NN, Inc.

Good day and welcome to the NN, Inc. first quarter 2020 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Mark Sherman. Please go ahead.

Thank you, Operator. Good morning, everyone, and thanks for joining us. I'm Mark Sherman, Vice President, Treasurer, and Investor Relations. I'd like to welcome you to NN's first quarter 2020 earnings conference call. Our presenters this morning will be President and Chief Executive Officer, Warren Veltman, and Tom DeBile, Senior Vice President and Chief Financial Officer. If anyone needs a copy of the press release or the supplemental presentation, please contact Abernathy McGregor at 212-371-5999. 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 then the risk factor section in the company's annual report on Form 10-K for the fiscal year ended December 31st, 2019, and when filed, the company's quarterly report on Form 10-Q for the three months ended March 31st, 2020. Same language applies, 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, foreign exchange rates, Cashflow, Tax Rate, Acquisitions, Synergies, Cash and Cost Savings, Future Operating Results, Performance of our Worldwide Markets, the Impacts of the Coronavirus Pandemic on the Company's Financial Condition, and other topics. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company's control. 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. Warren and Tom will provide a business update and review our results, and then we will open up the line for questions. At this time, I will turn the call over to Warren Veltman, President and CEO.

Thanks, Mark, and good morning, everyone. As everyone is aware, there has been substantial changes in the world since our last conference call two months ago. At that time, the coronavirus threat had not significantly impacted our businesses outside of China. But today, all of our operating segments and geographies have been adversely impacted by the COVID-19 pandemic. I'm proud to say that NN's employees have risen to meet one of the greatest challenges of our generation. Our employees have adapted to numerous workplace challenges, changes, and are required to combat the spread of the coronavirus and have maintained a safe working environment for all. As a team, they continue to meet our customers' volume requirements while adhering to the high quality standard that is the trademark of all NN facilities. So before I start my prepared marks on the quarter, I want to express my sincere thanks for their collective efforts over the last three months. Thank you. We'll start with an overview of the first quarter on page four. Given this economic uncertainty caused by COVID-19, we took immediate action to react to what we viewed would be a threat to the health and safety of our employees and a substantial and potentially prolonged reduction in our sales volumes. Our plan is focused in four major areas. One, keep our employees safe. Two, meet our customer requirements. Three, flex variable costs and reduce fixed costs. And four, fortify our liquidity. From a cost containment standpoint, our operating groups are focused on reducing variable costs commensurate with our sales volume reductions. These costs would primarily include material and perishable tooling, direct labor, and outsource-related costs. Unfortunately, to accomplish this objective, we have furloughed both direct and indirect employees where customer volumes have been dramatically reduced. We have also taken action to reduce some fixed manufacturing and SG&A expenses. I will review a summary of those actions later in the presentation. Fortifying our liquidity is of supreme importance. To that end and prior to the end of the first quarter, we drew down $60 million under our revolving credit facility, and we held $79.2 million in cash at March 31, 2020, including $57.2 million in the United States. We will also review other actions we are taking to retain as much liquidity as possible during the balance of 2020 later in the presentation. Moving on to financial performance in the first quarter. Our sales were 199 million for the quarter, down 13.5 million or 6.3% from the prior year after consideration of foreign exchange differences. Our life sciences group reported sales of 84 million, down 2 million or 2.3% from a year ago. This decrease is a result of reduced customer demand within the orthopedic end market, driven by the timing of product launches and the impact of the COVID-19 pandemic. Mobile solution sales were 69.9 million, a year-over-year reduction of 8.2 million, primarily due to lower demand within the global automotive markets resulting from the COVID-19 pandemic, especially during March. Our power solutions group reported sales of 46.4 million in comparison to sales of 49.7 million a year ago. I reported EBITDA excluding goodwill impairment for Q1 with 16.2 million and adjusted EBITDA was 30.4 million. Adjusted EBITDA was slightly down from the first quarter a year ago due primarily to the year-over-year decline in sales offset by fixed cost and SG&A reduction. Our life sciences group reported euthydia excluding goodwill of 17.8 million, while mobile solutions and power solutions each reported 6.2 million for the quarter. The first quarter operating loss of 245 million is primarily due to the write-off of 239.7 million of goodwill during the quarter. This action resulted in a write-off of 100% of the power solutions goodwill and 146.8 million of goodwill associated with our life sciences group. This write-off also adversely impacted our reported EPS as we reported a loss of $5.96 per share versus a loss of 47 cents per share a year ago. Tom will discuss the accounting rationale associated with the goodwill impairment later in the presentation. Our free cash flow for the first quarter was a use of 1 million An improvement of $15.7 million from the first quarter a year ago. As we discussed last quarter, we expected an $8 million benefit in the first quarter due to having maintained our trade payables in a better aged position at December 31, 2019 versus December of 2018. The remaining improvement is due to cost reductions we have implemented, lower capital expenditures, and improved working capital management. We previously announced a strategic review where the company will evaluate a broad range of operational, financial, and strategic options with the goal of reducing leverage and enhancing shareholder value. This process is ongoing, and it is clear to us that despite the current economic environment, there continues to be a substantial number of potential buyers for high quality assets and businesses. As we have said before, we have a great company and really good businesses, and moreover, Our organizational structure allows for good flexibility as we continue our strategic review and look to enhance shareholder value. This is the extent of our disclosure and comments regarding this process. As always, we appreciate your understanding and patience as we continue to pursue alternatives associated with this important initiative. Circling back to our overall COVID-19 plan, page five, summarizes some of the actions regarding maintaining a safe work environment for our employees. We have taken measures to enhance employee communication and education surrounding the coronavirus and employee-driven preventative actions. We have also coordinated a standard response protocol with local health officials based on CDC recommendations and are conducting daily temperature screening of on-site personnel and visitors. We're issuing appropriate personal protective equipment and performing frequent and responsive workplace cleaning and disinfection. On page six, we have presented a summary of our efforts to further reduce costs and improve liquidity. All of these actions are in addition to our previously announced goal of improving cash flow by $32 million annually. That goal has been achieved. Given the uncertainty regarding the COVID crisis, We feel that immediate action was required to reduce additional costs and preserve our liquidity. We have already implemented cost reductions that include temporary sale reductions for all executive management team members of 20 to 25% and temporary reductions for other salary personnel of 5 to 15%. Other significant cost reductions include reductions in employee benefits, including the suspension of the 401k match and employee gain sharing programs. suspension of non-critical travel, and further streamlining of our indirect and SG&A labor costs. These new cost reductions exceed $20 million annually. As it relates to liquidity enhancement measures, we have reduced our capital expenditure expectation to below $35 million, with an extreme bias towards authorizing only maintenance CapEx items going forward. We also expect to benefit from certain provisions under the CARES Act, The ability to increase depreciation and interest expense deductions in 2018 and 19, along with new carryback provisions, will allow us to carry back 2018-19 losses back to 2017 to recover taxes paid in those years. In addition, we will be deferring the employer portion of FICA tax until 2020 and 22, including the cost actions We have or are in the process of implementing actions that should provide over $45 million in cash savings from our pre-COVID business plan. Turning to slide seven, which details our first quarter buy segment. On a consolidated basis, total revenue decreased 6.3% versus the prior year due primarily to issues associated with the coronavirus pandemic. Our China operations for life sciences and mobile solutions were impacted throughout most of the quarter, and the mobile solutions operations in Europe and North America were adversely impacted in the latter part of the first quarter. Now I'd like to turn it over to Tom DeVile so Tom can provide a more in-depth review of our financial performance for the quarter. Tom?