Hello, and welcome to the NN Inc. Fourth Quarter 2024 Earnings Conference Call. All participants are in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Stephen Poe, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and thanks for joining us. I'm Stephen Poe with NN Inc. Investor Relations team. I'd like to thank you for attending today's earnings call and business update. Last evening, we issued a press release announcing our financial results for the fourth quarter and full year ended December 31, 2024, as well as a supplemental presentation, which has been posted on the Investor Relations section of our website. Anyone needing a copy of the press release or the supplemental presentation may contact Alpha IR Group at mnbr-alpha.com. Presenters on the call this morning will be Harold Bevis, President and Chief Executive Officer, Chris Bohnert, Senior Vice President and Chief Financial Officer, and Tim French, Senior Vice President and Chief Operating Officer. Please turn to slide two where you'll find our forward-looking statements and disclosure information. Before we begin, I'd ask that you take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation, and when filed in the risk factors section in the company's annual report on Form 10-K for the fiscal year ended December 31, 2024. The same language applies to comments made on today's conference call, including the Q&A session as well as the live webcast. Our presentation today will contain forward-looking statements regarding sales, margins, inflation, supply chain constraints, cash flow, tax rates, acquisitions and divestitures, cash and card savings, future operating results, performance of our worldwide markets, general economic conditions and economic conditions in the industrial sector, the impacts of pandemics and other public health crises, and military conflicts in the company's financial and other topics. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside of the company's control. The presentation also includes non-GAAP measures as defined by SEC rules. A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation. Please turn to slide three, and I will now turn the call over to our CEO, Harold Bevis.

Thank you, Stephen, and good morning, everyone. As mentioned, myself, Tim French, and Chris will be giving an update and have a Q&A session at the end. Let's go ahead and get started. If you could turn to page four, on business update. I'd like to give you a few highlights. NN's first year of transformation produced significant and immediate results, including a new five-year business plan, a new top leadership team, which is 80% in place, a new business development program, which has now produced as of last night, approximately $150 million in new business awards. We enacted a fix-it-or-close-it program at seven plants that were underperforming, and we began a refresh for our capital structure with a new ABL in December of 2024 and a term loan refinancing process, which is underway now. Chris will give a fulsome update on that later. As we look at the full year of 2025, we expect advancement on all fronts, including growth outs and cash generation. Barring any significant tariff impacts, and we're gonna talk about tariffs as they're a timely thing, we have 70 new business win programs launching this year. Our cash CapEx is expected to be at our normal levels, and we will continue to selectively add a few new people to further help drive our new business development areas, particularly in stamped products, medical products, and electrical products. We will continue to optimize our operational footprint and headcount. Lastly, a word about tariffs. It's the goal of the Trump administration to encourage reshoring of volumes, profits, and jobs for companies like NN. But as it's playing out in the papers and all of us know just from common sense, the US manufacturing supply chains are global, complicated, capital-intensive, and slow-moving for important reasons like consumer safety and…

Thank you, Harold. Good morning, everyone. As Harold said, I'll talk to slide seven. For those of you that have followed our progress, you'll be familiar with the term group of seven. These facilities are responsible for $113 million of revenue and a negative $11.5 million of adjusted EBITDA in 2023. Other locations are listed on the slide being shown. In addition to the poor financial performance, they were negatively impacting our customer relationships because each of them had significant past due backlog. It was giving us unfavorable customer ratings and scorecards, which was impacting our ability to grow commercially. Over the last six quarters, we've intensely focused our efforts on improving their performance in these facilities. After an in-depth analysis, we decided to shed portions of the business determined to be unprofitable as well as close two facilities, the Wajeeack, Michigan, and Juarez, Mexico. Both of these facilities are in the mobile division. Portions of the business in these facilities and the related equipment have been transferred to other locations. This required us to get approval from the customer. We had to build and manage inventory banks to service the businesses while we removed, reinstalled, and PPAP the equipment in the alternative facility. Production has concluded in Juarez, and we're on track to have the Wajeeack closed in Q2. The remaining five facilities, we focused on organizational and operational improvements that included top grades to leadership and staff, improvements in engineering. We implemented functional KPI trackers as well as increased focus on customer pricing, service, and interaction. As a result, we now have green scorecards with all our customers, and that's a big help when it comes to securing new business wins. It's really benefiting our commercial team. These actions over the last six quarters have been extremely successful.…

Thank you, Tim. Good morning, everyone. Today, I'll be presenting information on both a GAAP and a pro forma basis. As a reminder, we began presenting pro forma business performance in the third quarter of 2024 to give a better representation and depiction of our financial and operating results after the sale of our Lubbock facility this past July. We also have other adjustments that we arrive at what we consider to be our ongoing business. Detailed adjustments made that translate our GAAP and non-GAAP reporting to our pro forma results are in the appendix of the presentation. Today, I'll start on Slide eight where I'll detail our consolidated results for the fourth quarter. Starting with our as-reported numbers, fourth-quarter net sales came in at $106.5 million, reflecting about a 5% decline compared to Q4 of last year. While the top line was impacted by the sale of our Lubbock facility and strategically rationalized sales volumes, we continue to drive strong margin expansion and improved profitability as noted on the slide. Adjusted operating income was $2.4 million, a $3.8 million improvement over the prior year quarter, where we reported an adjusted operating net operating loss of $1.4 million. Adjusted EBITDA grew to $12.1 million, a 21% increase from the $10 million delivered in Q4 of 2023. Performance underscores our commitment to operational efficiencies and disciplined cost management, allowing us to improve profitability in a dynamic macro environment despite the lower sales. Now shifting to our pro forma results on the right-hand side, which adjusts for key items, including the sale of the Lubbock facility, rationalized volume, and foreign exchange impacts, which we outlined in the table at the center of the page. On a pro forma basis, net sales of $106.5 million reflected a 2% increase compared to Q4 of…

Thank you very much. We will now begin the question and answer session. Please go ahead. Today's first question comes from Joe Gomes with Noble Capital.

Good morning. Thanks for taking my questions.

Good morning, Joe.

I wanted to start out with the turnaround of the Group of Seven plant. And you guys have done a tremendous job in my view there. And, you know, just kinda looking at the 2025 outlook. You know, you're talking about, you know, EBITDA of $5.1 million, sales of roughly $75 million, which kind of translates into, you know, roughly a 7% adjusted EBITDA margin, you know, almost 16% of your revenue. So kind of the question is, one, do you think you can get that EBITDA margin at those plants up to the 10% level, you know, where you currently are overall? And if you were able to do that, you know, how high does that take the adjusted EBITDA margin for the entire company?

Yep. It's two-part. Chris, I mean, Tim, I'll start. Okay? For us, those plants, Joe, have a decent amount of open capacity. And so there's cost and revenue fixes here. We have good machinery. In the process of these plant closures, we've upgraded some of the equipment in the other plants by relocating equipment, and we've discarded some of the older equipment. So we're able to compete better with better equipment out of those locations, and we've built up the business development profiles, the size of the opportunities that we're tracking for those plants. So a part of the go-forward kind of optimization has to do with revenue and getting our revenue up. Our looks are increasing slightly with the reshoring that's been happening with the tariffs and all the activities. And one of the facts, Joe, is in the first quarter here, we are launching, is it eleven programs, Tim, that's reshoring from China to the US?

Yes. And Kentwood?

Yeah. Yes, it is. So we have eleven discrete programs that we've secured that have moved from China to US soil, and those are gonna all help. So part of it's revenue, and, Tim, I'll hand it over to you to give you our two cents.

Yeah. I think one of the key things to keep in mind is that financial performance of the group of seven was really what showed through. But if you look at one of the underlying causes of it was the significant past due backlog, and that's put us in a very bad position with a lot of our existing customers. And it basically rendered those facilities almost unsellable with our existing customer because we didn't have the favorable scorecard. So now that we've been able to eliminate the significant backlogs and have green scorecards with customers, our commercial teams are now able to effectively sell for that group. So what Harold was saying is exactly where I was going with that is although there's still room for some more operational improvement, the next phase shift for those facilities is additional volume, which now we've opened the door to by getting us in a favorable position with the customers.

Great. Thanks for that. I wanted to touch base also, Harold, maybe give us a little kind of update on the medical components and the electrical components and how those businesses are unfolding here.

Yep. So we have sub-goals for medical to grow that to $50 million organically. We're at about $20 million right now. We have about a $25 million pipeline. It's high quality. We've been able to become an approved supplier. First, the first step is to become an approved supplier for the products that you're selling. And we wanted to really get into machine products and stamp products. We still have a couple of big customers that we're going through approval processes with, but we're on track. And so the approval, then looking at the opportunities, and then securing the wins. It's gradual. We have a goal this year in medical to get another $8 million of wins. An $8 million a year, and then we'll get to $50 million. So the medical is on track. We need another person, just have some small things to do, but we're on track, and we're now shipping medical products out of, Tim, is it eleven plants that we're making medical products in?

Yeah. Yes.

So we're shipping medical products out of eleven of our plants. We've got our first medical one in Europe, and we're increasing our certifications. On stamped products, in electrical products, it's a similar story except for we're largely already an approved supplier. And so it's a matter of getting in on the action, and we have pipelines for that as well. Stamped products are good for us. Also, in automotive, some people say, gee, mini Christmas. Your automotive business is so capital intensive. It's really not true. The part of the part of our company that's capital intensive is the machine part of auto. The stamped part of auto is just as good as the stamp part of electrical or medical. So the stamp business has a good business model in that the machines are ubiquitous and the customization is in the dyes, and we make our own dyes. And a lot of times, the customers take part in financing those dyes by letting us amortize the dye back into the piece price. So we're after all things stamped. And we have a dedicated effort there. We've added some high tonnage equipment both in China and in the United States, and it's expanding our aperture. A couple of big products we're going after, one is Busbar. Busbar is a big thing for electrical grid. And we just needed some longer beds on our presses. So it's a gradual buildup, Joe, that we're going through, and we're just trying to chop it down by the same amount of wins per year, and so far, we're tracking to our goals.

Great. And one more for me, if I may, Harold. Again, I just want your view, your insight here. So, you know, a recent report came out, you know, on Class 8 truck orders, you know, down, no, thirty some odd percent month over month, almost forty percent year over year. Supposedly, people extremely concerned about tariffs. You see the press reports, you know, tariffs go through or they stay through, passenger vehicle prices could go up thousands if not tens of thousands of dollars. Just trying to get your view of your thinking around this whole thing and how any of this could potentially, you know, impact the company here. I know it's a very fluid situation. The tariffs seem to go on one day, off the next day. But just trying to get, you know, kinda the way you guys are looking at things and your thoughts on that. Thank you.

Yep. You're welcome. We're not tethered very much to Class 8 trucks, but I'll answer your question. Our commercial vehicle business is tethered to work trucks, so our biggest engine that we're on is a 7.3-liter diesel engine at Cummins. We were tethered to the 6.7-liter Ford Godzilla engine, GM's Gen V. So we're primarily a participant in engine parts for work truck engines. But on Class 8 trucks, the big trucks, the big engines, PACCAR, Volvo, Cummins also. You know, as the industry learned during COVID, you have to be clear to build the vehicle. And there's something like a hundred thousand parts that go onto a Class 8 truck. And you have to have all of them. You can't just say, okay, I'm alright, I don't have a steering wheel or something. So you have to be clear to build, and the big trucks have a lot of parts, and so they're very sensitive to supply chain disruption. Instead, like, are happening right now. So, and the people that buy the trucks, the Class 8 trucks, are primarily businesses. And they have to have a payback on the investment into the asset. And if the asset goes up in price, the fleets who are the majority buyers of Class 8 trucks back off because it's a bad time to buy. So I think you have some supply and demand irregularity in the Class 8 world. We're not really participating in it. We're into the work truck. We're in delivery trucks, delivery vans, garbage trucks, Class 6 and 7, not Class 8. So our business isn't gonna be impacted, Joe, but the Class 8 truck crowd, they have a different set of issues to deal with.

Okay. Great. I'll get back in queue. Thank you very much.

The next question comes from Rob Brown with Lake Street Capital Markets.

Hi. Good morning. Congratulations on all the progress.

Thank you. Good morning.

On your 20% long-term gross margin goal, what sort of has to happen to get there, like, from this point?

Yep. Good question. Part of it is Tim's group of seven, group of five, soon to be group of four. So we have Tim's getting rid of his problem by consolidation if you're putting the math together. But no, I'm kidding. Part of it is what's next. When Joe asked the question on kinda what's next to make that group of seven not dilutive. And it's getting our revenue up, and Tim's also sharing the overhead structures amongst the plants versus every plant has a dedicated staff to do procurement, scheduling, and all this. So he's implementing a shared overhead structure amongst common plants. See, common either because they're close to each other or common because of the type of manufacturing they do. So it's either or or both. And in the case of France, which Tim alluded to on his page, the France plant isn't where we needed to be, but they've secured a very, very, very game-changing win, and it is already in development and ramping up. It will effectively sell out the plant. And that plant will actually go above average when they're fully onboarding that. Now then you're down to one plant that's one large plant that's dilutive, and it's Wellington, Ohio. And that plant we're hoping to benefit from reshoring. We have a big pipeline going into that plant. We're pretty close to having nudged out the cost structure to run the plant. It does make positive EBITDA, but it is dilutive to your point. And so fixing the diluters is part of it. The other part is to onboard accretive business, and that's the whole intent of our new business award program is to onboard accretive business and leverage the installed cost structure, which Chris was referring to, which we did in Q4 and we did in the year of 2024. So we have a five-year plan. The first year of it is kinda in the books, if you will. We tracked to what we wanted to do, and we're on track. And it requires a little bit of patience because we have to win this business and onboard it. And then we have, and that's France and other plants. And then in the case of Wellington, it's a special case where we're a little bit more impatient with that plant. So how long, how many years will we, you know, wait for that to play out? Not many. So that one's kinda the one that's on Tim's radar screen right now to fix. Tim, would you like to add anything to that question?

No. I think you covered it all, Harold. You hit all the key points.

Great. Yeah. Very comprehensive. Thank you. And then on the mitigation things you can do with tariffs and as reshoring comes, how much flexibility do you have to move business sort of between your, you know, from your international locations to the US and maybe vice versa on kind of adjusting these tariffs or this business around to deal with the tariffs, or is that a longer process?

Well, the biggest part of our company that's impacted by the tariffs or is it's a concern to understand is our automotive parts. It doesn't impact our power. It doesn't impact our medical. We don't have any of the issues, any cross-border issues. The automotive part is very, very slow because you have to go through a PPAP and product safety process. We're tied into steering and braking, and those require the OE to go through any substitutions require the OE to go through crash tests. It's pretty significant cost for the vehicle makers to do it. They avoid it like the plague. So once you're kinda locked into a system, there's a high resistance to change. So in the short term, it's mainly people that are taking the initiative to move and reshore. Of the awards that we are ramping up right now that I referred to earlier, we won those in the fall by a proactive tier-one maker of fuel systems for medium-duty sports cars. Excuse me, medium-volume sports cars. And they're going through the long-term cost of doing it, and they just decided to simplify their supply chain because their So we really don't see a lot, and, you know, you have direct and indirect impacts of tariffs. So the direct impacts are minimal on our cost structure and minimal in terms of our pipeline. The indirect cost is what happens to the volumes, you know, at the OE if they're clear to build on vehicles or not, you know, that can impact kinda everybody's volume. We won't be a problem for anyone. But if anyone's a problem that causes the OE to have a problem being clear to build on their build materials. So we haven't heard anything yet. If no one's really doing anything quickly right now, it's not a quick and there's a lot of flip-flopping in the papers, including last night with the big three, where President Trump gave them another reprieve. And that's the majority of our exposure. So nothing major happening right now. Our direct hits are minimal, and it can only be minimal because of our supply chain. And then the indirect exposure we have is just industry-based, and that's also minimal right now as well. It'll probably change today, so I should probably date and timestamp my comment. But, you know, it's a really fluid topic, Bob.

Okay. Great. Thanks for that answer. The last question, I guess, is on the Power Solutions business, you know, you've eliminated some capacity there. How do you see the revenue trends and, I guess, the market demand in that segment?

Yep. So we expect to have an up year in power. The electrical grid business, you know, the reporters there, the people that speak clearly are Eaton and Honeywell and Itron, Grouponaut Air. The electrical grid demand is still strong with data centers infrastructure investment. The whole AI data center thing is putting a lot of strain on the grid and the need to control the grid. And also, the EVs, even though EVs are kind of plateauing, any EV, if a person on a street buys an EV, the transfer street has to be upgraded. And so the grid wasn't installed with these types of demands. So our business is still very strong on, we're primarily grid edge, so we're in the distribution. We're in the circuit breaker panels. We're in the meters. We're on the grid edge. And that business is strong, and we've increased our capacity to make those products. And we have a decent amount of new wins in that business as well. So the outlook for Power Solutions in 2025 is pretty strong.

Okay. Thank you. I'll turn it over.

The next question comes from Mike Crawford with B. Riley. Please go ahead.

Thank you. Can you talk about your deliveries, like, any metrics regarding on-time deliveries now versus in the past and maybe how much that's been attributable to some of the additional wins you've been secured?

Yep. Good morning, Mike. Tim, will you take that one?

Sure. We don't track on-time and in-full in the standard process, like, quoting it as a percentage. But what I can tell you is we track past due backlogs. And we have dropped our past due backlog significantly, not just in the group of seven, but across the board. So that's what has allowed us to get the green scorecards from or the favorable ratings from all of our customers now as we've been able to move that forward. And past due backlogs would be an indication of an on-time and in-full or a delivery metric. We are in the process of implementing an on-time and in-full metric, but at this point, we don't track it in that format.

And have you seen the correlation between where you've reduced those past due backlogs and seen an increase in new order wins? Or is that more Yes. Oh, definitely. Definitely seen a correlation even in facilities that aren't part of the group of seven. We've seen new business wins. Because when you don't have a green scorecard or a favorable rating from a customer, and one of the contributing factors to our new business wins that we've been able to generate over the last little while has been the fact that we're off new business goals across the board. We're able to generate new business wins with our existing customers as well as

I can help a little on the stats there, Mike. Seventy-seven percent of our new wins have been with existing customers. And when Tim and I came in the door, we were on new business hold with almost all of our top thirty customers. And the majority of our wins have been with them. So I think, Tim, at the highest level, the majority of our wins have come from customers where we were on a business hold.

Oh, exactly. And that's the point I was attempting to make is that by getting off new business hold, it opened the door for us to start winning again.

Okay. Great. Thank you. And then just to shift direction. And you're trying to JV. I think the vast majority of what's made there goes to customers where their end products stay in China, but I think we're also seeing some of those products now being shipped to other markets that China customers are targeting, be it in Africa or Brazil or Europe. But is there a breakdown between what stays in China and what might be exported out of China, but not to the US?

Yep. So there's movement on that topic, Mike. The JV that we have with WayFoo, which is about a $130 million revenue profitable JV, which makes components that go into hybrid and ICE vehicles. The largest end customer for the output of that JV is BYD. And to your point, BYD ships their systems and then does final assembly in many countries around the world. They're the big one doing that. Geely does a little bit of it in Europe. And Great Wall. But if you look at the top ten China OEs, a few of them are the guys that are driving the export market. And I would say your comment is true. That our parts are ending up getting exported out of the country now. And as you know, there's rebalancing between Europe and China, leaving the US out of it. The European tier ones are seeing that their China operations are much more competitive than the European plants. So we see them shifting load to China to make braking systems, steering systems, these kinds of things in China versus making them, for instance, in Germany. And so the loads on automotive part making in China are just going through the roof. We are at capacity in the JV. We are at capacity in our wholly-owned foreign entity. And we're adding capacity in both areas. The costs are globally competitive. The lowest cost at what they do. So we see demand coming to both operations. They're very profitable for us as well.

Great. Thank you very much.

Welcome, Mike.

The next question comes from John Franzreb with Sidoti and Company. Please go ahead.

Good morning, everyone. Thanks for taking the questions. I'd like to start with the new business wins. Are they being written at that 20% target? Are they approaching that 20% threshold?

You're talking the gross margins, John?

Yes, sir.

Yes, sir. They're being written above that. We have some floors and caps, and we also look at ROI if CapEx is required. We look at the actual cost. So if we have an open machine and we're quoting open capacity, and the machine's already been expensed into other business and so is the overhead and all that. We just look at the variable cost that are associated with it. If we have to add a shift or add supervision, it varies that cost. And if we have to add equipment, it has to carry that cost. So we have three-tiered pricing. And in all cases, the bottom is 25%. And then on ROIs, it's also the bottom as 25% if spending is needed. Most of it is above that. And we price as much as we can get. We don't do cost-based pricing. We look at what we think the market will bear, and then we look at our cost structure and see what they return with the new wins that we got. We got $73 million in new wins last year, but we also walked away from about $340 million of quotes that we made, and we primarily walked away from them because of their economics. And probably the biggest opportunity we had, it might be the biggest opportunity we had in the fourth quarter. We walked away from it because the ROI wasn't there. So we are cherry-picking. And a big part, you know, that question was asked earlier too. A big part of getting our gross margins up is the contribution of the new business. And, well, we'll report more clearly on it in the future. John, I can't give you exact ratios because we haven't calculated it. Part of it's cost, Tim getting the cost down. And part of it is the new business that we're bringing in.

What would you guys say, half and half?

Yeah. Roughly, Harold. About half and half. Yep.

Okay. That's good color, Harold. And just I might have missed this. Regarding the timeline of the plant closings, have you disclosed that? And are those facilities owned or leased? Would they be asset sales in the future?

Yeah. Tim, you want to take that?

Yes. We've got a leased facility in Juarez. We've stopped production. Production has ended in that facility, but we still have people prepping the building and packaging machinery for relocation. Wajeeack is an owned facility. That currently is listed for sale. It should cease operation in early Q2. Is the current estimate.

The other plant, John, that we mentioned, we're gonna close. We haven't said the name of the plant because people in the plant don't know it. As we reported earlier, that one's leased.

Got it. I guess one last question regarding the balance sheet. Any update on the timing of the refinancing of the term loan and any updated thoughts on the preferred?

Yeah, Chris?

Yep. Thanks, John. Yeah. We're in the middle of the refinance. As I mentioned, we're expecting to get it done in this first half of the year. We had quite a bit of interest once Harold and I rebooted everything. And so we got a lot of different options on the refinance, John. So we took a look at those options and then narrowed it down, and we're very pleased with where we're heading right now. Not a lot to report on the pref yet, but it's on our radar screen, and, you know, we'll take a look at that as part of the kind of third step in our total cap structure refinance.

Yeah. I would say that we pivoted, John, to China because the China receivables and China assets are pretty much disallowed to get full value for them with the US domiciled work that we were doing on the debt. And so we turned our attention to extracting cash out of the balance sheet in China and having them get set up to do their own local banking and local financing first before we got after the preferred. So the two big things we're working on right now are the term loan overall for the company and then getting China on their own to do their own funding and just send money back to Chris. We're part trying to turn it into an ATM machine.

Fair enough. Thanks for the follow-up. Good luck.

You're welcome. Thank you.

This concludes our question and answer session. I would now like to turn the call back over to management for closing remarks.

Thank you, everyone, for the good questions. Appreciate it. You gave us some insight on how to report even better next time, and we look forward to reporting our progress after Q1. With that, thank you, operator.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.