NN, Inc.

Hello and welcome to the NN Inc. 4th Quarter 2024 earnings conference call. All participants are 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. Please note, this event is being recorded. I would now like to turn the conference over to Stephen Poe, 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. 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 4th Quarter and full year ended December 31, 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 of the supplemental presentation, you may contact Alpha IR Group at -alpha.com. Our presenters on the call this morning will be Harold Bevis, President and Chief Executive Officer, Chris Bonner, Senior Vice President and Chief Financial Officer, and Tim French, Senior Vice President and Chief Operating Officer. 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 today's press release, supplemental presentation, and when filed in the risk factor section of the company's annual report on Form 10-K for the fiscal year ended December 31, 2024. 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 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 in 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. 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 now turn the call over to our CEO, Harold Nevis.

Thank you, Stephen, and good morning, everyone. As mentioned, myself, Tim French and Chris will be given an update and have a Q&A session at the end. Let's go ahead and get started. If you could turn to page four on business update, I'd like to give you a few highlights. NN's first year of transformation produced significant and immediate results, including a new five-year business plan, new top leadership team, which is 80% in place, a new business development program, which has now produced, as of last night, approximately $150 million in new business awards. We enacted a fix it or close it program at seven plants that were underperforming, and we began a refresh of our capital structure with a new ABL in December of 2024 and a term loan refinancing process, which is underway now. And Chris will give a fulsome update on that later. As we look to the full year of 2025, we expect advancement on all fronts, including growth, cost, outs, and cash generation, barring any significant tariff impacts. And we're going to talk about tariffs, if they're a timely thing. We have 70 new business win programs launching this year. Our cash capex is expected to be at our normal levels, and we will continue to selectively add a few new people to further help drive our new business development areas, particularly in stamped products, medical products, and electrical products. And we will continue to optimize our operational footprint and headcount. Lastly, a word about tariffs. It's the goal of the Trump administration to encourage reshoring of volumes, profits, and jobs for companies like NN. But as it's playing out in the papers and all of us know just from common sense, the U.S. manufacturing supply chains are global, complicated, capital intensive, and slow moving, for important reasons like consumer safety and project paybacks. For instance, it takes several years and several billion dollars to build a car factory, and then another year for vehicle testing. So these changes take some time, and the timelines are generally outside the duration of a presidential administration. And already the big three are getting exemptions. Most parts suppliers like us believe that this will be short-lived with minimal long-term impacts, but I am going to give you an update that we've had positive impacts so far. Turning to the next page on page five, I'd like to just give you a little bit more details on our five-year plan and reiterate them. We haven't changed them. First, sales growth. Sales growth is very important. And in the industries we serve, sales don't fall naturally in your lap. You have to target properly, offer innovative solutions, hustle, and win. And the components of our top-line program are based on winning $65 million a year of new business and ending $25 million a year. It's an assumption. We don't have a firm outlook. People do not give indications that far out of when they intend to end programs, but it backtests to be a number that's conservative for us. And we have a matrix of targets underneath that, an individual accountability. A big goal is to minimize CAPEX and to leverage the installed base of equipment, buildings, and land that we have, and we've been doing that. And this program is working. We've been on track now for six quarters in a row and headed into our seventh quarter. We've already won $150 million of business, as I mentioned, which is definitely a big number for us. We've had to get some operational guidelines in place to launch that many programs at once. Anyone who's been a plant manager or been in plants, that's a lot of work to do, and we're launching 50 programs right now in the first quarter. The second major component of our five-year plan is aggressive cost reduction. Overall, we want to reduce our cost 3% a year, condense our plant footprint, combine our operating teams into a shared team, implement continuous improvement programs at every plant, continue our Kaizen and Six Sigma programs, which are working very well. And this component of our plan is working well also. Third component is to refresh and correct our balance sheet. We expect to generate free cash flow and invest $12 to $15 million in capex per year ex-China. We've kind of sliced China off and have China funding itself and sending money back to us each quarter, and it's working fine, and I'll give a China update in a bit. Again, we want to leverage our installed base of equipment, lands and building that we have, and it's very sufficient to achieve our goals. Our end goal is to have all our plants be free cash flow, generative, self-sustaining, and bear their fair share of our overhead burden. And where we are today in progress we've made, we're happy with it. We have a new ABL in place and a term loan process underway that Chris will give an update on. And a big deal is to correct our diluted plants, which are being fixed or closed, and Tim will give an update on that. All of it is geared at getting our DPA margins up, and we're tracking to that, and we're going to give you an update on the fourth quarter of last year and on the full year and our outlook for this year. We've closed two plants. We're in the process of closing two plants, and we have one underway at this point in time. So overall we're happy with our first full year and our five-year plan, and we're recommitting to it. If you turn to page six, this is a format we've been using to track our transformation plan, and this year will be another formatted year for us. Through the first six quarters of us being here, we think we're around 60 percent complete. This is judgment of where we think we are, and our new leadership team is about 80 percent complete, as I mentioned. We still need a couple people in a couple of the new areas that we're trying to grow more quickly in, primarily non-automotive, and the fixing of our unprofitable parts for our business is around 60 percent complete. You can see on the graphic here on page six what our EBITDA has been doing, those plants that we're underperforming, and all of them are planning on making money this year, in the mid-25, which is a remarkable turnaround in a short amount of time, from mid-23 until this year's outlook. So we're pleased with it. We had to shed a little bit of business, which Chris will bridge for you. So the goal is to drive up our gross margins, and we have been doing that. We have a long-term goal of 20 percent, so we have more work to do. On our ballot sheet, we started working on that last year. We previously reported that we had to part ways with our banker, and Chris and I pretty much took this on our own, and we did the ABL, and now we're underway with the term loan. We're also underway with putting China on their own, and that's all tracking very well. And the last piece is growing sales year over year to win it up business so that we have a natural growing company, and we're starting to get tailwinds now. We have some of the business that we've won is now launching and going into our run rate. So overall, we believe that our transformation is on track. On the next page, we got a request to kind of go into a little bit more detail about the plans that we're underperforming and what have we done and what's in front of us, and I'd like Tim French, our Chief Operating Officer, who's led that initiative, start to finish. I'd like Tim to give an update to the group, please. Tim?

Thank you, Harold. Good morning, everyone. As Harold said, I'll talk to slide seven. For those of you that have followed our progress, you'll be familiar with the term group of seven. These facilities are responsible for 113 million of revenue and negative $11.5 million of adjusted even done in 2023. Their locations are listed on the slide being shown. In addition to the poor financial performance, they were negatively impacting our customer relationships because each of them had significant past two backlogs, and it was giving us unfavorable customer ratings and scorecards, which was impacting our ability to grow commercially. Over the last six quarters, we've intensely focused our efforts on improving their performance in these facilities. After an in-depth analysis, we decided to shed portions of the business that we decided were determined were unprofitable, as well as close to facilities, Duwajiac, Michigan, and Juarez, Mexico. Both of these facilities are in the mobile division. 4% of the business in these facilities and the related equipment has been transferred to other locations. This required us to gain approval from the customer. We had to build and manage inventory banks to service the businesses while we removed, reinstall, and PPAP the equipment in the alternative facility. Production has concluded in Juarez, and we were on track to have Duwajiac closed in Q2. The remaining five facilities, we focused on organizational and operational improvements that included top grades to leadership and staff, improvements in engineering processes. We implemented functional KPI trackers, as well as increased focus on customer pricing, service, and interaction. As a result, we now have green scorecards with all our customers, and that's a big help when it comes to securing new business wins. It's really benefiting our commercial team. These actions over the last six quarters have been extremely successful. In 2024, the facilities went from losing about $12 million of adjusted EBITDA to losing just $900,000. That's inclusive of the closures. Our operational transformation plan is working. It's worth noting that looking forward to 2025, as Harold previously stated, every remaining facility is expected to be adjusted EBITDA positive, with the group having approximately $75 million in revenue and generating over $5 million of adjusted EBITDA. We're pretty happy with this result, but we still need to focus on improving free cash flow, specifically in two facilities. Our Marna's France facility has been awarded new business. Once the SOP is completed, the facility will be operating at very close to capacity. This will stabilize the standalone profitability and free cash flow. While we're pleased with our early success in transforming the underperforming facilities, we're not stopping or slowing our efforts. We're not done. Each of these facilities is part of a larger continuous improvement program that Harold mentioned earlier that will deliver consistent enhancements to our economic competitiveness. Additionally, we have identified one more facility for closure, which we plan to execute when the lease expires in 2026. All in all, we're very happy with the improvements we've seen with the Group of Seven, and we're excited about what we can do going forward with them. With that, I'll turn it over to Chris to walk through our financial performance in more detail. Chris?

Thank you, Tim. Good morning, everyone. Today, I'll be presenting information on both a gap and a pro forma basis. As a reminder, we began presenting pro forma business performance in the third quarter of 2024 to give a better representation and depiction of our financial and operating results after the sale of our Lubbock facility this past July. We also have other adjustments that we arrived in what we consider to be our ongoing business. We detail the adjustments made that translate our gap and non-gap reporting to our pro forma results in the appendix of the presentation. Today, I'll start on slide eight, where I'll detail our consolidated results for the fourth quarter. Starting with our as reported numbers, fourth quarter net sales came in at 106.5 million, reflecting about a 5% decline compared to Q4 of last year. While the top line was impacted by the sale of our Lubbock facility and strategically rationalized sales volumes, we continue to drive strong margin expansion and improved profitability, as noted on the slide. Adjusted operating income was 2.4 million, a 3.8 million improvement over the prior year quarter, where we reported an adjusted operating net operating loss of 1.4 million. Adjusted EBITDA grew to 12.1 million, a 21% increase from the 10 million delivered in Q4 of 2023. This performance underscores our commitment to operational efficiencies and disciplined cost management, allowing us to improve profitability in a dynamic macro environment despite the lower sales. Now shifting to our pro forma results on the right hand side, which adjust for key items including the sale of the Lubbock facility, rationalized volume, and foreign exchange impacts, which we outlined in the table at the center of the page, on a pro forma basis net sales of 106.5 million reflected a 2% increase compared to Q4 of 23. On a pro forma basis, fourth quarter adjusted operating income was 2.4 million, an improvement of 3.9 million compared to the fourth quarter last year. On a pro forma basis, adjusted EBITDA grew to 12.1 million, up 25% year over year. These results highlight the strengthening of our underlying operations and our ability to drive margin expansion through diligent cost and operating efficiency initiatives. Now turning to slide nine, we detail our consolidated results for the full year. For the full year, we reported net sales of 464.3 million, declining 5% compared to 2023. This year over year decline was driven by the sale of our Lubbock facility, the impact of our strategic volume nationalization, a one-time customer settlement in the prior year, and foreign exchange impacts. Despite this top line compression, our focus on operational improvements allowed us to expand profitability and deliver solid adjusted returns. Adjusted operating income for the full year was 5.1 million, up 65% versus 3.1 million in fiscal 2023. Adjusted EBITDA results grew to 48.3 million, marking a 12% increase year over year, and adjusted EBITDA margin expanded by 160 basis points to .4% up from .8% last year. Moving on to our pro forma numbers, controlling largely for the same one-time items we detailed earlier, net sales of 464.3 million were largely flat to the full year 2023, declining less than 1 million or 0.2%. Pro forma adjusted operating income was 5.1 million, a 28% increase compared to the prior year. Adjusted EBITDA on a pro forma basis was 48.3 million, up 13% versus 2023, and adjusted EBITDA margin expanded 120 basis points to .4% from .2% last year. The pro forma results provide a view of our ongoing business and operational momentum, which has had a strong positive effect on our profitability, as evidenced by solid adjusted operating income and adjusted EBITDA results on what was essentially flat revenues. Looking ahead, we expect the elimination of profit dilutive sales volumes and the inclusion of new business wins will further enhance our operating income and adjust EBITDA, grow margins, and provide incremental fixed cost leverage. I'll now turn to our segment results, starting with our power solution segment on slide 10. Fourth quarter, as reported, net sales were 39.2 million compared to 43.4 million in the prior year. The decline was primarily driven by the sale of our Lubbock facility. On a pro forma basis, quarterly revenue increased slightly by 900,000 or 2%. Power solutions adjusted EBITDA in the fourth quarter was 5.6 million, down slightly compared to 6.6 million in last year's fourth quarter, again, primarily due to the sale of the Lubbock facility. On a pro forma basis, prior year adjusted EBITDA was 5.9 million compared to 5.6 million. On a full year basis, power solutions net sales totaled 180.5 million, down slightly from 185.9 million in the prior year, again, due to the sale of Lubbock. On a pro forma basis, full year revenue increased by 8.7 million or 5%. For the full year, power solutions adjusted EBITDA increased to 29.2 million, up from 28.3 million in the prior year, with margins expanding to 16.2%. On a pro forma basis, power solutions adjusted EBITDA grew from 26 million to 29 million, an .5% increase year over year. Now turning to slide 11, I'll highlight some of our financial metrics in the mobile solution segment. Revenue for the fourth quarter was 67.4 million compared to 69.2 million in Q4 of the prior year, a decline of just over 2%. The slight decline was primarily driven by foreign exchange headwinds of 1.6 million, which nearly offset the volume increases of 1.7 million. Pricing impacts also contributed to the slight reduction in revenue. Further, the decline in fourth quarter net sales was impacted by 1.5 million of unprofitable business that we exited. Adjusted EBITDA for the fourth quarter was 10 million, marking a strong increase from the 7.1 million delivered in the prior year period. Adjusted EBITDA margins expanded to 14.8%, up 350 basis points from the .3% in the fourth quarter of 2023. The increase in adjusted EBITDA and margin growth reflects the benefits of our sales volume rationalization and our actions to improve our cost structure and productivity. For the full year 2024, mobile solutions revenue was 283.9 million, down from 303.3 million in fiscal 2023. The decrease was primarily due to the strategic exit of unprofitable business, which impacted sales by 8.6 million, as well as a one-time customer settlement in 2023 and unfavorable foreign exchange impacts of 3.3 million. However, this was partially offset by 9.6 million of growth from our China operations, which continued to see increasing demand throughout the year. On a pro forma basis, full year revenue decreased by 6.4 million or 2.2%. Adjusted EBITDA for the full year grew to 35.6 million, up more than 19% from 29.8 million in full year 2023, with margins improving by 270 basis points to 12.5%. Similar to the fourth quarter, adjusted EBITDA results reflect the benefit of our cost out actions and the impact of our strategic exit from unprofitable business. As a reminder, our goal was to achieve a minimum 10% adjusted EBITDA margin in the North American mobile solutions business, and we were tracking towards that and beating that in several quarters, with sights on expanding further beyond our initial goals as we execute our transformation. Please turn to slide 12, where I'll provide an update on our ongoing balance sheet improvements, which Harold mentioned earlier. As previously mentioned, we made progress on improving our balance sheet, having executed our refinancing of our ABL at year end 2024. Our focus is now on refinancing our term loan, which is well underway. First, as we navigate through the process with our lenders, our refinancing goals are to enhance operational flexibility by securing improved loan terms and a more favorable structure, achieving a cost of capital that helps us execute the transformation and deliver our full potential. By lowering our overall cost of capital, we aim to create additional financial capacity that will allow us to potentially pursue strategic M&A opportunities alongside our organic growth opportunities once the timing is appropriate. Second, we rebooted the term loan process in late 2024 after completing the ABL and after parting ways with our investment banking partners, relaunching the term loan refinancing effort to take advantage of a solid pool of interested lenders and potential financing options. Since then, we've made significant progress. We expect to conclude this process sometime in the first half of this year. Finally, we view these efforts as part of a broader, holistic strategy to position our capital structure as a solid sheet for transformation and optimization. An improved capital structure will allow us to continue deleveraging while also creating value for our equity holders. We remain committed to paying down debt and will continue to evaluate potential modifications to our preferred equity structure as we move forward over time. Now please turn to slide 13 where I'll talk briefly about our outlook for 2025. As a reminder, for the full year of 2025, we're projecting net sales in the range of $450 million to $480 million, adjust EBA down the range of $53 million to $63 million, and new business wins of approximately $65 million at the midpoint. These ranges assume our key markets and currencies remain stable and aligned nearly with 2024 levels. We note that the global markets are experiencing significant volatility as a downstream impact of a fluid and shifting international trade policy. Current market conditions, if they hold similarly to where they are today, would likely drive our results to the lower half of our ranges, though we note that is very early in the year and these factors remain very unpredictable and subject to change. We face the same variable conditions as the rest of the market, and the external environment will not cause us to deviate from the central elements of our transformation plan. Thank you. And with that, I'll turn the call back over to the operator for questions. Operator?

Thank you very much. We will now begin the question and answer session. To ask a question, you may press star, then 1, on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, you may press star, then 2. Today's first question comes from Joe Gomes with Noble Capital. Please go ahead.

Good morning. Thanks for taking my questions.

Good morning,

Joe. So I wanted to start out with the turnaround of the group of seven plants. Just guys have done a tremendous job in my view there. And just kind of looking at the 25 outlook, you're talking about EBITDA, 5.1 million sales of roughly 75 million, which kind of translates into roughly a 7% adjusted EBITDA margin, almost 16% of your revenue. So kind of the question is, one, do you think you can get that EBITDA margin at those plants up to the 10% level where you currently are overall? And if you were to be able to do that, how high does that take the adjusted EBITDA margin for the entire company?

Yep, that's two part two. Chris, I mean, Tim, I'll start, okay? Sure. For us, those plants, Joe, have a decent amount of open capacity. And so there's cost and revenue fixes here. We have good machinery. In the process of these plant closures, we've upgraded some of the equipment in the other plants by relocating equipment, and we've discarded some of the older equipment so we're able to compete better with better equipment out of those locations. And we've built up the business development profiles, the size of the opportunities that we're tracking for those plants. So a part of the go-forward kind of optimization has to do with revenue and getting our revenue up. Our looks are increasing slightly with the reshoring that's been happening with the tariffs and all the activities. And one of the facts, Joe, is in the first quarter here, we are launching is it 11 programs, Tim, that's reshoring from China to the US? Yes. And Kentwood? Yes,

it is.

So we have 11 discrete programs that we've secured that have moved from China to US soil. And those are going to all help. So part of it's revenue. And Tim, I'll hand it over to you to give your two cents.

Yeah, I think one of the key things to keep in mind is the financial performance of the Group of Seven was really what showed through. But if you look at one of the underlying causes of it was the significant past due backlog. And that put us in a very bad position with a lot of our existing customers. And it basically rendered those facilities almost unsellable with our existing customer base because we didn't have the favorable scorecard. So now that we've been able to eliminate the significant backlogs and have green scorecards with customers, our commercial teams are now able to effectively sell for that group. So what Harold was saying is exactly where I was going with that is although there's still room for some more operational improvements, the next phase shift for those facilities is additional volume, which now we've opened the door to by getting us in a favorable position with the customers.

Okay, great. Thanks for that. I wanted to touch base also, Harold, maybe give us a little kind of update on the medical components and the electrical components and how those businesses are unfolding here.

Yep. So we have some goals for medical to grow that to $50 million organically. We're at about $20 million right now. We have about a $25 million pipeline. It's high quality. We've been able to become an approved supplier. The first step is to become an approved supplier for the products that you're selling. And we wanted to really get into machine products and stamped products. And we still have a couple big customers that we're going through approval processes with, but we're on track. And so the approval, then looking at the opportunities and then securing the wins, it's gradual. We have a goal this year in medical to get another $8 million of wins and $8 million a year and then we'll get to $50 million. So the medical is on track. We need another person. We just have some small things to do, but we're on track and we're now shipping medical products out of Tim, is it 11 plants that we're making medical products out of? Yeah. So we're shipping medical products out of 11 of our plants. We've got our first medical one in Europe now. And we're increasing our certifications. On stamped products and electrical products, it's a similar story, except for we're largely already an approved supplier. And so it's a matter of getting in on the action and we have pipelines for that as well. Stamped products are good for us. It's also an automotive. Some people say, gee, Merry Christmas, your automotive business is so capital intensive. It's really not true. The part of our company that's capital intensive is the machine part of auto. The stamped part of auto is just as good as the stamped part of electrical or medical. So the stamped business has a good business model in that the machines are ubiquitous and the customization is in the dies. And we make our own dies. And a lot of times the customers take part in financing those dies by letting us amortize the die back into the piece price. So we're after all things stamped and we have a dedicated effort there. We've added some high tonnage equipment, both in China and the United States, and it's expanding our aperture. A couple of big products we're going after. One is Busbar. Busbar is a big thing for electrical grid. And we just needed some longer beds on our presses. So it's a gradual build up, Joe, that we're going through and we're just trying to chop it down by the same amount of wins per year. And so far we're tracking to our goals.

Great. And one more for me if I may, Harold, again, I just want to get your view, your insight here. So a recent report came out on Class A truck orders down 30 some odd percent month over month, almost 40 percent year over year. Supposedly people are extremely concerned about tariffs. You see the press reports, you know, tariffs go through or they stay through. Passenger vehicle prices could go up thousands if not tens of thousands of dollars. Just trying to get your view of your thinking around this whole thing and how any of this could potentially impact the company here. I know this is very fluid. The tariffs seem to go on one day off the next day. But just trying to get, you know, kind of the way you guys are looking at things and your thoughts on that. Thank you.

Yep, you're welcome. Yeah, we're not tethered very much to Class A trucks, but I'll answer your question. Our commercial vehicle business is tethered to work trucks. So our biggest engine that we're on is a 7.3 liter diesel engine. At Cummins, we were tethered to the 7.2, the Ford Godzilla engine, GM's, Gens V. So we're primarily a participant in engine parts for work truck engines. But on Class A trucks, the big engines, Pacar, Volvo, Cummins also. You know, as the industry learned during COVID, you have to be clear to build the vehicle. And there's something like 100,000 parts that go into a Class A truck. And you have to have all of them. You can't just say, okay, I'm all right, except for I don't have a steering wheel or something. So you have to be clear to build. And the big trucks have a lot of parts. And so they're very sensitive to supply chain disruptions that are happening right now. And the people that buy the trucks, the Class A trucks, are primarily businesses. And they have to have a payback on the investment into the asset. And if the asset goes up in price, the fleets, or the majority buyers of Class A trucks, back off. Because it's a bad time to buy. So I think you have some supply and demand irregularity in the Class A world. We're not really participating in it. We're into the work truck. We're in delivery trucks, delivery vans, garbage trucks, Class 6 and 7, not Class 8. So our business isn't going to be impacted, Joe, but the Class A truck crowd, they have a different set of issues to deal with.

Okay, great. I'll get back into you. Thank you very much. Welcome.

The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Hi, good morning. Congratulations on all the progress. Thank you. Good morning. On your 20% long-term gross margin goal, what sort of has to happen to get there from this point?

Yep. Good question. Part of it is Tim's group of sevens, group of fives, soon to be group of four. So we have Tim's getting rid of his problem by consolidation if you're putting the math together. But no, I'm kidding. Part of it is what's next. Joe asked the question on kind of what's next to make that group of seven not dilutive. And it's getting our revenue up, and Tim's also sharing the overhead structures amongst the plants versus every plant has a dedicated staff to do procurement, scheduling, and all this. So he's implementing a shared overhead structure amongst common plants. Common either because they're close to each other or common because of the type of manufacturing they do. So it's either or or both. And in the case of French, which Tim alluded to on his page, the French plant isn't where we need it to be, but they've secured a very, very, very game-changing win. And it is already in development and ramping up. It will effectively sell out the plant. And that plant will actually go above average when they're fully onboarding that. Now, then you're down to one plant that's, one large plant that's dilutive, and it's Wellington, Ohio. And that plant, we're hoping to benefit from reshoring. We have a big pipeline going into that plant. We're pretty close to having nubbed out the cost structure to run the plant. It does make positive EBITDA, but it is dilutive, to your point. And so fixing the diluters is part of it. The other part is to onboard a creative business, and that's the whole intent of our new business award program is to onboard a creative business and leverage the installed cost structure, which Chris was referring to, which we did in Q4, and we did in the year of 24. So we have a five-year plan. The first year of it is kind of in the books, if you will. We tracked to what we wanted to do, and we're on track. And it requires a little bit of patience because we have to win this business and onboard it. And then we have, and that's France and other plants, and then the case of Wellington, it's a special case where we're a little bit more impatient with that plant. So how long, how many years will we wait for that to play out? Not many. So that one's kind of the one that's on Tim's radar screen right now to fix. Tim, would you like to add anything to that question?

No, I think you covered it all, Harold. You hit all the key points.

Thank you. Okay, great. Yeah, very comprehensive. Thank you. And then on the, kind of on some of the mitigation things you can do with tariffs and as reassuring comes, how much flexibility do you have to move business sort of between your, you know, from your international locations to the U.S. and maybe vice versa on kind of adjusting these tariffs or this business around to deal with the tariffs? Or is that a longer process?

Well, the biggest part of our company that's impacted by the tariffs is, it's a concern to understand is our automotive parts. It doesn't impact our power. It doesn't impact our medical. We don't have any of the issues, any cross-border issues. The automotive part is very, very slow because you have to go through a PPAP and product safety process. We're tied into steering and braking and those require the OE to go through. Any substitutions require the OE to go through crash tests. It's pretty significant cost for the vehicle makers to do it. They avoid it like a plague. So once you're kind of locked into a system, there's a high resistance to change. So in the short term, it's mainly people that are taking the initiative to move and reshort. The awards that we are ramping up right now that I referred to earlier, we won those in the fall by a proactive tier one maker of fuel systems for medium-duty sports cars. Excuse me, medium-volume sports cars. And they're going through the long-term cost of doing it. They just decided to simplify their supply chain because their customers were on US soil. So we really don't see a lot. You have direct and indirect impacts of the tariffs. So the direct impact, our direct impacts are minimal on our cost structure and minimal in terms of our pipeline. The indirect costs are what happens to the volumes at the OE if they're clear to build on vehicles or not. That can impact kind of everybody's volume. We won't be a problem for anyone. But if anyone's a problem, it causes the OE to have a problem with being clear to build on their building material. So we haven't heard anything yet. No one's really doing anything quickly right now. It's not a quick thing. And there's a lot of flip-flopping in the papers, including last night with the big three, where President Trump gave them another reprieve. And that's the majority of our exposure. So nothing major happening right now. Our direct hits are minimal, and it can only be minimal because of our supply chains. And then the indirect exposure we have is just industry-based, and that's also minimal right now as well. It'll probably change today, so I should probably date and timestamp my comment. But it's a really fluid topic,

Bob. Okay, great. Thanks for that answer. The last question, I guess, is on the power solutions business. You've eliminated some capacity there. How do you see the revenue trends and, I guess, the market demand in that segment?

Yep. So we expect to have an up year in power. The electrical grid business, you know, the reporters there, the people that speak clearly are Eaton and Honeywell and I-Tron, Group Schneider. The electrical grid demand is still strong with data centers, infrastructure investment. The whole AI data center thing is putting a lot of strain on the grid and the need to control the grid. And also the EVs, even though EVs are kind of plateauing, any EV, if a person on a street buys an EV, the transformer for that street has to be upgraded. And so the grid wasn't installed with these types of demands. So our business is still very strong. We're primarily grid edge, so we're into distribution. We're into circuit breaker panels. We're into meters. We're on the grid edge. And that business is strong and we've increased our capacity to make those products. And we have a decent amount of new wins in that business as well. So the outlook for power solutions this in 2025 is pretty strong.

Okay, thank you. I'll turn it over. Thank you.

The next question comes from Mike Crawford with B Riley. Please go ahead.

Thank you. Can you talk about your deliveries, like any metrics regarding on time deliveries now versus in the past and maybe how much time you have left? That's been attributable to some of the additional wins you've been securing.

Yeah, good morning, Mike. Tim, will

you take that one? Sure. We don't track on time and in full in the standard process, like quoting it as a percentage. But what I can tell you is we track past due backlogs and we have dropped our past due backlogs significantly. Not just in the group of seven, but across the board. So that's what has allowed us to get the green scorecards from the favorable ratings from all of our customers now. We've been able to move that forward. And past due backlogs would be an indication of an on time and in full or a delivery metric. We are in the process of implementing an on time and in full metric, but at this point, we don't track it in that format.

Have you seen a correlation between where you've reduced those past due backlogs and seen an increase in new order wins or is that more?

Yes, definitely. Definitely seen a correlation even in facilities that aren't in part of the group of seven. We've seen new business wins because when you don't have a green scorecard or a favorable rating from a customer, you're basically on what's called new business hold. And one of the contributing factors to our new business wins that we've been able to generate over the last little while has been the fact that we're off new business hold across the board. That we're able to generate new business wins with our existing customers as well as

new ones. I can help a little on the stats there, Mike. The 77% of our new wins have been with existing customers. And when Tim and I came in the door, we were on new business hold with almost all of our top 30 customers. And the majority of our wins have been with them. So I could go right down the list, you know, Cummins and I-Tron and Sensata, Denso, all the top tier one people we serve where we're on new business hold and came off new business hold and now secured wins with. So I think Tim at the highest level, the majority of our wins have come from customers where we were on new business hold.

Oh, exactly. And that's the point I was attempting to make is that by getting off new business hold, it opened the door for us to start winning again.

Okay, great. Thank you. And then just to shift direction, in your China, JV, I think the vast majority of what is made there goes to customers where they're in product stay. So we're seeing some of those products now being shipped to other markets that China customers are targeting, be it in Africa or Brazil or Europe. But is there a breakdown between what stays in China and what might be exported out of China, but not to the US?

Yep. So there's movement on that topic, Mike. The JV that we have with Weifu, which is about a $130 million revenue profitable JV, which makes components that go into hybrid and ICE vehicles, the largest in customer for the output of that JV is BYD, for instance. And to your point, BYD ships their systems and then does final assembly in many countries around the world. They're the big one doing that. GLE does a little bit of it in Europe, in Great Wall. But if you look at the top 10, China, OEs, a few of them are the guys that are driving the export market. And I would say your comment is true that our parts are ending up getting exported out of the country now. And as you know, there's rebalancing between Europe and China, leaving the US out of it. The European tier ones are seeing that their China operations are much more competitive than the European plants. So we see them shifting load to China to make braking systems, steering systems, these kind of things in China versus making them, for instance, in Germany. And so the loads on automotive part making in China are just going through the roof. We are at capacity in the JV. We are at capacity in our wholly owned foreign entity. And we're adding capacity in both areas. The costs are globally competitive. They're the lowest cost at what they do. So we see demand coming to both operations. They're very profitable for us as well.

Great. Thank you very much. You're welcome, Mike.

The next question comes from John Fransrob with Sudodian Company. Please go ahead.

Good morning, everyone. Thanks for taking the questions. I'd like to start with the new business wins. Are they being written at that 20% target or are they approaching that 20% threshold?

You're

talking the gross margins, John?

Yes, sir.

Yes, sir. They're being written above that. We have some floors and caps. And we also look at ROI at CapEx is required. We look at the actual cost. So if we have an open machine and we're quoting open capacity and the machine's already been expensed into other business and so is the overhead and all that, we just look at the variable costs that are associated with it. If we have to add a shift or add supervision, it varies that cost. And if we have to add equipment, it has to carry that cost. So we have three tiered pricing. Three tiered pricing. And in all cases, the bottom is 25%. And then on ROIs, it's also the bottom is 25% if spending is needed. Most of it is above that. And we price as much as we can get. We don't do cost-based pricing. We look at what we think the market will bear and then we look at our cost structure and see what their return will be. You know, the new wins that we got, we got 73 million of new wins last year, but we also walked away from about $340 million of quotes that we made and we primarily walked away from them because of their economics. And probably the biggest opportunity we had, it might be the biggest opportunity we had in the fourth quarter, we walked away from it because the ROI wasn't there. So we are cherry picking. And a big part, you know, that question was asked earlier too, a big part of getting our gross margins up is the contribution of the new business. And we'll report more clearly on it in the future, John. And I can't give you exact ratios because we haven't calculated it. Part of it is cost, Tim getting the cost down. And part of it is the new business that we're bringing in. Chris, what would you guess, half and half?

Yeah, roughly,

Harold, about half and half.

Yeah. That's good color, Harold. And just, I might have missed this. Regarding the timeline of the plant closings, have you kind of disclosed that? And are those facilities owned or leased? Will they be asset sales in the future?

Yeah, Tim, you want to take that?

Yes, we've got a leased facility in Juarez. We've stopped production. Production has ended in that facility, but we still have people prepping the building and packaging machinery for relocation. Duwajeeak is an owned facility that currently is listed for sale. It should cease operation in early Q2, is the current estimate.

Great.

Thank you, Tim. The other plant, John, that we mentioned we're going to close, we haven't said the name of the plant because the people in the plant don't know it. It's, as we reported earlier, that one's leased.

Yeah. Okay, got it. I guess one last question regarding the balance sheet. Any update on the timing of the refinancing of the term loan and any updated thoughts on the preferred?

Yes, Chris? Yeah, thanks, John. Yeah, we're in the middle of the refinance, as I mentioned. We're expecting to get it done in this first half of the year. We had quite a bit of interest once Harold and I rebooted everything. And so we got a lot of different options on the refinance, John. So we took a look at those options and narrowed it down and we're very pleased with where we're heading right now. Not a lot to report on the PREF yet, but it's on our radar screen and we'll take a look at that as part of the kind of the third step in our total cap structure refinance.

Rob, just curious.

We

pivoted, John, to China because the China receivables and China assets are pretty much disallowed to get full value for them with the U.S. domiciled work that we were doing on the debt. And so we turned our attention to extracting cash out of the balance sheet in China and having them get set up to do their own local banking and local financing first before we got after the PREFERED. So the two big things we're working on right now are the term loan overall for the company and then getting China on their own to do their own funding and just send money back to Chris. We're trying to turn it into an ATM machine.

Fair enough, Harold. Thanks for the cover. Good luck. You're welcome. Thank you.

This concludes our question and answer session. I would now like to turn the call back over to management for closing remarks.

Thank you, everyone, for the good questions. Appreciate it. You gave us some insight on how to report even better in the next time. And we look forward to reporting our progress after Q1. With that, thank you, operator.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.