NNBR earnings call analysis

NASDAQ:NNBR Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Ladies and gentlemen, thank you for standing by, and welcome to NN Inc. first quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, press star followed by the number one on your telephone keypad. If you want to withdraw your question, press star followed by the number one. I will now hand today's call over to Joseph Caminiti, in investor relations. Please go ahead, sir.

Joseph Caminiti | Investor Relations

Thank you, Tamika. Good morning, everyone, and thanks for joining us. I'm Joe Caminiti 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, 2026, as well as a supplemental presentation, which has been posted to the investor relations section of our website. If anyone needs a copy of the press release or a supplemental presentation, you may contact Alpha IR Group at nnbr at alpha-ir.com. Joining us from NN Management today are Harold Beavis, President and Chief Executive Officer, Chris Bonner, Senior Vice President and Chief Financial Officer, while Tim French, our Senior Vice President and Chief Operating Officer, will be joining us for the question and answer session. Please turn to slide two where you'll find our forward-looking statements. and disclosure information. Before we begin, I'd like to take a note of the cautionary language regarding forward-looking statements contained in today's press release. Supplemental presentation and risk factors in the section of the company's annual report from 10Q for the fiscal first quarter ended March 31st, 2026. The same language applied to the 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, 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 impact and ramifications of tariffs, 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 the company's control, which may cause actual results in a material difference from such forward-looking statements. The presentation also includes certain non-GAAP measures as defined by SEC rules. A reconciliation of such non-GAAP measures is contained in the tables in the financial section, or I'm sorry, in the final section of the press release and the supplemental presentation. Please turn to slide four, and I will now turn the call over to our CEO, Harold Vivas. Harold?

Harold Beavis | President and Chief Executive Officer

Thank you, Joe. Joe, I just received a text that there's just music on the call. Can we do a check to make sure the lines are open? Can you help us with that?

Operator | Conference Operator

Yes, the lines are open.

Harold Beavis | President and Chief Executive Officer

Okay, I'll proceed here. Thank you. Thank you, Joe. Good morning, everyone. We had a good quarter, and we have a good outlook, and we look forward to giving you an update today and answering questions. We had a strong Q1, and... We're very thankful for it, and it was across net sales adjusted EBITDA and a few other areas. We're going to highlight a few of those today. The performance in the quarter was led by a very good mix, which was a main driver of our improved results. And of note, we achieved the highest trailing 12-month adjusted EBITDA that we have in five years. And additionally, with regards to future performance, we captured noteworthy wins and key markets of electric grid and data center, and we're going to touch on those in a minute also. The second point that we want to make is that our growth programs are delivering results. We have three main diversification programs that are in play. They're in electrical grid and data center, defense electronics, and the medical markets. We expect to see solid volume growth through 2026, and we are winning in data centers for AI cloud computing hardware. We're focused on increasing our content per data center. The third point that we want to mention is that our growth program is meeting up with our cost blueprint and generating good profits. We have a lower cost operating footprint today, and it's delivering results reflected in stronger profitability. Our margins, therefore, are turning to the high side of historical results, and you are witnessing the earnings potential of this company. Fourth point that we want to mention right up front here is that we're forecasting this performance to continue, and we're raising our 2026 guidance in a few spots. Our strong Q1 in the outlook and the visibility that we have for the remainder of the year is leading us to positively revise our full-year guide. We're revising our guidance ranges higher for net sales, adjusted EBITDA, and new business wins, which we previously announced on April 14th. We're building momentum from new launches and program ramp-ups, and we're quite excited about it. Our improved 26 outlook is pulling the timelines of attaining our long-term goals in as well. And specifically, we are accelerating our five-year model to be a four-year model. And that is something that we're going to touch on later on also. If we turn to slide five, I'd like to make a few more comments about the outlook and the guidance improvement. We did have a strong first quarter. We're going to cover that, and Chris is going to do a deep dive into some of the areas. We delivered on multiple company records, and we're building forward momentum that will carry us through the rest of the year and into 2027 as well. And the first point that we want to make is that our sales growth is broad. It is not one big program with one customer or even just a few customers. Instead, our sales are up with 22 of our top 30 customers. and improvements are widespread. We have 700 customers in total and the bottom beneath the top 30 customers were up with that group as well. And right now we're launching over 100 small and medium sized programs with many of those customers. And we're adding brand new customers also specifically in the data center arena. So our outlook for the rest of 26 is strong and it's multifaceted. The second point is that based on our full year outlooks and our forecasts and our actual momentum, we're going to be delivering record annual performance this year. We expect that strength to be across many of our key metrics. We expect to have a strong sales mix, growth in adjusted EBITDA, growth in adjusted EBITDA margins, growth in adjusted EPS, and new business wins growth. We're expanding our participation in the data center build-out that's underway, and we're actively prospecting and winning additional business. It's a nice turning point for our company, and we expect it to continue. Additionally, as a result of a strong 2026, we're moving the long-term goal timeline in from 2030 to 2019. The results that we are delivering are overcoming global automotive weakness and global commercial vehicle weakness and tariff turmoil. We're more than offsetting those dynamics, and we're successfully replacing these soft areas with new sales in electric grid data center, defense electronics, medical, and our industrial business. Turning to page six, we want to review the high-level metrics in the first quarter, and then Chris Bonnert, our CFO, will drill down a bit further into the numbers. First of all, our sales were up, both year-over-year and sequentially, about $12 to $13 million, or about 12%. I'll wait a minute for the slide to advance and catch up with me here. The growth was a solid mix, and it was in grid and data center, defense and electronics are delivering strong growth, as I mentioned. The sequential sales growth also led to a commensurate increase in working capital, which occurs seasonally in our business, and that did happen in the first quarter. Secondly, our adjusted operating income was up year over year and sequentially, and the results of our operational actions are shining through into our results. We have a leaner operating model today, and the large one-time costs that we incurred are washing behind us. Our adjusted EBITDA was also up year over year and sequentially. And as mentioned, this is being driven by a good sales mix, which we expect to continue, heavily concentrated in the power side of our business, and strong operating performance. Most of our plants are delivering results for us. We have just a few left that are at break even, slightly negative, but it's very widespread across many customers, all of our plants, and we're very thankful for that, that we're seeing the results of our hard work. On the new business wind side, we were up significantly year over year and sequentially. We had a big quarter in Q1 for us, and it was concentrated in electrical grid and the data center markets. On adjusted gross margin, again, we were up sequentially in year over year, and our margins were also up for the same reasons, good sales mix and good operating performance. So it was a solid quarter, obviously. It's reflective of the progress we've made across the portfolio with a good sales mix and strong operating performance. And as a result of this performance and our outlook, we're raising our outlook for both the full year and for the next few years. And we're going to get into a few more details after Chris speaks and reviews our company's first quarter more fully.

Chris Bonner | Senior Vice President and Chief Financial Officer

Chris? Thank you, Harold. Good morning, everyone. If you're following along in the presentation, I'll start on slide seven, which highlights our first quarter financial results. Net sales for the quarter were 118.5 million, an increase of 12.8 million, or 12.1% versus the prior year quarter. The revenue growth was driven by the impact of a positive shift in our sales mix, as Harold mentioned. Higher precious metals passed through in the quarter, along with favorable foreign exchange impacts. These positive impacts were partially offset by softness in our China automotive business. Outside of China, our global automotive business was up slightly. Adjusted operating income for the first quarter was 5.8 million, marking a strong increase of 3.8 million compared to 2 million, or 184% versus the prior year period. Adjusted EBITDA results for the quarter were 14.1 million, increasing 3.5 million compared to the 10.6 million we reported in the prior year period, an improvement of 33.7%. Our strong first quarter adjusted EBITDA results were driven by an improvement to our sales mix, the capture of operating efficiencies across our operations, and our successful cost-out programs we implemented the past couple years. As a result, adjusted EBITDA margins were 11.9%, an increase of 33%, compared to the 10% in the prior year quarter. Now I'll turn to our segment results, starting on slide 8. In our power solutions segment, where our business consists largely of stamped products, net sales for the quarter were $55.4 million, up 11.9 million, or 27%, compared to the 43.5 million we reported in the prior year period. The growth was driven by an improved sales mix from higher volumes in targeted growth areas, higher precious metals pass-through pricing, and favorable foreign exchange impacts. This top-line growth was partially offset by sales volume softness in certain stamped product lines. Our solutions adjusted EBITDA was $10.4 million, an increase of $4.1 million, or 65.1 percent, versus prior year's quarter of $6.3 million, driven by improved sales mix, a strengthening of profitability through ongoing cost-out initiatives. We do see a short lag as we pass through the impact of inflation to precious metals pricing, tariff impacts, and other surcharges, which temporarily pinch profitability. As a function of this improved adjusted EBITDA, we've seen stronger margin pull through, with quarterly adjusted EBITDA margins of 18.7% of net sales, up from 14.5% in the prior year period. Looking ahead, our new business momentum in this segment remains strong, with wins totaling $29.3 million in the first quarter, concentrated in key markets that Harold mentioned of electrical grid, data center, and defense, and electronics products. During the quarter, we announced that we had acquired additional plating equipment to advance our growth in electrical grid and data center markets. Consistent with our strategic growth efforts, we continue to invest our CapEx to support these growth opportunities. Now turning to slide nine, our mobile solution segment, which covers our machine products business. The net sales for the first quarter were $63.1 million compared to $62.2 million in last year's first quarter. an increase of 0.9 million or about 1.4%. Notably, this segment has now returned to year-over-year sales growth. While modest, our sales growth reflected solid volumes from new program launches and broader strength across North America, South America, Europe, and automotive markets, along with favorable foreign exchange impacts. This was partially offset by softer automotive volumes in China. Our first quarter adjusted EBITDA in the mobile solutions segment was $8.2 million, up slightly versus last year's first quarter, with adjusted EBITDA margins holding at 13%. The flat margin reflects the offset of profitability improvements in most regions against the impact of China automotive softness. On the new business front, we secured wins totaling $13.6 million. Notably, this included the liquid cooling connector components We are now in production and pursuing additional opportunities. With that, I'll turn the call back over to Harold. Harold?

Harold Beavis | President and Chief Executive Officer

Thank you, Chris. Let's turn to slide nine. Excuse me, slide 10. I'm seeing a lag in the slides turning here. I'll just wait a second. Our portfolio transformation is working. We wanted to report out to you on that. We've been asked questions about that, and we're executing on our strategy to intentionally reshape our portfolio towards higher growth and higher margin in markets. And our top three growth markets, as we've mentioned, and you know, are electric grid and data center, defense electronics and medical. Those specific in markets are collectively up 28% versus Q1 2025. And on a consolidated basis, our growth markets accounted for 35% in 2023. And now, constitute 54%, excuse me, the 56%, and automotive has shrank to 44%. So we're deliberately changing that mix, and we have forward goals to continue that progression. And as mentioned, our growth is broad-based and spread across multiple customers, products, and programs. It's not concentrated in any single program or with any single customer or platform. There are no big bets in what we're doing. intentionally, and we're happy to show you here that the portfolio is shifting as we are driving it to. Our auto strategy remains disciplined. Our goal in automotive markets is to maintain good volumes, not chase share or chase large volumes. And because of this, we're able to better absorb the automotive market weakness that's happening right now without disrupting our overall growth trajectory or our reported numbers. This mix shift is an important structural driver of our margin expansion, and the growth markets carry more accretive margins than our legacy mix, so that's helping us achieve our margin rates also. As these scale up, we expect to see continued pull through to gross margin and EBITDA. This will be a primary lever closing the gap to our long-term targets. Turning to slide 11, I wanted to point out a little bit more about each of the three areas that we're pursuing for diversification and for forward growth, and each has the potential to become a material business for our company. All three are internally funded and we have been allocating people and capital resources to each one of these. Each has dedicated assets, certifications, and pipelines well in excess of current revenue. We're going to go through just a few highlights and kind of a status update for you, starting with electric grid and data center. In this case, we are building on a large, profitable, end-to-end business. It's already over a $70 million segment for us on an LTM basis, and our near-term goal is to target this to be a $100 million business for us. We've added assets, products, and people, and As we previously reported, we added liquid cooling connectors in the first quarter with a new product line and new customers for us. The data center part of this endeavor for us is fast-paced, and it's collaborative. As you know from following this industry, all of us know from following public markets globally, there's a big, big backlog of equipment here, infrastructure built out, And the industry, the supply industry, of which we're a part of, is underway with trying to get caught up. And the bottom line for this segment for us is that the growth from new and existing customers is higher than we expected and faster than we expected. And it's continuing. We're attempting to increase our content per rack and content per data center with multiple endeavors that we're underway with. So that one is a plus-plus situation. in terms of performance for us, and the margins are quite good. Next is Defense Electronics. We're also adding to a large profitable business in this area. The business is already over $50 million on a trailing 12-month basis. We're also adding assets and certifications here. We're internally funding this as well. In this case, we've been working with a marquee OEM in the United States to expand into a new product area. as a Tier 1 manufacturer of weapons components. And it's been going quite well. We've had to add new specialized equipment in this case. It required new equipment because the parts are quite large compared to the parts we've made in our past. But I will say that the bottom line here is the growth has been faster and bigger than we expected also, and our momentum continues to build. The third area is medical. Medical, we restarted that in the fall of 2023. In this case, it was a small, unprofitable business, and we implemented both an operational turnaround plan as well as a forward growth plan. Similar to the defense electronics segment, we've been working for two years with a marquee OEM, a global maker of robotic surgical equipment, and that program is beginning to show results for us also in terms of products going into production. Bottom line for this area is that it's been slower than we expected relative to the two other diversification endeavors, but momentum is now increasing. So we're carrying forward with each of these. And in each case, we have a prospecting list and we have new products envisioned as well as new equipment and new certifications. So they're kicking in now. The biggest and fastest one, obviously, is data center, and if you turn the page to page 12, we're getting a lot of questions about what are we doing, what are we not doing, how big is it, how big is the market, that sort of a thing. So we wanted to report out to you. It is our number two overall market right now. Our internal plan is for it to become our number one market. Currently, right now, the global automotive business is larger than this. sell multiple components into this arena, transformer components, electrical disconnects, circuit breaker components, smart meter components, liquid cooling components. As I mentioned, it's already a big accretive business for us, and our near-term goal is to get it to $100 million. The liquid cooling connector business that we launched in the first quarter was really a neat product for us. If you follow this area, it's a big deal. It's a big deal in the industry if you go to a trade show. A whole bunch of the trade shows tie to cooling if you go to a data center trade show. And it's growing fast. It's also called quick disconnect couplings. It's also called fluid connectors. But the bottom line is it's the stainless steel connectors through which the coolant flows to the cold plates and through the cooling system inside of the data center racks so that the chips don't get overheated and conform at spec. Market sizes, there's a big range here, if you Google this or research it, because the numbers that preexisted the last 18 months are getting blown up as this whole area has really gotten big fast. But the market size estimates for what we're participating in range from 1.5 billion to 6 billion and growing quickly. When I say quickly, some of the growth rates are at 40% per annum, so large growth rates. The bellwether reporter here is NVIDIA. If you follow what they say, they say they have a five-year backlog. We're seeing big backlog situations also. We're seeing backlogs that go out through the rest of this decade, and we're participating in those. And we're leveraging our fluid management trade secrets. For a long time, we've understood how to control fuels, atomized fuels inside of engines. It's a no-leak situation as well. And we're adding to our existing portfolio of machines to make these types of small, precise components. The specs that are prevalent in the data centers equate to about one drop of water that can leak every 10 years. And that may sound severe, but actually we're at a better level than that because in the engine environment with fuel, the leakage is measured atomically and molecularly as it can be explosive and damaging. So this is right in our sweet spot. And we previously mentioned that while we had over 100 machines that could make these kind of products already, we added another 17 and ordered them and have received about half of them. And we're coupling them with our in-house trade secrets around turning, treating, electroplating, abrasive flow machining, and manufacturing and testing. So big deal here is you can't have burrs, and there's a lot of deburring required. And then they have to be aesthetically pleasing with a mirror-like finish, which leads to electroplating. We believe there's a lot of upside in this area. We have a multi-product view of it. Our goal is to add content per rack And we're working on that on a bill for basis. So that was just a little bit more on the data center If you turn the page to our in market outlooks We do participate in several in markets as you know, we have two main types of production platforms one turning and machining and one stamping welding and plating and We serve multiple end markets with those common engineering and manufacturing platforms. I covered grid. It's a strong market. It's growing. It's backlogged several years. So generally speaking, we're getting into situations that are immediate ramp up in this arena. We expect it to continue like that through the rest of this year. Second, defense electronics, we mainly serve it in North America, United States specifically. Spending is at record levels under the current president administration and on a four basis. We also expect that to continue through the rest of this year. And third is medical, where we're really focused in on equipment versus implants. And that is a steady and growing market. And we're expecting to achieve more new wins as the year progresses. It's still a small business for us, but I will say that Tim French and team have corrected the profit problem, and we are making money in the medical business already. Automotive in China. So automotive in China has been growing quickly for us over the last couple years. If you follow that market year to date in 26, the China market's down, and it's predicted to be down going through the rest of the year. So we expect to stay at a similar rate that we're at through the rest of 26. The indigenous market's down more than the export market, but we're right there in the middle of it with a big plant in the suburbs of Shanghai, and we serve Chinese car makers, and the business is soft. So we've been able to overcome that soft business, and that's a good mix for us. We make good money in China, but we've been able to offset the market softness there. Commercial vehicle... That covers trucks, agricultural equipment, construction equipment. Each of those markets has a different outlook by geography. We're mainly attached... The common denominator for us is that we're attached to large diesel engines. The market's been down slightly globally, and it's a combination of being down in North America but up in China. And so we've been... had two situations, one in China being up, one in North America being down. The bellwether reporter there, in this case, would be Cummins. They're a big merchant manufacturer of engines, big diesel engines. And also now with generators for data centers. And we're expecting to see growth in the second half. Industrial, we're mainly tied into the industrial market in the United States. GDP is up about 2% year to date. That's kind of the outlook. We expect to see modest growth through the rest of the year, and then global auto, which I mentioned, which is slightly down due to affordability, ICE, the EV reset rates, and then China exports. Global data came out yesterday with a global automotive update, and they're predicting that the global market will be down about 2% this year. Due to the programs we're on, we'll just do a little bit better than that, but we're expecting a lot to go through the rest of 26th. So that was just a market update for you. Overall, our markets are better than last year's, kind of a takeaway that I'd like you to have here. If we turn to page 14, I'd like to have Chris take us through a little bit on our long-term goals.

Chris Bonner | Senior Vice President and Chief Financial Officer

Thank you, Harold. Please turn to slide 14 if you're continuing to follow along. So given our market expected growth rates and the pace at which our targeted growth programs and cost initiatives have been delivering our results, we're going to pull in the timing of our long-term financial goals by one year. We've previously communicated these goals to you. So with these changes in our markets and business, we're going to pull them forward from 2030 to 2029. The net sales and EBITDA, targets are not changing. So the net sales of approximately $600 million at a 20% adjusted gross margin rate and adjusted EBITDA at about $80 million at a 13% margin are going to be consistent with what we've previously reported. So relative to our full year 2025 results, this reflects more than a 40% growth in net sales and more than 60% growth in adjusted EBITDA, with adjusted gross margins expanding from around 18.5% in 2025 to our target of 20%. As previously communicated, we're targeting about 13% to 14% adjusted EBITDA margins, demonstrating meaningful growth from where we're at today at about 11.6% through 2025. So in slide 15, it provides additional context on our business performance through our transformation actions and the trajectory of underpinning our targets. This chart represents our adjusted EBITDA performance from 2020 through through the midpoint of our 2026 updated guidance, excluding the contribution from the divested Lubbock business for comparability. Notably, ahead of the launch of our transformation, our results reached a trough in mid-2023 at approximately 35 million on an LTM basis, with the adjusted EBITDA margins having fallen to 7.4 percent. From the launch of our transformation plan at that point, Adjust EBITDA has increased approximately 61% to the midpoint of our 2026 guidance of $57 million, with margins expanding significantly to 12.4%. This success in the first years of our transformation has been led by operational performance as we simultaneously work to reestablish our sales pipeline and reshape our portfolio mix, as we discussed in the past. Our three main growth programs in electric grid, data center, defense and electronics, and medical are now contributing, and we expect to drive further improved results. Lastly, on slide 16, which shows our end-market outlook for 2026 as it stands today, given our first quarter results and the expected forecast we have for the remainder of the year, we're revising our guidance ranges slightly higher. For the full year of 26, we're now guiding net sales in the range of $450 to $470 million, reflecting approximately 9% growth at the midpoint compared to the prior year, and adjusted EBITDA in the range of $52 million to $62 million, reflecting approximately 16% growth at the midpoint. Importantly, this revised guidance is supported by our current market outlooks, the expected contributions from our new business from prior wins, and the operating leverage we expect to capture as our volumes grow across the year. With that, I'll now turn the call back over to the operator for questions from our analysts. Operator?

Operator | Conference Operator

At this time, if you'd like to ask a question, press star followed by the number 1 on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star followed by the number 1. We do ask that you ask one question in a follow-up. And if you do have further questions, you may re-enter the queue. Your first question is from the line of Rob Brown with Lake Street Capital Markets.

Rob Brown | Analyst, Lake Street Capital Markets

Hi, good morning. Congratulations on all the progress.

Harold Beavis | President and Chief Executive Officer

Thank you.

Good morning. Rob Brown | Analyst, Lake Street Capital Markets

Just following up on your data center activity and wins there, you know, to get to the $100 million goal, what's sort of the steps that you need to take? It seems like you're well on the way there. Is it expanding penetration in the liquid cooling market, or are there other products that you can go after to get there?

Harold Beavis | President and Chief Executive Officer

Yeah, we have several. We have multiple items there, Rob. We have two new products we're coming out with in Busbar and Power Whips. We also are growing with the current content that we have there, which is tied into transformer components as well as these connector components. So we're not overly counting on one product line, but we're hitting the the market more broadly now and have organized to do that. So we're not making any predictions yet, but I will say that we have a great product line going into these data centers. And we're trying to get our content up. We're not falling in love with any particular product. We're selling a product basket.

Rob Brown | Analyst, Lake Street Capital Markets

Okay, great. And then in the capacity to expand there, I know you mentioned additional machines that you're deploying, but how much capacity do you have in the power solutions segment that you can kind of grow into here before you really need to add much capacity?

Harold Beavis | President and Chief Executive Officer

Yeah, Tim, you want to take that?

Tim French | Senior Vice President and Chief Operating Officer

Sure. In power solutions specifically, we have significant capacity available for we aren't running 24-7 in the primary facilities. So we're able to adapt and assimilate new business fairly quickly. It requires basically just the creation of the tool, and then we're good to go from there. So lots of available capacity. So ramp-ups can be extremely quickly in the power side.

Rob Brown | Analyst, Lake Street Capital Markets

Okay, excellent. Thank you.

I'll turn it over. Harold Beavis | President and Chief Executive Officer

Thank you, Rob. Thank you, Rob.

Operator | Conference Operator

Your next question is from the line of Joe Gomes with Noble Capital Markets.

Joe Gomes | Analyst, Noble Capital Markets

Good morning. Thanks for taking my questions. You bet, Joe. So you mentioned, you know, a couple of factors that were behind the sales growth for the quarter, including, you know, precious metals pass-throughs and favorable effects and product mix. I was wondering, could you kind of break those out as to what each contributed to that 12% sales growth?

Harold Beavis | President and Chief Executive Officer

Well, we actually, it's harder to answer than that, Joe, because we're up with 22 of our 30 top customers and they cover basically all the markets we're in. And we're just down and we're flat with three others. We're just down in a couple areas. And it's been a consequence of the new programs that we've won and that we're launching. Chris touched on that, that we have all these new programs that we've won with new and existing customers and that it's helping propel us. Precious metals were flat sequentially, but up year over year, we're expecting precious metal pricing for the rest of the year to be flat to where it is now. So it will not, quote, contribute anything further beyond this second quarter because the current levels are flat to the second half, if you look at the second half of last year when things began to come up. So getting a temporary boost for sure from precious metals and volume growth with customers in most of the markets we're in.

Joe Gomes | Analyst, Noble Capital Markets

Okay, thanks, Zach. And then just to follow up on the data centers, when you talk about increasing content per rack, what are we talking about here? I don't know if you can kind of either give a dollar figure or, you know, percentage type of increase, you know, or yet, you know, whatever the number is, what you're selling into the rack for today and you double the amount of content you're selling into that rack, triple that amount of content and, Just a little more color there just to see what the potential growth is just by increasing the wallet share, so to speak, per rack.

Harold Beavis | President and Chief Executive Officer

Yeah, that's a similar question to what Rob asked. You know, roughly speaking, our trailing 12 months is a little over 70 million, and we're trying to get to 100, and our pipeline is multiples of that number. It's hard to tell which... new programs you'll get a hit on um but you know we're we're planning on our same hit rate and i believe that we have the pipeline that we need to get to 100. um so we really we're really trying to understand you know the tam is so big here joe i mean we're talking billions of dollars of tam and and we have a 70 million dollar business so We really can't blame anything on what's happening in the market. It's based on our own actions. We're coordinating our efforts to grow. When we get specific numbers, it's hard to even tell how many racks are in development right now with the amount of announcements that are underway. We can't really answer that with good accuracy right now, but we are going to be getting as smarter on it and reporting more in the future on the per rack content. When I say per rack, so when we're calling on a customer that's building out racks, we're trying to get more content during that sales call. And we have multiple products that we can bring to it. And so we're coordinating between what we call power mobile to call on these customers to sell a bigger portfolio of products.

Joe Gomes | Analyst, Noble Capital Markets

Okay, great. Thanks for that, Harold. I'll get back in queue.

Harold Beavis | President and Chief Executive Officer

Thank you, Joe.

Operator | Conference Operator

Your next question is from the line of John Fringerapp with Sidoti & Company.

John Fringerapp | Analyst, Sidoti & Company

Good morning, everyone, and thanks for taking the questions. I guess I'd like to drill down a little bit on some of your newer growth initiatives. Can you talk a little bit about what's going on in medical? You kind of illustrated or suggested that it's a little bit behind plan. And also the new program, I'm also interested in the wireless program you initiated on last year. How's that standing?

Harold Beavis | President and Chief Executive Officer

Yeah, so medical pipeline is fine. The development is fine. We've had to conquer more plant certifications than we expected at the beginning of our endeavors, but we've now done that, and we expect to report positively in the medical arena this year. But coming into today's call, it was not a source of our sales increase, so it hasn't showed up yet in terms of an actual item. But we're not backing off of it. We have a dedicated team. We hired people. We added equipment. We got underway with these certifications. And we're calling on customers and adding to the portfolio. So just in terms of the three of them, John, it's behind. But overall, what we expected from the three in total is ahead by a lot. It was just really hard to tell where you're going to get the hits. It is playing out nicely, though, for us overall. And on wireless, what specifically are you interested in there, John?

John Fringerapp | Analyst, Sidoti & Company

the wire harness business that you started.

Harold Beavis | President and Chief Executive Officer

Yeah, so we put together the team. We've hired a team. Tim and I are in the final stages of equipment selection. There's a wire harness show. Tim, is it next week coming up here? It's today. Today, thank you. So we're making specific equipment selections and have a team there. And we expect to report on that during this year that we've launched that program, John.

John Fringerapp | Analyst, Sidoti & Company

Got it. And just not on the precious metals cost escalation, how are you dealing with regular metals, steel, aluminum, copper? All of them have gone up sizably in the first quarter. Do you have surcharges, escalators? How are you working with that with your customers?

Harold Beavis | President and Chief Executive Officer

Yes, you're correct. We're experiencing metal escalation, and we have the right to pass it through. We have to show POs that we've incurred the inflation before we can increase our prices for the pass-through. We still have metal tariffs. on copper from Germany and that sort of a thing. So we also have tariff charges to pass through as well. So we get a slight lag, a slight lag, but we don't have to wait to the end of a month or a quarter. I mean, once it happens, we go in and we present proof. So we've been able to keep up with it because generally speaking, we have raw material on hand at, quote, the old price. So the game plan is procuring which has a lead time, you have a time period there where you have an adjustment negotiation that you go through and prove it. So we've had to adjust our prices, and it's taken active work by our customer service teams. But knock on wood, we haven't had any material compression at all from that, John.

John Fringerapp | Analyst, Sidoti & Company

Good to hear. I'll get back into you. Thank you, Eric.

Harold Beavis | President and Chief Executive Officer

Thank you.

Operator | Conference Operator

Your next question is from the line of Mike Crawford, Ruby Riley.

Remy Johnson | Analyst, Ruby Riley

Hey, this is Remy Johnson on for Mike. And just wanted to zero in on the new business wins guidance for 2026. It was nice to see the 42.9 million in new business for the quarter. But how should we think about the cadence of wins as the year goes on? and what that split looks like between power solutions and mobile solutions.

Thanks. Harold Beavis | President and Chief Executive Officer

Yeah, thank you. Our pipeline overall covers each of the areas that we have pretty uniformly. The hit rates are similar. We have goals that we set that for our sales team and our business development team that obviously exceed our guidance. We're aiming higher than what we're committing to here. So we're shooting for higher numbers. And the goal is skewed towards our growth areas of medical, defense and electronics, and a grid and data center. So the pipeline is reflective of what we're trying to do. In the case of automotive, You know, the outlooks for automotive are interesting. The unit volumes are supposed to be down a couple percent, but it doesn't mean that the industry's stressed because the affordability is so high on new cars that wealthy people are the ones buying the new cars and they're still wealthy. So the industry is viewed as being healthy even though unit volume is down somewhat. And so we're not getting the normal pressure like when you're in a real problem, a recession or something, to reduce our prices on new business or anything. So we're on the watch out for that because that sometimes happens. But I will say that we are letting quotes go as they get our margin bottom lines. And that's going to continue to happen. It happens the most in automotive, that's for sure. And so it's going to be driven by margins and our opportunity set. But right now, we see a good cadence to get to the new guidance that we've given.

Remy Johnson | Analyst, Ruby Riley

Nice. Thanks for the color on that. And then just taking a look at 2029, where the new long-term goal settles, if you don't mind sharing, I guess, what could the split look like between the growth and markets and the auto market? end market, and where could we see the auto segment fall out in 2028, 2029 area?

Harold Beavis | President and Chief Executive Officer

Yep. We're trying to get automotive to be 30% or less over time, but we could do it abruptly and harm ourselves, you know, financially speaking, because it takes active work to be flat in automotive because you have end of lives that come upon you, and then you need to either be aggressive about the next generation win for that same platform, or pursue a different type of business. So to stay flat in automotive, it's hard work. And if we get to the point where we're outperforming in the other areas, we can start to price clear ourselves on the next generation programs. And so it goes EOP and it's EOP, and the sales are gone. But for the minute, it's... It's sizable for the company. And so we're working hard to keep the business we want. In the last trailing two years, you know, we've gotten rid of a bunch of diluted business. So that's largely behind us. So on a go-forward basis, it's really about competing in areas that are profitable for us. So overall, you know, if we could dial it in and everything was perfect, it would be around 30%.

Remy Johnson | Analyst, Ruby Riley

Thank you. I'll get back in the queue.

Thank you. Operator | Conference Operator

We have a follow-up from the line of Joe Gomes with Noble Capital Markets.

Joe Gomes | Analyst, Noble Capital Markets

Hey, Harold. You didn't really talk anything this morning on, you know, the strategic option program. Maybe you want to give us just a little update of, you know, what's been going on there behind the scenes and, you know, when you think we might start to hear some information coming out about that.

Harold Beavis | President and Chief Executive Officer

Yep. So we do have an ongoing process. Still evaluating our alternatives for financing or otherwise. There's nothing material to report there or meaningful, so we don't really have an update. I will say, though, Joe, that I do have an update on the CARES Act proceeds. And we did receive that money, so we have that in the house. that that's helped with our liquidity and that that also was a driver of looking at our options because we were having a tough time with liquidity with the growth vector that we're on and that's helping us a lot so I'd say there's the pressure is less and we're being calculated the board is being calculated with its actions there, and we have nothing major to report at this time.

Joe Gomes | Analyst, Noble Capital Markets

Okay, great. Thanks for that, Harold.

Harold Beavis | President and Chief Executive Officer

Thank you.

Operator | Conference Operator

You have a follow-up from John Friendship with Sidoti & Company.

John Fringerapp | Analyst, Sidoti & Company

Yeah, I was looking at the slide in Power, and it seems like you were looking for new wins in certain markets that may not have materialized. Can you just talk about that? What are the new program wins that you need that you referenced?

Harold Beavis | President and Chief Executive Officer

Yeah, in power, we're trying prospecting to get more straight-up grid business. That's one area. We've outperformed on the data center side of that. On the grid side, residential starts are down in the U.S., the EV craze has subsided and the I'll call the residential strain that was driving a lot of grid thinking has lessened and on the other side the industrial side of the grid which ties into large equipment and large infrastructure investments is outperforming so historically our grid portfolio was tethered to residential grid. And we are pursuing new wins in those areas. And so that's one of the areas that we want. And then in terms of a product category, bus bars are an area that we've been focusing on growing in. And that's tied into the plating equipment acquisition that we previously announced. We couldn't do the big part We couldn't plate the big parts. Most of them were silver plated. And the acquisition of that equipment from a customer who was also a very large electrical grid customer headquartered out of Europe is a big advancement for us. So we'll be able to, instead of no quoting business, we'll be able to quote the full bill of material and be a more holistic supplier in there. We have fixes under way. And, you know, we're always looking at our hit rates there, John, and looking for pattern recognition for what we need to do next to get our hit rates up. So there are areas that we know about and that we're focused on fixing.

John Fringerapp | Analyst, Sidoti & Company

Got it. Got it. And just on the refinancing of the preferred retirement or whatever you decide to do with it, I mean, it's been a multiyear process at this point. Can you just give us some color as to why it's taken so long besides the turnover at the investment bank?

Harold Beavis | President and Chief Executive Officer

Yeah, that's true. We're actively looking at our alternatives there. It's not on the back burner. It's on the front burner. It's helpful to have better operating performance because it's You have better credit statistics when you look at the secure debt part of that as well. We're in possession of our outlook for the year and you are too now. You see that we're planning on having a nice year and the cash value of the EVDA is going to be a lot higher because we're not doing plant closures and laying off people. The last two years we in the last few years, we've closed four plants and laid off 800 people and that had a cost to it so that the cash value of our performance was lower and going forward, that's behind us. So, you know, our adjusted EBITDA is a cash value and therefore it's leverageable. And so it can be, we'll have better cash flow, John, to do refinancing with going forward than we have in the past. So it's, It's becoming a better situation in terms of a refinance story.

John Fringerapp | Analyst, Sidoti & Company

Got it. Thank you, Harold.

I appreciate the call. Harold Beavis | President and Chief Executive Officer

Thank you, John.

Operator | Conference Operator

Your next question is from the line of Robert Sussman with Bentley Capital Management.

Robert Sussman | Analyst, Bentley Capital Management

Thank you. Two questions. Number one, in your outlook for margins, your goal is to go from 18 and a half to 20. However, everything that you said indicates you're pruning low margin businesses. Maybe, you know, you have another plant or two to close, and the new business is theoretically at a much higher margin. Why is your goal only 1.5% improvement from 25 to 29?

Yeah. Harold Beavis | President and Chief Executive Officer

It's a good question. And a good catch, we are being conservative, to your point. We're not ready to change our guidance yet on that topic. And the same, your comment also is the same, if you do the same comparison on the EBITDA margin, Robert, the same question. We're looking at both of those for revising external commitments. We're closing in on them. You're correct. They look conservative going forward. You're correct. We're aware of that. You know, we were thinking through how to improve our multi-year guidance. And instead of changing the margin percent goals, we decided to change the time period to achieve them. But that would be what's next, Robert. And I will say that that's top of mind for us, and we're looking at it.

Robert Sussman | Analyst, Bentley Capital Management

On a follow-up, are there still plans or businesses to exit that are marginally profitable or not making an adequate return for you?

Harold Beavis | President and Chief Executive Officer

Yes. Tim, you want to answer that?

Tim French | Senior Vice President and Chief Operating Officer

Sure. At this point, we have nothing scheduled for closure. We've been able to mitigate the impact of what we formally refer to as the Group of Seven and they're all performing in a decent fashion right now. So at this point, there's nothing scheduled for closure.

Harold Beavis | President and Chief Executive Officer

And I'll add, Robert, that we obviously have some plants, if you force rank them, are at the bottom, you know. But when you look at consolidation and the one-time cost to do it and the IRR of doing the project and the disruption of doing the project, We don't have any, to Tim's point, we don't have any that check those boxes right now. We have better use of our capital than closing plants.

Robert Sussman | Analyst, Bentley Capital Management

Exactly. Okay, last question for me. How are you paying for the plating acquisition, and is it going to be a meaningful add to your revenues, or is it relatively small?

Harold Beavis | President and Chief Executive Officer

It's It's medium-sized, but it's in our thinking and guidance for the year. The equipment is kind of expensive. The installation is kind of expensive. It has a lot of chemicals and require proper chemical handling. But it was in our base plan for this year to do a product expansion in that area. so that we could more fully participate in bus bar prospecting. And it'll come online in, when, Tim? The fourth quarter, maybe? Towards the end of the year, Robert. Yeah, towards the end of the year.

Robert Sussman | Analyst, Bentley Capital Management

Okay, keep up the great work. Thank you very much. Thank you, Robert.

Operator | Conference Operator

I will now hand today's call back over to Harold Beavis for any closing remarks.

Harold Beavis | President and Chief Executive Officer

Thank you, everyone, for staying on the call with us and for the good questions. We're very happy about this quarter. We obviously expect it to continue with our guidance improvement, and we look forward to reporting out to you on our initiatives in the next call. And with that, Operator Tamika will end the call today.

Operator | Conference Operator

This concludes today's call. Thank you for joining. You may now disconnect your lines. jsPDF 3.0.3 D:20260606090302-00'00'

NASDAQ:NNBR Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Chloe | Conference Operator: Good day and welcome to the NN Inc. Fourth Quarter 2025 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 a touch-tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Joseph Caminiti, Investor Relations.

Please go ahead. Joseph Caminiti | Investor Relations

Thank you, Chloe. Good morning, everyone, and thanks for joining us. I'm Joseph Caminiti 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 fourth quarter and full year ended December 31st, 2025, as well as a supplemental presentation, which has been posted to the Investor Relations section of our website. If anyone needs a copy of the press release and or the supplemental presentation, you may contact Alpha IR Group at nnbr at alpha-ir.com. Joining us today from NN's management team are 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 like for you to take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation, and the risk factor section in the company's annual report in Form 10-K for the fiscal year ended December 31st, 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, tax rates, acquisitions and divestitures, synergies, cash and cost savings, future operating results, performance of worldwide markets, general economic conditions and economic conditions in the industrial sector, including the potential impacts and ramifications of tariffs, impacts of pandemics, and other public health crises and or 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 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. A reconciliation of such non-GAAP measures is contained in the tables in the financial section of the press release and the supplemental presentation. Please turn to slide four, and I'll turn the call over to CEO, Harold Beavis.

Harold Beavis | President and Chief Executive Officer

Thank you, Joe, and good morning, everyone. Thanks for spending a few minutes with us as we give you an update on the business and the state of the transformation in 2026. On slide four, I'll begin with spending some time discussing the highlights of the fourth quarter. And, Joe, can you advance to slide four? It looks like the Webcast is slow. Thank you. 2025 marked NN's third consecutive year of improved results, and we were able to increase adjusted EBITDA results toward recent company highs, and our adjusted operating income grew meaningfully, showing a significant improvement versus 2024. And we were able to fund a large vintage year of growth programs with our free cash flow. And importantly, we completed the majority of the heavy spending portion of our transformation plan, which saw us close and consolidate four plants and right-size about 800 people. Second point is we're well underway in showing success and strategically evolving our business portfolio. We are intentionally shifting our sales profile towards higher value in markets and higher value capabilities. and intentionally shifting away from low-value commodity automotive part-making and certain markets in the automotive arena. We are fixing and or exiting the unprofitable plants that we inherited and business strips, and we're replacing this business with new winds and desirable areas. Our new business winds program continues to perform well, and we continue to focus it away from commodity auto part business. We have now won more than $200 million worth of new business since the launch of this transformation plan in mid-2023. And ahead of us this year are record levels of program launches. And on top of that, we have a pipeline now that stands at over $800 million of high-quality prospects. One fun point that I wanted to point out is that we recently achieved our first new business win in the data center market. It is now a key target market for NN and we fit nicely into it. We are making the high precision watertight couplings that go into water cooled computing equipment. In 2026, we're already migrating a bigger portion of our cash flow used towards investment in new business since the majority of our cost restructuring has been completed. And now we're in a better position to fund growth-related CapEx. And in 26 versus 25, we're roughly doubling the amount of capital spending that we're putting into the business for growth purposes. And that ability to fund comes from a higher level of EBITDA as well as completion of projects. 2026 is going to be a year where NN returns to net sales growth, and it's happening right now in the first quarter. This is going to be an important pivotal year year in our transformation, and our 2026 forecast calls for NN to focus on top-line growth going forward. One caveat that I want to point out, and Joe touched on it, and it's in our risk factors in our 10K also, is that volatility remains high in our markets. We are a supply chain participant in a lot of global supply chain decisions, and there's a lot of influences by tariffs precious metals pricing, and ongoing geopolitical unrest. The volatility has increased a little bit here with the Middle East happenings, but except for that, we have the same type of risk factors this year as we had last year. Turning to slide five in the deck, I wanted to give a little more details on Q4 and the full year 2025 metrics. Our fourth quarter came in at 104.7 and our full year at 422.2 million. This is a little lighter than we had hoped. Some of our main end customers reduced their inventory positions towards the end of the year and are now getting caught up in the first quarter. And we're feeling it. And Tim and Chris and I haven't seen a good, healthy backlog of shippable business since we've been here. And we're happy to say that we do have backlogs here in the first quarter because people are getting caught up with some of their end-of-the-year decisions to reduce their inventories, and we're having a good quarter. But a takeaway on our sales is that we were able to rationalize some commodity no-profit automotive parts And we've largely done that with these plant closings and exits. And we're happy to say that that's largely behind us. Our adjusted operating income also has been nicely improving. You know, adjusted EBIT, which is what we are focused on as well. And the fourth quarter was 3.3 million and we had 14.2 million for the full year. Those results are roughly three times the prior year. And we foresee and forecast a nice improvement this year again. And the results are coming from a leaner, more efficient operating model across all of our operations. And we're running a cleaner set of business through our machines because we've rationalized some of the low-end stuff. And now we have a more structurally supportive model to deliver positive operating income in adjusted EBITDA. And our adjusted EBITDA continues to improve. It was almost 13 million in the quarter, 12.9, 49 for the full year. And these results were above prior year and also pushing towards company highs. And despite the continued weakness and volatility in the global automotive and commercial vehicle markets, we were able to perform at that level. And our adjusted EVDA margins are forecast to expand again this year and are. And the Q4 margins were up 90 basis points year over year. And we're continuing to prove in line with our long-term goal that we've stated in past talks like this, 13% to 14%. Our new business wins continued on the same pace, and we were awarded more than $70 million for the full year. We exceeded our guidance and expectations. We're still somewhat capital limited. last year on this topic because we were spending a lot of money on restructuring still. And we have more to spend now on a go-forward basis. And that's one reason why we've increased our goals now that we are intending to pursue in new business. And the key ones were concentrated in our focus areas. And especially beneficial to us last year and continuing is the surging defense electronics industry in the United States. We're directly benefiting from that, and it's immediate ramp-up type of business. We continue to secure new awards that were at accretive gross margins and are still averaging over 25%, and we're positioned to continue winning business in 2026. We have a couple large foundational programs underway right now in medical and in defense, and they're going to be gateway wins for us. And we already have a large multi-year re-win in our electrical power business that we've accomplished this year, year to date, where we beat out two large global competitors and secured that business on a go-forward basis. Our adjusted gross margin performance was 18.8% in the fourth quarter and 18.5% for the full year, which again has us trending towards our five-year goal of 20% consolidated gross margins. And in this area, we're ahead of our plan. And we're encouraged by our progress. And this strong performance is driven by the operating improvements that I've touched upon here a couple times, as well as the shifting in our portfolio towards our profit business. On cost and operational leadership, it's ever-present goal for us as a manufacturer to be better and better at manufacturing with a continuous improvement mindset. And we accomplished our goals successfully. In 25, STNA as a percentage of sales continued to drop as well and is now at 10.9%. We've all but eliminated an expensive executive layer that was here when we arrived, and we have reinvested some of that payroll savings into a bigger business development team. We're happy to report that we achieved our cost out targets of $15 million for the year, which offset all inflation and pricing and implemented the rationalizations that we wanted to do. And we have plans for another $10 million out this year. This operational performance and ability to lower costs has helped us overcome the rapid rise in precious metal cost inflation, which has been a big deal for us that we've been able to conquer and still increase our ratios on top of it. Please turn to slide six, Joe. I wanted to talk a little bit about 2026, and then Chris and Tim are going to add portions to it as well. And as already mentioned, we're forecasting revenue growth in each quarter and across the full year of 26. And that growth is happening. It started immediately in January, as I mentioned, because there was some curtailment of supply chains at the end of 25, which are now being refilled. And we will continue growing through this year. The global automotive markets are expected to grow slightly in 2026, a couple percent. But the growth outlooks are very region specific. And so we have outlooks for North America, South America, EMEA, and Asia that are specific to the region. And take into account adoption rates of EVs as well as affordability issues. The commercial vehicle market, It's expected to begin growing this year in 2026, and it's already started out that way with strong orders over the last three months. Just yesterday, ACT Research came out with the February orders, and they were some of the highest orders ever received for that time of the year. There is an EPA 27 mandate that's forthcoming, and the long-awaited pre-buy in that market seems like it's started. And we will benefit from that and are benefiting from that. And that's one of the sources of our positive back orders right now, too. So we have a strong supply chain of orders in that area already. And it happened rather quickly. It happened December, January, February. Our 2026 outlook calls for gross margin growth and adjusted EBITDA growth. And this will be balanced through the year also, starting in Q1. Our outlook... for this year supported by gradually improving markets. We don't really see any V-shaped recoveries, if you will. The hardest growth that we're participating in, the most upward, is U.S. defense business, and it's likely to get stronger as all the munitions are being used and weapons are being used, and that's where we're participating in that. So we are seeing increased volumes. We do have another $10 million cost out program this year, and we have a record amount of new business launches that's underway, and we have a record amount right now in the quarter. So we have a lot of positive tailwinds right now in the business, and we're thankful for that. And Tim and Chris, please knock on wood after I said that. Unfortunately, although our sales rates and production rates of U.S.-made cars are growing, we expect the U.S. auto parts market to remain volatile. Industry forecasts call for automobiles to be made and sold, but there's continued supply chain issues stemming from global tariffs, U.S.-caused trade wars, a fundamental reset that's going on between electric vehicles and internal combustion engines, overall affordability of U.S.-made vehicles, EPA resets and now war in the Middle East on top of the Russia Ukraine war. So, um, a lot of things, you know, the automotive supply chains in the world are very global and, and these are very disruptive things that are happening right now. The new normal is, you know, there will be volatility. And so I, I would just say it's continuing that does, and it does require tactical maneuvering on our part, uh, to, as a supply chain participant, really we're a taker. on a lot of these decisions that are at the OE level. But we are upsizing our new growth program. And we have more CapEx to spend this year. And therefore, we've set higher goals and we're committing to a higher outcome. And we're now looking to achieve between 70 to 80 million of new wins this year. And I'll just tell you, we've already started off this year in the first quarter on that pace. Overall, we still remain capital constrained due to our capital stack. And I'll give you an update on that later. But we have incrementally increased the amount of capex that we're going to spend on growth. Very deliberate. It's very intentional. And Tim and myself approve them one by one. We look at every one of them. What market are they in? Who's the customer? What's the part? Do we want to spend money on that? Do we want to spend money on that right now? So I can tell you that we're hands-on with the growth topic. It's very deliberate. But overall, we're excited for this year. We can see that it's going to be stronger than last year, and our performance in the first quarter is already on track to achieve higher outcomes, and we're off to a good start. With that as an introduction, I'd like to turn the call over to Chris and Tim, and then I'll come back and review some of the market information later. Chris? Thank you, Harold. Good morning, everyone. Today I'll be presenting our financial information on both a GAAP or an as reported basis and pro forma basis to provide transparency into our operating results, primarily due to the exit of some certain unprofitable business in this year and part of last year. I'll start on slide seven where we detail our financial results for the fourth quarter. I'll get into the full year as well. Slide seven shows our as reported GAAP results on the left side. pro forma adjustments in the middle, and pro forma results on the right side, as we've done in previous quarters. As a reminder, we use these adjustments to provide a representation of how management views and makes decisions about our business on a current and go-forward basis. The pro forma specific adjustments to the fourth quarter include last year's contribution from strategically rationalized sales volumes and the impacts of foreign currency translation on our non-U.S. operations. On an as-reported basis, net sales for the quarter were 104.7 million, declining by about 1.8 million versus last year's fourth quarter. On a pro forma basis, accounting for the adjustments I referenced earlier, our net sales increased 1.4 million, up about 1.4% versus the prior year fourth quarter. Adjusted operating income for the fourth quarter was 3.3 million compared to 2.4 million in last year's fourth quarter. On a pro forma basis, operating income was down slightly to 0.2 million or about 5.7% versus the prior year. Our adjusted EBITDA was 12.9 million, as Cheryl mentioned, for the quarter, up from 12.1 million a year ago. On a pro forma basis, adjusted EBITDA increased 1.1 million or 9.3% year over year. Adjusted EBITDA margin was 12.3% of net sales, This represents about 100 basis point improvement on an as reported basis, expanding 90 basis points on a pro forma basis. So a nice increase there. Now turning to slide eight for the full year 2025, our pro forma results and comparisons also normalized for the sale of the Lubbock business, which is divested in 2024. On an as reported basis, net sales for the year were 422.2 million, declining 42.1 million versus last year. On a pro forma basis, adjusting for the sale of Lubbock, strategically rationalized sales volumes and FX impacts, net sales decreased 7.4 million or 1.7%. Adjusted operating income for the year was 14.2 million, up 9.1 million from 5.1 million in the prior year. On a pro forma basis, the results marked a steep improvement, more than doubling from the 7 million in 2024 on a pro forma basis. Adjusted EBITDA for the year was $49 million compared to $48.3 million for the prior year. Pro forma, our results increased $2.2 million up about 4.7%. Adjusted EBITDA margin was 11.6% of net sales representing an expansion of about 70 basis points on a pro forma basis. As we've worked through the transformation across our business, We've grown our adjusted EBITDA now towards pro forma company records, meaningfully grown our operating income, and we've expanded our margins and advanced margin capture toward multi-year targets. Notably, we have done this work to improve our structural profitability despite a smaller top line, which has reflected the impacts of our exit of dilutive sales volumes. We're now prepared to continue delivering our growth through our operating income and adjusted EBITDA, coupled with an expected return to sales growth beginning in 2026. Now I'd like to turn to slide nine, where I'll detail our performance across our operating segments. For year-over-year comparisons, I'll be speaking to our pro forma numbers. In our Power Solutions segment, where our business consists largely of stamp products Net sales for the quarter were 45.5 million, up 5.9 million, or 14.9%, compared to 39.6 million in the prior year period. This improvement was driven by the increase in precious metals pass-through pricing, as well as the benefit of new program launches in electrical and defense business. This improvement was partially offset by lower sales volumes concentrated in one stamping product's customer. For the full year, Power Solutions pro forma net sales of $178.6 million improved 5.3% compared to pro forma net sales of $169.6 million. Power Solutions adjusted EBITDA results, as reported, of $6.4 million increased $0.8 million versus last year's fourth quarter of $5.6 million. This improvement was driven by sales growth, particularly in defense and electronics products, And what's further supported by operational cost reductions, higher margins, and an overall improved sales mix. On a full year basis, power solution segment adjusted EBITDA of 30.7 million, improved by 3 million or 10.8% compared to the full year results of 27.7 million. As a function of our adjusted EBITDA growth, power solution segment margins expanded 90 basis points versus 2024. On the new business front, we won an additional $3.1 million in new business awards for the segment in the fourth quarter, bringing the full year total to $13.2 million. Our wins have largely been concentrated in key target growth markets of electrical, defense, and electronics products, which we expect to remain a strong growth sector for our business. Now turning to slide 10, our mobile solutions segment, which covers our machine products business. The net sales for the fourth quarter were $59.3 million compared to the prior year of $63.8 million. Net sales comparisons were primarily impacted by the rationalization of diluted business, lower volume in North American auto customers, partially upset by favorable foreign exchange effects. For the full year, pro forma net sales of $244 million declined $25 million or 9.3% compared to results of $269 million in the prior year. We note that while we observed weakness in the North American auto markets across the year, our sales comparison was largely concentrated to one specific auto parts customer, which had pushed out volumes due to its own production disruptions. Our fourth quarter adjusted EBITDA and mobile solutions segment was $10 million, up slightly versus last year's fourth quarter on a pro forma basis. Quarterly adjusted EBITDA results reflected our successful shedding of unprofitable sales, which has improved the margin mix of the business, combined with overall lower operating costs. These factors have helped drive adjusted EBITDA margins of 16.9% for the quarter, up about 160 basis points from the same period a year ago. For the full year, mobile solutions adjusted EBITDA of 33.5 million, declined 4%. Notably, adjusted EBITDA margins of 13.7% showed expansion of about 70 basis points for the full year or versus full year 2024, displaying the impact of business rationalization and footprint consolidation. On the new business front, we continued achieving new wins and innovative programs, totaling $26.2 million in the fourth quarter and $58.6 million for the full year. We won over 200 individual award programs in 2025, including machine parts and defense and medical markets, as well as high-quality automotive programs focused on more innovative next-generation fuel efficiency for internal combustion powertrains. Thank you. With that, I'll turn the call over to Tim. We'll discuss our commercial and operational progress.

Tim. Tim French | Senior Vice President and Chief Operating Officer

Thank you, Chris. I'll begin with slide 11. Our new business momentum has continued to build and is now translating into meaningful scale and future growth. As Harold mentioned towards the top of the call, over the trailing three years, we have secured over 200 million of new business wins, with quarterly commercial performance remaining consistently strong across that timeline. Importantly, these awards are coming in at an average gross margin of about 27%, and are concentrated in strategic markets where we see the best long-term value. It's worth noting that the implied margins on these wins are meaningfully above the multi-year goal of 20% and higher than current levels for the business. As these programs launch, they will be a creative to the overall margin profile and help support profitability and earnings improvement. Over the last three years, we have fundamentally rebuilt our sales pipeline, which had atrophied in the years before the launch of the transformation. Now our pipeline sits strongly at 800 million above potential opportunities. Our commercial execution is focused on discipline growth. We are winning where our technology and differentiation matter most, particularly across defense, medical, data center, and other high reliability applications. Supporting this outlook, our global team of roughly 40 commercial and technical personnel are actively pursuing and executing against the pipeline. If these opportunities convert to wins, the launch cadence steps up meaningfully. 26 will be a very big year for launches, as we expect to launch over 100 programs. As I mentioned, the new programs are margin accretive and continue to shift our mix towards structurally stronger, higher reliability of markets while reducing relative exposure to commodity automotives. Overall, the combination of strong bookings, a deep pipeline, and strong launch schedule gives us confidence in the durability and quality of our growth trajectory. Turning to slide 12, I'll briefly touch on our long-term roadmap. Notably, we remain well on track to meet our long-term goals that we have laid out as part of our enterprise transformation. Our 18.5% adjusted gross margins are consistently showing improvement in each sequential quarter and pulling in line with our 20% adjusted gross margin goal. Our adjusted EBITDA, supported by an improved leaner and more efficient operating structure, is expected to continue improving and delivering on higher margin rates. We expect to grow at a 10% compounded annual growth rate, reaching $80 million in adjusted EBITDA by 2030. Overall, we see approximately 5% market growth, further supplemented by the benefit of approximately 2% share gain as we hone our commercial efforts in electric grid, data center, defense, electronics, and medical markets. As we do this, we are strategically de-emphasizing less valuable elements of our portfolio with the explicit intent to continue lowering our overall portion of the company attached to commodity automotive parts. In parallel, we will continue advancing our successful cost-out programs across our operations. In 2026, we aim to drive approximately $10 million of cost rationalization, which will help offset pressure from inflation and pricing. And finally, as we move forward, we are going to continue sharpening our focus on areas critical to our growth that align with our highly valued capabilities. These include robotics... Did we lose Tim?

Harold Beavis | President and Chief Executive Officer

Operator, can you hear Tim?

Tim French | Senior Vice President and Chief Operating Officer

Can you not hear me, Harold? Yeah, I can hear you. Okay. Well, then just closing these include robotics, artificial intelligence, automation equipment, as well as opportunities for material and vendor substitution. With that, I'll turn the call back over to Harold. Chris, are you able to hear me? Yeah, I can hear you, Tim. I'm wondering if we've lost Harold.

Chloe | Conference Operator

Harold, is your line muted? Excuse me, everyone. Please stand by while I check the speaker line. Harold, please proceed.

Harold Beavis | President and Chief Executive Officer

Thank you. Tim, are you there? Yes, I am. Okay, I got dropped for some reason. Are you with me now?

Tim French | Senior Vice President and Chief Operating Officer

Yeah, I completed and we're ready for you on slide 13.

Harold Beavis | President and Chief Executive Officer

Thank you. I apologize to the listening group here. I got dropped off the call somehow. I would like to talk about the markets for a moment Starting with the electrical grid and data center market, which is 60% of our sales, there is a strong market outlook for this year. There's many announcements being made to expand aggressively the data center infrastructure. We participate in this market in the US and in China. There's big announcements by Amazon, a lot of the data center builders, And we continue to see growth in this area. The next market underneath that on the chart is the China automotive market, where we've been in that market for about 20 years. Been in the China automotive market and the China commercial vehicle market and the China data center market now. But the automotive market has a good outlook for the year. It started off beginning of the year kind of weak, BYD and Geely being big, and OEs that we service. They have had some timing issues in their local market, but this remains a strong element of the NN portfolio, both sales for use in China as well as the export market for those vehicles and those parts. On the commercial vehicle side, we expect to see this market improving this year. As I previously mentioned, the growth looks like it's going to be sooner than had been forecast. as orders have come in strong for the first few months of the year already. And there's structural reasons for that if you follow that market. So it looks sustainable. It's not a fluke. Defense electronics is 10% of our business, and it's growing strongly. Specifically within customer, we serve being right beyond and the desire for their missile defense systems. And we are basically increasing our production capacity and our ability to make larger parts as well. Our own organic growth here is expected to remain strong through the year and it's building. And we've already been given multi-year volume increase outlooks from several customers as a forward indication of what we need to do. On industrial, we're really tied into GDP level growth here. A lot of building products as well, like smoke detector parts and security system parts. And our primary focus in this area is innovation versus takeover business. And we're having good success. Medical, this remains a steady and growing market for us. For us specifically, we've been increasing the breadth of our team that focuses on this market. We have now a very large, strong pipeline of opportunities. And I mentioned earlier in my initial comments, we're on the edge of foundational large programs that will enhance our credibility. Global Automotive, which is North America, South America, Europe, we carry tempered expectations for the year here. Not negative, per se, but tempered by volatility. And the view here is that we will continue to participate in the high end part of the market for very precise parts. And our goal here is over time to hold our sales flat by re-winning the amount of sales that go into production and replacing them, staying flat, keeping our capacity equally full, not going backwards. And it's not a focus area for us. It's really a hold your own kind of area. And this part of the company's portfolio will shrink over time intentionally. On page 14, in December, we announced that our board had launched a committee to look at our financial and strategic options. We've previously discussed in some of our calls together that our capital stack is problematic. There's basically too much debt plus preferred equity, and we'd like to solve that over time. We're looking at various options here. We really have no updates that are concrete. I just want you to know that it's underway. It's a board process, and it's ongoing. And when there's something big to say, we'll say it. But right now, we don't have anything. And instead, we're just focusing on looking at our options and basically letting the business grow right now, which is what's happening. Turning to page 2026, excuse me, turning to page slide 15, I'd like to talk about 2026 and what our guidance is. We're guiding to net sales growth, which is meaningful to us, 445 to 465 million in sales, which covers the consensus outlooks on us, anchored by the new program launches, which Tim walked through. And they're expected to occur through the year. And we've already been winning new business that's immediate ramp up for this year. So this will be a strong area for us during 2026. And we have overall strengthening of some of our end markets. As I mentioned, commercial vehicle markets coming back after a three-year freight recession. And defense is growing much stronger than anyone had expected. No one had expected President Trump to be able to go through as many munitions as we have in a short amount of time. And we participate in the reloading of that supply chain. Adjusted EBITDA, we're starting with a wider range here as the year starts and we'll narrow it and focus it as the year unfolds. But as I mentioned, the first quarter is already starting off very well and it's supported by higher contribution margins. Our mix is naturally higher now. And we have unit volume growth underway, and we expect that to continue through the year. And so we're going to have good mix. Usually people talk about getting hurt by mix. We're going to benefit from mix, mix that we've caused. And furthermore, we are going to reduce costs another $10 million this year to more than offset the inflation and pricing agreements that we have in place. And we are going to increase our new business wins target. to $70 to $80 million. We have a long-term goal to get to $600 million in organic sales, as Tim touched on. We do have EOPs during the five years. So another way to think about it is, you know, our sales plan is replace EOP plus another 200. So to do that, we have to win above that 200 rate because we do have EOPs during the period as well. As mentioned, our pipeline is more than sufficient. We're running over a 20% hit rate and carrying an $800 million prospected pipeline. This is just a matter of doing the job on a continuous basis and making it happen. We've continued to add key personnel in defense, electrical products, data center products, electronics, and medical. We're looking forward to this year and we're excited about this year. We think that it's going to be a nice record year for the company. And with that, I'd like to turn the call over to our operator to answer any questions that you might have.

Chloe | Conference Operator

Thank you. Yep. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Johan Franza with Sidoti. Please go ahead. for Johan Franza\ Good morning. This is Justin on for John. Hello, Justin. Hey, can you expand on the data center and market opportunity, including any additional color on the size, expected ramp timeline, and margin profile of your first direct data center wind?

Yes. Harold Beavis | President and Chief Executive Officer

We have a couple product angles into the data center market. We're focused in on the cabinetry that houses the equipment and specifically the cooling. It is a very high precision micron tolerance type setup so that the cooling doesn't escape the cooling system and damage equipment. And it plays right into our capability as a very precise micron level tolerance achiever. And so the first entry point was to become an approved supplier to the equipment building crowd as a provider of watertight coupling. And it turns out it's very much needed. And the cabinets are dense with this type of product. We're putting our hands around the size of the TAM. It's a very specific thing. And we do intend to report out on it in our next public call. We have a team underway with that right now. And the second product that we are targeting into the data center market is cable assemblies. And so at the top of the rack is a distribution of the electricity, bus bar, bus bar, as well as high-voltage cable assemblies. And we can make those also. And the new team we hired at the end of last year from the electrical products background with Mohammed Farhad as our leader technically, and then Tim Merrill, three other people that are account managers, that know the industry well are now prospecting. And we do have formal pipelines and we do have customers delineated. And that's what we're doing. And it's not a long ramp up either, Justin. It's not like the gestation period for getting onto medical equipment or an automobile or a commercial vehicle. It is an immediate ramp up kind of industry because the supply industry is behind There's a need for more gigawatts of power and data centers than is in place. So it's an immediate ramp up business for us. We're quite excited about it. for Johan Franza\ Very helpful. Thanks for the call there. Maybe shifting gears to transformation with the heavy lifting behind you, including plant closures and exiting dilutive businesses. What is the roadmap for sustaining sales growth in 2026 look like?

Harold Beavis | President and Chief Executive Officer

Yeah. So roughly speaking, if you look at the K and the numbers that Chris and his team have put out there, we're going to be doubling our capital spending. So the biggest use of our free cash flow is cash interest to service our debt. And the second is CapEx. And so we're increasing the amount of capex that we are going to allocate a capital allocation to growth to really continue the paths that we're on. So this year's growth primarily 85, 90% from new wins is going to come from wins that preceded the beginning of the year. So we're coming in, we're ramping up business that we already won. This year's wins primarily will benefit 27, 28, with the exception of areas that are immediate ramp up, like a data center, like defense ramp ups that are happening right now, like the volume increases that are going on commercial vehicle platforms where we're already approved and there's just an increased production rate. So 26, we can see very well, Justin. And the new WINS program for this year will create the outline for 27 and 28. for Johan Franza\ Great. Thanks. Good luck in 2026. I'll turn it back. Okay. Thank you, Justin.

Chloe | Conference Operator

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

Please go ahead. Rob Brown | Analyst, Lake Street Capital Markets

Good morning. Congratulations on all the progress. Thank you. On the kind of ramp of new business in 26, I think your chart showed a pretty strong ramp of sort of, you know, full program kind of ramp rates. But what's the what's sort of the cadence of ramp in 26 in terms of the, uh, the revenue that hits this year versus future years.

Harold Beavis | President and Chief Executive Officer

Yeah. Tim, you want to take that one?

Tim French | Senior Vice President and Chief Operating Officer

Sure. Uh, obviously when, when we're ramping up launches, uh, it's, uh, it's not an immediate turn on of the peak annual sales. So, uh, we're looking, uh, we're launching over a hundred programs this year and, we would expect to see somewhere around between 20 and 25 million of revenue from those launches that occurred in 26 but you also have to keep in mind that we launch programs in 25 that will continue to escalate as well so but from launches purely in 26 it will be between 20 and 25 million of revenue okay great that's very helpful uh and then your capex kind of outlook i think Rob Brown | Analyst, Lake Street Capital Markets: doubling that would put it around 25 to 30 million. Where do you, what sort of CapEx activity are you planning and what program areas do you need CapEx for?

Harold Beavis | President and Chief Executive Officer

You want to do that, Tim?

Tim French | Senior Vice President and Chief Operating Officer

Sure. The bulk of our CapEx goes towards growth programs. We'll be spending well over 15 million in growth programs and it's You know, it's not focused on any specific area. It's basically tied to a program launching capability requirements within that. But the, you know, 75% of our capex spending will be focused on capital required for launching the business. Does that answer your question?

Rob Brown | Analyst, Lake Street Capital Markets

Yep, that was very good, thanks Tim. I guess one last question just on the Q1 activity. You mentioned some strength in Q1. How much visibility do you have kind of beyond that? Is Q2 looking strong as well or is that really hard to say at this point?

Harold Beavis | President and Chief Executive Officer

We have released orders into the second quarter already. And we have, Rob, we have a real healthy backlog already. So we have a shivable backlog. It hit us a little bit by surprise with the strength that happened in commercial vehicles over the last few months. So we have a forecast with our customers. Generally, we force specificity through our raw material lead time. So we can already see Q2, yes. And then Q3 and Q4, we don't have firm releases that go out that far. So we just have expectations from our customers. And it's looking to be very, very, very consistent with the sales guidance we just gave. And I wanted to add another point to your last question, Rob, on CapEx. So if you look at our net CapEx, Last year it was about $10 million, and this year it's going to be about $20 million. And to Tim's point, it's primarily going to be on more growth, funding more growth programs that will help this year and next year. And primarily next year, primarily the capital spending for this year will help make 27 larger because we're basically saying yes to more programs. And, in fact, we yesterday said yes to a pretty large program. that was about $1 million of capital, for example, and it would take about six months to get the machine. It's one machine that we need, that we're out of capacity on, and then we already have the load for it. So the spending this year will primarily, the extra spending will primarily help next year. The $10 million kind of rate, we'd already pre-spent that with programs that we awarded last year. We're absolutely inflecting up intentional growth in these target areas, and it's already hitting the first quarter. Okay, great. Thank you. I'll turn it over.

Thank you. Chloe | Conference Operator

Again, if you have a question, please press star, then 1. This will conclude our question and answer session, and I would like to turn back to Harold Beavis for any closing remarks.

Harold Beavis | President and Chief Executive Officer

Thank you, Chloe. Thank you, everyone, for staying on the phone for a bit with us. We're pretty happy to report this update on the business. It's quite positive. It's a nice inflection point for us to be reporting on growth and growth and growth, and we want to get more growth. And it's been our game plan all along to get the ugly restructuring out of the way, and we had to part ways with about 800 employees and sever them and pay those severances, and we had to close four plants. But it's behind us, and we're thankful for that, and we have a more profitable cash generative company now, and we're using it to our advantage to be competitive in the areas where we want to. We're off to a good start. Thank you for your support, and we look forward to speaking with you again in the future. And with that, we'll end our call for today.

Thank you. Chloe | Conference Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. jsPDF 3.0.3 D:20260606090303-00'00'

NASDAQ:NNBR Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good day and welcome to NN Inc third quarter 2025 earnings call, 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 a touch tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Stephen Poe, Investor Relations.

Please go ahead. Stephen Poe | Investor Relations

Thank you, Operator. Good morning, everyone, and thanks for joining us. I'm Stephen Poe with NNA's Investor Relations team, and I'd like to thank you for attending today's earnings call on Business Update. Last evening, we issued a press release announcing our financial results for the third quarter ended September 30, 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 and the supplemental presentation, you may contact Alpha IR Group at nnbr at alpha-ir.com. Joining us from NN Management today are Harold Vivas, President and Chief Executive Officer, Chris Sonner, 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 in the risk factors section in the company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 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, feature operating results, performance of our worldwide markets, general economic conditions and economic conditions in the industrial sector, including the potential impact and ramification 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 in the supplemental presentation. Please turn to slide three, and I will now turn the call over to our CEO, Harold Dubas.

Harold Vivas | President & Chief Executive Officer

Harold Dubas Thank you, Stephen, and good morning, everyone, for joining. I'd like to cover the highlights and some key metrics for the quarter and go through the main events in this quarter and going forward. Structured sales growth is a top priority for us and we own that. Our sales growth program to secure new business is working and we've secured over $180 million of new business, all of which is in varying stages of ramp up. We've had no cancellations of any of these new wins, just some push outs. With sales growth being our top job and having continued headwinds in our served markets, we added further resources in Q3 to upsize our business prospecting efforts, especially in electrical products, medical products, and defense products. We've now grown our sales pipeline to over 850 million, and we're running a hit rate of closed opportunities at over 20%. And as far as quarterly sales momentum goes, we believe that we are now on the bottom of the bathtub curve for our serve markets and customers. We're making our own momentum by winning new business and we had key wins in both defense and in medical in the quarter. The foundational win in defense was with weapons components and it's the result of an 18-month development process. The foundational win in medical was with robotic surgery equipment consumables and also was a result of an 18-month development process. Each of these wins alone can be over $5 million per year individually and can lead to further penetration of brand new markets and brand new customers for NN. We're continuing to generate strong free cash flow with stronger adjusted operating earnings, as well as consistent improvement in working capital management. And we are combating very high inflation on precious metals and base metals. We are creating a stronger portfolio and we're completing our phase one, which involves creating a scalable core business. And the three of us will cover that in more detail as we go through today's update. Our strategic M&A program is underway, and we're currently evaluating multiple acquisition targets, big and small, to scale and accelerate growth. And we're committing to growing through M&A. And our preferred equity refinancing is formally underway and continuing. We've initiated discussions to refinance our preferred equity. And importantly, we're working with other parts of our capital structure, current stakeholders, and we're getting organized to look at refinancing both with and without acquisitions involved. So we're in the organizational stages there and gathering information and inputs from our main stakeholders, making progress. If we can turn to page four, I'd like to cover the key metrics for the quarter. Our sales were about 104 million, and the positives were that our power solutions growth and new launches were on track, and we had growth in our aerospace, defense, and electronics business areas. Negative headwinds came from mobile solutions and specifically automotive rationalization, as well as some of our customers being conservative with all the volatility in the serve markets. We're committed to forcing our way through that with new wins and growing the top line. We believe we're at the bottom of the curve right now. Our adjusted operating income improved nicely. It's about $4 million now, and it results in a margin of almost 4%. And that's another strong trend versus our historical results. Our adjusted EBITDA did go up. Um, it went up 7.9% year over year on a lower sales base. Part of that's due to the restructuring that we're doing and getting rid of business that didn't make money in the first place. Uh, our margin is up 170 basis points year over year, and we're on track for our long-term goals. And maybe we'll increase them as well, given our track record here is stronger than we expected. Our new wins were 11 million in the quarter. And I mentioned key wins in defense and medical were important to us, and we've been stalking them for quite a while. We're pretty happy to be awarded and nominated. And we're positioned to continue winning new business going into next year. And even this week with one of our top two customers, we were named a supplier of the year. We're in good shape with our customers and growing both with existing customers and new customers. Our adjusted gross margin was about 19%. It was impacted a little bit on a percentage basis by very high precious metal costs, specifically gold, running through our numbers. It's a pass-through item, but it impacts our percentages. But we have strong operating performance and efficiencies in our plants, as well as positive portfolio shifts. We're having a good mix shift. This is a 350 basis point improvement compared to Q1 of this year. And free cash flow was a good story for us. We generated $9 million of free cash flow. Actually, our cash flow from operations, if you look in the appendix material and reconciliations, was over $11 million. And we also funded CapEx in the quarter and netted $9 million of free cash flow. Our working capital program is delivering strong results in addition to improved operating income, and this is almost a $21 million improvement over the last two years, and it's continuing, and Tim's gonna cover it further in a couple slides. I just wanna point out it does not include any benefit from CARES Act proceeds. The IRS is in a furlough mode right now. The government shut down, and so we're on hold right now with regards to receiving our approved refund there. But at a high level, softness in the North American automotive market created an opportunity for us to go ahead and consolidate our last plant that loses money. And it's a negative drag on our business. And we're in the process of talking to customers right now and getting timing lined up. And then, of course, it'll be a Warnack notice, so we have a whole bunch of proper things to do in order here, so we're not at liberty to discuss the plan. But we're going to go ahead and pull that trigger so that it eliminates that last piece of unprofitable business. If you turn to page five, I'd just like to talk a little more fully about our served markets. And, you know, we have five primary ones. Automotive is 40% of our revenue. These percentages were consistent over the last couple quarters. We check them. We round them to the closest five percentile, and it's been pretty steady for us. If you look at automotive, everyone knows that there's been a lot of changes with the elimination of BEV incentives, the elimination of forward emissions improvements, A lot of incentive declines. There's been a misjudgment by what types of vehicles consumers wanted, and the main OEs are shifting their investment approaches, mainly balancing back towards ICE. And that benefits us because our portfolio is bigger on ICE. And one reason our pipeline has grown significantly is that this market has turned back into our strength. So we're a very innovative situation, and we're involved with quite a few next-generation improvements. But base production is down, if you can follow that with public reporters. And so we've been down with them. It turns out that that's a good mix here for us, but it is impacting us this year. And we think we're at the bottom, and if you look at some of the forecasts, Going into next year, there's predictions that there's going to be a rebound because vehicle sales are actually higher than production. And so this inventory destocking is going to benefit supply chain participants like ourselves. The next biggest one is electric grid and electrical distribution. That's 20% of our business. That also has had some volatility. There's been a lot of cancellation of federal funding programs for infrastructure. And that has impacted electrical infrastructure in the U.S., electrical infrastructure spending. A bellwether reporter here is ITRON, also a customer of ours, and they report on this pretty concisely. And we've had one-on-one meetings with them. Tim's our executive sponsor at that account. And spending is down. And so we're down a little bit with it as the federal funds have declined in this area. not losing, we're actually gaining positions, but the base business has been slightly down versus it had been up. The quite different story is defense being at an all-time record high right now in the United States, and it's focused on modernization and next generation advancements. And there's a forecast for this to continue because of all the appropriations that are being approved, and it will grow to almost 500 billion by 2023 which makes it two and a half times bigger than the entire medical market. So it's a big thing for us, and we're fully paying attention to it, and it fits our capabilities quite nicely. The GDP types of products that we have, it's kind of our all other. The economy was down in the first quarter, came back in the second quarter. It's led by consumer spending. We're really tied to equipment. and mainly the biggest one in there is construction, and that's been a little bit down as well. Commercial vehicle, it's a smaller market for us, but it's been in the doldrums for a few years now. The bankruptcies are still rolling through the industry. I looked at some data in the last couple days that the bankruptcies in the third quarter were about the same rate as the second quarter, and there's now been over 800 bankruptcies of freight haulers which means less trucks are needed, and so that industry is going through recalibration also, but it's predicted to end in 26, so we can see forward supply chains and forecasts in our EDI portals improving. In medicals, the market that we entered is a decent-sized market. It fits us, and we had a good quarter with a foundational win, as I mentioned. So overall, markets are soft this year. We've taken the opportunity to take more cost out. We've taken the opportunity to take working capital out. We have increased our effort to get new wins to offset what the base market does. And in the third quarter, we did grow our profits and our cash flow on less sales. So that's kind of a quick overview, and we might get some questions later. But I'd like to turn it now over to Chris to walk through some of our financials.

Chris Sonner | Senior Vice President & Chief Financial Officer

Thank you, Harold. Good morning, everyone. Today, as in prior quarters, I'll be presenting the GAAP information as well as pro forma information to provide transparency into our results. We've got the main item this year, the rationalized volume that we've been talking about the past couple of quarters. So I'll start on slide six, where we detail our financial results for the third quarter. This slide shows our as reported on the left and our non-adjusted numbers for On the left side, we again lined out the pro formas in the middle on our quarter results and with our pro formas on the right side of the table. The pro forma adjustments include last year's contribution for strategically rationalized sales volumes and the impacts of foreign currency translation. So on an as reported basis, the net sales for the quarter were 103.9 million, declining 9.7 million versus last year's third quarter. On a pro forma basis, accounting for those adjustments, Sales declined only 4.4% or $4.8 million. Our adjusted operating income for the third quarter was $4 million, marking a strong increase, as Harold noted, of $2.7 million compared to $1.3 million in the prior year third quarter. On an as-adjusted pro forma basis, operating income increased $2 million or about 100% versus the prior year period. Adjusted EBITDA and pro forma results for the quarter were 12.4 million compared to 11.6 million in the prior year period, increasing 6.9% or 0.8 million compared to the prior year third quarter. And lastly, margins of 11.9% of net sales expanded to 170 basis points. on an as-reported basis and 130 basis points inclusive of pro forma adjustments. I'll now turn it over to Tim for a minute to discuss improvements in our adjusted EBITDA margins. Tim?

Tim French | Senior Vice President & Chief Operating Officer

Thank you, Chris, and good morning, everyone. Turning to slide seven, I want to spend a few minutes walking us through the structural improvements A&M has made to its overall profitability profile. Key aspect of our transformational focus has been to expand our overall margin profile of the company to help drive growth. to our operating earnings and adjusted EBITDA. Q3 marked another consecutive quarter of success in this area. Our adjusted EBITDA margins have expanded 260 basis points since the launch of our transformational plan in early 23. Our consolidated performance continues to push us towards a long-term goal of 13% to 14%. Our adjusted gross margin also continues to show marked improvement. Year-to-date, our margins have expanded by 90 basis points to 18.4%. Our performance keeps us on track to achieve our goal of 20% gross margins. We've been able to expand our margin profile and profitability metrics to the adoption of a one-team culture across multiple facilities. We have also strategically rationalized low- to no-margin business, closing two underperforming facilities. One of the key drivers of our improvements is the right sizing of our SG&A workforce. We've reduced our overall headcount by more than 20%. more appropriately aligning our resources to the needs of the company. Our focus on margin expansion will continue. With that, I'll turn it back over to Chris.

Chris Sonner | Senior Vice President & Chief Financial Officer

Thanks, Tim. I'll just provide a little more detail on our quarterly results by talking about our two segments, Power Solutions and mobile. Starting on slide eight, in our Power Solutions segment, where our business consists largely of stamp products, Net sales results for the quarter were 44.9 million, up 2 million compared to 42.9 million in the prior year period. This is mainly due to an increase in precious metals pass-through and the benefit of new launches that Harold mentioned in electrical and defense business, partially offset by lower volumes at one stamping customer. When compared on a pro forma basis, third quarter net sales results increased 1.9 million or 4.4%, noted in the charts on the right. Power Solutions adjusted EBITDA results, as reported, of 8.9 million, increased 2.5 million versus last year's third quarter of 6.4 million, driven by sales growth, the strengthening of our profitability through cost-out initiatives, and an overall improved sales mix. As a function of this improved adjusted EBITDA, we've seen stronger margin pull-through, with quarterly adjusted EBITDA margins representing 19.8% of net sales, up approximately 500 basis points versus the prior year period. Now turning to slide nine, our mobile solution segment, which covers our machine products business. Net sales for the third quarter were 59.1 million for the period compared to 70.7 million in last year's third quarter. Net sales comparisons were primarily impacted by the rationalization of underperforming business and plants and lower volume in North American customers. On a pro forma basis, net sales of 59.1 million were down 6.7 million, or 10.2%, compared to pro forma sales of 65.8 million in last year's third quarter. Our third quarter adjusted EBITDA in the mobile solutions segment was 6.7 million, down 2.1 million from last year's third quarter on an as-reported and pro forma basis. The weaker overall top line drove compression in our adjusted EBITDA margins, which declined to 11.4%, 120-point basis point decrease year over year. We continue to focus on cost-out actions and the ongoing reprofiling of our sales mix. Looking ahead, our new business momentum remains strong. Through three quarters, we have secured $34.5 million in new awards across a large number of individual programs, spanning high-value auto as well as in medical and defense markets. Our new business pipeline is strong for the segment and continues to reflect solid opportunities going forward. I'll now turn the call back over to Tim to review the company's cash flow performance and new business wins. Tim?

Tim French | Senior Vice President & Chief Operating Officer

Thanks again, Chris. Turning to slide 10, you can see that we continue to make meaningful progress in reducing our operating working capital. Q3 marked a positive step in our free cash flow performance and demonstrates the impact of the focus we've had for several quarters. Networking capital ended the quarter at a low to what has been observed in recent years with improvements in both absolute dollars and as a percent of TTM sales. Working capital of under $80 million at the end of the quarter is down from $101 million in Q2-23, more than $20 million and almost 21% improvement. As a percent of TTM sales, we have seen a drop from 21.2% to 18.8%. On a run rate basis, this represents approximately a $10 million improvement. These improvements reflect the ongoing actions across all aspects of the working capital management. And when coupled with our stronger adjusted EBITDA and operating earnings, we'll continue to create a more predictable cash profile and a stronger foundation for free cash flow generation. Turning to slide 11, it highlights our success of our new business wind launch program and gives insight to our program launch sequence. In 2025, we anticipate launching over 100 programs, with more than 70 new programs already scheduled for 2026. These programs are forecasted to contribute approximately $26 million to our top line and an estimated $40 million when at full run rate. This year, we have increased our cumulative wins by $35 million, driving the total to approximately 182 million, well on our way to our long-term goal of 200 million. To support this growth, we've made significant capital investments globally. We've invested in dedicated equipment for medical, automotive, and A&D markets. Our pipeline remains robust and is being driven by our 40-person sales and engineering team. With that, I'll turn it back over to Harold.

Harold Vivas | President & Chief Executive Officer

Thank you. Thank you, Tim. I wanted to talk a little bit about M&A, and I know we have some people interested in that as well as the refi. We have been working on this program for almost a year now and have looked at I don't know, maybe 40 or 50 companies and have it down to a small set of companies that look like they fit both what we want to do in terms of deleveraging and refinancing as well as scaling and getting scale at what we're doing, optimizing our cost structure and being more important to our suppliers and customers. We're getting ready to To embark upon that now, we have to be organized, obviously, in tandem with the refinancing. Obviously, we're not sitting on a big pile of cash, so any acquisition we do of any size at all requires a refinancing discussion. We've been very selective. We've put a lot of time on it, especially Tim and I, visiting a lot of plants, a lot of businesses, doing a lot of due diligence. We're getting there now. We don't have anything imminent. It would be material information anyway. I want you to know that it's a pipeline activity and we're getting down towards the throat of the pipeline here. We're very happy and very pleased with the opportunities that we've been able to dig up. We have a decent amount of people looking for us and helping us. I want you to know that it's real and it's an active activity for us organizationally. On the next page, I just want to cover our guidance real quick. We're pretty much reiterating it again with the exception of our sales. We're lowering them a bit. It's basically lowering our outlook for automotive and increasing our outlook. And so the net impact on gross margin dollars is minimal with that because our lower margin sales or the automotive ones are our highest margin sales or defense. So it's a good mix shift for us. So it preserves the EBITDA and the cash flow that would come from a lower amount of sales. New wins are on track to still hit our target here. And we say the pipeline's greater than 750. It's actually greater than 850. And it's balanced. The biggest part of our pipeline is electrical. And the biggest part of our pipeline is not automotive. So we're pretty happy. That's not by chance. We have a very structured approach here to targeting. And so we're on track. You know, the big thing about this year, year to date, and right now is the uncertainty in our core markets and with our core customers. So it makes us be uncertain because we're a supply chain supplier participant with them. But we're in good standing. We're winning positions. And we just see some near-term volume constraints, and so we've reflected that in our guidance. Pretty much the same expectations for our guidance as we had last time. So with that, I'd like to turn it over to the operator and open it up for questions.

Operator | Conference Operator

Kim? We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. First question comes from Rob Brown with Lake Street Capital Markets. Go ahead, Rob.

Rob Brown | Analyst, Lake Street Capital Markets

Good morning. First question is on the power segment. I think you mentioned electrical was a big part of the future programs you're working on. I guess to what degree is data center demand driving some of your growth there and the opportunity set? Data center is definitely driving the demand on the grid.

Harold Vivas | President & Chief Executive Officer

The grid investment has been stalled this year with federal funding for infrastructure projects being stalled in many, many spots. And, you know, our bellwether person we listen to on that, Rob, is ITRON and Honeywell when they're talking about what's happening. And we've served both of them. And so that whole investment is going through a little bit of a bump. but the demand and the need for additional investment hasn't slowed down whatsoever. Our participation into it has to do with the connecting, disconnecting, and circuit breaking of the power. So we have a focused product strategy into the sector, and so our prospecting and hunting and bidding strategy And prototyping is about expanding our market share for the products that we offer, which are the hardware part of the grid.

Mainly stamped products. Rob Brown | Analyst, Lake Street Capital Markets

Yeah. Okay, thank you. And then you talked about long-term goals of sort of 20% gross margins and 14% EBITDA. You've made good progress there, but sort of to get kind of the rest of the way there, do you need to do additional steps or sort of, you know, continue to do what you've been doing and let it play out over time or what sort of needs to happen from here on out?

Harold Vivas | President & Chief Executive Officer

Well, on power, on stamping, which is where we have all of our gold and silver exposure, our percentages are being impacted by what's happening with the price of gold and silver. And so it's impacting our percentages somewhat sequentially through this year and year over year. And then the outlook right now, the outlooks for gold are to continue on this tear that they're on. So it's causing us to recalibrate what we say about percentages on the power side. But in terms of The mix, we're going to keep selling the same mix of products. The percentages are being impacted by the price of gold mainly. On the mobile side, we have the additional opportunity to get rid of business that's negative EBITDA. And so we're taking those final steps right now. So to get our percentages up in mobile, it's both doing the final chunk of underperforming business, getting it off of the books and eliminating that. And it's a few million dollars, so it's not going to be the day, so it impacts the percentages. And then the wins that we have are accretive to the business, obviously, that we're getting rid of. So it's twofold on the mobile side. And when we do the math, you know, on a constant metal basis, it works. The volatile thing right now, Rob, is the price of gold.

Rob Brown | Analyst, Lake Street Capital Markets

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

Thank you. Operator | Conference Operator

Our next question comes from John Franz-Rabe from Sedodian Company.

John Franz-Rabe | Analyst, Sidoti & Company

Good morning, guys, and thanks for taking the questions. I just want to go back to your adjustment to the revenue forecast. You kind of said it's lower order, higher defense. I'm curious if there's any impact of the acceleration of the facility rationalization that's also playing into that number.

Harold Vivas | President & Chief Executive Officer

No, no, it's that, that'll mainly be a 2026 topic, John. So, you know, the order of events here with an industry term is PPAPing. So all of our parts are PPAP and customer approved. And so we have to get the customers on board with a transition plan, and then we build a bank. And so you have this weird honeymoon where all your numbers improve because you're producing at a really high rate. and then you disconnect the equipment that you need to move and move it and start it up again and then bleed down your inventory, all within the calendar year, but it will be a next year event. So in the fourth quarter of this year, that rationalization activity will have no impact on our sales, none.

John Franz-Rabe | Analyst, Sidoti & Company

Okay, got it. Thank you. Just curious, what kind of capacity utilization rate are you running company-wise? We can break it down by segment.

Harold Vivas | President & Chief Executive Officer

Yeah. Tim, you want to take that?

Tim French | Senior Vice President & Chief Operating Officer

Sure. On the power side of it, stamping, we're running at, we don't run 24-7 in any of the facilities on stamping. So we have significant capacity available within the existing footprint. Our utilization is in that probably 60% range. So we have lots of room to grow on that range. And then it varies from facility to facility on the mobile side of things. We have some facilities that are pushing up into the 75, 80s, and some that are still down in the 60s to 70%. So it is a wide range, but there is significant capacity available across the company.

John Franz-Rabe | Analyst, Sidoti & Company

Understood. Okay. And Harold, maybe you can walk us through your thought process here about M&A being more active in the M&A market versus taking out the preferred entirely. What are the puts and takes that's going through your minds and can you share with us?

Harold Vivas | President & Chief Executive Officer

Yeah, sure. In terms of goals, we have a goal to eliminate the preferred stock. We don't foresee being able to do it in one fell swoop. Then you get into the come down the pyramid a little bit and then you get into do you try to do it as a standalone refinance or do you do it coupled with an acquisition? We haven't ruled anything out, John, and we're not onto one particular path. We're getting advice. We're not doing this in-house. We're not investment bankers or professional investors. We intend to rely upon the advice of investment bank experts in this area. And so when I refer to we're getting organized, that's what we're doing. We're trying to put together a team of advisors and existing stakeholders that are willing to help on an NDA kind of basis. So we're getting the team organized and listening, and we haven't ruled out you know, a refi with or without M&A. It's an active activity. We have good relationships with the current stakeholders. The preferred stocks held by Morgan Stanley. I think everyone knows that. And, of course, therefore, they're active in their point of view on what they want to happen and the timing. And so it's a positive, constructive activity. activity that's underway john i can't really say much more you know because it's private but um the management team is committed to making progress i know john you you follow the preferred stock and how it accretes each quarter and we talk about that um so we're trying to end that we're trying to end that era John Franz-Rabe | Analyst, Sidoti & Company: One last question, if I may. Can you just talk about the aerospace and defense market and how big you think that can get, I don't know, say three years down the line?

Harold Vivas | President & Chief Executive Officer

Well, it's interesting how it kind of sneaked up on us because it started to show on our year-over-year customer charts. And at mid-year this year, half of our year-over-year sales growth, the biggest percentage of growth that we had were from, if you look at the top 10, five of them were in aerospace and electronics, and we're like, hey, wait a minute, let's pay attention here. We've been talking about medical, medical, medical, but this thing's happening naturally. Let's get behind it. And it's a really good mix for us because a lot of the products are gold-plated, and they go into the electronics modules inside of the equipment, both for launching missiles, missile guidance. We're heavily tied into electronic enclosures. So that's ubiquitous, but the gold plating aspect of it finds itself when the government's speccing. And so we're rapidly growing that business. And we have a lot of new customers. And the interim goal we have right now, John, is to double it, is to double that business. So that's a lot, because Tim referred to our capacity. That's one of the areas where we're running two shifts. So we have another shift we can do, but then we need to spend a little bit of money to expand our capacity for those kind of products. We're benefiting a little bit this year by, you know, we closed Awajiak, we closed Juarez, and we were able to redeploy a decent amount of the CapEx into Brazil, into North America, and avoid capital spending. We were able to substitute equipment that we needed with equipment that we had. And this last plant that we need to consolidate, we have that same opportunity again. We have good equipment that we can redeploy So the growing defenses and medical, we now see that we're going to be able to do that and be less capital intense because we've been successfully able to redeploy equipment that we have. So we're going to have an investor day, John, in December, and we're going to cover that topic more fully.

John Franz-Rabe | Analyst, Sidoti & Company

Okay, great, Harold. Good luck on the venture.

Harold Vivas | President & Chief Executive Officer

Thank you.

Operator | Conference Operator

Our next question comes from Mike Crawford with B.

Reilly Securities. Mike Crawford | Analyst, B. Riley Securities

Thanks. Can you just provide some more color on your operations in China, both wholly owned and with the Weifu JV?

Harold Vivas | President & Chief Executive Officer

Yes. So the JV, Mike, If you know the JV test, you know, the asset test, so it's below 20% of our total assets, but it's getting close to 20. And when we look at our outlooks, it looks like it might even cross 20. If it does cross 20, we'll begin reporting, you know, including the financials of the JV as required. But it's a very successful JV. It's 130 million in sales. It's a little over 30 million in EBITDA. It's a net income generating business. It's been growing. It's dedicated to making fuel system components for Chinese manufacturers. The main customer of the JV is another JV with Bosch. Weifu, their biggest shareholder is Bosch. Our JV, we have a JV with Wayfu to make these components, and then the main customer of the JV is another Bosch entity. And the biggest customer of the JV is BYD, BYD. So the end of the story is that for BYD's internal combustion engine, passenger vehicles, cars and trucks, we're directly involved in that through our JV, and it's quite successful. It was set up 20 years ago by a team from Kentwood, Michigan, the AutoCam headquarters, if you will. And we set that JV up to make those products, and they're still making them 20 years later. And Tim and I are going to China in a few weeks, and we're going to celebrate their 20-year anniversary with them. That plant, which is about 130,000 square feet, is adjacent to and connected to our Wolfie plant. In the middle of the two plants is a shared cafeteria. And yet, you can guess they play ping pong against each other and have fun things like that. So it's good spirit. And on our side, the Holy Olm side, we have a different product focus. We're not going after fuel systems. We go after steering, braking, and powertrain components, which are agnostic to whether it's ICE or EV or hybrid or the ERIP. So we have slightly different types of equipment, different types of products that we make, and it also is 20 years old. Both of those businesses were formed 20 years ago by the former owner-founder of AutoCam, John Kennedy. And so the same man set them both up in this shared facility, and they're still doing well. Our China operation does over 70 million of sales and it's one of our most profitable businesses in terms of EBITDA, and it's free cash flow generative. They pay for their own growth and working capital, and we repatriate cash from there quarterly. From the JV, we get an annual dividend transfer, and from the Wolfie machining plant, Chris takes the cash regularly, like monthly. We also have a stamping plant in southern China And Foshan, which is near Shenzhen, which is near Hong Kong, it's wholly owned. And we make stamped products primarily for export, primarily for the medical market. The biggest customer is Becton Dickinson. And it has a clean room. It's set up for health care standards. And we recently put a big servo press in there. to be able to make certain products for the Chinese market. So we recently have entered the Chinese market for the stamping facility. The Wolfie and the JP Machining, they make their products in China, they buy their metal in China, they convert in China, and they sell in China. The stamping plant, we buy our metal in China and we export. It's also a very profitable business for us.

Mike Crawford | Analyst, B. Riley Securities

Okay, thank you, Harold. You're welcome. Just one more from me. So your revised guidance implies in the fourth quarter you're going to have some $15 million or more of free cash flow, but that's including $12.7 million from CARES refund that you might not get if the IRS doesn't get back to work. That's right. So it could be just $2 or $3 million in free cash flow in the fourth quarter, which is fine. I mean, that's better than minus $2 million. But absent tax refund, given the footprint optimization work that you've been doing this year, how should we think about free cash flow next year?

Harold Vivas | President & Chief Executive Officer

Yep, that's a good question. Our EBITDA, our cash flow from EBITDA in the second half of this year is a lot stronger than the first half. We went through a lot of severance and two plant closures at once. So our adjusted EBITDA was looking good, but our cash from EBITDA was not looking good, you know. And so our cash flow game plan was based, was working capital based. in the second half of this year, we've been benefiting from the adjusted EBITDA is pretty close to the EBITDA is pretty close to the cash. Going into next year, we're gonna have that again. So we're gonna have a benefit of that. And so we think that the cash flow is gonna continue strengthening. The working capital, you know, we did $9 million of working capital in the quarter, but if you look at 1231 to 930, our inventory went up a million and a half and our AR went up a million and a half. We offset that by having eight million of improvement in AP and our sales went down and our COGS went down, so you'd expect them to go down more strongly, inventory and AR, but they were propped up because of precious metals. So Tim has reset our game plans to be more aggressive with taking the unit volume of inventory down. And Chris is looking at our overdue to terms AR because to make improvements we want with precious metal basis costs going up, we have to be better than we were planning to be. So we're not going to back off of our cash from working capital plans for next year. and we're going to add to it a higher amount of EBITDA. So you're right with your math, Mike. I think that without the CARES Act this year, it's, you know, four or five, you know, and next year it should be around 10. One of the good things, though, that we haven't input into this is our cash interest. If you look at our attachments, our year-to-date cash interest is slightly less than last year, and rates are going down now. So when the Fed cuts rates, that helps us with our variable rate debt. And as I mentioned earlier, and everyone knows, you know, we're attempting a refi here. And of course, we're going after the rate we pay on the term loan. So it will be, I don't know, I don't know, Mike, probably two times, you know, but that's not a big number, right? So maybe 10, just for talking purposes. It's not going to be 20.

Chris Sonner | Senior Vice President & Chief Financial Officer

Chris, would you comment on that? Yeah, no, I agree, Harold. And, again, you know, with rates going down, I think we have some opportunity for, you know, improvement to bring in a little more cash or pay a little less interest and bring in a little more cash flow. But we've got to balance that out with the investment needs of the business, the capital of the new business, as well as the, you know, the plant Harold talked about and restructuring. If you look at the free cash flow in the back of the earnings release, you'll see we've managed CapEx very tightly. We've always said that obviously the three of us look at every project, every opportunity. So we are managing those levers very tightly and in a controlled fashion, and we'll hope to improve free cash flow in next year.

Mike Crawford | Analyst, B. Riley Securities

Great.

Thank you very much. Chris Sonner | Senior Vice President & Chief Financial Officer

Thank you.

Mike Crawford | Analyst, B. Riley Securities

Thank you, Mike.

Operator | Conference Operator

Again, if you have a question, please press star, then one. Our next question comes from Barry Hames with Sage Asset Management.

Barry Hames | Portfolio Manager, Sage Asset Management

Thanks so much for taking the questions. Appreciate all the color in the call so far. My question had to do with next year in terms of sort of broad talking points where we should be looking for change. It sounds like maybe you think automotive could at least be flat next year. Correct me if I'm wrong on that. You obviously have the new business wins that started this year that you get a full year next year. Are there any other just sort of directional comments you'd make as we start thinking about next year?

Thank you. Harold Vivas | President & Chief Executive Officer

Yes. Thank you, Barry. So automotive for us is by region. So in China, we're growing rapidly. this year and will grow next year. We've been winning a lot of business in China and it's a creative margin rate to us. In Europe, we had a down year this year due to what happened to the Europe market but we had a big win that we won last year and it's ramping up now and actually we're gonna power through the market outlook in Europe because of that big win that we've had which will be made in our France plant And it's also a good margin for us. So Europe's looking up for us. South America has been flat. They're getting raided by BYD and people like that, and it's affecting the local production market that we're tied into. So not a lot of change in our Brazil plants, our three plants there that serve the South America auto market. North America, Um, the outlook for North American passenger vehicle production is to be up slightly versus down. And, um, there's a lot of, there's a lot of uncertainty to go through there, but, but that's the outlook right now for 26. And wall street seems to be pricing that in to auto parts suppliers like us. And, um, the big exogenous event, if you will, for us is that we're going to correct an underperforming plant we have. So we have a drag on our North America profits. And that's our last remaining drag. So we didn't have the cash. Tim likes to say that we've been correcting our footprint at the pace of our cash flow. So we just couldn't do everything at once. But we think we're in a position now to take care of the last one. And then we're done with that, and we won't talk about it anymore. that for next year um is going to be a non-sales benefit to the profits in north american auto on electrical um you know we've been at a couple of our customer meetings it looks like the demand is increasing but it's hard to tell on spending because of the federal fights over the budgets and federal funding into different states uh so we're we're expecting a flat base market, but improvement because of the wins that we've had. And as I mentioned, we had foundational wins in medical and a defense that are going to help that segment grow next year. So we see an inflection. You know, the big reporter for commercial vehicles is ACT Research, and the big bellwether filer is PACCAR. And PACCAR reported this week, so did Volvo Truck. And they've both been different shades of negative with regards to the rest of this year and the beginning of next year. But both them and ACT Research are saying that there will be a resurgence in the second half of next year and Cummins too, Cummins being tied into that. So we see an improvement in that business in the second half of next year. My initial comments when I said I think we're in the bathtub part of our base markets is we're not at an inflection point, boink, you know, doinking up. But I think we're in the bathtub right now, and it's going to gradually improve. First auto is going to improve auto production and electrical, and in the second half of next year, commercial vehicle. But through this, if you did the math, Tim's math there, we have 170 programs that are in varying stages of launching. And some of them got pushed. The biggest one, with BYD, got pushed into Q1. So we have quite a bit of new wins that are going to be pushing into next year. We're not ready to give guidance, but it's a positive outlook compared to 25, Barry. Great. Thanks so much. Appreciate it. Lots of good luck.

Thank you. Operator | Conference Operator

This concludes our question and answer session. I would like to turn the conference back over to Harold Beavis for any closing remarks.

Harold Vivas | President & Chief Executive Officer

Thank you. We appreciate it. Probably between now and the next fourth quarter earnings call, we might have an 8K or two to keep everyone abreast of what we're doing that's material. We're pretty excited about our future. We're excited about the short-term opportunities we have as well, and thank you for your attention today, and we look forward to reporting our progress on these matters. And with that, we'll end the call.

Thank you. Operator | Conference Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. jsPDF 3.0.3 D:20260606090305-00'00'