NN Inc 2026 Q2 Earnings Call

Good morning, everyone, and thanks for joining us. I'm Joe Caminiti with NN, Inc.'s Investor Relations team, and I'd like to thank you for attending today's earnings call and business update. Last evening, we issued a press release announcing our financial results for the second quarter ended June thirtieth, 2026, as well as a supplemental presentation, which has been posted on the investor relations section of our website. If anyone needs a copy of the press release or the supplemental presentation, you may contact Alpha IR Group at nnvr@alpha-ir.com. Joining us today from NN management are Harold Bevis, President and Chief Executive Officer, and Chris Bohnert, Senior Vice President and Chief Financial Officer. Please turn to slide two where you'll find our forward-looking statements and disclosure information.

Before we begin, I'd like to ask that you take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation, and in the Risk Factors section in the company's annual report on Form 10-Q for the fiscal second quarter ended June thirtieth, 2026. The same language applies to the comments made on today's conference call, including the Q&A session, as well as the live webcast. Our presentation today will contain forward-looking statements regarding sales, margins, inflation, supply chain constraints, foreign exchange rates, tax rates, acquisitions and divestitures, synergies, cash and cost savings, future operating results, performance of our worldwide markets, general economic conditions, and economic conditions in the industrial sector, including the potential impacts and ramifications of tariffs, the impacts of pandemics and other public health crises or military conflicts, all on the company's financial condition and other topics.

These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside of the company's control, which may cause actual results to be materially different from such forward-looking statements. The presentation also includes certain non-GAAP measures as defined by SEC rules. A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation. Please turn to slide three, and I will now turn the call over to our CEO, Harold Bevis.

Harold? Thank you, Joe. Good morning, everybody.

I would like to announce that we had a really good, strong second quarter. It was consistent with our first quarter. We arranged some looks here for you on Q2 in the first half, and you can see that it's pretty consistent. Our results show significant growth across the business and the first half finished ahead of our expectations. Our second quarter sales increased 19% year-over-year. Our second quarter adjusted EBITDA increased 36%. Our first half EBITDA increased 35%. In the first half, we were able to secure $65 million of new business awards. We had profitable growth achieved across both of our reporting segments.

Subsequent to the end of the quarter, we had a significant strategic development wherein we completed and announced the retirement of $89 million of preferred stock as part of a multi-leg refinancing. Knowing that's one of the big events that we want to talk about today, I want to address it right up front with Chris. We're going to turn it over here to Chris to discuss the refinancing on the next page.

Thank you, Harold. Good morning, everyone. I'll begin my remarks on slide four. For those of you who've been following along on our progress, you know we've been working hard in the background to improve and optimize our capital structure. We spent the last two quarters alongside our strategic advisors, comprehensively assessing the potential options available to address the preferred stock. We concluded that this was the best path to creating a capital structure that allows more of the value we have created through our transformation to accrete to common equity holders and to better position the company to capitalize on the growth we are generating through our commercial programs. As we previously announced back in July, we successfully raised $75 million of capital through a PIPE transaction, bringing multiple new investors into our investor base.

This effectively expanded the optionality for how we could strategically address capital structure overhang, namely through the preferred equity security. Last evening, we announced that NN successfully completed a $124 million refinancing transaction to address the preferred. This is a significant strategic and financial milestone for the company, as we are largely out from under the structure that NN entered back when the company was experiencing stress in its business and financial performance. I'll take a moment to walk through the details of this multi-legged transaction. First, we utilized cash from the recent PIPE transaction to materially de-lever the company's balance sheet. We used the $70 million of cash to redeem a large portion of the outstanding preferred equity. Second, we equitized roughly $19 million of preferred into NN common stock.

The remaining stub of preferred equity of approximately $35 million in total will now carry a lower PIK interest rate of 10% for one year, significantly below the previous rate of 14.5%. The remaining pref will be discounted by $5 million if we pay off or refinance it by December 31st of 2026. This successful transaction has materially de-levered NN, and annual PIK interest will be reduced by approximately $13 million. This transaction does not impact our existing term loan. We expect to have a greater degree of optionality on how we address existing other debt and the refinance of our term loan when it makes sense strategically and financially. You'll hear Harold discuss NN's five-pillar growth strategy shortly. Achieving this refinancing was a critical step in enabling the acceleration of our growth across the enterprise.

This is a significant strategic win for the company, the value will now more comprehensively accrete to our business and our shareholder value creation. I'll spend some time walking through our financial performance for the business and its segments, beginning on slide five. Q2 net sales of $128.79 million were up $20.8 million or roughly 19% versus the prior year period, supported by growth across both segments. Q2 net sales growth is driven by the contributions from new business launches, higher precious metal pass-through pricing, volume growth, and slightly favorable FX translation. With the first half of the year, net sales of $247.2 million are up $33.6 million or 16%, demonstrating a very strong start to the year and a continuation of our momentum from the first quarter. Our Q2 adjusted gross margin dollars of $26.1 million grew $5 million or 24% versus the prior year period.

This growth was supported by a stronger mix of sales as a function of new business launches. Across the first half of the year, adjusted gross margin dollars of $49.2 million are up $10.3 million or 26%. These results reflect a very solid adjusted gross margin of 20.3% in the second quarter and 19.9% year-to-date, each displaying meaningful expansion as margins for the quarter and year to date have grown by 80 basis points and 170 basis points respectively, compared to the respective periods a year ago. Second quarter adjusted EBITDA of $17.9 million grew by $4.7 million or 36% versus last year's second quarter. This increase was led by higher sales and improved mix and volume leverage from past cost improvement actions, partially offset by higher SG&A.

Across the first half of 2026, total adjusted EBITDA of $32.1 million is up $8.3 million or 35% versus results of $23.1 million versus the first half of 2025. The first half growth in our profitability measure has been driven by similar drivers as noted in our quarterly results. Adjusted EBITDA growth has come with an improvement in our margins. At second quarter, adjusted EBITDA margins of 13.9% of sales expanded 170 basis points versus last year's second quarter. On a year-to-date basis, through the first two quarters of 2026, adjusted EBITDA margins of 13% are up 190 basis points versus the 11.1% in the first half of 2025. I'll turn to our segments starting on slide six.

In our Power Solutions segment, where our business consists largely of stamped products, net sales for the quarter were $62.3 million, up 40%, compared to $44.6 million in the prior year period. This increase was driven by higher precious metal pass-through pricing and higher volumes. Across the first half of the year, Power Solutions net sales of $117.7 million grew 34% versus the first half of 2025, driven largely by the same factors impacting second quarter. Power Solutions adjusted EBITDA was $12.7 million, an increase of $3.6 million or 40% versus last year's second quarter of $9.1 million, driven by sales growth, improved mix from growth in targeted high-value end markets and contributions from ongoing cost-out initiatives. Additionally, quarterly and first half adjusted EBITDA margins were 20% of net sales, up meaningfully versus the first half of 2025.