NN Inc 2026 Q3 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 third quarter ended September 30, 2026, as well as a supplemental presentation, which has been posted to 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 nnir@alpha-ir.com. Joining us from NN management today are Harold Bevis, President and Chief Executive Officer, Chris Bohnert, Senior Vice President and Chief Financial Officer, and Chief Operating Officer, Tim French will be joining us for Q&A. Please turn to slide 2 where you'll find the 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 in the company's annual report on Form 10-Q for the third fiscal quarter ended September 30, 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 and military conflicts 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 supplemental presentation. Please turn to slide 3, and I will now turn the call over to our CEO, Harold Bevis.

Thank you, Joe. Good morning, everyone. We had a pretty eventful quarter in the last four months, and we're going to recap our results for you. I want to start off by saying that we had a great Q3, and the results show significant progress with strong momentum continuing into 2027. Our Q3 net sales increased 26% year-over-year. Our Q3 adjusted EBITDA increased 50% year-over-year, bringing us to Q3 year-to-date, net sales up 19% over the same period prior year. Our Q3 year-to-date adjusted EBITDA up 40% year-over-year. So we're getting the flow-through that we want to on that incremental sales growth. We also have secured $106 million of new business awards during this year in the first nine months.

We have a strong-looking fourth quarter as we close out the fiscal year, and the momentum is building, setting up an even stronger 2027. Turning on to slide 4, I wanted to just highlight the key messages for today's session. Number one, our sales are growing, and we are increasing our profits. Number two, we're winning new business, both for immediate launch in 2026, as well as securing launches for 2027 startup and 2028 startup. We are increasing our gross margin rates and our adjusted EBITDA margin rates. It's leading us to be comfortable to raise our guidance again for 2026 and creating solid momentum going into 2027. With that, I'd like to turn it over to Chris Bohnert, our CFO, for a moment to review the company's financial results more at a lower level of detail.

Chris? Thank you, Harold. Good morning, everyone.

If you're following along, I'm on slide 5. I'll talk about our financial results and key metrics for the quarter and year-to-date through 9/30/2026. Third quarter net sales were $131 million, up $27.2 million or 26% versus the prior year period, primarily driven by higher selling prices reflecting the increase in raw material costs and higher volume. Year-to-date through the third quarter of 2026, net sales were $378.3 million, up $60.8 million or an improvement of 19% compared to our results through the third quarter of 2025, continuing the momentum established across the previous quarters. Third quarter adjusted gross margin dollars of $25.3 million are up $5.8 million or 30% versus the prior year third quarter. This growth continues to be supported by a stronger mix of sales and new business launches.

Across the first three quarters of the year, adjusted gross margin dollars of $74.5 million are up $16 million or about 27%. These results also reflect solid adjusted gross margins of 19.3% in the third quarter and 19.7% year-to-date, increasing 50 basis points and 130 basis points, respectively, compared to the prior year periods. Third quarter adjusted EBITDA of $18.5 million increased by $6.1 million, an increase of 50% versus last year's third quarter. This growth was primarily driven by improved sales mix, better operating performance, and higher income from our joint venture in China. Across the first three quarters of 2026, total adjusted EBITDA of $50.6 million is up $14.5 million or 40% versus the first three quarters of 2025. This strong growth in our profitability measure has been driven by similar drivers as in our quarterly results.

The adjusted EBITDA growth has come with an improvement in our margin capture as third quarter adjusted EBITDA margins of 14.1% of sales expanded by 220 basis points versus last year's third quarter. On a year-to-date basis through the first three quarters of 2026, adjusted EBITDA margins of 13.4% are up by 200 basis points versus the 11.4% across the first three quarters. Now I'll turn to our segments starting on slide 6. First, in our Power Solutions segment, where our business consists largely of stamped and plated products, net sales for the quarter were $63.2 million, up 41% compared to $44.9 million in the prior year period. This growth was driven by increased volumes and higher selling prices, reflecting the pass-through of increased raw material costs, particularly precious metals.

For the third quarter to date, Power Solutions generated net sales of approximately $180.9 million, compared to $133.1 million in the prior year period, an increase of 36%. Power Solutions' quarterly adjusted EBITDA was $13.4 million, an increase of $4.5 million or 51% compared to last year's third quarter of $8.9 million. The improvement was driven by stronger operating performance resulting from higher selling prices and volumes, along with the continued benefits of our cost out initiatives. It's worth noting that we continue to operate in an inflationary raw material environment, particularly across precious metals. As we've discussed previously, there can be a short lag before increases in metal costs and other inflationary impacts are fully recovered through customer pricing, which can temporarily pressure profitability. Along with the improved adjusted EBITDA results, we're also capturing stronger margins with quarterly adjusted EBITDA margins of 21% of net sales.

Our year-to-date results paint a similar margin story for the segment, with 20% adjusted EBITDA margins up roughly 200 basis points versus the first three quarters of 2025. Now turning to slide 7, our Mobile Solutions segment, which covers our machine products business. Net sales for the third quarter were $68.2 million compared to $59.1 million in last year's third quarter, an increase of $9.1 million or 15%. This growth was driven primarily by higher volumes and favorable foreign exchange impacts. Across the first nine months of the year, net sales of approximately $197.9 million are up 7% versus the $184.8 million in the first nine months of the prior year. This year-to-date growth reflects continued contributions from new business awards and program launches, particularly are partially offset by certain softness in automotive markets in the first half of the year.

Our third quarter adjusted EBITDA in this segment was $8.8 million, up 31% versus the last year's third quarter of $6.7 million, with the segment's adjusted EBITDA margins of 12.9% expanding 150 basis points versus the 11.4% in the prior year. Adjusted EBITDA for the first nine months of 2026 was approximately $26.8 million, compared with approximately $23.5 million in the same period in 2025, reflecting the continued improvement in both earnings and margin performance as volumes ramp and recent program launches mature. Please turn to slide 8. I want to spend a few minutes on our balance sheet as the last couple of months marks a big turning point for NN. As you can see from the chart, total net debt and preferred stock was reduced significantly from $261 million at year-end 2025 to $139 million on a Q3 pro forma basis.

This represents a reduction of $122 million due to the payoff of all of our outstanding preferred stock. On our last earnings call, we detailed a significant reduction to our preferred stock outstanding as we utilized the proceeds from a successful equity issuance to address a meaningful portion of the outstanding preferred stock. Subsequent to quarter end, we were able to execute another successful PIPE transaction to redeem the remaining $35 million of preferred stock, and in doing so, capturing a $5 million discount. With that final redemption, we now have eliminated all preferred stock obligations dating back to 2021. That has been a priority for this management team, and we are pleased to have it behind us. Notably, this recent PIPE allowed NN to delever further and brought in new growth-oriented institutional investors, and we see their participation as a strong vote of confidence in our strategy and long-term opportunities.