NN, Inc.

Good day and welcome to the NN Inc. Second Quarter 2024 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Stephen Poe with Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and thanks for joining us. I'm Stephen Poe with NN Inc.' 's Investor Relations team, and I'd like to thank you for attending today's earnings call and business update. Last evening, we issued a press release announcing our financial results for the second quarter ended June 30, 2024, as well as a supplemental presentation, which has 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 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 Chris Bonner, Senior Vice President and Chief Financial Officer. Tim French, our Senior Vice President and Chief Operating Officer, will also join us for the Q&A portion of the call. 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 when filed in the risk factors section in the company's quarterly report 10-Q for the fiscal quarter ended June 30, 2024. The same language applies to comments made on today's conference call, including the Q&A session, as well as 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 and divestitures, synergies, cash and cost savings, future operating results, performance of our worldwide markets, general economic conditions and economic conditions in the industrial sector, the impacts of pandemics and other public health crises and military conflicts 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 non-GAAP measures as defined by SEC rules. Reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release in the supplemental presentation. Please turn to slide three, and I will now turn the call over to our CEO, Harold Beavis.

Thank you, Stephen. Good morning, everyone, for calling in. I am going to be speaking and referring to the presentation that's on our website. And if you could turn to slide four in the earnings presentation, I'd appreciate it. NN delivered strong second quarter results driven by the continued execution of our transformation plan, which is on track. We are increasing the scope and magnitude of our goals across our operational footprint and have advanced an aggressive cultural reset centered around customer service and our leading quality. These efforts to structurally improve our business performance are evident in our quarterly results and help deliver our fourth consecutive quarter of year-over-year adjusted EBITDA growth. Our operational advancements are aiding our business development efforts as well, as we have seen significantly increased customer satisfaction as evidenced by improved customer scorecards and feedback. To that end, we continue to add targeted growth capacity, have revitalized several key customer relationships, established new partnerships in several markets, and have won $34.3 million in new business awards year-to-date through June. We expect our new business pipeline of over $600 million to grow as we continue to execute. As part of our commercial growth strategy, we're also getting more aggressive in the areas of new product development and product innovation, with particular emphasis applied within our medical, electrical, and high-end automotive markets. We're currently bidding on R&D projects with key targeted accounts, which in turn strengthening our knowledge of leading-edge competitiveness. Specific to the medical market, our NN medical team is building out dedicated capacity and developing advanced industrial and mechanical capabilities to service the fast-growing pipeline of opportunities. We will touch more on this encouraging development later in the call. For the full year 2024, we continue to expect to deliver bottom-line growth along with continued momentum and growth in new business wins. The success across the first year of our transformation has not only bolstered our financial results, but it has helped position the company for a refinancing of our obligations, which will help reduce our cost of capital, support stronger earnings and cash flow performance, and accelerate future strategic growth. And Chris will cover this in more detail. Given our solid progress and successful execution thus far today, we are reaffirming our guidance for net sales, adjusted EBITDA, free cash flow, and new business wins, which we issued in our July press release as part of the sale of our non-core plastics plant. Aside from our continued operational and financial execution, our financial outlook is supported by exposure to healthy and growing industrial, electrical, and medical end markets where our capabilities and quality are very valued. The global automotive market backdrop is slightly more variable with several puts and takes governing demand in the short term, particularly across domestic EVs. But we believe our diversified positioning across the powertrain spectrum is a comparative advantage. Please turn to slide five in the presentation, where we've provided a summary and current outlook for our primary end markets. Global passenger vehicle, which has constituted roughly 40% of our trailing revenue, is expected to show flat to modest growth. And the market is undergoing a broader demand rebalancing across BEV, hybrid, and ICE drivetrain types. NN's new business wind program reflects an alignment with these evolving trends. Our general industrial markets are forecasted to grow by about 3%, and we're seeing steady demand in these areas. Power grid and electricity control markets are expected to display modest growth globally, and NN's business in electrical distribution and control is seeing a balancing of demand across those markets. Our smart meter business remains healthy and continues to show solid growth, and demand in circuit breaker products is steady. Commercial vehicle markets face a forecasted decline this year, but NN anticipates minimal impact supported by exposure to unique applications where demand profiles outstripped that of the broader market. And finally, the market forecast in our small but growing medical business anticipates orthopedic sales to grow three to 4% year over year through 2026. Our organic growth in this recently relaunched business is accelerating and we're adding new capacity to support our new business wins, giving NN the confidence to expand beyond our original goals and now set our targets to grow the business to 100 million. Before turning to our second quarter financial results, I'd like to highlight two key recent additions to our leadership team on slide six. Excuse me. First, I'm excited to welcome our new Chief Financial Officer, Chris Bonner, to the team. Chris and I have worked together in the past and his deep experience as a dynamic and operational CFO will be an accelerator for our company's transformation. Welcome Chris. We're also very pleased to welcome Jamie Steppen, our new general counsel to the team. Jamie joins us with close to 20 years of experience in the legal field and brings a strong background working with both public and private companies, including automotive suppliers. She will be a tremendous and complimentary asset to our team as we look to grow our business globally. Please turn to the next slide, slide seven. NN delivered solid second quarter results with net sales of 123 million and adjusted EBITDA of 13.4 million. Year-over-year net sales volumes were down slightly, driven by unfavorable FX impacts in addition to a deliberate rationalization of certain dilutive volumes at underperforming plants. Encouragingly, this targeted and strategic volume rationalization is being largely offset by sales growth at our stronger, more profitable plants. Despite a modestly lower revenue base, our adjusted EBITDA grew by 28% year over year, reflecting the impacts of our transformation work. This marks our fourth consecutive quarter of year-over-year growth in adjusted EBITDA, and our trailing 12-month adjusted EBITDA results are now 49.2 million, which is up almost 29% compared to the same figure at the same time last year. Our adjusted EBITDA margin of 10.9% is up significantly as well compared to last year, as the turnaround of travel plans and broader operating cost reductions continue to improve our bottom line. As a result of our transformation, we have longer term targets to grow our EBITDA margin rates to the 13 to 14% range. And these results show that we're on our way to delivering that. To sum it up, our business transformation is on track and our recent actions will help accelerate our pace of growth and plant level performance across the organization. I thank all our talented employees for their commitment and effort in making this success possible. our improved performance is generated through their hard work. And with that, I'd like to turn it over to Chris to walk through our financial performance in a more detailed manner.

Chris?

Thank you, Harold, and good morning, everyone. I'll start on slide eight, where we'll detail our results for the second quarter. Net sales for the quarter of $123 million were down slightly by 1.8% or $2.2 million compared to last year's second quarter. Roughly half of the sales decline was caused by unfavorable foreign exchange impacts of approximately $1 million, or 0.8%, largely within our mobile business. Additionally, rationalization of low-margin business in the mobile solutions segment accounted for most of the remaining decline versus last year. Our operating loss declined significantly to $2.1 million, an improvement of $1.9 million compared to the $4 million operating loss in last year's second quarter. On an adjusted basis, we delivered adjusted operating income of $2.1 million, which again grew relative to the adjusted operating income of $1.3 million seen in the prior year. As Harold referenced earlier, adjusted EBITDA results of $13.4 million grew by $2.9 million, or 28%, versus the $10.5 million last year. As a result of our adjusted EBITDA growth, our consolidated adjusted EBITDA margin of 10.9% expanded by 250 basis points versus last year's second quarter, driven in part by improved operational performance across our base business and a stronger first half of the year for our China joint venture. This step up in our profitability on a modestly lower revenue base again speaks to the success of NN's transformation and our improved ability to generate stronger profits from our existing business. We have shown solid progress in optimizing our sales mix through the transformation, and expect these benefits to carry forward, supporting long-term margin improvement goals. On a GAAP basis, our quarterly net loss per share of 12 cents showed marked improvement compared to the 38 cent net loss per share seen in last year's second quarter. On an adjusted basis, our quarterly net loss per share came in at two cents. We think it's worth noting to point out that the depreciation applied to our AutoCAM business is expected to roll off in the coming quarter, the third quarter, And had the timing of that effect been applied to this quarter, our results would have reflected a positive net earnings per share on an adjusted basis. For the remainder of 2024, our focus on attacking all underperforming areas of the business and cutting costs will continue to anchor our priorities as part of our multi-year transformation effort. We remain committed to improving our profitability with our actions to improve the business. I'll now turn over to our segment results starting on slide nine. In our Power Solutions segment, where our business consists largely of stamped products, sales increased 4.3% year-over-year to $50.2 million, growing by $2.1 million from the $48.1 million of sales in last year's second quarter. The lift in sales was primarily due to pricing impacts, including the pass-through impact on precious metals, as well as other pricing actions to offset inflation. Power Solutions' quarterly adjusted EBITDA of $9.5 million improved meaningfully, growing by 3 million compared to 6.5 million last year's second quarter. Adjusted EBITDA margins increased from 13.5% to 18.8% quarter over quarter. The positive impacts from past facility closures and the ongoing productivity improvement programs have driven these solid results. We believe it's representative of our refocused efforts and commitment to our strategic transformation plans. which enabled the business to deliver 46% improvement as compared to the prior year second quarter. As we begin to layer in the sales from new business wins, we expect to continue expanding our profitability as we capture improved fixed cost absorption through operating leverage combined with the ongoing benefits from our costs and productivity programs. In the near term, our key priorities for this segment remain centered around continued cost out and an acceleration of targeted new business sales efforts. We have upgraded our commercial teams with the addition of dedicated business development professionals. We remain highly focused on operational lead times to improve our customer service and strengthen our IT systems and management processes, all of which have contributed to our recent successes, including the ramp up of our electrical connectors and shields platforms. Now turning to slide 10 in our mobile solution segment, which covers our machine products business, sales decreased 5.6% versus the prior year's second quarter, declining 4.3 million to 72.9 million for the period. The decrease was primarily due to our exit from unprofitable business and contractual reductions in pricing and unfavorable foreign exchange impacts I mentioned earlier. Profitability in the mobile solution segment grew versus last year's second quarter, as the segment suggests the EBITDA results of 8.2 million increased by 0.7 million compared to the 7.5 million in the second quarter of 2023. Again, our focus on fixing the cost structure and productivity has helped drive solid margin expansion. As Harold noted, the income contribution from our China JV has been strong in the first half, and we've taken early steps to reduce indirect labor and its impact on our cost structure. Our near-term priorities are to continue refining and lowering our cost structure in North America and driving growth in China and expanding our capacity where we continue to win new business. We'll also continue to accelerate our focus on product development and innovation, where capabilities can increase competitiveness in next-gen product applications and expand our presence with key industry players. Recently, we saw this take place as we achieved a new program win in our medical market. where a global market powerhouse awarded NN its machine titanium forgings for hip replacements. Harold will provide an update on this later. Now turning to slide 11, on a trailing 12-month basis, we delivered adjusted EBITDA of $49.2 million, a steady improvement over the past four quarters. The improved adjusted EBITDA results have translated into a reduction of our leverage multiple over the same time period. As we communicated previously, a comprehensive refinancing of our debt obligations is a key strategic priority. The improved adjusted EBITDA and leverage strengthened our ability to engage with the debt capital markets. Further, the strategic disposition of our non-core plastics plant in Lubbock, Texas, after quarter end brought an additional $15.4 million that we used to pay down debt after quarter end, reducing our leverage multiple to 2.9 times on a pro forma basis. We are underway with a structured process with our partners to refinance our existing term loan and ABL and have clear balance sheet and capital structure goals that we expect to execute on in the near term as we work through this process. We expect this refinance to lower our borrowing costs, greatly aid our growth and transformation, and allow us to redeem a portion of our preferred equity, which has high carrying costs. Success in lowering our cost of capital and improving financial flexibility will enhance NN's ability to use our available capital base as a platform for future strategic growth and allow a greater degree of the value we generate to accrete to our shareholders. We're committed to driving improvement in free cash flow and will therefore continue to take measured approaches to the capital investments required to continue advancing our growth. We look forward to sharing more in our next earnings update on this. With that, I'll turn the call back over to Harold to discuss some of our additional developments before wrapping up our prepared remarks. Harold?

Thank you, Chris. Please turn to slide 12 in the presentation. NN's organic growth program continues to perform very well, and we remain encouraged by the acceleration of new award programs. Since January of 2023, NN has secured $97 million of new awards. And we are advancing our pipeline of opportunities in higher margin, higher growth areas of the market. Additionally, our teams have developed a robust product development and prototyping program, which will be a critical step in improving our sales hit rates and overall participation in innovative programs with large key customers. Year to date, we have secured over $34 million of new awards and we remain on track. to deliver between 55 and 70 million of new wins in total for this year. Our key growth areas continue to be the China auto markets, U.S. electrification and grid technologies, elective vehicle programs in markets of North America, South America, and Europe, as well as selective investments into medical markets where we have the capacity to know how to compete and win. Our pipeline is growing and we remain steady in our efforts to initiate cultural change to become even more directly customer-oriented as quality and on-time delivery are key pillars of our customer value proposition. Please turn to page 13. I'd like to provide an update on our growing NN medical business, which we re-entered in October of last year. We are uniquely positioned to continue growing this business globally as we leverage our deep expertise in precision manufacturing and capacity. We are ramping up quickly and advancing towards our newly upsized goal of $100 million in revenue. Upon reentry into the medical market, we had set our initial goal of organically growing this business to $50 million, a goal that was based on our available capacity and what we reasonably believed we could achieve based on our capabilities. Our early traction and experience gained in our business development efforts and the quality of opportunities we've been getting are allowing us to expand and upsize our goals. Our current business is at approximately 17 million and as I mentioned earlier, new business opportunities are presenting themselves more frequently and are increasing in size. While we are currently focused on organic growth from the ground up and given our current capacity, we're keeping a keen eye on potential opportunities to accelerate growth through M&A which will become a stronger focus as a function of the strategic refinancing and lowering of our cost of capital that Chris referred to. As part of our organic growth strategy, we continue to position NN Medical to be a key player in the machined medical parts market through several dedicated actions. This includes a focused sales effort, which has led to higher margin sales utilizing existing equipment, obtaining supplier status with several customers in the space, and selectively investing in new equipment to expand our capabilities and meet growing demand. Our strategic actions in the medical space have had early success as evidenced by the recent launch of our first titanium part, a femur implant section of a hip implant kit, which is depicted on this slide. Aside from the femur implant, we currently have several high probability prospects in our near-term pipeline with more to come as we bring on new advanced manufacturing capacity and increased complexity for additional specifications and capabilities. Our NN medical sales team has hit the ground running, and we're confident this business will drive value for our customers and our shareholders across the board. Turning to page 14, And as I covered briefly up front in my opening remarks, we're reaffirming our full year 2024 outlook. As a reminder, for the full year 2024, we're projecting net sales in the 465 to 485 million range, adjusted EBITDA in the range of 47 to 51, up over 13% at the midpoint, and free cash flow in the range of 8 to 12 million, up slightly at the midpoint, compared to the significantly improved free cash flow generation we delivered in 2023. And new business wins in the range of 55 to 70 million. As always, our guidance ranges reflect the present state and our view on global markets. Despite a global automotive market that is in transition across the powertrain spectrum, our markets remain healthy broadly and NN continues to win new business at accelerated rates relative to the market. particularly within the key growth verticals of power, electrical, and the medical markets. Please turn to page 15. And in closing, I'd like to provide a high-level overview of where we stand in the current progress of our overall transformation program. As a reminder, the key pillars of our transformation include strengthening NN's leadership and customer relationships, fixing unprofitable plants and operations, expanding margins and profitability through dedicated cost-out actions, paying down our debt and refinancing our capital stack, all of which will position NN for continued above-market growth and enhanced shareholder value creation. Today, all of our plants and facilities are off new business hold, which marks a significant strategic win and a representation of the solid progress we have made and better integration of our operations and sales. We are focused and on track, and we look forward to updating you next quarter. With that, I will now turn the call back to the operator for questions.

Thank you. If you'd like to ask a question, please press star then one on your telephone keypad. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Joe Gomes with Noble Capital. Let's go ahead.

Good morning. Nice quarter. Thanks for taking my questions.

Morning, Joe.

I just wanted to touch base. You said that you're on track to fix the underperforming plants for break-even. The last time we talked, you had, I think, three of the seven We're now at break even or better. Where do we stand on that number today?

Yep. We have Tim French on the phone, our chief operating officer, and he's the commander of fixing the underperforming plants. I'd like Tim to answer the question there.

Sure. Tim, you might be on mute. Are you able to hear me now?

Yes.

Yes. We're still tracking on a consolidated basis. We expect that group to be at breakeven or better. Through Q2, we had three of the seven are profitable, and all of them are performing better than prior year.

Okay. And we're still at that $100 million of revenue. I think those seven plants were accounted for by we're still on track for that same type of level of revenue, or do you think some of that revenue is going to go away so that when they're all profitable, that revenue would be somewhat less than that $100 million?

Yes, we did shed some unprofitable business in that area, so it would be slightly less than the $100 that they started out with. Now, there is some organic growth coming in some of the other facilities, but net net, they'll be slightly down from the 100 million. Okay.

Fair enough. Thanks for that. And I'm just wondering, Harold, maybe you could talk a little bit, you know, the Chinese joint venture has shown some really good strength. Maybe give us a little more color as to kind of what's driving the strength there. And do you see that continuing here at least through the end of 24?

Yeah, you're correct that the JV is showing strength and we have a big customer there named UAES and that JV is focused in on high-end fuel systems and the market in China has a strong hybrid component and the hybrid vehicles themselves also have fuel injection systems and the business has been flat in terms of units made but We've benefited from a good cost out program in that business also. And our outlook for the year is for the business to continue to do better than last year, Joe. I don't know if it's going to be as strong in the second half as it was in the first half, but it's going to continue to be year over year stronger. And the outlook for the business is fine also going into next year and the year after. Tim and I were just in China last week. and we had a thorough review of the JV business unit, and we had a JV board meeting, and that business is good for us, Joe.

Good, good. And one more for me, I'll get back in queue. On the strategic refi, I was wondering if you could give us a little more color on, you know, what kind of rates you're thinking you can get versus where your rates are today and You know, how much of the convert do you think you're going to be able to take out initially?

Yeah, Chris, you want to take that one? Sure, Harold, thanks.

Hey, Joe. Yeah, so we're in the middle of our refinance process. Right now the markets are pretty good. Rates are lower than what we're paying today. As you know, we're closer to the 14% range with the PICC. So we expect to have lower rates than that. You know, as far as use, the primary driver of this is obviously to aid with our transformation as well as, you know, reducing our overall cost of capital, and that includes potentially paying down some of the preferred debt as well. So the timing of that we'll talk about in the future, but hopefully we'll have the capacity and then the lower rates to really help the business grow and transform in the future. Those are the key goals.

Okay, great. Thanks for taking the questions. I'll get back to Q. Thanks, Joe. Thank you.

And our next question today comes from John Franzrup with Sidoti & Company. Please go ahead.

Good morning, everyone, and thanks for taking the questions. Harold, I'm kind of curious. It seems like this earnings season, we've seen a lot of tempering of expectations, but it doesn't seem like you're seeing the exact same thing. I'm just curious what you see stronger or weaker today in your guidance versus, say, three months ago.

Well, for sure, there's a rebalancing between EV hybrid and ICE across areas. our customer base, which is 40% of the company's revenue. What it does for us is it extends the outlook on the ICE programs, some pushouts on conversions to electric and hybrid. There's been an increase in R&D programs and hybrid. So for us, that's a positive mix shift. The desire for the vehicles to do more, whether it be range on electric or efficiency on hybrid and ICE, that's a good mix for us, so it trends towards our good mix. If you look at China's exporting of China-made vehicles around the world, that's net impact in Europe and some other markets. We have some puts and takes, you know, we have three plants in China and we're spotting a fourth plant in China. Um, so we're, we're benefiting from the strength, uh, that's happening. And, um, you know, we're feeling it a little bit on the, uh, where it's weaker. So there's some, there are some puts and takes, but overall the amount of vehicles being made is steady on the, on the power side. That's been largely unimpacted, you know, what's been happening to the grid and, And the power grid upgrade in medical is a new one for us. So we're stepping into that market and participating it where we weren't doing that before. And so overall for us, our demand is okay, John. And the revenue moves that we have are largely deliberate by us as we negotiate and confront dilutive situations. And we're willing to take a loss if it's, you know, if it's So our revenue downside, if you will, is of our own doing as we confront areas of the company to fix. So I wouldn't say we have a dramatically different view, John, than we had three months ago on in-market demand. Okay.

Fair enough. And regarding your pricing actions, I came with the impression that it was largely positive in the quarter, even though you had some contractual givebacks in the mobile solution side of the business. Is that the case? Can you walk through how much you had positive pricing impact on a year-over-year basis?

Help me out, Chris, but pricing was minimal. We had a good mix. On our contractual price downs in mobile, you're correct. We do have some. It's not big. And on our power business and medical business and industrial business, it's largely PO-based. So we price each order we get. But the net price impact on the business wasn't that great, John.

Yeah, that's right, Harold. And, you know, we had some inflation pricing in the power side, and then, you know, precious metals have increased, so we had a little inflation there on the pricing side as well, which has passed through.

That's a pass-through, John. Yeah. Got it.

And just can you remind me, on the commercial vehicle side, how you're able to outperform some negative, you know, industry trends that we're seeing in the broader marketplace?

Yep. Our biggest exposure in that market is with Cummins. And the part of Cummins where we are a supply chain participant is on the very fuel-efficient lineup that they have. And the vehicles that are getting made are mixing towards high energy efficiency, which is a mix towards the products that we make, John. We've been winning new positions, also on the accelerator side of Cummins. Overall for us, although the Class 8 trucks or however you want to look at the truck market, as the units are expected to come down, the units that are getting ordered are mix shifting towards the type of engines that we participate in.

Got it. Got it. And I guess just quickly on the medical side, you kind of upsized the target potential. Can you talk about the timeline of the new $100 million versus the $50 million? And the wins, from what I recall, they turn quicker than the balance of the portfolio. How much CapEx are you going to need to support some of those new wins?

Yep. So there's two pieces to it. There's the... The capital expansion that we are underway with in the medical side, and I'll ask Tim French to speak to that. He's leading it. And then there's the addition of targeted acquisitions. The acquisition program, we're just getting organized to do that. Tim, myself, Chris have all bought plenty of companies in the past. We're not really set up at this moment to do it. We're working with... an investment bank, B. Riley, to help us get set up. We're looking at our first small acquisitions. We don't really have a capital structure that would be accommodative or supportive of any type of acquisition. So it's tied in to the outlook that we have right now when our refinancing that Chris is leading. So in parallel, we're gearing up to do targeted acquisitions in the areas that we're focused on to get bigger, faster, than we can kind of go one win at a time at the accounts we're selling into. With regards to the capacity expansion of what we're doing, Tim, could you give a couple comments there?

Sure. The primary difference in this market is the need to have versatile, flexible, and capable capacity ready. The timeline from new business award to revenue is significantly shorter in this segment. We've identified very flexible multi-access lathes that are pretty much industry standard within the medical industry, and we're putting together a program to begin acquiring that capacity as necessary. We've already placed orders for two of these lines that should be installed later this year, and we will continue to invest in this capability as the demand gets higher. utilized by the sales team.

Great. Thanks, guys, for taking my questions. I'll get back into queue. Thank you, John.

And as a reminder, if you would like to ask a question, please press star then 1. Today's next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Morning. Morning. Hey, Rob. On the new medical goal of 100 million from sort of 17 million run rate, what do you have to do to get there in terms of new program wins or how many steps does it take to sort of get to that level? Yep.

So the type of machine that we're ordering that Tim referred to is an industry standard workhorse. We have some of these machines now. And when we look at the first six months of quoting, we can already tell that $8 million worth of wins we've had to walk away from because we didn't have open capacity of this type. And when we look at our pipeline, it continues to be centered on these type of capabilities. And we have a decent-sized pipeline here. held down because we don't have open capacity. As Tim referred to, this market is a bit different than our other ones in that it's a first mover advantage to have the open capacity of the type needed. So we're going to put it in place. And the eight machines that we have in our game plan of which we've ordered the first two are the add up to 50 million with the machines that we already have in place. And I think it's probably going to take probably two and a half years or so, Rob, um, to, to work our way into that with the normal hit rates that we have. And so, uh, it's a three year plan is what we have. And we have a five person team and that's the, that's the first move that we're making. We're still kind of timing our coding because we don't have the machines installed. We are. close to sold out with the – we've basically sold out the capacity we have. We haven't onboarded it all yet, and so we need to get this next increment of capacity. So if you're putting a model down, I would model it over three years.

Okay, thank you. That's helpful. And then on your efforts to kind of – reduced the legacy loss contracts, made good progress. Could you characterize how much you have to go there, how far you're through that effort?

Yeah, so the first phase and first goal that we set was to have these businesses break even and make a little money. And then the second phase is for them to make money at the company average, and we keep raising the average. We're now right at 11%. And these businesses were close to a negative 11%, you know, when we walked in the door. So they were way, way off the mark in terms of being able to be a company average. So relative to Joe, I think Joe brought it up on whether we're going to have to say goodbye to some of the business that's still holding us back. Probably, you know, but, you know, we're trying to hold on to it as much as we can and negotiate with our customers and, you I'm going to say that Tim's on track. Actually, he's a little bit ahead of a plan with getting the group to be breakeven or above, but a few of the plants are still losing money. And so as we look forward into that reality, it might be that we need to rationalize some of the rooftops if we can't fix the business in place, and we're prepared to do that also. You know, those require cash, and so you don't rush into those things. Phase one, we've been trying to fix every plant right where it sits. But some of the capabilities in these plants are limited, and whether they'll be able to make, you know, 11% EBITDA down the road remains to be done. Tim, I don't know if you have any further comments you'd like to make on that.

Nothing specific. I think we've addressed a large portion of it. There may be a little left, as you indicated, Harold, but for the most part, I think we've cleaned up a lot of that underperforming substandard business at this point.

Okay, great. Thank you. I'll turn it over. Thank you, Rob.

Thank you, and this concludes our question and answer session. I'd like to turn the conference back over to the company for any closing remarks.

Thank you very much. We appreciate you joining us today, and I'd just like to reiterate that our transformation is still underway, and it's taking shape, and we're showing progress as we go through it. We're happy with our progress so far, and we can obviously see what we need to do next, and so can you. Being very deliberate with our activities and the transformation plan, which we have in our deck today is what we're following. Although there's more work to do, we're gaining momentum and confidence in our new growth program. We're off new business hold at every plant globally now, and that's a first. That's due to operational performance and saying what we're doing, doing what we say with our customers. Our quality has been great all the way through. We're looking at green scorecards. And so our aperture has expanded somewhat to grow the company and puts us in a good position to execute. Look forward to speaking with you in the next quarter and wish everyone a good day. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.