Executive Summary / Key Takeaways

• NN, Inc. is executing a multi-year transformation plan focused on operational efficiency, strategic portfolio adjustments, and organic growth to improve profitability and shareholder value.
• The company's new business win program is delivering significant results, securing $160 million in new awards by Q1 2025, with $55 million in annualized sales expected to ramp up in 2025, offsetting base business softness.
• Aggressive cost reduction initiatives and the turnaround of underperforming plants are improving the cost structure, contributing to adjusted EBITDA growth and targeting positive EBITDA from previously dilutive operations in 2025.
• Successful refinancing of the ABL and Term Loan facilities in late 2024 and early 2025 enhances financial flexibility, lowers borrowing costs, and supports future growth initiatives, including potential M&A.
• Despite near-term market uncertainties reflected in adjusted sales guidance, the company reconfirmed its full-year 2025 Adjusted EBITDA guidance ($53M-$63M) and initiated Free Cash Flow guidance ($14M-$16M), underpinned by operational improvements and new business contributions.

Transformation Underway: Repositioning for Profitable Growth

NN, Inc. (NASDAQ: NNBR) operates as a diversified industrial company, leveraging advanced engineering, production capabilities, and materials science expertise to manufacture high-precision components and assemblies for a global customer base. Structured across two segments, Mobile Solutions and Power Solutions, NN serves a variety of end markets including automotive, electrical, general industrial, and medical. The company's journey, marked by strategic acquisitions like Autocam in 2014 and the establishment of a key joint venture in China, has led to a global footprint spanning 24 facilities. However, recent years highlighted the need for a significant transformation to address underperforming assets, optimize costs, and revitalize growth.

The core of NN's current strategy is a multi-year enterprise transformation plan, estimated to be approximately 70% complete as of the first quarter of 2025. This ambitious undertaking is built upon several key pillars: strengthening leadership and customer relationships, aggressively addressing unprofitable operations, expanding margins through cost reduction, optimizing the capital structure, and driving organic sales growth in targeted markets. This strategic pivot aims to transition NN from a period of portfolio rationalization and operational challenges to one of sustainable profitability and growth.

A critical component of this transformation involves confronting previously underperforming parts of the business, often concentrated in specific plants. These facilities, referred to by management as the "group of seven," were a significant drag on profitability, collectively responsible for a negative $11.5 million adjusted EBITDA in 2023. Intensive efforts focused on operational improvements, leadership upgrades, and shedding unprofitable business have dramatically improved their performance, bringing them near breakeven in 2024 with a target of achieving positive adjusted EBITDA in 2025. This turnaround is a testament to the operational focus and is foundational to improving the company's overall margin profile. Complementing this is a global "one-team" cost reduction program, targeting $15 million in savings for 2025, achieved through initiatives like staff reductions and consolidating overhead structures across facilities.

Technological Edge and Innovation Drive Future Opportunities

NN's competitive positioning is fundamentally rooted in its core technological capabilities: advanced engineering, precision manufacturing, and in-depth materials science expertise. This allows the company to produce complex, high-tolerance components and assemblies essential for demanding applications across its served markets. The ability to achieve submicron manufacturing precision, particularly relevant in steering, braking, and vehicle control systems, and to produce high-tolerance parts like those used in medical devices, provides a tangible technical advantage. Furthermore, the company's materials science knowledge contributes to cost optimization, enabling potentially lower operating costs per unit in certain precision components compared to rivals.

While competitors like Amphenol (APH) may lead in areas like data transmission speed (10-15% higher) or TE Connectivity (TEL) in reliability in harsh environments (15-20% greater) and processing speed (20% faster), NNBR's strength lies in its precision and cost efficiency in specific applications, often enabling a 5-10% edge in production speed in its Mobile segment. The company is actively investing in R&D and new technologies to enhance its competitive stance and capture growth in evolving markets.

Significant R&D initiatives include the development of new products like rear wheel steering components, innovated in China in collaboration with Tier 1 customers. This requires new equipment and represents a strategic focus on next-generation vehicle control systems. In the medical market, a key area of renewed focus, NNBR is leveraging its precision machining capabilities to produce components like machined titanium forgings for hip replacements. The company is adding dedicated capacity for medical products, including multi-axis lathes, with two ordered and installed in late 2024. This investment supports a shorter timeline from new business win to revenue generation in this segment and underpins an ambitious organic growth goal of $100 million, upsized from an initial $50 million based on early traction and a growing pipeline, which reached $40 million by Q1 2025. In the Power Solutions segment, expansion in stamped products includes adding high tonnage presses to pursue opportunities like Busbars for the electrical grid and developing shielding and connector stamped products for the EV market, representing a new market entry.

These technological advancements and R&D efforts are crucial to NNBR's strategy of winning new, higher-margin business (generally >20% gross margin on new awards vs. ~11% on older business), entering new growth markets like medical and EV components, and leveraging its existing global manufacturing capacity, thereby directly supporting the transformation's profitability goals.

Competitive Landscape and Market Positioning

NNBR operates within a competitive landscape populated by larger, more diversified players and specialized niche manufacturers. Key publicly traded direct competitors include Amphenol, TE Connectivity, BorgWarner (BWA), and Parker Hannifin (PH). These companies often possess greater scale, broader product portfolios, and stronger financial metrics. NNBR's estimated aggregate market share across its primary markets is in the 5-7% range, with a historical growth trajectory (5-7% CAGR) that has lagged some peers like APH (8-10% CAGR) and PH (7-9% CAGR), although it is comparable to or slightly ahead of others like TEL (6-8% CAGR) and BWA (4-6% CAGR).

Financially, NNBR's TTM margins (Gross 14.13%, Operating -6.14%, EBITDA 5.05%) are significantly lower than those of its larger, more established competitors (e.g., APH Gross ~34%, Op ~21%, EBITDA ~25%; TEL Gross ~34%, Op ~19%, EBITDA ~23%; PH Gross ~36%, Op ~18%, EBITDA ~22%). This reflects NNBR's ongoing transformation, the impact of previously underperforming assets, and the strategic decision to rationalize low-margin business. The company's debt levels have historically been a vulnerability, although recent refinancing efforts aim to improve this. NNBR also faces a disadvantage in innovation speed, with product cycles potentially 20-30% slower than leaders like APH and TEL, who are investing heavily in advanced features and system integration, particularly in high-growth areas like electrification.

Despite these challenges, NNBR leverages its strengths to compete effectively. Its global manufacturing presence, including operations in lower-cost regions like China and Mexico (though some facilities are being consolidated), provides a cost advantage (10-15% lower costs) that supports its competitive pricing and margin improvement efforts. The materials science expertise allows for the development of components with specific performance characteristics and potentially higher efficiency. The transformation's focus on improving operational performance and customer service, evidenced by achieving "green scorecards" and getting off new business hold at every plant globally, has significantly expanded the company's ability to win new business, particularly with existing customers who value reliability and quality.

Customer and supplier dynamics also shape the competitive environment. NNBR's significant dependency on the automotive market (approximately 40% of revenue) exposes it to cyclicality and shifts in powertrain technology, similar to BWA and TEL. However, the company's diversification efforts into medical, electrical grid, and broader industrial markets aim to reduce this concentration risk. The ability to win new programs, even in a challenging market, demonstrates the effectiveness of the revitalized sales engine and improved customer relationships. Indirect competitors, such as providers of additive manufacturing (3D printing) and specialized EV technology firms, offer alternative solutions that could impact certain niches, although NNBR's focus on high-precision, high-volume manufacturing for critical components provides a degree of insulation. The company's strategy of cherry-picking new business based on favorable economics and ROI, rather than pursuing low-margin takeover opportunities, is a deliberate effort to improve its competitive standing and profitability relative to peers.

Financial Performance and Liquidity

NNBR's recent financial performance reflects the ongoing transformation and the impact of strategic portfolio adjustments. For the first quarter ended March 31, 2025, net sales were $105.7 million, a decrease of 12.8% compared to $121.2 million in the prior-year quarter. This decline was primarily attributed to the rationalization of underperforming business, the sale of the Lubbock operations in 2024, lower volumes, and unfavorable foreign exchange effects, partially offset by higher precious metals pass-through pricing. On a pro forma basis, adjusting for the Lubbock sale, rationalized volume, and FX impacts, net sales showed a modest decline of 1.3% year-over-year.

The company reported a GAAP operating loss of $4.8 million and a net loss of $6.7 million for Q1 2025. However, adjusted EBITDA for the quarter came in at $10.6 million, which was flat compared to the prior-year period on a pro forma basis. This stability in adjusted EBITDA, despite lower sales, highlights the positive impact of cost reduction initiatives and improved operational efficiency, particularly the margin growth seen in the Mobile Solutions segment (13% adjusted EBITDA margin in Q1 2025). Cost of sales decreased commensurate with sales, while SG&A and depreciation/amortization also saw reductions. Other expense/income saw a favorable change due to noncash derivative mark-to-market gains.

Liquidity and the balance sheet have been a key focus. Working capital decreased slightly from $83.7 million at December 31, 2024, to $82.9 million at March 31, 2025. Cash flow from operations was a use of $3.3 million in Q1 2025, compared to a source of $0.7 million in Q1 2024, primarily due to lower gross margin contribution and an increase in working capital. Cash used in investing activities decreased due to lower capital expenditures ($3.9 million in Q1 2025 vs. $5.5 million in Q1 2024). Cash provided by financing activities decreased, largely due to the absence of significant sale-leaseback proceeds seen in the prior year.

A major milestone was achieved with the successful completion of the debt refinancing initiative. Following the ABL refinancing in December 2024, the company secured a new $128 million Term Loan Facility with Marathon Asset Management on April 16, 2025, maturing in 2030. Proceeds were used to repay the previous 2021 Term Loan.

This refinancing is expected to lower borrowing costs, enhance operational and financial flexibility, and support future strategic initiatives, including potential M&A. As of March 31, 2025, the company had $8.0 million outstanding under the ABL with $18.3 million available, secured by substantially all assets. The company also anticipates a $12.4 million CARES Act tax refund in the first half of 2025, further bolstering liquidity.

Outlook and Risks

NNBR's outlook for 2025 reflects a cautious optimism, balancing anticipated market headwinds with the expected benefits of the transformation plan and new business wins. The company reconfirmed its full-year 2025 Adjusted EBITDA guidance in the range of $53 million to $63 million and its new business wins guidance of $60 million to $70 million. It also initiated full-year 2025 Free Cash Flow guidance of $14 million to $16 million, which includes the expected CARES Act refund and is net of planned capital expenditures of approximately $10 million.

However, acknowledging increased business uncertainty and a lack of transparency on volumes, particularly in North America, the company adjusted its full-year 2025 net sales expectation to a range of $430 million to $460 million. Management noted that current market conditions, if they persist, would likely push results towards the lower half of the Adjusted EBITDA range. To counter the impact of potentially lower sales, the company plans to step up its cost-out program. The ramp-up of $55 million in annualized new business wins throughout 2025 is expected to be a key driver offsetting base business declines and contributing to year-over-year sales growth beginning in 2025.

Key risks to this outlook include general macroeconomic conditions, ongoing geopolitical instability, inflationary pressures, and elevated interest rates, all of which can impact end-market demand and input costs. Supply chain disruptions and labor availability also remain potential challenges. The company's dependence on certain major customers, some without long-term agreements, poses a risk of volume fluctuations. Changes in U.S. trade policy, including tariffs, particularly on imports from Mexico and China, could have an adverse effect, although management currently views the direct impact as minimal while monitoring potential indirect effects on OEM volumes. The success of the transformation plan, including achieving targeted cost reductions and successfully integrating new business, is crucial to mitigating these risks and achieving the stated goals.

Conclusion

NN, Inc. is in the midst of a significant enterprise transformation aimed at fundamentally improving its operational efficiency, cost structure, and growth trajectory. The first seven quarters of this plan have yielded tangible results, including a revitalized sales engine securing substantial new business wins, a focused effort to turn around underperforming plants, and a successful refinancing of the company's debt structure. While the macroeconomic environment presents near-term uncertainties, particularly within the automotive sector, NNBR's strategy to leverage its core technological expertise in precision manufacturing and materials science, coupled with aggressive cost reduction and a focus on higher-margin new business, positions it to navigate these headwinds.

The reconfirmation of Adjusted EBITDA guidance and initiation of Free Cash Flow guidance for 2025 signal management's confidence in the underlying operational improvements and the contribution from new programs, despite a more cautious outlook on sales volumes. The successful refinancing provides crucial financial flexibility to support continued transformation and explore strategic growth avenues. As NNBR continues to execute its plan, the market will be watching for sustained progress in margin expansion, the successful integration of new business, and the realization of benefits from footprint optimization, all of which are essential to unlocking long-term shareholder value and strengthening its competitive standing against larger, more profitable peers.