Welcome to the NN Inc. Second Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to your host, Stephen Poe, Investor Relations.

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 second quarter ended June 30, 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. Joining us from NN management today are 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 June 30, 2025. 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. 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 3, and I'd like to turn the call over to our CEO, Harold Bevis.

Thank you, Stephen, and good morning, everyone. I wanted to just start off with an overview of the quarter. We had a pretty solid quarter. Our sales were right at $107.9 million. That's adjusted for the sale of Lubbock last year. Our adjusted EBITDA came in at $13.2 million, which was 12.2% of sales. Our operating income -- adjusted operating income came in at $4.9 million and our adjusted net income was $0.02 per diluted share. On the right-hand side of this slide, if you're looking at the deck with me on Page 3, what drove that performance? First was our improved gross margins. We got really close to 20%, 19.5% adjusted gross margins. We gained a lot of new business for future periods, $32.7 million year-to-date, which put us on pace for our annual goal this year of $65 million. On the portfolio side, we had 39% of our sales was in automotive and 61% non-automotive. So that's a strategic goal of ours is to balance our portfolio. And on the balance sheet side, we did previously announce that we refinanced our term loan and we're now focused fully on reducing the cost of our term loan as well as refinancing our preferred stock. So overall, it was a quarter that was in line with our expectations. Just a few more comments on the key metrics, if you'll turn the page, if you're following along to Page 4. On the net sales side, the automotive industry is obviously going through some turmoil globally. And our year-over-year deviation was mainly with one large Tier 1 customer in Europe, which caused most of our sales shortfall, over 100% actually. But to offset it, we did -- we have launched over 70 new programs year-to-date and have more to go, and we…

Thank you, Harold, and good morning, everyone. I'll walk you through our transformational progress and the steady improvements to the financial performance that has been the result. One critical area of focus in the multi-year transformation has been to grow our profits on our existing sales through stronger cost reduction initiatives, resulting in an overall lift to the margin of our business. Our initial focus was identifying sales that have historically diluted our profits. This resulted in the rationalization of some business and ultimately the closure of 2 underperforming facilities, Dowagiac and Juarez. This and other overhauls have resulted in a much improved fixed and variable cost structure, which will begin to have an even more pronounced effect when our top line begins to meaningfully reflect the continued ramp-up of new business programs won over the trailing 2 years. When you're looking at Slide 6, we've provided charts on the 2 main categories that we track most closely, adjusted gross margin and adjusted EBITDA margin, both of which have shown consistent and steady improvement over the last 2 years. We launched our transformation program mid-2023, completing that fiscal year with 16.3% adjusted gross margins. Year-to-date, our 18.2% adjusted gross margin is an expansion of 190 basis points. We'll continue to focus on further margin expansion. As part of our longer term plan, we have an internal goal to achieve approximately 20% gross margin, which based on our current results, we believe is achievable. Our adjusted EBITDA margins have also seen meaningful improvement. Over the same time frame, margins have expanded 230 basis points, trending at over 11% year-to-date. We expect to continue our strong cadence of improved margin capture in the back half of the year, particularly as we begin launching additional new business programs and enact additional cost measures…

Thank you, Tim. Good morning, everyone. Today, I'll be presenting information on both the GAAP and pro forma basis to provide transparency into our operating results due to the changes such as the sale of the Lubbock facility last year and the exit of certain unprofitable business. We hope this presentation will be indicative of how we're making decisions to transform NN over time. So with that, I'll start on Slide 7, where we'll detail our financial results for the second quarter. This slide shows our as-reported GAAP and non-adjusted numbers on the left side. We 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 early July 2024, rationalized sales volumes and the impact of foreign currency translation year-on-year. Last year's second quarter included $5.9 million of net sales and $0.9 million of adjusted EBITDA associated with the Lubbock plant business, strategically rationalized volumes of unprofitable business that totaled $5.6 million in the prior year period and about $900,000 of impact from foreign currency translation versus last year's exchange rates. On an as-reported basis, net sales for the quarter were $107.9 million, declining about $15.1 million versus last year's second quarter. On a pro forma basis, accounting for the adjustments I noted earlier, net sales modestly declined 2.4% or $2.7 million. Our adjusted operating income for the second quarter was $4.9 million, marking a strong increase of $2.8 million compared to the $2.1 million in the prior year second quarter. On an adjusted pro forma basis, operating income increased $3 million. Adjusted EBITDA results for the quarter were $13.2 million compared to $13.4…

Thank you, Chris. Slide 10 highlights the success of our new business win program and gives insight into our program launch sequence and its impact on NN's top line. 2025, we anticipate launching approximately 112 new programs with approximately 70 programs launched year-to-date. These programs are forecasted to contribute approximately $26 million to our 2025 top line and an estimated $48 million in annual revenue at peak run rate. Our new business continues -- our new business wins continue to expand. Year-to-date, we have increased our cumulative wins to approximately $172 million. To support this growth, we have made significant capital investment globally. We've invested in dedicated equipment for medical as well as the China auto markets. In addition, we are actively relocating capacity from previously rationalized automotive programs to meet upcoming industrial demand. In addition, the pipeline has grown to a solid $750 million. This is driven by our approximately 40 people in sales and engineering and is perfect for us to continue to drive to our goal of $200 million in cumulative new business wins. With that, I'll turn the call back over to Harold.

Thank you. I wanted to point out that during the quarter, we made a commitment to increase the amount of people that we have in the specialized areas where we're trying to grow disproportionately higher. We did bring in a new Chief Commercial Officer, Tim Erro. Tim and I worked together previously in our prior life. Some of you might know, I had a 2-year non-compete, non-hire, non-solicit kind of standstill that ended. And in this quarter, I behaved appropriately and hired Tim. And Tim has already hit the ground running. He's brought in some new people already. He has an electrical background and entered 8 new markets when he was at CVG and we worked together there. He's really excited to be here and brought in 2 top people with him day 1 and we had an acceptance of an engineering manager yesterday who has an electrical and medical equipment background. So we had -- in the quarter, we have a new -- and subsequent, we had a new CCO, a new CTO, 2 new account managers with electrical backgrounds and a new account manager for medical, looking for 1 additional medical and 2 account managers in the stampings business. So a new thing I wanted to say regarding the future for us is that we now have a core team who understands electrical cable assemblies and we're evaluating an organic entry into that market just as we've done for medical products. And some of you may know, I was previously the CEO of electrical harness business. So we have a core team here and that will really help us with our forward growth objectives. I'll now hand it over to Chris, who will give an update on our outlook and guidance.

Thank you, Harold. We're reiterating our guidance for the remainder of the year on Slide 12. So net sales, we're still expecting in the range of $430 million to $460 million, adjusted EBITDA of $53 million to $63 million. However, we are leaning toward the lower half of the range on both those guidances. New business wins, again, no change, $60 million to $70 million and free cash flow of approximately $14 million to $16 million. That does include the CARES Act refund as well as our investment of approximately $18 million to $20 million in overall capital investment. So this guidance obviously reflects the uncertainty from some of our top customers that we're hearing in the marketplace as well as the unstable macroeconomic environment, but we are holding our guidance at this point. With that, I'd also like to comment that we are planning an Investor Day in December 2025 and we'll look forward to putting out some more information on the exact date and time of that Investor Day. With that, I'll turn the call back over to Harold.

Thank you. And Paul, operator, we're now ready to receive any questions that people may have on the phone.

[Operator Instructions] And our first question comes from Rob Brown of Lake Street Capital.

Congratulations on all the progress. First on kind of the new business win activity. Could you remind us again kind of the incremental margin that, that group of wins has over your base? And then maybe some of the -- I think you highlighted some of the verticals you were seeing, but what's sort of the kind of the impetus to some of these new wins in terms of ability to kind of take share in those markets?

Yes. So for new business wins, there's a few categories. One is if we have existing open capacity and our costs are fully covered in the plants. And we price that to win. We'll go down to 15% on that type of a business. The second category is if we don't have open equipment, then that -- those quotes usually have to bear the brunt of an equipment charge and an ROI analysis. And for any new investments, we have our floor at 25% ROI for the investments. Any exceptions to that, Tim, myself personally have to bless them with the team. So we've had a couple of exceptions that actually did not end up being wins in the end. So in terms of the win basket that we actually have, it's accretive by 3 or 4 points on the EBITDA line overall. In terms of the areas where we're trying to get after, Rob, we have -- it's also in a couple of buckets. If we have open capacity to serve a certain market, we're trying to get more of that type of business. And differentially, we're trying to grow faster in electrical and medical and we don't necessarily have a lot of open capacity for that. And so that has led us to add equipment and be very deliberate about our quoting and our activities. Tim maintains a 12-quarter forward look at capital that's tethered to our growth program. And so to some extent, we have capital spending boundaries around the new areas.

Okay, great. And then I appreciate your comments on the auto market uncertainty. But on the electrical market and some of the grid and data center markets, what are you sort of seeing there in terms of growth opportunities and demand changes?

Yes. So we are a big, big supplier to Cummins. And if you follow Cummins at all, they have several segments of their market and one of them is power generation. And we are participating in their good business growth that they're having, which is approaching 10%. And then on the distribution and control side, we participate with people like Siemens, Square D, circuit breaker type of contacts. And we have a product mix that's skewed towards residential, the smaller type of circuitry versus the higher voltages. So on the residential side, it's been a little soft in homebuilding in the United States. So our distribution and control customers are kind of flattish. On the power generation side, where we directly participate in that, we have been growing. So overall, it's a growth area for our company.

And our next question comes from John Franzreb of Sidoti & Company.

Howard, I guess I'd like to start with the guidance. The first half kind of suggests that you need to generate better revenues in the second half than you did in the first, which I just want you to maybe bridge in light of Chris' comments about the stamp being kind of similar in the second half versus the first. What are the key drivers to make that lower end of the revenue guidance?

Yes. So we expect our base business to perform consistently in the second half with the first. We're going to be benefiting though from our new business launches. And if you look at that on Page 10, that's quarterly revenue contribution. So we will be progressively benefiting from the accumulation of the launch programs. So we're counting on those programs not getting pushed out, John. So this is based on the dates that we have. It's possible that if people get nervous, they could push out launch dates on us and we've had a little bit of that this year, which we commented on last time. We're not counting on a rebound in any markets per se. We're counting on a continuation of current events. And that's pretty much what the public filers are saying. It's really an automotive comment given that that's a big part of our revenue profile. So we've read what GM, Ford, Tesla, BYD all these people are saying and they're expecting that the difficulties are going to be just a little bit harder in the second half due to having a full half of tariffs versus in the first half, it was mainly the second quarter. And so we are counting on similar base markets added to from our new program launches. So that's what it takes for us to hit the guidance.

John, I'll just add that we did guide toward the low end of the range in the first quarter and again this quarter. And we did add some commentary in the earnings release around macroeconomic events that could be impactful to our estimates as well.

Okay. I just wanted to make sure I knew what the bridge was there. It's going to be new product introductions. -- and to support that, it looks like there's going to be a meaningful step-up in capital expenditures. You did $7.6 million in the first half, but you're still guiding $18 million to $20 million. Is that all to support new programs or is there anything else embedded in that number?

Yes. Tim, do you want to take that one?

Sure, sure. Thanks, John. The bulk of it is in new business programs is to support the growth. Obviously, there's always going to be an element of regular CapEx investment, but the vast majority of it is to support the growth.

Good, understood. And I didn't hear any commentary, maybe an update on what we'll call the group of 5 now, Tim? How do those facilities stand as far as profitability contribution relative to expectations?

They remain on track. We're still dealing with some volume requirements within the Wellington facility, which was one of the group of 7. Two of them, obviously, were part of the rationalized. So that's what makes them the group of 5, as you mentioned. But no, they're all on track to be profitable this year, be at a run rate profitability in Wellington by the end of the year and profitable at all the remaining ones.

Okay. And one last question, I'll get back into queue. You're entering the electrical wiring systems market. Is there a specific end market that you envision that provides an opportunity for you or are you just dipping your toes in right now to see where your competitive advantage may be?

Well, there are several niches that are differentially better. We are ITAR certified. So we're a certified defense contractor. We're ATF certified. So we have some unique -- we're FDA certified. We have some unique certifications here as a company and we have not -- we're evaluating this right now. And so we don't -- we haven't determined a launch plan yet, John.

Our next question comes from Mike Crawford of B. Riley Securities.

You talked about your step change in on-time delivery. Can you just go into some more specifics regarding prior performance in that regard and what you're achieving now?

Well, I'm assuming, Harold, you'd like me to take that one?

Yes, please.

Early on, and we've talked about this on earlier earnings calls, we were -- we had red scorecards with multiple customers going back as little as 18 months ago, 18 to 24 months ago. And those are usually predicated on less than optimal on-time delivery and in full. And it also prevents you from being awarded new business wins with those organizations. And a compounding factor of it is increased past due backlog. So we focused extensively in that area over the last 18 months, reducing the backlog significantly, increasing our on-time delivery. And what it's allowed us to do is we now have green scorecards with all of our customers, meaning that we are a supplier in good standing, and in some cases, identified as a preferred supplier. And that allows us to be awarded new business, which has helped open the door for our new business wins program. So it's -- we've addressed it in prior calls, but it was basic blocking and tackling, focusing on the issues of the day to make sure that we achieve the goals that the customer is looking for. But it's been very successful so far and now we're a supplier in good standing across the board with our customers.

Okay. And then just regarding these 60 dedicated medical machines, are any of those in Kentwood just awaiting certification there? And then kind of related, is there a way to think about potential revenue per machine, including by end market, if that makes a difference?

Go ahead, Tim.

Yes, there are a couple of those -- the bulk of those machines are sitting in Attleboro Medical, but there are several machines sitting in Kentwood that are awaiting certification, but they are dedicated for medical. If you remember, we talked about our investment in the 9-axis [ lathes, ] one of those went to Kentwood as well. As far as identifying the equipment for the market, the equipment -- the reason why we're segregating medical is you have a different requirement as far as cutting fluids, cleanliness and isolation from the rest of the building. As far as the remaining equipment, we don't isolate it by market. We isolate it or we identify it by capability, whether it's a milling machine or a lathe. So all the equipment is really -- has got potential to supply multiple markets, but segregating medical is strictly because of the 13485 requirements for the -- the ISO 13485 certification requirements.

I'll add on to that. I think I know what your question is, Mike. We have those dedicated machines in Attleboro and Kentwood. We have a couple that arrived in the quarter 2. They're currently going through final check-offs and machine approvals. So they're not producing production for us yet. We run one shift. The business right now is $15 million to $18 million run rate. So 2 shift is normal for us. So right away, just in terms of normal, we have double the amount of sales possibility there, $30 million to $35 million. And then we have the 2 high-speed machines, which haven't started yet. So I'd say, Tim, probably $40 million of capacity right now, running $15 million to $18 million. And we're building dedicated pipelines for those new machines, specifically targeting robotic surgery equipment.

Yes. As far as available capacity, yes, the $40 million is easily achievable with the equipment we have.

Yes.

Okay. Just 2 more quick ones for me. One, is there a specific time you expect to get this tax refund? And what are the risks or probability that that doesn't happen?

Chris has a good update for you.

There is a good update. We did get a letter and notification from the IRS that our tax returns have been completed and we expect that refund here in the next few weeks. We did get one letter that confirmed 1 year. We're waiting on the second letter. So things have actually progressed quite a bit in the past few weeks.

Great. And then finally...

We did get a communication this week that for the first return, which was $6 million, we got the comical, the check is in the mail -- e- mail. So it's imminent. We expect it in this quarter.

Okay, great. And then final one for me is, is there any specific things you need to execute on given this decision to look at the electrical harness market in addition to this motion towards medical?

Is the question have to do -- are you wondering about our capacity and equipment, Mike?

Well, I mean, I think your quote is that you're evaluating an organic entry into the fee market.

Right. So that would be -- the type of equipment is Komax wire strippers, wiring boards, termination equipment. It's very, very affordable compared to the machining centers that we buy that cost $1 million each. It would be remarkably higher ROI than entering medical. The medical entry is based upon high-end machine parts and is largely requiring us to buy new really good equipment to be equivalent to the competition as we enter that market. And on the harness side, what it's needed to be equivalent to the competition is much lower cost. We have the factory footprints we need. We just didn't have a sales team or an engineering team to be able to quote properly, and now we do. We have a full electrical team here. And we hired it during Q3 basically, so subsequent to the Q2 end. And so we intend to do it. We're not -- I can -- John asked a question about what markets are we looking at. I can tell you, we're not looking at automotive. We're looking at other markets that are more nichey and will give us the returns we want.

So it wouldn't necessarily be ITAR and like data center focused?

Yes, data center, defense, medical, some off-road or commercial vehicles, low volume, hard to make kind of products where you need a team that knows what they're doing and we have a veteran team we've pulled in. One of the account managers that we just hired worked for 26 years at Aptiv. So we're bringing in people that really know what they're doing and engineering as well as selling. So we look forward to reporting out on that progress as we make it. Also an area, Mike, where we're looking at, M&A.

[Operator Instructions] And our next question comes from Hans Baldau of NOBLE Capital Markets.

I'm on for Joe. So you noted in the press release that the M&A program has been kicked off. Can you provide a little more color on that?

Yes. We are being very -- I'm leading it myself personally. We're being very specific with the type of acquisitions we're looking at. We have several active processes underway. A couple of the companies were for sale and had processes and a couple of them were not for sale, but we approached them. We are looking to advance the strategy that we're on. So we're not looking at anything odd or weird that hasn't been in the dialogue around our company. And we are serious about it. The Board is very focused on this, too. We are -- a big goal we have on the balance sheet is to refinance our preferred stock and we need a little bit lower leverage to do that. So we've been looking at areas where we have synergies that are immediate and natural because of the commonality and redundancy between the companies. So synergies are important here and we have several that make sense. Our main term loan supplier or partner, excuse me, is Marathon Capital. We've been very open and transparent with them. And so it's a very active process and we're very much focused on having outcomes here within a few quarters. So it's going to make us bigger and stronger, too. The way that we feel about what we're doing here at the company is in 3 phases. The first phase is really to fix the core business and then we're kind of entering that second phase of scaling up and growing. And this is going to be a nice growth year for us, if you can see from the launching the new business program from winning business previous year. And then the third phase is optimizing the portfolio. So we're really entering that second phase of scaling up, growing and refining the preferred stock. And I'm spending a decent amount of my time on it and then dragging Tim into it to do the plant operations and then Chris to do the pro forma business models financially. So I can tell you that we're -- it's not a casual comment. We haven't bought a company in 6 or 7 years here. So it's a new effort here at the company that we've launched.

Okay, great. And kind of along that lines of growth, can you talk a little bit about the lower program launch guidelines from this quarter? Like last quarter, it was 120 new programs worth $55 million and now it's 112 programs worth $48 million. Can you talk about what was driving that, like timing, cancellations?

Yes. We've had some push-outs in the automotive arena. So we haven't had cancellations, but we have had push-outs. And that's mainly what it is, pushing into the beginning of '26.

Okay, great. And then lastly, you mentioned that the China operations are going well. Can you add a little bit more detail on that?

Yes. We're a main partner to the Tier 1s in China, both the Chinese ones as well as the multinationals in the country and then we're serving BYD directly for steering and braking. And the China auto market is very fluid also and there's overcapacity really for the amount of carmakers that are in the country. We're camped out with a couple of top what's called COEMs and China Tier 1s. And BYD is competing based on features. And the big feature we're tied into is rear wheel steering or all-wheel steering. And so they are trying to win the battle, not on who can have the lowest price, but who has the best features -- best value, if you will, with features, so they're feature-oriented. And so it has caused us to bring in new equipment. We're leasing equipment. The guidance that Tim gave on $18 million to $20 million involves a decent amount of leased equipment. We can lease equipment for 7% to 8%. That is very favorable compared to our term loan interest rate. So we're not paying cash for all of this equipment. We're leasing also and we still have lease capacity and it continues to build back as we amortize our leases. So leasing is a big part of that. And in China, specifically, we can lease equipment for 3%. So we're funding the growth locally, either cash CapEx or lease CapEx. It's focused in on the highest end parts that we can make, which is steering and braking. So that's -- that business is going well. It grew in the quarter year-over-year, about 6%, and we won new business in the quarter. So our China business is quite healthy.

And our next question comes from Barry Haimes of Sage Asset Management.

I had a question on the new business pipeline and in terms of what you're seeing. So we had reshoring before the Trump tariffs. And then, of course, we've had the Trump tariffs and everybody is rethinking their supply chains and a lot of companies are trying to move things around and some to the U.S. So I'm just curious, if we were to look at your opportunity set now compared with 3, 6 months ago, just kind of what you're seeing given all the turmoil in the supply chain world?

Yes, Barry, that's a good question. We originally had a page in the deck on that and then pulled it. We didn't know if there would be interest on it. But it is exactly what you're saying that initially when the Trump administration came in, kind of had a flurry of what we call tariff RFQs of people just trying to get their options lined up in case they wanted to change their supply chains. Not too much happened. People were eating tariffs and whatnot. We, as a company, have pass-through agreements commercially. So we're not being stung by that, but we have a little bit of a timing thing of scooting it along. In the quarter -- in the second quarter, for instance, we took a little bit of margin compression because we had a decent-sized customer who would not agree to the tariff pass- through until Q3. So a little bit of a timing hit. But now on the RFQs, you see people are getting a little bit more solid in their opinions about what they need to do in order to make the most money in this tariff environment. And they're now are pretty decent-sized RFQs that we're participating in. And they're really in 2 buckets, people that are trying to get their UMCA compliance up to 75% and then European customers who are trying to lower their cost of production by moving supply chains to China from Europe. So we have a decent amount of RFQs that are from -- in Germany, where traditionally we would have quoted on those out of our France and Poland plants. They're saying, hey, we would like to see what it is getting this from China because they don't have the tariff barriers that are happening in the United States. And then in the U.S. and in Mexico, we're seeing opportunities to bring in imported parts and make them in China or Mexico. And we can -- excuse me, in the U.S. or Mexico, and we can do either one. It's lower cost to make them in Mexico. So it boils down to what the end customer wants to do. But we have quite large RFQs right now. It's helping bring opportunities to our prospecting, especially for automotive.

And at this time, we have no further questions. I will now turn the call back over to your host for any closing remarks.

Thank you. I appreciate it, and thank you for the good Q&A that we had here today. Our company is quite optimistic about our future. We have a decent amount of one business that's not yet launched and not in the figures we've shown you. So we have another batch on the way that we're readying for launching in the '26 and we got a good carry-in into '26 already. So the base markets that we're in are kind of flat and nervous, but we're using the opportunity to have -- to accelerate our new business program, hire people, spend a little bit more money, not a lot, mainly leasing, but to accelerate the transformation plan of the company. And our transformation plan remains intact. We're not deviating from it and it's working fine for us. And we look forward to speaking about our progress in the next call. Thank you for spending some time with us this morning.

And this concludes today's conference call. Thank you for attending.