NN projects $40M in new program run-rate through 2026 launches as M&A and refinancing efforts intensify

Earnings Call Insights: NN, Inc. (NNBR) Q3 2025

MANAGEMENT VIEW

* CEO Harold Bevis emphasized the company's structured sales growth program, reporting over $180 million in new business secured and a sales pipeline now over $850 million with a closed opportunity hit rate above 20%. Bevis stated, "We've had no cancellations of any of these new wins, just some pushouts." He highlighted foundational wins in defense and medical, each potentially contributing over $5 million annually and noted the company is at "the bottom of the bathtub curve for our served markets and customers."
* The company is actively pursuing strategic M&A, evaluating multiple acquisition targets to accelerate growth and scale, while formally initiating refinancing discussions for its preferred equity. Bevis explained, "We're getting ready to embark upon that now...any acquisition we do of any size at all requires a refinancing discussion."
* Quarterly sales were reported at $104 million, with growth in power solutions and aerospace, defense, and electronics offset by headwinds in mobile solutions and automotive rationalization. Adjusted operating income reached $4 million, and adjusted EBITDA increased 7.9% year-over-year on a lower sales base. "Our margin is up 170 basis points year-over-year," said Bevis, also noting $9 million in free cash flow generation.
* CFO Christopher Bohnert detailed, "Net sales for the quarter were $103.9 million, declining $9.7 million versus last year's third quarter...adjusted operating income for the third quarter was $4 million, marking a strong increase...compared to $1.3 million in the prior year third quarter."
* COO Tim French stated, "Our adjusted EBITDA margins have expanded 260 basis points since the launch of our transformational plan in early '23...We've reduced our overall headcount by more than 20%, more appropriately aligning our resources to the needs of the company."

OUTLOOK

* Bevis reiterated guidance with a slight reduction in sales outlook due to lower automotive expectations, balanced by higher defense projections, resulting in minimal impact to gross margin dollars: "We're lowering them a bit...lowering our outlook for automotive but increasing our outlook in defense."
* The company remains on track to achieve its target for new wins, with a pipeline exceeding $750 million and the largest portion not tied to automotive. Bevis stated, "We're on track."

FINANCIAL RESULTS

* Net sales for the quarter were $103.9 million. Adjusted operating income was $4 million, up from $1.3 million in the prior year. Adjusted EBITDA reached $12.4 million, with margins at 11.9% of net sales, a 170-basis point increase year-over-year.
* In the Power Solutions segment, net sales were $44.9 million, up from $42.9 million last year. Adjusted EBITDA for this segment was $8.9 million, with margins rising approximately 500 basis points year-over-year.
* The Mobile Solutions segment saw net sales of $59.1 million, compared to $70.7 million last year, mainly due to rationalization and lower North American volumes. Adjusted EBITDA was $6.7 million, with margins at 11.4%.
* Free cash flow for the quarter was $9 million, with net working capital below $80 million, a 21% improvement from Q2 '23.
* Over 100 new programs are set to launch in 2025, with more than 70 scheduled for 2026. Forecasted contribution is approximately $26 million for 2025 and an estimated $40 million at full run-rate.

Q&A

* Robert Brown, Lake Street Capital: Asked about data center demand in power solutions and gross margin targets. Bevis responded that data center needs are driving grid demand, despite federal funding delays, and cited gold prices as a variable affecting margins.
* John Franzreb, Sidoti: Inquired about revenue forecast adjustments and facility rationalization impact. Bevis said rationalization will be a 2026 event with no 2025 sales impact. On capacity utilization, French indicated significant available capacity, with power at about 60% utilization and mobile varying by facility.
* Franzreb also asked about M&A versus preferred elimination. Bevis stressed both are priorities, with no single path chosen and external advisory support being assembled.
* Michael Crawford, B. Riley: Queried about China operations and free cash flow expectations. Bevis described the China JV as successful, with $130 million in sales and over $30 million in EBITDA. Looking ahead, Bevis expects free cash flow to strengthen in 2026, targeting around $10 million absent the CARES refund.
* Barry Haimes, Sage Asset: Asked about 2026 expectations. Bevis described regional automotive growth variations and highlighted that foundational wins in medical and defense will support segment growth, with commercial vehicle improvement anticipated in the second half.

SENTIMENT ANALYSIS

* Analysts maintained a constructive but cautious tone, focusing on segment performance, capital allocation, and execution of growth and cost initiatives. Questions sought clarity on guidance, margin drivers, and capacity, reflecting a neutral to slightly positive sentiment.
* Management's tone was confident in prepared remarks, frequently referencing progress and strategic wins. In Q&A, responses became more detailed and occasionally cautious, especially when addressing sector headwinds and macro uncertainty. Bevis acknowledged, "We're not at liberty to discuss the plant," and "We're not sitting on a big pile of cash," indicating some defensiveness.
* Compared to the previous quarter, management maintained a similar level of confidence, but with heightened attention to mix shifts and external headwinds. Analysts' tone remained consistently inquisitive, with continued focus on execution and risk management.

QUARTER-OVER-QUARTER COMPARISON

* The company reduced its sales outlook due to automotive softness but increased defense expectations. Portfolio mix shifts were highlighted as a mitigating factor for margins.
* Strategic focus has shifted further toward M&A and refinancing activities, with management reporting meaningful progress in pipeline development and organization.
* Analysts continued to focus on margin expansion, capital structure optimization, and the ramp-up of new business, similar to the previous quarter.
* Adjusted EBITDA margins and free cash flow both improved sequentially, while leadership reiterated long-term margin targets and confidence in transformation programs.
* Management's tone in both quarters reflected ongoing confidence, but the current quarter showed increased transparency about macro risks and operational adjustments.

RISKS AND CONCERNS

* Management cited softness in the North American automotive market, volatility in electrical infrastructure funding, high inflation in precious metals, and commercial vehicle industry recalibration as ongoing headwinds.
* Mitigation efforts include cost reductions, working capital improvements, focused new business development, and continued rationalization of underperforming assets.
* Analysts raised concerns about the pace of M&A, timing of facility rationalizations, and the impact of federal funding delays.

FINAL TAKEAWAY

NN, Inc. management underscored that while market headwinds and sector volatility persist, the company is driving margin and cash flow improvements through operational restructuring, disciplined cost management, and an aggressive new business acquisition program. With foundational wins in key growth sectors, ongoing strategic M&A and refinancing initiatives, and a robust pipeline of program launches expected to deliver up to $40 million in new run-rate revenues, leadership maintains a positive outlook for sustainable value creation through 2026 and beyond.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/nnbr/earnings/transcripts]

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