NN, Inc. (NNBR) Earnings Call Transcript & Summary

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.