NN Inc at Sidoti Small-Cap Virtual Conference: Strategic Growth and Challenges

NN Inc (NASDAQ: NNBR) presented its strategic initiatives and financial results at the Sidoti Small-Cap Virtual Conference on Thursday, 20 March 2025. The company, known for its high precision metal parts manufacturing, highlighted its focus on cost reduction and expansion into new markets. Despite challenges such as tariffs and North American uncertainties, NN Inc remains optimistic about its growth trajectory, aiming to leverage its global manufacturing capabilities and strategic acquisitions.

Key Takeaways

• NN Inc reported $464 million in revenue and $48 million in EBITDA for 2024.
• The company achieved over $150 million in new business wins from Q1 2023 to Q1 2025.
• NN Inc is focusing on cost reduction through employee rightsizing and plant consolidations.
• Growth in China is driven by the automotive market and electrical grid demand.
• The company aims to grow sales to $650 million, with $600 million organically.

Financial Results

• Revenue for 2024 was $464 million.
• EBITDA for 2024 was $48 million, representing approximately 10% of revenue.
• New business wins totaled over $150 million from Q1 2023 to Q1 2025, with a target of $65 million per year.
• China operations generated approximately $75 million in sales with 20% EBITDA, while joint venture operations accounted for $125 million with 25% EBITDA.
• Capital expenditures for the current year are the lowest in the past four years.

Operational Updates

• NN Inc operates a global manufacturing platform with plants in six countries and a joint venture in China.
• The company is focusing on leveraging its capabilities in the electrical and medical markets.
• Efforts are underway to fix nonprofitable plants, with a plan to achieve 20% gross margins.
• The workforce comprises approximately 3,000 full-time employees and 700 joint venture employees.

Future Outlook

• NN Inc aims to grow sales to $650 million, with $600 million organically and $50 million through acquisitions.
• The company is in the process of refinancing to achieve lower interest rates and improved leverage covenant flexibility.
• NN Inc expects continued growth in China, particularly in the automotive sector, and stable conditions in North America.

Q&A Highlights

• North American auto plants are located in Michigan and Wellington, Ohio.
• Growth in China is attributed to being an approved indigenous supplier and a long-standing market presence.
• The medical market focus includes disposable pieces for robotic surgery equipment, with a facility in Attleboro, Massachusetts.
• The electrical grid market is driven by residential electrification and increased energy demands from AI and data centers.
• The company has received onshoring awards from China to the U.S., benefiting from tariffs designed to support domestic production.

In conclusion, NN Inc’s strategic focus on cost reduction, market expansion, and strategic acquisitions positions it well for future growth. For more detailed insights, refer to the full conference call transcript below.

Full transcript - Sidoti Small-Cap Virtual Conference:

John Franzreb, Senior Capital Equipment Analyst, Sidoti and Company: Good afternoon, everybody. My name is John Franzreb. I’m the senior capital equipment analyst here at Sidoti and Company. Our next presentation for the day is NN Inc, ticker NNBR. For those of you not familiar with the name, NN manufactures components, the automotive, industrial, power control, and medical markets.

We are fortunate to have with us today CEO, Howard Bides, COO, Tim French, and CFO, Chris Bonner. Following the presentation, there will be time for questions and answers. Should you have a question, please put it in the q and a box in the bottom of the sheet of the, of the page, and I’ll present it to management. That said, gentlemen, thank you for being here. The floor is yours.

Howard Bides, CEO, NN Inc: Thank you very much and thank you for joining us for a few minutes. Today, we are just going to go over some basics for us and give you our first reported result for the first quarter, which we’re proud of, and reconfirm our guidance as well. If you don’t know us at all, we are a maker of high precision metal parts. We’ve been doing it for forty five years and we’ve been public for about thirty years. We are considered a strategic partner to our customers as we co develop parts that go into their systems.

We have a global manufacturing platform with plants in six countries as well as a very successful JV in China, where we own 49% of it. We have two primary product categories. One is stamped parts. If you know stamping processes, these are the big presses that basically form metal through tons pressed and progress through dies. And then we have mobile solutions, which is machine parts, which start with bar stock and go through lades and CNC equipment.

In terms of us as an investment, we began an EBITDA advancement program six quarters ago, and we just completed our first full year and it was successful and on track with the five year plan we articulated and this year will be another strong improvement here also. In terms of an investment and new team, we’re just getting started really and we’re on track with our initial efforts. We’ve achieved over $150,000,000 of new business wins already through Q1 of twenty twenty three to Q1 of twenty twenty five, and we’re targeting about $65,000,000 of new business per year. And in the first quarter, we’d like to report that we were we made our objective for the quarter and have already recorded over $16,000,000 of new business. We also equally are focused on cost out and Tim leaves that by and large, and through employee rightsizing, plant consolidations and a continuous improvement program.

The year that just ended in the last quarter reported at the end of the year ’24, put us at $464,000,000 of revenue, $48,000,000 of EBITDA, which was about 10%. We have over 1,100 customers. We don’t have customer concentration. And we have about 3,000 full time employees and then the JV employees are about another 700. So that’s us at a glance and an investment at a glance.

A little bit further down into the details here, where are our plants? We primarily serve China, United States, Brazil and Europe. And machine centers are what we’re all about. Machines matter a lot in the stamping business. Only 6% of our cost is direct labor.

It’s mainly the machine and its capabilities. On the machine product side, labor is a little higher, so around 20% of the cost. So the location of the plant does matter as well as the machine capabilities. We are close to the markets we serve and we’re considered to be a Tier one competitor for what we do. On the next page, just a couple investment highlights for you to consider.

One is we do make mission critical parts. Our parts are very important in the systems that they’re in. We are considered small part makers, so we make very precise, in some cases, micron level parts. We have a new leadership team. I’ve been here six quarters, Tim’s been here five quarters, and Chris has been here two quarters.

So we’re a new team. We’ve all worked together though before. This is not our first rodeo together, but we’ve come here together to lead a strong transformation and stock price increase program. All three of us are compensated on the share price, so we’re aligned with common stock investors. And the enterprise transformation program is underway fully and delivering results.

We have taken a new approach to winning business and it’s working very well and it’s capability based. And so we’re running a new program that’s very tethered into what our capabilities are by plant, by machine. And it’s led to a much higher hit rate on winning when you do it in that manner. And obviously, we want to lower our cost of capital. If you’ve studied us, we’re underway with refinancing our capital structure.

Chris can give an update on that later. On the two business segments, here’s some pictures to bring it to life on the stamp product side. In the lower left corner, you can see connector shields. Those are very thin strips of metal that are gold plated, silver plated, tin plated, nickel plated. We do plating in house, It goes through progressive dye process and ends up with little square shape like that.

And in the middle is a contact for a smart blade, a smart meter and medical instruments also. So very precise stamped parts that go through primarily progressive dies that we make and design in house. On the next page is our mobile solutions business, which is the machine metal products, which start with bar stock, stamps products start with sheet or coil. And we turn parts into precise dimensions, so we can start with bar stock. We also can start with near net shapes forgings, but we primarily use a bar stock and you can see a couple of the pictures here of parts that come off our machines that are to very sophisticated tolerances and heat treating as well.

So those are the two main sides of our company. And as I mentioned at the beginning, we’re a little low, almost $500,000,000 and it’s not we’re not a very big company, but we’re big at what we do. We’re one of the biggest in the world at what we do. Here’s our five year plan for growing sales and profits and the stock price. We have a goal to grow our sales to six fifty, six hundred organically and 50 through bolt ons.

We’ve already been looking at bolt ons to help accelerate our organic plan. So the acquisitions are not to go in a different direction, it’s to further solidify where we’re headed here. Cost reduction, as I mentioned, and Kaizen and Six Sigma CI culture and all of our plants globally, as well as fixing some leakers. We had a couple of plants that lost money when we walked in the door. Cash flows are important to us and we progressively lowered our leverage, as we’ve been here and it’s helping us with our refi processes.

And we have a goal of hitting 12% to 13% EBITDA over the long term here. Some people have already picked up that our guidance is 12% this year, and that’s true. So perhaps we’ll be increasing that number in the future, but that’s where we started six quarters ago. We just got there a little faster than we thought, mainly on the strength of cost reduction. Our growth plan is multifaceted and we’re basically leveraging the capabilities that we have.

That means that we can leverage the assets that we have. We have about $340,000,000 worth of machines and $56,000,000 of leasehold improvements that are dialed in to make the products we make. So we’ve been leveraging the capabilities and therefore it’s been CapEx friendly, our growth has been. And actually our CapEx this year will be the least it has been in the last four years, cash CapEx. And we’re also leveraging our leasing abilities to do that, but we primarily it’s been lower because we’ve been leveraging our assets.

So I could go through the details here, but I want you to know that we don’t have just one thing we’re trying to do. We’re trying to leverage our stampings into electrical markets and industrial markets. We’re leveraging our machinings into the medical markets as well as automotive. And on the inorganic side, the M and A side, we see ourselves buying electrical business. We have we need a few higher tonnage presses, that’s what it amounts to.

And they’re expensive to buy or you can acquire them. And on the medical side, same thing on machines. We see ourselves needing medical machines in order to hit our goals. Just a minute on our key markets. We are in three main markets and five smaller markets.

Our top two markets are North American Automotive and China Automotive. And they are don’t have the same story. The China market’s doing extremely well. It’s two times the size of The U. S.

Market. It’s growing strongly and they’re winning the export markets around the world and beating out the previous leader, which was Japan, with all their name brands. So we are tethered to a good story there. North America is going sideways a little bit with trade policy discussions and that are in the news every day. But that’s actually our goal.

Our five year goal is to hold our own in North America, and that’s what we’re doing. Next big market for us is electrical, and that market is steady. Primarily, we’re tied to grid edge devices that are sold to utilities and smart meters and distribution panels and that kind of a thing, and that base business is quite steady. And then we have a few submarkets beneath that as well. So our markets are healthy overall, really strong in China, a little bit weak in North America.

The rest is steady and overall kind of where we want them to be. Transformation plan, we’ve put this in most of our presentations, getting new leadership in place. We’re pretty close to being done with that. Just a couple more spots where we see that we need some additional leadership. Fixing nonprofitable plants, Tim has led that.

The game plan there was to confront the plants that lose money, negative cash flow and deal with it. Sitting here today, we’ve already cut our losses in half and we have a 25 plan to resolve the rest of it. In terms of expanding gross margins, we have a plan to get to 20% and in the first full year, we made a strong improvement in our gross margins, which led us obviously flow it down to EBITDA rates that were a little in advance of what we thought and also we took down our SG and A. De leveraging, refinancing the ABL, we have a term loan, We have preferred stock and then we have China growing. And the basic change we’ve made since we’ve been here is to get China on its own and finance its own growth, which it is.

And on top of that, they send money back to us. And in fact, the first quarter here was a lot of money they sent to us. And then grow sales and grow the company, and that’s the new wins program as well as our base business that we have and the health of the base markets we serve. And this will be the first year where we get some benefit from the wins that we’ve achieved in ’twenty three and ’twenty four. And vintage year 2023, ’20 ’20 ’4, we have our first launches this year.

So we’re really happy about that. Tim, you want to talk about China for just a minute?

Tim French, COO, NN Inc: Sure. China, for Ennan, includes three facilities. We’ve been there a very long time. We have a company owned machining plant in Wuxi, a company owned stamping plant in Foshan. And Then as Harold mentioned earlier, we have a 49% ownership in a JV machining facility that’s also located in Wuxi.

The operations that we own are about $75,000,000 in sales and are very profitable at 20% EBITDA and growing significantly. There seems to be a very opportunity rich area. JV operations, about $125,000,000 and also very profitable at 25% EBITDA. The China operation is best in class. They have single digit PPM quality, which is world class, very cost effective operation.

600 machine centers, we added 70 machines in ’24 with 15 more on order. We are implementing next generation manufacturing capabilities that are helping us win new business in mission critical steering components and breaking components. The only operations and we’ve secured over $50,000,000 of new business wins and we’re on track to double the business in a very short period of time. The JV is also growing at a good rate. Now we are pursuing bigger opportunities in Europe and China is doing make to ship to Europe using its lower cost profile.

We’re already the approved supplier to all the top buyers in Europe and via the China subsidiaries and end to end business in APAC. So we’re dealing with these larger global customers in APAC and now they’re looking to have us help supply into their European operations.

Howard Bides, CEO, NN Inc: Chris, you want to cover our refi? Sure, sure.

Chris Bonner, CFO, NN Inc: Just to give you a little update, we did discuss it in our Q4 and full year earnings update, but we finished our ABL at the end of the year. And the next step in our improvement of our overall capital structure is to refinance our term loan. We’re pretty far into that process, and we said we’d definitely finish by or expect to finish by the first half of the year, although we’re getting a little further along in the process. So that’s we’re we’re very pleased by that. Once we finish the term loan, then we’ll we’ll take a look at the the pref and see what we can do as far as refinancing the pref with the overall goal of refinancing the ABL term loan and pref of reducing our cost of capital.

With the term loan, we’re hoping to get maybe slightly lower rate as well as improved flexibility on the leverage covenant and maybe a little bit of extra money for a small tuck in acquisition. So all this is in process right now. It’s top of mind for the management team and hope to have that done here in the near term.

Howard Bides, CEO, NN Inc: We do these Sidoti conferences regularly and we’re a frequent flyer customer with Sidoti. So this is kind of a cadence update for some of you that might be following us or might be investors. And so we just wanted to give you an update on current events that are happening that matter to us. One is the tariffs and North American uncertainties. We have experienced going through this as a management team and it’s not a big stress item for us because passing metal through is our company business process because that is the business we’re in.

We buy metal process and sell it. So the cost basis for metals and the passing through of it is what we do. So any changes that are tariff related or not tariff related, we are set up for that. So it’s not something new that we’re scrambling around about. It’s just that we’re watching our input costs and then making sure that we change our prices properly.

We generally carry about $60,000,000 of inventory. So we have inventory profiles that quote the old costs. And so we have some time and we have a verification processes with our customers that we have to show proof that we’ve actually incurred cost changes and then pass them through. Number two is China auto production is higher than we expected, and still growing. So we’re close to 20 fourseven in those operations.

And so Tim’s very focused on capacity and tethering business that we say yes to versus how much capacity do we have. We do have a measured growth program there. We’re not going crazy and saying yes to everything, but it is part of our growth profile going forward. And it’s playing to our strength. We’ve been in China for almost twenty years and we’re well known and serve the market and we’re approved everywhere.

So we’re right in the middle of it and we’re tethered to the big guy who’s BYD, who’s doing very well. The third is robotic surgeries are growing fast. So when we reentered medical, we targeted the disposable medical pieces on robotic surgery equipment. It’s turned out to be a good idea in retrospect, as customers are running out of capacity and the market is accepting to new suppliers to offer capacity. And we have automotive DNA, and that’s very well respected in that world as well.

So the medical business, the pipeline is forming quite nicely for us. Fourth, the North American grid business is steady for us and healthy. And then the fifth point is really that we see no change in labor availability. It’s still really hard to get skilled machine operators. And to some extent, we’re tethered to being able to hire and retain skilled operators.

Skilled operators matter a lot to our business. So just quickly on the outlook for this year, no change. Chris, in the last call, said that the current outlooks were moving us towards the lower end of our range, but we’re not changing our range. We have some uncertainty in North America auto, but we have certainty in other areas of our business. So as of right now, we basically have no change in our outlook.

So you can see what our midpoints here. So no need to change our models on us and our assumptions are at the bottom of the page. So with that, John, we’ll turn it over to you and open it up for questions. All right. Thank you, Hal.

John Franzreb, Senior Capital Equipment Analyst, Sidoti and Company: If you have a question, please type in the Q and A box and I will present it to management. Let’s start right with the audience here. First question is, what are your North American auto I’m sorry, where are your North American auto plants located?

Howard Bides, CEO, NN Inc: Did you hear me, Howard? Okay. I was locked up there for a minute.

John Franzreb, Senior Capital Equipment Analyst, Sidoti and Company: Okay. You’re locked now. Okay.

Tim French, COO, NN Inc: I can answer that one, Harold. Our North American auto plants are located in, we have two facilities in Michigan and a third facility in Wellington, Ohio.

John Franzreb, Senior Capital Equipment Analyst, Sidoti and Company: Understood. I’d like to pivot over to the China discussion. It seems to be a point of increasing emphasis. Can you talk a little bit about why is the case beyond being, as you said, tethered to BYD? Is there anything else internally that you’re doing to gain share in China?

Howard Bides, CEO, NN Inc: We’ve really had it’s been very natural prospecting. We have a seven person sales team. We have our same business development process and we have our same processes. We primarily develop our processes in Kilwood, Michigan, and that’s where our head of R and D is. And then we institutionalize it in our plants from there.

But there is a bigger demand for what we do in China. And we are an approved indigenous supplier. And so we’re considered to be very competitive. And we are and we make some of the best products possible for steering. So it’s been a deal, John, where the market we’re in a good market and it’s come to us and we’re not trying to enter a market after it got good.

We were there all along. So some of the new entrants may not be having the same success as us, but we were serving these customers all along and now volume has really accelerated. And as China OEs have turned to the export markets, we’re benefiting from that because they’re markets, were benefiting from that because they’re basically exporting their vehicles with our parts in them.

John Franzreb, Senior Capital Equipment Analyst, Sidoti and Company: Like this question, can you talk a little bit about the medical market? Why don’t we start with talk about the reboot of the business and your confidence of hitting revenue targets?

Howard Bides, CEO, NN Inc: I’ll let Tim take that one. Okay.

Tim French, COO, NN Inc: We had a non compete with the sale of Life Sciences that expired in October of twenty twenty three and since then we’ve started to reboot. We have FDA facility to fit that market as well as multiple facilities with the ISO 13,485 medical certification. We have a medical machining facility in Attleboro, Massachusetts that we are focused on growing, and we are buying and installing state of the art equipment to help facilitate that. It’s predominantly in the tool side of things, rasps and related equipment. It’s going quite well.

We have developed a strong pipeline and we are starting to generate some pretty significant new wins.

John Franzreb, Senior Capital Equipment Analyst, Sidoti and Company: Next question is, can you discuss demand trends in the electrical grid market and how investments from hyperscalers and government infrastructure initiatives are driving this demand?

Howard Bides, CEO, NN Inc: We’re tied into distribution part of the electrical grid. And so we find ourselves in breaker panels and in meters. So we’re we can make very high tolerance parts that are plated, silver plated, can withstand currency, high currencies and surges. So we find ourselves being the critical parts and all of these pieces of equipment. And Micron manufacturing matters because air gaps matter and sparks cross air gaps.

So that’s where our technology comes to be important. The whole if you look at the demands on the grid, EVs are part of it, even though it’s slowed down a little, it’s still happening. And if you put a if a person on your street gets an electric vehicle, generally, the utility has to upgrade the transformer for serving that street. And so you have the residential part of it with everything going electric, including cars, and then you have the institutional side where AI and data centers are really energy intense. And so there’s a basic demand to continue to advance the capacity of the grid.

And in terms of grid management, the sophistication of it, which leads to retrofitting a meter. So it’s a steady business for us. It’s not surging. It’s not bobbing up and down. It’s just steadily growing as people invest into the grid.

And it’s primarily utilities, so they don’t change their minds fast. And so it’s a steady business from our perspective, John. So if you’re tied into like building data centers, you’ll see surges or something, but we’re the backbone of electrical distribution.

John Franzreb, Senior Capital Equipment Analyst, Sidoti and Company: I guess a follow-up question on the tariff discussion. Given where your plants are located here in North America, are you seeing any benefits from tariffs? And also another combined with another question that’s later on here, are you seeing increased demand from North American customers for domestic supply chain solutions? So that whole tariff question coming into play here.

Howard Bides, CEO, NN Inc: Well, definitely the tariffs are designed to benefit us. So the whole idea of the tariffs is to encourage indigenous production, in our case of automotive parts as well as electrical parts. The medical community is not I think it’s shrugging it off a little, John, but it’s really hitting some electrical equipment and certainly automotive. And yes, we have received some onshoring awards from China to The U. S.

And we’re seeing we have a decent sized pipeline of people that want to reshore manufacturing. And we are an indigenous supplier, so we buy metal domestically, convert domestically and sell it domestically. So the tariffs are intended to help people like us. And so far, it has. Yep.

The pain of it is inflated metal costs, which are tariffed. And then as we all found out during Trump one point zero and COVID, the indigenous market for metal tends to go up to tariff levels too. So we’re used to that. We pass that through. So net net, it’s helping us so far.

We expect there to be more pressure down the line, but we also have the big pipeline of reshoring. But I wouldn’t say it’s not a tidal wave, John. It’s really like $15,000,000 kind of opportunities, like $100,000,000 but it’s net good for us and we support the effort. We support the effort. We would like to benefit from more domestic production.

John Franzreb, Senior Capital Equipment Analyst, Sidoti and Company: Chris, right up your alley, can you provide an update on the progress made in the first quarter towards refinancing the balance sheet?

Chris Bonner, CFO, NN Inc: Sure, John. Yes, as I mentioned, we’re deep in the process. We finished the ABL at the end of the year. As many of our longer term investors know, we ran a process last year with B. Riley and they had some difficulties in their company and our team actually left B.

Riley. So Harold and I had to pick that up and we quickly got working on that. We got some good good term sheets, and we’re running down the path with one. So we we feel pretty comfortable that we’re able to get this closed up here very soon. So more to come.

We’ll obviously file an eight k when we get that done. And, yeah, hopefully, we have some good terms as well as some ability to potentially do a small tuck in and have better covenants.

John Franzreb, Senior Capital Equipment Analyst, Sidoti and Company: Okay. We have about a minute left. If there’s any remaining questions, Anybody else want to follow on, feel free. Otherwise, I’m going to give the management team a free extra minute.

Howard Bides, CEO, NN Inc: Thank you for everyone for listening in today and thank you for the questions that were right on the money and we look forward to reporting a quarter as we’ve said here and we look forward to a good year as well. Thank you.

John Franzreb, Senior Capital Equipment Analyst, Sidoti and Company: Thank you, Harold. Thank you, Tim. Thank you, Chris. Have a great day.

Tim French, COO, NN Inc: Thank you.

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