NN, Inc.

Good morning and welcome to the NN Inc. First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. As of today's presentation, there will be an opportunity to ask questions. To ask the question, you may press star then one on your telephone keypad. To answer your question, please press star then two. Please note this event is being recorded. I'd like to turn the conference over to Jeff Trika, Investor Relations with NN. Please go ahead.

Thank you, Anthony. 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 first quarter, ended March 31, 2023, as well as a supplemental presentation on which have been posted on the investor relations section of our website. If anyone needs a copy of the press release or of the supplemental presentation, you may please contact Lambert and Company at area code 315-529-2348. Our presenters on the call this morning will be Mike Belcher, Senior Vice President and Chief Financial Officer, Andrew Wall, Senior Vice President and Chief Commercial Officer, and Douglas Campos, Interim Chief Operating Officer of Mobile Solutions. Before we begin, I'd like to ask that you take note of the cautionary language regarding forward-looking statements contained in today's press release and supplemental presentation, and in the risk factor section of the company's annual report on Form 10-K, where the fiscal year ended December 31, 2022. And when filed, the company's quarterly report on Form 10-Q for the three months ended March 31st, 2023. 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, including semiconductor chips, foreign exchange rates, cash flow, tax rates, acquisitions, synergies, cash and cost savings, future operating results, performance of our worldwide markets, the impacts of the coronavirus pandemic and the Russian-Ukrainian conflict 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 financial section of the press release and the supplemental presentation. Reviewing the agenda for today's call, Mike will open with an overview of the first quarter and an update of actions the company has taken to position NN for success. Andrew will then provide a market update and discussion of new business opportunities. Mike will then provide a detailed update to the financial results for the first quarter. Douglas will then provide an update on each of our business segments before turning the call back over to Mike, who will conclude with the discussion of our outlook for the remainder of 2023. There will be a Q&A session following the conclusion of the prepared remarks. At this time, I will turn the call over to Mike Felcher, Senior Vice President and CFO.

Thanks, Jeff, and good morning, everyone, and thank you for joining. Let me start by noting that Warren is unable to join the call today due to a health situation with his family. The first quarter of 2023 presented a number of challenges to our business, including the ongoing slowdown in residential and commercial construction that impacted our power solutions business. Our team continues to be resilient and focused on effectively managing the areas within our control to minimize the adverse effects of the current macroeconomic environment. If you turn to page four of the presentation, we have summarized some of the results from our first quarter. Sales for the quarter were 127.1 million, down 0.8% from the first quarter of 2022. Power solution sales were down 5.7%, driven by lower electric component volume and customer inventory reductions, partially offset by pricing. Mobile solutions sales were up 2.6% from prior year, driven by pricing actions taken throughout 2022, partially offset by lower volume. We had a strong start to the year on new business wins with a 75% increase from the prior year and with 76% in our strategic segments. Net price inflation was a benefit of $2 million in the first quarter on a year-over-year basis, primarily driven by premium pricing achieved at our Irvine facility for us agreeing to extend production to meet customer requirements before we close the facility. As previously communicated, we implemented 5% plus price increases for Power Solutions customers that are not on long-term contracts during the first quarter, which will most significantly benefit subsequent quarters. First quarter results were also impacted by unfavorable overhead absorption and lower income from our China joint venture as a result of lower volume due to the end of COVID-19 restrictions and the Chinese New Year. Combined, these factors contributed to loss from operations for the first quarter of 7.1 million and a non-GAAP adjusted loss from operations of 0.4 million. Non-GAAP adjusted EBITDA was $8.1 million or 6.4% of sales for the first quarter of 2023. We continue to maintain strong liquidity at $43 million. Our free cash flow in the first quarter was a use of $3.7 million, which was a considerable improvement over the free cash outflow from the prior year first quarter. During the first quarter, we terminated our $60 million interest rate swap, resulting in proceeds of $2.5 million, which further enhanced our liquidity. The improvement was the result of continued efforts to effectively manage working capital despite the more challenging operating environment. If you turn to page five of the presentation, I will provide an update on several key initiatives. Let me start with an update on the operational improvements we are implementing at two facilities experiencing inefficiencies which we noted on the fourth quarter call. The Wellington operational improvements are proceeding according to plan, but Juarez has been slower than expected. Improving the operating results at Juarez is the number one focus area for our leadership team. From an operations perspective, Gennar Spinkles and Douglas Campos have transitioned into leadership of the power solutions and mobile solutions teams respectively. You will hear from Douglas a little later as he highlights the performance of each operating segment during the first quarter. We have worked to optimize our operating footprint with the closure of five facilities as previously announced, all of which we expect to be closed by the end of the second quarter of 2023. We have secured sublease agreements for the Taunton and Irvine facilities, which will offset our lease obligations over the remaining term. These closures are expected to generate approximately 11 million improvements in adjusted EBITDA versus our 2022 results. Beyond facility closures, we continue to review overall operating costs and during the second quarter, we reduced indirect labor by 10%, which we estimate will result in approximately 7 million in annualized cost savings with a benefit of over 4 million in 2023. During 2022 and 23, we were able to increase pricing to address inflationary costs, achieving approximately 13 million of year over year pricing. The company anticipates making an announcement regarding the CEO transition in the very near future. And now I will turn the call over to Andrew, who will provide an update on our markets and key growth initiatives.