NN, Inc. Q3 FY2025 earnings call

• Structured sales growth is a top priority, with over $180 million of new business secured, no cancellations (just pushouts), and a sales pipeline over $850 million with a 20% hit rate of closed opportunities.
• Key wins in defense (weapons components) and medical (robotic surgery equipment consumables), each potentially over $5 million per year.
• Generated strong free cash flow, improved adjusted operating earnings, and working capital management. Combating high inflation on precious metals. Completing Phase 1 of creating a scalable core business.
• Strategic M&A program underway, evaluating multiple acquisition targets. Preferred equity refinancing formally underway.
• Added resources in Q3 to upsize business prospecting efforts in electrical, medical, and defense products.

Power Solutions Segment: Net sales for the quarter were $44.9 million, up $2 million from the prior year period. Adjusted EBITDA was $8.9 million, up $2.5 million from the prior year. Quarterly adjusted EBITDA margins were 19.8% of net sales, up approximately 500 basis points year-over-year. Mobile Solutions Segment: Net sales for the third quarter were $59.1 million, down from $70.7 million in the prior year. Adjusted EBITDA was $6.7 million, down $2.1 million from the prior year. Adjusted EBITDA margins declined to 11.4%, a 120-basis point decrease year-over-year. Revenue contribution: Automotive was 40% of revenue, Electric Grid and Electrical Distribution was 20%, Defense was at an all-time high, GDP types were a smaller portion, and Medical was a growing market.

• Reiterating guidance with lower sales outlook for automotive but higher for defense. Net impact on gross margin dollars is minimal due to mix shift towards higher margin defense sales. New business wins on track, pipeline greater than $850 million, balanced across segments with largest part in electrical.

• High inflation on precious metals and base metals impacting margins.
• Volatility in core markets (automotive, electrical grid) due to factors like federal funding cuts, OE investment shifts.
• Uncertainties in core customers' behaviors and market demand.
• Dependency on customer approvals for facility rationalization and its timing impact on sales and profits.
• Impact of gold price volatility on power segment margins.

Q: On the power segment, to what degree is data center demand driving growth there?

A: Data center demand is driving the grid investment, which impacts the electrical segment. Our products are involved in connecting, disconnecting, and circuit breaking of power in data centers, and we're prospecting to expand market share in this sector.

Q: I'm curious if there's any impact of the acceleration of the facility rationalization that's also playing into the revenue forecast adjustment?

A: The acceleration of facility rationalization will mainly be a 2026 topic, related to PPAP and customer approval processes, not impacting the current revenue forecast adjustment.

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

A: The JV is successful with $130 million in sales, $30 million+ in EBITDA, and involved in fuel system components. Wholly-owned operations focus on steering, braking, and powertrain components. There's a stamping plant in Southern China for medical products, profitable and export-oriented.

Q: My question had to do with next year in terms of broad talking points where we should be looking for change?

A: Automotive production is expected to improve, electrical demand may increase with wins, commercial vehicle expected to resurge in the second half of next year. Also, finalizing the rationalization of the last underperforming plant in North America.