Good day and welcome to the NN Inc. first quarter 2025 earnings conference call. All participants will be in a listen-only mode. [Operator instructions]. Please note this event is being recorded. I would now like to turn the conference call over to Mr. Stephen Poe, Investor Relations. Mr. Poe, the floor is yours, sir.

Thank you, operator. Good morning, everyone, and thanks for joining us. I'm Stephen Poe with NN Inc.'s Investor Relations Team, and 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 first quarter ended March 31, 2025, as well as a supplemental presentation, which has been posted on the Investor Relations section of our website. If anyone needs a copy of the press release or the supplemental presentation, you may contact Alpha IR Group at nnbr@alpha-ir.com. Our 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, our Senior Vice President and Chief Operating Officer. Please turn to Slide 2, 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 in the risk factors section in the company's quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2025. 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, foreign exchange rates, cash flow, tax rates, acquisitions and divestitures, synergies, cash and cost savings, future operating results, performance of our worldwide markets, general economic conditions, and economic conditions in the industrial sector, including the potential impacts and ramifications of tariffs, the impacts of pandemics and other public health crises, and military conflicts on the company's financial condition, among 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, which may cause actual results to be materially different from such forward-looking statements. The presentation also includes certain non-GAAP measures as defined by SEC rules. The 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 3, and I will now turn the call over to our CEO, Harold Bevis.

Thanks, Stephen, and good morning, everyone. I'd like to address a few key points at the beginning of the update today, and the first point is regarding market demand, tariffs, and new business. Business uncertainty increased during the quarter and since we last reported, and it caused us to have lighter sales in plan in Q1 at a few customers, especially in global automotive, which is now about 40% of our sales. And quite a few public companies in our segments are reporting down sales and negative outlooks. We're reporting flat sequential sales and flat year-over-year sales on a pro forma basis. We're able to do that due to our successful new business program, which keeps delivering results, gaining share, and gaining new positions. But during the quarter, we did see our base business softening, and we shifted our business development focus on the closing and winning immediate ramp-up sales, and it's working well. We nicknamed it the PIGS program for Profitable Immediate Growth Strategy, and it was a focus on immediate ramp-up business and the complexion of 2025 already looks different. We now have 120 programs that we've won ramping up this year worth $55 million in annualized sales, which is a steep increase since we last reported. And our biggest new win is in industrial products where we will convert certain automotive production assets over to produce these new products. And this $55 million in new business is ramping up during the remainder of 2025, and it adds to whatever our base business will be. And at this point, we're assuming a flat base business market environment from our legacy customers with this additional layer of business. It bolsters our outlook, and it gives us confidence to reconfirm our guidance, which Chris will walk through. So, this has…

Thank you, Harold. We added this slide to focus on some of our key metrics first. I'll get into our more detailed quarterly results later. First up is our net sales for the quarter. As Harold mentioned, we were flat on a pro forma basis and roughly flat sequentially from the fourth quarter. Our adjusted gross margins were 16.9%. We feel like we're on track to hit our five-year goal in the 19% to 20% range as we continue our cost-out programs and layer in new business in the coming quarters and years. Our adjusted operating income was actually positive at $2 million, which was an increase of $2.7 million quarter-on-quarter. Our adjusted EBITDA came in at $10.6 million, and as Harold mentioned, we're reconfirming our guidance in the range of $53 million to $63 million for the full year of 2025. Adjusted EBITDA margins came in about 10% for the quarter, on track with our five-year goals in the 13$ to 14% range. We also spent a lot of time working on working capital. Tim will cover this in more detail, but our working capital through the first quarter was $84.8 million. It's on track for our goals to be down $4.6 million year-on-year, and our working capital as a percent of our trailing 12-month sales is 19.1%, and that's down considerably, as Tim will talk about here shortly. New business wins came in at $16.4 million. We're, again, reconfirming our guidance there in the $60 million to $70 million range for the full year. And we also obviously track cash CapEx and cash very closely. Cash CapEx for the first quarter was $3.9 million, and we're roughly going to target about $10 million for the full year, keeping it pretty stringent for the year. So, those are just a few of our key metrics. I'll talk about the quarter in more detail, but with that I'd like to turn it back over to Harold.

Thank you. One of our key charts that we've been providing updates around is our transformation plan and our tracker and our enterprise transformation is roughly 70% complete after our first seven quarters and we're on track with our targets for the full year of 2025. Going down the list, we're about 90% complete with enhancing our leadership to mirror our new forward agenda. Secondly, we've been isolating and actioning against the underperforming parts of the company. These are customer-specific, program-specific and plant-specific. This requires aggressive customer interactions arriving at mutual agreements to either improve economics or professional transitions. We're about 70% complete with this. We nicknamed this the group of seven because it was concentrated into seven plants, and 2025 will be a turning point for those plants, and they will deliver positive margins for us. Margin expansion is a result of these fixes, but also leaning out of our cost structure globally. We call it our one-team program and it's a multi-year endeavor, with a strong 2025 game plan that's underway, and we're about 60% complete with that. But to make our turnaround a little bit more challenging, we inherited a debt structure that was nearing the end of its life expectancy, and we were able to extend the duration of our capital structure for another five years. And along the way, we learned that we had plenty of options to alter the complexion of our China operations, and we are underway with doing this. This will materially help our domestic debt profile. And the last point is regarding organically growing sales. You need to follow the comparatives here as we sold the Lubbock business in July of 2024, and we began rationalizing money-losing business in multiple plants in 2024. We call it price clearing. And if we…

Thank you, Harold, and good morning, everyone. On Slide 10, the operations team continues to focus on achieving the cost reduction targets in an effort to improve our EBITDA and cash flow metrics. Key aspect of this initiative is right-sizing our workforce in all the areas of the company, direct, indirect, salaried, and SG&A. The data on this slide demonstrates the progress that has been made since Q2 2023. Total headcount has declined 16.1% during that time period, which is equal to about 525 net head reduction. 67 are salaried or SG&A positions, which is 16.5% reduction in this category. It also should be noted that during this time period, some areas such as our APAC region added employees to handle significant growth they're experiencing. These additions, although are necessary to effectively run the business and meet customer demand, muted the impact of the overall reductions. The key metric on this slide is the impact these actions have had on our adjusted EBITDA for salaried headcount. This metric has increased significantly from 115,000 in the first quarter of last year to 142,000 this quarter. This is a 25% improvement over the last 12 months and is a prime example of our efforts to right-size and improve the efficiency of our team. Our efforts in this area are continuing. Direct labor will always need to flex to reflect demand. However, we are continuing our one-team implementation, creating a shared service infrastructure across facilities to support our manufacturing operations. This will allow us to progressively improve the efficiency of our salaried and SG&A workforce and better match our team to the needs of a company the size of NN. In subsequent earnings calls, I'll be excited to talk to you about additional actions plans for 2025. Now, turning to Slide 11, another…

Thank you, Tim. Similar to last quarter, I'll be presenting information on both a GAAP and pro forma basis to provide transparency into our operating results due to the recent changes such as the sale of the Lubbock facility back in July of 2024, and the exit of certain unprofitable business, which we call rationalized volume. We hope this presentation will be indicative of how we're making changes and decisions to transform NN over time. I'll start on Slide 12 where I detail the financial results for the first quarter. This slide shows our as-reported GAAP and non-adjusted numbers. On the left side, we have again lined out the pro forma adjustments to our quarterly results in the table in the middle, with our quarterly pro forma results on the right side of the table. The pro forma adjustments include last year's contribution from the Lubbock plant, which was sold in July 2024, rationalized sales volume, the impacts of foreign currency translation. Last year's quarter included $5.4 million of net sales and $0.6 million of adjusted EBITDA associated with the Lubbock plant. Strategically rationalized volumes of unprofitable business totaled $5.9 million in the prior year, and a $2.8 million impact from FX rounds out the three pro forma changes that we highlight. On an as-reported basis, net sales for the quarter were $105.7 million, declining $15.5 million versus last year's first quarter. As we note here, on a pro forma basis, accounting for the items I noted earlier, net sales modestly declined 1.3% or $1.4 million. Our adjusted operating income for the first quarter was $2 million, marking an increase of $2.7 million compared to the loss of $700,000 in the prior year. First quarter. On an adjusted forma basis, operating income increased $2.5 million. Adjusted EBITDA results for the…

Thanks, Chris. On Page 16, I wanted to remind our investors of the pillars of our five-year plan to drive profitable growth and convert that into improved sustainable shareholder value. Our plan still remains intact. The kind of volume speed bump we had in Q1 here, this only caused us to be recommitted and reconvicted to the successful outcomes, and we've listed our near-term progress against each of them and we're fully committed to it. So, thank you for paying attention here and listening to us, and we'll now turn the call back over to the operator for questions. Mike?

[Operator Instructions] And the first question we have will come from Robert Brown of Lake Street Capital. Please go ahead.

Good morning and congratulations on all the progress. First, just wanted to get a little more detail on some of the tariff-related RFQs. You talked about seeing some incremental activity for quoting, I guess, and interest. Just want to get a sense of what's happening there and what you sort of - where your plants have capacity to take on that business.

Yes, so the biggest two material streams of tariff-related activity, one is reshoring into the United States and one is European supply moving to China. In the case of our US opportunities, they're from Canada, reshoring from Canada to the US and reshoring business from China to the US. They're fairly fast-paced and they're large. So, in some cases, we have the equipment and in some cases we don't. They're in the quoting stage, and of course, like everything, there's multiple people bidding on them, and it's primarily automotive, Rob. So, our desire to spend a lot of money on US-based automotive is lower than other areas. So, the numbers are going to have to be terrific for us to be interested at the end of the day. But we have a couple that fit us. On Europe to China, we're seeing a lot of activity from currently sourced metal parts that are in Europe, in Europe for Europe. And Europeans are looking to dramatically lower their costs to become neutral to the tariff into the US, and they're quoting large chunks of business to move to China, then be shipped to Europe, assemble the tier one system, assemble the vehicle, ship it to the US. So, again, it's an attempt to lower the price of the vehicle. And in that case, we are underway with certain expansions, and we do have certain open capacity and other parts of the programs would require capital. So, it's mainly automotive and it's working around - it's meant to work around the tariffs to cost-neutralize them, and it primarily involves 50% new capital, 50% reuse of existing capital.

Okay, great. Thank you. That's a great color. And then on the automotive market in particular, you talked a little bit about sort of the activity in the EV and hybrid sort of moderating a little bit and balanced more with the ICE activity, but just a sense of how that's changing your new business opportunities and some of the stuff that's going on there as that rate has changed.

Yep. So, it's generally helpful for us that this has slowed down and has become balanced. A lot of our legacy assets in Europe and in South America and in North America were kind of dialed in for fuel systems. And so, a move to straight EV would be a declining market situation for us, but a move into hybrid is balanced because it needs either a generator or an engine in addition to the battery. So, the popularity of hybrid rising causes us to have a higher available market to us. And on the EV side, we initiated the shielding and connector stamped products business, which we highlighted on our new wins chart, and that continues to have - that was a brand new market entry for us. So, at this point, we have a balanced portfolio. We're using existing assets almost exclusively, including the stamped products. It's just different dyes on the same machine. So, for us, it gives us a larger available market, Rob, to use our legacy assets of both machining and stamping.

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

Next, we have Hans Baldau of Noble Capital Markets.

Hi. Thanks for taking my questions, and great progress on the transformation. I was hoping you could talk a bit more about that $55 million of new business wins expected to be seen this year, as well as $740 million in the pipeline. Can we talk about the timing of those? Are they going to be weighted in the back half of the year, or can we expect them evenly distributed?

Yes, it's a good question. So, what we call immediate win programs is a program where we have a green light to ramp-up, and that means that we have to hard tool, go through the prototyping, go through the customer testing, then lock in what we call a PPAP or a standardized way to certify the product and the process and the materials so that it's repetitive quality. And generally speaking, an immediate ramp-up has about a six-month lag in order for it to hit revenue. So, some of them could be done maybe in three months, but it's a three-to-six-month kind of a ramp-up as the timing. Now, we mentioned that we had a big one that we won where the customer was targeting a Q1 2026 start, and that's because generally speaking, they're either ramping out of their current supplier and ramping in a new supplier. So, there's a stranded inventory to work through, which is a part of the agreement either coming in or going out and you work to their dates and/or their program launch. So, I guess it's three to nine months overall, but the immediate ramp-up that we focus in on with our PIGS program, the profitable immediate growth strategy was to impact this year. So, a big portion of it will impact the second half of this year.

Okay, that's very helpful.

About half of it.

Okay. About half in the second half?

Yes.

Okay, great. And then a similar question, with the $15 million of cost savings you are targeting, is that expected to be evenly distributed throughout the year as well?

Yep. Tim, I'll give that one to you.

Yes, a lot of it is evenly distributed. There's a little bit of backend loading, but for the most part it's evenly distributed throughout the year.

Okay, thank you. And a couple more questions. So, with the remaining plants, are you expecting any more closures with those or are those seven plants the base to go forward with?

We have a couple more that we're looking at and aggressively on the payback of the consolidations, it's down to two plants. There's two left on the list that are on the bubble that are dilutive to our overall goals, but we don't have a firm plan in place right now to start or announce anything. We're in the valuation stage on both of those plans.

Okay. Understood. That's everything from me.

[Operator instructions] The next question we have comes from John Franzreb of Sidoti & Company.

Good morning, guys, and thanks for taking the questions. I apologize if this has been addressed. I've been juggling conference calls this morning, but I'm curious about the free cash flow guidance. Does that include the CARES Act refund and what's the (indiscernible)?

Yes, Chris, I'll give you that one.

Sure. John, you broke up a little bit, but yes, the free cash flow guidance does include the CARES Act, and the CARES Act is about $12.3 million, $12.4 million in that range.

Okay. And is there anything else other than (indiscernible).

John, you broke up again, but I think, is there anything else in there? Generally, it's operational activities. And as we mentioned, we spent about $4 million in cash CapEx on capital so far in the first quarter. And then we've got a target of $10 million for the year, so you can kind of build it up from there.

Okay. Does it include CapEx or not, or is it excluding CapEx?

It includes it, meaning it's net of it. Right. Yes.

Okay. Just wanted to make sure. Okay. And what are you seeing as far as trends in the April, early May timeframe compared to what you expected say three months ago?

Tim, did you want to address that a little - Tim addressed that a little bit. Tim, you want to go ahead and repeat that?

Sorry about that.

I'm sorry, it cut out for me. Could I get you to please repeat the question?

April.

Yes.

I can answer it. So, Tim covered it that our initial start to the quarter here has been stronger than our forecast. And we have actually had - and it's broad-based, and he gave a few examples across several plants, and it makes us optimistic about our comments today and our recommitting to our guidance, John.

Okay. Fair enough. You know what, I'll just re-read the transcript, and I apologize for asking the question that’s been addressed.

That's okay.

Thank you all.

[Operator instructions]. Well, at this time, we're showing no further questions. We will go ahead and conclude today's conference call. Again, we thank you all for attending today's presentation and we thank you for management time today. At this time, you may disconnect your lines. Thank you. Take care and have a great day, everyone.