NN’s Earnings Call: Ramp-Up Timing and Margin Targets Clash

Date of Call: Aug 6, 2026

Financials Results

• Revenue: $128.79M, up 19% YOY
• Gross Margin: 20.3% adjusted gross margin, up 80 basis points YOY

Guidance:

• Sales for the year expected to be $460 to $480M.
• EBITDA for the year expected to be $55 to $65M.
• New business wins for the year expected to be $80 to $100M (the high end increased from prior guidance).

Business Commentary:

Revenue and EBITDA Growth:

• NN Inc. reported second quarter sales of $128.79 million, up 19% year-over-year, and adjusted EBITDA of $17.9 million, up 36% year-over-year.
• The growth was driven by contributions from new business launches, higher precious metals pass-through pricing, volume growth, and favorable FX translation.

Segment Performance:

• The Power Solutions segment reported net sales of $62.3 million, up 40% year-over-year, with adjusted EBITDA of $12.7 million, up 40%.
• The increase was due to higher precious metals pass-through pricing and higher volumes, along with improved mix from targeted high-value end markets.

Data Center and New Market Expansion:

• The company's data center and electric grid segment already exceeds $80 million on a trailing 12-month basis, with goals to reach $120 million.
• Growth is driven by significant new awards and ongoing ramp-ups in data center and grid-related business, with plans to expand production capacity in China.

Defense Electronics and Medical Segments:

• The defense electronics segment is at $60 million on a trailing 12-month basis, with a goal of $90 million, and the medical segment is at $15 million, aiming for $40 million.
• Recent wins in defense electronics include a multi-year agreement expected to bring $12-15 million in new business, while the medical segment has secured approvals and initial purchase orders for robotic surgery components.

Refinancing and Capital Structure:

• NN completed a $124 million refinancing transaction, which included redeeming a large portion of preferred stock and equitizing roughly $19 million.
• This refinancing has significantly deleveraged the company, reduced annual preferred interest by approximately $13 million, and positioned the company to capitalize on growth opportunities more effectively.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated, 'we had a really good, strong second quarter. It was consistent with our first quarter.' Management noted 'significant growth across the business,' 'profitable growth,' and 'very strong start to the year.' The company announced a 'significant strategic win' with a refinancing that 'materially delevered NN' and 'reduced annual pick interest by approximately $13 million.' Guidance was raised, and management expressed that 'momentum has not peaked' and 'things have traction.'

Q&A:

• Question from Rob Brown (Lake Street Capital Markets): Could you characterize the pipeline in the data center market? What areas are you most interested in? Just maybe the scale of the pipeline.
  Response: The pipeline is large and multi-product, covering transformer parts, bus bar parts, test probes, liquid connector parts, cold plates, and couplings for heat pumps. Prospecting is at about $100 million, with the potential for $100 million+ in the connector business alone over time.

• Question from Rob Brown (Lake Street Capital Markets): Regarding gross margin improvement, is it sustainable at this level or can you continue to move that up as you change your product mix?
  Response: Margins have benefited from cost reductions, new business ramp-ups, and higher precious metals pass-through. Future improvements will depend on continued new business in high-margin verticals (medical, data center) and may be tempered if precious metals prices decline.

• Question from Greg Palm (Craig Hallam): How much of the new business wins are currently flowing through the P&L? Is there a big chunk yet to come, and is the second half guide conservative?
  Response: None of the major new wins (medical, data center, defense) are ramping in the first half; they all begin ramping in the second half. The guidance accounts for this delayed ramp and the typical seasonal lightness in Q4, but is considered slightly conservative as pull signals develop.

• Question from Greg Palm (Craig Hallam): The company realized a 14% EBITDA margin on the quarter on revenue significantly lower than the long-term target. What are the thoughts on that target given the current momentum?
  Response: The longer-term adjusted EBITDA margin target has been updated to 14% to 16%, reflecting the current business level and expected improvement from better product mix, with new wins averaging about 5 points higher gross margin than existing business.

• Question from Joe Gomez (Noble Capital): Can you provide details on the manufacturing expansion in China, including production and timeline?
  Response: The company has two wholly owned facilities and one JV in China. It needs a facility expansion to accommodate an additional 200 machines, with 50 already ordered. The expansion is needed within 12 months to support growth.

• Question from Joe Gomez (Noble Capital): What materials are the most volatile for you, and is that altering any sourcing decisions?
  Response: Precious metals (gold, silver) are the most volatile by dollar value, while steel and copper are the highest in tonnage. The company has pass-through cost recovery mechanisms in place and monitors tariffs, but sourcing decisions are not significantly altered.

• Question from Barry Hames (Sage Asset Management): Could you tell us how the share count will change? And what is the progress and possible timing on renegotiating the term loan?
  Response: Share count increased by about 5.5 million shares as part of the refinancing. Regarding the term loan, the company is in discussions with its lender (Marathon) to potentially secure better terms, but no specifics or timing were announced.

• Question from Robert Sussman (Bentley Capital): What is it about the company that's enabling all these wins in such diverse markets? Is there a unique skill set?
  Response: The wins stem from a strategic shift to target high-growth markets (data center, defense, medical) after benchmarking asset utilization. The company uses disciplined sales processes (27% hit rate on closed opportunities), focuses on multi-year commitments, and leverages its technical expertise in precision metal fabrication.

• Question from Robert Sussman (Bentley Capital): Is there a lag in passing precious metal prices through, and what is the drag on profitability from that lag?
  Response: There is minimal lag as the company can true up costs on a per-order basis if it can demonstrate incurred inflation. The pass-through mechanism is not a significant profitability drag.

• Question from Barry Hames (Sage Asset Management): When evaluating new business and capital expenditure, what sort of ROIC target or range do you have?
  Response: The floor for gross margin is 25%, and the floor for IRR is 25%. The company is selective, focusing on multi-year commitments and differentiated value propositions, which allows it to cherry-pick programs with attractive returns.

Contradiction Point 1

Scale and Timing of Business Ramp-Ups

Contradiction on whether new business is already impacting results or is entirely future.

Greg Palm (Craig Hallam) - Greg Palm (Craig Hallam)

2026Q2: The new business wins... do not impact the first half of 2026. They are all ramp-ups in the second half. - [Harold Beavis](CFO)

What portion of the new business wins has been recognized in the P&L, and how much remains pending? - Rob Brown (Lake Street Capital Markets)

2026Q2: None of the major new wins... are impacting Q2 or Q3 results; they are all ramping in the second half. - [Harold Bevis](CFO)

Contradiction Point 2

Characterization of Precious Metal Pass-Through Lag

Contradiction on the size of the lag in passing metal costs to customers.

Robert Sussman (Bentley Capital) - Robert Sussman (Bentley Capital)

2026Q2: There is a minimal lag because the company is transparent and can true-up costs... - [Chris Bonner](CFO)

Does a lag in passing precious metal prices to customers create a profitability drag? - Robert Sussman (Bentley Capital)

2026Q2: The lag is smaller than expected due to good cost management practices. - [Harold Bevis](CFO)

Contradiction Point 3

Long-term Adjusted EBITDA Margin Target

Updated long-term margin target range contradicts previous specific target.

Greg Palm (Craig Hallam) - Greg Palm (Craig Hallam)

2026Q2: Long-term adjusted EBITDA margin targets have been updated to a range of 14% to 16%. - [Harold Beavis](CFO)

"What is the path to achieving your long-term EBITDA margin target from the current 14%, which has meaningful upside potential?" - Robert Sussman (Bentley Capital Management)

2026Q1: The company acknowledges the margin targets look conservative. Instead of changing the targets, the decision was made to pull in the timeline to achieve them by one year... The company is actively reviewing both margin targets and the time period for achievement. - [Harold Beavis](CFO)

Contradiction Point 4

Status and Plan for Strategic Alternatives/Financing

Progress on refinancing reported in Q2 contradicts the "nothing material to report" stance in Q1.

What were Sage Asset Management's earnings highlights under Barry Hames? - Barry Hames (Sage Asset Management)

2026Q2: The refinancing involved swapping... for $19 million of preferred stock... increasing the total share count to 82.6 million. Regarding the term loan, discussions with Marathon Capital are ongoing. - [Chris Bonner](CFO)

How will the refinancing affect the share count, and what is the progress and possible timing on renegotiating the term loan? - Joe Gomes (Noble Capital Markets) - Follow-up

2026Q1: The company is still evaluating its strategic and financing alternatives. There is nothing material to report at this time. - [Harold Bevis](CFO)

Contradiction Point 5

Timeline for New Business Ramp-up

Conflicting statements on when revenue from new wins will materialize.

What role did Greg Palm and Craig Hallam play in the company's recent earnings results? - Greg Palm (Craig Hallam)

2026Q2: The new business wins... do not impact the first half of 2026. They are all ramp-ups in the second half. - [Harold Beavis](CEO)

What portion of the new business wins has been recognized in the P&L, and what remaining impact is expected? - Robert Brown (Lake Street Capital Markets)

2025Q4: Launching over 100 programs in 2026 is expected to generate between $20 million and $25 million in revenue in the same year. - [Tim French](COO)