NN, Inc.

good morning and welcome to the nn inc second quarter 2023 earnings conference call all participants will be in listen only mode should you need assistance please signal conference specialist by pressing the star key followed by zero after today's presentation there will be an opportunity to ask questions to ask a question you may press star then one in your touch tone phone to withdraw your question please press star then two please note this event is being recorded I would now like to turn the conference over to Alex Steinberg in Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and thanks for joining us. I'm Alex Steinberg, Investor Relations contact for NN, Inc. I'd like to thank you for attending today's business update. Last evening, we issued a press release announcing our financial results for the second quarter and to June 30, 2023, as well as a supplemental presentation, which is 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 at alpha-ir.com. Our presenters on the call this morning will be Harold Beavis, President and Chief Executive Officer, and Mike Felcher, Senior Vice President and Chief Financial Officer. We'll also have a few of our new business leaders available to support our Q&A session, including Verlin Bush, our new Chief Commercial Officer, and the new heads of our segments, Douglas Campos, GM of Mobile Solutions, and Gunnar Zwinkels, GM of Power Solutions. Please turn to slide two, 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 factor section in the company's annual report on Form 10-K for the fiscal year ended December 31st, 2022, and when filed, the company's quarterly report on Form 10-Q for the three months ended June 30th, 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, 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 or COVID-19 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 final section of the press release and the supplemental presentation. Please turn to slide three, and I will turn the call over to our new CEO, Harold Beavis.

Harold Beavis Thank you, Alec, and good morning, everyone. It's an honor speaking with you all today regarding my first few months as the new CEO of NN. Today, you will see that we are already underway with the transformation strategy, and we are embracing change and taking decisive actions to accelerate our long-term growth and profitability and become a more predictable company. We have a tremendous opportunity to deliver significant value to all of our shareholders. I have personally spent the majority of my career working in industrial technology industries, and my focus has primarily been on driving transformational change. With four successful business transformations completed and two of them being public companies, I was immediately interested in leading NN through a transformation, as I believe there's a clear opportunity to return this great company to the leadership position it once enjoyed. As an industry veteran with more than 25 years of experience, I'm deeply familiar with NN's markets, competitive position, and customers. NN has a well-respected and diverse customer set, and although we are expanding our focus to include new business verticals and in markets, there's plenty of opportunity within our current markets to expand our share with those who already know the value that we bring. NN has decades of engineering and technical expertise, and I've been very impressed by the acumen and operational capabilities we possess. I'm particularly encouraged by the competitive moat the company as with its vertically integrated manufacturing, which is further supported by a large globally installed base of equipment that's extremely hard to replicate. That said, our brand assets and talents can clearly be leveraged in a more powerful way. And you'll hear today what our plans are and that we are already taking immediate actions to begin improving our commercial and operational strategies. This includes plans to immediately increase the size and focus of NN's commercial new business program, Additionally, we are refocusing the organization to better optimize our cost structure, prioritize operational efficiencies, and build stronger financial credibility. We will refocus on the things we do best to both drive growth and become a stronger organization. I'll talk you through the basic elements of our transformation plan in a few minutes, but let's review some summary highlights from the second quarter, which are outlined on slide four of today's presentation. you will see the immediate impact of some of our near-term actions in our improved cash flow metrics. In terms of our specific performance, as outlined on page four, sales for the quarter were $125 million, and we delivered $10.5 million in adjusted EBITDA. We've had a solid first half of the year with new business wins and have roughly won roughly $19 million in new awards. We're focused on expanding our new business pursuits in both legacy markets and new markets where it makes sense. On a high note, we're happy to report that we generated $3 million of positive free cash flow in the quarter, marking an important step in the right direction. We are free cash flow positive for the trailing 12-month period, and our outlook indicates that this trend will continue into the second half as we control costs and maintain explicit cash discipline. Looking forward, we have aligned and are supplementing our leadership team, and I'll highlight these important changes in a few minutes. We've also implemented and prioritized cost reductions to better support our margin profiles and ultimately utilize improved margins to self-fund our growth. There are immediate opportunities to grow our profits, irrespective of sales growth, by initiating change in areas where we are underperforming, and we are attacking those areas with a new vigor. We are proud of the adjusted EBITDA and free cash flow that our business produced in the quarter, but are far from satisfied, and our enhanced leadership team and strategy remains focused on increased cash flow generation and profitability improvements. Please turn to page five in the deck. I want to briefly walk through what our first 75 days together have looked like. I began my tenure as CEO of NN Effective on May 22nd of this year. My immediate focus was to familiarize myself and get better acquainted with the company, but also began a deep assessment of our capabilities and teams. Within 30 days, I had the opportunity to visit many of our plants globally, as well as our partners in Europe and China. I also was able to meet with a few of our large customers face-to-face and meet with our capital partners. A key takeaway from my interactions was how important our customized products and solutions are to our customers around the globe. NN has great DNA for delivering top-tier quality and on-time delivery, and our customers depend on us day in and day out. Many of our solutions are critical components in our customers' products, and thus we have a deep sense of institutional pride in what we do. We have a significant competitive advantage given our global footprint and vertically integrated facilities, and there are clear new actions that need to be taken to better leverage our core competencies into higher results. As we've previously announced, we are right-sizing our board of directors from nine members to seven as part of our collective commitment, best practices in corporate governance, and alignment of our cost structure to our industry and our size. Please turn to page six in the presentation. NN is now focused on a new transformation plan, and we are preparing to execute at a higher level. And I'd like to walk you through the core components of that plan. Our transformation plan is built around an increased organizational commitment to higher sales, profits, and free cash flow. And it includes five components. The first is getting the top team right. And we are focused on aligning our talent and modifying the top team to better position and then for success. This includes flattening the organization to increase agility and speed. I've been using my experience and personal network to supplement our highly experienced NN leadership with proven transformation executives that I've worked with in the past. This includes a chief procurement officer, a soon-to-be-announced chief operating officer, and certain specialists. The second component is a commitment to achieving cost productivity and implementing a steady state program. We must increase our organizational commitment to cost leadership as a way to improve our margins. I'm happy to see as I've gone around that we have abundant opportunities to do this, and we intend to improve our margins and spread. And our incoming COO and incoming chief procurement officer have already done, we've already done this together twice before. Third, we have a significant opportunity to improve our business by fixing unprofitable customer contracts and underperforming plants. Specifically, we're completing reviews of several of these plants and several customer contracts and finalizing our fix-it plans in each area. We'll talk more about the steps that we'll take next quarter during our earnings call, but we believe already that there's at least a $10 million investment annual opportunity to improve our EBITDA profile through these actions. Component number four here, as we align our profitability, we're also heavily investing our focus on routinely generating positive free cash flow. This includes better disciplines within our accounts receivable, accounts payable, inventory profiles, and capital spending decisions. NN has not delivered positive free cash flow as a company annually for several years. But as mentioned just a few minutes ago, and as you've seen in our announcements, we've already checked this box on an LTM basis. And we intend to perform better on free cash flow generation as we go forward, as it provides the fuel to self-fund our investments into our team and our plants, our growth programs, and deleveraging our balance sheet. Lastly, point five, we're taking steps to dramatically increase our new business WINS program. and drive larger results. This includes aggressively leveraging our open capacity and taking a more disciplined approach to pursuing new business wins that will require significant capital spending. As many of you know, in the industries that we compete in, a win today is primarily supporting business revenue in 18 to 24 months in most cases. We've already reorganized internally amongst our sales and operations teams to reallocate a greater portion of our organizational talent to achieve a larger sales growth attack plan. Please turn to page seven in the presentation. On slide seven, I'd like to introduce you to our new leadership team here at NN. And this team is focused on going faster and winning more as we integrate our commercial and operational teams together to grow the business, as we organize to have cost productivity and cost leadership and to generate free cash flow. And as you can read from the descriptions here, this team has been developed through promotions internally of strong industry veterans within our company. And as mentioned, we're supplementing this team with just a few new leaders that bring in strong and proven transformational expertise and with whom I've worked before previously. These four leaders on this page have over 20 to 30 years each of direct industry experience, most of which has been accomplished right here at NN. Verlin, Douglas, Gennars, and Jeff. are already aggressively underway with implementing our new transformation plan in their respective areas. Please turn to slide number eight. We've provided a brief snapshot of our new business wins on this page, and I'd like to cover them for a minute. Year-to-date, our business wins are roughly on track with our internal goals, and as you would conclude here, we're already in the process of upsizing these goals to a higher level. Our global team is now thinking through a larger plan to win at a larger rate, and we are already underway with expanding our efforts right now. In the first half, electric power steering components for electric vehicles has been the largest segment that we've won business in, and we're very happy about that. We will expand our product concentration in key profitable areas that we currently serve, like electronic power steering for electric vehicles, but also in areas like connector shielding and braking system components, to name just a couple. We'll also look to expand into new markets, including the medical market, where we see a lot of opportunity. Our ability to design and manufacture sub-micron precision machining, stampings, and assemblies is very unique. and applicable to many industries. I'd now like to turn the call over to Mike Felcher, Senior Vice President and CFO, to discuss our second quarter results in greater detail, and then we'll take your questions at the end. Mike?