Q4 2024 NN Inc Earnings Call
Speaker Change: Hello and welcome to the NN Inc. 4th quarter 2024 earnings conference call. All participants are in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star, then one. Please note, this event is being recorded. I would now like to turn the conference over to Stephen Poe investor relations. Please go ahead.
Speaker Change: Thank you operator. Good morning everyone and thanks for joining us. I'm Stephen Poe with NN Inc.'s Investor Relations team and I'd like to thank you for attending today's earnings call and business update.
Speaker Change: Last evening, we issued a press release announcing our financial results for the fourth quarter and full year and a December 31, 2024, as well as a supplemental presentation which has been posted on the Industrial Relations section of her website.
Speaker Change: If anyone needs a copy of the press release of this supplemental presentation, you may contact
Speaker Change: Our presenters on the call this morning will be Harold Bevis, President and Chief Executive Officer Chris Bohnert, Senior Vice President and Chief Financial Officer and Tim French, Senior Vice President and Chief Operating Officer
Speaker Change: Please turn the slide to where you'll find our forward-looking statements and disclosure information.
Speaker Change: 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 factor section in the company's annual report on form 10K for the fiscal year ended December 31, 2024.
Speaker Change: 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: Mark, Cash Flow, Tax Rates, Acquisitions and Debustitures, Synergies, Cast and Colors Savings.
Feature Operating Results, Performance of Our World Wide Markets
Speaker Change: General Economic Conditions and Economic Conditions in the industrial sector, the impacts of pandemics and other public health crises and military conflicts in the company's financial condition and other topics. These statements should be used with caution and are subject to various risks and uncertainties many of which are outside of the company's control.
Speaker Change: The presentation also includes non-GAAP measures as defined by SEC roles. A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation.
Speaker Change: Please turn to slide three and I will now turn the call over to our CEO , Harold Bevis.
Thank you, Stephen. Good morning, everyone.
Speaker Change: As mentioned, myself, Tim French and Chris will be given an update and have a Q&A session at the end. If let's go ahead and get started if you could turn to page 4, business update.
Speaker Change: I'd like to give you a few highlights and then first year of transformation produce significant and immediate results.
Speaker Change: including a new five-year business plan, new top leadership team which is 80% in place.
Speaker Change: We enacted a Fixed or Closet program at seven plants that were underperforming and we began to refresh our capital structure with the new ABL in December .
Speaker Change: F-24, and a term-long refinancing process, which is underway now, and Chris will give a awesome update on that later.
as we look at to the full year of 2025.
Speaker Change: We expect advancement on all fronts, including growth, costs, outs, and cast generation.
Speaker Change: Barring any significant tariff impacts, and we're going to talk about tariff, is there a timely thing?
We have 70 new business win programs launching this year.
Speaker Change: Our cash cap ex is expected to be at our normal levels.
Speaker Change: and we will continue to selectively add a few new people to further help drive our new business development areas, particularly in stamps, products, medical products and electrical products.
Speaker Change: and we will continue to optimize our operational footprint and headcount.
Speaker Change: Lastly, a word about tariffs. It's the goal of the Trump administration.
Speaker Change: to encourage reshoring of volumes, profits, and jobs for companies like in-in.
Speaker Change: But as it's playing out in the papers and all of us know just from common sense the US manufacturing supply chains
Speaker Change: or Global Complicated, Capital Intensive and Slow Moving for important reasons like Consumer Safety.
Speaker Change: and Project Paybacks. For instance, it takes several years and several billion dollars to build a car factory, and then another year for vehicle testing. So these changes take some time and the timelines are generally outside the duration of a presidential administration. Thank you very much.
and already the big three are getting exemptions.
Speaker Change: Most parts suppliers like us believe that this will be short-lived with minimal, long-term impacts, but I am going to give you an update that we've had positive impacts so far
Speaker Change: Turning to the next page on page five. I'd like to just give you a little bit more details on our five-year plan.
Speaker Change: and reiterate them. We haven't changed them. First, sales growth, sales growth is very important.
Speaker Change: and in the industries we serve, sales, don't fall naturally in your lap, you have to target properly, offer innovative solutions, hustle and win.
Speaker Change: and the components of our top line program are based on winning $65 million a year of new business and ending $25 million a year.
Speaker Change: It's an assumption. We don't have a firm outlook. People do not give indications that far out when they intend to end programs.
Speaker Change: But it backtests to be a number of deaths conservative for us and we have a matrix of targets underneath that and individual accountability.
Speaker Change: A big goal is to minimize CAPEX and to leverage the install base of equipment, buildings and land that we have and we've been doing that. In this program's working, we've been on track now for...
Speaker Change: Six quarters in a row and and headed into our seventh quarter. We've already won a hundred and fifty million dollars of business as I mentioned which is definitely
Speaker Change: Big number for us. We've had to get some operational guidelines in place to launch that many programs that wants anyone who's been a plant manager or been in plants. That's a lot of work to do and we're launching 50 programs right now.
Speaker Change: Overall, we want to reduce our cost 3% a year, condense our plant footprint, combine our operating teams into a shared team.
Speaker Change: Implement Continuous Improvement Programs at Every Plant. Continue our Kaiser and Sixth Sigma Programs, which are working very well, and this component of our plan is working well also. Third component is to refresh and correct our balance sheet.
Speaker Change: We expect to generate free cash flow and invest $12 to $59.00 in CapEx for a year ex-China.
Speaker Change: We've kind of sliced China off and have China funding itself and sending money back to us each quarter and it's working fine and I'll give a China update in a bit.
Speaker Change: Again, we want to leverage our installed base of equipment, land and building that we have, and it's very sufficient to achieve our goals. Our end goal is to have all our plants be free cashflow, generative self-sustaining and bear their fair share of our overhead burden.
Speaker Change: and where we are today in progress we've made. We're happy with it. We have a new AVL in place in a terminal process underway that...
that Chris will give an update on.
Speaker Change: and a big deal is to correct our dilutive plants which are being fixed or closed and Tim will give an update on that. All of it is geared at getting our DNA margins up.
Speaker Change: and we're tracking to that and we're going to give you an update on the fourth quarter last year and upon the full year and our outlook for this year.
Speaker Change: We've closed two plants. We're in the process of closing two plants and we have one underway at this point in time. So overall we're happy with our first full year and our five year plan and we're recommitting to it.
Speaker Change: If you turn to page six, this is a format we've been using to track our transformation plan and this year will be another format of year for us.
Speaker Change: of where we think we are. And our new leadership team is about 80% complete, as I mentioned. We still need a couple people in a couple of new areas that we're trying to grow more quickly in, primarily non-automotive.
Speaker Change: and the fixing of our unprofitable parts for our business is around 60% complete. You can see it on the graphic here on page 6.
Speaker Change: What our EBITDA has been doing at those those plants that were underperforming into all of them are planning on making money this year.
Speaker Change: and 25, which is a remarkable turnaround on a short amount of time from mid-23 till this year's outlook. So, we're pleased with it.
on our ballot sheet.
Speaker Change: We started working on that last year. We've previously reported that we had to part ways with our banker.
Speaker Change: And we pretty much, Chris and I pretty much took this in our own, our own and we did the ABL and now we're underway with the Termalone and we're also in a way with putting China on their own and that's all tracking very well.
and the last piece is growing sales.
Speaker Change: Year over year to win enough business so that we have a natural growing company.
Speaker Change: and we're starting to get tailwinds now. We have some of the business that we've won is not watching and going into our run rate. So overall we believe that our transformation is on track.
Speaker Change: On the next page, we got a request to kind of go into a little bit more detail about the plan.
Speaker Change: that were underperforming and what have we done and what's in front of us. Tim French, our Chief Operating Officer, who's led that initiative start to finish. Tim, to give an update to the group, please. Tim?
Tim French: Thank you, Harold. Good morning, everyone. As Harold said, I'll talk to Slide 7.
Tim French: For those of you that have followed our progress, you'll be familiar with the term group of seven.
Tim French: These facilities are responsible for 113 million of revenue and negative $11.5 million of adjusted even time.
Tim French: and 2023. Their locations are listed on the slide being shown. In addition to the core financial performance, they were negatively impacting our customer relationships because each of them had significant pass-to-back logs.
Tim French: and it was giving us unfavorable customer ratings and scorecards which was impacting our
Tim French: Over the last six quarters, we intensely focused our efforts on improving their performance in these facilities.
Tim French: After an in-depth analysis, we decided the shed portions of the business that we decided were determined were unprofitable, as well as closed two facilities, Duage Act, Michigan, and more as Mexico. Both of these facilities are in the mobile division.
Tim French: Force and of the business in these facilities and the related equipment has been transferred to other locations. This required us to gain approval from the customer. He had to build and manage inventory banks to service the business as well. We removed, reinstall and p-pap the equipment in the alternative facility. [inaudible]
Tim French: Production has concluded in more as and we were on track to have the wash-out closed in Q2.
Tim French: The remaining five facilities we focused on organizational and operational improvements that included top-grace to leadership and staff improvements in engineering processes.
Tim French: We implemented functional KPI trackers as well as increased focus on customer pricing, service and interaction As a result, we now have green scorecards with all our customers and that's a big help when it comes to securing new business wins. It's really benefiting our commercial team.
Tim French: These actions, over the last six quarters, have been extremely successful. In 2024, the facilities went from losing about 12 million of adjusted EBITDA, so losing just 900,000. That's inclusive of the closures.
Tim French: David. Our operational transformation plan is working. It's worth noting that looking forward to 2025 as Harold previously stated.
Tim French: Every remaining facility is expected to be adjusted EBITDA positive with a group having approximately 75 million in revenue and generating over 5 million of adjusted EBITDA [inaudible]
Tim French: We're pretty happy with this result, but we still need to focus on improving free cash flow, specifically in two facilities. Our Marnas France facility has been awarded new business. Once the SOP is completed, the facility will be operating a very close capacity. This will stabilize the standalone profitability and free cash flow.
Tim French: Well, we're pleased with our early success in transforming the under performing facilities. We're not stopping or slowing our efforts. We're not done. Each of these facilities was part of a larger continuous improvement program that Harold mentioned earlier that will deliver consistent enhancements to our economic competitiveness. We're not stopping or slowing our efforts. We're not stopping or slowing our efforts.
Tim French: Additionally, we have identified one more facility for closure which we planned to execute when the lease expires in 2026.
Tim French: All in all, we're very happy with the improvements we've seen to the group of seven and we're excited about what we can do going forward with them. With that, I'll turn it over to Chris to walk through our financial performance in more detail.
Chris
Chris Bohnert: As a reminder, we began presenting pro-forma business performance in the third quarter of 2024 to give a better representation and depiction of our financial and operating results after the sale of our Lubbock facility this past July .
Chris Bohnert: We also have other adjustments that we arrive in what we consider to be our ongoing business.
Chris Bohnert: We detailed the adjustments made that translate our gap and non-GAAP reporting to our pro-form results in the appendix of the presentation.
Chris Bohnert: Today I'll start on flight 8, where I'll detail our consolidated results for the fourth quarter.
Chris Bohnert: Starting with our AS reported numbers, fourth-quarter net sales came in at 106.5 million, reflecting about a 5% decline compared to Q4 last year.
Chris Bohnert: While the top line was impacted by the sale of our Lubbock facility and strategically rationalized sales volumes, we continued to drive strong margin expansion and improved profitability as noted on the slide.
Chris Bohnert: Adjusted operating income was 2.4 million, a 3.8 million improvement over the prior year quarter where we reported an adjusted operating net operating loss of 1.4 million.
Chris Bohnert: Adjust the EBITDA Group to 12.1 million, a 21% increase from the 10 million delivered in Q4 of 2023.
Chris Bohnert: This performance underscores our commitment to operational efficiencies and discipline cost management allowing us to improve profitability and a dynamic macro environment despite the lower sales.
Chris Bohnert: Now shifting to our pro-former results on the right hand side, which adjusts for key items including the sale of the Lubbock facility, rationalized volume, and foreign exchange impacts, which we outlined in the table at the center of the page.
Chris Bohnert: on a pro form of basis net sales of 106.5 million reflected a 2% increase compared to Q4 of 23.
Chris Bohnert: On a pro-forma basis, I suggested you that I grew to 12.1 million, up 25% year over year. These results highlight the strengthening of our underlying operations and our ability to drive margin expansion through diligent costs and operating efficiency initiatives.
Chris Bohnert: Now turning to slide 9, we detail our consolidated results for the full year.
Chris Bohnert: For the full year, we reported in that sale the 464.3 million declining 5% compared to 2023.
Chris Bohnert: This year of year decline was driven by the sale of our Lubbock facility, the impact of a strategic volume rationalization, a one-time customer settlement in the prior year, and foreign exchange impacts.
Chris Bohnert: Despite this top line compression, our focus on operational improvements allowed us to expand profitability and deliver solid adjusted returns.
Chris Bohnert: Adjusted operating income for the full year with 5.1 million, up 65% versus 3.1 million in fiscal 2023.
Chris Bohnert: Adjust the EBITDA results grew to 48.3 million, marking a 12% increase year over year, and adjusted EBITDA margin expanded by 160 basis points to 10.4% up from 8.8% last year.
Chris Bohnert: Moving on to our pro-forma numbers, controlling largely for the same one-time items we detailed earlier, net sales of 464.3 million were largely flat to the full year 2023, declining less than 1 million or 0.2%.
to 10.4% from 9.2% last year.
Chris Bohnert: The pro-former results provide a view of our ongoing business and operational momentum, which has had a strong positive effect on our profitability as evidenced by solid adjusted operating income and adjusted EBITDA results on what was essentially flat revenues.
Chris Bohnert: Looking ahead, we expect the elimination of profit, dilute of sales volumes and the inclusion of new business wins will further enhance our operating income and adjust EBITDA, grow margins and provide incremental fixed cost leverage.
Chris Bohnert: I'll now turn to my segment results starting with our par solution segment on slide 10.
Chris Bohnert: Worth Quarter as reported net sales were 39.2 million compared to 43.4 million in the prior year. The decline was primarily driven by the sale of our Lubbock facility. On a performance basis, quarterly revenue increased slightly by 900,000 or 2%.
Chris Bohnert: Part solutions of Jesse Evita on the fourth quarter was 5.6 million down slightly compared to 6.6 million in last year's fourth quarter, again primarily to the sale of the Lubbock facility. On a pro form of basis, prior year Jesse Evita was 5.99, compared to 5.6 million.
Chris Bohnert: on a four-year basis par solutions net sales total 180.5 million down slightly from 185.9 million in the prior year. Again, do the sale of Lubbock on a pro form of basis, full year revenue increased by 8.7 million or 5%.
Chris Bohnert: For the full-year power solutions, adjust the EBITDA increase to 29.2 million, up from 28.3 million in the prior year, with margin expanding to 16.2%.
Speaker Change: On a pro-form basis, prior solutions to just Stephen, I grew from 26 million to 29 million and 11.5 percent increase year over year.
Speaker Change: Now, turning to slide 11, I'll highlight some of our financial metrics in the mobile solution segment.
Speaker Change: Revenue for the fourth quarter was 67.4 million compared to 69.2 million in Q4 of the prior year, a decline of just over 2%. The slight decline was primarily driven by foreign exchange headwinds of 1.6 million, which nearly offset the volume increases of 1.7 million.
Speaker Change: Pricing impacts also contributed to the slight reduction in revenue. Further, the decline in fourth quarter net sales was impacted by 1.5 million of unprofitable business that we exited.
Speaker Change: Adjected even after the fourth quarter was 10 million, marking a strong increase from the 7.1 million delivered in the prior year period. Adjust the even a margin that expanded to 14.8% up 350 basis points from the 10.3% in the fourth quarter of 2023.
Speaker Change: The increase in the Jesse Wada and margin growth reflects the benefits of our sales volume or rationalization and our actions to improve our cost structure and productivity.
Speaker Change: For the four year 2024, mobile solutions revenue was 283.9 million down from 303.3 million in fiscal 2023. The decrease was primarily due to the strategic exit of unprofitable business.
Speaker Change: which impacted sales by $8.6 million, as well as a one-time customer settlement in 2023 and unfavorable foreign exchange impacts of $3.3 million. However, this was partially upset by $9.6 million of growth from our China operations, which continued to see increasing demand throughout the year.
Speaker Change: On a pro-former basis, full year revenue decreased by 6.4 million or 2.2 percent.
Speaker Change: Adjust the EBITOP for the full-year group to 35.6 million, up more than 19% from 29.8 million in full-year 2023, with margins improving by 270 basis points to 12.5%.
Speaker Change: Similar to the fourth quarter, Jesse Bittai results reflect the benefit of our cost-out actions and the impact of our strategic exit from unprofitable business.
Speaker Change: As a reminder, our goal was to achieve a minimum 10% of just the EBITDA margin in the North American local solutions business, and we were tracking towards that and beating that in several quarters, with sites on expanding further beyond our initial goals as we execute our transformation.
Speaker Change: First, as we navigate through the process with our lenders, our refinancing goals are centered on enhancing operational flexibility by securing improved loan terms.
Speaker Change: and a more favorable structure achieving a cost of capital that helps us execute the transformation and deliver our full potential. By lowering our overall cost to capital we aimed to create additional financial capacity that will allow us to...
Speaker Change: Potentially pursues strategic M&A opportunities alongside our organic growth opportunities once the timing is appropriate.
Speaker Change: Second, we rebooted the term loan process in late 2024 after completing the ABL and after parting ways with our investment banking partners, relaunching the term loan refinancing effort to take advantage of a solid pool of interested lenders and potential financing options.
Speaker Change: Since then, we've made significant progress. We expect to conclude this process sometime in the first half of this year.
Speaker Change: Finally, we view these efforts as part of a broader holistic strategy to position our balance sheet for transformation and optimization and optimization.
Speaker Change: and improved capital structure will allow us to continue deleveraging while also creating value for our equity holders. We remain committed to paying down debt and will continue to evaluate potential modifications to our preferred equity structure as we move forward over time.
Speaker Change: Now please turn to slide 13 where I'll talk briefly about our outlook for 2025.
Speaker Change: As a reminder, for the full year of 25, we're projecting net sales in the range of 450 to 480 million. Adjust the e-bid down in the range of 53 to 63 million and new business wins of approximately 65 million at the midpoint.
Speaker Change: These ranges assume our key markets and currencies remain stable and aligned nearly with 2024 levels.
Speaker Change: We know that the global markets are experiencing significant volatility as a downstream impact of a fluid and shifting international trade policy
Speaker Change: Kurt Marking conditions, if they hold similar to where they are today, would likely drive our results to the lower half of our ranges, though we note that as a very early in the year and these factors remain very unpredictable and subject to change.
Operator.
Speaker Change: Thank you very much. We will now begin the question and answer session. To ask a question you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, you may press star then two.
For more information, visit www.fema.gov
Speaker Change: Today's first question comes from Joe Gomes with Noble Capital. Please go ahead.
Good morning. Thanks for taking my questions.
Good morning, Joe.
Speaker Change: So I wanted to start out with the turnaround of the group of seven plants and just guys have done a tremendous job in my view there.
Speaker Change: You know, roughly a 7% could just eat the Amarjun, you know, almost 16% of your revenue.
Speaker Change: Con of the question is, is one, do you think you can get that even on margin at those plans up to the 10% level, you know, where you currently are overall, and if you were to do able to do that, you know, how high does that take?
The adjusted EBITDA margin for the entire company.
Tim French: Yep, it's too far to Chris, I mean Tim, I'll start, okay?
Speaker Change: For us, those plants, Joe, have a decent amount of old and capacity.
and so there's cost and revenue fixes here.
We have good machinery.
and the process of these plant closures we've...
Speaker Change: Upgraded some of the equipment and the other plants by relocating [inaudible]
Speaker Change: Equipment and we've discarded some of the older equipment so we're able to compete better with better equipment out of those locations and we've built up the business development profiles the size of the opportunities that we're tracking for those plants so a part of the go forward.
Speaker Change: kind of optimization has to do with revenue and getting our revenue up. Our looks are increasing slightly with the reshoring that's been happening with the parents and all the activities.
Speaker Change: and one of the facts, Joe, is in the first quarter here. We are launching.
Speaker Change: Is it 11 programs, Tim, that's reshoring from China to the US?
Yes. And you can't wait? Yes. Yes. Yes, it is.
Speaker Change: So, we have 11 discrete programs that we've secured that have moved from China to U.S. soil.
Speaker Change: and those are going to all help. So part of its revenue, and Tim, I'll hand it over to you to give you your two cents.
Speaker Change: Yeah, I think I think one of the key things to keep in mind is the financial performance of the Group of Seven was really what what showed through, but if you look at one of the underlying causes of it was the significant past due backlog and that put us in a very bad position with a lot of our existing customers.
and it basically rendered those facilities.
Speaker Change: Almost unsalable with our existing customer base because we we didn't have the favorable scorecard so now that we've been able to . . .
Eliminate the significant backlogs.
Speaker Change: and have green scorecards of customers. Our commercial teams are now able to effectively sell for that group. So what Harold was saying is exactly where I was going with that is although there's still room for some more operational improvements, the next spaceship for those facilities is additional volume which now we've.
Speaker Change: We've opened the door to by getting us in a favorable position with the customers.
John Bohnert, John Franz Bohnert, John Franz Bohnert
Good, great, thank you, that.
Speaker Change: I wanted to touch base also, Harold, maybe give us a little kind of update on the medical components and the electrical components and how those businesses are unfolding here.
Speaker Change: Yep, so we have we have sub goals for medical to win 50 to grow that to 50 million dollars organically. We're we're at about 20 right now. We have about a 25 million dollar pipeline.
Speaker Change: It's high quality. We've been able to get, become an approved supplier, the first step is to become an approved supplier for the products that you're selling.
and we want it to really get into machine products.
and Stantz products.
Speaker Change: and we still have a couple big customers that we're going through approval processes with but we're on track.
Speaker Change: and so the approval been looking at the opportunities and then getting securing the wins. It's gradual. We have a goal this year in radical to get another $8 million of wins.
Speaker Change: and 8 million a year and then we'll get to 50. So.
Speaker Change: The medical is on track. We need another person. We just have some small things to do but we're on track and we're now shipping medical products out of Timah's at eleven plants.
Speaker Change: that we're making medical products in. So we're shipping medical products out of 11 of our plants. We've got our first medical one in Europe now.
and we're increasing our certifications on-stamped products.
Speaker Change: and electrical products. It's a similar story except for where we're largely already in a proof supplier.
Speaker Change: and so it's a matter of getting in on the action and we have pipelines for that as well. Stamped products are good for us also in automotive. Some people say, gee, many Christmas, you're automotive business is so capital intensive.
Speaker Change: It's really not true. The part of our company that's capital intensive is the machine part of auto. The stamped part of auto is just as good as the stamped part of electrical or medical. So the stamped business has a good business model in the machines.
Speaker Change: Are ubiquitous, and the customization is in the dies, and we make our own dies, and a lot of times the customers take part in financing those dies by letting us amortize the die back into the peace prize.
We're after all things stamped.
Speaker Change: And we have a dedicated effort there. We've added some high tonage equipment both in China and in the United States and it's expanding our aperture.
Speaker Change: A couple big products we're going after, one is bus bar.
Speaker Change: and we just needed some longer beds on our presses, so...
Speaker Change: It's a gradual buildup, Joe, that we're going through and we're just trying to chop it down by the same amount of winds per year and so far we're tracking two our goals.
Speaker Change: Great, and one more for me if I may, Harold, again, kind of just want to get your view, your insight here. So, you know, recent report came out, you know, I'm class A truck orders, you know, down.
You know, 30 to 5% month over month, almost 40% year over year, supposedly people extremely concerned.
about tariffs.
Speaker Change: You see the press reports, you know, tariffs go through or they stay through passenger vehicle prices can go up thousands if not tens of thousands of dollars just trying to get your view of
Speaker Change: You're thinking around this whole thing and how many of this could potentially impact the company here. I know it's very fluid. The terrorists seem to go on one day off the next day, but just trying to get kind of the way you guys are looking at things and your thoughts on that. Thank you.
Yeah, you're welcome. Yeah, that...
Speaker Change: We're not tethered very much to class eight trucks but I'll answer your question.
Speaker Change: Our commercial vehicle business is tethered to work trucks, so our biggest engine that we're on is a 7.3 liter
Diesel engine at Cummins, we were tethered to the 6-7.2
Speaker Change: The Ford Godzilla engine, GM's, Gens V. So we're primarily a participant in engine parts for work truck engines, but on class A trucks, the big, the big engines.
Packar, Volvo, Cummins also.
Speaker Change: You know, as the industry learned during COVID, you have to be clear to build.
Speaker Change: The vehicle, and there's something like a hundred thousand parts that go into a classic truck and you have to have all of them You can't just say okay I'm all right except for I don't have a steering wheel or something. So you have to be clear to build and the big trucks have a lot of parts
Speaker Change: and so they're very sensitive to supply change disruptions that like are happening right now so...
Speaker Change: and the people that buy the trucks, the classic trucks are primarily businesses, and they have to have a payback on the investment into the asset, and if the asset goes up in price
Speaker Change: The fleets were the majority buyers of classic trucks back off.
Speaker Change: because it's a bad time to buy. So I think you have some supply and demand, the regularity in the classic world. We're not really participating in it, we're into the work truck, we're in delivery trucks, delivery vans.
Speaker Change: Garbage Trucks, Class 6 and 7, not Class 8. So our business isn't going to be impacted but the Class 8 truck crowd, they have a different set of issues to deal with.
Speaker Change: Okay, great. I'll get back in queue. Thank you very much.
Welcome.
Speaker Change: The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.
Good morning. Congratulations on all the progress.
Thank you. Good morning.
Speaker Change: On your 20% long-term gross margin goal, what sort of has to happen to get there?
Louis Point, [inaudible]
Speaker Change: So we have Tim's good rid of his problem by consolidation if you put in the math together but no I'm kidding the part of it is what's next would Joe ask the question on kind of what's next to make that group of seven not dilutive
and it's getting our revenue up.
Speaker Change: and Tim's also sharing the overhead structures amongst the plants versus every plant has a dedicated staff.
Speaker Change: to do procurement scheduling and all this. So he's implementing a shared
Speaker Change: Overhead Structure, Amongst Common Plansied, Common either because they're close to each other or common because of the type of manufacturing they do. So it's either or or both.
Speaker Change: and in the case of French, which Tim alluded to on his page, the French plant isn't where we need it to be, but they've secured a very, very, very gang-changing win, and it is already in development and ramping up that will effectively sell out the plant.
Speaker Change: and that plant will actually go above average, when they're fully onboarding that. Now then you're down to one plant, this one large plant that's dilutive and it's well into Ohio.
Speaker Change: and that plant, we're hoping to benefit from reshoring, we have a big pipeline going into that plant.
Speaker Change: We're pretty close to having nubbed out the cost structure to run the plant. It does make positive evitier, but it is deludive to your point. And so
Speaker Change: Fixing the deluters as part of it. The other part is the on board of creative business and that's the whole intent of our new business.
Award Program is to onboard a creative business.
Speaker Change: and and leverage the installed cost structure which Chris was referring to which we did in Q4 and we did in the year of 24. So we have a five year plan.
Speaker Change: The first year of it is kind of in the books, if you will. We tracked to what we wanted to do and we're on track.
Speaker Change: and it requires a little bit of patience because we have to win this business and onboard it and then we have in that that's France and other plants and then the case of Wellington, it's a special case.
Where we're a little bit more impatient with that plant.
Speaker Change: So how long, how many years will we, you know, wait for that to play out, not many. So that one's kind of the one that's on Tim's radar screen right now to fix.
Speaker Change: No, I think you covered it all, Harold. You hit all the key points.
Thank you.
Speaker Change: You know, from your international locations to the US and maybe vice versa and kind of adjusting these tariffs or this business around to deal with the tariffs or is that a longer process?
Speaker Change: Well, the biggest part of our company that's impacted by the tariffs is it's a concern to understand is our automotive parts. It doesn't impact our power, it doesn't impact our medical. We don't have any of the issues.
Speaker Change: and cross-border issues. The automotive part is very, very slow because you have to go through a map and product safety process. We're tied into steering.
Speaker Change: and Breaking, and most require the OE to go through any substitutions required, the OE to go through crash tests.
So, once you're kind of locked in to a system [inaudible]
Speaker Change: There's a high resistance to change. So in the short term, it's mainly people that are taking the initiative to move.
and Richard, the awards that were...
Speaker Change: We are wrapping up right now that I referred to earlier. We won those in the fall.
by a proactive Tier 1 maker of fuel systems.
Speaker Change: for medium-duty sports cars. Excuse me, medium-medium volume sports cars.
Speaker Change: and they're going through the long-term cost of doing it and they just decided to simplify their supply chain because their customers were on US soil.
Speaker Change: So, we really don't see a lot, and you know, you have direct and indirect impacts of the tariffs.
Speaker Change: So the direct impact, our direct impact are minimal on our cost structure and minimal in terms of our pipeline to indirect costs.
Speaker Change: Or what happens to the volumes, you know, at the OE, if they're clear to build on vehicles or not, you know, that can impact kind of everybody's volume. We won't be a problem for anyone, but if anyone's a problem that causes the OE to be have a problem of being clear to build on their build material. That's what we're all about.
Speaker Change: We haven't heard anything yet. It's no one's really doing anything quickly right now. It's not a quick thing and there's a lot of flip-flopping in the papers, including last night with the big three, where President Trump gave them another reprieve.
and that's the majority of our exposure, so...
Speaker Change: Nothing major happening right now. Our direct hits are minimal and it can only be minimal because of our supply chains and then the indirect exposure we have is just industry based and that's also minimal right now as well.
Bob: It'll probably change today, so I should probably date and time stamp my comment, but, you know, it's a really fluid topic, Bob.
Speaker Change: Yep, so we expect to have an up year in power, the electrical grid business, you know, the reporters there, the people that speak clearly are eaten and honey well and...
Bob: Eitron, Group Schneider, the electrical grid demand is still strong with data centers.
Bob: Infrastructure Investment, the whole AI data center thing is putting a lot of strain on the grid.
Bob: and the need to control the grid, and also the EVs, even though EVs are kind of plateauing any EV if a person on a street buys an EV, the transformer for that street has to be upgraded.
Bob: and that business is strong and we've increased our capacity to make those products. And we have a decent amount of new wins in that business as well. So the outlook for power solutions in 25 is pretty strong.
Good. Thank you. I'll turn it over.
Thank you.
Speaker Change: The next question comes from Mike Crawford with B. Riley. Please go ahead.
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Mike Crawford: Thank you. Can you talk about your deliveries, like any metrics regarding on-time deliveries now versus in the past and maybe how much that's been attributable to some of the additional wins you've been securing?
Yeah, good morning, Mike. Tim, will you take that one?
Mike Crawford: Sure, we don't track on time and in full in the standard process like quoting it as a percentage, but what I can tell you is we track past due backlogs.
Mike Crawford: and we have dropped our past due backlogs significantly, not just in the group of seven but across the board.
Mike Crawford: So that's what has allowed us to get the green scorecards from the favorable ratings from all of our customers now is we've been able to move that forward and past due backlogs would be an indication of
Mike Crawford: of Anontimon and Fuller of Delivery Metric. We are in the process of implementing Anontimon and Full Metric, but at this point we don't crack it in that format.
and have you seen the correlation between where you've...
Speaker Change: Reduce those past due backlogs and see the increase in new order wins or is that more? Yes, oh definitely definitely seen a correlation even in facilities that aren't in part of the group of seven we've seen new business wins because when you're not it when you don't have a green scorecard or a favorable rating from a customer you're basically on what's called new business hole [inaudible]
Speaker Change: New Business Winds that we've been able to generate over the last little while has been the fact that we're off new business hold across the board that we're able to generate new business wins with our existing customers as well as new ones.
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I can help a little on the stats there, Mike, Dermed, [inaudible]
Speaker Change: 77% of our new wins have been with existing customers.
Tim French: and when Tim and I came in the door, we were on new business hold with almost all of our top 30 customers.
Tim French: and the majority of our wins have been with them. So, I could go right down the list, you know, Cummins and I-Tron and Sonsata, Denzo, all the top tier one people we serve where we're on new business hold.
Tim French: and came off the business hold and now secured wins with. So I think Tim, at the highest level, the majority of our wins have come from customers where we were on the business hold.
Tim French: Oh, exactly. And that's the point I was attempting to make is that by getting up new business hold, it opened the door for us to start winning again.
Speaker Change: Okay, great. Thank you. And then just to shift direction in your your China.
J.V.
I think the vast majority of what is made there...
Speaker Change: The China customers are targeting, be it in Africa, Brazil, or Europe , but is there a breakdown between what stays in China and what might be exported out of China but not to the US?
Mike Crawford: Yep, so there's movement on that topic, Mike, the JV that we have with Waifu, which is about $130 million revenue profitable, JV, which makes components that go into hybrid and nice vehicle.
Speaker Change: The largest end customer for the output of that JV is BYD, for instance.
and to your point.
Speaker Change: B.Y.D. shifts their systems, and it does final assembly in many countries around the world. There's a big one doing that. Geely does a little bit of it in Europe , in Great Wall.
but if you look at the top 10 China O'Lease.
Speaker Change: A few of them are the guys that are driving the export market and
Speaker Change: I would say your comment is true that our parts are ending up getting exported out of the country now.
Speaker Change: and as there's rebalancing between Europe and China, leaving the US out of it, the European Tier I.
Speaker Change: are seeing that their China operations are much more competitive than the European plants. So we see them shifting load.
Two-chirriner [inaudible]
Speaker Change: to make braking system, steering systems, these kind of things in China versus making them for instance in Germany and so the loads on automotive part making in China are just going to the roof. We are at capacity in the JV.
Speaker Change: We are at capacity in our wholly own foreign entity, and we're adding capacity in both areas. The costs are globally competitive, the lowest cost at what they do.
Speaker Change: So we see demand coming to both operations are very profitable for us as well.
Great, thank you very much.
Welcome, Mike.
Speaker Change: The next question comes from John Franzreb with Cedodian Company. Please go ahead.
Speaker Change: Good morning everyone and thanks for taking the questions. I'd like to start with the new business wins. Are they being written at that 20% target or are they approaching that 20% threshold?
You're talking the Gross Martins, John .
Yes sir.
Yes sir, they're they're being written above that we have
Speaker Change: some floors and caps, and we also look at ROI of CAPX.
Speaker Change: is required. We have, we look at that actual cost. So if we have an open machine
and we're quoting open capacity.
Speaker Change: and the machine's already been dispensed into other business and so is the overhead and all that.
Speaker Change: It varies that cost and if we have to add equipment it has to carry that cost. So we have three tiered pricing, three tiered pricing, and in all cases the bottom is 25%.
Um...
Speaker Change: and then on ROI, it's also the bottom of 25% of spending is needed.
Most of it is above that.
Speaker Change: and we price as much as we can get. We don't do cost-based pricing. We look at what we think the market will bear and then we look at our cost structure and see what their return will be.
Speaker Change: You know, the new winds that we got, we got 73 million or new winds last year, but we also walked away from about $340 million of quotes that we made, and we primarily walked away from them because of their economics and probably the biggest opportunity we had.
Speaker Change: It might be the biggest opportunity we had in the fourth quarter. We walked away from it because the ROI wasn't there. So we are cherry ticking.
Speaker Change: and we'll report more clearly on it in the future, John , I can't give you exact ratios because we haven't calculated it. Part of its cost, Tim getting the cost down, and part of it is the new business that we're bringing in. Chris, what would you get a half and a half?
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Chris Bohnert: That's good color, Harold. And just I might have missed this regarding the timeline of the plant closings. Have you kind of disclosed that and how those facilities owned the lease, would they be asset sales in the future?
https://www.youtube.com or www.facebook.com
Yeah, tell me we'll take that.
Tim French: Yes, we've got a least facility in Juarez. We've stopped production. Production has ended in that facility, but we still have people.
Tim French: Prepping the Building and Packaging Machinery for relocation.
Tim French: that currently is listed for sale. It should be, it should cease operation in early Q2.
is the current estimate. [inaudible]
Speaker Change: Great. And the other plant, John , that we mentioned, we're going to close. We haven't said the name of the plant because the people in the plant don't know it.
It's as we reported earlier, that was the least.
Speaker Change: Yeah, okay, got it. I guess one last question regarding the balance sheet. Any update on the timing of the refinancing the term loan and any updated thoughts on the preferred.
Yeah, Chris.
Chris Bohnert: Yep, thanks, John . Yeah, we're in the middle of the refinance, as I mentioned, we're...
Chris Bohnert: We're expecting to get it done in this first half of the year. We had quite a bit of interest once we once Harold and I rebooted everything and so we we we got a lot of different options on the refinance John so we took those options and then narrowed it down and we're very pleased with where we're heading right now.
Chris Bohnert: Not a lot to report on the preff yet, but it's on our radar screen and we'll take a look at that as part of the third step in our total cap structure refinance.
To take care of the wait.
Chris Bohnert: We pivoted John to China because the China receivables and China assets are pretty much disallowed in the to get full value for them with the US domicile work that we were doing on the debt. And so we turned our attention to
Chris Bohnert: Extracting cash out of the ballot sheet in China and having them get set up to do their own local banking and local financing.
Chris Bohnert: First, before we got after the preferred, so the two big things we're working on right now are the term loan.
Chris Bohnert: Overall for the company and then getting China on their own to do their own funding and just send money back to Chris. We're trying to turn it into an ATM machine.
Harold Bevis: Fair enough, Harold. Thanks for the fella. Good luck. Good luck.
Thank you.
Harold Bevis: This concludes our question and answer session. I would now like to turn the call back over to management for closing remarks.
Harold Bevis: Thank you everyone for the good questions, appreciate it, and you gave us some insight on and how the report even better in the next time, and we look forward to reporting our progress after Q1. With that, thank you operator.
Harold Bevis: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.