NN Inc (NNBR) 2023 Q4 法說會逐字稿

Good day and welcome to the NN, Inc., fourth-quarter 2023 earnings conference call. (Operator Instructions) Please note today's event is being recorded. I would now like to turn the conference over to Stephen Poe with Alpha IR Group. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thanks for joining us. I'm Stephen Poe, Investor Relations contact for NN, Inc., and I'd like to thank you for attending today's business update. Last evening, we issued a press release announcing our financial results for the fourth quarter and full year ended December 31, 2023, 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 NNBR@alpha-ir.com.

Our presenters on the call this morning will be Harold Bevis, President and Chief Executive Officer, and Mike Felcher, Senior Vice President and Chief Financial Officer. Tim French, our Senior Vice President and Chief Operating Officer, will also join us for the Q&A portion of the call.

Please turn to slide 2, where you'll find our forward-looking statements and disclosure information. Before we begin, I'd ask that you take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation, and, when filed, the Risk Factors section in the company's annual report Form 10-K for the fiscal year ended December 31, 2023. Same language applies to 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, cash flow, 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, the impacts of pandemic 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.

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 3, and I will now turn the call over to our CEO, Harold Bevis.

Thank you, Stephen, and good morning, everyone. Before reviewing our results for the quarter and full year, I'd like to thank and recognize all of our NN team members globally for their ongoing commitment to delivering on our business transformation strategy.

Our collective efforts were evident in our 2023 results as a renewed culture of winning new business, increased accountability, and strong focus on operational excellence have yielded quick improvements in our EBITDA, free cash flow, and new business results. Our momentum is clearly building, and we're proud of how hard our associates have embraced the necessary changes that NN needs to make.

Looking at slide 3 in your deck, our results were largely in line with our expectations. Net sales were $113 million and $489 million for the fourth quarter and full year, respectively. These results were down slightly compared to the prior year due in part to the closing of some underperforming facilities earlier in 2023, as well as our strategic decision to exit certain unprofitable business areas. Those decisions allowed us to deliver strong adjusted EBITDA results, delivering $10 million for the quarter and $43 million for the full year. The EBITDA performance helped drive free cash flow of $12 million in 2023, which was up $21 million year over year.

As we have stated since the launch for our transformation plan, we reset the thinking on cash flow generation, and that imperative is now ingrained in the company. While we're seeing immediate improvements in our EBITDA and free cash flow performance, it's important to note that our top-line expansion efforts to win more business are on track but take a little more time to fully flow into the reported results. And we continue to address and fix underperforming areas of the company globally, while simultaneously executing refresh and refocus growth initiatives.

Our expanded growth program includes the launch of two internal startup programs. We call them connect and protect and NN medical, both of which are headed up by new leadership that bring extensive experience and capabilities. Our connect and protect program is already generating solid new business wins that will contribute to our revenue growth in the coming year and helps us balance our vehicle platform participation across powertrain types.

Given that our newly relaunched NN medical division is being built from the ground up and from a dead start, our traction in growth through this program is likely to be more evident in the 2025 top-line results. But all in, we were able to deliver approximately $63 million in new awards in 2023, which was up over 50% compared to the prior year. Our momentum is building here, and we have organized to prospect, quote, and win at certain hit rates and continue at this rate.

Please turn to slide 4. I'd like to provide an update on our transformation plan, which we unveiled roughly halfway through last year. As a reminder, our goals have been focused on strengthening our leadership team, overall accountability, fixing unprofitable areas, expanding our margins, driving consistent annual free cash flow, and winning new business. We're only a few months into this plan, really, and in the first phase. We are having early success, and we believe that there's significantly more value to drive as we look forward.

Let's talk through a quick update. We've made some early additions and changes to the leadership team and the second level of leadership, and we have more to go. We've already changed out about 20% of our plant managers and have added multiple experts in both operational and commercial areas. As we continue to progress and perform at higher levels and reset our goals higher, we will continue to upgrade our team. This is ongoing and inevitable.

Second, NN remains committed to isolating and fixing the unprofitable parts of the company. As previously mentioned, we have approximately $100 million of business that loses $10 million-plus of EBITDA. It's centered in seven plants, but touches a lot of customers, many of which are customers in other money-making plants. So this is complicated to fix and requires customer notifications and engagement. This initiative is fully underway at all plants and is a pillar of our 2024 EBITDA improvement goals.

Third, we are intently focused on cost productivity and improving our overall margin profile in our healthy plants as well. Cost reduction and optimization is a top priority for our teams. And I'm proud to say that we delivered cost savings in 2023 with a targeted program that has now been expanded going into 2024.

While we are proud of the cost savings we delivered in the early days of the transformation, there's lots of opportunities here. We continue to identify cost reduction opportunities as we go along across the organization and drive margins higher this year.

Next, our team is very committed to free cash flow generation in the business. We will deliver free cash flow in 2024 again. Our transformation program helped generate significant improvements in the back half of '23, and we expect this to continue through 2024 and into 2025, which supports our stated goal of debt reduction and a future refinancing of our outstanding debt. Mike will cover this in greater detail when he speaks.

And lastly, new business wins are becoming core to our culture at NN, and accelerating the growth of these wins is key to our transformation plan. We won a record level of new business awards in '23 at $63 million, as I mentioned, and this positive momentum is continuing into 2024. We are growing with both new and existing customers. Our sales team is growing also and expanding its commercial reach, and we have multiple initiatives in place as I've spoken.

So in summary, we're in the early stages of a transformation. And while we're proud of the progress that we made in the second half of '23, we feel that we're just really at the beginning of value creation here, and we're looking forward to progressing further along these initiatives and reporting to you as we deliver results.

Please turn to page 5. I would like to speak a little bit more about the new business and give you a couple of highlights. We delivered record annual new business wins, as we mentioned, on a multitude of product platforms, particularly in the second half as we ramped up and focused more acutely on to winning new business.

We've won business on 60 programs across new and existing customers and our new wins exhibit a healthy balance across multiple end markets, which are highlighted on this slide. Additionally, and more importantly, profitability on the new wins is accretive to our company average at full production rates. And although small, we've had our first medical win with a top orthopedic products company, and we're pretty proud of that.

Moving to page 6, we showcased one of the new markets that we're entering: electrical connectors and electrical shielding. We've participated in this market historically to a very limited degree, but we believe it represents a great forward opportunity given our skill sets and our operating assets. This is a market where we're very well positioned to grow.

We have a very strong expertise in precision engineered metal products, and especially multi-station progressive die design, plating, and deep knowledge of electrical components. And these are competitive advantages which differentiates us, and, when coupled with a skilled and knowledgeable sales force, is leading to some early victories here. And as we look to 2024, we're using this same approach to re-enter the medical products market by adding knowledgeable leaders, take advantage of our existing capacity, and targeting specific new customers.

Our early conversations with potential customers are exciting and eye-opening and large, and we are entering this market in a patient manner so that we build a solid business foundation and deliver great operational results as we go along growing. And over the long term, we thoroughly expect this to become a market leadership business for us, and it will help us support strong, consistent, long-term growth.

With that, I'd like to turn the call over to Mike, if you flip to page 7, where Mike will walk us through the financials. Mike?

Thanks, Harold, and good morning, everyone. I'll start on slide 7, where we will detail our results for the fourth quarter. Net sales for the quarter of $112.5 million were down 4.6% compared to last year's fourth quarter. While our discipline on pricing helped drive an additional $5 million benefit to the top line versus last year's fourth quarter, this pricing strength was more than offset by the impact of lower sales volume driven in part by $3 million associated with the closure of our Taunton and Irvine facilities.

Looking to profitability, our operating loss of $7.9 million improved by $3.1 million compared to the $11 million operating loss in last year's fourth quarter. On an adjusted basis, our fourth-quarter operating loss was $1.4 million, which also improved compared to the adjusted operating loss of $3.3 million seen in the prior year.

As Harold referenced earlier, adjusted EBITDA result of $10 million grew by $2.2 million or 28% versus last year's $7.8 million result. Our profitability results reflect the impact of the early transformative initiatives we've applied to our operations, including targeted cost reductions and better operational planning. These efforts allowed us to improve profitability despite lower volumes.

Our cost savings efforts contributed approximately $3 million of benefit in the quarter and the closures of the Taunton and Irvine facilities contributed approximately $2 million of benefits. We also had favorable overhead absorption of $1 million compared to the prior year. Our consolidated adjusted EBITDA margin result expanded by 230 basis points to 8.9% versus last year's fourth quarter.

Turning to slide 8, I'll summarize our full-year 2023 financial performance. For the full year, net sales were $489.3 million, a number that declined marginally relative to full year (technical difficulty) the $6 million impact from the previously mentioned facility closures, and a $1 million negative impact from foreign currency translation.

Additionally, while both periods included favorable customer settlements, the impact was $2 million lower on a comparative basis. These negative impacts were partially offset by our continued efforts to drive pricing to recover inflation, representing approximately $31 million for the full year.

Our GAAP operating loss for 2023 totaled $21.8 million, which marked a marginal increase in net loss of $0.7 million. On an adjusted basis, our full-year operating income results of $3.1 million grew by $1.2 million versus the $1.9 million of adjusted operating income in the prior year.

Full-year adjusted EBITDA results of $43.1 million were down $0.8 million compared to the $43.9 million of adjusted EBITDA generated in full-year 2022. Our adjusted EBITDA results were driven largely by the same items that impacted our net sales performance with lower overall net sales volumes and the impact of lower customer settlements in 2023.

These headwinds were largely offset by the positive impacts of the facility closures and a benefit of approximately $5 million attributable to cost-out actions and improved operating performance, further supported by favorable overhead absorption of approximately $2 million. These efforts led to adjusted EBITDA margins that were flat to the prior year at 8.8% of revenue.

As we move into 2024, our focus on attacking any and all underperforming areas of the business will continue to anchor our priorities as part of a multiyear transformation effort. In particular, we expect to see a more pronounced pull through of the impacts from our operational improvement initiatives and total cost productivity programs, with those results accreting more thoroughly to our profitability figures as many of these will only be benefiting us in the third and fourth quarters of 2023. As we have stated in the past, we remain committed to capturing an additional $10 million in adjusted EBITDA improvement once all our actions are completed.

Turning to slide 9, sales in our mobile solutions segment, which covers our machined products business, increased 1.8% versus the prior year fourth quarter. The increase was primarily driven by improved pricing and foreign currency translation, partially offset by the impact of lower sales volume.

Profitability in the mobile solutions segment grew versus last year's fourth quarter as the segment's adjusted EBITDA results of $7.1 million increased by $1.7 million compared to the $5.4 million in the fourth quarter of 2022. This improved quarterly adjusted EBITDA was driven in part by a positive shift in our overall sales mix across our machined parts products, as well as the observed benefits of stronger operating performance at multiple facilities, and our cost and productivity programs.

Looking back on the year, we were able to perform in line with our original expectation against our plans to generate and deliver new business wins, which gives us a strong platform to build upon as we enter 2024. Additionally, we're pleased by the traction we're seeing from our China-based operations as this area within our mobile solutions business has demonstrated solid momentum and new business wins. We are capturing attractive growth as we enter into more non-fuel applications on electric platforms, helping the China business perform ahead of our original planning.

Regarding our efforts within the business to grow and deliver new business wins, we've set attractive growth targets for the business, the ones we are very capable of achieving. Our efforts will ultimately be supported by the stronger and improved global sales team that we have been able to expand and enhance over the recent months, further supplemented by the addition of new digital sales and lead-generation tools, including our recently launched SEO and targeted marketing efforts. We expect to continue seeing the benefits of our efforts to improve overall operating productivity and structurally improve our costs as we progress through 2024 in conjunction with our multi-year improvement plan.

Turning to slide 10 in the power solutions segment where we engineer and manufacture stamped products, quarterly sales decreased 13.4% year over year to $43.3 million, down $6.7 million from the $50 million of sales in last year's fourth quarter. This was driven by the impact of the previously mentioned facility closures, lower sales of automotive component sales due to customer inventory levels, and softness in the heavy truck and general industrial markets.

Despite the lower sales volume, the positive impacts from facility closures and cost reduction actions have driven solid results as seen through our improved adjusted EBITDA. Our quarterly adjusted EBITDA of $6.6 million improved by $1 million compared to the $5.6 million delivered in last year's fourth quarter. We believe it is a testament to our refocused efforts and commitment to our strategic transformation plans, both operationally and commercially, that the business delivered higher adjusted EBITDA and expanded margin rates by 400 basis points year over year, despite the 13% headwind on our top line.

As we begin to layer in stronger sales figures from new business wins, we expect to continue expanding our profitability as we capture improved fixed cost absorption through operating leverage, combined with the commitment to our costs and productivity programs that Harold walked through earlier on the call. Our Q4 results showed an improvement in average daily sales rates versus the third quarter, and that metric has continued to strengthen thus far into the first quarter of 2024.

One particular element of our sales growth that will drive improved power solutions segment volume going forward is the program we announced in December called connect and protect, where we are advancing our core capabilities and stamped products to get more heavily involved in the connectors and shields market, which we believe carries a significant opportunity for growth.

Demand indicators are improving in electrification and grid product verticals. And this effort to get more deeply involved and drive stronger capture of market share in the shielding and connector space is going to be a solid contribution to the business going forward.

Now turning to slide 11, you can see a summary of our free cash flow and leverage as well as the steps we are taking to optimize our balance sheet. As Harold highlighted, we continue to be encouraged by our free cash flow, and we were able to generate $1 million in the fourth quarter, bringing full-year 2023 free cash flow generation to $11.7 million.

While our fourth-quarter free cash flow was lower than the fourth quarter of last year, we've seen a dramatic improvement on a trailing 12-month basis throughout the year, with full-year free cash flow improving by over $21 million, driven in part by significant improvement in working capital. While we expect continued improvement in working capital turns, we expect future free cash flow generation to be more driven by the profitability initiatives we have previously outlined. Looking ahead, we expect to deliver similar level of full-year free cash flow performance as we did in 2023.

This free cash flow generation serves another strategic function, and that is to help further advance our progress towards balance sheet improvement. We plan to use excess cash generated by our business results to pay down debt balances, our term loan in particular, while positioning the company for anticipated refinancing transaction when market conditions are favorable.

Our strategy to deliver consistent positive free cash flow will be a vital tool in helping reshape our balance sheet and achieving a lower overall cost of capital. Our growth strategy will be supported by lower leverage, improved liquidity, and a lower cost of capital.

In line with our balance sheet optimization and cost of capital improvement plan, last week we announced we have entered into a sale leaseback transaction for three of our operating facilities. The transaction will not impact our EBITDA, and the net proceeds will be used to repay a portion of the outstanding balance of our term loan.

Turning to the balance sheet, our net debt at the end of the year was $138 million versus $137.7 million at the end of the third quarter, and $147.9 million in Q2 2023 when we launched our transformation. Our net debt to adjusted EBITDA ratio stood at 3.2 times at the end of the year compared to 3.37 times at the end of the third quarter of 2023.

Looking ahead to 2024, we will continue to bring down our leverage profile through debt paydown, free cash flow generation, and margin expansion. We expect to bring our leverage to below three times during 2024, and doing so while still making the necessary capital investments into the business to ensure we are maintaining our assets for expected performance. Our net capital spending outlay in the fourth quarter was $4.2 million compared to $4.1 million in the third quarter of 2023.

Now I'd like to cover our full-year 2024 outlook on slide 12. For the full-year 2024, we are projecting net sales in the range of $485 million to $510 million, up slightly at the midpoint; adjusted EBITDA in the range of $47 million to $55 million, up over 18% at the midpoint; free cash flow in the range of $10 million to $15 million, up slightly at the midpoint compared to the significantly improved free cash flow generation we delivered in 2023.

We are also pleased to provide an expected range for new business wins in 2024, which is $55 million to $70 million. Finally, as we remain focused on continued improvements in leverage, we expect to lower our net leverage to less than three times during 2024.

Several factors, both internal and external, helped inform our full-year guidance ranges. Notably, our guidance reflects steady and market demand despite some observed weakness in the North America commercial vehicle market relative to 2023. Specific to NN, we expect to continue executing our aggressive growth program, ultimately driving free cash flow and profitability across several new marketing customer platforms.

In closing, we are confident in our business transformation plan, which was launched earlier this year and has driven early improvements in our results. We have the right strategy in place, platform and capabilities to execute and accelerate growth, and, most importantly, a great team who help drive positive change every day. I look forward to sharing our successes with you in the coming quarters.

I will now turn the call back to the operator for questions.

(Operator Instructions) Rob Brown, Lake Street Capital Markets.

Hi, good morning. Congratulations on the good quarter.

Good morning, Rob. Thank you.

First question is on the outlook and the automotive environment. Just wanted to clarify or understand your assumptions on the sales outlook. Are you assuming overall steady end market, but seeing some North American headwinds? Or do you factor in some of the headwinds here in the guidance?

We are looking -- and so our two big markets really are the Americas -- North America, South America -- and China specifically. So China outlook for passenger vehicle production is flat, with an indigenous consumption of vehicles being added to [what] the strong export market. And as you know, Rob, that's all over the news of how China is dealing with exporting their vehicles. We're benefiting from that as an in-country supplier.

And then in the Americas, South America, North America, we're assuming a flat single-digit increase in the platforms that we're on. So we look specifically at our platform exposure to the market, and it's flattish to slightly up.

Okay, great, thank you. And then on the new business activity, you've gotten strength there. Just wanted to get a little more color on the drivers. Are you engaging more? Is it sales efforts? Or are you seeing some competitive weakness that you're taking advantage of? Just some understanding of the new business traction you're getting.

Yeah, it's a good point. And we highlighted on page 5 the categories we're winning. Steering is by far the biggest, electric power steering, and it's platform independent. There's a little bit higher content on [bad] vehicles, but generally speaking, we're on steering systems that are platform independent. It's very high-tolerance machined parts. We have the same competitors. There's been no decrease in competitive intensity per se.

But there's a lot of innovation going on in vehicles as everyone jockeying for the same level of autonomy and vehicle safety and features, and it's leading to a lot of improvements, which lead to precise vehicle control, which leads to expand -- additional [look] for us. I would say that we're in a target-rich environment, and we're focused on competing and winning like never before.

The big thing that we did is we changed the way that we were quoting. We changed our quoting process. And Tim French, who is on the phone here also, we both noted that we had quite a bit of existing open capacity already within the company, and we were quoting it in the same manner in which we were quoting capacity we didn't have and would need to buy a new equipment for, et cetera.

So we bifurcated that and expanded our thinking to really, on a much higher level, try to fill up open capacity. And it gave the sales force a little more competitiveness, if you will. Mike also mentioned that we are using contemporary tools, which the company wasn't using, ZoomInfo; lead-generation tools, which are known; and we have a Google ad campaign out there for lead generation, which we weren't doing Google ads or search engine optimization or keyword management. So we're getting higher leads. We have a focused sales effort, and we have good targets.

In the electrification arena, the electric grid phenomenon on the same side, on our electrical businesses, is giving more looks for us. I'm kind of leading that part of it. Tim, who's on the phone, is leading the fixing of the seven plants that are getting healthy right now, as well as the cost reduction efforts across the board. And when you have a better cost position, it lets you be more competitive. So it kind of goes together.

So I would say it's tactical improvements, Rob, target in how we quote, a revised thinking on how we think about existing capacity versus capacity we don't have, and a combined effort to be more competitive and be able to win at a higher rate. So that's the game plan. It is still -- we're winning right now in the quarter, and we're on track with our comments that we're making here. So it's, knock on wood, still gaining momentum.

Okay. Excellent. That was a great overview. And then lastly, in the medical segment, you won a program there and good progress. How do you see that business developing over time if you said it is a 2025 sort of time frame where that really kicks in? But maybe just help us understand the steps that that segment takes (multiple speakers)

Yeah. It's a good question. It's been -- it's one -- the shielding and connecter one, we were in it to a minor degree, as I mentioned in our legacy business. Now we're basically upsizing something that was there. In the case of the new medical non-tool market, it's a startup. So we had to hire a commercial leader, Willy Beach, who came from competition. We had to hire an engineering and quote leader, Tim Dunham, who came from a competitor. We had to hire a medical plant manager, Brian Barton, who came in operationally.

So we had to generate a team from scratch. And then we had to focus in on what customers we're going to go call on and what products we're going to sell them and what plants we're going to make them in.

We have medical certifications at four plants right now. We are expanding it to eight. And when we're getting into our RFQs, we're being careful to note -- say, it has seven processes, seven manufacturing processes, on the five where we are competitive and the two where we're not competitive, and then gathering this and having pattern recognition about what we want to do about it and what equipment we might want to consider buying.

We have some initial thoughts. We know that we need to buy what's called gun drills, put your deep boring, high-tolerance drills. We didn't need those so much in the automotive business, if you will, but it's [a item] in the medical arena. And then on the stamped products, it's about getting certifications in an expanded product line.

So we have a weekly meeting where we are going logically. We're not trying to rush out and waste money or waste time. So it's a -- we're building, trying to build up to a $50 million business. And that's what we've all embraced our goals around, and we have an initial five-year plan to get there.

So we don't think it's going to add too much to this year, Rob, in '24, unless something happens that we're not expecting. But we are beginning to win business, and you have to go through all the customer certification. So it's a little bit longer lead time. And so I think that, in our results, it will start showing up in '25.

Okay, great. Thank you. I'll turn it over.

Thank you, Rob.

John Franzreb, Sidoti & Company.

Good morning, everyone, and thanks for taking the questions. I'd like to start on the sales guidance for 2024. Can you talk a little bit of how much embedded in that outlook is repriced existing contracts and how much is in that outlook of assumed exited of existing contracts?

Yes. So on pricing, for this year, we have about the same amount of activity on price-up activities versus requested price down. So net price right now in this outlook is minimal, up or down. With regards to exiting business, we do have some of that in here. So we have the seven plants, which I've nicknamed the group of seven, that are going through negotiations right now. And we've already come to terms with a certain piece of business that was negative contribution margin that we're going to walk away from.

So it's not -- right now, John, I'd say the outlook is it's $5 million to 10 million of sales losses from that. So it's not massive. It's not a massive reason. And so really, we're being conservative [and adopted] third-party outlooks on our end markets. And I think you probably know the commercial vehicle market in North America has a negative outlook for '24, and we participate in that market. It's about 10% of our business. So we're assuming a decline there.

So those are your pieces. Not much on the price, $5 million to $10 million hit on volume that we'll walk away from as part of fixing the seven plants, and a slight hit in commercial vehicles, and a slight lift primarily from ramping in new business.

Since you brought it up, on the commercial vehicle side, have you seen that decline yet or are you assuming that's a second half kind of reality?

We haven't seen it yet. We haven't seen it yet, John. I believe it's going to be in the second half, and I still track the ACT and FTR data like you probably do also. And the build rates in the first half are still there. We're primarily serving into the engine market for those vehicles, John. They're not a big supply chain. You don't build ahead those. Those are pretty much made to order. So first half, we're not seeing much activity up.

And the question on the new business wins, you've got a good number last year, looking at nice numbers this year, $55 million to $70 million. Have you got a sense of, as you readdress the pricing environment, how the contribution margins is starting to change in the new business wins and what you used to record -- companies to record two years ago or so?

Mike, you might be able to help me out on that one. I would -- I'm just going to say, right now, John, we're spending money a little bit on ramping up these programs. So one of our largest ones that we won is in a prototype mode, and I don't want to say we're in the hairy edge of technology, but we're pushing the technology expansion here and capability expansion.

We're kind of breaking even, I would say, initially on these new business wins. We haven't set up budgets for it. So Tim's expensing the startup costs and the plant results as we go along. And that's why, in my comment, I said they're accretive at full run rate because we know, right now -- we review every plant every week, and so we know some of these ramp-ups are costing us a little money.

But the run rates that we do, we look at it when we do the CER, the capital request, associated with the wins. And as a group, they're accretive. I'm going to say, it's three to five points better, John. It's not a miracle; it's just a few points better.

All right. Fair enough. And just one last question. You mentioned in your prepared remarks that you replaced roughly 40% of your plant managers. I'm curious how much of those were promoted internally and how much of those were brought in externally, and any kind of initial feedback about the new plant managers.

Yeah, Tim, are you able to speak?

Yes, sir. So the majority of them, they are internal promotions. We have brought in two from the outside and one specifically that's running the medical facility. But for the most part, they are coming from internal promotions.

Any initial thoughts?

Initial thoughts regarding the group?

Correct.

Tim, you might want to just say the big plan that you're putting in place on metrics and safety and quality and on time.

Exactly. Our big focus with the transformation plan is implementing the strategic KPIs within the facilities and driving the accountability down to the lowest level possible within the facilities. And the plant managers that we've selected are very in tune with the capabilities of the facilities, and, so far, are adopting the new KPIs very well. Very good outlook so far with what we've found.

Okay, all right. That's kind of what I was looking for. Thank you, gentlemen. Appreciate it.

Thank you, John.

(Operator Instructions) Joe Gomes, NOBLE Capital.

Good morning. Thanks for taking the question.

You bet, Joe.

So you just announced the sale leaseback of three facilities. And I was wondering if those three facilities, are those in the group of seven? And if so, what is the lease arrangement for those facilities, the length of the leases?

Yeah, you want to take that, Mike?

Yeah, the three facilities are not in the group of seven, and we expect the lease term will be an initial term of 20 years. So there's no plans to change the operations of those facilities that we're doing the transaction on.

Great. Thanks for taking that. Appreciate it.

Thank you, Joe.

Tom Kerr, Zacks Investment Research.

Good morning, guys. Couple of quick questions. Back on the sale leaseback issue, are there more opportunities for that, or is that kind of a one-and-done deal?

We've looked at both real estate and equipment. I think on the real estate side, that's probably what we're going to do in the near term, although we'll continue to evaluate it overtime. And then on the equipment side, that's something that we're also looking at. So there is potentially more opportunity for us to use leasing to pay down debt or finance capital.

Okay. And back on the 60 program awards mentioned, the roughly 60, is that a concentrated customer base in those awards or is it a large number of customers?

It's a large number of customers. But there, we had a couple of big wins, Tom. So just those data points, we have big wins with specific customers. So there were two big customers in there, and one was an existing customer, and one was a new customer. And one was electrical stamped parts for shielding, we announced that in the fourth quarter, and one was for diesel engines, high-end, off-road, heavy equipment engines, next generation. So two big customers and quite different products.

Got it. Okay. A couple more quick ones. Can you refresh my memory on the Taunton and Irvine closures, the timing of that? In other words, how much does that carry into 2024 in terms of volume hits? Is it first and second quarter? Or can you give me any color on that?

Yeah. Taunton was closed for the most part in Q1 of '23, and Irvine ran into Q2. They were both effectively closed by mid-year last year.

Okay. So there's still a little bit of volume hit from that in the first half. Okay.

Correct. And we had some premium pricing at Irvine associated with the ramp down. So yeah, there will be a little bit of sequential volume pressure still.

Great. Okay. That's all I have for now. Thanks.

Thank you, Tom.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.

Yeah. Thank you for spending time with us today and speaking about NN's performance, its transformation plans, and our value-adding focus areas. We're a committed global team, and we're pretty excited about 2024 and going forward. And we look forward to speaking with you again. Everyone have a great day. Thank you.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.