Edited Transcript of SHLO earnings conference call or presentation 3-Mar-20 2:00pm GMT

We had a strong first quarter, expanding our key customer relationships and winning approximately $253 million of new business. These awards were across a wide range of products and included key program and platform wins across Shiloh product lines, including deep draw stamping, utilizing our large press capability and aluminum die-casting with our first award in the U.S.A. by Daimler for aluminum structural components. This award grows our partnership with Daimler and builds on the recent success of our launch in Clarksville, Tennessee, of magnesium cross car beams for Daimler’s luxury SUVs.

We won new business for laser welding with FCA. That continues to build upon our leading market position for laser-welded components. Our first quarter wins were both on conquest platforms and on existing programs. We were awarded additional components under Chevrolet Corvette that launches this year. These additional components expand Shiloh content and the new mid-engine platform to almost $450 per vehicle.

Our largest award during the first quarter was for a nearly $100 million program providing BMW with engine cradles. This win builds on our proprietary Shiloh twin-tech process. This proprietary process produces aluminum die-casted parts with such low porosity, they can be welded with high integrity to other aluminum products. This technology allows BMW the flexibility to use Shiloh’s parts as modular components across multiple lines and nameplates. This is our second major award for engine cradles in less than a year with BMW utilizing this innovative technology. Collectively, these provide a total life-of-program revenue opportunity of nearly $300 million.

The most recent award will be produced in our Oss, Netherlands facility. As a reminder, we acquired Oss in a distressed state with the plan to improve the operations and leverage its core technology. This significant win supports our strategic growth goals for us.

Our business wins are utilizing existing facilities and equipment, thus reducing capital investment, which will optimize our returns on capital. Our programs typically take 18 to 24 months to commence to full production. We are optimistic, with the recent wins, our revenue will grow organically in future years. We remain patient and prudent as it relates to our capital deployment, given current market conditions, and are focused on repurposing our facilities to best meet our customers’ lightweighting product needs.

Our strategic transformation focuses on plant optimization, commercial excellence, technology advancement, supply chain enhancement and globalization. Our profit and margin improvement has been driven in part by our proactive actions such as our plant productivity initiatives that have reduced fixed cost and streamlined our business. We have consolidated 3 manufacturing sites, made geographical shifts to place production closer to customer facilities, centralized departments and optimized our product portfolio. Overall, our ongoing strategic transformation has created a more flexible and variable cost structure. We are taking additional targeted steps to further enhance our technical manufacturing capabilities.

In addition to new product technology, we are investing in manufacturing system upgrades to improve operational and supply chain efficiency and create competitive advantages through digital transformation. This transformation includes consolidation and process simplification of systems, which we will deliver improvements in capacity planning, customer support, along with improved efficiency and customer satisfaction. We launched our third site under the new ERP system and will continue to roll out across our North American manufacturing footprint with 5 additional conversions over the next 12 months.

We are all aware of the importance of improving the environment and reducing our carbon footprint. Shiloh’s strategy of lightweighting without compromise includes without compromising the environment. Our products are 100% sustainable, recyclable at the end of life. Our products are produced in landfill-free manufacturing facilities. Our technology enables increase in the battery range and reduces greenhouse gases in internal combustion engines.

On prior calls, we have discussed our progress towards carbon neutrality. I am pleased to announce 2 additional facilities in Europe are using 100% certified renewable electrical energy. These facilities joined 3 of Shiloh’s North American locations that are committed to using renewable energies as electrical power source. In addition to these 5 facilities, 12 other Shiloh facilities are utilizing clean electrical energy ranging between 19% and 63%. We are targeting 100% renewable energy across all locations globally as part of our broader initiative to be carbon-neutral by 2035 or sooner. We are committed to this initiative as we explore and implement innovative ways to make Shiloh an even more sustainable company.

Many OEMs have carbon-neutral goals and are incorporating environmental criteria into their global sourcing process. Our emphasis on lightweighting and sustainability supports their goal of carbon reduction. Our leadership is recognized by our customers. We’ve been asked to present our capabilities and share strategies to help customers better understand our approach and how other suppliers might adopt best practices. This recognition underlines the leading position Shiloh has in sustainability.

Before turning the call over to Lillian, I’d like to share some thoughts on the COVID-19 virus. First and foremost, we are taking proactive actions to ensure the safety of our employees. Similar to others in the industry, our Chinese facilities were idled during February. This week, we reopened our facilities in China, and would expect them to begin to ramp up production slowly over the next few weeks. We are also working very closely with our customers and suppliers to better understand their specific situation to ensure we align production plans.

Based on the known information and current forecast on China, we believe we can manage the volume decline within our guidance range. Our in-market/for-market supply strategy, which means our supply chain is vertically integrated in the markets we sell, has buffered us from cross-border supply chain disruptions. Without actual data on the potential volume impact in Europe and North America, we are not modifying guidance. We have created a more variable cost-based business, which will help maintain profitability. We are also evaluating how best to accelerate various profit performance initiatives. We will continue to closely monitor developments, and we’ll provide an update should industry conditions significantly change.

To recap, we are executing our business plan and navigating macro uncertainty. Our new business wins reinforce the positive demand for our products across the globe. Our margin improvement demonstrates the improved effectiveness of program launches. And our restructuring actions have us well positioned to navigate changing market conditions.

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

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

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Thank you, Ramzi. We outperformed the market in revenue during the first quarter of 2020. While the market declined 6.9%, Shiloh’s revenue declined by only 5.1% on a constant currency basis. Revenue in the quarter was $243.5 million, in line with expectations. In China, Shiloh significantly outperformed delivering 183.4% growth versus the market, which declined by 9.3% as we ramped up production and sales volume at our new facilities. Our business in Europe outperformed the market as we navigated industry weakness in the commercial vehicle market, which was down approximately 20%, as well as an automotive market that declined by 6.5%. On a constant currency basis, automotive-related revenue in Europe declined by 3.6%, outperforming the industry. Our performance in North America was also impacted by weakness in the commercial vehicle market as well as the automotive market, which declined by 3.1%.

We significantly improved our gross profit by 41% driven by our strategic transformation efforts, a decrease in production costs and lower launch costs compared to the year-ago quarter. Gross profit was $19.3 million in the first quarter, an increase of $5.6 million compared to the prior year period on lower revenue. Gross margin of 7.9% expanded by 260 basis points compared to the year ago quarter. As we look forward, we expect gross margin to expand for the balance of the year.

We remain focused on our product strategy while pursuing opportunities for operational improvements and asset optimization. We incurred $3.8 million of restructuring costs in the first quarter, primarily related to employee costs and professional fees. We continue to assess market conditions, customer actions and other factors to proactively align our operations and business structure.

Adjusted EBITDA was $15.3 million for the first quarter for an adjusted EBITDA margin of 6.3%. This 140 basis point improvement over prior year period is the result of disciplined cost control and productivity improvements along with improved mix given our recent launches moving into production. We reduced our net loss by $1 million over Q1 of 2019, resulting in a $3.7 million net loss in Q1 of 2020. First quarter loss per share was $0.16, again an improvement compared to a loss per share of $0.20 in the first quarter of fiscal 2019.

During the quarter, we adopted the new GAAP leasing standard, which resulted in recognizing $55 million in other assets, along with $8 million in current liabilities and $46 million in other long-term liabilities. As of January 31, 2020, cash and cash equivalents were $12.3 million. Cash used in operating activities for the 3 months ended January 31 was $7.3 million, reflecting timing of working capital. We invested $11.5 million in capital equipment, which is $4 million less than the first quarter of 2019. Our investments in capital equipment will remain targeted and focused with an emphasis on maximizing reuse and redeployment. We continue to anticipate improvement in cash generation as we move through 2020.

Net borrowings under the revolving line of credit were $265.2 million, and the leverage ratio was 3.5x on a net debt to trailing 12-month adjusted EBITDA basis. Longer term, we continue to target leverage in the mid-2s while managing investments to grow the business.

Turning to our outlook. First, on the commercial vehicle market, we see no change to the 20%-plus decline forecasted in 2020. This has a greater impact on our European business, and we remain focused on aligning our operations with market conditions. Specific to the automotive market, we are assuming flat global production while industry forecasts have not yet been adjusted to include any potential impact from the COVID-19 virus. As Ramzi mentioned, we are closely monitoring the global impact of the COVID-19 virus.

Based on information known today, we are maintaining our outlook and are confident in delivering our guidance for 7% to 15% EBITDA growth over 2019. We are confirming our 2020 revenue guidance of approximately $1 billion and adjusted EBITDA guidance range of $75 million to $80 million. The expected improvement is a result of the strong cost control, restructuring, productivity actions, contributions from the ramp-up of our China operations and the mix of higher-value products. We will continue to build on the momentum from the quarter to deliver profit growth in 2020.

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

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

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Thank you, Lillian. We are off to a good start to the year, generating meaningful expansion of gross margin and adjusted EBITDA margin, winning new business and continued recognition of the value of our technology and its environmental benefits. While global uncertainty remains, Shiloh is positioned to deliver another year of improvement, and we remain on track to achieve our guidance for the third consecutive year.

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

Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is coming from Alan Weber of Robotti & Company.

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Alan W. Weber, Robotti & Company Advisors, LLC – Research Associate [2]

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The first question is, if you have — if you had in the quarter or for the year, flat end markets, which is not the case, what would revenues be? I guess I’m a little confused because you talk a lot about the new business awards and yet the revenues continue to decline.

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

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Well, in this particular case, Alan, when you look at the commercial vehicle business, which is roughly, call it, on average, it’s been 12% to 15% of our revenue, that is down significantly 20% to 30% overall for the quarter-over-quarter. If you look at North America, it was over 70% of the year-over-year decline. Quarter-over-quarter decline was attributed to the commercial vehicle market. So if you look at automotive sector in itself, we have outperformed in each one of the regions compared to the market decline in those regions, be it North America, be it Europe, be it, obviously, Asia, we’re launching the facility there. So on an automotive position, we outperformed each of the regions that we participate in.

When you look at programs being launched and the new programs that are coming forward, we are seeing those — we have — again, as we always described, there is this, we’re exiting some businesses, we’re adding — we’re growing in others. So we still feel that there’s opportunity for organic growth as we continue to look forward. But again, quarter-over-quarter, automotive sector, we outperformed each 1 of the 3 regions that we’re — we operate in.

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Alan W. Weber, Robotti & Company Advisors, LLC – Research Associate [4]

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Okay. And then, I guess, in the guidance for EBITDA for the year, how much of that include — how much is for restructuring and the transformation like that?

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

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Restructuring year-over-year would be comparable to the prior year so — and it’s probably slightly a little less than last year.

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Alan W. Weber, Robotti & Company Advisors, LLC – Research Associate [6]

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Should that end by — should that start finishing up by the end of the year?

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

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Yes, we feel that we are working our way through most of the restructuring initiatives that we’re participating in. As we described, there was a number of facilities that we were consolidating, that there was a transformation of — I’ll say relocation of some projects. We know that with the acquisition of the Brabant acquisition, those were distressed assets. There was going to be restructuring associated to those businesses as we retool them in essence to grow future business, as we discussed on the BMW award, significant opportunity. That total $300 million contract in total was awarded in 2 different phases, it is all going into our Oss facility.

So that starts launching in 2020 — 2022. So that — we see that pick up. So these were all part of the longer-term strategy of positioning our footprint in Europe in the aluminum side to complement what we have in magnesium on top of our steel. So that agnostic material approach, and again, with, I’d say, some global strategic customers. So when we look at the Daimler relationship that we’re expanding in Europe, also in North America and the magnesium cross car beams, and those structures also led to additional awards in aluminum — in aluminum-casted, the structural casting in North America. So the strategy, the global strategy, the global customer alignment continues to deliver what we would expect it to.

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Alan W. Weber, Robotti & Company Advisors, LLC – Research Associate [8]

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Okay. I guess my final question, which I’ve asked before, you’ve talked in the past about getting towards 10% EBITDA margins. So where does that — I mean what is your thought process today on that?

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

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We still feel that that is an achievable objective and one that we’re targeted towards. When you look at the improvement quarter-over-quarter, obviously, we saw a significant improvement. Not at the double-digit number yet. We feel that we are — there is a path to do that. We’ve always said exiting 2020, going into 2021, we thought that was an achievable objective. We still feel that’s an achievable objective. When we look at what we’re doing on the cost containment side, you look at what we’ve done from, I’ll say, our SG&A structure and driving that down, about driving the operational and productivity efficiencies, we’ve strengthened our launch process.

As we know in 2019, that was — we had a number of launches that were, I’ll say, challenging, that were costing us premiums. We’ve put in a stronger process. It’s a more robust process. We know that it’s working. We see the results with more recent launches delivering as budgeted and as planned. So we feel comfortable with that as a strategy going forward. That mix change as we start launching the newer products as — even, let’s say, the BMW, when most of the wins that we spoke of today, these are 2 years out. So the full production usually is 24 to 36 months, looking forward from a launch date. So these are the — so the wins from the last couple of years are starting to fall in place. They’re starting to launch.

As we’ve talked previously, the — we’re launching a significant amount of content on the new Corvette. That program was slightly delayed because of a General Motors strike last year. But that — we expect that vehicle to be a strong performer, as we mentioned, approaching $450 of content on that. And again, as I said in the earlier remarks, we view that program as a halo program of really a test but of new technologies, and we see those technologies that we launched are not just for an internal combustion engine. These are structural — aluminum structural components with utilizing our, either our twin-tech or ThinTech technologies, and that fit very nicely on electric vehicle as well as on an internal combustion vehicle, again, back to our agnostic approach to the marketplace, agnostic to the propulsion system.

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Alan W. Weber, Robotti & Company Advisors, LLC – Research Associate [10]

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Okay. My final question is, for the balance of the year, will you be able to reduce debt? I’m assuming you’re going to be cash flow positive. But will you be able to reduce debt after capital spending for the balance of the year?

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

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Yes. We feel that we will be able to. When you look at a — our strategy around the — on the CapEx side, really focusing on our — how do we best reuse, redeploy assets. So that is a significant part of our focus. How do we leverage that? As I mentioned, even in our CapEx numbers, we spoke of our new ERP launches. Those dollars are built into that CapEx number. So we are, again, finding ways to, as we increase operational efficiencies, getting more out of our assets. We’re excited about those opportunities and then bringing not only reducing debt, Alan, improving the return on invested capital.

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Operator [12]

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Our next question is coming from John Murphy of Bank of America.

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John Joseph Murphy, BofA Merrill Lynch, Research Division – MD and Lead United States Auto Analyst [13]

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Maybe, Ramzi, if I could follow-up on that question on cash flow for the year and maybe sort of conjoin it with a question on what’s going on with the coronavirus. I mean as you look at the industry production of flat, it seems like it’s probably going to be something less than that. Obviously, I recognize it’s tough to call at this point. But what is the level of production where you think you go to cash flow neutral or potentially burn cash? Is it negative 2%, negative 5%, negative 10%? I mean where do you think you are set up to deal with this from a cash flow perspective?

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

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Well, let’s start with what we’ve been doing from a structure of the business. We really have spent a lot of effort to create a more variable cost-based business. So as we look at volume and how we can respond, and partly why we’re still feeling confident on the guidance is we have taken — if you look at what we’ve done on the SG&A front compared to 2 years ago, let’s say, from 2018, we will have SG&A on a dollar basis reduced by about 20%. So we’ve done more from an SG&A standpoint to remove what one would say is a little bit — previously as a fixed — more of a fixed cost. We’ve taken that action, and that is something that’s complete. That was part of our previous restructuring and a little bit of this year’s restructuring.

We’ve also, from a manufacturing standpoint, consolidated a number of facilities and concentrated them to a more — again, even in their facilities, a more variable structure. Let’s say, part of that employment base is a contract-based, something that we can flex with volume. So again, from an operational floor perspective, have locked that down.

Specific to a number of a breakeven on what we can do from a cash flow stand and a volume decline, I would say that math is we’ve really put a variable structure together. I’d say close to 80% of our costs are variable-related. So that allows us to flex that down. So again, we — I would say we can manage a fair amount of cyclicality in the market. And there’s still opportunities, I mentioned even in prepared comments, there’s still other opportunities that we’re evaluating, that we can accelerate some productivity initiatives, that maybe we would have moved as a more balanced because of, let’s say, existing volume. But if there was a lower volume, there’s also some additional opportunities to quickly launch some other initiatives. So our playbook or bookshelf strategy is there, that’s built upon a mindset of variability, how do we manage the business in a variable cost basis.

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John Joseph Murphy, BofA Merrill Lynch, Research Division – MD and Lead United States Auto Analyst [15]

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Okay. And then a second question. Just as you think about the product portfolio and you think of sort of new tech versus legacy tech, I’m just curious, I mean, part of the story has been sort of this transition to higher tech parts and lighter-weighting and everything you’re doing with material science. So I’m just curious, as you think about this and might not be an exact cut, but I mean, as you think about sort of the portion of the portfolio and revenue right now that is sort of higher tech versus legacy tech, where are we on that transition? And how do you think about that over the next 3 to 5 years being sort of create more value-add and higher-margin and returns for yourselves?

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

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John, I’m going to start with the number and then also add to that. I would say we’re about 50-50 from a standpoint of what you’re using, newer tech and older tech. But at the same time, what I don’t want to undersell is really some of the things, for example, our laser-welding technology, where that was a traditional base of Shiloh, and it was straight-line welds, I’d say, a little bit simpler welds. The work that we’re doing now in our curvilinear technology, our aluminum laser-welded technology that’s on test on a multiple number of vehicles, this is significant game changers that are even in, I’ll say, a traditional laser-welding business.

I mean one of the — a simple example, and we talk about our focus on carbon neutrality. But let’s say, on a high-volume vehicle, we identified with an OEM, they’re using, let’s say, a monolithic aluminum door, a door inner, so basically not laser-welded. With our laser-welding technology, not only could we take out cost, not only can we reduce weight, we could save, it was estimated about 46,000 metric tons of CO2 reduction. So as customers are starting to look at the environment more on their carbon footprint — and our laser-welding that not only lightweights, but also can save them cost, these are significant programs that while their traditional laser-welding businesses are extremely disruptive and game changers in traditional markets. So even though we say 50-50, we’re being able to pull or vertically integrate our — some of our new technologies into the traditional portfolio.

Another example, again, leveraging our laser-welding with a customer, normally, we just did, let’s say, a stamping. Now we’re for a door inner or for a ring inner. Now we’re taking — doing our laser-welding and the stamping to put that assembly together. So even in traditional businesses, we’re trying to find ways to leverage that technology and really move the margin up on what we’d have traditionally viewed as a commodity product because we have our stamping business that you would say it’s — let’s say, it’s more a commodity, how do we make that more disruptive and make that commodity and put additional technology into it. So while my first answer was 50-50, we’re not giving up on the other 50 to say that we can’t find ways to enhance margin and growth.

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John Joseph Murphy, BofA Merrill Lynch, Research Division – MD and Lead United States Auto Analyst [17]

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And Ramzi, maybe just one follow-up. I mean if you think about that sort of the door panel that you just gave an example of a laser-weld and reducing cost, materials and weight, I mean, do you — how much do you transition your margin return profile on a program that’s specific like that versus the legacy product? Is it a significant uptake? Or I mean how do you get paid for that? And how do you think about that financially?

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

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Well, clearly, we have to go back and work with to make sure we’re covering our investments, both from an R&D side, investment in that side, we clearly have to cover that. So there is a different pricing portfolio or matrix that we would have to go forward on that type of product. And so it would be a higher margin. You’ve been around our business long enough that you know even with some of those newer technologies over time, we do have LTAs, or long-term agreements, with our customers that are driven around productivity and driving that price down.

So — but we will definitely make more margin on the launch of these technologies, again, to cover the investment that’s been made from a technology side. Because these technologies that we’re talking about are really invested by Shiloh. They’re not co-developed technologies. These are innovative technologies that would be wholly owned and Shiloh proprietary. Similar to our ShilohCore dash panel that we’ve launched really globally, and we see that opportunity.

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Operator [19]

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Our next question is coming from [George Gaspar], a private investor.

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George Gaspar, – Private Investor [20]

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Yes. It’s wonderful, the progress you’re making considering the pullback in the automotive industry and what you’re dealing with in the February and March periods in China. Can you just elaborate a little bit, you mentioned about $450 per content on the BMW situation, when does that — when will that start?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. – President, CEO & Director [21]

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Well, the $450 million was on the Corvette. So obviously, Chevy’s Corvette. So again — but back to BMW, both GM is an excellent partner, one that we’re — as I mentioned earlier, we feel that there’s additional growth opportunities from a technology and product and excited with their strategy on emissions and congestion and safety. So we’re still pushing forward there. BMW, the growth with BMW has been really across all our product lines. We’re doing magnesium structures with them. We’re launching our twin-tech technology for these — the engine cradle. And again, this is an innovative product that we feel — we see that’s going to continue to grow. And then we also are doing some things with them on seat structures and other components on the stamping side. So we are really starting to expand that relationship with BMW, and we’re excited about it across multiple product lines.

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George Gaspar, – Private Investor [22]

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Okay. And just to further on this particular question, the revenue per car that you’re looking at currently versus a year ago, could you give us a comparison on that at this point in time and your expectations going forward?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. – President, CEO & Director [23]

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Well — okay. When you look at our content per vehicle, we’ve really brought it up from early days of about $160 a number of years ago to — we’re definitely greater than $200 per vehicle, and we see that opportunity to continue to grow. The Corvette is an example of that content opportunity. When you look at our full product range and why we are optimistic about revenue opportunities and growth opportunities is our content per vehicle, be it a battery electric vehicle, hybrid electric or hybrid or internal combustion, is about $1,200.

So when — even while we’re excited about the content that we have on a — the Corvette, our full portfolio, there’s additional opportunities of revenue even in a higher content. So we see that opportunity continuing, again, be it a battery electric vehicle, where our lightweighting strategy helps extend battery range, to an internal combustion engine that, by the same lightweighting strategy, reduces greenhouse gases and emissions and expands — extends mileage per gallon. So again, we see that opportunity. We were speaking about the Corvette as an example of that potential exists, and that’s in our structural technologies.

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George Gaspar, – Private Investor [24]

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Okay. And could I extend that over to China in terms of how much are you doing per car in the front end here? And I know you’re still on the front end of your expansion in terms of each product that you’re developing. But what is the range on a car over there now that you’re doing and where you might see that, say, by the end of this year on a per car basis?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. – President, CEO & Director [25]

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Well, if you think about where we are with the product technologies and where we’re going, in China, right now, we have 4 or 5 customers that we’re starting to grow with. We’re still launching our technology. So when you look at a — be it Volvo, be it General Motors or SAIC or SGM, there’s — right now there’s individual products. With SGM and GM, we have ShilohCore and our transmission components. So that’s probably approaching $60 or so from a standpoint of launching a vehicle from a growth standpoint. So it’s still early days.

Now in the case of China, we would not be putting our full portfolio. We’re not pursuing putting, I’ll say, general stamping there. We have focused on our unique proprietary technologies like what we’re doing with the aluminum casting side or ShilohCore or the magnesium structure. So China, our growth in China is more targeted as we try to balance both capital investment as well as launching of unique and complex technologies. Again, what we brought and put into China are some of our leading technologies. These are more disruptive technologies. And part of the reason why they were targeted for the region is because the competition in those products is much less. It’s not a commodity at all. These are unique capabilities that we’re putting there, and we feel comfortable in our wholly owned facilities that these are the right technologies to bring.

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George Gaspar, – Private Investor [26]

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Right. And if I could have one follow-up on Detroit. With this announcement by General Motors to — plant reconstruction going into, I believe, it’s 2022 and going to a much broader electric vehicle production, it would seem that this is going to put all your technologies in a primary spot to generate a considerable amount of increase in — on a per car basis looking forward into that next couple of years. Just can you comment on that?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. – President, CEO & Director [27]

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Yes. I would say, George, even on a broader perspective, if you think about what’s going on on trade in general, last year or the end of the year, we — or this year, I should say, we’ve signed USMCA. We’ve gotten some movement on our trade discussions with China, deal with Japan, Brexit — a little bit more Brexit certainty, at least the decision on Brexit now as those — or as the trade agreements move forward, that will bring certainty. So I think there’s a number of things that are creating opportunity and bringing a sense of surety in the marketplace.

Specific to the growth opportunities with the General Motors, with their launching of the Hamtramck facility and continued growth there, we are — we have a great relationship with GM. We like what they’re doing on their product side. We like what they — the products on the electrical side, they’re focused on the environment. I think these are creating opportunities. Again, with General Motors, we do currently sell our full product portfolio. And so this is an opportunity to get more into those vehicles. So we are excited about that opportunity. At the same time, we have FCA building the first new assembly plant in Detroit. So again, that’s a new opportunity. The U.S. 3 are continuing their expansion and, I’ll say, Midwest localization, which create opportunities where we have existing facilities that can supply both aluminum, aluminum structural castings, magnesium castings out of our Tennessee operation. So we’re excited about that. It’s good to see.

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George Gaspar, – Private Investor [28]

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I don’t know if I could ask another question if I don’t get knocked off here.

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

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You currently have the mic, so you’re good.

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George Gaspar, – Private Investor [30]

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Okay. All right. In terms of the — your new product starts that you had originally estimated for this year. I believe it was around 15 or 17, correct me if I’m wrong on that. How far along are you in terms of getting these new parts up into production now?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. – President, CEO & Director [31]

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So last year, we had 17 major launches. And I would say a majority of them, those are in their launching. They are not all at their full production. Again, the example would be the Corvette. So there’s — we saw some delays on the timing of those programs. When we look at this year, we have put in the category of 7. Again, a large — what we — major launches are brand new technology, significant and, let’s say, a volume for a plant or some type of new change in that manufacturing process. So we have the carryover, the ramping up of some of the 17 happening in 2020. And then when you look at 7 additional major new programs coming out over the next — over this year.

And if you look at over the next 3 years, as we look forward, the number is more in the 40 to 50 range of major programs that are going to be — that will be launched. So it puts it more in that cadence of that 10, 12, 15 per year on an ongoing basis, which gives us that strong balance of how do we manage CapEx, how do we manage the complexity of launches. Again, part of that lessons learned of that strong — having a backlog but strong continued growth.

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George Gaspar, – Private Investor [32]

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Okay. And then a question on financing. There’s a slight increase in the debt level, it appeared, in the quarter. How do you feel about your going forward prospects in terms of keeping the debt level in and around where it is now or starting to reduce it? Is there a possibility of that?

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Lillian Etzkorn, Shiloh Industries, Inc. – Senior VP & CFO [33]

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Yes, George. Yes, we’ll continue to be focused on the debt level. And as we’re generating the increased EBITDA as we progress through the year, we’ll be looking to reduce the debt level that we have on the books. Because again, as we think about the long-term objective is we are targeting, we’re striving to reduce that leverage down to something more in the 2 range versus where we are presently. So very focused on cash generation and on focusing on reducing that leverage as we move forward.

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George Gaspar, – Private Investor [34]

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Okay. All right. And then back on plant consolidations. Could you give us just a little perspective on the plant consolidations that you would envision for this year, calendar year that would be beyond your fiscal, but can you give us a little color as to what you’re doing on consolidation and for what reason?

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Ramzi Y. Hermiz, Shiloh Industries, Inc. – President, CEO & Director [35]

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George, we’re always focused on maximizing the efficiencies of our operations. And from a standpoint of future closures, that’s obviously something that we wouldn’t be talking about on this type of call. But how I would say it is to — on John’s earlier question about variability and being able to respond, from a standpoint of how would we respond if there was a significant change in market volume, how would we consolidate, how would we maximize efficiency, that is something that we are always cognizant of and think in advance of what would be necessary, what would be the best way to respond.

Obviously, our facilities are manned and populated with strong talented people that find ways and, I’ll say, entrepreneurial and find ways to continue to perform. So from a standpoint of creating opportunities, finding growth, we’re tasking our sales and business development team to continue to find ways to grow the business and support the business without, I’ll say, significant investments in capital. That focus is still going to continue and we look at more of how we’re going to fill these facilities versus what we need to do to consolidate them. So our focus is on driving growth in that area.

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George Gaspar, – Private Investor [36]

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Okay. All right. And just as a final comment from here. I think it’s amazing, the results for your quarter, considering the pullback in the auto industry in terms of the number of vehicles produced and the front end problem here in China. And I think it says a lot about your capacity to really get this thing up and turned around and get into the profit column, hopefully, within the next — as the year going forward beyond here. I would hope that you envision that happening.

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Ramzi Y. Hermiz, Shiloh Industries, Inc. – President, CEO & Director [37]

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Well, I mean, I think, George, with that — thank you, first of all. If you think about — there was an earlier question on year-over-year on the volume side. And yes, while commercial vehicle was down and volume was lower than last year, on the gross margin side, on lower revenue, we increased gross profit, the dollars. So on lower revenue, we increased $6 million in margin. So both — so margin — so gross profit dollars, EBITDA dollars, increasing margin — gross margin, increasing EBITDA margin.

So what you’re seeing is that improvement in the business, improvement in the cost structure and that ability that we are driving forward, and we are focused on the operational efficiencies. We’re focused on driving that profitability. And what you saw in quarter 1 was just the start of some of the opportunities there in front of Shiloh and the team. So we are excited about that. We have to continue to drive that forward. We’re focused on driving that forward, and we will be driving that forward.

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Operator [38]

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At this time, I’d like to turn the floor back over to Mr. Hermiz for closing comments.

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Ramzi Y. Hermiz, Shiloh Industries, Inc. – President, CEO & Director [39]

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Thank you. And again, thank you for everyone participating on the call today. Again, quarter 1 is a good start to 2020. Obviously, we all have concerns around the COVID-19 or coronavirus, and we wish the best to everybody and wish everybody to be safe.

That being said, we are still focused on the business. We’re focused on driving performance and efficiency. We’re going to respond as necessary, but again, feel very comfortable that we can deliver our guidance, and we’re going to be staying focused on those objectives. So with that, thank you, wish everybody a great day.

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Operator [40]

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Ladies and gentlemen, thank you for your participation. This concludes today’s event. You may disconnect your lines or log off the webcast at this time, and have a wonderful day.