Q3 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the Shiloh Industries third quarter 2019 results Conference call. Today's call is being recorded and will be and we will be conducting a question and answer session immediately following management's prepared remarks.
I'd now like turn the call over to Mr., Scott <unk>, Vice President corporate controller of the company. Please go ahead Sir.
Good day, Thank you operator, and thank you for participating in Shiloh industries third quarter 2019 results conference call.
I'm joined on today's call by Ramzi, Hermiz, our President and Chief Executive Officer, and Lillian <unk>, 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 statement.
You can find information concerning why the actual results might differ from our statements made today and in our filings with the FCC.
Our earnings press release was issued today and has been posted to our website at www Dot Shiloh Dot com on our Investor Relations page.
The earnings 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 FTC.
A replay of today's call will be available and instructions for replay are included in today's press release.
I will now turn the call over to Ramzi, Hermiz arch, President and Chief Executive Officer.
Thank you Scott.
I would like to welcome everyone, who is participating on today's call.
I will begin with some highlights for the quarter discuss current market trends.
Progress on our launches and provide an update on some of our important initiatives.
Lillian will then walk you through our financials in greater detail and discuss our outlook.
Overall, I am pleased with Charles performance throughout the year and our ability to execute on our plan.
We continue to make solid progress.
On a number of key initiatives that will position the company to grow profitably and improve the capabilities of our organization over the longer term.
We continued the rollout of our major product launches one new business.
Including a very sizable engagement with F.C.A. and strengthened the organization through investments in technology and systems.
We also took proactive restructuring actions to optimize our assets with market opportunities.
Tribal made significant gains expanding its global capabilities I, just returned from China, where I met with partners and visited our Nantong site.
We are excited about this new facility and the launch.
China is an important growth opportunity as we continue to expand our global capabilities.
During the quarter, we outperformed the market in China with revenue equivalent to prior year compared to the market, which was down over 15%.
With additional launches planned in China during the fourth quarter, we expect to significantly outperformed the market again and deliver year over year growth.
On a year to date basis adjusted for certain factors in the third quarter, which Lillian will discuss we performed in line with the North American market, which I wrote down 1.5% versus the market down, 0.9% and significantly outperformed in Europe , which shiloh up 9.4% versus the market down, 5.2% and in China, with Shiloh up 16.1% versus the market down 14.6%.
Overall, we grew on an adjusted basis by 1% year to date, while the global market production declined by 818.1%.
As discussed on prior calls 2019 is a busy year with major product launches.
This launch activity demonstrates our ability to win higher value add business with <unk> with recurring revenue streams across the global enterprise.
Oh program schedules remain on track as we look out at the balance of the year.
During the quarter, we completed several significant customer launch milestones across our key regions. Many major launches are now increasing in production volumes.
We are excited we are executing on our plan.
And our Nantong facility on time, and which is now moving into full production.
As I mentioned earlier, we continue to see increasing opportunities for our Lightweighting technologies in China.
In Europe customer deliverables are on track, we have additional launch activity planned for the fourth quarter and are pleased with our progress.
In North America, we are very excited about the upcoming launch that Leverages Shiloh proprietary Fintech technology.
On a highly anticipated new sports car program.
We engineered a solution that reduced the number of components I'm. This vehicle from roughly 60 to 17.
This dramatic reduction allow for significant cost reductions assembly simplification complexity reduction and an overall weight savings of nearly 35%.
Year to date, our new wins totaled over $475 million with $175 million occurring during the third quarter for customers such as BMW F.C. eight Ford General Motors, Paccar and S.G. out.
We are proud of the progress that we've made during the year and this quarter included 140 million dollar win with <unk> for a high volume vehicle in North America that will utilize our proprietary curvilinear laser welded technology.
This win continues to emphasize shilohs, leading market position and try to cover linear technology.
After this launch we will have over 60% market share in curvilinear laser welded door inners.
In China, we received the newer award for Shilohcore Dash panel to be used on a new vehicle platform.
This 25 million dollar business award from SJM highlights the continued success and benefits of Shiloh core and is a credit to our global relationship with General Motors.
This positive development highlights the momentum that we have with this proprietary product and will be a catalyst for continued growth.
We continue to execute our restructuring plan during the quarter by reducing fixed costs and streamlining our business.
We are analyzing industry trends and working closely with our customers to understand their production strategies and product plans that we optimally aligned our global operations, while restructuring efforts continue in North America, we have expanded actions to include Europe .
Since we began this initiative we have consolidated manufacturing sites may geographical shifts to place production closer to customer facilities centralized departments and optimized our product portfolio.
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 demand.
We believe that we are well positioned to manage current industry conditions and be flexible to respond with additional actions across the regions as required.
During the quarter, we continue to invest in technology and systems to improve operational and supply chain efficiency and create competitive advantages through digital transformation.
This transformation includes system consolidation and process simplification, which will deliver improved improvements in operations capacity planning and customer support.
Along with improved efficiency of business satisfaction.
We flawlessly launched our first site under this new system and continue the rollout across North America manufacturing footprint.
To recap, we continue to execute our strategy, which is allowing us to navigate current market conditions take advantage of our disruptive lightweighting technologies and build our global capabilities to position Shiloh for success.
From an operational perspective, our launches and restructuring initiatives are progressing and position us for improved profitability that will help drive future growth.
We are struck strengthening our customer relationships and actively engaging new prospects.
With our suite of differentiated products as our sales team continues to gain traction in the market with new wins.
With that I will hand, it over to Lillian to address the financials in more detail.
Thank you Ramsey.
Revenue in the quarter was $263.4 million compared to $294.9 million in the third quarter of 2018.
In bridging the year over year change for certain item $12 million was from one time sales in Q3 of 2018 for support for solving a supply issue for certain customers.
$6 million was from a closed facility and $4 million was from currency translation.
Importantly, we believe that our performance was consistent with our customers core production trends and we see continued growth opportunity globally.
Gross profit was $23.6 million in the third quarter compared to $32.9 million in the third quarter of 2018.
Gross margin of 9% compared to 11.2% in the year ago quarter.
The bridge is made up with profit associated with the one time revenue in launch costs.
As mentioned earlier many of our launches for 2019 are behind us.
For the quarter net loss was $2.7 million compared to a net income of $11.1 million in the third quarter of 2018.
Profitability was impacted by higher margin onetime revenue in the year ago quarter, as well as higher launch costs and interest expense.
Loss per share was 11 cents compared to earnings per share of 47 cents a year ago.
Adjusted earnings per share was four cents.
Compared to 22 cents in the prior year period.
Adjusted EBITDA was $17.3 million for the third quarter.
For an adjusted EBITDA margin of 6.6%.
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 $3.9 million of costs during the quarter, primarily for employee related severance costs and professional fees.
Our actions this quarter expanded across the organization, including Europe .
Yes, we look forward, we will assess market conditions.
Customer actions and other factors.
And we will continue to proactively aligner operations and business structure.
As of July 31st 2019, cash and cash equivalents were $11.9 million.
Cash generated from operating activities for the quarter was $11.6 million and we invested $15.4 million in capital equipment.
No borrowings under our revolving line of credit were $246.7 million, an increase of $3.4 million compared to fiscal year end 2018.
The leverage ratio was 3.5 times on a net debt to trailing 12 month adjusted EBITDA basis.
Longer term, we continue to target leverage in the mid twos, while maintaining investments to grow the business.
Turning to our outlook for the remainder of 2019.
The end market assessment and current industry forecast for full year volumes are expected to be down slightly year over year and down during our fourth quarter.
We expect the fourth quarter to be a normal seasonally strong period for Shiloh and to be aided by the continued ramp the volumes for new product launches that should be running at higher level.
We are reiterating our 2019 revenue guidance of approximately $1 billion to $1.15 billion.
Given our results year to date and our confidence in the outlook, we are raising the midpoint of our adjusted EBITDA guidance range.
We are tightening the range to 67 million to $70 million from the prior range of 65 million to $70 million.
This is the second consecutive quarter that we have raised the midpoint of guidance.
By some broader challenges in the industry Shiloh has been able to effectively manage through this environment and execute according to our plan.
I will now turn the call back to Ramzi for some summary remarks.
Thank you Lillian overall, I am pleased with <unk> progress throughout the year.
During the third quarter, we continued the rollout of our major product launches one new business strengthen the organization do it through investments in technology and systems.
And continue to execute restructuring efforts to optimize our assets.
All of these efforts have positioned the company for success in the future.
As we enter the fourth quarter, we are well positioned and remain on track to achieve our full year guidance with that operator, we're now ready to go to Q and a.
Thank you well now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star too if you'd like to remove your question from the queue for participants using speaker equipment, maybe necessary to pick up your handset before pressing the star key is one moment. Please we poll for your questions.
Our first question comes from the line of John Murphy with Bank of America Merrill Lynch. Please proceed with your question.
Good morning, everybody.
Just a first question on on the new business wins year to date, even 475 million is he is pretty strong.
Just curious if you can give us sort of the timeframe is that business rolling on and if we think about this growth over market how much growth or market does this new business support and then maybe also sort of second to that is yes.
The quoting activity for you sounds like its relatively strong it's kind of sounds like from other suppliers, particularly around powertrain.
Has kind of bounced around a bit and become a little bit more volatile just curious if you can comment on sort of the quoting activity. In addition to the units or the prior question just to understand really what kind of activities out there for you and how much more opportunity is there in the near term because some of it sounds like it's got a little bit more volatile for other suppliers.
Yes, good morning, John again, when you look at the new business opportunity first let's I'll break the question up in a couple of different sections. One if you look at our opportunity on the vehicles roughly about $1500, where the content per vehicle. When you look at Shadows portfolio. So we have a good opportunity both in the chassis side.
And the body as well as in the powertrain. So when you look at the activity, we still see very strong activity or opportunities. When you look at the Lightweighting technologies, both from a navy side as well as an internal combustion engine. When you look at the structure and what people are trying to.
Go after so in Maine aspect the technology is sought and we see opportunities there.
When you look at some of the volatility we are seeing.
Programs being pushed out from a standpoint of sourcing decisions where for some somebody maybe originally it said I'm going to make that sourcing decision in July now, they're saying I'm going to make it in October . So we are seeing some delay in the decision of the product portfolio of the customers. So as they reevaluate their product plans.
And that is having some impact on the amount of activity out there, but again because of the content opportunities, where eve and really some of the lightweighting opportunities and the ability to offset some of the impact of tariffs and.
You know the trade discussions, we're actually getting some mid cycle opportunities versus bye.
Waiting for their complete model changeover, because as we've highlighted before we can offset up to 60% of the impact of tariffs through our Lightweighting technologies, and then back to kind of the original part of your question is when do we see some of these new business wins hitting.
Each part of our business has just a slightly different cadence when you look at some of the activities in the laser welding.
Oh in the body side, they they get launched maybe 12 to 18 months out from the standpoint of business Award, where you have on some of the very structural components or powertrain components. They may be 24 to 30 months out from sourcing. So you do see a a different timing of when to expect so in some cases. These will hit these awards that we just talked about winning will hit in 2022 timeframe or and 2021 for production in 2022 and 2023. So again, it's filling up the pipeline for us going forward.
Okay Thats, great I mean, the that you kind of sort of answered my second question around terrorists, but I mean as far as what's going on in terms I Wonder. If you can give me an update from from what you're seeing and also has that been any sort of this is that been disruptive at all in cap allocation across the value chain, particularly with your particularly with your automaker customers have you seen these kinds of delays I mean is that is that we're seeing people hit pause right now as far as decisions around capital allocation or capacity allocation I should say.
We have with some of the customers we have seen decisions being made to either leave a vehicle in a certain region, where they may have had plans to move it we've seen some stability in that side and some decisions made and we've worked with them based off of capacity, where where we need to have that capacity.
We've really pushed for an in market for market strategy and again as we defined in market for marketers raw material through the production into the shipment to the customer so that really has eliminated most of the cross border risk for Shiloh.
Purposefully designed that way so again, China for China, you asked for U.S., Mexico for Mexico, Europe for Europe , and Thats are vertically integrated supply chain.
And so we feel comfortable with that so that decision, making hasn't really impacted how are our business at this point from a tariff side.
Okay, and then just lastly, I mean, it sounds like you're the restructuring is now spreading to Europe . I mean, just curious why you are kind of.
Hi, good starting that now I mean is there something going on in the European.
Market Thats kind of leading you to kind of right you don't want to hustle up on that and get some restructuring done now.
Or is this more just sort of a timing issue with your kind of got.
Good line of sight, what's going on in North America, now you're kind of spreading the program to Europe .
I'd say a little bit of both when you look at where the European market. It has been this year you look at some of the customers and our direct impact on their volume is down.
There is you have you had earlier you had w. LTP now you have.
You know.
Our D.R. real driving emissions testing that really complements w. OLTP, but it is part of Europe is to define their portfolio and I think when you look at the overall softness.
More uncertainty, it's more prudent for us to take some actions as you know.
Well when we made some recent acquisitions the idea was to bring on backup capacity for some of our operations, especially critical ones and the magnesium structure business, we want to make sure we had really alternative.
Manufacturing sites for that type of product and we as we look at that we're looking at how best to align human resources capital resources.
And the business opportunities in front of US we still as we mentioned earlier in quarter, one quarter, one we want to $200 million total annual package.
With four structural components in aluminum, which is one of the acquisitions that we bought was aluminum capacity Hey, one brings technology brings us a product range as well as bring us some capacity. So we're aligning those resources in that capacity with what we see the market looking at so some of it is if you if recall in 2000 and.
18 when.
We spoke of the North American market uncertainty Shiloh thought it was prudent to be taken aggressive in a proactive approach and not wait and see but really take the opportunity to address the cost structure. We're really doing the same thing from a European side, it's better to get an early jump on these things and again Titan Titan, where we can so thats really so that's what we're looking at Europe , Obviously, China is not part of that discussion is we're launching in China and as I'm as we commented in the prepared remarks.
[noise] China's growing for us I mean, we're outperforming the market. We know we're going to significantly outperformed the market because we're just going into production, we're just going into launch and we're ready with our Shilohcore technology and our magnesium from structure IP structures Cross car beams. That's already we're seeing strong demand on that product portfolio. We're on the right mix.
It was a purposeful designed on right on the mix and so as we go into quarter four and starting launch. This is why we're very confident we're going to be outperforming the the China market with those launches I was just as I said I was just in Nantong I was just in our facility.
One first off we have an outstanding team and a leadership team as well as.
The people on the floor and looking at the plant. We're we're ready to go we're excited about the ramp up which is going to be occurring now so.
Our position is different in each one of the regions, but China I know a lot of people are.
Feeling negative impacts on China for Shiloh. It is clearly it's still continues to remain a strong opportunity for growth.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Alan Weber with Robotti Advisors. Please proceed with your question.
Hi, Good morning, a few questions. One is Randy can you talk about I guess im a little confused as you look out towards lets say next year.
When do you with all the new launches kind of starting in the production when do you see revenues to be flat or actually grow can you just explain that because you know we look at this quarter the revenues were down.
When you look and Lillian went to some detail on the on the revenue. When you look when you take out certain onetime revenue from last year and the impact of currency and last year. If you recall in quarter, three a little bit in quarter four.
One of our.
Competitors or an alternative supplier to our customers had a.
A supply disruption and Shiloh stepped in to meet that demand it impact in a number of major Oems and Shiloh was able to.
Take over those tools for that from that.
Supplier to make sure that the Oems did not disrupt production and so you see that in you. So that was one time revenue that was in quarter, three and a little bit in quarter four and so that was really a nonrepeat revenue. So you pull that you pull currency out.
Overall.
Year to date, we've outperformed the market were up about 1% the markets down globally about 8%. So we are outperforming the market on the revenue side as we look at this year to date to your question on.
Or expanding your question on the launches if you look at the launches that are the business that were.
Putting into production its roughly about total contract value over $700 million of revenue. That's that's what we're launching annualized or total contract value. So if you say annually call. It in the range of $100 million to $150 million of annual business, which is where we're replacing some of our own product with new technology, we're putting in new technology.
Are these are new opportunities of.
First time content in a vehicle.
And so when you look at that we feel that that is will more than replace the products that it's displacing.
So we feel that that that growth and volume launch. So if you think about we're launching right now we are.
Upward.
Year to date were up one the markets down eight and we're just going into launch so while we're not yet predicting or providing guidance on 2020 as our customers and the industry is trying to figure out what that total opportunity is we feel that we still can.
Me, what the market's doing or outperformed the market with some of these launches that are ongoing so we feel robust.
And confident on it but there is still this uncertainty that.
We're working on we're still sunsetting some of the old business. I mean this is you know as we talked about we closed and restructured couple of facilities. Some of that revenue. We did transfer a lot of it we just let.
Goalwards did not want the replacement we did not want the replacement business. So that was on the quarter there was about $5 million impact.
So it wasn't really wasn't significant if you even look at currency year to date currency year to date.
Basically around $16 million almost 2% of revenue year to date show I mean currency is still an ex translation so into the volume still there. It's just translation. So that does have some impact in that math, so that plus 1% includes.
You take currency out of that you could say, it's plus three.
Compared to what.
Alright, Thanks, and I guess on prior calls Youve talked about exiting 2020 at 10% plus EIP double digit EBITDA margins can you just talk about your thought process on that today.
Yes. It is we.
Talk about.
Last even in the last call I think you asked the question last quarter as well, we see that 20 2020, and we've always said 2020 2021 I mean, that's our that's our objective we see a path to that Alan.
Again, some of it is trying to we need to determine whats market.
What's the market going to look like what's that market uncertainty that we have to quantify and we're still trying to evaluate what that means when you look at what we're our focus on operational efficiency.
You look at the new product mix, that's coming on board.
One we have to we have to launch it successfully and as we know this year, there's a significant amount a launch expense that's built in to the plan we do see.
We see how we can get it done we have to we have to execute on the operational front, we need to continue to manage.
Cost, which which we are doing so there is a path with mix and.
With that I'll say with our current volume assumptions as we look into 2020 2021 period.
To get there, it's going to it's still going to take a lot of work the market uncertainty.
Demand uncertainty can have an impact.
While we.
We are continue as an industry we feel.
Confident that Thats moving forward, we obviously see continued.
Uncertainty built around China.
While it hasn't had as onto John Murphys question earlier about trade, we don't for our products Shiloh direct end market for market, we don't see that that's not creating uncertainty, but a lot of our customers.
If you think of some of the German Oems who are here in the U.S., who export their sq viz globally that potentially has a.
Has the risk what will be that impact for them, which obviously can have an impact and so we're trying to evaluate some of those as we make those decisions, but when when we look at it theres a path to do it do it in this case to hit that Mark EBITDA margin targets, there's a path to do it there is still a lot of work that needs to be to be done we as we mentioned we're doing some restructuring.
That's going to make sure that our footprint is aligned with that market uncertainty. We are I'm trying to and the team is doing a good job to build Shiloh is I'll say more of a variable cost company. So we can flex with.
That volume.
And and make sure that we can stay ahead of it so theres going to be a lot of things that have to happen over the next.
12 to 18 months, we have plans to do that we have to execute those objectives.
Okay and products the Mark.
Yes, okay. Thanks, Greg.
And if you look out to next year, what did what do you expect capital spending to be and do you expect to be do you expect cash flow to kind of exceed your capital spending for next year.
Capital, we still feel comfortable that we'll operate within that 5% to 6% type of range. When you look at that that's inclusive of both.
New business wins product.
Productivity capital.
Operationally to improve Opex maintenance capital also and that is our launch for our own.
New systems that we're putting in place for the business and we feel still comfortable that we can operate within that 5.65% to 6% range, obviously as little instead, we are targeting.
To continue to focus on reducing.
Our leverage and so activity will be to continue to pay down.
Just a highlight again I know you've been through a lot of bit on launches at the last quarter. I believe you were talking about 17 launches that you were in in motion for where are you Netwise right now how many launches have you started this year.
How many do you have to to your starting before the end of your fiscal year here.
And and how many do you anticipate next year can you give a specific numbers on those.
Oh overall, George I can when you look at 2019, we spoke to the Sevens, we see major launch reserves on a large number of smaller launches that may be standard technology that we're not calling something disruptive or something new so when these 17 majors. The a lot of these were new technologies are first time technologies to the market.
And so that's in there and and that drove a lot of the the I'll say that the premium expense on comparison to others of those 17, we would say we're about 70% through that that those programs, leaving you know quarter four with 30%.
Of that remaining so we still have.
You know basically of five or so major going on and happening right now when you look at.
2020.
The previous question on you know what do we see a new business wins, we do have a large.
The larger a large number of programs next year.
Next year, there's more I'll say.
Similar technologies versus dish disruptive new technology, because now we've gone through some of the first time launches on technology. So.
One we have a more robust prostitutes planning process in place and so we implemented and that is a kind of a a lessons learned.
Oh.
From let's say 2019 to make sure we drive that so 2020.
Let's say, it's half the number at this point of.
Major launches still what we will classify as major launches new disruptive technology does but we have like this year.
A large number of smaller sub sub mobile call sub tier.
Programs, so when he should be less.
Disruptive than 90.
Okay, all right on that end and debt and then add in terms of.
The expenditure at the front end expenditure on the line shows is is it possible to give us a figure of what that amounts to this year.
Versus what you might expect next year.
I guess to that their respective tool.
Yeah, that's Ramsey with say next year's launches, we expect them to be less disruptive types of technology. So launches that we have.
Kind of continuing with our existing technology, so from year over year cost obviously, we're still working on our 2020 plan.
And we'll have more to talk about in our next call in terms of 2020, but when I think as you know incremental type of launch costs of above and beyond I would expect to be much less of that type of.
Extraordinary launch expenditures again, because of the nature of the launches and the programs and also importantly, the processes and the discipline that the company's implemented from a launch readiness perspective.
Also minimizes the the launching pad for the company.
Okay, Alright, and a and then one other on this particular subject in terms of the launches that you're you're doing going forward and have it I can introduced already this year.
Some of that obviously is replacing existing.
Pardon.
Can you relate a little bit about how.
You're you're capable of improving your margins on what you're going you're doing going forward versus the parts that are coming out of the picture that potentially add less margin.
[noise], that's really where the operational efficiencies and getting through the l., so getting through the launch and getting to the targets.
Profit margins. So we were expecting on that how do we continue to drive down scrap rates, how do you drive down operational efficiencies and throughput on the on your equipment. So when you look at those.
Replacement technologies that is to the earlier question from Mr. Webber about getting to that margin those margin targets. It is about.
That mix change overall for the business. So how do we drive that mix, but we also have to launch that we have to we have to launch their product and get it to its.
Profit potential.
Okay, all right and I would like to switches to China.
In terms of looking forward here I know your launch period, the remainder of this year, how many part.
Do you expect to be producing over there, let's say by the end of a calendar 2019 that that would be into your new fiscal year of course, and and how do you potentially in vision that by the end of the next fiscal year.
In terms of.
Actual part numbers.
Well, probably be it I'll call it a dozen plus different some products and probably maybe even greater than that but when you look at the business.
Volume, you'll start seeing that China will be.
A more a much more significant part of in relationship to where we are today so that business is.
You know in essence will.
If it's 1% of revenue becomes 3% 4%.
Of of revenue going forward for the total Corporation, So China and this is just launching on programs that.
Our one so these are not about winning something new these are the expansion of the vehicles that we're on we're on a very good mix of products were on C. you viz S. movies of popular sedans that are out there. So our our mix has been or targeted platforms has been purposeful.
It is about launching differentiated technology, so our our Shilohcore dash panel.
Is something that we continue to see on.
You know every year, we're adding machines they are adding it on new vehicles again. It is a is a wonderful technology.
Improves NVH, which is why both on an electric vehicle side, they really like it.
Improves NVH freeze ups create space in the vehicle as well as an overall cost reduction to the Oems. So we see activities there on our structural magnesium products or IP structures cross car beams.
That's moving forward on our powertrain products in this case of nine speed 10 speed transmissions, we see good growth on that product, but where it's a positive.
Because of the fuel efficiencies of those higher speed transmissions, the particular customer starting to put more of those transmissions and replace.
Some of their their standards, so that's actually a growth opportunity.
Even beyond the market because it or they are basically increasing instances that going into a vehicle. So this is why we feel we feel good about what we've got in place in China and before we add technologies. There, we're going to be very cautious on what technologies and how do we prudently I'll say make investments because we do want to make sure. They are the right technologies and we're not chasing commodity products. Okay. I could appreciate if you could update us on the following in the last call I ask a question about if you could give us some oh you pay a revenue generation number for China.
On a year on an annual basis going forward and I think that the numbers that were given to US were 25 million in the first year and a doubling that the second year.
Hey can you can you comment on that how do you feel about it now and can you actually a push it beyond those forecasts.
I would say when you look at a fully launch here I mean, it will be you know you're going to see that in essence.
To a certain degree next year as I've been rep, representing over call it 3%, 3% to 4%, which basically you know on a billion dollar basically says 30 to 40 million next year with well with growth thereafter, so we still even with the market down and that's assume that's even building in place what the market forecasts are right now again we.
We like what we see in China, we like what we have for China, we have a great team in China. So we see things moving forward.
I see I see okay, all right and then one final on the financial side could you just comment on how you see that perception for your debt situation going forward as you see everything that you have to accomplish say going forward into the next year about Oh I I think there was a comment maybe earlier about.
What you were going to be looking at in terms of your debt structure and how might that change can you give us some specifics on that.
Sure George.
So from a debt perspective, and really let me answer it a little bit from the cash generation perspective, and the capital allocation perspective. So yes, very focused in terms of an organization on ensuring we're generating profitable growth profitable and cash generating products. So that is very much the focus of the organization with the long term I on.
Hi, decreasing the net debt position more into the two range versus the three and a half range that we're presently and so when we think about how we're approaching the capital allocation is and I think Ramsey touched on this earlier it really very laser focused on ensuring that we're delivering the products and the technology to support our customers to support that profitable growth.
Focused on servicing that that and really focused on reducing that longer term for the organization I see okay. All right. Thank you kindly.
Thanks George.
Thank you there are no further questions at this time I would like to turn the call back over to Mr. Hermiz for any closing remarks.
Okay. Thank you and thank you for the questions.
As we mentioned Shiloh Theres a lot of opportunities on our technology.
We see the market continuing to.
Need the technology seek the can the technology. It is disruptive in what we what we're doing and we continue to see both our structural products are.
Aluminum magnesium string steels, the high strength steels that portfolio mix that.
Multi material solution is becoming and becoming more in demand. When you look at our NVH products to manage sound again, a technology that is proprietary to Shiloh from our Shiloh core perspective, again, we see more interest in that and more need in that so we're very confident that we have the right technology. The right. We've built a very good footprint over the past few years. So we're in the right we're in Europe or in China. We're in on the U.S., Mexico. So we have the right footprint.
Going forward, we got to continue to execute flawless launches. So that's clearly a focus for us going forward, we need to focus on operational efficiencies as well to continue to drive and to drive margin improvement. So we're we're confident in the plan that we have we're confident in the team. That's in place we're going to continue to work forward.
While there is market uncertainty we understand that we are trying to build a business that will be operating on a bit more of a variable cost type of structure. So we can respond to market demand or regional demand as it may be and when we feel good that we have the right plan in place for that as well.
With that I want to appreciate Everybodys continued support and we look forward to talking to you next quarter.
Thank you.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation have a wonderful day.