NN, Inc.

Good morning, everyone, and welcome to NN Incorporated's third quarter 2021 conference call. My name is Tom, and I will be your operator for today's call. All participants will be in a listen-only mode until we reach the question and answer session of the conference call. This call is being recorded at the request of NN. If anyone has any objections, you may disconnect at any time. I would now like to introduce Mr. Jeff Trika with Lambert IR, NN's investor relations firm. Mr. Trika, you may proceed.

Thank you, Tom. Good morning, everyone, and thanks for joining us. I'm Jeff Trika, Investor Relations Contact for NN, Inc., and I'd like to thank you for attending today's business update. Yesterday afternoon, we issued a press release announcing our financial results for the third quarter ended September 30th, 2021, as well as a supplemental presentation, which have 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 Lambert & Company at 315-529-2348. Our presenters on the call this morning will be Warren Beltman, President and Chief Executive Officer, and Mike Belcher, Senior Vice President and Chief Financial Officer. Before we begin, I'd like to ask you to take notice of the cautionary language regarding forward-looking statements contained in today's press release. supplemental presentation, and in the risk factors section of the company's annual report on Form 10-K for the fiscal year ended December 31, 2020, and when filed, the company's quarterly report on Form 10-Q for the three months ended September 30, 2021. 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, foreign exchange rates, cash flow, tax rate, acquisitions, synergies, cash and cost savings, future operating results, performance of our worldwide markets, the impacts of the coronavirus or COVID-19 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 of the company's control. 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. Reviewing the agenda for today's call, Warren will provide a business update from the quarter, then Mike Felcher will provide a detailed update on the financial results, before turning the call back over to Warren to discuss our segment results and markets, as well as the outlook for the remainder of 2021. At the conclusion of the prepared remarks, there will be a Q&A session. At this time, I will turn the call over to Warren Veltman, President and CEO.

Warren? Thanks, Jeff, and good morning, everyone. If you would turn to page five, we will review some of the highlights for the third quarter. While the third quarter proved to be a challenging one in a number of areas, we were able to continue our trend of year-over-year growth in revenue as our markets continued the post-pandemic recovery, highlighted by 25 percent year-over-year growth in our residential and commercial electric end market within our power solutions group. The strong growth in power solutions was partially offset by supply chain challenges, which were most acute in the automotive sector. where the ongoing semiconductor chip shortage affected production globally as OEMs shut production lines, impacting suppliers. This had a particularly sizable impact on our mobile solutions business and its revenues, which fell 2.5% year over year in the third quarter. These increasing supply chain challenges within the quarter not only affected our customer operations, but our operations as well. To address supply chain disruptions and constraints on materials, we remain flexible in our operations, responding quickly to changes in supply and demand. We also continue to work together with our customers and vendors to ensure we have adequate inventory to maintain production and meet their needs. Our profitability in the third quarter was also impacted by the reinstatement of a number of programs that were temporarily suspended in 2020 in response to COVID. including salary and benefit reductions, incentive compensation programs, and travel-related expenses. We also experienced material and labor inflation that we were not able to fully pass on to customers during the quarter. However, in response to these cost increases, we have initiated negotiation with most of our customers for price increases. We expect that our price increases will recover the vast majority of all material cost increases and increases associated with outsource operations, freight charges, and certain increases associated with labor and other manufacturing costs. Where appropriate, we are pursuing increased pricing for underutilized manufacturing capacity. For example, we expect to conclude on negotiations with a single customer during the fourth quarter, whereby we expect to receive $3 million in compensation for development costs and underutilized capacity for periods from 2019 to 2023, of which $1 million is expected to be paid in 2021. From a liquidity standpoint, we maintain solid leverage ratios to support our long-term growth. We believe that our successful refinancing earlier this year and our current balance sheet offers us the ability to pursue growth investments as opportunities arise. In the third quarter, we also entered into a three-year variable to fixed interest rate swap to hedge our interest expense on $60 million of our debt. We did this to reduce our exposure to higher interest rates and when factoring in our fixed rate preferred stock, achieve what we believe is the right balance between variable and fixed rate exposure. We also maintained our focus on working capital Though we saw turns decrease sequentially in the quarter due to higher inventory levels carried to address current supply chain concerns, higher inventory and lower mobile solution sales volumes due to the semiconductor shortage were significant contributors to free cash flow being 3.7 million use in cash during the third quarter. While our inventory levels impacted our free cash flow in 2021, They allow us to better insulate our customers from supply chain interruptions in the current environment and will also allow us to react more quickly when automotive volumes rebound in 2022 and will benefit our free cash flow as we return inventory to more normalized levels. Now I'd like to turn it over to Mike Felcher so he can provide a more in-depth review of our financial performance for the quarter. Mike?