Q1 2024 NN Inc Earnings Call

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Operator: Good day, and welcome to the NN Incorporated first quarter 2024 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists 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 1 on your touchtone phone, and to withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Stephen Poe, Investor Relations. Please go ahead, sir.

Good day and welcome to the NN incorporated first quarter 2024 earnings call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then.

One on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Steven Po Investor Relations. Please go ahead Sir.

Stephen Poe: Thank you, operator. Good morning, everyone, and thanks for joining us.

Thank you operator, good morning, everyone and thanks for joining us I'm, Stephen Po Investor Relations contact for and I think I'd like to thank you for attending todays business update last evening, we issued a press release announcing our financial results for the first quarter ended March 31, 2024, as well as the supplemental presentation, which has been posted on the Investor Relations section of.

Stephen Poe: I'm Stephen Poe, Investor Relations Contact for NN Inc., and I'd like to thank you for attending today's business update. Last evening, we issued a press release announcing our financial results for the first quarter ended March 31st, 2024, as well as a supplemental presentation which has been posted on the Investor Relations section of our website. If anyone needs a copy of the press release or the supplemental presentation, they may contact Alpha IR Group at nnbr@alpha-ir.com.

Our website.

One needs a copy of the press release or the supplemental presentation, you may contact Alpha IR group at N. B R. At Alpha IR Dot Com are presented on this call will be Harold Bevis, President and Chief Executive Officer, and Mike Salter Senior Vice President and Chief Financial Officer, Tim French our senior Vice President and Chief operating Officer will all.

Stephen Poe: Our presenters on this call will be Harold Bevis, President and Chief Executive Officer, and Mike Felcher, Senior Vice President and Chief Financial Officer. Tim French, our Senior Vice President and Chief Operating Officer, will also join us for the Q&A portion of the call.

Speaker Change: Also joining us for the Q&A portion of the call.

Stephen Poe: Please turn to slide two, where you'll find our forward-looking statements and disclosure information. Before we begin, I'd ask that you take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation, and one filed in the risk factors section of the company's quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2024. The same language applies to comments made on today's conference call, including the Q&A session, as well as the live webcast.

Speaker Change: Please turn to slide two where you'll find our forward looking statements disclosure information before we begin I'd ask that you take note of the cautionary language regarding forward looking statements contained in today's press release supplemental presentation, and one file and the risk factors section in the company's quarterly report on Form 10-Q for the fiscal quarter ended March 31 2002.

Speaker Change: 24, the same language applies to comments made on today's conference call, including the Q&A session as well as lock webcast.

Stephen Poe: Our presentation today will contain forward-looking statements regarding sales, margins, inflation, supply chain constraints, forwarding exchange rates, cash flow, tax rates, acquisitions and divestitures, synergies, cash and cost savings, future operating results, performance of our worldwide markets, general economic conditions and economic conditions in the industrial sector, the impacts of pandemics and other public health crises and military conflicts on the company's financial condition, and other topics. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside of the company's control.

Speaker Change: Recent generation today will contain forward looking statements regarding sales margins inflation supply chain constraints sporting change rates cash flow tax rates acquisitions, and divestitures synergies cash and cost savings future operating results performance of our worldwide markets General economic conditions.

Speaker Change: Economic conditions in the industrial sector, the impacts of Pandemics and other public health crises and military complex on the company's financial condition and other topics. These.

Speaker Change: These statements should be used with caution and are subject to various risks and uncertainties many of which are outside the company's control.

Speaker Change: The presentation also includes certain non-GAAP measures as defined by SEC rules, a reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation.

Stephen Poe: 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 Bevis.

Speaker Change: Please turn to slide three and I will now turn the call over to our CEO Harold B S.

Harold C. Bevis: Thank you, Stephen. And good morning, everyone.

Speaker Change: Thank you Stephen and good morning, everyone.

Speaker Change: Please turn to page four in our earnings deck.

Harold C. Bevis: Please turn to page four in our earnings deck. NN had a successful first quarter highlighted by growth in our core plants and continued execution of our business transformation strategy, which was underlined by a number of observable operational improvements at underperforming locations. We also continued our commercial momentum, winning new business in the quarter at a very strong pace, capturing more than 17 million new awards, which we estimate to be about three times the market growth rate. Our transformation is fully underway, and we're now entering our second year. And I can say for the team that's here, time flies when you're having this much fun.

Speaker Change: And then had a successful first quarter highlighted by growth in our core plants and continued execution of our business transformation strategy.

Speaker Change: Which was underlined by a number of observable operational improvements that are underperforming locations.

Speaker Change: We also continued our commercial momentum winning new business in the quarter at a very strong pace, capturing more than 17 million of New awards, which we estimate to be about three times market growth rates.

Speaker Change: Our transformation is fully underway and were now entering our second year.

Speaker Change: And I can say for the team that's here time flies when you're having as much fun.

Harold C. Bevis: And we're indeed pleased with our results over the last year, and we're looking forward to highlighting some of them today and then taking questions at the end. First, I'm happy to report that Q1 2024 was the third consecutive quarter of exceeding our upward goals and expectations for adjusted EBITDA, free cash flow, and new business wins. We have been driving our trailing 12-month EBITDA up, and we believe this is a function of natural company strength. A stronger team made up of both homegrown leaders and outside professionals.

Speaker Change: And we are indeed pleased with our results over the last year and we're looking forward to highlighting some of them today and then taking questions at the end.

Speaker Change: First I'm happy to report that Q1, 2024 was the third consecutive quarter of exceeding our upward goals and expectations for adjusted EBITDA free cash flow of new business wins.

Speaker Change: We have been driving our trailing 12 month EBITDA.

Speaker Change: We believe this is a function of natural company's strengths.

Speaker Change: A stronger team made up of both homegrown leaders in outside professionals.

Harold C. Bevis: A Strong Set of Improvement Initiatives and Being Accountable for Outcomes and to Each Other. First and foremost, we've been delivering strong operational improvement. Some of you might wonder, what does that mean?

Speaker Change: <unk> set of improvement initiatives and being accountable to outcomes and to each other.

Speaker Change: First and foremost we've been delivering strong operational improvements.

Speaker Change: Some of you might wonder what does that mean operational improvements a pretty pretty big term, but for us it means right sizing our head count.

Harold C. Bevis: Operational improvement is a pretty big term, but for us, it means right-sizing our headcount. Negotiating with non-directed suppliers, leveraging our global procurement power, upgrading plant managers where needed, combining SG&A roles where possible, and having an organized plan at every plant to take out costs. Additionally, in certain areas, we've had to negotiate and engage with customers on basic economics. Another term for this is continuous improvement or CI. And we're committed to increasing our margins and profit rates on an ongoing basis, and it's working. To be sure it is sustainable and becomes a layer of goodness that we build upon. We have to change our culture in many areas, and that's working also. Sometimes winning and becoming successful is just plain hard work, and we're all about that.

Speaker Change: Shading with non direct suppliers, leveraging our global procurement power.

Speaker Change: Upgrading plant managers where needed.

Speaker Change: Binding SG&A roles where possible.

Speaker Change: Having an organized plan at every plant to take out costs.

Speaker Change: Actually in certain areas, we've had to negotiate engage with customers some basic economics.

Speaker Change: Another term for this is continuous improvement or Ci.

Speaker Change: And we are committed to increasing our margin and profit rates on an ongoing basis and it's working.

Speaker Change: To be sure it is sustainable and it becomes a layer of goodness that we build upon we.

Speaker Change: We have to change our culture in many areas and that's working also sometimes winning them becoming successful it's just plain hard work.

Speaker Change: And we're all about that.

Harold C. Bevis: As we have noted in the past, a year ago, the company had seven unprofitable plants that were causing a big impact on our bottom line and our cash. Our aggressive actions over the last year at these plants have shown clear and immediate results, with three plants returning to profitability already, and the remaining four making dramatic improvements. The goal is for this group to become profitable by year end 2024. The commercial team has also been very successful over the last year, and we have secured growth at three times the market growth rate, by our estimation.

Speaker Change: As we have noted in the past a year ago. The company had seven unprofitable plants that were causing a big impact to our bottom line and our cash flows.

Speaker Change: Our aggressive actions over the last year had these plants has shown clear and immediate results with three plants returning to profitability already and.

Speaker Change: And the remaining four making dramatic improvements. The goal is for this group to become profitable by year end 2024 this year.

Harold C. Bevis: Commercial team has also been very successful over the last year and we have secured growth at three times the market growth rate by our estimation.

Harold C. Bevis: This will enable us to layer in new growth and contribute to our adjusted EBITDA totals in future quarters. Before turning to our first quarter financial results, I'm happy to announce that we are reaffirming our free cash flow into business when forecasting for the year, while also tightening our outlooks for net sales and adjusted EBITDA. We expect to deliver full-year bottom-line growth along with continued strong growth and new business wins, and Mike will cover this in more detail in his section. Please turn to page 5 of your deck.

Speaker Change: This will enable us to layer in new growth and contribute to our adjusted EBITDA totals in future quarters.

Speaker Change: Before turning to our first quarter financial results I'm happy to announce that we are reaffirming our free cash flow and new business went outlooks for the year, while also tightening our outlook for net sales and adjusted EBITDA.

We expect to deliver full year bottom line growth along with continued strong growth in new business wins and Mike will cover this in more detail in his section.

Michael C. Felcher: Please turn to page five in your deck.

Harold C. Bevis: NN delivered solid first quarter results with net sales of 121.2 million and adjusted EBITDA of 11.3. Year-over-year net sales volumes were mostly flat after some one-time movements, but adjusted EBITDA grew strongly through the actions that I just walked through. It was our third quarter of year-over-year growth in Adjusted EBITDA, and our trailing 12-month Adjusted EBITDA of $46.3 million is up 20% from the trailing 12-month Adjusted EBITDA of a year ago, or about $7.7 million of improvement.

Harold C. Bevis: And then delivered solid first quarter results with net sales of $121 2 million and adjusted EBITDA of $11 three.

Michael C. Felcher: Year over year net sales volumes were mostly flat after some onetime movements, but adjusted EBITDA grew strongly through the actions that I just walked through it was our third quarter of year over year growth in adjusted EBITDA and our trailing 12 month adjusted EBITDA of $46 3 million is up 20% of their trailing 12.

Harold C. Bevis: Month, adjusted EBITDA of a year ago or about $7 $7 million of improvement.

Harold C. Bevis: Our adjusted EBITDA margin is now 9.3%, and it's up significantly compared to last year as the turnaround of treble clamps and broader operating cost reductions continue to improve our bottom line. Before turning the call over to Mike, I'd like to recognize our global NN team. In a period of significant change for the company, a lot of it initiated by me, our employees and colleagues are performing in an outstanding way, on on-time delivery, quality, and safety.

Harold C. Bevis: Our adjusted EBITDA margin is now nine 3% and it's up significantly compared to last year as the turnaround of troubled plants and broader operating cost reductions continued to improve our bottom line.

Harold C. Bevis: Before turning the call over to Mike I'd like to recognize our global EM team.

Harold C. Bevis: In a period of significant change for the company a lot of it instigated by me.

Harold C. Bevis: Our employees and colleagues are performing in an outstanding basis.

Harold C. Bevis: On time delivery quality and safety.

Harold C. Bevis: We're reorienting and injecting best practices into our company as we go along, and changing our culture. NN's sales pipeline is as large and as healthy as it's ever been, and we continue to aim to continue winning new business with both new and existing customers globally. With that, I'll turn the conversation over to Mike, who will walk through our financial performance in a more detailed manner.

Harold C. Bevis: We're reorienting and injecting best practices to our company as we go along and changing our culture and in sales pipeline is as large and as healthy as it's ever been and we continue to aim to continue winning new business with both new and existing customers globally.

Harold C. Bevis: With that I'll turn the conversation over to Mike, who will walk through our financial performance and a more detailed manner Mike.

Michael C. Felcher: Thanks, Harold, and good morning, everyone. I'll start on slide six, where we will detail our results for the first quarter. Net sales for the quarter of 121.2 million were down 4.6% compared to last year's first quarter. For the period, we had roughly flat sales volumes due to a rationalization of volumes of approximately 4 million underperforming plants, mostly offset by 3 million of sales growth at healthy plants. From a pricing standpoint, our prior year results included $3 million of end-of-life premium pricing associated with the closure of Irvine.

Mike: Thanks, Harold and good morning, everyone I'll start on slide six where we will detail our results for the first quarter.

Michael C. Felcher: Net sales for the quarter of $121 2 million were down four 6% compared to last year's first quarter for.

Michael C. Felcher: For the period, we had roughly flat sales volumes due to rationalization of volume up approximately $4 million.

Michael C. Felcher: Underperforming plants, mostly offset by $3 million of cells grow healthy plants.

Michael C. Felcher: From a pricing standpoint, our prior year results included $3 million at the end of life premium pricing.

Michael C. Felcher: With the closure of the Irvine plant.

Michael C. Felcher: Looking at profitability, our operating loss of $4.8 million improved by $2.3 million compared to the $7.1 million operating loss in last year's first quarter. On an adjusted basis, our first quarter adjusted operating loss was $0.7 million, which was slightly higher than the adjusted operating loss of $0.4 million seen in the prior year. As Harold referenced earlier, Adjusted EBITDA results of $11.3 million were $3.2 million, or 39%, versus last year's $8.1 million result.

Michael C. Felcher: Looking at the profitability, our operating loss of $4 8 million improved by $2 3 million compared to $7 1 million operating loss in last year's first quarter.

Michael C. Felcher: On an adjusted basis, our first quarter adjusted operating loss was zero point $7 million, which was slightly higher than the adjusted operating loss of 0.4 million swing on the prior year.

Michael C. Felcher: As Harold referenced earlier, adjusted EBITDA results of $11 3 million.

Michael C. Felcher: But $3 2 million or 39% versus last year was $8 1 million result.

Michael C. Felcher: Our consolidated adjusted EBITDA margin results expanded by 290 basis points to 9.3% versus last year's first quarter. This improvement in our profitability on a lower revenue base relative to last year speaks to our early success in improving our base business performance. As we continue through 2024, our focus on attacking any and all underperforming areas of the business will continue to anchor our priorities as part of our multi-year transformation application. In particular, we expect to see a more pronounced pull-through of the impacts from our operational improvement initiatives and total cost productivity programs, with those results accreting more thoroughly to our profitability figures, as many of these only began benefiting us in the second half of 2020.

Michael C. Felcher: Our consolidated adjusted EBITDA margin results expanded by 290 basis points to nine 3% versus last year's first quarter.

Michael C. Felcher: Improvement on our profitability on a lower revenue base relative to last year's speaks our early success in improving our base business performance.

Michael C. Felcher: As we continue through 2024, our focus on attacking any and all underperforming areas of the business will continue to anchor our priorities as part of our multiyear transformation effort in.

Michael C. Felcher: In particular, we expect to see a more pronounced pull through all the impacts from our operational improvement initiatives and total cost productivity programs with those results are creating more thoroughly to our profitability figures as many of these only began benefiting us in the second half of 2020 three.

Michael C. Felcher: As we have stated in the past, we remain committed to capturing an additional $10 million in adjusted EBITDA improvement once all our actions are completed. Starting with our segment results, starting on slide seven, in our power solution segment, where our businesses largely stamp products, our sales decreased 1.7% year over year to 48.2 million, down 0.9 million from the 49.1 million of sales in last year's first quarter. While we are experiencing strong demand in our business from US customers focused on the electrical grid, this demand strength was partially offset by volume rationalization as part of the Taunton Irvine facility closures last year.

Michael C. Felcher: As we have stated in the past we remain committed to capturing an additional $10 million and adjusted EBITDA improvement once all our actions are completed.

Michael C. Felcher: Turning to our segment results starting on slide seven and our power solution segment, where our business is largely stamp products. Our sales decreased one 7% year over year to $48 2 million.

Michael C. Felcher: 0.9 billion from the $49 1 million of sales in last year's first quarter.

Michael C. Felcher: While we are experiencing strong demand in our business from U S customers focused on the electrical grid.

Michael C. Felcher: This demand strength was partially offset by volume rationalization, that's part of the talk in Irvine facility closures from last year.

Michael C. Felcher: Despite the lower sales volume, the positive impacts from facility closures and cost reduction actions have driven solid results, as seen through our improved adjusted EBITDA. Our quarterly adjusted EBITDA of $7.8 million improved by $1 million compared to the $6.8 million delivered in last year's first quarter.

Michael C. Felcher: Despite the lower sales volume the positive impact from facility closures and cost reduction actions have driven solid results.

Michael C. Felcher: Through our improved adjusted EBITA.

Michael C. Felcher: Our quarterly adjusted EBITDA of $7 8 million improved by $1 million compared to 6.8 million deliberate in last year's first quarter.

Harold C. Bevis: We believe it is a testament to our refocused efforts and commitment to our strategic transformation plans, both operationally and commercially, that the business delivered higher adjustability and expanded margins by 290 basis points year over year. As we begin to layer in stronger sales figures from new business wins, we expect to continue expanding our profitability as we capture improved fixed cost absorption through operating leverage, combined with the commitment to our costs and productivity programs that Harold walked through earlier in the call.

Michael C. Felcher: We believe it is a testament to our refocused efforts and commitment to our strategic transformation plans, both operationally and commercially but the business delivered higher adjusted EBITDA and expanded margins by 290 basis points year over year.

Harold C. Bevis: As we begin to layer in stronger sales figures from new business wins, we expect to continue expanding our profitability as we capture improved fixed cost absorption through operating leverage.

Harold C. Bevis: And with the commitment to our cost and productivity programs are Harold walked through earlier on the call.

Harold C. Bevis: Operationally, our focus remains on expanding our connect and protect business, improving underperforming plants, continuing to right-size the cost structure, modernizing our engineering and processes, and ultimately executing on a healthy and strong growth pipeline across growing key end markets. Turning to slide 8 in our mobile solutions segment, which covers our machine products business, sales decreased 6.4% versus the prior year's first quarter and declined by 4.9 million to 73.1 million for the period.

Harold C. Bevis: Operationally, our focus remains on expanding our connect and protect business improving underperforming plants continuing to rightsize the cost structure.

Harold C. Bevis: Right.

Harold C. Bevis: Engineering and processes and ultimately executing on are helping and strong growth pipeline across growing key markets.

Harold C. Bevis: Turning to slide eight and our mobile solutions segment, which covers our machine products business sales decreased six 4% versus the prior year's first quarter declined by 4.9 million $73 1 million for the period.

Harold C. Bevis: The decrease was primarily driven by rationalization of underperforming business and the impact of some mixed shifts in our retained business. In line with the trend we have seen across the company, our profitability in the mobile solution segment grew versus last year's first quarter as the segment adjusted, even though the result of 8.6 million increased by 3 million compared to the 5.6 million in the first quarter of 23. This markedly improved adjusted EBITDA performance was driven in part by stronger profits from our China joint venture, which continues to show market strength and attractive growth.

Harold C. Bevis: The decrease was primarily driven by rationalization of underperforming business and the impact of some mix shift in our retained business.

Harold C. Bevis: In line with the trend we've seen across the company our profitability in the mobile solutions segment grew versus last year's first quarter.

Harold C. Bevis: The segment adjusted EBITA result of $8 6 million increased by $3 million compared to the $5 6 million in the first quarter of 'twenty right.

Harold C. Bevis: This is markedly improved adjusted EBITDA performance was driven in part by stronger profits.

Harold C. Bevis: From our China joint venture, which continues to show market strength and attractive growth.

Harold C. Bevis: Additionally, operating performance improvements within our underperforming plants reflect the early impact of our cost and productivity program, which continues to gain momentum. Now turning to slide nine, you can see a summary of our free cash flow, capital expenditures, and net debt and resulting leverage. We are committed to maintaining positive free cash flow and will therefore take a measured approach on capital investments required for our new business win. This includes utilizing equipment financing opportunities as we did in the first quarter, where we executed a $4.9 million equipment sale leaseback transaction. With that, I will turn the call back to Harold to discuss some of our additional developments before closing our prepared remarks.

Harold C. Bevis: Additionally, operating performance improvements.

Harold C. Bevis: Within our underperforming plants reflect the early impact of our cost and productivity programs, which continue to gain momentum.

Harold C. Bevis: Now turning to slide nine you can see a summary of our free cash flow capital expenditures and net debt and the resulting leverage we are committed to maintaining positive free cash flow and will therefore take a measured measured approach on capital investments required for our new business wins. This include you utilizing equipment financing opportunities as we do in the <unk>.

Harold: First quarter, where we executed a $4 9 million of equipment sale leaseback transaction.

Harold C. Bevis: With that I will turn the call back to Harold to discuss some of our additional development before wrapping our prepared remarks Harold.

Harold C. Bevis: Thank you. Please turn to slide 10.

Harold: Thank you.

Harold: Please turn to slide 10.

Harold C. Bevis: Our structural and process improvements have been accretive to our bottom line since the initiation of our global continuous improvement program last year. And our trailing 12-month EBITDA is now up to $46 million, and it's up, you know, almost 20 percent, as I mentioned, since the first quarter last year, and it's improved for four quarters in a row. Additionally, as a result of targeted cost reductions, better operational planning, and headcount rationalization, our EBITDA per headcount is up 42%.

Harold C. Bevis: Our our structural and process improvements have been accretive to our bottom line since the initiation of our global continuous improvement program last year.

Harold C. Bevis: And our trailing 12 month EBITDA is now up to 46 million and that's up you know almost 20% as I mentioned since the first quarter of last year and its improved for four quarters in a row.

Harold C. Bevis: And Additionally, as a result of targeted cost reductions better operational planning and head count rationalization.

Harold C. Bevis: Our EBITDA per head count is up 42% that I just wanted to share some I look into the operational improvement program that we have underway led by our Chief operating officer, Tim French Who's on the phone later for questions.

Harold C. Bevis: And I just wanted to share a look into the operational improvement program that we have underway, led by our Chief Operating Officer, Tim French, who's on the phone later for questions. But we've progressively been working down our headcount over time. And this chart shows you what our headcount is outside of our JV. We have another 700 people inside of the JV. But these are our non-JV headcounts.

Harold C. Bevis: But we've progressively been working down our head count over time and this chart shows you what our head count is outside of our JV because we have another 700 people inside of the JV, but these are on our non JV head counts and you can see that we've been taking down our head count while I'm, taking up our EBITDA, therefore, driving up our productivity.

Harold C. Bevis: And you can see that we've been taking down our headcount while increasing our EBITDA, therefore driving up our productivity. So we're going to continue this balanced focus on growing earnings. Through growth as well as cost-out initiatives, and it's helping us make improvements in our free cash flow generation. Also, by having quite a bit of people off the payroll, And this remains an important focus going forward. This story is not over.

Harold C. Bevis: So we're going to continue this balanced focus on growing earnings through growth as well as cost out initiatives and it is helping us make improvements in our free cash flow generation also by having quite a bit of people off the payroll.

Harold C. Bevis: And this remains an important focus going forward is this story is not over we're underway.

Harold C. Bevis: We're underway with optimizing here. A lot of it is focused on our underperforming plants, and it will lead to an improvement in our overall capital structure also. We believe that we'll be able to put the periods of financial stress behind us, if we haven't already, as we evolve our capital structure to be more reflective of our current performance and continued impact on implementing our transition strategy. This is one quarter at a time, one improvement at a time, sequential improvement, staying accounting, taking forward actions, and improving base productivity. Highlighted on page 11, if you just turn the page, I'd like to flip and turn about our commercial program.

Harold C. Bevis: With optimizing here a lot of it is focusing on our underperforming underperforming plants.

Harold C. Bevis: And it will lead to an improvement in our overall capital structure also.

Harold C. Bevis: We believe it will be able to put the periods of financial stress behind us if not if we haven't already as we evolve our capital structure to be more reflective of our current performance continued impact on implementing our transition strategy. This is this is one quarter at a time.

Harold C. Bevis: One improvement at a time sequential improvement thing accounting taking forward actions.

Harold C. Bevis: And improving base productivity.

Harold C. Bevis: Highlighted on page 11, if you just turned the page I'd I'd like to flip in turn about our commercial program. Our organic growth program has been performing very well and we're encouraged by our early success.

Harold C. Bevis: Our organic growth program has been performing very well, and we're encouraged by our early success and ongoing success. Accelerating the growth of new business wins is another key to our transformation plan. And after having won a record 63 million new business awards during calendar year 23, we delivered another 17 million new awards in the first quarter of this year, making a total of $80 million in a short amount of time.

Harold C. Bevis: And ongoing success in accelerating the growth of new business wins is another key to our transformation plan.

Harold C. Bevis: And after having won a record 63 million of New business Awards are in calendar year 'twenty three we delivered another $17 million of New awards in the first quarter this year.

Harold C. Bevis: A total of $80 million in a short amount of time.

Harold C. Bevis: We're on pace to deliver a similar amount this year, 55 to 70. We put in a range there because it's really hard to tell when you're going to close on things in your pipeline, but we're on pace now for the middle point of our guidance range here, as you can see from the results, which would mean 120 million to 135 million of new business, one over eight quarters. Our key growth areas continue to be the Chinese automotive markets, which are just flourishing with indigenous and export opportunities, the U.S. electrification and grid technologies, where we specifically are on the grid edge, and Selected Vehicle Programs in the Markets of North America, South America, and Europe.

Harold C. Bevis: We're on pace to deliver a similar amount this year of 55 to 70, we put in a range there because it's really hard to tell you know when youre going to close on things in your pipeline, but we're on pace now what for the Middle point of our guidance range here as you can see from the results, which would mean 120 million to $135 million of new business won over eight quarters.

Harold C. Bevis: Our key growth areas continue to be the the China automotive markets, which are just flourishing with indigenous and export opportunities. The U S electric vacation and grid technologies, where we specifically are on the grid edge.

Harold C. Bevis: Selected vehicle programs in the markets of North America, South America and Europe.

Harold C. Bevis: We're continuing to be selective in the medical markets. We were mindful of the amount of capex we've attached to growth plans. Tim French is the manager of our capex budget. And we've walked away from some opportunities that were just too capex intense for us.

Harold C. Bevis: We're continuing to be selective in the medical markets are we we're mindful of our of the amount of Capex. We've attached to growth plans 10, French is the minder of our Capex budget.

Harold C. Bevis: We've walked away from some opportunities that were just too capex intense for us. So we continue to leverage our installed base on an ongoing basis and this batch of growth is much more capital effective.

Harold C. Bevis: So we continue to leverage our installed base on an ongoing basis, and this batch of growth is much more capital efficient and capital efficient than prior experiences by the company, and we're leveraging our installed capacity very well. If you turn to page 12,

Harold C. Bevis: Capital efficient than in prior experiences by the company and we're leveraging our installed capacity very well.

Harold C. Bevis: If you turn to page 12.

Harold C. Bevis: We'd like to reaffirm our free cash flow and new business win outlooks while slightly tightening our net sales and adjusted EBITDA guidance ranges. And for the full year, just to repeat it here, we're expecting net sales in the range of 45 to 505, up slightly from the prior year at the midpoint, adjusted EBITDA in the range of 48 to 54, up over 20% at the midpoint, free cash flow in the range of 10 to 15, up again slightly at the midpoint compared to the improved free cash flow generation of last year, and new business wins in the range of 55 to 70.

Harold C. Bevis: We'd like to reaffirm our free cash flow and new business went outlooks, while slightly tightening our net sales and adjusted EBITDA guidance ranges and for the full year just to repeat it here.

Harold C. Bevis: We're expecting net sales in the range of 45 to 505 up slightly.

Harold C. Bevis: From prior year at the midpoint adjusted EBITDA in the range of 48 to 54.

Harold C. Bevis: Up over 20% at the midpoint free cash flow in the range of 10 to 15.

Harold C. Bevis: Again slightly at the midpoint compared to improve free cash flow generation of last year and new business wins in the range of 55 to 70.

Harold C. Bevis: Our guidance continues to reflect steady market demand. Despite some observed weakness in North American industrial markets relative to 2023, specific to NN, we can expect to continue executing our aggressive growth program, ultimately driving free cash flow, and profitability across several new markets and customer platforms. With that, I'd like to thank you for listening, and I'll turn the call back over to the operator for questions. Thank you. We will now begin the question.

Harold C. Bevis: Our guidance continues to reflect steady end market demand. Despite some observed weakness in north American industrial markets relative to 2023 specific to N N.

Harold C. Bevis: Can we expect to continue executing our aggressive growth program ultimately driving free cash flow.

Harold C. Bevis: And profitability across several new markets and customer platforms with that I'd like to thank you for listening and I'll turn the call back over to the operator for questions.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're 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 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Joe Gomes with Noble Capital. Please go ahead.

Speaker Change: Thank you we will now begin the question and answer session.

Joseph Anthony Gomes: To ask a question you May Press Star then one on your Touchtone phone.

Joseph Anthony Gomes: If you're using a speakerphone please pick up your handset before pressing the keys. If anytime. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

Joseph Anthony Gomes: Good morning. Thanks for taking my questions. Nice quarter. Thank you, Joe. So you mentioned on the seven facilities that three are back to profitability now, and you're hoping to get the other four by year end. And I think you previously talked about there being 100 million dollars of revenue associated with them that was unprofitable. How much of that 100 million dollars of revenue would you say is now returned to profitability?

Operator: And the first question will come from Joe Gomes with Noble capital. Please go ahead.

Harold C. Bevis: Yeah, it's about half of it, Joe. And we're underway with a goal by the end of the year for that group to cross the line and make money for us on the way to making 5%. So we're going to go from losing over 10% to making plus 5%, which is slightly below our average. But those plants specifically have some of our older assets in them, some special purpose assets that we set realistic goals for now. But right now, we're kind of clearing waivers on about half of the revenue, Joe.

Speaker Change: Good morning, Thanks for taking my questions nice quarter.

Speaker Change: Thank you Joe.

Harold C. Bevis: So just you mentioned on the seven facilities three or back to profitability now and you're hoping to get the other four.

Harold C. Bevis: By year end and I think previously you had talked about there was a $100 million of revenue associated with them that was unprofitable.

Harold C. Bevis: Much of that $100 million of revenue would you say has now returned to profitability.

Harold C. Bevis: Yeah, it's about half of it Joe.

Harold C. Bevis: And where we are underway with a goal by the end of the year for that group to.

Harold C. Bevis: Cross the line and make money for us on the way to making 5%.

Harold C. Bevis: So we're gonna go from losing over 10% to making plus 5%, which is slightly below our average, but those plants specifically have some of our older assets in them. Some special purpose assets.

Harold C. Bevis: We set realistic golf's for now, but right now we're kind of clearing waivers on about half of the revenue Joe.

Joseph Anthony Gomes: Excellent. And then you kind of touched on a little bit as one of them, maybe give us a little more color on some of the, you know, the medical efforts and the Connect and Protect, you know. Is there anything specific you can point out, you know, maybe contract wins are, you know, the size of some of the stuff that you're bidding on in that type of market?

Speaker Change: Excellent and then you kind of touched on it a little bit I was wondering maybe you can give us a little more color on on some of the you know the medical efforts and to connect and protect you know it was there anything specific you can point out you know maybe contract wins R. R.

Joseph Anthony Gomes: You know the size of some of the stuff that you're bidding on at that time in those markets.

Joseph Anthony Gomes: Yes.

Harold C. Bevis: Yes. There are a couple constraints that we look at with regard to saying yes to some of the growth awards when we get down to the final line. We've walked away from a couple of big opportunities, to be honest, that were extremely capital intensive. And when we say capital intensive for us, it means it's more than a dollar of capital for a dollar of sales. We're way below that right now because we've been careful about leveraging the company's assets and adding to adjacent markets where if you say you need four machine centers to complete a product, we have a capacity on two and need to de-bottleneck two. Some of the opportunities in medical because we weren't in it for three years. If you say there are four machine centers needed, we don't have any of them.

Joseph Anthony Gomes: There's a couple of constraints that we look at with regards to saying, yes to some of the growth rewards when we get down to the final line, we've walked away from a couple.

Harold C. Bevis: Big opportunities to be honest that were extremely capital intense [noise].

Harold C. Bevis: And when we say capital intense for us it means it's more than a dollar of capital for a dollar of sales.

Harold C. Bevis: We're way below that right now because we've been careful about leveraging the company's assets.

Harold C. Bevis: And adding to.

Harold C. Bevis: Into adjacent markets, where if you say you needed for machine centers to complete our product, we have a capacity on to and need to debottleneck to.

Harold C. Bevis: Some of the some of the opportunities in medical because we weren't in it for three years. If you say therefore machine centers needed, we don't have any of them.

Tim French: So we've been careful about those opportunities, whether they're in medical or other adjacent markets. We're stretching our growth capex. So I would say the overriding metric for us is largely financial. And we've been stretching the CapEx across some of these. We'll eventually get to the point where we have a little more firepower, but with the capital structure we have at the moment and the required to step down on our covenants and be compliant, we need to be frugal, on Capital Spending and we are, Tim French is on the phone, Tim's looked forward 12 quarters into our cash CapEx requirements and Tim I know you've looked at the details more than me here, do you have anything you want to add?

Harold C. Bevis: We've been careful about those opportunities whether they're in medical or other adjacent markets.

Tim French: We're stretching our growth capex.

Tim French: So I would say the overriding metric for us is largely financial.

Tim French:

Tim French: And we've been we've been stretching the capex across some of these it will get eventually.

Tim French: To get to the point, where we have a little more firepower, but with the capital structure, we have at the moment and they're required a step down on our covenants would be compliant we need to be frugal.

Tim French: On capital spending and we are Tim.

Tim French: Tim Tim French who's on the phone Tim's looked forward 12 quarters them into our cash capex requirements and.

Tim French: Tim I know you've looked at the details more than me here you want to have anything you want to add.

Tim French: I just echo what you said, Harold, that we're being very efficient in our spending capital on new business wins. And as you suggested, it's significantly below $1 for $1 of revenue. So we're really focusing on utilizing idle assets, which are underutilized assets today, and it's proving to be very effective in how we're gaining new business.

Tim French: I just might narrow that or.

Tim French: We're being very efficient in how we're spending capital on new business wins and as you.

Tim French: Did you suggest that significantly below a dollar for a dollar of revenue, so where we're really focusing on utilizing.

Tim French: Idle assets or on our own.

Tim French: Underutilized assets today, and it's and it's proving to be very effective.

Tim French: How we're gaining new business.

Joseph Anthony Gomes: Okay, great. And again, that leads right into the next question I had. And you talked about open capacity, underutilized assets, you know, how much, you know, if you were to utilize them at their normal utilization rate, you know, what kind of additional revenue could you generate just from the existing assets and open capacity?

Speaker Change: Okay great.

Joseph Anthony Gomes: And that leads right into the next question I had you talked about you know open capacity under utilized assets and know how.

Joseph Anthony Gomes: How much.

Joseph Anthony Gomes: You know it if you were to utilize them at your normal utilization rate.

Joseph Anthony Gomes: What kind of revenue additional revenue could you generate just from the existing assets and open capacity.

Harold C. Bevis: Yeah, that's a good question. A lot of the assets that we have are older and vintage, and they are capable of making certain products but not able to handle tolerance on certain others. For instance, we have a decent amount of equipment in our Automotive Engine Parts Area. We make a lot of parts for high-end engines, especially diesel, and on a piece of paper, it looks like they ought to be able to make medical products. But when you get down to the tolerance needed, they can't hold us back.

Speaker Change: Yeah, It's a good question.

Harold C. Bevis: A lot of the assets that we have are older vintage.

Harold C. Bevis: And capable of making certain products, but not able to handle tolerance uncertain others. For instance, we have a decent amount of.

Harold C. Bevis: Of equipment, and our automotive engine parts areas, we make a lot of our parks for high end engines, especially diesel.

Harold C. Bevis: And.

Harold C. Bevis: On a piece of paper it looks like they ought to be able to make medical products.

Harold C. Bevis: But when you get down to the tolerance needed they can't hold the they can't hold us back.

Harold C. Bevis: So they become what we call special purpose assets. So we have a decent amount of those. If you look at our balance sheet, you know, we have over $400 million worth of machines. And generally speaking, we're running one shift.

Harold C. Bevis: So they'd become what we call special purpose asset. So we have a decent amount of that if you. If you look at our balance sheet. You know we have over $400 million worth of machines.

Harold C. Bevis: And generally speaking we're want running one shift.

Harold C. Bevis: And if you say that the growth programs are running 50 cents to a dollar of growth, and that's a lot of potential, financially speaking, a lot, a lot of open capacity. But it's not it's kind of fake news because the capacity is only capable of supporting certain types of growth initiatives. And on a growth basis, we're really focused on accretive growth versus just filling up stuff.

Harold C. Bevis: And if you say that the growth programs are running 50.

Harold C. Bevis: Two a dollar of growth.

Harold C. Bevis:

Harold C. Bevis: And that's a lot of [laughter] potentially financially speaking a lot a lot of open capacity a lot of open capacity.

Harold C. Bevis:

Harold C. Bevis: But it's not it's kind of fake news because it's the capacity is only capable of a certain type of supporting certain type of growth initiatives.

Harold C. Bevis: And on a growth basis, we're really focused on accretive growth.

Harold C. Bevis: Versus just filling up stuff.

Harold C. Bevis: And so a lot of it remains idle, Joe. And to be honest, we're thinking through what our rooftop footprint should look like. And especially, it turns back to the underperforming plan areas where they're mainly light on volume, light on volume. And they're mainly light on volume because they can mainly make commodity products. So you look at whether you want to invest in those machines to be able to do other things, or do you want to call it a day?

Harold C. Bevis: And so a lot of it remains idle Joe and to be honest, we're thinking through what our rooftop footprint should look like.

Harold C. Bevis: And and especially it turns back to the underperforming plan areas, where theyre, mainly light on volume light on volume and they're mainly light on volume because then they can mainly make commodity products.

Harold C. Bevis: You look at do you want to invest in those machines to be able to do other things or do you want to call. It a day.

Harold C. Bevis: So.

Harold C. Bevis: We're getting smarter machine by machine about that. [inaudible] If I had to just give you a number, though, Joe, I would say the numbers between 50 and 100 million are what's realistic on paper. You could come up with a lot higher number by going through the math I just laid out there, but it's around 50 to 100.

Harold C. Bevis: We're getting progressively machine by machine smart about that.

Harold C. Bevis: If I had to just give you a number though Joe I would say the numbers between 50 and $100 million.

Harold C. Bevis:

Harold C. Bevis: It's what's realistic on paper you can come up with a lot higher number by going through the math I just laid out there, but it's around 50 to 100.

Joseph Anthony Gomes: Thanks for that, Harold. And then one last one for me to get back in queue. In your last quarter, you talked about potential more equipment sale leaseback transactions. I was just wondering kind of what the status of those is.

Speaker Change: Thanks for that Harold and then one last one for me to get back in queue. You last quarter, you had talked about some potential more equipment sale lease back transactions, just wondering kind of what the status of those are.

Harold: Yeah, Michael I'll take that one sure.

Michael C. Felcher: That one? Sure.

Speaker Change: Sure Yeah, we did as I noted.

Michael C. Felcher: Comments $4 9 million in Q1.

Michael C. Felcher: Yeah, we did. As I noted in the comments, 4.9 million in Q1. We're evaluating doing a little bit more this year. It's going to tie into our CAPEX projection, so we're, You know, our viewpoint is we want to maintain Positive Free Cash Flow in the range we provided, and we'll look to supplement CapEx spend with either equipment sale, leasebacks, or financing.

Michael C. Felcher: We're evaluating a doing a little bit more this year, it's going to tie into our capex projections were.

Michael C. Felcher: You know our our viewpoint is we want to maintain positive free cash flow in the range, we provided them and well work to supplement capex spend what you've ever equipment sale leasebacks or financing.

Joseph Anthony Gomes: Great. Thanks for taking my questions. I'll get back in queue.

Speaker Change: Great. Thanks for taking my questions I'll get back in queue.

John Edward Franzreb: John Franzreb, Sidoti & Co.

John Edward Franzreb: Thank you Joe. The next question will come from John friend Friend's Rabb with Sidoti and company. Please go ahead.

John Edward Franzreb: Good morning, everyone. And thanks for taking the questions. I guess I just start with the changes you made to your guidance weren't much, but I'm curious as to what were any underlying assumptions you might have changed, be it positive or negative, to maybe a revenue assumption in the year ahead.

Speaker Change: Good morning, everyone and thanks for taking the questions.

John Edward Franzreb: I guess I'll start with the changes you've made to your guidance.

John Edward Franzreb: It wasn't much but I'm curious as to what were any of the underlying assumptions you might have change either positive or negative to maybe your revenue assumption in the year ahead.

Harold C. Bevis: Yeah, Mike, do you want to take that one?

John Edward Franzreb: Yeah, Mike you want to take that one.

Michael C. Felcher: Sure, you know, it wasn't a big change. We pulled down the top line on revenue a little bit. The high end of the range, left the bottom the same, and that's, you know, reform all over four months into the year. We just had a better feel for where we see the year coming from a revenue standpoint. I don't think anything Overall changed in viewpoint other than just where we've been seeing the volume and how we see the rest of the year shaping up and then, on the side, really we just pulled the bottom end up a little bit and tightened that, again that's based on us being a third of the way through the year and having a little bit more confidence in where we see that coming in for the full year.

Harold C. Bevis: Sure.

Mike: It wasn't a big change we pulled down the top line on revenue a little bit the high end of the range or the bottom of the same in that that's you know we're all over four months into the year.

Michael C. Felcher: Just had a better.

Michael C. Felcher: Feel for where we see the year coming in from a revenue standpoint, I don't think anything.

Michael C. Felcher: Overall changed and viewpoint other than just where we've been seeing the volume and how we see the rest of the year shaping up and then on the EBITDA side.

Michael C. Felcher: Really we just pulled the bottom end up a little bit and tighten up again, that's based on.

Michael C. Felcher: US being a third of the way through the year and having a little bit.

Michael C. Felcher: More comprehensive and where we see that coming back.

Michael C. Felcher: Full year.

Harold C. Bevis: So there's no specific end market that you think is going more slowly than previously.

Michael C. Felcher: So theres no specific end market that you.

Harold C. Bevis: Zinc is going more slowly than than previously.

Harold C. Bevis: Okay.

Harold C. Bevis: Only one, only one. Our exposure to the U.S. residential construction market, John. We have a specific mix exposure. We make shafts for HVAC compressors, and we're, Because of our machinery and the heritage of that business, we're really, our mix is towards the low end side of those products, and you know what the high interest rates and what's happening with housing starts. We expected it to be soft. It's just a little softer than we thought.

Harold C. Bevis: The only one not only one or our exposure to the U S residential construction market John.

Harold C. Bevis: We have a specific mix exposure.

Harold C. Bevis: We make shafts for HVAC compressors.

Harold C. Bevis: And we're.

Harold C. Bevis: Because of our machinery in the in the heritage of that business, where really our mix is towards the low end side of those products.

Harold C. Bevis: And you know what the high interest rates and what's happening with housing starts.

Harold C. Bevis: We expected it to be soft and it's just a little softer than we thought.

Harold C. Bevis: We haven't lost position, and if you look at housing, you know, from the NIHB or any of the housing forecasters, there's expected to be relief. When the fund when the Fed, you know, gets after rates, but right now, its rates are higher for longer. And so we're staying softer for longer. Our customers in that area continue to give us flat, and then it's going to turn up flat, and then it's going to turn up, but it just keeps being flat. So we're calling it flat for right now.

Harold C. Bevis: We haven't lost position.

Harold C. Bevis: And if you look at housing you know from the NIH be or any of the housing price forecasters.

Harold C. Bevis: Forecasters, there's expected to be relief.

Harold C. Bevis: When the fun when the fed gets after rates, but right now it's rates are higher for longer and so we're staying softer for longer.

Harold C. Bevis: Our customers continue in that area continue to give us.

Harold C. Bevis: You know flat and then it's going to turn out flat and then it's going to turn out but it just keeps being flat. So we're calling it flat for right now John.

John Edward Franzreb: Makes sense, thanks Harold. And as far as rationalized volume is concerned, I assume that means that you're exiting the businesses. Where do you stand in that process, and how much additional will be rationalized, and how does it flow through the year? Yeah.

Speaker Change: Makes sense. Thanks.

Speaker Change: And as.

Speaker Change: As far as rationalized volume is concerned.

Harold: I assume that means that you're exiting the businesses.

Speaker Change: Where do you stand in that process and how much. Additionally, do rationalize and how does it flow through the year.

Harold C. Bevis: Yeah. So if you look at kind of right now, I think you're talking about right now for John, the outlook. Yeah. Yeah.

John Edward Franzreb: Yeah.

John Edward Franzreb: If you look at.

Harold C. Bevis: Right now I think you're talking about right now for John the outlook.

Speaker Change: Yes, yeah. So.

Harold C. Bevis: So, We're still staring at customer economics at one of our main underperforming plants, that's war as We have. We are evaluating a potential consolidation of rooftops, which when you do that, that automatically makes them. You look at the specific strips of business, and should you spend money to move them? Or should you attempt to end a live program?

Speaker Change: We're still staring.

Harold C. Bevis: Customer economics.

Harold C. Bevis: At one of our main underperforming plants, that's whereas.

Harold C. Bevis:

Harold C. Bevis: We have.

Harold C. Bevis: We are evaluating the potential consolidation of rooftops.

Harold C. Bevis: Which when you do that.

Harold C. Bevis: It automatically makes you look at the specific strips of business and should you spend money to move them or should you attempt to end of life program.

Harold C. Bevis: So we don't have a concrete plan today. We're just doing an evaluation of what's next for the facilities we've taken out. We think a lot of the excess headcount that was just standing around in those operations, and we're going to get them slightly profitable with no closures needed and no aggressive customer contracts needed. But that's not good enough. So, you know, we're already laddering our improvement program into 2025 at this point.

Harold C. Bevis: So we don't have a concrete plan today, we're just doing evaluation on what's next for.

Harold C. Bevis: The facilities, we've taken out we think a lot of the excess head count that was just standing around in those operations.

Harold C. Bevis: And we're going to get them to slightly profitable with no closures needed and no attacking customer contracts needed, but that's not good enough.

Harold C. Bevis: You know we're already lottery our improvement program into 2025 at this point and our goal is to continue sequential improvement.

Harold C. Bevis: And our goal is to continue, you know, sequential improvement and our trailing 12-month EBTA, and when we're looking forward, we know we're going to have to tax. Oh, I'm going to say. $20 to $30 million in business, Sean. That doesn't make sense yet in terms of the cost to make the products and what we get for a price. We've 80-20ed it. But we have, we have probably 20 million to go. Tim French.

Tim French: Would you modify my answer in any way?

Harold C. Bevis: And our trailing 12 month EBITDA.

Tim French: Looking forward, we know we're gonna have to attack.

Tim French: Oh I'm going to say.

Tim French: $20 million to $30 million of this is Sean I'm that debt.

Tim French: It does it makes sense yet in terms of the cost to make the products and what we get for our price. So.

Tim French: We've 80 20 to them, but we have we have probably 20 million ago, Tim French.

Tim French: Would you modify my answer in any manner.

Tim French: No, Harold, I think you've hit the number. We're looking at them in detail, and I think there is some some more to go, and I think you

Tim French: No Harold I think I think you've hit the number.

Tim French: Where we are looking at them in detail and I think there is some some more to go and I think you've captured the quantity.

Tim French: Perfectly.

John Edward Franzreb: And just for me, that 20 to 30 is not part of the 100 you expect to actually turn around in profitability. No, it isn't. Oh, it is better than that number. Okay, so within that number, so yeah, okay. One last question, in the fourth quarter, you had a slide that talked about where you were in the process, and I'll use the process because it's basketball playoff season. You were 30%. You're at 30% as of the end of the last quarter. Can you give us an update of where you stand in that process and your thoughts about where you expect to be at year-end?

Speaker Change: And can you just just just just from just debate by 20 to 30 is not part of the 100, you expect actually turnaround in profitability.

John Edward Franzreb: No it is.

John Edward Franzreb: Oh it is embedded in that number.

John Edward Franzreb: Okay.

Speaker Change: Oh, yes.

John Edward Franzreb: Yes.

John Edward Franzreb: Okay.

Speaker Change: One last question.

John Edward Franzreb: In the fourth quarter, you had a slide that talked about where you were in the process now he has the process because it's basketball playoffs season yeah.

John Edward Franzreb: Yes.

John Edward Franzreb: You had 30% as of the end of the last quarter can you guys just give us an update of where you stand in that process and and your thoughts about where you expect to be at year end.

Harold C. Bevis: Sure. The last year has been characterized by Tim and I coming in and working with the team that was already here. Dealing with our realities, decision-making upon items, and just being firm, fair, and friendly and moving out, making decisions, and moving. And I'd say we're through that. Phase two is supplementing our in-place, homegrown management with professional management, and professional leaders who can take us to the next level. We're starting that now. And then secondarily, for the plants, where we've tried to improve them as much as we could in place, we've sheltered them in place, and they're still dilutive, addressing that from a rationalization standpoint, either with the customer, or if we're going to retain it with our own actions. We almost spent no money on rationalization. Tim and I haven't done so since we've been here.

Speaker Change: Yes sure.

John Edward Franzreb: The last year, it's been characterized.

Harold C. Bevis: By Tim and I coming in and working with the team that was here.

Harold C. Bevis: Dealing embracing our reality.

Harold C. Bevis: Fishing upon items.

Harold C. Bevis: And just being firm fair and friendly and moving out and making decisions and moving.

Harold C. Bevis: And I'd say, we're through that.

Harold C. Bevis: Phase two is supplementing our.

Harold C. Bevis: In place Homegrown management with professional management professional leaders.

Harold C. Bevis: Who can take us to the next level, we're starting that now.

Harold C. Bevis: And then secondarily for the plants well, we've tried to improve them as much as we could in place with shelter in place.

Harold C. Bevis: And they're still dilutive.

Harold C. Bevis: Addressing that.

Harold C. Bevis: From a rationalization standpoint, either with a customer.

Harold C. Bevis: Or if we're going to retain it with our own actions. We spent almost we spent no money.

Harold C. Bevis: So that's next. So I'd say we're 30 to 40% along, John.

Harold C. Bevis: And rationalization, Tim and I haven't since we've been here. So that's next.

Harold C. Bevis: So I'd say we're.

Harold C. Bevis: 30% to 40% of long John.

John Edward Franzreb: In the next phase, we'll be addressing our footprint and bringing in a little bit more. Outside Management, uh... to steer our actions who have been through these things before. So, we're building upon the great work that we did in the last year, but you know, we're climbing a ladder here. And we're looking forward to people, and actions, and laddering into 25. Tim, Tim is the cat on the hot tin roof here managing the cat back because, at the same time, we want to generate free cash flow and pay down debt as we go.

Harold C. Bevis: And the next phase will be addressing our footprint.

John Edward Franzreb: And bringing in a little bit more.

John Edward Franzreb: Outside management.

John Edward Franzreb: To steer our actions that have been through these things before so.

John Edward Franzreb: We're building upon the great work that we've done in the last year, but you know we're climb we're climbing the ladder here.

John Edward Franzreb: And we're looking forward on people.

John Edward Franzreb: And actions and ladder into 25 [noise] Tim.

John Edward Franzreb: Tim Tim.

John Edward Franzreb: Tim is the cat on the hot Tin roof here managing the Capex because at the same time, we want to generate free cash flow and pay down debt as we go so.

John Edward Franzreb: The things I just said want to spend more; they want to consume more CapEx. So we're picking and choosing carefully. We don't have a 25 plan yet. We're not ready to give 25 guidance, but... You know, obviously, we know we're going to increase so we're putting in place a set of actions to do that. Tim, Tim, all the other operations report to you. How would you answer his question of what percentage along the way you are?

John Edward Franzreb: The things I, just said want to spend more they want to consume more capex.

Tim French: So we're picking and choosing carefully we don't have a twenty-five plan yet we're not ready to give 25 guidance but.

Speaker Change: You know obviously, we know we're going to increase so that we're putting in place a set of actions to do that Tim Tim Although all the operations report to you.

Tim French: Or would you answer this question of what percentage along the way are you.

Tim French: I think we're right in that 40% range. As you as you mentioned, we're we're looking at bringing in professional managers to help with the with the next phase. And the next phase tends to be a little more difficult than than what we've done so far when when you look at footprint rationalization and that type of thing, consolidation. So 40% is a good is a good percent for me. As far as where we are today versus where we hope to be.

Tim French: I think we're right in that 40% range and you as you mentioned, where we're looking at bringing in professional.

Tim French: Our managers to help with the with the next phase in the next phase tends to be a little more difficult and then what we've done so far when it when you look at.

Tim French: Footprint rationalization and that type of thing consolidations. So 40.

Tim French: 40% is a good.

Tim French: It is a good percent for me.

Tim French: As far as where we are today versus where we hope to be.

John Edward Franzreb: Excellent. And one last question. I'll get back into the queue.

Speaker Change: Excellent and one last question and I'll get back into queue.

Speaker Change: Can you just update me on the interest expense cost what was the cost of debt.

John Edward Franzreb: Can you just update me on the interest expense costs? What was the cost of debt at the end of the first quarter? I haven't seen a 10-Q filing yet, so I'm just curious what that looked like.

John Edward Franzreb: We ended the first quarter I haven't seen our 10-Q filing yet so I'm just curious what would that look like.

John Edward Franzreb: Yeah.

Michael C. Felcher: Yeah, just give me one sec to get you the actual P&L expense.

John Edward Franzreb: Mike.

Speaker Change: Yeah, just give me one second to get to you though.

Michael C. Felcher: Yes.

Michael C. Felcher: The actual P&L expense.

Michael C. Felcher: We did file a 10-Q, John. I know that you have a lot of things you read all at once in a burst here, but our queue is on fire.

Speaker Change: We did file the 10-Q I know I know that you have a lot of things you read all at once in a burst here, but our Qs on file.

Michael C. Felcher: Interest expense for Q1 was $5.4 million.

Speaker Change: And then I'm going to blame Factset.

Michael C. Felcher: [laughter] inter.

Michael C. Felcher: Interest expense for Q1 was $5 4 million.

Michael C. Felcher: What was the rate on that.

Michael C. Felcher: The majority of that would be the term loan, which is currently at 14.3%.

Michael C. Felcher: The majority of that would be about the term loan which is currently up 14.3 per cent.

Speaker Change: Okay. Okay. Thank you Mike. Thank you guys I'll get back into queue.

Michael C. Felcher: Okay. Thank you, Mike. Thank you, guys. I'll get back into queue. Thank you, John. The next question will come from Rob Brown with Lake Street Capital Markets. Please go ahead. Hi Harold and Mike.

Robert Duncan Brown: The next question will come from Rob Brown with Lake Street Capital Markets. Please go ahead.

Robert Duncan Brown: Thank you John next.

Michael C. Felcher: The next question will come from Rob Brown with Lake Street Capital markets. Please go ahead.

Robert Duncan Brown: Hello, Mike.

Robert Duncan Brown: Hey.

Robert Duncan Brown:

Robert Duncan Brown: Just following up on kind of the new business Award activity, how would you characterize the margin profile of that I assume it's a profitable, but how does that sort of fit into into where you're trying to get to.

Harold C. Bevis: Yep, it's a good question, and there are some prisms on to that answer.

Robert Duncan Brown: Yeah.

Robert Duncan Brown: It's a good question and.

Harold C. Bevis: Prisms onto that answer.

Harold C. Bevis: Largely we're trying to leverage the capacity we have in place and the capacity we have in place except for the plants.

Harold C. Bevis: Just a few plants that are negative.

Robert Duncan Brown: Have there have there cost covered and generating margin at the plant level. So then you get into how do you treat the use of an existing asset to re spread it across new business or do you look at it totally on a variable basis. If all your costs are already covered.

Harold C. Bevis: Largely, we're trying to leverage the capacity we have in place, and the capacity we have in place, except for the plants that just a few plants that are negative, have their costs covered in generating margin at the plant level. So then you get into how do you treat the use of an existing asset? Do you re-spread it across new business, or do you look at it totally on a variable basis if all your costs are already covered?

Harold C. Bevis: I can tell you that we set IRR goals for the new business, and they're reviewed by Tim and I. And it's creative as a group. And how much do you keep to the bottom line also interweaves into what optionality do you have over the existing capacity? Because in some cases, we're getting awards for that.

Harold C. Bevis: I can tell you that we set IRR goals.

Harold C. Bevis:

Harold C. Bevis: On on the new business and they're reviewed by Tim and I.

Harold C. Bevis: And it's accretive as a group.

Harold C. Bevis: And how much do you keep to the bottom line also interweaves into what Optionality do you have over the existing capacity because in some cases, we're getting awards for which if.

Harold C. Bevis: If you look at your existing capacity, you're constrained. But if you look at swapping out and keeping the existing and reusing, repurposing the capacity for the new business, it's just a net margin improvement of, you know, several points. But overall, it's accretive; we're being pretty disciplined about that. We use Salesforce.com and Tableau, so we have contemporary tools to house all of our pipeline activity as well as our one business, and then it goes out by quarter on the use of cash for both capital and working capital, so we can see what we're obligating the company to do for periods.

Harold C. Bevis: If you look at your existing capacity constrained.

Harold C. Bevis: But if you look at swapping out and.

Harold C. Bevis: And keeping the existing and reusing repurposing the capacity for the new business. It is just a net margin improvement of several points.

Harold C. Bevis: But overall it's accretive.

Harold C. Bevis: We've.

Harold C. Bevis: We're being pretty disciplined about that we use salesforce dot com and tableau.

Harold C. Bevis: So we have contemporary tools that houses all of our pipeline activity as well as our one business and then it goes out by quarter on the use of cash for both capital and working capital. So we can see what we're obligated the company to them for periods.

Harold C. Bevis: We've been capital efficient, so the show is still going here for filling in the future period. I'm not ready yet to discuss exactly how accretive it is, but I'll take that as an action item for the next call. Okay, great. Thanks for all the color there.

Harold C. Bevis: We've been capital efficient so the show was still going here filling in the future periods.

Harold C. Bevis: And.

Harold C. Bevis: I'm not ready yet to discuss exactly how accretive it is but I'll take that as an action item.

Harold C. Bevis: For the next call.

Harold C. Bevis: And then he went through several categories of new business activity, but grid and electrical activity was one of the areas you highlighted. What are you sort of seeing there in terms of activity, and how do you see the growth? So we have two main product lines there. One is, you know, your old fashioned circuit breakers and distribution boxes for electrical distribution and control. And the other is grid edge devices for the control of grids.

Speaker Change: Okay, great. Thanks for all the color there and then he went through several categories of the new business activity pick grid in electrical activities was one of the areas you highlighted.

Harold C. Bevis: What are you sort of seeing there in terms of activity.

Harold C. Bevis: How do you see the growth looking in that area.

Harold C. Bevis: So we have two main product lines there.

Harold C. Bevis: One is you know your old fashioned circuit breakers, and distribution box electrical distribution and control.

Harold C. Bevis: Any others grid edge devices.

Harold C. Bevis: For control of the grid.

Harold C. Bevis: In the case of grid edge devices or smart meters and that sort of a thing, they're actually used in electrical and water. And so, if you look at the public filings by our customers there, they're growing in both water... Utility Control, and electrical utility control. Their customers are utilities, cities, and municipalities, and Water Districts.

Harold C. Bevis: In the case of grid grid edge devices, or smart meters and that sort of a thing.

Harold C. Bevis: They are actually used in electrical and water.

Harold C. Bevis: And so if you look at the public filings by our customers there.

Harold C. Bevis: They're growing in both water.

Harold C. Bevis: Utility control and electrical utility and control their customers are utilities and cities and municipalities.

Harold C. Bevis: And water districts.

Harold C. Bevis: And so on the grid edge devices, which we're associated with, they're seeing steady growth. And we have a good mix there on electrical distribution and control. A little different because we're tied in mainly, again, to residential. And that's tied into the same dynamic, as I mentioned earlier, for us on shafts in a machining business. That one, though, we've had some decent numbers of new wins.

Harold C. Bevis: And so the grid edge devices.

Harold C. Bevis: Which were associated with are seeing steady growth.

Harold C. Bevis: And we have a good mix there on electrical distribution and control of <unk>.

Harold C. Bevis: Little different because we're tightened mainly again to residential.

Harold C. Bevis: And that's tied into the same dynamic.

Harold C. Bevis: As I mentioned earlier for us on shafts and our machine business.

Harold C. Bevis: That one, though we've had some decent amount of new wins and so I'm.

Harold C. Bevis: And so we're not trending down in that area due to share gain. But the base business is a little soft, and it's think contactors, connectors, and all types of electrical distribution across points. So we're able to make that with powdered metal. We have powdered metal products, as well as assembled copper bar and bus bar.

Harold C. Bevis: We're not turning down in that area, but due to share gain.

Harold C. Bevis: But the base business is a little soft and it think contactor is.

Harold C. Bevis: Connectors.

Harold C. Bevis: Grounding.

Harold C. Bevis: And all types of electrical distribution across point.

Harold C. Bevis: So we're able to make that with powdered metal.

Harold C. Bevis: Metal products as well as assembled copper bar and bus bar.

Harold C. Bevis: So overall, it's growing a little bit and has a sizable backlog. So in that arena, our customers talk about book to bill, and there are a couple of years of backlog. The backlogs go over a couple of years.

Harold C. Bevis: So overall.

Harold C. Bevis: It is growing a little bit.

Harold C. Bevis: And it has a sizable backlogs sizable backlog so in that arena, our customers talk about book to Bill.

Harold C. Bevis: And there's a couple of year backlogs, our backlogs go over a couple of years.

Speaker Change: Okay, great. Thanks for the color I'll turn it over.

Robert Duncan Brown: Thank you, Rob.

Harold C. Bevis: Thank you Rob next question will come from Mike Crawford with B Riley. Please go ahead.

Robert Duncan Brown: Thank you. You've given some prior pipeline information, like you have a 500 million pipeline that you're in. Did you state what the pipeline is currently?

Rob: Thank you.

Robert Duncan Brown: And the you've given some prior pipeline information like you had a 500 million pipeline at year end did you state what the pipeline is currently.

Harold C. Bevis: We, we, it's grown a little bit. It's closing in on around 550 million, Mike.

Robert Duncan Brown: We it's grown a little bit it's closing in on around 550 million Mike.

Harold C. Bevis: Okay.

Robert Duncan Brown: And then I was hoping you could maybe elucidate on how these new program wins layer into your existing base of business. So NN Inc. had, what, $489 million in revenue last year, but there's What is there like a related metric of how much of that is somewhat recurring or, or, or, or, or, or, or, or, or, or, or, or, or, or, or, or, or, or

Harold C. Bevis: And then I was hoping you could make.

Robert Duncan Brown: Maybe elucidate how.

Robert Duncan Brown: How.

Robert Duncan Brown: These new program wins layer into your existing base of business. So.

Robert Duncan Brown: And I think that what $489 million of revenue last year, but.

Robert Duncan Brown: Is what.

Robert Duncan Brown: Is there like a related metric on how much of that.

Robert Duncan Brown: <unk> is somewhat victorian or or or or somewhat bleeding off.

Robert Duncan Brown: Yes.

Robert Duncan Brown: So.

Harold C. Bevis: There are a few important ones. One is that the average time from securing an award nomination, which is the industry lingo, to hitting peak annual sales or run rate sales is about 18 months. Generally speaking, we're a Tier 2 provider to a tier one making a subsystem that's going through their internal development in the case of vehicles. For example, Vehicle Crash Testing and Vehicle Certification, and PPAPing, which is a quality term used in the industry.

Robert Duncan Brown: There's a few there's a few important metrics.

Harold C. Bevis: One is that the average time.

Harold C. Bevis: From securing an award nomination, which is the industry lingo.

Harold C. Bevis: To hitting peak annual sales run rate sales is about 18 months.

Harold C. Bevis: Generally speaking, we're a tier two provider.

Harold C. Bevis: To a tier one making a sub system, that's going through their internal development in the case of vehicles.

Harold C. Bevis: Vehicle crash testing and vehicle certification.

Harold C. Bevis: <unk>, which is a quality term used in the industry.

Harold C. Bevis: So a vast majority of our new wind profile is at 18 months from award to peak annual sales. On the second point you touched on, which was comparing last year to this year, I think the underlying question is, "Why isn't it going up more now?" That gets into the lack of winning that was going on in 22, and early 23, that would have manifested itself around now.

Harold C. Bevis: Oh.

Harold C. Bevis: The vast majority of our new wind profile is at 18 months from award to peak annual sales.

Harold C. Bevis: On the second point, you touched on which was comparing last year to this year.

Harold C. Bevis: I think the inferred question is why isn't it going up more now.

Harold C. Bevis: That gets into the lack of winning that was going on in 'twenty two.

Harold C. Bevis: And early 'twenty, three that would've manifested itself around now.

Harold C. Bevis: So.

Harold C. Bevis: So, there will be an inflection on the contribution of new business to our base. What's the takeaway?

Harold C. Bevis: There there'll be an inflection on the contribution of new business onto our base business, what's the takeaway.

Harold C. Bevis: A business that's going through end of life. Production, EOP. End of production. And we have looked forward, and we kind of know what that is. And we know what its shape is.

Harold C. Bevis: That's going through end of life production E L. P.

Harold C. Bevis: And if production.

Harold C. Bevis: And our goal is to do much higher growth than market growth. And so we're the business we're securing, if you do the math on it, you know, we're 165 million on 500 million. So that's way above our market growth. Our market is growing 3 to 5%. You know, we're winning around 13 to 15%. The takeaway is in the production, which is just a, it's in the single

Harold C. Bevis: We have looked forward.

Harold C. Bevis: And we kind of know what that is and we know what the look of it is and our goal is to do a much higher growth.

Harold C. Bevis: And market growth and so we're the business we're securing if if you do the math on it you know.

Harold C. Bevis: $165 million on $500 million.

Harold C. Bevis: So that's way above our market growth our market is growing 3% to 5% you know, we're winning around 13% to 15%.

Harold C. Bevis: The takeaway is into production, which is just as it gets into single digits takeaway. So.

Harold C. Bevis: The game plan here is to create a growth portfolio that layers in, gives us the confidence to say no to the continuation of underperforming business and walk away. And, and we're just starting. So, we're right at four quarters here since Tim and I have been here. And the commercial team, which is led by a gentleman named Verlin Bush. Verlin was new to the job after I got here.

Harold C. Bevis: The game plan here is to create a growth portfolio.

Harold C. Bevis: Layers in.

Harold C. Bevis: It gives us the confidence to say no.

Harold C. Bevis: To continuation of underperforming business and walk away and and we're just starting so.

Harold C. Bevis: Yeah, we're right at four quarters here since since Tim and Ive been here.

Harold C. Bevis: And the commercial team, which is led by a gentleman named Berlin Bush.

Harold C. Bevis: I promoted him into that position, and he's been winning. His team has been winning at a much higher rate than the company ever has, and it's not slowing down. The net amount will come to us in future quarters. Sometimes we'll get dropped in business, Mike. Like in the first quarter, we did have a decent amount of immediate startup wins. Immediate startup usually means it'll start in two or three quarters, versus five or six.

Harold C. Bevis: Berlin was new in the job after I got here I promoted him into that position.

Harold C. Bevis: And he's been winning his team has been winning at a much higher rate than the company ever has and its not slowing down so.

Harold C. Bevis: The net the net amount is coming to us in future quarters, sometimes we'll get drop in business Mike.

Harold C. Bevis: Like in the first quarter, we did have a decent amount of immediate startup.

Harold C. Bevis: <unk> immediate startup usually means it'll start in two or three quarters.

Harold C. Bevis: Five or six.

Harold C. Bevis: And right now, inside the company, we're launching close to 40 programs, which is a very high level of new product launching that the company's ever been associated with. And Tim's put in place a phase gate program, phase zero program, and PPAPing discipline. And he's bolstered his operations team with professional managers who've done this at a high level, in large quantities. So it's the numbers, and then it's do it properly so you don't stumble.

Harold C. Bevis: And right now inside the company we're launching.

Harold C. Bevis: Close to 40 programs.

Harold C. Bevis: Which is a very high level of new product launching.

Harold C. Bevis: Then the company has ever been associated with and attempts to put in place a phase.

Harold C. Bevis: Phase Gate program Phase Zero program.

Harold C. Bevis: And <unk> discipline and he's in he's bolstered his ops team with a professional managers who've done this at a high level.

Harold C. Bevis: Oh mass quantity so if the numbers and then it's due it properly so you don't stumble.

Harold C. Bevis: And right now, we're operating near our capacity for our ability to quote, and we have space on CapEx to do more, but these programs need to be implemented. So we're kind of comfortable with where we are right now, Mike, not ready to take that aspiration part of our Go Forward plan. We're really committing to do that amount. And when we've proven we can launch programs... and they are accretive, and we do post-mortems, and we get it right, and it's muscle memory. We will look at taking up the dollars of growth that we intend to get the markets there. We're seeing opportunities; we're just kind of cherry picking right now. Tim, anything else? Any other modifiers on that?

Harold C. Bevis: And right now, we're operating near our capacity for our ability to quote much.

Speaker Change: And we have space on Capex to do more but at these programs need to be implemented. So we're kind of comfortable with where we are right now Mike I'm not ready to take that aspiration part of our go forward plan up we're really committing to do that amount and when we've proven we can launch programs.

Tim French: And they are accretive and we do postmortems and we get it right and its muscle now are.

Harold C. Bevis: We will look at taking up the the dollars of growth that we intend to get the market's there.

Tim French: We're seeing opportunities, where just kind of cherry picking right now.

Speaker Change: Tim anything else any other modifiers on that.

Tim French: I know again, Harold, I think you nailed it. I don't wouldn't have anything to add to that.

Tim French: No again, Harold I think you've nailed it.

Speaker Change: Wouldn't have anything to add to that.

Harold C. Bevis: Thank you. Thanks, Michael. Okay, thank you. Just one follow-up to that question. So when you have your 18 months on average from award to peak revenue, and then what on average is the EOP tail after that?

Speaker Change: Thank you. Thanks, Mike Okay. Thank you just one one follow up to that question. So when you got your 18 months on average from.

Harold C. Bevis: Award to peak revenue.

Harold C. Bevis: Then what on average is the L. P tail after that.

Robert Duncan Brown: Are you asking how long we generally retain a program? Yes, it's around eight years.

Speaker Change: Are you asking how long do we generally retain a program.

Robert Duncan Brown: Yes.

Robert Duncan Brown: It's around eight years.

Robert Duncan Brown: Mhm.

Harold C. Bevis: So they're like annuity strips. If you look at the amount of business per year, numerically, that the company has, it's not all eight-year business. We have some PO business, too, but it times out, and then needs to be replaced. I'd say the net amount, you know, the net amount, is probably half of the win rate. We'll get smarter on that for the next call, Mike.

Robert Duncan Brown: They're like annuity strips.

Harold C. Bevis: If if you look at the amount of business per year numerically.

Harold C. Bevis: The company has.

Harold C. Bevis: You know, it's not all eight your business, we have some P O business too but at times out.

Harold C. Bevis: And then needs to be replaced I think the net amount you know the net amount.

Harold C. Bevis: Probably half of the win rate.

Harold C. Bevis: We'll get we'll get smarter on that for the next call Mike.

Robert Duncan Brown: Okay, and then just a final question for me, you're you're right now thinking you can capture another 10 million of you, but once your restructuring actions are completed, particularly at these maybe four other places that remain below profitability, what is the anticipated amount, Ben, that you need to invest to achieve this goal? And maybe if you could frame that in the context of, you know, EBIT versus adjusted EBITDA, that would be very helpful for us. Thank you.

Harold C. Bevis: Okay.

Speaker Change: And then just a final.

Speaker Change: Question for me so.

Robert Duncan Brown: Your your.

Robert Duncan Brown: You're right now thinking you can capture another 10 million of EBITDA once you're a restructuring actions are completed.

Ben: Particularly with these maybe for other places that remain.

Robert Duncan Brown: A little profitability.

Robert Duncan Brown: What is the anticipated.

Robert Duncan Brown: And that you need to invest to achieve this goal and maybe if you could frame that in the context of.

Robert Duncan Brown: You know ebay versus.

Robert Duncan Brown: Adjusted EBITDA that'd be very helpful for us Thank you.

Robert Duncan Brown: Okay.

Harold C. Bevis: Okay. I'm going to talk a little bit to Tim and Mike about the adjusted EBIT, EBIT, and EBITDA. The business that we spoke about, that lost money, in 2023. We had about $100 million in business that lost a little more than $10 million at the plant level. We articulated a goal, to rationalize that business, trying to retain business strips that were good, but to increase and 24 versus 23. About 10 million Aviv in the end.

Robert Duncan Brown: Yeah.

Speaker Change: I'm going to talk a little Tim and Mike on the adjusted EBIT EBIT to EBITDA.

Harold C. Bevis:

Harold C. Bevis: The business that we spoke about.

Harold C. Bevis: That loses money.

Harold C. Bevis: In 2023.

Harold C. Bevis: We had about $100 million of business that lasts a little more than $10 million at the plant level.

Harold C. Bevis: We articulated a goal.

Harold C. Bevis: To rationalize that business trying to retain business trips that were good.

Harold C. Bevis: But to increase.

Harold C. Bevis: And 24 versus 23.

Harold C. Bevis: About 10 million of EBIT da.

Harold C. Bevis: So if you do that math, that gets you back to about break even on an annualized basis. But that's not the end point for those assets. The goal really is to get to plus five million. So then you say, how much capital was needed to get from, you know, minus 10 to zero? Basically nothing, not much, the minimum. The second part of your question is, so how much capital would be needed to get from zero to plus five? Okay, it's different.

Harold C. Bevis: And so if you do that math that gets you about back to about break even on an annualized basis.

Harold C. Bevis: But that's not the end point for those assets. The goal really is to get to plus $5 million.

Harold C. Bevis: Then you say how much capital was needed to get from minus 10 to zero.

Harold C. Bevis: Basically nothing not much de minimis.

Harold C. Bevis: The second part of your question is so how much capital would be needed to get from zero to plus five K different that's a different question.

Harold C. Bevis: That's a different question. So right now, Tim and I foresee some capacity rationalization, which will take some money, plant closures, plant consolidations, whatever title you want to put on it. It'll also take us going in for a couple hard talks with a few customers, not a lot, but a few. And then in the case of assets that become idled through that process, do you move them? Or do you modify

Harold C. Bevis: So right now Tim and I foresee.

Harold C. Bevis: Some capacity rationalization, which will take some money plant closures plant consolidations.

Harold C. Bevis: Whatever you want to put on it it'll also take us going in for a couple of hard talks with a few customers not a lot but a few.

Harold C. Bevis:

Harold C. Bevis: And then in the case of assets that become idled through that process do.

Harold C. Bevis: Do you move them.

Harold C. Bevis: Right now, Tim and I think a conservative assumption is that we're going to have to modify some of the equipment to be able to compete and be repurposed into our growth program. So that requires a use of capital, and that's one reason Tim's looking for 12 quarters here, against our current capital market constraints. And right now, it all works. So we're going to be, probably 60-40 capex on growth versus cost

Harold C. Bevis: Or do you modify them right now Tim and I think a conservative assumption is that we're gonna have to modify some of the equipment to be able to compete and be repurposed into our growth program.

Harold C. Bevis: So that has a use of capital and that's one reason in terms of looking for 12 quarters here against our current capital market constraints.

Harold C. Bevis: And right now it all works so we're gonna be.

Harold C. Bevis: Oh, the probably 60 40 capex on growth versus cost.

Harold C. Bevis: We haven't spent a lot of capital and costs since we've been here. We've been using it mainly for the growth and maintenance of the business. But we're going to need to spend some money on making that capacity profitable on a go-forward basis either through facility rationalization or investment in equipment so it can be repurposed to do something else. I'll hand it to Tim, and then Tim, if you'll hand it to Mike on the financial question. Sure, and

Harold C. Bevis: We haven't spent a lot of capital and costs since we've been here, we've been using it mainly on growth and maintenance of business.

Harold C. Bevis: But we're going to need to spend some money on on making that capacity profitable on a go forward basis, either through facility rationalization, our investment in the equipment. So it can be repurposed to do something else I'll hand, it to Tim and then Tim If you I'll hand, it to Mike on the financial question.

Tim French: Sure, and we're putting that analysis together now, so I don't, I wouldn't want to quote a number as far as what the capital required for that is, because we're just finalizing that, and we can take that as an action item for future calls. But Harold is completely correct.

Tim French: Sure and where we're putting that analysis together now so I don't I wouldn't want to quote a number as far as what the capital required for that is because we're just finalizing that and you can take that as an action item to future calls but.

Tim French: Harold Harold is completely correct. It was virtually no capital to two are will be virtually no capital to get it back.

Tim French: That group facilities to breakeven.

Tim French: It was virtually no capital to start with, or there will be virtually no capital to get it that group facilities to break even. Uh, but there will be some form of capacity rationalization, and it will require capital. But at this point, I couldn't quote a number.

Tim French: But there will be some form of capacity rationalization and it will require capital, but at this point I couldnt quota a number.

Michael C. Felcher: We're working within our overall idea of spending around $20 million, Mike, on CapEx. Right now, we're not letting go of that constraint we have self-imposed on ourselves.

Tim French: And we're working within our overall idea of spending around 20 million Mike on Capex.

Michael C. Felcher: Okay.

Michael C. Felcher: Right now we're not letting go of that that constraint self imposed on ourselves.

Speaker Change: Right and then on the on the third point on the third point on EBIT to EBITDA, Mike would you handle that one.

Harold C. Bevis: Yeah, I think you covered it in the sense that the $10 million is embedded in our $24 million outlook relative to $23 million, and then going forward, as Tim said, if we spend some capital back on facility rationalization, that wouldn't impact EBITDA if we had any costs incurred for plant consolidation. We would typically exclude those from our adjusted EBITDA, but they are yet to be defined in terms of capital and expense for future footprint decisions at this point.

Speaker Change: Yeah, I think you've covered it.

Harold C. Bevis: Millions are embedded in our 24 outlook relative to 'twenty three and then going forward you know what.

Harold C. Bevis: As Tim said, if we spend some capex.

Harold C. Bevis: For our facility rationalization.

Harold C. Bevis: That wouldnt impact EBITDA, and if we had any any costs incurred.

Harold C. Bevis: For plant consolidation, we would typically exclude those from our adjusted EBITDA, but you have to be defined in terms of capital and expense.

Harold C. Bevis: For future.

Harold C. Bevis: There's, you know, Mike Crawford on plant consolidations. As you know, no one likes adjusted EBITDA, us included, but there's some gap accounting to follow if you're going to consolidate a facility. And so I would say we're not going to do anything other than follow GAAP accounting on it, the rationalization that we're going to do. And it's not a big thing; it's a minor thing. It's not going to be a big use of capital, but it'll be a use of capital. At Tim's point, we'll get our arms around it and be able to give numerical information next.

Harold C. Bevis: Decisions at this point there there's you know Mike Crawford on plant consolidations as you know no one likes adjusted EBITDA.

Harold C. Bevis: That's included but there's some GAAP accounting to fall off.

Harold C. Bevis: If you're going to consolidate a facility and so I would say, we're not going to do anything other than follow GAAP accounting on it rationalization that we're going to do and it's not a big thing. It's a minor thing it's not going to be a big use of capital, but it'll be a use of capital in the tims point, we'll get our arms around it and be able to give a numerical information next time.

Michael C. Felcher: All right, well, thank you very much. Thank you, Mike. Again, if you have a question, please press star, then one. Our next question will come soon.

Speaker Change: Alright, well, thank you very much.

Speaker Change: Thank you Mike.

Operator: Again, if you have a question, please press star, then 1. Our next question will come from Tom Kerr with Zacks Investment Research. Please go ahead. Good morning, guys.

Michael C. Felcher: Again, if you have a question. Please press Star then one our next question will come from Tom Kerr with Zacks investment Research. Please go ahead.

Thomas Kerr: Good morning, guys.

Thomas Kerr: Most of my questions have been answered just curious about the sharing of business and what's driving the sort of growth and improvements there or is it product specific or more backward type issues.

Thomas Kerr: Yep, I'd say it's mostly self-caused. So a year ago, Tim and I came in, and we kind of challenged the global commercial teams to grow in adjacent areas that made sense for us and didn't pursue any kind of silly moonshots. The China team had a lot of opportunities in front of them with the top 50 OEs in China and has been very successful, the team there, led by Rex Flong. And it's very heavy, Tom, into steering, electric power steering, EPS, we call it.

Thomas Kerr: Yeah, I'd say, it's mostly.

Thomas Kerr: Self caused.

Thomas Kerr: So a year ago, when Tim and I came in and we kind of challenged our global commercial teams to grow in adjacent areas that makes sense for us.

Thomas Kerr: And don't pursue any kind of silly moon shots.

Thomas Kerr: China team had a lot of opportunities.

Thomas Kerr: In front of them with the top 50 Oes in China.

Thomas Kerr: And has been very successful the team there led by Rex Huang.

Thomas Kerr: And it's very heavy Tom into steering electric power steering EPS, we call it.

Thomas Kerr: So we've steered away from engine components in that market. Obviously, there are government mandates to switch to fully electric vehicles, New Generation Vehicles, they call them, and so we haven't pursued engine parts in that market. We're primarily after vehicle control sensors, steering, braking, Seat Controls, Window Controls, anything that has a worm gear.

Thomas Kerr: So we've steered away from <unk>.

Thomas Kerr: Engine components in that market are obviously, there's government mandates to switch to a fully electric vehicles.

Thomas Kerr: New generation vehicles, they call them.

Thomas Kerr: And so we were we havent pursued engine parts in that market were primarily after vehicle control sensors.

Thomas Kerr: During braking.

Thomas Kerr: Seat controls window controls.

Thomas Kerr: Anything that has a worm gear.

Harold C. Bevis: So if you looked at our machined business, a machined business is primarily turned parts turned apart. There are a lot of different types of machining in the world. We're an expert in turning apart things down to the nano level. So that's a smaller group of people that can do what we do with that level of precision. And so, we're fundamentally in China looking at where there are turned machine parts on vehicles and getting after them in there. And obviously, there's a tremendous amount of steering. And if you look at self-driving vehicles and automated vehicles, the precision of steering and braking is dramatically increased.

Thomas Kerr: If you looked at our machine business in machine businesses, primarily turned parts turned parts, there's a lot of different types of machining.

Harold C. Bevis: In a world, where we're an expert in turned parts.

Harold C. Bevis: Down to the nano level.

Harold C. Bevis: But that's a smaller group of people that can do what we do with that level of precision and so.

Harold C. Bevis: We're fundamentally in China, looking at where our turned machine parts on vehicles.

Harold C. Bevis: And getting after them in there and obviously, there's a tremendous amount of steering and if you'd look at self self driving vehicles and automated vehicles that the precision of steering and braking.

Harold C. Bevis: <unk> increased and so there's a higher need for precision parts. So.

Harold C. Bevis: And so there's a higher need for precision parts. We saw the opportunity to grow in adjacent markets at basically low risk for us and basically leveraging existing capital. Some cases with new customers, some cases with existing customers, and in our company. That's because that's the only facility that's nearing capacity 24-7.

Harold C. Bevis:

Harold C. Bevis: We saw the opportunity to grow in adjacent markets are basically low risk for us and basically leveraging existing capital.

Harold C. Bevis: Some cases with new customers, some some cases with existing customers.

Harold C. Bevis: And in our company.

Harold C. Bevis: That's the only facility that is nearing capacity 24 seven.

Harold C. Bevis: So they've done a great job there and if you look at the vehicle production inside of China.

Harold C. Bevis: So they've done a great job there. And if you look at the vehicle production inside of China. In China, there is an ability for the industry to produce two times the amount of vehicles consumed indigenously. So I know you follow the market, but

Harold C. Bevis: In China, there is an ability for the industry to produce two times the amount of vehicles consume indigenously.

Harold C. Bevis: So I know you follow the market.

Harold C. Bevis: Last year, or recently, China passed Japan on the global number one global vehicle exporter, and that's getting a lot of press in the Wall Street Journal and President Biden and Trump and Premier Xi is in Europe right now with Macron and meeting with European leaders, and the top conversation is, hey, you guys are coming in hard with your automotive products here. And so they're really aggressive about exporting in this industry. And the biggest export markets for China right now are Russia, Australia, and Mexico.

Harold C. Bevis: Last year, our recently, China past, Japan on the global the number one global vehicle exporter and that's getting a lot of press in the Wall Street Journal and.

Harold C. Bevis: President Biden and Trump and.

Harold C. Bevis: Premier G as in Europe, right now with Micron and meeting with European leaders and top conversation is hey, you guys are coming in hard with your automotive products here.

Harold C. Bevis: And so they they're really aggressive about exporting in this industry.

Harold C. Bevis: And the biggest export market for for China, right now of Russia, Australia and Mexico.

Harold C. Bevis: And we're participating in that. So we're participating in the Chinese government's strong export behavior for vehicles made in China, and we're participating in the China... China for China Program of Electric Autonomous Self-Driving Vehicles. And additionally, China is one of our lowest cost plants than our Brazil plant.

Harold C. Bevis: And we're participating in that so where we're participating in the Chinese government's strong export behavior on on vehicles made in China, and we're participating in China.

Harold C. Bevis: For China program of electric autonomous self driving vehicles.

Harold C. Bevis: And Additionally, China is one of our lowest cost plants that in our Brazil plant.

Harold C. Bevis: And these customers are global, and we become globally approved as a supplier when we win these positions. So it's actually opening up opportunities for us in the United States. Normally, you'd think a US-based company like us would leverage its relationships into China. This is the reverse.

Harold C. Bevis: And these customers are global and we become globally approved as a supplier when we when we win these physicians. So it's actually opening up opportunities for us in the United States normally you think of U S based company like us with Leverages relationships into China. This is the reverse.

Harold C. Bevis: We're leveraging our successful business model in China and becoming accepted in the U.S., Europe, and Brazil. It's really key to our future. If you look at our growth strategy, Tom, and it was a big pie chart, you know, growing in China is about a third of that.

Harold C. Bevis: We're leveraging our successful business model in China, and becoming approved in the U S and in Europe and in Brazil. So.

Harold C. Bevis: So we're going to we're going to continue doing, very important. That's good. Thanks for the color, and I think we're almost out of time, so I'll take the rest of the questions offline. Thanks.

Harold C. Bevis: It is really key to our future. If you look at our growth strategy. Tom you know it was a big Pie chart.

Harold C. Bevis: Growing in China is about a third of that so we're going to we're going to continue doing that in China, it's very important to us.

Speaker Change: Well, thanks for the color and something wrong with that time for the rest of the questions offline. Thanks.

Harold C. Bevis: Yes.

Harold C. Bevis: Well, thank you everyone for joining us today and for the excellent questions. Tim and I and Mike got some action items here, and we'll be responsive to them next time. Our transformation continues to take shape operationally, commercially, and culturally, and while there's more to be done, we believe that we're going to continue to execute and deliver profitable growth for all of you shareholders on this phone call. And we're a committed global team and excited about this year, really excited about this year. And we're getting excited about 25 also.

Speaker Change: Well. Thank you everyone for joining us today and for the for the excellent questions, Tim and I and Mike got some action items here and we'll be responsive to them next time, our transformation continues to take shape operationally commercially and culturally.

Harold C. Bevis: And while there is more to be done we believe that we're going to continue to execute and deliver profitable growth for all of you shareholders on the phone and we're committed global team and excited about this year really excited about this year and we're getting excited about 25 also and we look forward to sharing our successes with you in future quarters and with that I appreciate it and everyone have a good day or in the call.

Harold C. Bevis: And we look forward to sharing our successes with you in future quarters. And with that, I appreciate it. And everyone have a good day. We'll end the call now. The conference is now concluded. Thank you for attending today's presentation.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Harold C. Bevis: No.

Harold C. Bevis: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: Yeah.

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