NN, Inc.

and welcome to the NN Inc. First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. If 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 a touchstone 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 call over to Mr. Stephen Poe, Investor Relations.

Mr. Poe, the floor is yours, sir. 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 first quarter ended March 31, 2025, 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 mnbr at alpha-ir.com. Our presenters on the call this morning will be Harold Beavis, President and Chief Executive Officer, Chris Bonner, Senior Vice President and Chief Financial Officer, and Tim French, our 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 statements contained in today's press release, supplemental presentation, and in the risk factors section in the company's quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2025. 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, including the potential impacts and ramifications of tariffs, the impacts of pandemics and other public health crises, and military conflicts on the company's financial condition, among 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, which may cause actual results to be materially different from such forward-looking statements. The presentation also includes certain 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 and the supplemental presentation. Please turn to slide three, and I will now turn the call over to our CEO, Harold Beatus.

Harold Beatus Thanks, Stephen, and good morning, everyone. I'd like to address a few key points at the beginning of the update today, and the first point is regarding market demand tariffs and new business. Business uncertainty increased during the quarter and since we last reported, and that caused us to have lighter sales than planned in Q1 at a few customers, especially in global automotive, which is now about 40% of our sales. And quite a few public companies in our segments are reporting down sales and negative outlooks. We're reporting flat sequential sales and flat year-over-year sales on a pro forma basis. We were able to do that due to our success on the business program, which keeps delivering results, gaining share, and gaining new positions. But during the quarter, we did see our base business softening, and we shifted our business development focus onto closing and winning immediate ramp-up sales, and it's working well. We nicknamed it the PIGS program for Profitable Immediate Growth Strategy, and it was a focus – on immediate ramp-up business, and the complexion of 2025 already looks different. We now have 120 programs that we've won ramping up this year, worth $55 million in annualized sales, which is a steep increase since we last reported. And our biggest new win is in industrial products, where we will convert certain automotive production assets over to produce these new products. And this $55 million in new business is ramping up, during the remainder of 25, and it adds to whatever our base business will be. And at this point, we're assuming a flat base business market environment from our legacy customers with this additional layer of business. It bolsters our outlook, and it gives us confidence to reconfirm our guidance, which Chris will walk through. So this has turned out to be a speed bump, not a roadblock, and we're working through it and winning immediate business. And if our base markets improve, then it's all the better. We want to add additional to our outlook. The second point is on operations. Given the base business uncertainty, we decided to go ahead and increase the amount of cost reduction that we have underway for 2025. And our operations team is well underway with this, and we've already actioned many staff reductions during Q1. which will further bolster our profit rates in Q2, Q3, and Q4. And Tim French is going to cover that in a few minutes. We've progressively increased our cost-out plans and new product launch plans from 2023 to 2024 and now to 2025. And we're on track for this year's $15 million cost reduction plan, as well as the 120 ramp-up plans, which almost every plant is participating in. And it gives us confidence with the rest of the year and gives us a good carry-in for 2026 as well. Our third point is that the combination of our commercial performance and operational performance gives us confidence to update our 2025 guidance and five-year goals. And we are reiterating our full-year guidance for EBITDA and for new business awards, and we're initiating free cash flow guidance at $14 to $16 million. And in the first quarter, we cannot be aggressive with our cash management activities as we refinanced our ABL at the very beginning of the quarter, and we refinanced our term line at the very end of the quarter. So we kept our balances comfortable to fund all activities and go through bank transfers. This was temporary, and it's not the case going forward. And our fourth point is that our company transformation is on track. On the commercial side, a key point to remember is that we have a significant amount of open capacity globally. We're largely running one-shift operations everywhere in the world. And this enables a full blast new business program for existing products. We're set up to pursue a wide spectrum of additional business for legacy products. On the pivoting side, we're selectively adding new assets that are market-based for those products. And this balanced program of both leveraging existing capacity and know-how, as well as adding new capacity in certain areas is working well. And we've now won $160 million of new business, and we've kept our growth capex spending modest, and we continue to gain momentum in our new targeted areas, and we're going to cover that today as well. On the operational side, this one-shift plant situation gives us many opportunities for footprint optimization, and we're progressively squeezing the redundancy and excess costs from our global cost and working capital structures. We have a full program for 2025, but we also are opportunity-rich on a go-forward basis. I'd like to say that a key summary point is that we're optimistic about both 2025 and our long-term goals, and we look forward to discussing them with you. Please turn to page four, where CFO Chris Monert will cover some key performance metrics. Chris? Chris Monert Thank you, Harold. We added this slide to focus on some of our key metrics first. I'll get into our more detailed quarterly results later. First up is our net sales for the quarter. As Harold mentioned, we were flat on a pro forma basis and roughly flat sequentially from the fourth quarter. Our adjusted gross margins were 16.9 percent. We feel like we're on track to hit our five-year goal in the 19 to 20 percent range as we continue our cost-out programs and layer in new business in the coming quarters and years. Our adjusted operating income was actually positive at $2 million, which was an increase of $2.7 million quarter-on-quarter. Our adjusted EBITDA came in at $10.6 million, and as Harold mentioned, we're reconfirming our guidance in the range of $53 to $63 million for the full year of 2025. Adjusted EBITDA margins came in about 10 percent for the quarter, on track with our five-year goals in the 13 to 14 percent range. We also spend a lot of time working on working capital. Tim will cover this in more detail, but our working capital through the first quarter was $84.8 million. It's on track for our goals to be down $4.6 million year-on-year, and our working capital as a percent of our trailing 12-month sales is 19.1%, and that's down considerably, as Tim will talk about here shortly. New business wins came in at $16.4 million. We're again reconfirming our guidance there in the $60 to $70 million range for the full year. And we also obviously track cash capex and cash very closely. Cash capex for the first quarter was $3.9 million, and we're roughly going to target about $10 million for the full year, keeping it pretty stringent for the year. So those are just a few of our key metrics. I'll talk about the quarter in more detail. But with that, I'd like to turn it back over to Harold. Thank you. One of our key charts that we've been providing updates around is our transformation plan and our tracker. And our enterprise transformation is roughly 70 percent complete after our first seven quarters, and we're on track with our targets for the full year of 2025. Going down the list, we're about 90 percent complete with enhancing our leadership to mirror our new forward agenda. Secondly, we've been isolating and actioning against the underperforming parts of the company. These are customer-specific, program-specific, and plant-specific. This requires aggressive customer interactions, arriving at mutual agreements to either improve economics or professional transitions. We're about 70 percent complete with this. We nicknamed this the Group of Seven because it was concentrated into seven plants. And 2025 will be a turning point for those plants, and they will deliver positive margins for us. Margin expansion is a result of these fixes, but also leaning out of our cost structure globally. We call it our one-team program, and it's a multi-year endeavor with a strong 2025 game plan that's underway. And we're about 60% complete with that. But to make our turnaround a little bit more challenging, we inherited a debt structure that was nearing the end of its life expectancy. And we were able to extend the duration of our capital structure for another five years. And along the way, we learned that we had plenty of options to alter the complexion of our China operations. And we are underway with doing this. This will materially help our domestic debt profile. And the last point is regarding organically growing sales. You need to follow the comparatives here. As we sold the Lubbock business in July of 2024, and we began rationalizing money losing business in multiple plants in 2024. We call it price clearing. And if we could get the prices we needed to keep the business, we did. And this is largely done, and we're on a pro forma basis, as we've reported. And Chris will characterize, we were flat in the quarter. And conversely, on a go-forward basis, we have about $55 million in new business that's launching now, and we have likely another $100 million in 2026. So we believe we're at a turning point here. So we're calling this about 60% complete because it's yet to happen, although we have a tremendous amount of business in hand. Turning to page six, I would like to talk a little more deeply about our new business program due to the importance of it. and we wanted to be more transparent about exactly what we're doing. And we get a decent amount of questions about this, so we're sharing more specifically today. And here you can see our overall plan, our specific targets, and our specific status against those targets. And our targets are based on leveraging our significant open capacity, which is largely CapEx-free, when we quote it, as well as our most investment-intensive portfolio pivots. It's almost tautological that to increase our positions in new areas, we need something new. And for us, it's generally a few people and some specific investment. And we're doing this progressively. I wanted to point out a few key items for you. First, about half of our prospecting and half of our pipeline is into new areas. And if you add up some of the columns, you'll see that. It's almost exactly half. We're gaining steam in medical, and we're on the verge of a few large foundational wins. Medical, to get back into medical, we've had to do a lot of reapproval and reacquaintances and renewing our approved supplier status. And to the large extent, we're through that. And in this area, we are almost one for one needing additional machines as we gain business, which we are. And we've had a lot of wins in the industrial market this year, as another point. And they're largely immediate ramp-up. And, in fact, our largest win of the year is an industrial products win. There has been a global rebalance amongst our automotive business and our customers between ICE, EV, and hybrid. We read a lot about it in the U.S., but it is indeed global. And basically... the kind of rapid transitions that were underway have all slowed down globally. And it's more of a calm business development environment. And turning to page seven here, we wanted to share some summary facts and figures. And a key point to make is that we're progressively winning a higher amount of programs worth a higher amount of revenue, if you see the statistics here. We won 118 programs in 2023, 188 programs in 2024, and we're on pace to win over 200 programs this year. It's a steady increase in performance, and we're steadily adding people that have relationships that we don't have or product knowledge that we don't have, and we continue to open new doors with new and existing teammates. Another interesting point is that our new business prospects and activity have not slowed down with global uncertainty and the tariff wars, not at all. In fact, our activities increased, and we are now also getting a decent amount of tariff RFQs on top of our own prospecting. And some of the RFQs are quite large and would alter our game plans, and we're participating in those that fit us. And we're well along with multiple targeted RFQs that are at the contracting stage, so we look forward to continuing to report out on this. Our prospecting pipeline also continues to increase in size. We're not necessarily chasing that. It is a byproduct, though, of our activity, and it's now almost $750 million in well-balanced. This part of our game plan is working quite well, and we can foresee that our pipeline will continue to grow as we get better and better at this game. Please turn to page eight. And we wanted to give further insight into a couple new business win areas by sharing two vignettes with you. We get a decent amount of questions around medical, and so we wanted to share about medical, what we're doing. And we wanted to show exactly where our metal part making know-how is ending up in the medical market. A big area for us is in the extremities and instruments markets, which are metal-based. It's funny to say it, but you're obviously not going to find plastic parts going in for these activities. They have to be sterilized. They have to be rigid. They just have to work. And they're metal. And so it fits right into our metal-making know-how. Our number one product in the first quarter is the ratcheting handle used in shoulder surgery kits. And you can see the picture here. And if you look at the picture at the bottom of this page, you'll see that it's the same basic shape as a rack and pinion shaft. And hence the extrapolation of our know-how to make long, thin, high-tolerance parts is transferable to this market. It needs a slightly different machine, unfortunately. as it turns out, but it's a close cousin to what we already do and already know how to do. And it's easy for us to get into that game. And that's an example of our top metal part that we've made for the medical business. And we now have a $40 million pipeline, which is a peak pipeline since we reentered this business. And we're quite optimistic about the rest of the year here. On page nine, it's similar to our other plans. Our NN plant in France has been a one-shift operation with ample open capacity. And for those of you that follow France plants, it's also a short work week, so it's a lot of open capacity. And so we have been very actively prospecting for additional business, and we've had three recent wins there that financially correct this plant. And the wins are listed here. I'm not listing the customers, but we're now underway with three ramp-ups in that plant. which will financially turn the plant around, and it will become accretive for us on an EBITDA and a positive free cash flow basis. So that's just a couple examples to share with you, and we'll take your feedback on whether you want more of this or less of this as we go forward, but we wanted to share the direct impact of the new business and what it's doing for us. With that, I'd like to turn it over to Tim French, who's going to walk through our operational performance. Tim?