NN, Inc.

and welcome to the NN, Inc. Second 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 in Investor Relations. I'd like to welcome you to NN's Second Quarter 2020 Earnings Conference Call. The presenters this morning will be President and Chief Executive Officer Warren Beltman, and Tom DeBile, Senior Vice President and Chief Financial Officer. Anyone who needs a copy of the press release or the supplemental presentation, please contact Admiral Anthony 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 in the risk factor section of 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 June 30th, 2020. Same language applies to comments made on today's conference call, including the Q&A session, as well as the live webcast. Presentation today will contain forward-looking statements regarding sales, margins, loan exchange rates, cash flow, and others. 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 on-gap 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 of our results, and then we will open the line for questions. At this time, I'll turn the call over to Warren Beltman, President and CEO.

Thanks, Mark, and good morning, everyone. When we conducted our first quarter conference call in May, we indicated that our near-term focus was on four major areas. This morning, I would like to report out on that progress, on the progress that our team has made against those objectives. First, we established a goal of providing a safe work environment for our employees. All our manufacturing locations and offices operate to a standardized approach where employees and visitors pass certain predetermined criteria, including temperature checks, before they're admitted to one of our facilities. In addition, we provide personal protection to our employees and have been diligent in maintaining consistent employee communications on best practices to combat the COVID-19 virus. Unfortunately, we have had employees that have contracted the COVID-19 virus. When those situations have occurred, we have implemented our standard protocols, including employee tracing, disinfection of the appropriate areas and production area or facility shutdowns. I would like to thank our leadership and employees for the discipline and the commitment that they have demonstrated in providing a safe working environment, as safe a working environment as possible. A second area of focus was meeting our customer requirements. Although we have instances where facility shutdowns were required, we were able to satisfy our customer volume requirements during the second quarter while maintaining a quality record consistent with our historical performance and strong reputation. Third, we had a focus on flexing our variable costs consistent with any reduction in sales volume and continuing to reduce our fixed overhead, including SG&A expenses. Our Q2 2020 sales were $150.4 million, down $71.2 million from Q2 2019 levels due primarily to the impact of the COVID-19 pandemic. A reasonable estimate for our overall variable contribution from decremental sales is approximately 40% on each additional sales dollar. Consequently, we would expect a loss of approximately $28.5 million on this year-over-year sales reduction. Our reported Q2 2020 EBITDA and adjusted EBITDA only decreased $13.4 million and 16.4 million respectively from the same period a year ago. The 12 million plus favorable variance from the 28.5 million expectation is the result of a focus to reduce our fixed manufacturing costs and selling general and administrative expenses. GAAP SG&A expenses decreased from 26.7 million in Q2 2019 to 21 million in Q2 2020 A decrease of $5.7 million. And Q2 2020 recorded SDNA includes approximately $2 million of expenses associated primarily with our strategic initiative process. It is encouraging to see the results of our cost-cutting efforts reflected in our financial performance, and our management team continues to focus on areas where we can better control costs without sacrificing service. The recent example is the appointment of Grant Thornton as our independent auditor during the second quarter. Grant Thornton has an excellent reputation for quality, and we expect that NN will experience a significant reduction in our annual audit-related service fees as a result of this new professional relationship. It is also important to note that our employees have been true partners during this belt-tightening process. Our hourly teammates have experienced layoffs and reduced working hours as a result of significant customer volume reductions, while our salary personnel continue to work at reduced wages. In addition, all game-sharing and 401 matching contributions remain suspended. I appreciate the commitment that our employees have made to NN during this difficult time. The fourth goal that we discussed last quarter was to fortify our liquidity position. We increased our cash position from $79.2 million at the end of Q1 to $82.7 million as of June 30, due primarily to the generation of $1.3 million in free cash flow during the second quarter. Our focus on liquidity was in three primary areas, maximizing our operating performance on lower sales volume, which I previously discussed, improving our working capital, which was down $30.7 million from a year ago, and working with our lenders to provide additional flexibility under our credit facility. Our working capital has reduced to the significant sales reduction during the second quarter. We have been able to remain at a reasonable day sales outstanding at 64.1 days during a period where many of our customers had desires to extend payment terms to maintain their own liquidity positions. Our inventory turns deteriorated during the quarter due to the time necessary to adapt the significant lower sales volumes. Tom will provide more detail on this in his presentation. As it relates to our credit facility, we recently signed an amendment to our credit agreement which waives the existing leverage covenants for the second and third quarters and replaces it with a minimum liquidity covenant. We expect that this amendment will provide us the flexibility needed to continue our strategic initiatives process over the next five months if necessary. The strategic initiatives process is ongoing and is incorporated in the evaluation of a broad range of operational, financial, and strategic options with the goal of reducing leverage and enhancing shareholder value. 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 comments regarding this process. As always, we appreciate your understanding and patience as we continue to pursue alternatives associated with this important initiative. Turning to page five, You can see that the impact of the COVID-19 virus had on our sales for the second quarter and year to date. On a consolidated basis, total revenue decreased 32.1% versus the prior year due primarily to issues associated with the coronavirus pandemic. Sales for our life sciences group were up 20.7% due primarily to the delay in elective orthopedic surgeries, especially those related to large joint replacement. Our mobile and power groups were negatively impacted by 48.3% and 27.1% respectively due to the significant number of automotive OEM facility shutdowns and lower demand for electrical components due to customer shutdowns in Mexico. These same issues have caused company-wide sales to the six months ended June 30 to be down 19.5%. For the six-month period, life sciences sales were off prior year by 11.8%, power solutions was off 17%, and mobile solutions was off 20.6%. Now I'd like to turn it over to Tom Duvall so Tom can provide a more in-depth review of our financial performance for the quarter.