin nearly doubled to 10.5% compared to 5.3% in the first quarter, while our adjusted EBITDA margin expanded by 365 basis points to 8.5%. On a year-over-year basis, our adjusted EBITDA margins expanded by 170 basis points. And these results were driven by the strength of our technology-focused products and improved operational performance.

We continue to expand our global reach with 26% of our revenue coming from Europe and Asia and 74% from North America. Second quarter revenue on a constant currency and continuing operations basis outperformed the market rate of production. We've made good progress bringing new products to market and winning new business.

Our business in China continues to ramp up nicely. We grew our revenue in China by 17% in the quarter, significantly outperforming the market which declined by 10.6%. We remain in the early stages of growing our presence in this region and expect the momentum to continue as we move forward through the launch phase to production during the second half of the year.

As discussed in prior calls, we have 17 major launches occurring in nine different facilities in five countries and three continents this year highlighting the global breadth of our capabilities.

By region, 12 of the launches are in North America, three are in Europe, and two are in Asia. By vehicle type, 12 are trucks SUV or CUV, and five are luxury passenger or sports cars. We have a nice balance across our three key geographies as well as an attractive mix of vehicle segments.

Program schedules remain on track to complete all of our planned launches this year. During the quarter, we achieved a number of significant customer launch milestones across our key regions. In North America, we had a very successful launch of laser-welded door runners for RAM trucks and our facility in Clarksville passed max run-at rates for BMW and Daimler programs.

In Europe, we also industrialized a number of programs into production. In China, launches continue to be on track and on budget meeting customer preproduction milestones, which we expect will set us up for a successful start of production in quarter three.

Year-to-date our new wins totaled over $440 million and include large wins with BMW on a global platform and most recently, a win with FCA on a high-volume vehicle that will utilize our proprietary laser-welded technology. This $140 million opportunity continues to emphasize our industry-leading position in curvilinear technology.

Our wins are across regions and value-added products and include customers such as BMW, Cummins, Daimler, FCA, GM, Honda, PACCAR, Scania, and many more of our Tier 1 partners.

On the operational improvement front, we continue to progress our North American restructuring activities focusing on reducing fixed cost and streamlining our business. Since we began this initiative, we have consolidated manufacturing facilities made geographical shifts to place production closer to customer facilities, centralized departments, optimized our product portfolio, and captured synergies along the way.

We are watching industry trends and working closely with our customers to understand their production strategies and product plans so that we may optimally align our global operations. These actions line-up well with our ongoing strategy to create a more flexible structure that enables us to adapt to the variability of our customers' and market cycles. We believe that we are well-positioned to manage current industry conditions and flexible to respond with additional actions across regions as needed.

We are also investing in technology and systems to improve operational and supply chain efficiency and create competitive advantages through digital transformation. This transformation will include system consolidation and process simplification which will deliver improvements in operations, capacity planning, and customer support along with improved efficiency and business satisfaction.

To recap, we continue to execute our strategy which is allowing us to navigate current market conditions, take advantage of demand created by our disruptive lightweighting technologies, and build global capabilities to position Shiloh for success. From an operational perspective, our launches and restructuring initiatives are contributing to improved profitability and will help drive future growth.

We are strengthening our customer relationships and actively engage new prospects with our suite of differentiated products. As an example of our success, I am pleased to report that we received General Motors' prestigious Overdrive Award. GM recognizes only four of their more than 20,000 suppliers who demonstrate extraordinary leadership in cultural change and commitment initiative that drive exceptional business results for GM.

Shiloh also received GM's Supplier Quality of Excellence award for our Wegman facility. We have now received this award for five of the last six years, again demonstrating Shiloh's consistent track record of performance. These awards demonstrate the types of partnerships that we have forged with our customers and highlight how our innovative products and customer commitment are being recognized.

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

Lillian Etzkorn

Thank you, Ramzi. Revenue in the quarter was $273.4 million compared to $297.3 million in the second quarter of 2018. As Ramzi mentioned, we outperformed the market with a 2% decline in constant currency revenue from our continuing facilities versus a market decline of 7%.

Currency translation reduced revenue by nearly $8 million or 2.7% and the closure of an underperforming facility earlier in the year reduced revenue by approximately 3%. We continue to be active with our launch efforts and have moved past the peak expense activity during the first quarter, which resulted in a significant sequential improvement in our margin.

Gross profit was $28.7 million in the second quarter, which more than doubled compared to the first quarter. Gross margin of 10.5% almost doubled from the first quarter's 5.3% and nearly matched the 10.6% in the year-ago quarter.

As a result of moving past of this year's peak launch activity, which included premium cost, we experienced a more normalized level of expenses during the second quarter, while also benefiting from the continued ramp-up of production of higher-margin products for many of our value-added wins from recent years.

For the quarter, net income was $1.1 million compared to $4 million in the second quarter of 2018. Earnings per share was $0.05 compared to $0.17 a year ago. Adjusted earnings per share was $0.24, which was unchanged compared to the prior year period.

Adjusted EBITDA was $23.3 million for the second quarter, an increase of nearly 15% compared to $20.3 million in the prior year period. The increase was driven by cost control, operating leverage from higher-margin business and a reduction of launch expenses. This was achieved on a lower revenue base.

Adjusted EBITDA margin expanded by 170 basis points year-over-year. We remain focused on our product strategy while pursuing opportunities for operational improvement and asset optimization. Our restructuring activities remain on plan and we incurred approximately $4.5 million of cost during the quarter, primarily for employee severance costs and professional fees.

We may incur additional cost with future restructuring actions based on our assessment of market conditions, customer actions and other factors. As of April 30 2019, cash and cash equivalents were $17.7 million. Cash generated from operating activities for the quarter was $6.4 million and we invested $17.6 million in capital equipment.

Net borrowings under our revolving line of credit where $245.8 million, a decrease of $7.4 million compared to the year ago level. The leverage ratio was 3.1 time on a net debt to trailing 12-month adjusted EBITDA basis representing a modest year-over-year improvement. Longer term, we continue to target leverage in the mid-2s, while managing investments to grow the business.

Turning to our outlook for 2019. Our end market assessment remains consistent with industry forecast for volumes to be down slightly year-over-year. We are now halfway through our fiscal year and pleased to be reiterating our stated 2019 revenue guidance of approximately $1 billion to $1.15 billion.

Given our confidence in the outlook, we are raising the midpoint of our adjusted EBITDA guidance range. We are tightening the ranch to $65 million to $70 million from the prior range of $62 million to $70 million.

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

Ramzi Hermiz

Thank you, Lillian. Overall, I am pleased with the strong quarterly performance and we remain on track to achieve our full year guidance. While the broader mobility industry remains uncertain, our restructuring efforts are producing the intended results and we have the flexibility to pursue additional actions as needed. Importantly, we continue to execute our strategy, bringing our innovative products to market during a year of elevated launch activity. We are also winning new business globally to position us for continued growth. In closing, we are investing in leading technologies making Shiloh an even stronger company for the years to come.

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of John Murphy with Bank of America. Please proceed with your questions.

John Murphy

Hi, good morning guys. A first question just around sort of the cadence through the course of the year. And it looks like the way you're lining up guidance is EBITDA might decline slightly sequentially in the second half versus the first half or maybe actually be down somewhat materially. I'm just curious, are we really just looking at seasonality? Or is there something going on with the launch cadence or restructuring, where you think the second half on an absolute EBITDA basis might be a little bit lower than the first half?

Ramzi Hermiz

Good morning, John. When you look at how the launches are rolling out as well as seasonality, quarter two is traditionally our stronger revenue quarter. If you keep in mind, our quarter three overlaps a lot of the summer periods, both the shutdowns in North America and in Europe. So you do see that seasonality in our quarter three quarter four and that's just kind of how -- having our fiscal years on November 1 is a little bit different than what you may traditionally see.

As far as launches go and the progress, that is going in the right direction. We do see that -- again, the market does have softness and some uncertainty. So we do feel some -- that there's a little bit there. But as we mentioned, as Lillian mentioned, we feel very comfortable with our guidance, actually tightening our guidance and moving that midpoint up.

So we do see that a stronger progress as we get through launches.

John Murphy

Okay. And then, the second question. Given the pop back up in margins and I don't mean to make light of what I'm sure is a lot of hard work to get there. But when you think about it, I mean, there's two specific components you're highlighting is roll-on of newer higher-margin mix business, as well as, sort of, your restructuring, rationalization and cost-cutting efforts.

It's kind of hard to believe that the mix would shift that much sequentially from first quarter to second quarter, so it seems like your restructuring rationalization and cost savings are really the key driver of that sequential improvement. I'm just trying to understand, are we looking at "somewhat sort of normalized margin" before we get the benefit of mix improvements over time? And this is kind of the new rebasing? Because there's, obviously, a lot of volatility from the first quarter to the second quarter, I just want to understand what the biggest swing factor was.

Ramzi Hermiz

A large swing factor was associated to launch cost. So that was -- as we were heavy in quarter one with these launches and really from quarter four and quarter one, quarter four of 2018 and quarter one. So there was a fair amount of launch activity. As we moved to more of a steady state that is providing that benefit part of that benefit that you see. And we still have more launch activity left this year.

I mean, there's -- this year is a very busy year, as we mentioned, nine facilities, five countries, three continents. I mean, there's a lot of activity still to happen through the course of the year. But we've also focused both on that cost cutting or cost management and managing that tightly. So it's a combination of cost cutting, restructuring, as well as managing that launch activity. And as we get through some of the peak, you see some of that benefit falling to the bottom line. So it's really a combination of all three.

John Murphy

Got it. But, I mean, as we think about going -- walking forward in our models, I mean, this quarter is a much better baseline to be starting off of than anything we saw in the first quarter, there's a lot of disruption around launches or, I should say, cost around launches in the first quarter. And this is something, "a little bit more normal to walk off of". Is that a relatively fair statement?

Lillian Etzkorn

Yes. John, it’s Lillian. That is fair. And there will still be some seasonality that will be some puts and takes with the margin, as we move forward. But, yes, this is more of a normalized type of level, then again with new puts and takes from that.

John Murphy

Okay. And then, just lastly, I think, you mentioned there're $300 million of bookings. Just curious, how that -- the pace of bids and wins is really going? And really how we should think about that going forward? Because, I mean, the China business is outstripping really was a really very, very tough environment right now.

So I was just curious, maybe thinking about this pace of bookings in North America, Europe and China and maybe just kind of give us a little bit more color about what's going on. Because it sounds like things are very good near term and it's also coming through in, sort of, outpacing the market particularly in China.

Ramzi Hermiz

Well, we're very pleased with the progress the team is making. The business development team, engineering team continue to highlight the strength of our products. As we sit down with our customers the technology and the pressure that they're seeing from an EV side is falling very much in line with what we're trying to accomplish.

The opportunities in China really, especially, on the focus on the EV market segment and the need for Shiloh's lightweighting technology; we still see much activity, or very high degree of interest and working to convert those. But also North America and Europe, when you look at our aluminum laser-welding technology our curvilinear technology, the business wins that we're having.

And as customers are also being focused on cost, as they go forward with the materials in their investment strategies, Shiloh's strategy of lightweighting Without Compromise, one of those things is without compromising cost. So we're able to bring in that additional value on tariffs and trade.

While those tariffs have really been -- the USMCA and steel and aluminum being removed, tariffs being removed, cost cutting still is an important piece. We can offset 60% of the tariff impact with laser-welding technology. So there is a lot, both from a lightweighting strategy, a technology strategy and a cost benefit we're providing and actually creating more of a disruptive model. So as our customers see that, we do feel -- we're starting to get that pull, or that greater pull with that.

An example would be, the Overdrive Award with General Motors that we just won. There's only four suppliers that are given that award of their supply base. And really, it helps -- by helping drive exceptional performance. And this is where it's both technology performance cost performance consumer value performance. So we're excited about what we see in front of us.

We need to execute flawlessly. That's what we're trying to do this year. That's what we're focused on. But that opportunity, both from a European side, some large wins in Europe, with the aluminum/magnesium, we're really -- we're still genuinely excited about the what sits in front of us and both across the type -- the regions, as well as the products.

John Murphy

And maybe just lastly, sneak one more in. I mean, on the tariff side, I mean, how much of your business or product is shipped cross-border by you specifically? I mean, obviously, I guess, hopefully with the U.S./Mexico or USMCA stuff coming together slowly that will hopefully be off the table.

But would there be any risk there? Or if we think about sort of China and anything that needs to be shipped out of China, do you have any direct real exposure to this? Or will this all be more on the customer side that they may have some issues?

Ramzi Hermiz

And really this was initiated probably three -- over three years ago. We really drove for an in-market for-market strategy. So within each region, we basically have all, from material supply to manufacturing, to customer, just -- sales is within the region. So we actually ship across borders very little. So what we're making in Europe remains in Europe. What we make in the U.S. is primarily consumed in the U.S., Mexico for Mexico, China for China.

So our exposure to cross-border trade is very, very little, if none. From a customer standpoint, yes, they may be procuring the product from us within the region and there may be a challenge for them for cross-border, but as -- and so that has a subsequent effect potentially to Shiloh. But as a direct cost impact or direct cost risk, we've basically eliminated that as a risk.

Similar to what we did with our customer contracts on raw material, and moving that – where that risk is either their resale programs or their – we have – we're indexed to certain market trends. So, we've really tried to focus on how do we protect ourselves from things that we cannot control and that has proven to be a very successful – very successful strategy for us.

John Murphy

Great. Thank you very much guys.

Ramzi Hermiz

Thanks.

Operator

The next question is from the line of Alan Weber with Robotti Advisors. Please proceed with your question.

Alan Weber

Good morning. I missed one part.

Ramzi Hermiz

Good morning.

Alan Weber

Can you talk about what revenues were if you – because I think you made a comment about adjusting for the plant closure and foreign currency what revenues were say quarter-over-quarter?

Ramzi Hermiz

Quarter-over-quarter revenue was down slightly. And – but what Lillian was articulating too was the – there was about half that change was associated to currency give or take $8 million in currency. And the balance was some market, but some closing of our Pendergrass facility.

Alan Weber

Okay. And then Ramzi when you…

Ramzi Hermiz

When you take those two, we outperformed the market decline.

Alan Weber

Okay and great. So when you take a look at the product launches, how should we think about kind of the ramp-up of revenue in terms of where you are today versus what those assuming a flattish environment or however you want to just determine? But a year from now those product launches should be relative to what we've been say over the first six months?

Ramzi Hermiz

Really when we look at 2020 Alan, we really haven't come out with our guidance or our expectation for 2020. We have our guidance that Lillian outlined for 2019. But we do feel that, we'll perform to the market. So, if you look at, what let's say the various forecasting agencies are forecasting, we're in line with that from a market side. We're currently just see that trend at this point, at least that is what we're willing to say today.

Alan Weber

Right. But I guess, what I'm really asking so the product launches that you did in the first half of this year should the revenue -- what – like even if you don't give the exact dollar revenue kind of conceptually, can you just help with direction? In other words, how – you've incurred a lot of expenses and how much of the potential revenue have you really gotten from those product launches?

Lillian Etzkorn

Yeah. Good morning, Alan. So we're still in – obviously in the process of launching those products ramping up to the full production. Really, we'll start having that benefit as we look towards – really more towards 2020 than the full benefit in 2019. So we'll continue to have that mix shift and we haven't necessarily defined what that value is at this stage. But as these products start having more wholesome impact to the business, we will continue to see that richer mix of that business coming onboard as we move into next year. We're probably…

Alan Weber

And by richer – I'm sorry.

Lillian Etzkorn

No. As I say, we're probably like the seventh eighth inning of this product migration and product transition and transformation into the richer mixed business.

Ramzi Hermiz

And richer mix being defined as higher margin, I think that's where you're going to go with Alan. So that is as we look at trying – as we look at moving that margin percentage up, we feel that these products what we're launching now are a critical step in that process, both from a – our – not only on the aluminum/magnesium side, but with lightweighting of steel. I mean, as we've talked about – the vehicle is going to be a mixed material solution. And so we've been focused on how do we target select high value steel opportunities where we're leveraging the higher strength steels or lighter weight steels as well as the technology of the aluminum/magnesium casting all fall into play.

Alan Weber

Okay. I guess, but I guess – I'm just trying to understand. So the product launches say that you completed in the – even in the first quarter, how do they – just in general, how should we think about the revenue? In other words assuming a flat end market – at what point are they kind of – are they kind of peaked in revenue? That's what I'm really trying to understand.

Ramzi Hermiz

Right. When you look at – I'll try to answer it this way, Alan. If you look at these launches that are coming out represent about 10% to 15% of our revenue. So, call it $100 million to $150 million of revenue that is being launched just this year that will take out – will either replace and in many cases replace a commodity type of product with a higher-margin more technical product. So you have a combination of – we have been – while we're disrupting other competitors, we are also disrupting in some cases ourselves and replacing a technology, or what may have been a commodity type of stamping with more of a complex value-added assembly or casted solution.

So it is – so, if you look at it that way, it's not all 100% pure conquest of market, it is also disruption of our own business as well as in the marketplace. And so it's that combination, but we're launching call that 10% to 15% of our total revenue is being launched or launched this year, if that helps. So it's not all conquest, but it is both a – it's disruption and conquest, which will again, when we look – when you look at year-over-year revenue, we feel that even with the market decline – or market changes that there is a consistent year-over-year revenue.

Alan Weber

Okay. And I guess in terms of the restructuring, can you just update on what you expect the additional cost savings to be?

Ramzi Hermiz

Well, those are wrapped up into our guidance that you see for 2019. And then as we still are focused on a exiting of a 2020, 2021 time frame of the double-digit margin this will all be rolled into those objectives. So it's in our guidance – it's in our guidance for this year already.

Alan Weber

Right. Okay. I guess I'll leave with my last question, which is on your last comment. Do you still see 10% EBITDA margin? Well, I think you just talked about exiting fiscal 2020.

Ramzi Hermiz

That is still our goal at this point. When we've looked at what we have in front of us, there's clearly a high degree of market uncertainty that's out there. So we need to understand, what that is. I think more and more of with USMCA being agreed upon, but not yet passed. I think that will remove some uncertainty. And that market risk, again, when we look at Europe, we look at China. We still feel because of our in-market for-market strategies, we're not at risk per se because of cross-border trade. We do need to understand and see what's going to happen in the regions the various regions and their vehicle performance.

In some cases, our customers we have a great relationship with people like BMW and Mercedes who make right now their SUVs pretty much exclusively in North America. So they can be impacted by global trade. So we need to understand that mix or that risk.

But again direct for us we feel comfortable that we're well positioned. We feel that our strategy and the product mix supports that transition. Our investment in both technology as well as the right use of capital and the right way to deploy or reuse capital all supports that trend.

So yes, we feel that there's still that opportunity exists for us and we're on -- we're moving to that pace.

Alan Weber

Great. Thank you very much.

Ramzi Hermiz

Welcome. Thanks, Alan.

Operator

And the next question is from the line of George Gaspar [ph], a private investor.

Unidentified Analyst

Good morning to everyone. Some very nice positive developments come about. That's nice to hear. I'd like to just explore a little bit further on the new product development and the introductions. You've talked the last couple of quarters about -- and particularly about an axle system that you were going to engage in get into the market.

Can you talk a little bit more about your progress on that? I know you were indicating that you could potentially ultimately capture $200 million of an $800 million market and you can correct me on that if those numbers aren't correct. But can you describe a little bit of how you're doing here?

Ramzi Hermiz

Yes, good morning George. Well now that we're into -- more in the launch we can talk about the vehicle it's on. It is on General Motors truck their T1XX program for the axles that they make in-house. So they manufacture some of the axles internally; and some of the axles they buy externally. And so we're on the internal program.

This is again disruptive technology, lightweighting technology. Taking 24 pounds out of the current component that was made out of -- prior was made out of iron. So as a product, it's great to see it out on the road. But today we're still -- they're still launching to get into full production for that vehicle -- or for that axle.

So that's moving very forward -- or progressing very well. What that's bringing is now that -- others. We're talking to other OEMs who also make solid beam axle housings. They're I think now -- obviously clearly because there's a vehicle out there believing the story, believing the message believing in the technology. So that is – that’s a positive.

The business development teams and engineering teams are working with our customers on how does it makes sense and where does it makes sense for other customers? So again disruptive technology, I mean these are things that – you know solid axle beam has been around for a long time, aluminum has been around for a long time.

But the ability to make it have the robustness and the product performance is -- Shiloh's been unique to be able to accomplish that with our product, not only our alloy technology, but our process technology.

So that we're very pleased with that. It's part of the 17 launches for 2019. So that is moving forward. But it's not -- it doesn't stop with just that one application. Some of the other products that we're looking at our curvilinear laser welding is again, is replacing some -- I'll say monolithic technology. We have some things being looked at even for mid-model changes because they bring either a weight or a performance or a cost benefit to the customer.

So we are trying to take the disruptive approach and really going in. Again even it maybe competing against one of our own existing products, if we have a solution that we think can bring a value analysis, value engineering traditional how do we help our customers become more cost competitive is important.

Again it's weight cost technology quality. We are trying to build that bundle of capabilities and present that to the marketplace. If the market's going to soften which many of us are -- the customers are going to want -- they're going to need to manage cost as well so we want to make sure that Shiloh is in the position to bring them that value in addition to our technology.

Unidentified Analyst

Yes. Can you just comment on your -- the original target that you indicated the $200 million in this system? Have you -- do you still think you can do that? Or have you changed your target, on the axle system?

Ramzi Hermiz

From a business standpoint?

Unidentified Analyst

Yes.

Ramzi Hermiz

I think there is -- yes. Okay. From an axle standpoint, I still believe that this is a market -- a product that we can create a market in and it's just something unique to Shiloh. So again, we're getting need not only what we're doing, but obviously from a customer standpoint. But I think when you look at this type of weight savings. And again, it's not the only part of the axle, but it's a critical part.

I believe this is an opportunity that is hard to look past to not at least explore and understand more about. It's -- 24 pound is a big deal on one part number. And again it's just part of our $1500 per content -- or per vehicle that we feel that we have an opportunity to perform against to actually target and grow with. So this is part of that opportunity.

Unidentified Analyst

Okay. And then the next question details in planned upgrades in the U.S. and the forward view requiring upgrades across the whole spectrum of your operations worldwide. Can you give us some detail about the cost that went into upgrades in the quarter?

Ramzi Hermiz

So when you look at how we -- how we're approaching both our capital and our technology investments, so we look at technology both as an engineering as a product technology, our operational technology being our facilities and then also the digital technology.

So when you look at some of the upgrades that we are making even within our facilities as we look at the digital side, how do we use -- be it our ERP systems? How we're using and getting data out of our equipment? How do we use analytics to help drive lower scrap levels better -- higher operating efficiency? So we are pursuing the digital side.

We're launching our first plant in our quarter 3 and that will be our benchmark plant that we will then use as we roll out other activities. So we're focused -- so our -- let's call it, our version of Industry 4.0, I think that term's a little overused. In some cases, it's just saying everything is Industry 4.0. But it is how do we use data and information to help drive product performance and equipment efficiency and uptime? So we are pursuing that.

And then -- so that's already built into our forecast, our capital targets. Similar in the past when we were -- we'd say, five -- our target's roughly 5% of revenue, we were building plants and investing in facilities was always part of that. So we don't -- when we talk about our capital investment, it is the total bundle of activities not just only presses.

So it's infrastructure. It's technology. It's, I'll say digital -- hard technology and soft in the sense of digital technology. So we are taking that approach. And that's built into the capital number that you saw for quarter two, which was roughly in that $17 million range for quarter two.

Unidentified Analyst

Okay. Okay. Correct.

Ramzi Hermiz

Still on track for full year -- are still on track for full year targets.

Unidentified Analyst

Okay. All right. Thank you. And then the next question on China. Can you detail a little more information of where you are in terms of revenue at this point in time? And the -- in terms of your equipment install at this point since you started, what your employee count looks like? And how many auto manufacturers are you working for at this point? And what's your target, let's say, by going into 2020 as to what you can do in China?

Ramzi Hermiz

From a standpoint of details, I'll say, there's -- I'll give it more of a higher level George. We don't -- we try to avoid, let's say, exact details by facility. But if you look at from a customer, if I think, I captured the three questions or three subparts, working with three different OEMs at this point, as we go into launch. We are 2019 out of the China region, we'll probably do $24 million in 2019 and that will nearly double in 2020 just from a growth standpoint.

Unidentified Analyst

Right.

Ramzi Hermiz

When you look at equipment install, that's already -- that the equipment is in place. I'll be actually in China with some of my team later this month to -- as we kind of kick off, and I'll say entering into start of production, it's putting -- the team's done a great job, really impressed with our team in China.

They are really doing good work. I'm really pleased with what they're accomplishing. And so we'll be there to see the plant in operation as we launch. I mean, this product really is the 9-speed, 10-speed technology is really is launching the second half of this year. So we see that momentum moving forward.

Unidentified Analyst

That speed technology that you're introducing that will be second half, how broad do you see that in terms of catching more volume over there?

Ramzi. Hermiz

When it -- our technology is a lot of it’s in the process technology. This is -- we have two major products that we're focused in China. We're really trying to stay away from -- anything that's really commodity. So these are more unique patented technologies or disruptive technologies.

So when you look at our ShilohCore, our dash panel technology, lightweighting NVH product that continues to be rolled out on additional vehicles. And that capacity we're now at the point of identifying if we want to invest more in this technology for another line. So this is -- as products go more to an electrical vehicle side NVH or noise, vibration and harshness is critical and how do we manage, that with a very quiet vehicle, you hear a lot more voice from the road and things. This technology actually addresses that.

So we see a lot of interest on that front. And that's -- when I said, we're working with or we're selling to three OEMs, we're working with a number of them. And then on the casting side with our process technology, we're able to make a very unique product for transmissions that have displaced sintered technology. So again, back to that disruption.

How do we -- a vehicle's going down the road not missing anything, so how do you bring value that is a disruptive that helps them achieve longer life, better performance, better cost? And that's where the technology that we're launching for the 9-speed, 10-speed transmission is a unique solution. And really it has application in most transmissions as people increase the speeds the 9 and 10-speeds, this is where you have a more increased value opportunity for us.

So it's more for the higher-speed transmissions, as they're looking at weight and cost to justify that incremental, adding that 9-speed, adding that 10-speed to that transmission.

Unidentified Analyst

All right.

Ramzi. Hermiz

So, again, -- and we're trying to stay away from just commodity stampings. And then on the third piece, on the third leg of our strategy in China is our magnesium structural products, our IP structures, our cross-car beams, where these are again weight-focused type of solutions.

Unidentified Analyst

All right. The interesting thing about what you're doing there is I don't think that Wall Street has much of a designated thought process on the progress that you're making in this China operation. Yes, there's volume on -- car outputs is falling. But you're coming in and you're a whole new thing there. And I think, it's just -- the dynamics for Shiloh just seem to be very, very significant in the China market. That's just my view point at this point.

Could I also ask you a question about future financing requirements? One of the concerns has been, can Shiloh handle the financing requirements that are necessary going forward from this point? And how comfortable are you with the required financings in the future as you move forward, let's say, in the second half of the year and then into 2020?

Ramzi Hermiz

I would say we feel very comfortable. We have a great relationship with our banks and they're very supportive as we go forward. And so in that sense, [indiscernible] plenty of liquidity going forward to manage and drive the investments to support the business as we go forward. Lillian, I don't know if you want to add anything to that.

Lillian Etzkorn

No. Absolutely. I mean, we definitely are focused on managing the business, generating the cash. And we have cash generated by the operations and we continue to be laser-focused on that. But as Ramzi mentioned, we definitely have very good liquidity and very good liquidity to support the business and support the growth that we see going forward.

Unidentified Analyst

Okay. All right. If I could squeeze in one more possibly? In terms of your total launches -- product launches this year, how does -- how's it going to compare? What's the total? Can you give us an absolute number of product launches for this year? And then, what you envision for next year at this point in time? I know, it's early, but can you give us some detail on that?

Ramzi Hermiz

When you look at 2019, there will be, in total while we talk about the 17, there are 17 major launches.

Unidentified Analyst

Okay.

Ramzi Hermiz

And so that's when we want to talk about that. Actually in total launches, we're probably closer to 33 as for the full year. But 17 that will -- we would call a more disruptive new technology something that is not just run of the mill. And so that is just kind of -- so there's a lot -- when we talk about activity in 2019, there is a fair amount of activity.

When we look at 2020, that number will probably be more of half of that or a little bit less than that because again 2019 is the high-activity year. A lot of these programs obviously carry forward and so they will generate their future revenue stream. Also, when you look at our customer launches and the cadence at the OEM level, the OEM level 2019 is a peak for the OEMs. And then you will see in the future years, in the next couple of years, the level of new programs that are launched is down from an OEM. So our calendar or our graph or our curve matches very similar to the OEM curve product launches.

Again, we are trying to and focusing our teams on higher-value, higher-margin or technical products versus just commodity items. So we do want to have that richer margin mixed products and margin technology because of the benefit that they bring. And also in many cases, on the structural side, these are staying for the full -- these are products or technologies that don't get engineered out as a midterm of something like that. So once they're put into the structure of the vehicle that vehicle they're longer-range, they're a more sustainable revenue stream, they don't get reengineered because of the cost to re-engineer, because of crash or safety-critical. So we are purposely targeting where we're making those investments.

Unidentified Analyst

I see. And this disruptive that you mentioned 17, how does that compare? On the disruptive side, how does that compare, let's say the previous year?

Ramzi Hermiz

When you look at that maybe six or seven, I mean I'm pulling that number somewhat just from gut. But when you really look at the number of launches and what we're doing in 2018 that were new technologies I would say, we're focused more on rolling out an existing technology, the next generation. What we're doing this year is, again if you look at the Clarksville plant, again it didn't exist. I mean -- and so now it's launching product. What we're doing for the T1XX axle housing. Again never has it been in the industry before. So these are more of what's happening now and really globally for Shiloh.

So when you look at China, the axle housing -- I'm sorry the transmission type of products again launching them for the first time in China. I mean these products don't exist in China. These are first to market. Our ShilohCore dash panel, the transmission products, these are first to market even in China.

Unidentified Analyst

Okay. That in itself should really excite investors on what you're accomplishing in China. Okay. Thanks very much for answering the questions.

Ramzi Hermiz

Okay. Thank you. Thank you, George.

Lillian Etzkorn

Thanks George.

Operator

Thank you. We have reached the end of the question-and-answer session. I'll now turn the call over to management for closing remarks.

Ramzi Hermiz

Thank you, everyone. When I look at 2019 and specifically as we talk about quarter two as I mentioned in the earlier comments, we're really pleased with quarter two. Very pleased with quarter two, the progress that we're making, the performance of the team and really the recognition from our customers has been great. There's still a lot to do for the balance of 2019.

We're focused on that. While there's concerns from -- I'll say from a market uncertainty, Shiloh has worked hard to make sure that we have flexibility and I'll say the ability to leverage our cost and trying to create a more variable type of company that we can flex accordingly and our restructuring efforts have been linked to that.

We see the technology as being needed and still being required and actually being pulled harder as we look at forward opportunities. So we're excited about what happened in quarter two. As we mentioned, we're tightening our range, our guidance range on the EBITDA side for the full year. We're going to continue to work hard going forward. And very pleased with the success of the team and really happy with the team and the work they've been doing.

So with that, I'd like to thank everybody. Look forward to speaking to you soon and have a great day. Thank you. Cheers.

Operator

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