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Hello, everyone. Thank you for joining us and welcome to the NN, Inc. Second Quarter Earnings Call and Webcast. [Operator Instructions] I will now hand the conference over to Joseph Caminiti, Investor Relations. Joseph, please go ahead.

Thank you, Christine. Good morning, everyone, and thanks for joining us. I'm Joe Caminiti with NN, Inc.'s Investor Relations team, and I'd like to thank you for attending today's earnings call and business update. Last evening, we issued a press release announcing our financial results for the second quarter ended June 30, 2026, as well as a supplemental presentation, which has been posted on the Investor Relations section of our website. If anyone needs a copy of the press release or the supplemental presentation, you may contact Alpha IR Group at [email protected]. Joining us today from NN Management are Harold Bevis, President and Chief Executive Officer, and Christopher Bohnert, Senior Vice President and Chief Financial Officer. Please turn to Slide 2 while you find our forward-looking statements and disclosure information.

Before we begin, I'd like to ask that you take a note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation, and in the risk factors section in the company's annual report on Form 10-Q for the fiscal second quarter ended June 30, 2026.

The same language applies to the comments made on today's conference call, including the Q&A session as well as live webcast. Our presentation today will contain forward-looking statements regarding sales, margins, inflation, supply chain constraints, foreign exchange rates, tax rates, acquisitions and divestitures, synergies, cash and cost savings, future operating results, performance of our worldwide markets, general economic conditions, and economic conditions in the U.S. in the industrial sector, including the potential impacts and ramifications of tariffs, the impacts of pandemics and other public health crises or military conflicts, all 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, which may cause actual results to be materially different from such forward-looking statements. The presentation also includes certain non-GAAP measures as defined by SEC rules. A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation. Please turn to Slide 3 and I will now turn the call over to our CEO, Harold Bevis.

Thank you, Joe. Good morning, everybody. I would like to announce that we had a really good, strong second quarter. It was consistent with our first quarter. We arranged some looks here for you on Q2 in the first half, and you can see that it's pretty consistent. Our results show significant growth across the business and the first half finished ahead of our expectations. Our second quarter sales increased 19% year-over-year. Our second quarter adjusted EBITDA increased 36%.

Our first half EBITDA increased 35%. And in the first half, we were able to secure $65 million of new business awards. So we had profitable growth achieved across both of our reporting segments. And then subsequent to the end of the quarter, we had a significant strategic development wherein we completed and announced the retirement of $89 million of preferred stock as part of a multi-leg refinancing. Knowing that's 1 of the big events that we want to talk about today, I want to address it right up front with Chris, and we're going to turn it over here to Chris to discuss the refinancing on the next page.

Thank you, Harold. Good morning, everyone. I'll begin my remarks on Slide 4. Those of you who have been following along on our progress, you know we've been working hard in the background to improve and optimize our capital structure. We spent the last few quarters alongside our strategic advisors comprehensively assessing the potential options available to address the preferred stock. We concluded that this was the best path to creating a capital structure that allows more of the value we have created through our transformation to accrete to common equity holders and position the company to capitalize on the growth we are generating through our commercial programs.

As we previously announced back in July, we successfully raised $75 million of capital through a PIPE transaction, bringing multiple new investors into our investor base. This effectively expanded the optionality for how we could strategically address the capital structure overhang, namely through the preferred equity security.

Last evening, we announced that NN successfully completed a $124 million refinancing transaction to address the preferred. This is a significant strategic and financial milestone for the company, as we're largely out from under the structure that NN entered back when the company was experiencing challenges in its business and financial performance. I'll take a moment to walk through the details of this multi-level transaction. First, we utilized cash from the recent PIPE transaction to materially de-lever the company's balance sheet. We used the $70 million of cash to redeem a large portion of the outstanding preferred equity. Second, we equitized roughly $19 million of preferred into NN common stock. Third, the remaining stub of preferred equity of approximately $35 million in total will now carry a lower PIK interest rate of 10% for 1 year, significantly below the previous rate of 14.5%.

Additionally, the remaining pref will be discounted by $5 million if we pay off or refinance it by December 31 of 2026. This successful transaction has materially de-levered and annual PIK interest will be reduced by approximately $13 million. This transaction did not impact our existing term loan. However, we expect to have a greater degree of optionality on how we address existing other debt and the refinance of our term loan when it makes sense strategically and financially. Harold will discuss NN's 5-pillar growth strategy shortly, but achieving this refinancing was a critical step in enabling the acceleration of our growth across the enterprise. This is a significant strategic win for the company and the value will now more comprehensively accrete to our business and our shareholder value creation. Now, I'll spend some time walking through our financial performance for the business and its segments, beginning on Slide 5.

Q2 net sales of $128.8 million were up $20.8 million, or roughly 19% versus the prior year period, supported by growth across both segments. Further, Q2 net sales growth was driven by the contributions from new business launches, higher precious metals pass-through pricing, volume growth, and slightly favorable FX translation. Over the first half of the year, net sales of $247.2 million are up $33.6 million or 16%, demonstrating a very strong start to the year and a continuation of our momentum from the first quarter. Our Q2 adjusted gross margin dollars of $26.1 million grew $5 million or 24% versus the prior year period. This growth was supported by a stronger mix of sales as a function of new business launches. Across the first half of the year, adjusted gross margin dollars of $49.2 million are up $10.3 million or 26%. These results reflect a very solid adjusted gross margin of 20.3% in the second quarter and 19.9% year-to-date.

Each displaying meaningful expansion as margins for the quarter and year-to-date have grown by 80 basis points and 170 basis points respectively, compared to the respective periods a year ago. Second quarter adjusted EBITDA of $17.9 million grew by $4.7 million or 36% versus last year's second quarter. This increase was led by higher sales and improved mix and volume leverage from past cost improvement actions, partially offset by higher SG&A. Across the first half of 2026, total adjusted EBITDA of $32.1 million is up $8.3 million or 35% versus results of $23.1 million in the first half of 2025. The first half growth in our profitability measure has been driven by similar drivers as noted in our quarterly results. Adjusted EBITDA growth has come with an improvement in our margins. At second quarter, adjusted EBITDA margins of 13.9% of sales expanded 170 basis points versus last year's second quarter.

On a year-to-date basis, through the first 2 quarters of 2026, adjusted EBITDA margins of 13% are up 190 basis points versus the 11.1% in the first half of 2025. I'll now turn to our segments starting on Slide 6. In our Power Solutions segment, where our business consists largely of stamped products, net sales for the quarter were $62.3 million, up 40%, compared to $44.6 million in the prior year period. This increase was driven by higher precious metals pass-through pricing and higher volumes. Across the first half of the year, Power Solutions net sales of $117.7 million grew 34% versus the first half of 2025, driven largely by the same factors impacting the second quarter. Power Solutions adjusted EBITDA was $12.7 million, an increase of $3.6 million or 40% versus last year's second quarter of $9.1 million, driven by sales growth, improved mix from growth in targeted high-value end markets, and contributions from ongoing cost-out initiatives.

Additionally, the quarterly and first half adjusted EBITDA margins were 20% of net sales, up meaningfully versus the first half of 2025. Our next segment, Mobile Solutions on Slide 7, covers our machined products business. Net sales for the first quarter were $66.6 million compared to $63.4 million in last year's first quarter, an increase of $3.2 million or 5%. This segment has now delivered 2 consecutive quarters of net sales growth year-over-year. This sales growth reflected solid volumes from new program launches along with favorable foreign exchange impacts. Across the first half of the year, net sales of $129.7 million are up 3% versus $125.6 million in the first half of the prior year period. Our second quarter adjusted EBITDA in the Mobile Solutions segment was $9.8 million, up 13% versus last year's second quarter results of $8.7 million, with the segment's adjusted EBITDA margins of 14.7%, expanding 100 basis points versus 13.7%.

First half of 2026 has seen a similar theme play out with $18 million at nearly a 14% margin rate, improving versus $16.8 million or just over 13% of sales. With that, I'll turn the call back over to Harold. Harold?

Thank you, Chris. I appreciate it. Wanted to talk a minute about our growth program and our portfolio objectives that we have. In the second quarter, we continued advancement in that regard and automotive has now declined to about 40% of the company. Our ultimate goal is to have that be about a third, not really by shrinking but by the other areas growing more quickly. And that is in fact happening. The top 3 growth markets that we're focused on are listed here: data center, electric grid, defense electronics, and medical products. We had decent wins in each of those 3 segments in the second quarter and year-to-date. And those areas now are over $150 million of our sales, about a third of the company. And we have near-term targets to increase that percentage. And it obviously starts with prospecting and then bidding on new awards and then winning on closed opportunities. And we've been winning at an above-expectation rate and the highest rate that we've ever done.

And our prospecting is expanding actually. And I wanted to give just some vignette updates on each 1 of these segments, turning to the next page, starting with just an overview of our 5-pillar program. The 5 components are the 3 areas I just mentioned, plus high-value vehicle parts, where we have a curated portfolio that we attack in the commercial vehicle, recreational vehicle, and passenger vehicle space, where we believe that it's very profitable and high return on investment for us. And it helps us push our technology. And then high-value stamping. So we have a few niches that we're in on the stamping side as well, and we're staying close to them. Many of them in the smart home area, smoke detectors, alarm systems, switches. So those are the 5 areas that we're focused on on a go-forward basis.

And that's how we've organized our sales team, our business development teams, our engineering, and we're allocating our capital to those areas as well. So on the next page, I want to dive down a little more deeply into data center electric grid. As seen on the prior pages, it's an $80 million business already on a trailing 12-month basis with a near-term goal of $120 million. We have multiple large opportunities that we're evaluating in this space right now. Everyone knows that AI and data center is 1 of the biggest things happening in the world. And it's the biggest thing happening to our company. We are getting very large asks to us.

We're a well-known precision metal part maker, and that finds itself in a lot of aspects of the data centers, especially with the liquid management regarding the cold plates as well as the pumps to make sure that system is good. But on the top end of the system is electrical, and that also plays into our electrical business, our stamping business, and assemblies business. So it's our second largest market right now behind the high-value vehicle parts. But it's closing the gap. And our goal is to have it be our largest segment. Recent news in the quarter that we gave out via a specific press release, we had some big wins here. We're focused on establishing supply chain positions with the right people and the right platforms and it's expanding. We started off in Asia. It's now expanded to Europe and into North America.

And we're leveraging our assets and technical know-how to have leak-proof metal parts. And also the aesthetic qualities are quite high on these parts as well. And we know how to do that. We have many ramp-ups underway. If you have a chance to look at our 10-Q, you'll note that in Note 3, we expanded the look into the end markets that we serve. And you'll notice that we don't have a lot of sales showing up yet in our machined products business for grid and data center. And the wins that we've had are primarily going to be a second half ramp-up for us. And those ramp-ups are underway.

The third point here is we've secured significant new awards that will be ramping up into the beginning of '27. We already have about 50 machines we're bringing online. We have about 25 in-house already. And we are running out of space. Tim French is not on the call today because he's in China. And he's looking at new space in the area of 1 of our plants, Wuxi. We'd like to just be 10 or 15 minutes away. We need about another 100,000 square feet to accommodate the equipment that we're going to need. And this business is on track with expanding opportunities. On the next page, I wanted to talk about defense and electronics for a minute. That's already at $60 million on a trailing 12-month basis. Our near-term goal there is $90 million. We supply critical components into weapons systems, guidance systems, and we're evaluating anti-drone munitions, making the munitions themselves for shooting down drones. Recent news we announced in the quarter was that we had secured a multi-year agreement to produce parts of weapons.

And that alone is expected to be about another $12 million to $15 million just with that 1 customer, and we're ramping up now. We have many, many new firsts associated with that. It's a multi-year project. We had a lot of advancements on surface coatings, as well as mastering high-volume titanium machining. And if you don't know much about metal fabricating, titanium retains heat and swells and changes its dimensions as you're forming it. So there's a lot of things to get right to be able to do high-volume titanium machining, but we were able to master that after a few quarters. We're expanding our defense and electronics growth platform. We've won a bunch of programs over the last few years, but it's an expanding area for us.

And we have a $75 million working pipeline. We've achieved a lot of credentials with the DOD and ITAR and other types of certifications that you need in order to compete here. And we have a very, very big aspiration in this area. It's not exploding in demand like data center is, but it's right behind it. And so we're opportunity rich in this segment as well. And then on the next page, I wanted to talk about medical. It's smaller than the others. It's about $15 million on a trailing 12-month basis.

We have a near-term goal of $40 million. But it is coming from behind. And it's taken us a while to get the credentials that we needed here. That's very clean manufacturing required, as you would guess. It took us a while to get the plant certifications. The parts themselves are not that hard to make. But we did have some breakthroughs this year and we are approved to make surgical tips, if you will, and the ends and pieces that go into the robotic machines that do surgery, and we received our initial purchase orders. And so we're underway with a ramp-up there in our Kentwood, Michigan plant.

And we have had to renovate our quality system. It's taken a multi-year investment program from us. And we've done it. And that new business that we announced effectively will double the business itself. And it's upward from there. Our pipeline is now about $75 million in this area also. And we have a dedicated team who's found its stride. And we're now evaluating the market in China, the second largest market for robotic-assisted surgery. And we have all the approvals we need to go in with the exact same customer.

So this business is gaining momentum for us and we have a strong team in place and we have high aspirations for our medical business. So with that and the next page, Chris gave you an overview of the really exciting and fundamental improvement we've done to our balance sheet with the refinancing, coupled with the growing business. We raised guidance for this year. And if you look at it, we raised it in the last quarter also due to our actual results. And we were asked about how we think about our guidance and really we're letting the results flow before we're changing our outlooks and we're doing it again here. So we do expect our sales to be $460 million to $480 million this year, our EBITDA $55 million to $65 million, and our new business wins $80 million to $100 million. In our earnings release that we put out this morning, you'll see that through July, new business wins are already at $80 million. We increased the high end and the expectations and along the need for talent also capital equipment to be able to produce at a high level. So that's our new guidance, and we're very happy about it. And as events unfold, we'll look at our guidance further as we go along through the second half of the year.

With that, we'd like to turn it over and open up the webcast to questions and answers.

We will now begin the question and answer session. [Operator Instructions] Our first question comes from the line of Rob Brown with Lake Street Capital Markets. Rob, your line is now open.

Hi, congratulations on all the progress and great to see the steps that you've taken. Just wanted to follow up on the data center market. You've had some nice wins in the quarter. Could you kind of characterize the pipeline in that market? What areas are you most interested in and just maybe the scale of the pipeline? Thank you.

Yep. That's Slide 10 in the deck. So, you know, our products right now, Rob, we're making transformer parts, bus bar parts, test probes, liquid connector parts. We branched into the cold plate itself, plating of the cold plate. It actually is plated with a nickel kind of plating. And we are looking at couplings that go into the heat pumps. The heat pump system itself, there's a lot of well-known people in that area, Danfoss, Parker, Staubli, kind of well-known fluid management people, and all the couplings are also metal. So we are looking at the stampings that are also inside that go into the racks, both up and down, as well as the whips and cabling that controls the electricity inside of the center. So we have a multi-product look at the data center ecosystem, but basically we're focused in on our core markets.

We're getting pulled into a few new areas of welding and brazing, and that's fine because we know how to do that. And then you have to be able to automate it. So it's not a 1-product story. It's a bring everything the company has to the game plan story. And we have a large expanding pipeline on this chart here at the bottom. I mentioned that we're now approaching $100 million on prospecting. And just to delineate that, we talk about pipeline figures if we've rendered an RFQ and the customer has an RFQ from us.

But prospecting begins before that. So we have discussions underway that are large. And in our last call, someone asked, how big are you trying to get in these connectors? And we think we could do $100 million in that alone over time. The real thing for us is who to partner with, what type of assets do we want to put in place, where do we want to put them? So it's an evolving market for us, Rob. And it's quite fulsome. It's a big story for us.

Great. Thank you for all the color on that. And just on the gross margin improvement, nice to see there. How do you sort of see it? Is it sustainable at this level or can you continue to move that up as you change your product mix?

Yes, Chris, you want to take that? Sure, sure. Thanks, Rob. Yes. So, you know, we've benefited in a lot of areas with our margins. You know, we took a lot of costs out over the last 8 quarters or more. We've got some just leverage based on the overall cost structure reduction. Additionally, we've got new business ramp-ups. We talked in the past quarters about those new business pieces are accretive. We are benefiting from higher precious metals pass-through as well.

I think the dependencies on the improvements going forward are going to be just more new business brought on at accretive levels and dependency on precious metals, and then getting in these new business segments like medical and data center. If we keep diversifying in these other verticals, I think you'll see margins moving up. Obviously, precious metals can drag it down a little bit in the near term if prices come down, but I think overall we've got some tailwinds with these new verticals. And so keep an eye on these verticals and the revenue they're generating as well as new business. And I think that'll help guide the margins going forward.

All right. Thank you. I'll turn it over.

Thank you. Your next question comes from the line of Greg Palm with Craig-Hallum. Greg, your line is now open.

Yes, good morning. Congrats on all the positive news and frankly, just really impressive progress. So pretty impressive stuff. Can we maybe just start a little bit tied into the last kind of answer around new business wins. And I'm wondering at this point, how much of that is currently flowing through the P&L? It sounds like there's actually a pretty big chunk that's still yet to come, at least on the stuff that you've announced, you know, the liquid cooling connectors, the firearms. I think you talked about that ramping up in Q3. I only ask in light of really positive first half results, I'm guessing you're just maybe building some extra conservatism in the second half guide, but maybe you can just address that as some of these newer business opportunities start to ramp up.

Yes, good point. So Greg, all things being equal, if we weren't winning new business and things were just steady state, the second quarter usually is our strongest quarter. That's when we have our highest production volumes on existing contracts. And then the next quarter is Q3 and then Q1 and then Q4. So Q4 is usually our lightest quarter just because our customers are big and they try to pretty up their balance sheet and inventory positions before they report their year-end results. This year is going to be a little different because we have a lot of new wins that we're ramping up in the second half. And your posit is true. The announcements we made, all 3 of them, medical, data center, and defense, they are not impacting the first half at all, so they ramp up in the second half. For instance, the 50 machines to make data center parts will start to hit its stride in November.

We'll have all the machines installed then and the sales outlook in November is going to go over $1 million a month and keep building into Q1. We don't have any benefit from that right now. And the same with medical and the same with defense. So through the end of July, we've won $80 million worth of business and the majority of it is immediate ramp-up. So we will benefit from that in the second half. And so the way we're playing it right now, Greg, is we know that Q4 is usually light. But we have offsetting wins. So that's what's led us to think through our guidance and how much to increase it or not.

You're right that it's slightly conservative, but we don't really control our demand. So we have to get pull signals. Our visibility is really in this quarter. We don't have pulls going into the fourth quarter yet, with the exception of data center, where basically they're saying, "We want everything you can make this year, make it." But we're comfortable right now with the guidance that we've given, Greg, and it will have those variables playing out.

Yep, okay, makes sense. And I know you're not addressing the longer-term EBITDA margin guidance here today, but you just realized a 14% EBITDA margin on the quarter on revenue that's significantly lower than what your long-term target is on a quarterly basis. So I don't know, maybe you could just talk about that in light of those targets, because it seems like there could be some pretty meaningful upside to that as well.

Yes. Well, the business is definitely going to the next level right now and it looks sustainable. And to Chris's point, you know, we're mapping out the metal and every part of our cost structure and that sort of a thing. So it's looking like we're a couple points light right now, Greg. It looks like the goal is more like 14% to 16% longer term if you're talking about the adjusted EBITDA margin. And that's really going to be pulled through by a better mix. So the mix of the products is going to drive that and we're still maintaining about 5 points higher on gross margins on our new wins versus the existing. And that's a good point. I think in our next update, Greg, we'll give an update on the longer-term goals, but I would say right now, you're right, our longer-term guidance should be more like 14% to 16% on the adjusted EBITDA.

Yes, it makes sense. All right, I'll leave it there. Thanks for the call.

Thank you. Your next question comes from the line of Joe Gomes with Noble Capital. Joe, your line is now open.

Hi, this is George Post. I'm filling in for Joe this morning. Congratulations on the quarter. I'm curious about the manufacturing expansion you guys mentioned earlier in China and what that looks like in terms of production and a timeline to hopefully bring that online.

Yes, so right now we have 2 facilities in China that are wholly owned. What's called locally is WFOEs, wholly foreign-owned enterprises. And then we have 1 JV plant. And the machining plant is in Wuxi, China, which is a suburb of Shanghai. And that's the plant where we have been doing all of the sampling for all of the data center customers that we're prospecting with. And it's where we have our approvals. So we kind of chose that location to get our certifications, approvals, and equipment organized.

We believe we can get in about 80 machines into that facility. We've already ordered. We're getting ready to order the next batch. As we think it through, we think that we need space for at least another 200 machines from our estimates, and the timing is hard to understand right now because everyone is kind of in a feeding frenzy to get equipment lined up, parts lined up, parts supply. And so the size of the facility that we're looking for would be a facility that can accommodate another 200 machines after we have filled up our current envelope. And the timing, you mentioned the timing. We need to get this done within 12 months.

Okay, perfect. Thank you for a little background on that. A follow-up is, so what materials are the most volatile for you guys right now and where is that altering any of your sourcing decisions?

There's tonnage and then there's dollar value. You're probably wondering about the dollar value. The biggest dollar value of materials is precious metals, gold and silver. The biggest tonnage is steel and then copper. So we have year-over-year inflation in all metals. And we track it. And we also have tariffs on steel and we have a lot of... we track that. I do not believe there are any tariffs on gold or silver. And so we have our procurement team and we have a Chief Procurement Officer and he's very knowledgeable on all the tariffs and surcharges that are underway right now.

And it's a moving target. But we have the right to pass through basis cost changes, and we do, and we monitor our behavior there, and so we seek full recovery. So we don't make money on it, but we try not to lose money on it. It impacts working capital when you have inflation; it actually makes our percents go down. You know, Greg was asking about percentages of EBITDA margins on a go-forward basis, they're being negatively impacted right now by having such high metal pass-through costs. So kind of a secret good thing here is that our percentages are going up even while passing through a big cost at 0. So when I answered Greg's question, I was thinking through the outlook for metals over time and they are to calm down, which will also help our percentages. Those are the main metals, our main raw materials as a company.

All right, perfect. Thank you.

You're welcome. Your next question comes from the line of Barry Haimes with Sage Asset Management. Barry, your line is now open.

Thanks so much and again congrats on all the progress. I had a couple questions on the financing. Could you tell us how the share count will change? And then secondly, you alluded to the phase 2, if you will, in terms of renegotiating the term loan. Could you talk a little bit about the progress and possible timing on that? Thank you.

Yes. Go ahead, Chris. Yes, thanks for the question. So yes, the share count is in the details in the docs, but we swapped about, well, we swapped 5.5 million shares for that roughly $19 million of reduction in the pref. So that'll increase the overall share count. As far as the refinance of the term loan, I mean, obviously we're thinking about that again. Lots going on in the background. We're very pleased with our relationship with Marathon right now, and we're hopeful that we're able to work out some better terms based on how the business is doing. Nothing to announce at this point, but I think with where the business is performing, the lower debt that we've been able to achieve over this transaction as well as expectations in the future, I think that will bode well for reducing rate and so forth and getting us more flexibility and being able to take control of the growth that we're seeing.

And that's really 1 thing that's very critical for us with all this new business. We want to have a capital stack that allows for growth, gives us the flexibility to either buy or lease equipment and get much better and more competitive rates, not only on the senior note, but on the leasing or buying of equipment. Harold and I and the team will be working on that diligently in the coming weeks and quarter. So, you know, more to come on that.

Great. Thank you. Barry, I'll also give you a couple numbers. Right now, through this swap, we have 82.6 million shares outstanding, 82.6 out of an authorized of 90. And the gap there is reserved for comp plans and previously issued warrants. So right now, we've used all the available common stock that the company had access to.

Great. Thank you. Your next question comes from the line of Robert Sussman with Bentley Capital. Robert, your line is now open.

Thank you. I'm absolutely staggered listening to this call and the number of wins and the pipeline that you have for a company your size. It's just staggering. I'd like to ask you, what is it about the company that is enabling all these wins in such diverse markets? Is there a unique skill set that you have?

It's a good question. Most of the wins have been multi-year in nature, Robert. And you know it from being a professional investor, 1 of the differentiators of a small company is their ability to organically grow sales. And for us, if you spin back 3 years, the company was really focused on satisfying automotive customers and then other customers if they called us. And so we kind of flipped that around and said, "Jeez, what's the best use of these assets and this know-how that we have?" and there are several glaring markets that you just do a simple ChatGPT on where's the best use of these assets. And so we had to go hire executives that we didn't have from the industry. And then we had to start prospecting and then understand what our gaps were to being able to become an approved supplier and then start quoting, find your way. You know, you don't start off low, you start off high and then kind of find where the market is.

And then you start running a program. We're using Salesforce.com as our organizing software tool. And then you track why do you win and why do you lose? And then you try to work around those findings and you drive to outcomes. What's happened this year is, we've had some multi-year kind of marquee things that we're working on with some big people that we thought would help our credentials and establish us as a real competitor. And that helped us. So we have references now. And it's fun. And another question you could say is what's big enough? What's too big, what's too small? We're definitely winning higher amounts than we thought, which brings with it more working capital, more CapEx than we thought. We're not in trouble with that, but we have to be careful on what we want to do.

And we're staying disciplined about the process. And so we're running a 27% hit rate year-to-date on closed opportunities, 27%. That compares favorably if you research and benchmark that number, that's above industry average for a manufacturing company. But the reason we're losing over 70% and the reason why we lose is we're being disciplined about the financials. So I mentioned in the dialogue that our prospecting is expanding and it's really due to the fact that we're getting credentials now in these targeted areas and we're getting more looks now. So we're not going to go into different areas, really. There's 1 other area that we're evaluating, Robert, and it's the automotive aftermarket. But right now we kind of have our hands full with the markets that are performing for us.

One follow-up. I assume that there's some lag in passing precious metal prices through. Can you tell us what that lag is? And I assume there has to be some drag on profitability from that lag.

We're allowed to true up to actual. So the show me part of this, Chris is from Missouri, so I should have probably had him answer it.

It's a show me deal. So if we can show that we incurred inflation to deliver their order, it's a true-up.

So the onus is upon us to match up and be transparent with what our input costs are in the performance of producing for those POs. So it's not much, Robert. It's smaller than you think because the company is pretty good at not letting that happen.

Okay. Thank you very much. Keep up the great work.

Thank you. Appreciate it.

Your next question comes from the line of Barry Haimes with Sage Asset Management. Barry, your line is now open.

Thanks. One other follow-up. Harold, on your comment you just made on the new business obviously creating demand for machines and capital. When you're going through that exercise, what sort of ROIC target or target range do you have in terms of saying, you know, okay, this is this capital's worth spending on such and such a program? Thank you.

Yep. So the floor on gross margin is 25% and the floor on IRR, if spending is needed, is 25%. Those are the floors. We've been averaging quite a bit above those floors. The financials are there, though, to be honest, Barry. The real decision-making is around how solid of a commitment are they willing to make to us on a multi-year basis for volume? And you can see when the customer has plenty of suppliers bidding because they don't really want to make a commitment or if you kind of have a me-too value proposition. And so you see a lack of commitment to each other. They want to date. They don't want to get married. And so it's different when you can tell that you have a differentiated value that you're bringing to the table because they want to lock you out.

And so we have a giant opportunity we're looking at right now with a big data center customer. They've requested us to kind of be exclusive with them. And if we do that, they'll give us this huge amount of business, but they don't want us working with others. And so what that means to us is, hey, wait a minute, we're pretty special in this space here. We're not doing that. We're more being balanced, if you will, across a set of customers versus just getting married to 1 customer. But that's where the real play is, is how much do you want to do versus the commitment that they're offering. The numbers are all there predominantly, and we're lucky that we're able to be selective and kind of cherry-pick the better return programs. And this year we've won about 100, and I think yesterday, yesterday it was 132 programs. We're into August now.

And we're launching programs we've previously won and we're winning programs that are immediate ramp-up. I'm going to say we have well over 150 programs in ramp-up mode now, right now on this call. And I'm also going to say that we probably have every single plant in some sort of a new business ramp-up. The biggest and most exciting ones are obviously the 3 areas we talked about, data center grid, defense electronics, and medical because it's good business, it's high growth, you know, and it's acceptable to the stock market. So we're definitely focused on those 3 areas with a differentiated push.

Great. Thanks so much.

You're welcome.

This concludes the question and answer session. I will now turn the call back to Harold Bevis for closing remarks.

Yes, let's tag team, Chris. You want to give a summary on the balance sheet and the financials and then I'll do the business wrap-up?

Sure, sure. Thanks, Harold. Yes. So, you know, as I mentioned, we're very pleased with the strategic refinancing of the balance sheet and more to come with the senior note and so forth. Like I mentioned before, I think we really, we've got another step to go to get the balance sheet fine-tuned for the growth that we're experiencing and we'll be working hard on that.

Thank you, Chris. And I'm sure that you've detected from our comments here and from the Q&A that our momentum has not peaked. Our momentum is building and things have traction here at the company. And we're proud of the quarter. But we have bigger aspirations and we look forward to reporting Q3 with you guys in 90 days. Thank you very much for calling in today. And with that, we'll end the call, Christine.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, and thank you for joining us for the IAccess Alpha Virtual Best Ideas Summer Investment Conference 2026. IAccess Alpha hosts Virtual Investor Conferences featuring small and micro-cap companies sourced directly from investors and industry professionals. Today, you will hear presentations from a curated group of selected companies. IAccess Alpha holds 4 virtual Best Ideas Investor conferences annually, 1 per quarter. Our next event will be the IAccess Virtual Best Ideas Fall Investment Conference scheduled for September 15 and September 16, 2026. We would also like to thank the many investors who contribute ideas and help source companies. These conferences would not be as valuable or high quality without your ongoing support. Now let's begin with our first presenting company NN, Incorporated. [Operator Instructions] I'd now like to turn the floor over to today's host, Harold Bevis, CEO at NN, Inc. Please go ahead.

Thank you, Holly, and thank you for the participants in today's call. I also have joining me our CFO, Chris Bohnert, and he and I are going to take you through about a 20-minute overview touching on the basics for some of you that don't know us that well. We are a company that is involved with breakout growth right now in data centers and defense, and we're going to highlight that today. Again, myself and Chris and Tim French, who's not with us today, the 3 of us joined about 3 years ago to initiate a ramp up in cost reduction and sales growth, and we are achieving those goals right now. I'll take you through some of the numbers on Slide 4 here.

Just a quick overview company. We are profitably growing in high-value markets. We are having breakout growth in data center and defense markets. Our business model is to partner with OEs and provide customized metal components and metal assemblies. We use a shared global manufacturing footprint with equipment choice standardization as well as the softwares that we use. Our top growth markets, we have a few and that we find ourselves wherever there is very discriminating and precise metal component high new vehicle components, steering and braking, electric grid and data center for liquid cooling connectors and other components for guidance sections and weapon sections and in medical components for equipment and tools that are metal-based.

We're known for exceptional repetitive quality, and we produce at high volume scale. We make billions of parts a year. We have a high use of robotics and automation, and we use AI. In terms of our guidance for this year through the end of Q1, our midpoint are $460 million in sales. We have another JV, a 49% ownership in a JV that we don't consolidate, and that JV is another $100 million. Our adjusted EBITDA is midpoint, $50 million, and we have about 700 customers.

In terms of our performance year-to-date through Q1, which is our last reported results, we had strong year-over-year performance and we're building momentum in our targeted growth areas. We were sales with 22 up 30 customers predominantly in data [indiscernible] and for the full year, our full year also was looking strong through year-to-date and building through the quarters as we launch new programs that we're winning. And therefore, we raised our guidance for the year for sales and EBITDA. And we also improved our longer-term outlook by pulling in our goal attainment by a full year because we're running ahead of our expectations.

On the next slide, I just wanted to touch upon our growth area -- for those of you who may or may not know us. There's 5 main areas that we pursue for growth with this metal part-making capability that we have globally, the metal vehicle parts we find ourselves into very precise applications. If you look at vehicles, the control of breaking the steering emissions they're not made out of plastic. These type of parts, they're made out of specialized steels with a lot of heat treating and secondary processes also in their micron level precision.

And number two, here's grid and data center is fast growing. We've had an ongoing business here for a long period of time. It's $73 million in sales on an LTM basis and our near-term goal is $100 million. And really, the goal here is to be debris free, leak-free and energy efficient. So we deal with a lot of copper as well as plated copper, gold and silver. Medical applications is double-digit growth also. Parts are a little easier to make, but the quality systems are much more demanding and we certify the plants 1 at a time having breakout performance in both the data center area and the medical area.

Defense and electronics weapons grade type of products, biggest in platform were on is the Patriot system. The biggest end customer we support us right ton and we do just a tremendous amount of parts and pieces in this area in assemblies and then high-value standings. We have smokealarm systems, switches, sensitive electrical analytic applications. Those are the main areas that we're growing in. I wanted to just put -- say a few comments about the markets that we participate in. And I know a lot of you track a lot of markets. Just to give you an update on our view here on grid and data center, it's -- the market has gone vertical. Those of you who follow NVIDIA in their 5-year $1 trillion backlog. We're in the NVIDIA supply chain. So our parts go into VIDA acts for liquid cooling globally. And we're also on the grid.

So we go from the grid edge to the rack with a bunch of components, which I'm going to talk about in the next page. And that's a very strong market for us, and it's helping us achieve wins for this year and a full year effect into '27. Defense Electronics is at record levels in the United States that's where we participate in this market, and we have 5-year growth plans with many of our customers, and we're ramping up production on a lot of different types of products. It's a growth market. Medical, again, we're having a breakthrough new wins. We reentered this market at the end of '23. I mean we have a lot of good it took a little longer than we thought, but it's really been in Aval of.

Automotive in China is our 1 soft market that we have. If you follow the automotive industry in China, they're having to reset here. The local market in China was overstimulated with government incentives. Export market from China is still strong. We participate in both. We made parts that go into the cars and the cars sold in China or outside of China. We benefit from that. One thing that we're doing with the slowdown in the China market, though, is we're repositioning and retooling our assets from automotive part making to data center part making. And we have a very active program underway with that. Commercial vehicles has been soft. We serve that market in Asia and in North America. And it's been soft, but the order rates in North America specifically started picking up in December and this is turning out to be a second half growth story for us this year.

And [indiscernible] kind of goes along with GDP. And we've had a couple of kind of growth this year. Global Auto is the mature markets to North America, South America, Europe. The market is slightly down due to affordability and the impact of tariffs and the China exports are having a big impact on the local markets as well. We're expecting a flat year. But overall, as a company, we're seeing stronger markets that made last year. I'll talk second on data center. We get a lotion about that because it's a here and now investor topic. We have been in this market a long time. We start with the meat on the side of the building. So we make components to go into meters and grid management. Some our second largest customer in our company is a company named Itron to make systems to monitor networks globally.

And we have stamped parts as well as machine parts. That's the 2 sides of our company, our reporting segments. And basically, all of the components we supply into this market are seeing growth curves this year. In the first quarter, we came out with a brand-new product line to directly use our machining capability to machine cooling connectors, liquid cooling connectors and the machines we have are ideal for that size. It's about 32 millimeters. If you look at the diameters involved, and we have a lot of 32-millimeter machines and a lot of 32-millimeter know-how. It's common stainless steel bar stock size. And we are a large-scale field bar stock for lead time due to our auto business. We use procurement leverage as well as our machine base to make these connectors, and we entered it in a big way in the first quarter, and we're still prospecting in the second quarter.

We've ordered a lot of additional machines, the machines all have lead times. If you track this industry, equipment lead times that make the parts and pieces for this industry are starting to go out and extend and that applies to us also. But we -- we're a long-term buyer of this type of equipment. We have a couple of thousand machines. And so we're a well-known equipment buyer and these are mainly 6 [indiscernible] CNC equipment that require special tooling and programming, but we know how to do it and have been doing it for a long period of time.

We have a forward prospecting curve going after the top 10 people that need these globally. Our first have been in Asia, Foxconn mainly does a production for NVIDIA out of their Vietnam and Taiwan plant. So we're involved in those supply chains. And most of the machines are going to -- that we're associated with or going to the U.S., coming back to the U.S. for the big people putting in AI networks. So it was a big new event for us in this quarter and we're off to the race this year.

So in terms of outcomes, as I mentioned, Chris and Tim and I came in about 3 years ago, we entered a declining situation. And we changed out most of the plant managers. We have 27 plants. We changed 25 plant managers out. I rotated top team, some people put before, Chris and I have worked with together at them. So we have a team that's been there, done that with the had success together. And we're underway with our fourth consecutive year of improvement and it's -- the last couple of years, we really had to get rid of a lot of excess costs. We closed 4 plants and laid off almost 1,000 people kind of rightsized our cost structure, and we're having tremendous growth now and that growth is going across the lower cost platform and our growth is kicking in now. And it's actually -- the growth is happening a little faster than we expected because data center can call -- but it was our plan at this leap this year.

We announced it when we announced the year that we were going to have over 100 programs launching this year and -- and year-to-date, we've had around 50 have already launched. And now the number is growing because we're having more wins. So this year, we're probably going to launch around 130 programs. So we'll update our year weeks when we go through the second having an accelerated sales really are causing us to hit our longer-term goals quicker. So we also reset the models that were out there from the analysts on us guided as hard as we could to bring those models in because we're running ahead of our metrics. And if you look at our year-to-date performance, we're hitting these gross margin and EBITDA rates.

So we're reassessing what our long-term goals are there because we're approaching those rates now. So as an investment, we're -- we have -- if you followed us the last few years, you would be listening to us talk about taking costs out, low grounds that are in the future, and that sort of a thing. If you follow recent events, we guided this year that the cost part of the program is kind of over. We're just going to do contemporary cost management now on an ongoing basis, but the program here is all about launching growth and what type of growth. And our goal here is to grow about 2x the market. It's what the market is because the data markets are growing so fast, but we're participating in that fully. -- and we look forward to discussing our second quarter results and updating our full year outlook and give guidance on the next 3 years, too.

So that's real quick. That's just an overview of the company and our results. And we can switch to Q&A, Holly, if that makes sense right now. Chris, are you there?

Yes. I'm here.

Yes. Pardon me, Chris?

I have a question, electric grid and data center has become 1 of NN's most important growth initiatives. How large is that business today? Where do we believe it can ultimately grow over the next few years? .

Yes, grid and data centers are #2 market right now at $73 million in sales. Our near-term goal is $100 million we believe it grow to be our #1 market, which was over $50 million in sales. For us, the sales these types of sales bring machines with them. So there's a CapEx part to that question, too. And we are not saying no to any of any good data center business and the margins are accretive for our company. So overall, it's also a way for us to get our growth from our EBIT.

Next question, and then recently highlighted its first data center liquid cooling Connector win. What are you seeing from customers? How significant could the data center opportunity be for the company, similar financially, I answered that what we're seeing from customers is panic of trying to have physical supply chain setup, the backlogs are so big. The industry is in need of additional supply. And we -- we need to do more. We need to produce and we're working at it to produce more. These parts are tricky a little bit. So you can't really shortcut the quality processes, but we are underway with multiple ramp-ups. We have our hands with ramp-ups and we're also prospecting for additional business and then discuss an opportunity pipeline approaching $800 million, what areas of the business are generating the strongest customer interest today.

Well, data center is 1 of them, we mentioned, but also our defense in the defense arena, defense and electronics, we're getting a tremendous amount of inquiries to make high-end parts that are around guidance and protection of the printed circuit boards they're typically they're gold plated, so that they can't have magnetic inter jamming of any type, so that the excess EM arenas attenuated by being ground through gold plating. So that is happening, we are seeing a lot of defense inquiries into us and also medical. We recently have passed a critical medical and we have received an avalanche of RFQs that we're kind of digging out of. We were happy and sad that we passed that. We were happy. We passed it and then we're like, well, we really got hammered here with RFQs.

So we're getting organized. We're going to have to probably hire a few more engineers to get through that. Next question, most recent program wins have carried margins above the company's historical average as those programs ramp, how can investors think about the. It's a good question. Our margins on our new business are averaging over 25%. Our gross margins right now are about 20%. So you could expect our margins to be trending up I don't know if we'll surpass 25%, but they'll be trending towards that number in the short term. going to go to the next -- that's our refresh. Chris, can you help me with the questions here?

Yes. Yes, the -- we recently raised our guidance and accelerated the timing of our long-term targets. What gives you confidence in achieving those goals despite ongoing macro uncertainty?

Yes. Good question. Chris, for -- obviously, for us, we want to become a beat and raise kind of equity. And confidence came from our forecasts that we see and also the backlogs that we have and stated goals from our customers on where they'd like us to get our production up to. So if you do the trend lines, if you extrapolate our year-to-date performance, you would even say that we've been conservative with our guidance update, both short term and long term. So we'll be updating that as we go. Another question, you mentioned 1 large customer. Have you talked about other large customers? Can you list top customers and percentage of sales that they are. .

I don't really want to give out a percentage of sales, but I tell you, our top customer, our company, is Cummins and then Itron. We have a balance amongst our top 30. Our top 30 customers matter to us. So although we have 700 customers, our top 30 customers are a little over 70% of our sales. and their balance between grid data, automotive, as true. We have a good balance. The biggest end market concentration we have at the moment is in our Q1 investor deck. We report out on this. It's automotive overall is 44% of our sales. And our goal is to get that down to under 1/3, primarily by holding automotive steady and growing to other areas, but we're actually doing a shift now of repurposing equipment front to data.

So we might get in front of that transition point. in the past, some people have viewed us as an automotive part maker, but now that's becoming 1 of the smaller things that we do. Next question, when do we expect this new 6-axis machines to be in service? Are we operating these around the clock? Yes we run 2 on those. And then from Larry -- we are -- we have a delivery schedule. There's 3 main types of CNC equipment used in this industry. The 3 companies are Sagami, Citizen and Star. They're Japanese CNC companies and they make the machines in China. The lead times on these machines have gone way out primarily due to data center. We're in the queues to receive. We have a delivery schedule of machines. We've already received about 8 of them, and we're going to be receiving them at the end of the year in this 1 that we've announced.

For having a conversation a year from today, what do we think will be the biggest driver of value creation for shareholders. is the next question. Number one, we're going to refinance our preferred stock. That's on an active list of things to do. Chris Bohnert is leading that. We can't really say specifics because it's MMPI, but that will be 1 that we look back at and we're happy that, that happened. Another will be that automotive will be less than 1/3 of our company and we'll primarily be growing in other areas. Medical is going to be something we're going to be talking more about. So far, year-to-date has been defense and data center, but medical is coming on hard. You mentioned earlier, I mean, part of NVIDIA, supply chain for liquid cooling are you working with other companies that you're willing to share. We're primarily tied in to NVIDIA. We are working on -- we are bidding on other microprocessor-based designs. But our first wins are really in the video supply chain.

Next question, investors continue to focus on per equity. Can you provide an update on your efforts to simplify this structure and strengthen the balance sheet. Chris, do you want to take that one?

Yes, sure, sure. As Harold mentioned, we're pretty active in our process to recap the balance sheet, primarily with the press first. And then it's going to be probably a multistep process. We'll get -- we'll recap the pref here, hopefully, between now and the end of the year, and then we'll take a look at our senior note. We're pretty happy with our ABL and the rate on that. But we've got a really good balance sheet program that we're working on over the next 12 months. And so we'll be happy to report on that here in the coming quarters. And I just know it's top of mind and Harold and I and the team as well as the Board are working actively on it.

Next question [indiscernible] as to be a growth platform for NN what types of programs are driving demand? And where do you see the greatest opportunities going forward. So we are an approved supplier at a lot of OEs in the defense in the defense area, Northrop, General Dynamics, Raytheon, others. And we primarily find ourselves doing sophisticated pieces that require plating. Not all companies have in-house plating. It's something that specific chemicals and gold plating and silver plating is you can't find it everywhere. We buy gold bullion and silver bullion, and we process it. So it's a very involved process. We're vertically integrated. .

So we're skewed towards on Park banking, defense and electronics. And 1 of our largest customers that's not in defense electronics that we do this for is a company called IPG Photonics. And we do the same thing. We gold plate the main heart of the electronics of the devices so that they can't be interfered with electromagnetic interference. Next question. The company generated $43 million of new business wins in Q1. Can you provide additional color on those awards and expected timing of revenue conversion. We've won about 70 programs so far year-to-date, I won't give the figure because we haven't released that yet. And they continue to see in that they're smallish over $1 million, and they're both with new and existing customers.

We have an active prospecting program. We organize ourselves by using salesforce.com, and we allocate out and give targets to individual. We have a 40-person business development team globally and they all have specific awards, and we give them incentive comp to land their share of the award program and then they share in the overall number. So it's a balanced program. And the second half of this on the expected timing of the revenue conversion. Generally speaking, equipment that we're associated with. There's usually a 3- or 4-quarter offset, sometimes longer for automotive, but data center has turned out to be maybe top of the scenario.

So we have a skewed situation going on this year with being given awards and being asked to go full blast by the next weekend. So it's -- this year's version of that is its immediate ramp-ups. So we do expect to get contribution this year from the first quarter's wins yes. Next question for investors who may be hearing the non story for the first time what you believe is the most misunderstood aspect of the company. if you look backwards at our stock performance, the company got into trouble and then stayed in trouble until they hired Chris and Tim and I. And it was like the world's longest turnaround underway. And we ended it and some people just like, yes, okay, in an yes, that's a company that's turned around it's over.

And we did everything. We engaged all the things that needed to be done, and we did it. And now it's just about growing. I think that's becoming less misunderstood, but it's probably -- the perception probably isn't quite there yet if people haven't looked at those name in a while. Why is China automotive so weak? I keep hearing about how much traction they have globally, what markets have too much supply. So the China market which I've followed for over 10 years is really -- it has too much capacity and the government stimulated overstimulated, basically, everyone in China who needs -- who can afford a car as a car.

So that first time sale is -- that's done, it was stimulated, and it's in place and now the market is entering a period of like the United States, for instance, of when cars wear out or you want a new model, you get one, but there's not that initial amount of demand to be snagged, and the export market is now 30% of the production -- 30% of the production in China is now exported. And there's the articles that are coming out now are saying everyone in the world seems to like Chinese cars except the Chinese because their export markets are doing very well, but the indigenous from or pulling back there will be consolidation of the smaller names.

If you look at the top 10 OEs in China the year-to-date, I just looked at the May data this week last week, the biggest OE in China that's doing poorly as BYD. And they just -- I think they got ahead of themselves and now it's still a huge market way bigger than the U.S. is, but it's pulling back on a percentage of sales. We're not feeling it from a financial standpoint because we're toggling the capacity over to data center.

Okay. I think that we wrapped it up there. I appreciate everybody's time. Really excited to speak with you individually or one-on-one, I can follow -- and with that, we will call for today. Thanks.

That concludes NN, Incorporated's presentation. You may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to the NN, Inc. First Quarter 2026 Earnings Conference Call.

[Operator Instructions] I will now hand today's call over to Joseph Caminiti in Investor Relations. Please go ahead, sir.

Thank you, Tamika. Good morning, everyone, and thanks for joining us. I'm Joe Caminiti with NN Inc.'s Investor Relations team, and I'd like to thank you for attending today's earnings call and business update.

Last evening, we issued a press release announcing our financial results for the first quarter ended March 31, 2026, as well as a supplemental presentation, which has been posted to the Investor Relations section of our website. If anyone needs a copy of the press release or supplemental presentation, you may contact Alpha IR Group at [email protected].

Joining us from NN management today are Harold Bevis, President and Chief Executive Officer; Chris Bohnert, Senior Vice President and Chief Financial Officer; and Tim French, our Senior Vice President and Chief Operating Officer will be joining us for the question-and-answer session.

Please turn to Slide 2, where you'll find our forward-looking statements and disclosure information. Before we begin, I'd like to take a note of the cautionary language regarding forward-looking statements contained in today's press release. Supplemental presentation and risk factors in the section of the company's annual report on 10-Q for the fiscal first quarter ended March 31, 2026. The same language applies to the comments made on today's conference call, including the Q&A session as well as the live webcast. Our presentation today will contain forward-looking statements regarding sales, margins, inflation, supply chain constraints, foreign exchange rates, tax rates, acquisitions and divestitures, synergies, cash and cost savings, future operating results, performance of our worldwide markets, general economic conditions and economic conditions in the industrial sector, including the potential impact and ramifications of tariffs, the impact of pandemics and other public health crises and military conflicts on the company's financial condition and other topics. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company's control, which may cause actual results to be materially different from such forward-looking statements. The presentation also includes certain non-GAAP measures as defined by SEC rules. A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation.

Please turn to Slide 4, and I will now turn the call over to our CEO, Harold Bevis. Harold?

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

Tamika, can you help us with that?

Yes, the lines are open.

Okay. I'll proceed here. Thank you. Thank you, Joe. Good morning, everyone. We had a good quarter, and we have a good outlook, and we look forward to giving you an update today and answering questions. We had a strong Q1, and we are very thankful for it, and it was across net sales, adjusted EBITDA and a few other areas. We're going to highlight a few of those today.

The performance in the quarter was led by a very good mix, which was the main driver of our improved results. And of note, we achieved the highest trailing 12-month adjusted EBITDA that we have in 5 years. And additionally, with regards to future performance, we captured noteworthy wins in key markets of electric grid and data center, and we're going to touch on those in a minute also.

The second point that we want to make is that our growth programs are delivering results. We have 3 main diversification programs that are in play. They're in electrical grid and data center, defense electronics and the medical markets. We expect to see solid volume growth through 2026. And we are winning in data centers for AI, cloud computing hardware. We're focused on increasing our content per data center.

The third point that we want to mention is that our growth program is meeting up with our cost blueprint and generating good profits. We have a lower cost operating footprint today, and it's delivering results reflected in stronger profitability. Our margins, therefore, are turning to the high side of historical results, and you are witnessing the earnings potential of this company.

Fourth point that we want to mention right upfront here is that we're forecasting this performance to continue, and we're raising our 2026 guidance in a few spots. Our strong Q1 and the outlook and the visibility that we have for the remainder of the year is leading us to positively revise our full year guide. We're revising our guidance ranges higher for net sales, adjusted EBITDA and new business wins, which we previously announced on April 14.

We're building momentum from new launches and program ramp-ups, and we're quite excited about it. Our improved '26 outlook is pulling the time lines of attaining our long term goals in as well. And specifically, we are accelerating our 5-year model to be a 4-year model. And that is something that we're going to touch on later on also.

If we turn to Slide 5, I'd like to make a few more comments about the outlook and the guidance improvement. We did have a strong first quarter. We're going to cover that, and Chris is going to do a deep-dive into some of the areas. We delivered on multiple company records, and we're building forward momentum that will carry us through the rest of the year and into 2027 as well.

The first point that we want to make is that our sales growth is broad. It is not one big program with one customer or even just a few customers. Instead, our sales are up with 22 of our top 30 customers and improvements are widespread. We have 700 customers in total and the bottom beneath the top 30 customers, we were up with that group as well. And right now, we're launching over 100 small- and medium-sized programs with many of those customers, and we're adding brand new customers also, specifically in the data center arena. So our outlook for the rest of '26 is strong, and it's multifaceted.

The second point is that based on our full year outlook and our forecast and our actual momentum, we're going to be delivering record annual performance this year. We expect that strength to be across many of our key metrics, and we expect to have a strong sales mix, growth in adjusted EBITDA, growth in adjusted EBITDA margins, growth in adjusted EPS and new business wins growth. We're expanding our participation in the data center build-out that's underway, and we're actively prospecting and winning additional business. It's a nice turning point for our company, and we expect it to continue.

Additionally, as a result of a strong 2026, we're moving the long-term goal time line in from 2030 to 2019 (sic) [ 2029 ]. The results that we are delivering are overcoming global automotive weakness and global commercial vehicle weakness and tariff turmoil. We're more than offsetting those dynamics, and we're successfully replacing these soft areas with new sales in electric grid data center, defense electronics, medical and our industrial business.

Turning to Page 6. We want to review the high-level metrics in the first quarter. And then Chris Bohnert, our CFO will drill down a bit further into the numbers. First of all, our sales were up both year-over-year and sequentially, about $12 million to $13 million or about 12%. I'll wait a minute for the slide to advance and catch up with me here.

The growth was a solid mix, and it was in the grid and data center, defense and electronics are delivering strong growth, as I mentioned. The sequential sales growth also led to a commensurate increase in working capital, which occurs seasonally in our business, and that did happen in the first quarter.

Secondly, our adjusted operating income was up year-over-year and sequentially and the results of our operational actions are shining through into our results. We have a leaner operating model today and the large onetime costs that we incurred are washing behind us. Our adjusted EBITDA was also up year-over-year and sequentially. And as mentioned, this is being driven by good sales mix, which we expect to continue, heavily concentrated in the power side of our business and strong operating performance.

Most of our plants are delivering results for us. We have just a few left that are at breakeven, slightly negative, but it's very widespread across many customers, all of our plants, and we're very thankful for that, that we're seeing the results of our hard work. On the new business win side, we were up significantly year-over-year and sequentially. We had a big quarter in Q1 for us, and it was concentrated in electrical grid and the data center markets. On adjusted gross margin, again, we were up sequentially and year-over-year, and our margins were also up for the same reasons, good sales mix and good operating performance.

So it was a solid quarter, obviously. It's reflective of the progress we've made across the portfolio with a good sales mix and strong operating performance. And as a result of this performance and our outlook, we're raising our outlook for both the full year and for the next few years. And we're going to get into a few more details after Chris speaks and get him review our company's first quarter more fully. Chris?

Thank you, Harold. Good morning, everyone. If you're following along in the presentation, I'll start on Slide 7, which highlights our first quarter financial results.

Net sales for the quarter were $118.5 million, an increase of $12.8 million or 12.1% versus the prior year quarter. The revenue growth was driven by the impact of a positive shift in our sales mix, as Harold mentioned, higher precious metals pass-through in the quarter, along with favorable foreign exchange impacts. These positive impacts were partially offset by softness in our China automotive business. Outside of China, our global automotive business was up slightly.

Adjusted operating income for the first quarter was $5.8 million, marking a strong increase of $3.8 million compared to $2 million or 184% versus the prior year period. Adjusted EBITDA results for the quarter were $14.1 million, increasing $3.5 million compared to the $10.6 million we reported in the prior year period, an improvement of 33.7%. Our strong first quarter adjusted EBITDA results were driven by an improvement to our sales mix, the capture of operating efficiencies across our operations and our successful cost-out programs we implemented the past couple of years. As a result, adjusted EBITDA margins were 11.9%, an increase of 33% compared to the 10% in the prior year quarter.

Now I'll turn to our segment results, starting on Slide 8. In our Power Solutions segment, where our business consists largely of stamped products, net sales for the quarter were $55.4 million, up $11.9 million or 27% compared to the $43.5 million we reported in the prior year period. The growth was driven by an improved sales mix from higher volumes in targeted growth areas, higher precious metals pass-through pricing and favorable foreign exchange impacts. This top line growth was partially offset by sales volume softness in certain stamped product lines.

Power Solutions adjusted EBITDA was $10.4 million, an increase of $4.1 million or 65.1% versus prior year's quarter of $6.3 million, driven by improved sales mix, the strengthening of profitability through ongoing cost-out initiatives. We do see a short lag as we pass through the impact of inflation to precious metals pricing, tariff impacts and other surcharges, which temporarily pinch profitability. As a function of this improved adjusted EBITDA, we've seen stronger margin pull-through with quarterly adjusted EBITDA margins of 18.7% of net sales, up from 14.5% in the prior year period.

Looking ahead, our new business momentum in this segment remains strong with wins totaling $29.3 million in the first quarter, concentrated in key markets that Harold mentioned of electrical grid, data center and defense and electronics products. During the quarter, we announced that we had acquired additional plating equipment to advance our growth in electrical grid and data center markets. Consistent with our strategic growth efforts, we continue to invest our CapEx to support these growth opportunities.

Now turning to Slide 9. Our Mobile Solutions segment, which covers our machine products business. The net sales for the first quarter were $63.1 million compared to $62.2 million in last year's first quarter, an increase of $0.9 million or about 1.4%. Notably, this segment has now returned to year-over-year sales growth. While modest, our sales growth reflected solid volumes from new program launches and broader strength across North America, South America, Europe and automotive markets, along with favorable foreign exchange impacts. This was partially offset by softer automotive volumes in China.

Our first quarter adjusted EBITDA in the Mobile Solutions segment was $8.2 million, up slightly versus last year's first quarter with adjusted EBITDA margins holding at 13%. The flat margin reflects the offset of profitability improvements in most regions against the impact of China automotive softness. On the new business front, we secured wins totaling $13.6 million. Notably, this included the liquid cooling connector components, and we are now in production and pursuing additional opportunities.

With that, I'll turn the call back over to Harold. Harold?

Thank you, Chris. Let's turn to Slide 9 -- excuse me, Slide 10. I'm seeing a lag in the slides turning here. I'll just wait a second.

Our portfolio transformation is working. We wanted to report out to you on that. We've been asked questions about that, and we're executing on our strategy to intentionally reshape our portfolio towards higher growth and higher-margin end markets. And our top 3 growth markets, as we've mentioned, are electric grid and data center, defense electronics and medical. Those specific end markets are collectively up 28% versus Q1 2025. And on a consolidated basis, our growth markets accounted for 35% in 2023 and now constitute 44% -- excuse me, the 56% and automotive has shrank to 44%. So we're deliberately changing that mix, and we have forward goals to continue that progression.

As mentioned, our growth is broad-based and spread across multiple customers, products and programs. It's not concentrated in any single program or with any single customer or platform. There are no big bets in what we're doing intentionally, and we're happy to show you here that the portfolio is shifting as we are driving it to.

Our auto strategy remains disciplined. Our goal in automotive markets is to maintain good volumes, not chase share or chase large volumes. And because of this, we're able to better absorb the automotive market weakness that's happening right now without disrupting our overall growth trajectory or our reported numbers. This mix shift is an important structural driver of our margin expansion and the growth markets carry more accretive margins than our legacy mix, so that's helping us achieve our margin rates also. As these scale up, we expect to see continued pull-through to gross margin and EBITDA. This will be a primary lever closing the gap to our long-term targets.

Turning to Slide 11. I wanted to point out a little bit more about each of the 3 areas that we're pursuing and for diversification and for forward growth, and each has the potential to become a material business for our company. All 3 are internally funded, and we have been allocating people and capital resources to each one of these. Each has dedicated assets, certifications and pipelines well in excess of current revenue.

We're going to go through just a few highlights and kind of a status update for you, starting with electric grid and data center. In this case, we are building on a large profitable NN business. It's already over $70 million segment for us on an LTM basis. And our near-term goal is to target this to be a $100 million business for us. We've added assets, products and people, and as we previously reported, we added liquid cooling connectors in the first quarter with new product line and new customers for us. The data center part of this endeavor for us is fast-paced and it's collaborative.

As you know from following this industry, all of us know from following the public markets globally, there's a big, big backlog of equipment here, infrastructure build-out and the industry. The supply industry of which we're a part of is underway with trying to get caught up. And the bottom line for this segment for us is that the growth from new and existing customers is higher than we expected and faster than we expected, and it's continuing. We're attempting to increase our content per rack and content per data center with multiple endeavors that we're underway with. So that one is a plus-plus in terms of performance for us, and the margins are quite good.

Next is defense electronics. We're also adding to a large profitable business in this area. The business is already over $50 million on a trailing 12-month basis. We're also adding assets and certifications here. We're internally funding this as well. In this case, we've been working with a marquee OEM in the United States to expand into a new product area as a Tier 1 manufacturer of weapons components and it's been going quite well. We've had to add new specialized equipment in this case. It required new equipment because the parts are quite large compared to the parts we've made in our past. But I will say that the bottom line here is the growth has been faster and bigger than we expected also, and our momentum continues to build.

The third area is medical. Medical, we restarted that in the fall of 2023. In this case, it was a small unprofitable business, and we implemented both an operational turnaround plan as well as a forward growth plan. Similar to the defense electronics segment, we've been working for 2 years with a marquee OEM, a global maker of robotic surgical equipment and that program is beginning to show results for us also in terms of products going into production. Bottom line for this area is that it's been slower than we had expected relative to the 2 other diversification endeavors, but momentum is now increasing. So we're carrying forward with each of these. And in each case, we have a prospecting list and we have new products envisioned as well as new equipment and new certifications. So they're kicking in now.

The biggest and fastest one, obviously, is data center. And if you turn the page to Page 12, we're getting a lot of questions about what are we doing, what are we not doing? How big is it? How big is the market, that sort of a thing. So we wanted to report out to you. It is our #2 overall market right now. Our internal plan is for it to become our #1 market. Currently, right now, the global automotive business is larger than this. We sell multiple components into this arena, transformer components, electrical disconnects, circuit breaker components, smart meter components, liquid cooling components. And as I mentioned, it's already a big accretive business for us. And our near-term goal is to get it to $100 million.

The liquid cooling connector business that we launched in the first quarter was really a need product for us. If you follow this area, it's a big deal. It's a big deal in the industry. If you go to a trade show, a whole bunch of the trade show is tied to cooling. If you go to a data center trade show, and it's growing fast. It's also called quick disconnect couplings. It's also called fluid connectors. But the bottom line is it's the stainless steel connectors through which the coolant flows to the cold plates and through the cooling system inside of the data center racks so that the chips don't get overheated and conform at spec.

Market sizes are -- there's a big range here, if you Google this or research it because the numbers that pre-existed the last 18 months are getting blown up as this whole area has really gotten big fast. But the market size estimates for what we're participating in range from $1.5 billion to $6 billion and growing quickly. And when I say quickly, some of the growth rates are at 40% per annum. So large growth rates.

The bellwether reporter here is NVIDIA. If you follow what they say, they say they have a 5-year backlog. We're seeing big backlog situations also. We're seeing backlogs that go out through the rest of this decade, and we're participating in those. And we're leveraging our fluid management trade secrets. For a long time, we've understood how to control fuels, atomized fuels inside of engines. It's a no leak situation as well. And we're adding to our existing portfolio of machines to make these types of small precise components.

The specs that are prevalent in the data centers equate to about 1 drop of water that can leak every 10 years. And that may sound severe, but actually, we're at a better level than that because in the engine environment with fuel, this leakage is measured atomically and molecularly as it can be explosive and damaging. So this is right in our sweet spot.

We previously mentioned that while we had over 100 machines that could make these kind of products already, we added another 17 and ordered them and have received about half of them. And we're coupling them with our in-house trade secrets around turning -- treating electroplating, abrasive flow machining and manufacturing and testing. So a big deal here is you can't have birds and there's a lot of deburring required and then they have to be aesthetically pleasing with a mirror like finish, which leads to electroplating. We believe there's a lot of upside in this area. We have a multiproduct view of it, and our goal is to add content per rack, and we're working on that on a go-forward basis. So that was just a little bit more on the data center.

If you turn the page to our end market outlooks, we do participate in several end markets, as you know. We have 2 main types of production platforms, one turning and machining and one stamping, welding and plating. And we serve multiple end markets with those common engineering and manufacturing platforms. I covered grid. It's a strong market. It's growing. It's backlogged several years. So generally speaking, we're getting into situations that are immediate ramp-up in this arena. We expect it to continue like that through the rest of this year.

Second, defense electronics, we mainly serve it in North America, United States specifically. Spending is at record levels under the current president administration and on a forward basis. We also expect that to continue through the rest of this year. And third is medical, where we're really focused in on equipment versus implants. And that is a steady and growing market, and we're expecting to achieve more new wins as the year progresses. It's still a small business for us, but I will say that Tim French and team have corrected the profit problem, and we are making money in the medical business already.

Automotive in China. So automotive in China has been growing quickly for us over the last couple of years. If you follow that market year-to-date in '26, the China market is down, and it's predicted to be down going through the rest of the year. So we expect to stay at a similar rate that we're at through the rest of '26. The indigenous market is down more than export market. But we're right there in the middle of with a big plant in the suburbs of Shanghai, and we serve Chinese carmakers and the business is soft. So we've been able to overcome that soft business. And that's a good mix for us. We make good money in China, but we've been able to offset the market softness there.

Commercial vehicle, that covers trucks, agriculture equipment, construction equipment. Each of those markets has a different outlook by geography. The common denominator for us is that we're attached to large diesel engines. The market has been down slightly globally. And it's a combination of being down in North America, but up in China. And so we've been -- had 2 situations, one in China being up, one in North America being down. The bellwether reported there, in this case, will be Cummins. They're a big merchant manufacturer of engines, big diesel engines and also now with generators for data centers, and we're expecting to see growth in the second half.

Industrial, we're mainly tied into the industrial market in the United States. GDP is up about 2% year-to-date, that's kind of the outlook. We expect to see modest growth through the rest of the year and then global auto, which I mentioned, which is slightly down due to affordability. ICE, the EV reset rates and then China exports. The global data came out yesterday with a global automotive update, and they're predicting that the global market will be down about 2% this year. Due to the programs we're on, we'll just do a little bit better than that, but we're [Technical Difficulty] the rest of '26. So that was just a market update for you. Overall, our markets are better than last year. It's kind of a takeaway that I'd like you to have here.

If we turn to Page 14, I'd like to have Chris take us through a little bit on our long term goals.

Thank you, Harold. Please turn to Slide 14, if you're continuing to follow along. So given our market expected growth rates and the pace at which our targeted growth programs and cost initiatives have been delivering our results, we're going to pull in the timing of our long-term financial goals by 1 year. We've previously communicated these goals to you. So with these changes in our markets and business, we're going to pull them forward from 2030 to 2029. The net sales and EBITDA targets are not changing. So net sales of approximately $600 million at a 20% adjusted gross margin rate and adjusted EBITDA of about $80 million at a 13% margin are going to be consistent with what we've previously reported.

So relative to our full year 2025 results, this reflects more than a 40% growth in net sales and more than 60% growth in adjusted EBITDA, with adjusted gross margins expanding from around 18.5% in 2025 to our target of 20%. As previously communicated, we're targeting about 13% to 14% adjusted EBITDA margins, demonstrating meaningful growth from where we're at today at about 11.6% through 2025.

So on Slide 15 provides additional context on our business performance through our transformation actions and the trajectory of underpinning our targets. This chart represents our adjusted EBITDA performance from 2020 through the midpoint of our 2026 updated guidance, excluding the contribution from the divested Lubbock business for comparability. Notably, ahead of the launch of our transformation, our results reached a trough in mid-2023 at approximately $35 million on an LTM basis, with the adjusted EBITDA margins having fallen to 7.4%.

From the launch of our transformation plan at that point, adjusted EBITDA has increased approximately 61% to the midpoint of our 2026 guidance of $57 million, with margins expanding significantly to 12.4%. This success in the first years of our transformation has been led by operational performance as we simultaneously work to reestablish our sales pipeline and reshape our portfolio mix as we discussed in the past. Our 3 main growth programs in electric grid, data center, defense and electronics and medical are now contributing and we expect to drive further improved results.

Lastly, on Slide 16, which shows our end market outlook for 2026 as it stands today. Given our first quarter results and the expected forecast we have for the remainder of the year, we're revising our guidance ranges slightly higher. For the full year of '26, we're now guiding net sales in the range of $450 million to $470 million, reflecting approximately 9% growth at the midpoint compared to the prior year and adjusted EBITDA in the range of $52 million to $62 million, reflecting approximately 16% growth at the midpoint.

Importantly, this revised guidance is supported by our current market outlooks, the expected contributions from our new business from prior wins and the operating leverage we expect to capture as our volumes grow across the year.

With that, I'll now turn the call back over to the operator for questions from our analysts.

Operator?

Your first question is from the line of Rob Brown with Lake Street Capital Markets.

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

Yes. We have several -- we have a multiple items there, Rob. We have 2 new products we're coming out with in busbar and power whips. We also are growing with the current content that we have there, which is tied into transformer components as well as these connector components. So we're not overly counting on one product line, but we're hitting the market more broadly now and have organized to do that. So we're not making any predictions yet, but I will say that we have a great product line going into these data centers, and we're trying to get our content up. We're not falling in love with any particular product. We're selling a product basket.

Then on the capacity to expand there, I know you've mentioned additional machines that you're deploying, but how much capacity do you have in the Power Solutions segment that you can kind of grow into here before you really need to add much capacity?

Yes. Tim, do you want to take that?

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

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

So you mentioned a couple of factors that were behind the sales growth for the quarter, including precious metals pass-through, some favorable FX and product mix. I was wondering, could you kind of break those out as what each contributed to that 12% sales growth?

Well, we actually -- it's harder to answer than that, Joe, because we're up with 22 of our 30 top customers and they cover basically all the markets we're in. And we're just down and we're flat with 3 others. We're just down in a couple of areas. And we're -- it's been a consequence of the new programs that we've won that we're launching. Chris touched on that, that we have all these new programs that we've won with new and existing customers and that it's helping propel us.

Precious metals were flat sequentially, but up year-over-year. We're expecting precious metal pricing for the rest of the year to be flat to where it is now. So it will not contribute anything further beyond this second quarter because the current levels are flat to the second half, if you look at the second half of last year when things began to come up. So get a temporary boost for sure from precious metals and volume growth with customers in most of the markets we're in.

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

Yes. A similar question to what Rob asked. Roughly speaking, our trailing 12 months is a little over $70 million, and we're trying to get to $100 million and our pipeline is multiples of that number. It's hard to tell which new programs you'll get a hit on, but we're planning on our same hit rate. And I believe that we have the pipeline that we need to get to $100 million. So we're really trying to understand -- the TAM is so big here, Joe. I mean we're talking billions of dollars of TAM, and we have a $70 million business.

So we really can't blame anything on what's happening in the market. It's based on our own actions. And we're coordinating our efforts to grow. And when we get specific numbers, it's hard to even tell how many racks are in development right now with the amount of announcements that are underway. So we can't really answer that with good accuracy right now, but we are going to be getting smarter on it and reporting more in the future on the per rack content.

When I say per rack, so when we're calling on a customer that's building out racks, we're trying to get more content during that sales call, and we have multiple products that we can bring to it. And so we're coordinating between what we call Power and Mobile to call on these customers to sell a bigger portfolio of products.

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

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

Yes. So medical pipeline is fine. The development is fine. We've had to conquer more plant certifications than we expected at the beginning of our endeavors, but we've now done that, and we expect to report positively in the medical arena this year. But coming into today's call, it was not a source of our sales increase. So it hasn't showed up yet in terms of an actual item. And -- but we haven't -- we're not backing off of it. We have a dedicated team. We hired people. We added equipment. We got underway with these certifications, and we're calling on customers and adding to the portfolio.

So just in terms of the 3 of them, John, it's behind. But overall, what we expected from the 3 in total is ahead by a lot. It was just -- it's really hard to tell where you're going to get the hits. It has to -- it's playing out nicely, though, for us overall.

On wireless, what specifically are you interested in there, John?

The wire harness business that you started.

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

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

Yes, you're correct. We're experiencing metal escalation, and we have the right to pass it through. We have to show POs that we've incurred -- that we actually incurred the inflation before we can increase our prices for the pass-through. We still have metal tariffs on copper from Germany and that sort of a thing. So we also have tariff charges to pass through as well. So we have -- we get a slight lag, a slight lag, but we don't have to wait to the end of a month or a quarter. I mean, once it happens, we go in and we present proof.

So we've been able to keep up with it because, generally speaking, we have raw material on hand at the old price. So the game plan is procuring, which has a lead time, just you have a time period there where you have an adjustment negotiation that you go through and prove it. So we've had to adjust our prices, and it's taken active work by our customer service teams. But knock on wood, we haven't had any material compression at all from that, John.

Your next question is from the line of Mike Crawford with B. Riley.

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

Yes. Our pipeline overall covers each of the areas that we have pretty uniformly. The hit rates are similar. We have goals that we set that for our sales team and our business development team that obviously exceed our guidance, which we're aiming higher than what we're committing to here. So we're shooting for higher numbers. And it's -- the goal is skewed towards our growth areas of medical, defense and electronics and grid and data center. So the pipeline is reflective of what we're trying to do.

In the case of automotive, the outlook for automotive are interesting. The unit volumes are supposed to be down a couple of percent, but it doesn't mean that the industry is stressed because the affordability is so high on new cars that wealthy people are the ones buying the new cars, and they're still wealthy. So the industry is viewed as being healthy even though unit volume is down somewhat. And so we're not getting the normal pressure like when you're in a real problem, a recession or something to reduce our prices on new business or anything.

So we're on the watch out for that because that sometimes happens. But I will say that we are letting quotes go as they get our margin bottom lines, and that's going to continue to happen. It happens the most in automotive. That's for sure. And so it's going to be driven by margins and our opportunity set. But right now, we see a good cadence to get to the new guidance that we've given.

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

Yes. We're trying to get automotive to be 30% or less over time. But we could do it abruptly and harm ourselves financially speaking, because it takes active work to be flat in automotive because you have end of life that come upon you and then you need to either be aggressive about the next-generation win for that same platform or pursue a different type of business. So to stay flat in automotive, it's hard work. And if we get to the point where we're outperforming in other areas, we can start to price clear ourselves on next-generation programs. And so it goes EOP and it's EOP and the sales are gone. But for the minute, it's sizable for the company. And so we're working hard to keep the business we want.

In the last trailing 2 years, we've gotten rid of a bunch of dilutive business. So that's largely behind us. So on a go-forward basis, it's really about competing in areas that are profitable for us. So overall, if we could dial it in and everything was perfect, it would be around 30%.

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

Harold, did you talk anything this morning on the strategic option program? Maybe you can kind of give us just a little update of what's been going on there behind the scenes and when you think we might start to hear some information coming out about that?

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

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

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

Yes. In power, we would -- we're trying and prospecting to get more straight up grid business, that's one area. We've outperformed on the data center side of that. On the grid side, residential starts are down in the U.S. The EV craze has subsided. And the -- I'll call the residential string that was driving a lot of grid thinking has lessened. And on the other side, the industrial side of the grid, which ties into large equipment and large infrastructure investments is outperforming. So historically, our grid portfolio was tethered to residential grid. And we are pursuing new wins in those areas. And so that's one of the areas that we want.

In terms of a product category, Busbars are an area that we've been focusing on growing in. And that's tied into the plating equipment acquisition that we previously announced. We couldn't do the big parts. We couldn't plate the big parts. Most of them are silver plated. And the acquisition of that equipment from a customer who is also a very large electrical grid customer headquartered out of Europe is a big advancement for us. So we'll be able to -- instead of no quoting business, we'll be able to quote the full bill of material and be a more holistic supplier in there. So we have fixes under way, and we're always looking at our hit rates there, John, and looking for pattern recognition for what we need to do next to get our hit rates up. So there are areas that we know about and that we're focused on fixing.

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

Yes, that's true. We're actively looking at our alternatives there. It's not on the back burner, it's on the front burner. It's helpful to have better operating performance because it's -- you have better credit statistics when you look at the secured debt part of that as well. And we're in possession of our outlook for the year and you are too now. So you see that we're planning on having a nice year and the cash value of the EBITDA is going to be a lot higher because we're not doing plant closures and laying off people.

In last 2 years, we -- in the last few years, we closed 4 plants and laid off 800 people, and that had a cost to it. So the cash value of our performance was lower -- and going forward, that's behind us. So our adjusted EBITDA is a cash value, and therefore, it's leverageable. And so it can be -- we'll have better cash flow, John, to do refinancing with going forward than we have in the past. So it's becoming a better situation in terms of a refinance story.

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

Two questions. Number one, in your outlook for margins, your goal is to go from 18.5% to 20%. However, everything that you said indicates you're pruning low-margin businesses, maybe you have another plant or 2 to close. And the new business is theoretically at a much higher margin. Why is your goal only 1.5% improvement from '25 to '29.

Yes. It's a good question and a good catch. We are being conservative to your point. We're not ready to change our guidance yet on that topic. And the same -- your comment also is the same if you do the same comparison on the EBITDA margin, Robert, the same question. We're looking at both of those for revising external commitments. We're closing in on them. You're correct. They look conservative going forward. You're correct. We're aware of that.

We were thinking through how to improve our multiyear guidance. And instead of changing the margin percent goals, we decided to change the time period to achieve them. But that would be what's next, Robert. And I will say that that's top of mind for us, and we're looking at it.

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

Yes. Tim, do you want to answer that?

Sure. At this point, we have nothing scheduled for closure. We've been able to mitigate the impact of what we formally referred to as a group of 7, and they're all performing in a decent fashion right now. So at this point, there's nothing scheduled for closure.

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

Exactly.

Last question for me. Is buying -- how are you paying for the plating acquisition? And is it going to be a meaningful add to your revenues or is it relatively small?

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

Towards the end of the year, Robert.

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

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

With that, operator, Tamika, we'll end the call today.

This concludes today's call. Thank you for joining. You may now disconnect your lines.

Good day and welcome to the NN, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Joseph Caminiti, Investor Relations. Please go ahead.

Thank you, Chloe. Good morning, everyone, and thanks for joining us. I'm Joseph Caminiti with NN Inc.'s Investor Relations team, and I'd like to thank you for attending today's earnings call and business update. Last evening, we issued a press release announcing our financial results for the fourth quarter and full year ended December 31, 2025, as well as a supplemental presentation, which has been posted to the Investor Relations section of our website. If anyone needs a copy of the press release and/or the supplemental presentation, you may contact Alpha IR group at [email protected].

Joining us today from NN's management team are Harold Bevis, President and Chief Executive Officer; Chris Bohnert, Senior Vice President and Chief Financial Officer; and Tim French, our Senior Vice President and Chief Operating Officer.

Please turn to Slide 2, where you'll find our forward-looking statements and disclosure information. Before we begin, I'd like for you to take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation and the Risk Factors section in the company's annual report on Form 10-K for the fiscal year ended December 31, 2025. The same language applies to comments made on today's conference call, including the Q&A session as well as the live webcast.

Our presentation today will contain forward-looking statements regarding sales, margins, inflation, supply chain constraints, foreign exchange rates, tax rates, acquisitions and divestitures, synergies, cash and cost savings, future operating results, performance of worldwide markets, general economic conditions and economic conditions in the industrial sector, including the potential impacts and ramifications of tariffs, impacts of pandemics and other public health crises and/or military conflicts on the company's financial condition and other topics.

These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company's control, which may cause actual results to be materially different from such forward-looking statements. The presentation also includes certain non-GAAP measures as defined by SEC rules. A reconciliation of such non-GAAP measures is contained in the tables in the financial section of the press release and the supplemental presentation.

Please turn to Slide 4, and I'll turn the call over to CEO, Harold Bevis.

Thank you, Joe, and good morning, everyone. Thanks for spending a few minutes with us as we give you an update on the business and the state of the transformation in 2026.

On Slide 4, I'll begin with spending some time discussing the highlights of the fourth quarter. And Joe, can you advance to Slide 4? It looks like the webcast is slow. Thank you. 2025 marked NN's third consecutive year of improved results, and we were able to increase adjusted EBITDA results toward recent company highs, and our adjusted operating income grew meaningfully, showing a significant improvement versus 2024. And we were able to fund a large vintage year of growth programs with our free cash flow. And importantly, we completed the majority of the heavy spending portion of our transformation plan, which saw us close and consolidate 4 plants and rightsize about 800 people.

Second point is we're well underway and showing success in strategically evolving our business portfolio. We are intentionally shifting our sales profile towards higher-value end markets and higher-value capabilities and intentionally shifting away from low-value commodity automotive part making and certain markets in the automotive arena. We are fixing and/or exiting the unprofitable plants that we inherited and business trips, and we're replacing this business with new wins in desirable areas. Our new business wins program continues to perform well, and we continue to focus it away from commodity auto part business.

We have now won more than $200 million worth of new business since the launch of this transformation plan in mid-2023. And ahead of us this year are record levels of program launches. And on top of that, we have a pipeline now that stands at over $800 million of high-quality prospects. One fun point that I wanted to point out is that we recently achieved our first new business win in the data center market. It is now a key target market for NN, and we fit nicely into it. We are making the high-precision water type couplings that go into water-cooled computing equipment.

In 2026, we're already migrating a bigger portion of our cash flow used towards investment in new business since the majority of our cost restructuring has been completed. And now we're in a better position to fund growth-related CapEx. And in '26 versus '25, we're roughly doubling the amount of capital spending that we're putting into the business for growth purposes. And that ability to fund comes from a higher level of EBITDA as well as completion of projects. 2026 is going to be a year where NN returns to net sales growth, and it's happening right now in the first quarter. This is going to be an important pivotal year in our transformation and our 2026 forecast calls for NN to focus on top line growth going forward.

One caveat that I want to point out, and Joe touched on it, and it's in our risk factors in our 10-K also is that volatility remains high in our markets. We are a supply chain participant in a lot of global supply chain decisions, and there's a lot of influences by tariffs, precious metals pricing and ongoing geopolitical unrest. It is -- the volatility has increased a little bit here with the Middle East happenings. But except for that, we have the same type of risk factors this year as we had last year.

Turning to page -- Slide 5 in the deck. I wanted to give a little more details on Q4 and the full year 2025 metrics. Our fourth quarter came in at $104.7 million and our full year at $422.2 million. This is a little lighter than we had hoped. Some of our main end customers reduced their inventory positions towards the end of the year and are now getting caught up in the first quarter. And we're feeling it. And Tim and Chris and I haven't seen a good healthy backlog of shippable business since we've been here. And we're happy to say that we do have backlogs here in the first quarter because people are getting caught up with some of their end-of-the-year decisions to reduce their inventories, and we're having a good quarter. But a takeaway on our sales is that we were able to rationalize some commodity, no-profit automotive parts. And we've largely done that with these plant closings and exits. And we're happy to say that, that's largely behind us.

Our adjusted operating income also has been nicely improving adjusted EBIT, which is what we are focused on as well. And the fourth quarter was $3.3 million and we had $14.2 million for the full year. Those results are roughly 3x the prior year, and we foresee and forecast a nice improvement this year again. And the results are coming from a leaner, more efficient operating model across all of our operations, and we're running a cleaner set of business through our machines because we rationalized some of the low-end stuff. And now we have a more structurally supportive model to deliver positive operating income and adjusted EBITDA.

And our adjusted EBITDA continues to improve. It was almost $13 million in the quarter, $12.9 million, $49 million for the full year. And these results were above prior year and also pushing towards company highs. And despite the continued weakness and volatility in the global automotive and commercial vehicle markets, we were able to perform at that level. And our adjusted EBITDA margins are forecast to expand again this year and are. And the Q4 margins were up 90 basis points year-over-year, and we're continuing to prove in line with our long-term goal that we've stated in past talks like this, 13% to 14%.

Our new business wins continued on the same pace, and we were awarded more than $70 million for the full year. We exceeded our guidance and expectations. We're still somewhat capital limited last year on this topic because we were spending a lot of money on restructuring still, and we have more to spend now on a go-forward basis. And that's one reason why we've increased our goals now that we are intending to pursue in new business. And the key wins were concentrated in our focus areas. And especially beneficial to us last year and continuing is the surging defense and electronics industry in the United States. We're directly benefiting from that and it's immediate ramp-up type of business.

We continue to secure new awards that were at accretive gross margins and are still averaging over 25%. And we're positioned to continue winning business in 2026. We have a couple of large foundational programs underway right now in medical and in defense. And they're going to be gateway wins for us. And we already have a large multiyear rewin in our electrical power business that we've accomplished this year, year-to-date, where we beat out 2 large global competitors and secured that business on a go-forward basis. Our adjusted gross margin performance was 18.8% in the fourth quarter and 18.5% for the full year, which again has us trending towards our 5-year goal of 20% consolidated gross margins. And in this area, we're ahead of our plan, and we're encouraged by our progress. And this strong performance is driven by the operating improvements that I've touched upon here a couple of times as well as the shifting in our portfolio towards higher profit business.

On cost and operational leadership, it's ever present goal for us as a manufacturer to be better and better at manufacturing with a continuous improvement mindset. And we accomplished our goals in '25. SG&A as a percentage of sales continue to drop as well and is now at 10.9%. We've all but eliminated an expensive executive layer that was here when we arrived, and we have reinvested some of that payroll savings into a bigger business development team. We're happy to report that we achieved our cost-out targets of $15 million for the year, which offset all inflation and pricing and implemented the rationalizations that we wanted to do, and we have plans for another $10 million out this year. This operational performance and ability to lower costs has helped us overcome the rapid rise in precious metal cost inflation, which has been a big deal for us that we've been able to conquer and still increase our ratios on top of it.

Please turn to Slide 6, Joe. I wanted to talk a little bit about 2026, and then Chris and Tim are going to add portions to it as well. And as already mentioned, we're forecasting revenue growth in each quarter and across the full year of '26. And that growth is happening. It started immediately in January, as I mentioned, because there were some curtailment of supply chains at the end of '25, which are now being refilled, and we will continue growing through this year. The global automotive markets are expected to grow slightly in 2026, a couple of percent. But the growth outlooks are very region-specific. And so we have outlooks for North America, South America, EMEA and Asia that are specific to the region and take into account adoption rates of EVs as well as affordability issues.

The commercial vehicle market is expected to begin growing this year in 2026, and it's already started out that way with strong orders over the last 3 months. Just yesterday, ACT Research came out with the February orders, and they were some of the highest orders ever received for that time of the year. And there is an EPA '27 mandate that's forthcoming. And the long-awaited prebuy in that market seems like it started, and we will benefit from that and are benefiting from that. And that's one of the sources of our positive back orders right now, too. So we have a strong supply chain of orders in that area already. And it happened rather quickly. It happened in December, January, February.

Our 2026 outlook calls for gross margin growth and adjusted EBITDA growth, and this will be balanced through the year also starting in Q1. Our outlook for this year is supported by gradually improving markets. We don't really see any V-shaped recoveries, if you will. The hardest growth that we're participating in, the most upward is U.S. defense business, and it's likely to get stronger as all the munitions are being used and weapons are being used, and that's where we're participating in that. So we are seeing increased volumes. We do have another $10 million cost-out program this year, and we have a record amount of new business launches that's underway, and we have a record amount right now in the quarter. So we have a lot of positive tailwinds right now in the business, and we're thankful for that. And Tim and Chris, please knock on wood after I said that.

Unfortunately, although our sales rates and production rates of U.S.-made cars are growing, we expect the U.S. auto parts market to remain volatile. Industry forecasts call for automobiles to be made and sold, but there's continued supply chain issues stemming from global tariffs, U.S. caused trade wars, a fundamental reset that's going on between electric vehicles and internal combustion engines, overall affordability of U.S.-made vehicles, EPA resets and now a war in the Middle East on top of the Russia-Ukraine war. So a lot of things -- the automotive supply chains in the world are very global, and these are very disruptive things that are happening right now. The new normal is there will be volatility. And so I would just say it's continuing. That does -- and it does require tactical maneuvering on our part too. As a supply chain participant, really, we're a taker on a lot of these decisions that are at the OE level. But we are upsizing our new growth program. And we have more CapEx to spend this year. And therefore, we've set higher goals and we're committing to a higher outcome. And we're now looking to achieve between $70 million to $80 million of new wins this year. And I'll just tell you, we've already started off this year and the first quarter on that pace.

Overall, we still remain capital constrained due to our capital stack, and I'll talk -- give you an update on that later. But we have incrementally increased the amount of CapEx that we're going to spend on growth, very deliberate, it's very intentional. And Tim and myself approve them one by one. We look at every one of them, what market are they in, who's the customer, what's the part? Do we want to spend money on that? Do we want to spend money on that right now. So I can tell you that we're hands on with this -- with the growth topic. We're -- it's very deliberate. But overall, we're excited for this year. We can see that it's going to be stronger than last year, and our performance in the first quarter is already on track to achieve higher outcomes, and we're off to a good start.

With that as an introduction, I'd like to turn the call over to Chris and Tim, and then I'll come back and review some of the market information later. Chris?

Thank you, Harold. Good morning, everyone. Today, I'll be presenting financial information on both a GAAP or an as-reported basis and pro forma basis to provide transparency into our operating results, primarily due to the exit of some certain unprofitable business in this year and part of last year.

I'll start on Slide 7, where we detail our financial results for the fourth quarter. I'll get into the full year as well. Slide 7 shows our as-reported GAAP results on the left side, pro forma adjustments in the middle and pro forma results on the right side, as we've done in previous quarters. As a reminder, we use these adjustments to provide a representation of how management views and makes decisions about our business on a current and go-forward basis. The pro forma specific adjustments to the fourth quarter include last year's contribution from strategically rationalized sales volumes and the impacts of foreign currency translation on our non-U.S. operations.

On an as-reported basis, net sales for the quarter were $104.7 million, declining by about $1.8 million versus last year's fourth quarter. On a pro forma basis, accounting for the adjustments I referenced earlier, our net sales increased $1.4 million, up about 1.4% versus the prior year fourth quarter. Adjusted operating income for the fourth quarter was $3.3 million compared to $2.4 million in last year's fourth quarter. On a pro forma basis, operating income was down slightly to $0.2 million or about 5.7% versus the prior year. Our adjusted EBITDA was $12.9 million, as Harold mentioned, for the quarter, up from $12.1 million a year ago. On a pro forma basis, adjusted EBITDA increased $1.1 million or 9.3% year-over-year. Adjusted EBITDA margin was 12.3% of net sales. This represents about a 100 basis point improvement on an as-reported basis, expanding 90 basis points on a pro forma basis. So a nice increase there.

Now turning to Slide 8 for the full year 2025. Our pro forma results and comparisons also normalized for the sale of the Lubbock business, which is divested in 2024. On an as-reported basis, net sales for the year were $422.2 million, declining $42.1 million versus last year. On a pro forma basis, adjusting for the sale of Lubbock, strategically rationalized sales volumes and FX impacts, net sales decreased $7.4 million or 1.7%. Adjusted operating income for the year was $14.2 million, up $9.1 million from $5.1 million in the prior year. On a pro forma basis, the results marked a steep improvement, more than doubling from the $7 million in 2024 on a pro forma basis.

Adjusted EBITDA for the year was $49 million compared to $48.3 million for the prior year. Pro forma, our results increased $2.2 million, up about 4.7%. Adjusted EBITDA margin was 11.6% of net sales, representing an expansion of about 70 basis points on a pro forma basis. As we've worked through the transformation across our business, we've grown our adjusted EBITDA now towards pro forma company records, meaningfully grown our operating income, and we've expanded our margins and advanced margin capture toward multiyear targets. Notably, we have done this work to improve our structural profitability despite a smaller top line, which has reflected the impacts of our exit of dilutive sales volumes. We're now prepared to continue delivering our growth to our operating income and adjusted EBITDA, coupled with an expected return to sales growth beginning in 2026.

Now I'd like to turn to Slide 9, where I'll detail our performance across our operating segments. For year-over-year comparisons, I'll be speaking to our pro forma numbers. In our Power Solutions segment, where our business consists largely of stamp products, net sales for the quarter were $45.5 million, up $5.9 million or 14.9% compared to $39.6 million in the prior year period. This improvement was driven by the increase in precious metals pass-through pricing as well as the benefit of new program launches in Electrical and Defense business. This improvement was partially offset by lower sales volumes concentrated in one stamping products customer. For the full year, Power Solutions pro forma net sales of $178.6 million improved 5.3% compared to pro forma net sales of $169.6 million.

Power Solutions adjusted EBITDA results as reported of $6.4 million increased $0.8 million versus last year's fourth quarter of $5.6 million. This improvement was driven by sales growth, particularly in defense and electronics products and was further supported by operational cost reductions, higher margins and an overall improved sales mix. On a full year basis, Power Solutions segment adjusted EBITDA of $30.7 million improved by $3 million or 10.8% compared to the full year results of $27.7 million. As a function of our adjusted EBITDA growth, Power Solutions segment margins expanded 90 basis points versus 2024. On the new business front, we won an additional $3.1 million in new business awards for the segment in the fourth quarter, bringing the full year total to $13.2 million. Our wins have largely been concentrated in key target growth markets of electrical, defense and electronics products, which we expect to remain strong, a strong growth vector for our business.

Now turning to Slide 10, our Mobile Solutions segment, which covers our Machine products business. The net sales for the fourth quarter were $59.3 million compared to the prior year of $63.8 million. Net sales comparisons were primarily impacted by the rationalization of dilutive business lower volume in North American auto customers, partially offset by favorable foreign exchange effects. For the full year, pro forma net sales of $244 million declined $25 million or 9.3% compared to results of $269 million in the prior year. We note that while we observed weakness in the North American auto markets across the year, our sales comparison was largely concentrated to one specific auto parts customer, which had pushed out volumes due to its own production disruptions.

Our fourth quarter adjusted EBITDA in Mobile Solutions segment was $10 million, up slightly versus last year's fourth quarter on a pro forma basis. Quarterly adjusted EBITDA results reflected our successful shedding of unprofitable sales, which has improved the margin mix of the business, combined with overall lower operating costs. These factors have helped drive adjusted EBITDA margins of 16.9% for the quarter, up about 160 basis points from the same period a year ago. For the full year, Mobile Solutions adjusted EBITDA of $33.5 million declined 4%. Notably, adjusted EBITDA margins of 13.7% showed expansion of about 70 basis points for the full year versus full year 2024, displaying the impact of business rationalization and footprint consolidation.

On the new business front, we continued achieving new wins and innovative programs totaling $26.2 million in the fourth quarter and $58.6 million for the full year. We won over 200 individual award programs in 2025, including machine parts and defense and medical markets as well as highly -- high-quality automotive programs focused on more innovative next-generation fuel efficiency for internal combustion powertrains. Thank you.

With that, I'll turn the call over to Tim, who will discuss our commercial and operational progress. Tim?

Thank you, Chris. I'll begin with Slide 11. Our new business momentum has continued to build and is now translating into meaningful scale and future growth. As Harold mentioned towards the top of the call, over the trailing 3 years, we have secured over $200 million of new business wins with quarterly commercial performance remaining consistently strong across that time line. Importantly, these awards are coming in at an average gross margin of about 27% and are concentrated in strategic markets where we see the best long-term value. It's worth noting that the implied margins on these wins are meaningfully above the multiyear goal of 20% and higher than current levels for the business. As these programs launch, they will be accretive to the overall margin profile and help support profitability and earnings improvement.

Over the last 3 years, we have fundamentally rebuilt our sales pipeline, which had atrophied in the years before the launch of the transformation. Now our pipeline sits strongly at $800 million above potential opportunities. Our commercial execution is focused on disciplined growth. We are winning where our technology and differentiation matter most, particularly across defense, medical, data center and other high reliability applications. Supporting this outlook, our global team of roughly 40 commercial and technical personnel are actively pursuing and executing against the pipeline. These opportunities convert to wins, the launch cadence steps up meaningfully. '26 will be a very big year for launches as we expect to launch over 100 programs. As I mentioned, the new programs are margin accretive and continue to shift our mix towards structurally stronger, higher reliability end markets while reducing relative exposure to commodity automotive. Overall, the combination of strong bookings, a deep pipeline and strong launch schedule gives us confidence in the durability and quality of our growth trajectory.

Turning to Slide 12. I'll briefly touch on our long-term road map. Notably, we remain well on track to meet our long-term goals that we have laid out as part of our enterprise transformation. Our 18.5% adjusted gross margins are consistently showing improvement in each sequential quarter and pulling in line with our 20% adjusted gross margin goal. Our adjusted EBITDA supported by an improved leaner and more efficient operating structure is expected to continue improving and delivering on higher margin rates. We expect to grow at a 10% compounded annual growth rate, reaching $80 million in adjusted EBITDA by 2030. Overall, we see approximately 5% market growth, further supplemented by the benefit of approximately 2% share gain as we hone our commercial efforts in electric grid, data center, defense, electronics and medical markets.

As we do this, we are strategically deemphasizing less valuable elements of our portfolio with the explicit intent to continue lowering our overall portion of the company attached to commodity automotive parts. In parallel, we will continue advancing our successful cost-out programs across our operations. In 2026, we aim to drive approximately $10 million of cost rationalization, which will help offset pressure from inflation and pricing. And finally, as we move forward, we are going to continue sharpening our focus on areas critical to our growth that align with our highly valued capabilities. These include robotics...

Tim? Operator, can you hear Tim?

Can you not hear me, Harold?

Yes, I can hear you.

Okay. Just closing, these include robotics, artificial intelligence, automation equipment as well as opportunities for material and vendor substitution.

With that, I'll turn the call back over to Harold.

Chris, are you able to hear me?

Yes, I can hear you, Tim.

I'm wondering if we've lost Harold.

Harold, is your line muted? [Technical Difficulty] Harold, please proceed. Tim, are you there?

Yes, I am.

Okay. I got dropped for some reason. Are you completed now?

Yes, I completed, and we're ready for you on Slide 13.

Thank you. I apologize to the listening group here. I got dropped off the call somehow. I would like to talk about the markets for a moment. Starting with the electrical grid and data center market, which is 60% of our sales. There is a strong market outlook for this year. There's many announcements being made to expand aggressively the data center infrastructure. We participate in this market in the U.S. and in China. We -- there's a big announcement by Amazon, a lot of the data center builders, and we continue to see growth in this area.

The other -- the next market underneath that on the chart is the China automotive market, where we've been in that market for about 20 years, been in the China automotive market and the China commercial vehicle market and the China data center market now. But the automotive market has a good outlook for the year. It started off beginning of the year kind of weak, BYD and Geely being big end OEs that we service. They have had some timing issues in their local market. But this remains a strong element of the NN portfolio, both sales for use in China as well as the export market for those vehicles and those parts.

On the commercial vehicle side, we expect to see this market improving this year. As I previously mentioned, the growth looks like it's going to be sooner than had been forecast as orders have come in strong for this -- the first few months of the year already. And there are structural reasons for that, if you follow that market. So it looks sustainable. It's not a fluke. Defense Electronics is 10% of our business, and it's growing strongly, specifically with end customer we serve being Raytheon and the desire for their missile defense systems. And we are basically increasing our production capacity and our ability to make larger parts as well. Our own organic growth here is expected to remain strong through the year, and it's building. And we've already been given multiyear volume increase outlooks from several customers as a forward indication of what we need to do.

On industrial, we're really tied into GDP level growth here, a lot of building products as well like smoke detector parts and security system parts. And our primary focus in this area is innovation versus takeover business, and we're having good success. Medical, this remains a steady and growing market for us. For us specifically, we've been increasing the breadth of our team that focuses on this market. We have now a very large, strong pipeline of opportunities. And I mentioned earlier in my initial comments, we're on the edge of foundational large programs that will enhance our credibility.

Global Automotive, which is North America, South America, Europe, we carry tempered expectations for the year here, not negative per se, but tempered by volatility. And the view here is that we will continue to participate in the high-end part of the market for very precise parts. And our goal here is over time to hold our sales flat by rewinning the amount of sales that go into production and replacing them, staying flat, keeping our capacity equally full, not going backwards. And it's not a focus area for us. It's really a hold your own kind of area. And this part of the company's portfolio will shrink over time intentionally.

On Page 14, in December, we announced that our Board had launched a committee to look at our financial and strategic options. We've previously discussed in some of our calls together that our capital stack is problematic. It's -- there's basically too much debt plus preferred equity, and we like to solve that over time. We are looking at various options here. We really have no updates that are concrete. I just want you to know that it's underway. It's a Board process, and it's ongoing. And when there's something big to say, we'll say it. But right now, we don't have anything. And instead, we're just focusing on looking at our options and basically letting the business grow right now, which is what's happening.

Turning to Page 2026 -- excuse me, turning to page -- Slide 15, I'd like to talk about 2026 and what our guidance is. We're guiding to net sales growth, which is meaningful to us of $445 million to $465 million in sales, which is -- covers the consensus outlooks on us, anchored by the new program launches, which Tim walked through, and they're expected to occur through the year, and we've already been winning new business that's immediate ramp-up for this year. So this will be a strong area for us during 2026. And we have overall strengthening of some of our end markets. As I mentioned, commercial vehicle markets coming back after a 3-year freight recession. And defense is growing much stronger than anyone had expected. No one had expected President Trump to be able to go through as many munitions as we have in a short amount of time, and we participate in the reloading of that supply chain.

Adjusted EBITDA, we're starting with a wider range here as the year starts, and we'll narrow it and focus it as the year unfolds. But as I mentioned, the first quarter is already starting off very well, and it's supported by higher contribution margins. Our mix is naturally higher now, and we have unit volume growth underway, and we expect that to continue through the year. And so we're going to have good mix. Usually, people talk about getting hurt by mix. We're going to benefit from mix, mix that we've caused. And furthermore, we are going to reduce costs another $10 million this year to more than offset the inflation and pricing agreements that we have in place. And we are going to increase our new business wins target to $70 million to $80 million. We have a long-term goal to get to $600 million in organic sales, as Tim touched on. We do have EOPs during the 5 years. So another way to think about it is our sales plan is replace EOP plus another $200 million. So to do that, we have to win above that $200 million rate because we do have EOPs during the period as well.

And as mentioned, our pipeline is more than sufficient. We're running over 20% hit rate. and carrying an $800 million prospected pipeline. So this is just a matter of doing the jobs on a continuous basis and making it happen. And we've continued to add key personnel in defense, electrical products, data center products, electronics and medical. So we're looking forward to this year, and we're excited about this year. And we think that it's going to be a nice record year for the company.

And with that, I'd like to turn the call over to our operator to answer any questions that you might have.

[Operator Instructions] Our first question today comes from Caminiti with Sidoti.

This is Justin on for John. Can you expand on the data center end market opportunity, including any additional color on the size, expected ramp time line and margin profile of your first direct data center win?

Yes. We have a couple of product angles into the data center market. We're focused in on the cabinetry that houses the equipment and specifically the cooling. It is a very high precision micron tolerance type setup so that the cooling doesn't escape the cooling system and damage equipment, and it plays right into our capability as a very precise micron-level tolerance achiever. And so the first entry point was to become an approved supplier to the equipment building crowd as a provider of water tight coupling. And it turns out it's very much needed, and it's -- the cabinets are dense with this type of product. We're putting our hands around the size of the TAM. It's a very specific thing, and we do intend to report out on it in our next public call. We have a team underway with that right now.

And the second product that we are targeting into the data center market is cable assemblies. And so at the top of the rack is the distribution of the electricity, bus bar as well as high-voltage cable assemblies. And we can make those also. And we -- the new team we hired at the end of last year from the Electrical Products background with Mohammad Farhad is our leader technically and then Tim Merrill, 3 other people that are account managers that know the industry well are now prospecting. And we do have formal pipelines, and we do have customers delineated and that's what we're doing. And it's not a long ramp-up either, Justin. It's not like the gestation period for getting on to a medical equipment or an automobile or a commercial vehicle. It is an immediate ramp-up kind of industry because the supply industry is behind. There's a need for more gigawatts of power and data centers than is in place. So it's an immediate ramp-up business for us. We're quite excited about it.

Very helpful. Maybe shifting gears to transformation. With the heavy lifting behind you, including plant closures and exiting dilutive businesses, what is the road map for sustaining sales growth in 2026 look like?

Yes. So roughly speaking, if you look at the K and the numbers that Chris and his team have put out there, we're going to be doubling our capital spending. So the biggest use of our free cash flow is cash interest to service our debt. And the second is CapEx. And so we are increasing the amount of CapEx that we are going to allocate our capital allocation to growth to really continue the path that we're on. So this year's growth, primarily 85%, 90% from new wins is going to come from wins that preceded at the beginning of the year. So we're coming in -- we're ramping up business that we already won.

This year's wins primarily will benefit ' 27, '28 with the exception of areas that are immediate ramp-up like a data center, like defense ramp-ups that are happening right now, like the volume increases that are going on commercial vehicle platforms where we're already approved and there's just an increased production rate. So '26, we can see very well, Justin. And the new wins program for this year will create the outline for '27 and '28.

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

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

Yes. Tim, do you want to take that one?

Sure. Obviously, when we're ramping up launches, it's not an immediate turn on of the peak annual sales. So we're looking -- so we're launching over 100 programs this year. And we would expect to see somewhere around between $20 million and $25 million of revenue from those launches that occurred in '26. But you also have to keep in mind that we launched programs in '25 that will continue to escalate as well. So -- but from launches purely in '26, it will be between $20 million and $25 million of revenue.

Okay. Great. That's very helpful. And then on your CapEx kind of outlook, I think doubling that would put it around $25 million to $30 million. Where do you -- what sort of CapEx activity are you planning? And what program areas do you need CapEx for?

Do you want to do that, Tim?

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

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

We have released orders into the second quarter already. And we have -- Rob, we have a really healthy backlog already. So we have a shippable backlog that it hit us a little bit by surprise with the strength that happened in commercial vehicles over the last few months. So we have our forecast with our customers, generally, we force specificity through our raw material lead times. So we can already see Q2, yes. And then Q3 and Q4, it gets -- we don't have firm releases that go out that far. So we just have expectations from our customers. And it's looking to be very, very, very consistent with the sales guidance we just gave.

And I wanted to add another point to your last question, Rob, on CapEx. So if you look at our net CapEx last year, it was about $10 million. And this year, it's going to be about $20 million. And to Tim's point, it's primarily going to be on more growth -- funding more growth programs that will help this year and next year and primarily next year, primarily the capital spending for this year will help make '27 larger because we were basically saying yes to more programs. And in fact, we yesterday said yes to a pretty large program that was about $1 million of capital, for example, and it will take about 6 months to get the machine. It's one machine that we need that we're out of capacity on. And then that -- it's -- we already have the load for it. So the spending this year will primarily -- the extra spending will primarily help next year. The $10 million kind of rate, we'd already pre-spent that with programs that we were awarded last year. So we're absolutely inflecting up intentional growth in these target areas, and it's already hitting the first quarter.

[Operator Instructions] This will conclude our question-and-answer session. And I would like to turn back to Harold Bevis for any closing remarks.

Thank you, Chloe. Thank you, everyone, for staying on the phone for a bit with us. And we're pretty happy to report this update on the business. It's quite positive. It's a nice inflection point for us to be reporting on growth and growth and growth and we want to get more growth. And it's been our game plan all along to get the ugly restructuring out of the way, and we did had to part ways with about 800 employees and 7 of them and pay those severances, and we had to close 4 plants. But it's behind us, and we're thankful for that. And we have a more profitable cash-generative company now. And we're using it to our advantage to be competitive in the areas where we want to. So we're off to a good start. Thank you for your support, and we look forward to speaking with you again in the future. And with that, we'll end our call for today. Thank you.

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

Good day, and welcome to NN, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Stephen Poe, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and thanks for joining us. I'm Stephen Poe with NN Inc.'s Investor Relations team, and I'd like to thank you for attending today's earnings call and business update. Last evening, we issued a press release announcing our financial results for the third quarter ended September 30, 2025, as well as a supplemental presentation, which has been posted on the Investor Relations section of our website. If anyone needs a copy of the press release or the supplemental presentation, you may contact Alpha IR Group at [email protected].

Joining us from NN management today are Harold Bevis, President and Chief Executive Officer; Christ Bohnert, Senior Vice President and Chief Financial Officer; and Tim French, our Senior Vice President and Chief Operating Officer.

Please turn to Slide 2, where you'll find our forward-looking statements and disclosure information. Before we begin, I ask that you take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation, and the Risk Factors section in the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2025. The same language applies to comments made on today's conference call, including the Q&A session, as well as the live webcast.

Our presentation today will contain forward-looking statements regarding sales, margins, inflation, supply chain constraints, foreign exchange rates, cash flow, tax rates, acquisitions and divestitures, synergies, cash and cost savings, future operating results, performance of our worldwide markets, general economic conditions and economic conditions in the industrial sector, including the potential impact and ramification of tariffs, the impacts of pandemics and other public health crises and military conflicts on the company's financial condition, among other topics.

These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside of the Company's control, which may cause actual results to be materially different from such forward-looking statements. The presentation also includes certain non-GAAP measures as defined by SEC rules. A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation.

Please turn to Slide 3, and I will now turn the call over to our CEO, Harold Bevis.

Thank you, Stephen, and good morning, everyone, for joining. I'd like to cover the highlights and some key metrics for the quarter and go through the main events in this quarter and going forward. Structured sales growth is a top priority for us, and we own that. Our sales growth program to secure new business is working, and we've secured over $180 million of new business, all of which is in varying stages of ramp-up. We've had no cancellations of any of these new wins, just some pushouts.

With sales growth being our top job and having continued headwinds in our served markets, we added further resources in Q3 to upsize our business prospecting efforts, especially in electrical products, medical products, and defense products. We've now grown our sales pipeline to over $850 million, and we're running a hit rate of closed opportunities at over 20%. And as far as quarterly sales momentum goes, we believe that we are now at the bottom of the bathtub curve for our served markets and customers.

We're making our own momentum by winning new business, and we had key wins in both defense and medical in the quarter. The foundational win in defense was with weapons components, and it's a result of an 18-month development process. The foundational win in medical was with robotic surgery equipment consumables and also was a result of an 18-month development process. Each of these wins alone can be over $5 million per year individually and can lead to further penetration of brand-new markets and brand-new customers for NN.

We're continuing to generate strong free cash flow with stronger adjusted operating earnings as well as consistent improvement in working capital management, and we are combating very high inflation on precious metals and base metals. We are creating a stronger portfolio, and we're completing our Phase 1, which involves creating a scalable core business. And the 3 of us will cover that in more detail as we go through today's update.

Our strategic M&A program is underway, and we're currently evaluating multiple acquisition targets, big and small, to scale and accelerate growth, and we're committing to growing through M&A. And our preferred equity refinancing is formally underway and continuing. We've initiated discussions to refinance our preferred equity. And importantly, we're working with other parts of our capital structure, current stakeholders, and we're getting organized to look at refinancing both with and without acquisitions involved. So, we're in the organizational stages there and gathering information and inputs from our main stakeholders, making progress.

If we can turn to Page 4, I'd like to cover the key metrics for the quarter. Our sales were about $104 million, and the positives were that our power solutions growth and new launches were on track, and we had growth in our aerospace, defense, and electronics business areas. Negative headwinds came from mobile solutions and specifically automotive rationalization, as well as some of our customers being conservative with all the volatility in the served markets. We're committed to forcing our way through that with new wins and growing the top line. And we believe we're at the bottom of the curve right now.

Our adjusted operating income improved nicely. It's about $4 million now, and it results in a margin of almost 4% and that's another strong trend versus our historical results. Our adjusted EBITDA did go up. It went up 7.9% year-over-year on a lower sales base. Part of that is due to the restructuring that we're doing and getting rid of businesses that didn't make money in the first place. Our margin is up 170 basis points year-over-year, and we're on track for our long-term goals, and maybe we'll increase them as well, given our track record here is stronger than we expected.

Our new wins were $11 million in the quarter. And I mentioned the key wins in defense and medical were important to us, and we've been stocking them for quite a while. We're pretty happy to be awarded and nominated. And we're positioned to continue winning new business going into next year. And even this week, with one of our top 2 customers, we were named a Supplier of the Year. We're in good shape with our customers and growing both with existing customers and new customers.

Our adjusted gross margin was about 19%. It was impacted a little bit on a percentage basis by very high precious metal costs, specifically gold running through our numbers. It's a pass-through item, but it impacts our percentages. But we had strong operating performance and efficiencies in our plants as well as positive portfolio shifts. We're having a good mix shift. This is a 350-basis point improvement compared to Q1 of this year. And free cash flow is a good story for us. We generated $9 million of free cash flow. Actually, our cash flow from operations, if you look at the appendix material reconciliations, was over $11 million, and we also funded CapEx in the quarter and netted $9 million of free cash flow.

Our working capital program is delivering strong results in addition to improved operating income. And this is almost a $21 million improvement over the last 2 years, and it's continuing, and Tim is going to cover it further in a couple of slides. I just want to point out, it does not include any benefit from CARES Act proceeds. The IRS is in a furlough mode right now, the government shutdown. And so, we're on hold right now with regards to receiving our approved refund there. But at a high level, softness in the North American automotive market created an opportunity for us to go ahead and consolidate our last plant that loses money and it's a negative drag on our business. And we're in the process of talking to customers right now and getting timing lined up. And then, of course, it will be a war on this. So, we have a whole bunch of proper things to do in order here. So, we're not at liberty to discuss the plant. But we're going to go ahead and pull that trigger so that it eliminates that last piece of unprofitable business.

If you turn to Page 5, I'd just like to talk a little more fully about our served markets. And we have 5 primary ones. Automotive is 40% of our revenue. These percentages were consistent over the last couple of quarters. We check them. We round them to the closest 5 percentile, and it's been pretty steady for us. If you look at automotive, everyone knows that there's been a lot of changes with the elimination of BEV incentives, the elimination of forward emissions improvements, a lot of incentive declines. There's been a misjudgment by what types of vehicles consumers wanted and the main OEs are shifting their investment approaches, mainly balancing back towards ICE.

And that benefits us because our portfolio is bigger on ICE. And we're -- one reason our pipeline has grown significantly is that this market has turned back into our strength. So, we're a very innovative situation, and we're involved with quite a few next-generation improvements. But base production is down for the -- if you can follow that with public reporters. And so, we've been down with them. It turns out that that's a good mix shift for us, but it is impacting us this year. And we think we're at the bottom. And if you look at some of the forecasts going into next year, there's predictions that there's going to be a rebound because vehicle sales are actually higher than production.

And so, this inventory destocking is going to benefit supply chain participants like ourselves. The next biggest one is electric grid and electrical distribution, that's 20% of our business. That also has had some volatility. There's been a lot of cancellation of federal funding programs for infrastructure, and that has impacted electrical infrastructure in the U.S., electrical infrastructure spending. A bellwether reporter here is Itron, also a customer of ours, and they report on this pretty concisely. And we've had one-on-one meetings with them. Tim is our executive sponsor of that account, and spending is down. And so, we're down a little bit with it as the federal funds have declined in this area.

Not losing, we're actually gaining positions, but the base business has been slightly down versus it had been up. The quite different story is defense being at an all-time record high right now in the United States, and it's focused on modernization and next-generation advancements. And there's a forecast for this to continue because of all the appropriations that are being approved, and it will grow to almost $500 billion by 2023, which makes it 2.5x bigger than the entire medical market. So, it's a big thing for us, and we're fully paying attention to it, and it fits our capabilities quite nicely.

The GDP types of products that we have, it's kind of our all other. The economy was down in the first quarter, came back in the second quarter. It's consumer -- led by consumer spending. We're really tied to equipment and mainly the biggest one in there is construction, and that's been a little bit down as well. Commercial vehicle is a smaller market for us, but it's been in the doldrums for a few years now. The bankruptcies are still rolling through the industry. I looked at some data in the last couple of days that the bankruptcies in the third quarter were about the same rate as the second quarter. And there's now been over 800 bankruptcies of freight haulers, which means less trucks are needed. And so that industry is going through a recalibration also, but it's predicted to end in '26. So, we can see forward supply chains and forecast in our EDI portals improving.

Medical is the market that we entered. It's a decent sized market, fits us, and we had a good quarter with the foundational win, as I mentioned. So overall, markets are soft this year. We've taken the opportunity to take more cost out. We've taken the opportunity to take working capital out. We have increased our effort to get new wins to offset what the base market does. And in the third quarter, we did grow our profits and our cash flow on less sales. So that's kind of a quick overview, and we might get some questions later, but I'd like to turn it now over to Chris to walk through some of our financials.

Thank you, Harold. Good morning, everyone. Today, as in prior quarters, I'll be presenting the GAAP information as well as pro forma information to provide transparency into our results. We've got the main item this year of the rationalized volume that we've been talking about the past couple of quarters.

So, I'll start on Slide 6, where we detail our financial results for the third quarter. This slide shows our as reported on the left and our non-adjusted numbers on the left side. We again lined out the pro formas in the middle on our quarter results and with our pro formas on the right side of the table. The pro forma adjustments include last year's contribution for strategically rationalized sales volumes and the impacts of foreign currency translation. So, on an as reported basis, the net sales for the quarter were $103.9 million, declining $9.7 million versus last year's third quarter. On a pro forma basis, accounting for those adjustments, sales declined only 4.4% or $4.8 million. Our as adjusted -- our adjusted operating income for the third quarter was $4 million, marking a strong increase, as Harold noted, compared to $2.7 million compared to $1.3 million in the prior year third quarter.

On an as adjusted pro forma basis, operating income increased $2 million or about 100% versus the prior year period. Adjusted EBITDA and pro forma results for the quarter were $12.4 million compared to $11.6 million in the prior year period, increasing 6.9% or $0.8 million compared to the prior year third quarter. And lastly, margins of 11.9% of net sales expanded 170 basis points on an as reported basis and 130 basis points inclusive of pro forma adjustments.

I'll now turn it over to Tim for a minute to discuss improvements in our adjusted EBITDA margins. Tim?

Thank you, Chris, and good morning, everyone. Turning to Slide 7. I want to spend a few minutes walking us through the structural improvements NN has made to its overall profitability profile. Key aspect of our transformational focus has been to expand our overall margin profile of the company to help drive growth through our operating earnings and adjusted EBITDA. Q3 marked another consecutive quarter of success in this area. Our adjusted EBITDA margins have expanded 260 basis points since the launch of our transformational plan in early '23. Our consolidated performance continues to push us towards a long-term goal of 13% to 14%.

Our adjusted gross margin also continues to show marked improvement. Year-to-date, our margins have expanded by 90 basis points to 18.4%. Our performance keeps us on track to achieve our goal of 20% gross margins. We've been able to expand our margin profile and profitability metrics to the adoption of a One Team culture across multiple facilities. We have also strategically rationalized low to no-margin business, closing 2 underperforming facilities. One of the key drivers of our improvements is the rightsizing of our SG&A workforce. We've reduced our overall headcount by more than 20%, more appropriately aligning our resources to the needs of the company. Our focus on margin expansion will continue.

With that, I will turn it back over to Chris.

Thanks, Tim. I'll just provide a little more detail on our quarterly results by talking about our 2 segments, power solutions and mobile. Starting on Slide 8. In our power solutions segment, where our business consists largely of stamp products, Net sales results for the quarter were $44.9 million, up $2 million compared to $42.9 million in the prior year period. This is mainly due to an increase in precious metals pass-through and the benefit of new launches that Harold mentioned in electrical and defense business, partially offset by lower volumes at one stamping customer.

When compared on a pro forma basis, third quarter net sales results increased $1.9 million or 4.4% noted in the charts on the right. Power solutions adjusted EBITDA results, as reported of $8.9 million increased $2.5 million versus last year's third quarter of $6.4 million, driven by sales growth, the strengthening of our profitability through cost-out initiatives, and an overall improved sales mix. As a function of this improved adjusted EBITDA, we've seen stronger margin pull-through with quarterly adjusted EBITDA margins representing 19.8% of net sales, up approximately 500 basis points versus the prior year period.

Now turning to Slide 9, our mobile solutions segment, which covers our machine products business. Net sales for the third quarter were $59.1 million for the period compared to $70.7 million in last year's third quarter. Net sales comparisons were primarily impacted by the rationalization of underperforming business and plants and lower volume in North American customers. On a pro forma basis, net sales of $59.1 million were down $6.7 million or 10.2% compared to pro forma sales of $65.8 million in last year's third quarter. Our third quarter adjusted EBITDA in the mobile solutions segment was $6.7 million, down $2.1 million from last year's third quarter on an as reported and pro forma basis. The weaker overall top line drove compression in our adjusted EBITDA margins, which declined to 11.4%, a 120-basis point decrease year-over-year. We continue to focus on cost-out actions and the ongoing reprofiling of our sales mix.

Looking ahead, our new business momentum remains strong. Through 3 quarters, we have secured $34.5 million in new awards across a large number of individual programs, spanning high value auto as well as in medical and defense markets. Our new business pipeline is strong for the segment and continues to reflect solid opportunities going forward.

I'll now turn the call back over to Tim to review the company's cash flow performance and new business wins. Tim?

Thanks again, Chris. Turning to Slide 10. You can see that we continue to make meaningful progress in reducing our operating working capital. Q3 marked a positive step in our free cash flow performance and demonstrates the impact of the focus we've had for several quarters. Net working capital ended the quarter at low to what has been observed in recent years with improvements in both absolute dollars and as a percent of TTM sales. Working capital of under $80 million at the end of the quarter is down from $101 million in Q2 '23, more than $20 million and almost 21% improvement. As a percent of TTM sales, we have seen a drop from 21.2% to 18.8%.

On a run rate basis, this represents approximately a $10 million improvement. These improvements reflect the ongoing actions across all aspects of the working capital management. And when coupled with our stronger adjusted EBITDA and operating earnings, we will continue to create a more predictable cash profile and a stronger foundation for free cash flow generation.

Turning to Slide 11. It highlights our success of our new business win launch program and gives insight to our program launch sequence. In 2025, we anticipate launching over 100 programs with more than 70 new programs already scheduled for 2026. These programs are forecasted to contribute approximately $26 million to our top line and an estimated $40 million when at full run rate. This year, we have increased our cumulative wins by $35 million, driving the total to approximately $182 million, well on our way to our long-term goal of $200 million.

To support this growth, we have made significant capital investments globally. We have invested in dedicated equipment for medical, automotive, and A&D markets. Our pipeline remains robust and is being driven by our 40-person sales and engineering team.

With that, I'll turn it back over to Harold.

Thank you, Tim. I wanted to talk a little bit about M&A, and I know we have some people interested in that as well as the refi. We have been working on this program for almost a year now and have looked at, I don't know, maybe 40 or 50 companies and have it down to a small set of companies that look like they fit both what we want to do in terms of deleveraging and refinancing as well as scaling and getting scale at what we're doing, optimizing our cost structure and being more important to our suppliers and customers. We're getting ready to embark upon that now. We have to be organized, obviously, in tandem with the refinancing. Obviously, we're not sitting on a big pile of cash. So, any acquisition we do of any size at all requires a refinancing discussion. And we've been very selective.

We put a lot of time on it, especially Tim and I visit a lot of plants, a lot of businesses, doing a lot of due diligence. And we're getting there now. We don't have anything imminent. It would be material information anyway. But I want you to know that it's a pipeline activity, and we're getting down towards the throat of the pipeline here. And so, we're very happy and very pleased with the opportunities that we've been able to dig up, and we have a decent amount of people looking for us and helping us. So, I want you to know that it's real, and it's an active activity for us organizationally.

On the next page, I just want to cover our guidance real quick. We're pretty much reiterating it again, with the exception of our sales. We're lowering them a bit. We're -- and it's basically lowering our outlook for automotive but increasing our outlook in defense. And so, the net impact on gross margin dollars is minimal with that because our lower margin sales or the automotive ones, and our highest margin sales are defense. So, it's a good mix shift for us. So, it preserves the EBITDA and the cash flow that would come from a lower amount of sales.

New wins are on track to still hit our target here. And we say the pipeline is greater than $750 million. It's actually greater than $850 million, and it's balanced. The biggest part of our pipeline is electrical. And the biggest part of our pipeline is not automotive. So, we're pretty happy. That's not by chance. We have a very structured approach here to targeting. And so, we're on track. And the big thing about this year, year-to-date and right now, is the uncertainty in our core markets and with our core customers. So, it makes us be uncertain because we're a supply chain supplier participant with them. But we're in good standing. We're winning positions. And we just see some near-term volume constraints. And so, we've reflected that in our guidance. So pretty much the same expectations for our guidance as we had last time.

So, with that, I'd like to turn it over to the operator and open it up for questions.

[Operator Instructions] First question comes from Rob Brown with Lake Street Capital Markets.

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

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

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

Well, on the power and stamping, which is where we have all of our gold and silver exposure, our percentages are being impacted by what's happening with the price of gold and silver. And so, it's impacting our percentages somewhat sequentially through this year and year-over-year. And then the outlook, right now, the outlook for gold are to continue on this tear that they're on. So, it's causing us to recalibrate what we say about percentages on the power side. But in terms of the mix, we're going to keep selling the same mix of products. The percentages are being impacted by the price of gold mainly. On the mobile side, we have the additional opportunity to get rid of business that's negative EBITDA. And so, we're taking those final steps right now. So, to get our percentages up in mobile, it's both doing the final chunk of underperforming business, getting it off of the books and eliminating that. And it's a few million dollars of negative EBITDA. So, it impacts the percentages. And then the wins that we have are accretive to the business, obviously, that we're getting rid of. So, it's twofold on the mobile side. And when we do the math on a constant metal basis, it works. The volatile thing right now, Rob, is the price of gold.

Our next question comes from John Franzreb from Sidoti & Company.

I just want to go back to your adjustment to the revenue forecast. You kind of said it's lower oil, higher defense. I'm curious if there's any impact of the acceleration of the facility rationalization that's also playing into that number?

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

Just curious, what kind of capacity utilization rate are you running at company-wide? We can break it down by segment.

Yes. Tim, do you want to take that?

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

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

Yes, sure. In terms of goals, we have a goal to eliminate the preferred stock. We don't foresee being able to do it in one fell swoop. Then you get into -- come down the pyramid a little bit and then you get into do you try to do it as a stand-alone refinance, or do you do it coupled with an acquisition? And we haven't ruled anything out, John, and we're not on to one particular path. And we're getting advice. We're not doing this in-house. We're not investment bankers or professional investors. So, we intend to rely upon the advice of investment bank experts in this area. And so, when I refer to we're getting organized, that's what we're doing. We're trying to put together a team of advisers and existing stakeholders that are willing to help on an NDA kind of basis. So, we're getting the team organized and listening, and we haven't ruled out a refi with or without M&A. It's an active activity.

We have good relationships with the current stakeholders. The preferred stock held by Morgan Stanley. I think everyone knows that. And of course, therefore, they're active in their point of view on what they want to happen and the timing. And so, it's a positive constructive activity that's underway, John. I can't really say much more because it's private. But the management team is committed to making progress. I know, John, you follow the preferred stock and how it accretes each quarter, and we talk about that. So, we're trying to in that. We're trying to in that era.

One last question, if I may. Can you just talk about the aerospace and defense market and how big you think that can get, I don't know, say, three years down the line?

Well, it's interesting how it kind of sneaked up on us because it started to show on our year-over-year customer charts. And if you -- at midyear this year, half of our year-over-year sales growth, the biggest percentage of growth that we had were from, if you look at the top 10, 5 of them were in aerospace and electronics, and we're like, "Hey, wait a minute, let's pay attention here. We've been talking about medical, medical, medical, but this thing is happening naturally. Let's get behind it." And it's a really good mix for us because a lot of the products are gold plated, and they go into electronics modules inside of the equipment, both for launching missiles, missile guidance.

We're heavily tied into electronic enclosures. So that's ubiquitous, but the gold plating aspect of it find itself when the government is spec. And so, we're rapidly growing that business, and we have a lot of new customers. And the interim goal we have right now, John, is to double it, is to double that business. So that's a lot because Tim referred to our capacity. That's one of the areas where we're running 2 shifts. So, we have another shift we can do, but then we need to spend a little bit of money to expand our capacity for those kind of products.

We're benefiting a little bit this year. We closed the Wajak, we closed Juarez, and we were able to redeploy a decent amount of the CapEx into Brazil, into North America, and avoid capital spending. We were able to substitute equipment that we needed with equipment that we had. And this last plant that we need to consolidate, we have that same opportunity again. We have good equipment that we can redeploy. So, to grow in defense and medical, we now see that we're going to be able to do that and be less capital intense because we've been successfully able to redeploy equipment that we have. So, we're going to have an Investor Day, John, in December, and we're going to cover that topic more fully.

Our next question comes from Mike Crawford with B. Riley Securities.

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

Yes. So, the JV, Mike, if you know, the JV test for the asset test. So, it's below 20% of our total assets, but it's getting close to 20%. And when we look at our outlook, it looks like it might even cross 20%. If it does cross 20%, we'll begin reporting, including the financials of the JV as required. But it's a very successful JV. It's $130 million in sales. It's a little over $30 million in EBITDA. It's a net income-generating business. It's been growing. It's dedicated to making fuel system components for Chinese manufacturers.

The main customer of the JV is another JV with Bosch. Weifu, their biggest shareholder is Bosch. We have a JV with Weifu to make these components, and then the main customer of the JV is another Bosch entity. And the biggest customer of the JV is BYD, BYD. So, the end of the story is that for BYD's internal combustion engine passenger vehicles, cars and trucks, we're directly involved in that through our JV, and it's quite successful. It was set up 20 years ago by a team from Kentwood, Michigan, the Auto Cam headquarters, if you will. And we set that JV up to make those products, and they're still making them 20 years later.

And Tim and I are going to China in a few weeks, and we're going to celebrate their 20-year anniversary with them. That plant, which is about 130,000 square feet, is adjacent to and connected to our wary. In the middle of the 2 plants is a shared cafeteria. And you can guess they play ping pong against each other and have fun things like that. So, it gets good spirit. And on our side, the wholly owned side, have a different product focus. We're not going after fuel systems. We go after steering, braking, and powertrain components, which are agnostic to whether it's ICE or EV or hybrid, or the ERP. So, we have slightly different types of equipment, different types of products that we make. And it also is 20 years old. Both of those businesses were formed 20 years ago by the former owner, founder of Auto Cam, John Kennedy. And so, the same man set them both up in the shared facility, and they're still doing well.

Our China operation does over $70 million of sales, and it's one of our most profitable businesses in terms of EBITDA, and it's free cash flow generative. They pay for their own growth and working capital, and we repatriate cash from there quarterly. From the JV, we get an annual dividend transfer, and from the WOFE machining plant, Chris takes the cash regularly, like monthly.

We also have a stamping plant in Southern China in Foshan, which is near Shenzhen, which is near Hong Kong. It's wholly owned, and we make stamped products primarily for export, primarily for the medical market, the biggest customer is Becton, Dickinson. And it has a clean room. It's set up for health care standards, and we recently put a big servo press in there to be able to make certain products for the Chinese market. So, we recently have entered the Chinese market for the stamping facility.

The WOFE and the JV machining, they make their products in China. They buy their metal in China, they convert in China, and they sell in China. Stamping plant, we buy our metal in China, and we export. It's also a very profitable business for us.

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

Yes, it's a good question. So, our cash flow from EBITDA in the second half of this year is a lot stronger than the first half. We went through a lot of severance and 2 plant closures at once. So, our adjusted EBITDA was looking good, but our cash from EBITDA was not looking good. And so, our cash flow game plan was working capital based.

In the second half of this year, we've been benefiting from the adjusted EBITDA is pretty close to the EBITDA, is pretty close to the cash. Going into next year, we're going to have that again. So, we're going to have a benefit of that. And so, we think that the cash flow is going to continue strengthening. The working capital, we did $9 million of working capital in the quarter. But if you look at 12/31 to 9/30, our inventory went up $1.5 million and our AR went up $1.5 million. We offset that by having $8 million of improvement in AP. And our sales went down, and our COGS went down. So, you would expect them to go down more strongly, inventory and AR, but they were cropped up because of precious metals. So, Tim has reset our game plans to be more aggressive with taking the unit volume of inventory down. And Chris is looking at our overdue to terms AR because to make improvements we want with precious metal basis costs going up, we have to be better than we were planning to be.

So, we're not going to back off of our cash from working capital plans for next year, and we're going to add to it a higher amount of EBITDA. So, you're right with your math, Mike. I think that without the CARES Act this year, it's 4 or 5. And next year, it should be around $10 million. One of the good things, though, that we haven't input into this is our cash interest, if you look at our attachments, our year-to-date cash interest is slightly less than last year, and rates are going down now. So, when the Fed cuts rates, that helps us with our variable rate debt. And as I mentioned earlier and everyone knows, we're attempting a refi here. And of course, we're going after the rate we pay on the term loan. So, I don't know, Mike, probably 2x, but that's not a big number, right? So maybe 10, just for talking purposes. It's not going to be 20. Chris, do you want to comment on that?

Yes. No, I agree, Harold. And again, with rates going down, I think we have some opportunity for improvement to bring in a little more cash or we pay a little less interest and bring a little more cash flow. But we've got to balance that out with the investment needs of the business, the capital of the new business as well as the plant Harold talked about restructuring. So, if you look at the free cash flow in the back of the earnings release, you'll see we've managed CapEx very tightly. We've always said that, obviously, the 3 of us look at every project, every opportunity. So, we are managing those levers very tightly in a controlled fashion, and we'll hope to improve free cash flow in next year.

[Operator Instructions] Our next question comes from Barry Haimes with Sage Asset Management.

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

Yes. Thank you, Barry. So automotive for us is by region. So, in China, we're growing this year, and we'll grow next year. We've been winning a lot of business in China, and its accretive margin rate to us. In Europe, we had a down year this year due to what happened to the Europe market, but we had a big win that we won last year, and it's ramping up now. And actually, we're going to power through the market outlook in Europe because of that big win that we've had, which will be made in our France plant. And it's also a good margin for us. So, Europe is looking up for us. South America has been flat. They're getting rated by BYD and people like that, and it's affecting the local production market that we're tied into.

So not a lot of change in our Brazil plants, our 3 plants there that serve the South America auto market. North America, the outlook for North American passenger vehicle production is to be up slightly versus down. And there's a lot of uncertainty to go through there, but that's the outlook right now for '26, and Wall Street seems to be pricing that in to auto part suppliers like us. And the big exogenous event, if you will, for us is that we're going to correct an underperforming plant we have. So, we have a drag on our North America profits. And that's our last remaining drag. So, we didn't have the cash. Tim likes to say that we've been correcting our footprint at the pace of our cash flow. So, we've been careful. We just couldn't do everything at once, but we think we're in a position now to take care of the last one. And then we're done with that, and we won't talk about it anymore.

So that for next year is going to be a non-sales benefit to the profits in North American auto. On electrical, we've been at a couple of our customer meetings. It looks like the demand is increasing, but it's hard to tell on spending because of the federal fights over the budgets and federal funding in the different states. So, we're expecting a flat base market, but improvement because of the wins that we've had. And as I mentioned, we had foundational wins in medical and in defense that are going to help that segment grow next year. So, we see an inflection. The big reporter for commercial vehicles is ACT Research and the big bellwether filer is PACCAR. And PACCAR reported this week, so did Volvo Truck.

And they've both been different shades of negative with regards to the rest of this year and the beginning of next year, but both them and ACT Research are saying that there will be resurgence in the second half of next year, and Cummins too. Cummins being tied into that. So, we see an improvement in that business in the second half of next year. So, my initial comments when I said I think we're in the bath hub part of our base markets, we're not at an inflection point going up. But I think we're in the bath hub right now, and it's going to gradually improve. First, auto is going to improve auto production and electrical and in the second half of next year, commercial vehicle. But through this, if you did the math, Tim's math there, we have 170 programs that are in various stages of launching. And the biggest one with BYD got pushed into Q1. So, we have quite a bit of new wins that are going to be pushing into next year. We we're not ready to give guidance, but it's a positive outlook compared to '25, Barry.

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

Thank you. We appreciate it. Probably between now and the next fourth quarter earnings call, we might have an 8-K or 2 to keep everyone abreast of what we're doing that's material. We're pretty excited about our future. We're excited about the short-term opportunities we have as well. And we thank you for your attention today.

Hello, and thank you for joining us for the IAccess Alpha Virtual Best Ideas Fall Investment Conference 2025. IAccess Alpha hosts virtual investor conferences featuring companies sourced from investors with a track record of generating alpha. Today, you will hear presentations from 14 selected companies. IAccess Alpha holds 4 virtual investor conferences annually, one per quarter. The next event will be the IAccess Alpha Virtual Best Ideas Winter Investment Conference 2025, scheduled for December 9 to 10, 2025.

We'd also like to take a moment to thank the many investors who have pitched in with ideas or helped source companies. These conferences wouldn't be as valuable or high quality without your ongoing support.

Now let's begin with our first presenting company, NN, Incorporate. I'd now like to turn the floor over to your host, Harold Bevis, CEO of NN Incorporated. [Operator Instructions]

Harold, over to you.

Thank you very much. Thank you for calling in this morning, investors, and for kicking off this conference for the fall. We have speaking today myself and Tim French, who's our Chief Operating Officer; and Chris Bohnert, who's our Chief Financial Officer.

I'd like to just refer on Slide 2 to our forward-looking statements disclaimer. It's your normal disclaimer that you've heard a lot. I'm not going to read it to you. Nothing unusual about it. On the next slide, for those investors who may not know our company, we are a high-tech manufacturer, and we're going to cover some of that today, and we're highly tied into next-generation product advancements.

On the next slide is an overview of our company real quick. We are an award-winning developer and manufacturer of custom metal parts and assemblies. We've been in business for about half a century, and we've been public for 30 years. The NN name is primarily a corporate name. We go to market under well-known brand names that you would not be accustomed to hearing unless you've been in the markets that we're in, names like Autocam, Brainin and that type of a thing.

We have a balanced business model. We serve multiple markets with our custom metal part making capabilities; automotive, where we are engaged with engine components and powertrain components; the electric grid for electricity control; defense and electronics products; commercial vehicle components, again, tied into the engines themselves; construction and industrial metal components; and then medical, which was a market we reentered 1.5 years ago.

We have a competitive global platform. Really, we are located where our customers want us to be. We're local for local when that's needed or desired like USMCA and a global footprint for global low-cost solutions.

Our sales on an LTM basis through the end of the second quarter were right at $434 million, and we also have another $130 million JV that we have 49% ownership of and that we run. Our adjusted EBITDA is $47 million, about 11%. 2,600 employees and another 700 in the JV, and we have about 600 customers.

At the bottom of the slide, you can see our certifications. We're FDA approved, when we're making end products in medical, ISO 9001, ISO 1345 for medical, normal medical products, Nadcap for our plating business, ITAR and IATF for aerospace and defense.

On the next page, it's just a quick overview of our kind of our -- what makes us special, what's our secret sauce as some people say. We have unique knowledge of metallurgy, machining, milling, stamping, grinding. We do in-house tool and die design, robotics are a big thing for us, integrated CAD/CAM structures and software where we have a global system where we can download our programs to machines everywhere. We have Six Sigma quality systems as a consequence of being in the automotive industry, and we make our products to submicron tolerances. Those are special things in our metal making world, and they make us stand out from the crowd.

On the next page is just a quick look at our executive team, myself; Tim French, who's on the phone; Chris Bohnert, who's on the phone; Paul Wong is the President of our APAC operations and the General Manager of our JV for both parties, Weifu and ourselves. We have a Chief Commercial Officer, Tim Erro; Mohamad Farhat as our CTO for Electrical, Medical and Defense; Rob Ash for Machining, Automotive, Industrial; and we have Gail is our Head of HR; and Jamie is our Head of Legal. The top 6 leaders have all worked together. We've worked together in our past and at previous companies, and we're experienced in the industries that we serve. So that's kind of the top team.

On the next slide is just a quick overview of our footprint. We serve -- we compete in 6 end markets on 4 continents and from 24 facilities. You can see where they are here. The size of the ends are kind of proportional to the size of the facility and sales and that global footprint that I mentioned, and we can supply chain into any location for our customers.

And our China footprint has 2 wholly owned facilities in the local jargon, they're called WOFEs, wholly owned foreign entity, and we have a JV with a public company named Weifu and they're very profitable. Our China operations are accretive to our company in terms of profit rate and cash generation. So we're very proud of this footprint. And just a few facts here, you can see our machine center counts and where our employees are. So a typical machine for us is quite expensive, approaching $1 million. And we have around $400 million in PP&E in our building in terms of replacement value.

On the next page, our end markets that we serve. We primarily are in 6 markets. Automotive is about 40%. That market has gone through quite a few disruptions over the last year with the change in the U.S. presidential administration. The China market for us continues to strengthen as they seek to be the global leader in exporting, and they are. They passed Japan last year, and we benefit from that.

The next biggest market for us is electric grid and electric distribution, about 20% of our revenue, primarily North American, tied into the power grid, which has been growing due to data centers and electric vehicles. It's a balanced market for us this year.

The defense business is about 15% of our business, defense electronics. That business has been growing in the United States as defense has taken on a higher priority with the current presidential administration, and we're benefiting from that. And then we have some GDP businesses like smoke detectors and thermostats and things like that, primarily in the U.S. It's been kind of flat, a little bit weak even at the beginning of the year due to economic uncertainty.

Commercial vehicles are our next biggest market, where we're tied into making engine components for large diesel engines that go into on-road and off-road commercial trucks. That's been a down market in the United States and is forecast to stay flat at this low rate through the middle of next year. And then medical equipment and surgical tools, we reentered that market when our noncompete ended 1.5 years ago or so, and we've been making steady progress there. So overall, our markets are a little soft this year, primarily because we're heavily tied into the U.S., and we've had economic uncertainty.

On the next page is our 5-year plan, and it's based on achieving organic growth, which we've been able to do in the last 2 years. And we also are focused on M&A, and we just reiterate, we've begun that program also, and I'm going to touch on that in a minute. We're launching over 100 programs this year organically that we won in the last 7 quarters.

The second is about cost leadership. We do generally get engaged with annual productivity. So we have an annual offsetting cost reduction program that we lead to offset that plus give us net productivity. Our goal is to have EBITDA margins of 13% to 14%, and we're approaching that. Part of it has been to get rid of underperforming business and operations as well as adding and growing areas that are accretive and sharing our SG&A team. And then lastly, to generate free cash flow and improve our balance sheet.

On the next page, we're going to hand off between ourselves here, between Chris, Tim and I, so that we can share the speaking and get to know us a little bit.

Thanks, Harold. This is Chris. Just in line with our strategic plan, we've improved our margins, our adjusted gross margins and adjusted EBITDA over the last couple of years. On this slide, you'll see, in 2023, our adjusted gross margins were around 16.3%. They've grown to 18.2% in the first 6 months of 2025, and our adjusted EBITDA margins have grown substantially from about 8.8% to 11.1%, closing in on our target of around 13% or 14%.

We've been able to do this by making some significant improvements in the business, such as shedding unprofitable pieces of business and plants. We've closed actually 2 plants in the last 6 quarters. We improved our operating performance. We focused on a culture of continuous improvement and lean. We began sharing SG&A across our structures globally, and we've been pursuing accretive new business, which Harold will talk about on the next slide. Harold?

Yes. Thank you. So a big thing for us has been to prospect for and launch new business, we can advance the slide here. And it's all about targeting what type of business that we want, winning and then launching that business to add to the base revenue profile and profit profile of the company. And here, you can see the results over the last 8 quarters. And we have won through August actually, $182 million worth of business since the new management team came in at the end of the second quarter of '23. And our goal is $200 million through the end of this year, and we're on track to do that.

And we are running around a 24% hit rate, and our evergreen goal is to win $60 million to $70 million a year. We generally win when our value that we offer means something to the business that we're pursuing. We generally lose when we don't meet the requested pricing, which is generally due to our landed cost structure. So we're pretty happy with that hit rate. It's above industry average.

Our pipeline right now is around $750 million, and we have about 40 people in the payroll tied into this activity. We're looking at a few new areas, especially wire harnesses and in electrical products like bus bar and shielding. And then on the right-hand side is our launches that are underway, and they will help both this year and next year. We already have around 50 programs scheduled to launch in '26, and we have a stockpile of wins that are not yet in our run rate. So organically, this has been the size of the program that we've wanted to lead and it's underway now.

On the next page, some people ask us about our China business. We've been in China for 20 years. We have our 20-year anniversary this year. It's been steady growth, and it primarily serves the automotive industry in China for China. And we are on track to a long-term goal that we have. We've won a lot of new business there also. And our JV also has been growing. So the JV and our wholly owned foreign entity were both founded about 20 years ago within a couple of months of each other. And they're doing quite well, and we've been repatriating cash from there for 20 years. So it's a good part of our company.

One thing that's fortunate for us is that the China government is focused on winning the export markets for automotive vehicles for the countries that don't make them and also for a low-cost entry. And we're benefiting from that. So we're making parts that go into those cars that are exported. So it's a good part of our company, and it's our lowest cost operations.

On the next page, Tim is going to talk a little bit about our cost program.

Thank you, Harold. We've implemented a strong operational leadership program focused in 4 key areas. As mentioned earlier, cost reduction is the primary one. Our target is 1% productivity, inclusive of any price downs that are required within the market. Our 2025 plan is on track to achieve $15 million of cost out, which is composed of 345 continuous improvement projects that are always underway, headcount reductions as well as focusing on procurement spend productivity. We spend about $200 million in our procurement program, and we're focused on driving those costs down.

The second bucket would be delivered quality. Our target is Six Sigma or better. 2025, we are ahead of that goal and doing well. Third bucket is on-time delivery, 98% plus on-time delivery, which is our target going forward and having minimal shippable backlog. The success of the first 3 buckets is measured by having green scorecards with all of our major customers.

Our fourth bucket is working capital management. Our target is to be at 17% of net sales. Year-to-date through Q2, we're approximately at 20%. We are continuing to bring it down. Tariffs and what's going on in the landscape right now is having a bit of an adverse effect on it, but we are managing our way through it.

With that, I'll turn it back to Harold.

Thank you. On the next slide, I just wanted to highlight the investment thesis for considering us as an investment. The first point is that we are successfully repositioning the company. Our team, Chris, Tim and I, we came in just under 2 years ago. And we're coming out of Phase 1 which was basically heavy-duty focused on fixing some issues that we had and getting focused on areas that were going to be good growth areas.

And I would say that our team, our people, our businesses, our customers and our plants have been sorted out and aligned. We have a little bit more work to do. We've delivered 7 quarters of results. As Chris mentioned, we've rightsized, closed a couple of plants and reimplemented a shared SG&A structure that we're still underway with and started to get new wins along the way, and they're launching now.

We're entering Phase 2 to scale and grow the company. We came here to grow the company over $1 billion, and the 3 of us have done it before. So it's not a fake dream. We've done it, and we're going to do it here, and we're just getting ready to scale up. We recently hired a new set of executives from the electrical and electronics industry to help us grow faster in those areas.

The second point for considering us is it's a good time. And that's because the core business and the core markets are mostly soft this year. But we are gaining net positions through our new win program. And our markets aren't going to be soft forever. Car sales are really good, but car production is a little behind. That sort of a thing. Our top customer makes commercial vehicle diesel engines, and that industry is very soft right now, and therefore, it's impacted us and people that serve it.

So we're a little soft. We've been rightsizing our cost structures and footprint, and it's been dramatically improving our operating leverage. So when our volumes do begin to kick in a little more strongly, we're going to benefit from that. And as I mentioned earlier, one area that's not slow is defense and electronics. Those are strong year-over-year and helping us, and they show up in our power business primarily.

And third, we're underway with the activities to scale up and grow the business. Global dynamics play into our strength as a custom part maker. And we have a large pipeline of business to choose from and to pursue, and it gives us a wide aperture on our organic growth program.

On the next page, I just wanted to say a couple of things about M&A because we don't intend to be static. We are very aggressive right now, evaluating different targets for our company that makes sense. Number one, is a good culture fit. Number two, that it offers combinational synergies to help us deleverage and strengthen our company. The third is that we pick up strong teams that thrive in a lean support structure. There's -- we only have 19 people at corporate, and we intend to keep a very small team and have our resources and strengths be in the businesses and at the plants.

And the fourth criteria in M&A is to really derisk and diversify the served markets of the combined company after that -- post acquisition. So we're underway with that. We're not delegating it. It's Tim, Chris and Harold leading those activities and on the way to creating a bigger company. So that's the basic overview of our company.

And we allowed ourselves a few minutes at the end here for Q&A.

Thank you, Harold. We've got some questions coming into the portal, and I'll start off with the first question from Chris Meredith of Meredith Capital Group. Chris asks, Q2 sales were $107.9 million with adjusted EBITDA margins of 12.2%. What are the biggest levers to reach 13% to 14% long-term target?

Yes, it's a good question. So we still have within our reported performance, some underperforming plants. So Tim, if you followed us for a while, Tim, or nick named our underperforming plants about 1.5 years ago, a group of 7. We closed 2 down to a group of 5. A few of them have business that on a prospective basis, will make them profitable, but we still have a couple that are dilutive. So fixing the dilutive plants is a big part of it.

And then the second part is launching the new business that we've secured. The new business is averaging about 5 points higher than our median gross margin. So we will benefit from mix improvement from the new business.

Tim, did you want to add anything to that?

No, Harold, I think you've covered it off. That's the primary focus, and that should get us to the EBITDA threshold we're looking for.

And as a follow-up from Meredith Capital Group, they ask, you rationalize underperforming facilities, what further footprint optimization or cost-out opportunities remain for 2026?

Yes, you want to take that one, Tim?

Sure. We're looking at other rationalizations. There's nothing right now directly planned, but we are evaluating that opportunity as we go forward. We are looking at the businesses themselves, the individual product groups within those businesses to make sure that they're profitable and we can make them profitable. But there's nothing planned right now, but there are some analysis underway.

Thank you, Tim. And a question coming in from Thomas Smith. Can you provide more details into your auto business, EV versus ICE, domestic versus foreign? And what are OEs are you most exposed to? And are you optimistic about auto given the noise we've seen in the past few years?

Yes. So we have products for each powertrain, EV, ICE and hybrid. Our largest end OE exposure in North America is definitely the big 3. In South America, it would be Fiat. In China, it would be BYD and Chery. And we primarily don't serve the OEs direct. We primarily serve Tier 1s and the big Tier 1s are names like Bosch, ZF, Schaeffler, PHINIA, these type of names. And so we are heavily tied into steering and braking. That's what we mean when we say powertrain, steering and braking. And then in the ICE and hybrid engines, fuel injection.

So we are engaged in the innovation that is involved with increasing fuel efficiency and lowering emissions. And the basic way to do that is to increase the pressure in the engine so that the fuel atomizes at a higher level and has less particulates that it emits post combustion. And you achieve these things by having high tolerances, submicron tolerances so that you can hold the pressures basically. And we benefit from that. So that there's a payback, if you will, to being the best guy doing it.

On EV, we're tied into shielding and of course steering and braking is powertrain agnostic. So overall, we don't really -- we're not really pulling for one winner versus the other. But I will say that there's been a resurgence in next-generation ICE platforms led by the United States kind of backing off of subsidizing EV conversion. It's really taking traction in Europe big time. So we see a resurgence in next-generation ICE vehicles, and we're benefiting from that.

In terms of China, China obviously is heavy, heavy going after EVs and electric and it's still heavily subsidized, and we benefit from that being tied into steering and braking.

Thank you, Harold. And we have a question coming in from Ryan Stine from Chlebina Capital Management. What end market focus for M&A would make the most sense? And how transformative would that be?

Yes, Ryan. That's Chlebina is the way you say that. So we definitely are not trying to increase our automotive exposure. We are looking at alternate industries that are consumer, defense, industrial and aerospace to some extent and a lot lesser extent having a bigger presence in the vehicle industry. And we've seen a couple of medical properties. The medical properties tend to be high priced. So we have to be careful with what we pursue there because we have a goal of deleveraging. So we're kind of looking closer at properties that we have commonalities with synergies with so that we can achieve the benefits of scale and procurement as well as sharing our footprint.

And a follow-up question. What are the biggest opportunities in the medical market?

For us, we're tied into the metal parts and the robotic surgery equipment is a big one for us because the da Vinci System as well as the Mako system, the Stryker. Stryker is the manufacturer and then the da Vinci is Intuitive. And these type of robotic systems reuse and autoclave the components up to 10x and then they're disposed of. So it's a razor blade kind of a business. And they're very precise, and they have to be perfect just like automotive. So it kind of fits who we are. So we're tied into metal components used in surgeries and then the metal components used in equipment. Those are the 2 main areas.

And it looks like we have time for one more question from Thomas Smith. The pipeline for your new business now exceeds $750 million with $29 million in new awards this year. What win rates and margins are assumed in your guidance? And does your pipeline have better gross margins?

Yes. We have a goal to achieve about $65 million of new wins per year. We have our annual bonuses tied to making that happen. We're on track to making that happen. This year would be the third year in a row. We set margin objectives in our pipeline, and they're averaging about 5 points better than our average.

I see that we're coming up on time, operator.

Absolutely. Did you want to make any closing comments?

I wanted to thank everyone for listening in, and we'd be happy to have one-on-one calls with you if you wanted to discuss our business further. Thank you for your time this morning.

Thank you very much. This does conclude NN Incorporated's presentation. You may now disconnect. Please consult the conference agenda for the next presenting.