NNBR - NASDAQ

Good morning, and welcome to the NN Inc. Third Quarter 2024 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Stephen Poe with Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and thanks for joining us. I'm Stephen Poe 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, 2024 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 [email protected]. Our presenters on the call this morning will be Harold Bevis, President and Chief Executive Officer; and Chris Bohnert, 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 in the risk factors section in the company's quarterly report 10-Q for the fiscal quarter ended September 30, 2024. The same language applies to comments made on today's conference call including the Q&A session as well as 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 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. The presentation also includes certain non-GAAP measures as defined by SEC rules. 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. Thank you for joining us for a few minutes to talk about NN's performance in the quarter and look going forward. If you wouldn't mind, please turn to Page 4 in our earnings presentation. Wanted to make a few overall comments here, and then we have some information to share with you. We got some feedback after the last call, to give a little bit of extra information and we've made an attempt at doing that. You may be reading along with some of the auto industry public filers, Phinia, Ford, Stellantis, some of the other people. There's a little bit of slowness in North America, not a lot, a few percent, but enough for us to initiate another plant closure and another round of cost reductions in that business. And our goal is for our North American mobile business to be 10% adjusted EBITDA, and our first pass roll up at 2025, with this action included puts us over 10%. So we're on track to get to our goal, and the business at this point hasn't made money, so it'll be a nice improvement for us. And we're successfully transitioning the legacy auto business from North America, ICE-centricity, to be balanced with China production as well as across powertrain platforms, and we're on track. We're already showing record sales and profits in China, and new awards as well. And record capacity up 19% in the period versus prior year. And the rest of the year looks to be more the same. We're going to be breaking records going forward here, for quite a while. We've mentioned before that we have to add significant amount of new equipment, to onboard both increased production as well as new awards that we've achieved, with Top Tier 1 customers, and their China operations as well as for China. And that's all working very well and we're working within our capital structure, to grow as fast as we can, with the cash flow that we have, and reducing North American cost structure and footprint. So we're pretty excited, we're pretty happy with where we are right now, with transitioning that business, which has been the problem child looking backwards. But looking forward, it looks to be on its way to be fixed and sooner rather than later, looking into the early part of next year. The second big point, just kind of overall is that our new business win - our program is really performing. We've gone over $100 million now of new wins over the last 21 months. In October, we just reviewed October this morning, before the call and we're - we had October also. So the program is doing fine, and we are underway with quite a few launches with quite a few customers, and it looks like our first pass at 2025. We're working with 2025 budgeting, obviously. Next year, we'll be turning the corner with year-over-year growth, and that's going to be a big watershed event for our company, because that hasn't been true if you look backwards at the business. And so, we're pretty excited about where we're headed here, and we're ramping up the programs to make that happen. And the models that our analysts have out on us for next year's performance, we're looking to be consistent with those right now, in our first pass on 2025 roll ups on EBITDA, and cash flow as well. Refinancing is the third point. We've been out in the market to refinance our ABL and our term loan, and we remain focused on making that happen. And we expect the refinancing process to result in expanded operational, and financial flexibility. And it's still underway, we haven't consummated it yet. We're still - out there in the process of doing it, and getting all our asset values and all that kind of a thing. But so we remain focused on making that happen, so that we can accelerate the company's transformation. So that's just kind of a big picture. I'd like to turn to Page 5 please, and give a little more detailed information on the transformation plan that we have going here at our company. We continue to make solid progress. There's five major elements to it. We've used the same format for about a year. New leadership, supplementing the company's leadership with new leadership. I'd say with Tim French and I have kind of been the architects of this thing and we gave ourself a self-assessment here, and used our judgment on where are we with each of these topics. And we believe we're around 60% there on leadership. We still are strengthening our teams in the medical end market, electrical good end market, and stamp products in general, as well as upgrading several plant teams that are not where we want them to be. So, we think we're about 60% there on leadership. Fixing the unprofitable areas a group of seven that Tim calls them, the money losing plants. Put some data here for you. Last year through three quarters those plants lost $8.4 million of EBITDA and this year we have it to 0.8 and Tim's statements were that he wanted to be breakeven this year, and we're tracking to do that. So it's a big improvement, a dramatic improvement in those plants. Another one is expanding our margins. Oh, I'm sorry. We said we're 40% along there, because our goal really is to get those plants to make money, not just - not lose money. So we said we're not quite halfway done on that one. Expanding margins, we said we're halfway there. We're expanding our gross profit margins in each business and overall. And we put the information there, on what the actuals are year-to-date versus year-to-date. Deleverage and refinance our debt. We've made great progress of getting our leverage down. We did sell Lubbock in the quarter right in July, and we used all the net proceeds to pay down our debt. And that's already given us some operational flexibility to go faster. And we're coupling that flexibility with a little bit of slowness, to consolidate another plant. And we're underway with that. The last point on fixing the sales engine, and growing the company. We're happy to say that our declining and rationalized legacy sales will be fully offset, by our new wind program already and we're not done. And we expect the year-over-year sales growth to begin in '25. So we're tracking to what we wanted to do there as well. Turning it to Page 6, just wanted to talk a minute about the markets that we serve. We're happy to say that they're healthy, which has enabled our business to be on track. There's some ebbs and flows like Q3, was a little softer than what we wanted. We're a taker on our demand, really we can't generate demand, but it's really just a temporary ebb and flow for us, because we see forward into the quarter, and what our customers say. And on the passenger vehicles, we see some slowness in North America, but strength in China. And that's a net good mix for NN, because our China operations are among our most profitable, and our North American operations are among our least profitable. So what's happening in the market, with the shifting from Europe and North America vehicle production to China production, that's net good for us, and we're benefiting from it. General industrial market, is growing a little bit. That's really our power business that serves into that. Our stamped products, power grid and electricity control continues to grow nicely. I think everyone knows that our big customer here is Itron. But we serve the other big brand names that make control panels, and circuit breakers and whatnot. And the housing construction has been weaker than everyone thought, if you follow that at all. But grid management and smart grid, that hasn't slowed down at all. And so, we're benefiting in that market. Commercial vehicles, we're a small participant there on high end on diesel engines, is primarily how we serve that market. And the business has been soft, but the outlook is for it to go up, and we can see our order books being consistent with that. And then medical is the last market we serve, and we're really focused in on orthopedic implants, and orthopedic tools and parts and pieces, and that business is doing fine. The market grows a little bit, but we have outsized goals there, because of our legacy knowledge and our equipment lineup. So the market update is overall healthy and constructive, with what we want to do. Turning to the next page, please, on Page 7. Our organic growth program continues to kind of get focused and get stronger. And it's performing very happy with the team here and we're delivering. We're not perfect everywhere. So we're trying to get a little bit stronger in electrical and medical and stamp products. But the turnaround of underperforming plants that Tim has led - has really been a key enabler for us. The big issue we had in those plants, operationally speaking, is that they were behind in their service. They had bad customer service, which led to a lot of expedited and premium behaviors, like overtime and expedited material and shipments and that kind of thing. And we've got a hold of that pretty much. And we had a few pieces of business that we just had to say goodbye to. We couldn't get the prices that we needed. But the fact that we've improved our service has really, given us some strength that we underestimated a little bit, and has really opened the doors for us on more opportunities than we saw coming. So we're still very, very comfortable, hitting the goal we gave this year of 55 to 70, especially when we're right at 50 and we're still cranking. So this program, we're going to keep driving it, we're going to keep doing it, and we expect to continue right into next year, and our pipeline is consistent with that. On the next page, I just wanted to highlight a new product that we've come out with on rear wheel steering. We innovated this product line in China, working with a couple steering Tier 1s that's generally who we work with. On next generation products and rear wheel steering is becoming more popular, due to the advantages that it gives in terms of safety and braking, distance and agility at low speeds, and parking and improved trailer pulling. And we've come out with a new product here, and we're working with two top providers. It's new equipment for us and new products. We are really focused in on steering and braking, and vehicle control in terms of how to use our knowledge of submicron manufacturing. And we've had some big wins here early. So we talked about medical last time, and we got good feedback on highlighting that. So we wanted to highlight another product that we've innovated that's leading to some of our wins. So overall, operationally speaking, we're happy with our transformation progress, we're happy with the new wins that we've achieved, we're happy with the turnarounds of our underperforming plants. We would have preferred a little stronger pulls in the quarter from North America, but we didn't lose any positions. The only business that we're shedding, is business that the prices are unfixable. And our initial look at Q4, and the rest full year looks fine and Chris is going to cover that for us numerically. So I'll turn it over to Chris now.

Thank you, Harold and good morning everybody. Today, I'll be presenting information on both a GAAP and a pro forma basis, in order to provide additional transparency in our operating results. Since we've had quite a few changes in the business, with the transformation undergoing, namely the sale of Lubbock and migrating away as Harold mentioned, on certain unprofitable business. So, we hope this presentation is indicative of how we're performing, and how we're transforming NN over time. Pretty excited about that transformation, and pretty excited to share with you some of the faster accelerated transformation activities, and how they've impacted the financials this quarter. So, I'll be starting on Slide 9, where we detail our financial results for the third quarter. This slide shows our as reported GAAP numbers, and adjusted numbers along from the left to the right. So hopefully it's clear there. The adjustments in the middle section show the sale of Lubbock, which contributed $5.6 million in revenue in the prior year, which did not contribute obviously any revenue in the third quarter this year. So, we're adjusting that out and the associated EBITDA. So those adjustments help to show the transformation that we're making to the business. Second, the rationalization of about $2.4 million of unprofitable business along with two profit benefits in the prior year, which did not repeat and negative FX impact kind of kind of shape out the adjustments for the quarter. So pro forma revenue, operating profit and adjusted EBITDA are shown on the right hand side of the chart. On an as reported basis, net sales for the quarter were $113.6 million, declining by $10.8 million versus last year in the third quarter. On a pro forma consolidated basis, accounting for the adjustments I noted earlier, net sales were down only 0.5% or about $600,000. Our pro forma revenue performance reflected an unfavorable mix in our Power Solutions business. However, that business has started to recover already in the fourth quarter, so we're not concerned about that mix that occurred in the third quarter. This mix shift was partially offset by stronger organic sales growth in the Power Solutions, as well as solid sales from our China-based operations, which actually increased 19% year-on-year in the Mobile Solutions segment. This was obviously offset by Mobile North America segment sales. Our operating loss for the third quarter was $3.8 million, an increase of $1.1 million, compared to the prior year third quarter. On an adjusted basis operating income was $1.3 million versus $3.6 million in last year's third quarter. This was driven partially, due to the non-cash impact of lowering our inventory. Adjusted EBITDA results were $11.6 million, compared to $14.6 million in the prior year period. On a pro forma basis, our adjusted EBITDA declined slightly by $1.3 million, mainly due to the unfavorable mix in Power Solutions, which has now corrected itself. We accelerated our progress during the quarter in optimizing our sales mix, through the transformation, and we expect to capture these benefits as we progress in fiscal 2025 as Harold has mentioned. This will support our long-term margin improvement goals, especially in mobile as Harold talked about. Our efforts in attacking all underperforming areas of the business, and cost cutting are now moving at a faster pace. As noted by the recent plant closure, and cost reduction plans in the third, and soon to be fourth quarters and 2025. So now just turning to our segment results on Slide 10. In our Power Solutions segment where our business consists largely of stamped products, revenue was $42.9 million compared to $45.5 million in the prior year period. However, on a pro forma basis excluding the sale of Lubbock, quarterly revenue increased by $3 million or 7.5%, as noted on the charts on the right. This sales growth was primarily due to solid demand growth from a key electrical customer, as we actively work to reduce the associated backlog, after extended supply chain interruptions. In addition to higher pricing pass throughs on precious metals. New business wins reached $3.4 million in Q3 and as Harold noted, we've had great success there, and continue to expect success even through October as he talked about. Encouragingly, we have seen the sales opportunities, and program awards that we're bidding on increase in their overall size, and our segment pipeline has grown to roughly $230 million. We're supporting this momentum with additional sales specialists, across the electrical grid and medical markets, the two areas that we're focusing on, and remain very excited by the pace and direction of the business overall. While adjusted EBITDA margins face near term headwinds from a less favorable mix, we've seen a 200 basis point step up in our margin performance year-to-date. We remain focused on capacity expansion, with new advanced equipment and improving our hit rates in key product categories, which include bus bars, electrical shields, connector components and medical applications. Now switching over to our Mobile Solutions segment on Slide 11, it covers our machine parts of our products business. Our Mobile segment continues to lead the successes of our new business wins program, and this quarter was no exception as we continue to capture solid demand with our capabilities. The Mobile segment has won over $50 million of new business awards, secured in the past year and captured $11.5 million in this year's third quarter. Encouragingly, we are seeing our wins driven by new awards, across many of NN's best, most high quality products. Additionally, the successful turnaround and the performance in some of our historically underperforming group of seven plants, and improvement to our overall scorecards with customers, has opened up additional new business opportunities, helping support continued momentum in new business wins. In China, specifically where we make many of NN's best products, we saw the 19% sales growth year-over-year with this solid growth supported by key global Tier 1 customers. So for the quarter in Mobile Solutions sales were $70.7 million, compared to the prior period, pro forma results of $74.4 million in last year's third quarter. Further sales comparisons were impacted by unfavorable foreign exchange effects, and select contractual reductions in customer pricing. Lower volumes in Mobile North America impacted margins in the quarter, and were also impacted year-on-year by $1.1 million in a customer settlement benefit in the prior year, which did not repeat this year. Our third quarter adjusted EBITDA, and Mobile Solutions segment was $8.9 million, down $0.9 million from last year's third quarter on a pro forma basis. We're making very good progress on our Group of Seven initiatives, to improve our operational performance and we remain solidly on track, to delivering positive adjusted EBITDA for the group on a consolidated basis. Additionally, we want to achieve a minimum 10% adjusted EBITDA margin in the North American Mobile Solutions business as Harold mentioned. As we look ahead, our focus remains on key growth areas steering, braking, vehicle control components and high efficiency fuel injection systems. As Harold noted, we're having tremendous success in China where we make many of NN's best products, and success across these products will help lead our organization for future growth and profitability. Please turn to Slide 12, where I'll briefly speak about our actions to delever NN and improve the capital structure. As you'll note in Q3, 2024 we continue to see improvement in our leverage position supported by the proceeds of our divestiture, and non-core plastics plant in Lubbock, Texas. When taking a look back, to where we were about a year ago, leverage has notably declined, falling from 3.9 times in Q2 of 2023, to just under three times in Q3 of 2024. This decline reflects both improved adjusted EBITDA contribution, further supported by the strategic divestitures we've executed, to streamline our operation and reduce our debt load. As we look forward to refinancing strategy remains focused on enhancing financial flexibility, and expanding the capacity to support our growth initiatives. As we have articulated in the past, our refinancing process is continuing, and we expect to make incremental improvements to our current debt structure. This remains a critical component, to our long-term capital structure optimization strategy, and overall transformation. That said, from a macro perspective, interest rates are still elevated in the U.S. aspects of the global economy are challenged and the U.S. elections are around the corner. So, we're not in a rush to refinance, and we're looking to get the right refinance deal, and right partner to support NN's transformation. Now turning to Slide 13, this presents our outlook for 2024. We're maintaining our outlook for 2024, and these ranges are subject to shifts obviously in market demand, particularly in North American auto. We expect to continue winning new business at a strong rate, focusing on power, medical and the electrical markets as I noted. NN is investing cash flow intelligently in support of these new business programs, and our cost initiatives and footprint rationalizations will continue to have a positive impact on underlying results, improving the overall cost structure that we carry. So with that, I'll turn the call back over to the operator for questions. Thank you. Operator?

[Operator Instructions] The first question comes from Joe Gomes at Noble Capital.

Good morning. Thanks for taking my question.

Hi, Joe.

Good morning, Joe.

So I wanted to start off, I mean you had the chart in there for the year-to-date gross margins increasing, but gross margins in the third quarter were a little bit below where we had anticipated, and they were below the year ago quarter. Is that all just due to mix or was there anything else behind that?

Yes, Joe, good. Thanks for the question. Yes, generally due to mix, as I outlined in the call. So Power Solutions had a little bit of a mix issue, which has corrected itself. So we don't anticipate that mix issue going forward.

Okay. Great on that. And then when you're looking at, I was going through the Q this morning, you kind of breakout the revenues, and you talk a little bit about residential and commercial electrical. Revenues have kind of gone up year-over-year. And I was wondering maybe just give us a little more, I know you talked about it briefly in the call, a little more color, or detail on what is driving the increase in revenues in that target market.

Chris, you want me to take that one?

Yes, sure. So, yes, we outline our markets, Joe, on Slide 6 and the general industrial market where we sell a lot into kind of the grid, and other electrical component markets. That's very strong. There's a lot of what you'd call rebuilds and updates to that market. So we're very pleased with that. It's showing about a 3% growth overall. And it's going to be kind of long-term. Because there's structural components there that are underlying some of our demand. We've also got a couple of customers in the Power Solutions business that are really driving demand for us overall. And so, we're very happy with that business. Actually, I was just up there this past week taking a look around, and it's a great business with great people. A lot of long-term folks who've been there forever. And so, I think the customers, the products, there's some stickiness there, and the demand is there as well. It's not double-digit growth, but it's strong growth.

Okay. And then switching gears to the medical side, I think last quarter you kind of gave us the business was running at about a $17 million annual revenue run rate, and that you were building out some dedicated capacity to that. And I was wondering where we stand on that annual revenue run rate, if it's improved any in the third quarter. And where are you on building out the dedicated capacity for that segment?

Yes, we have. Tim French is on the phone too. So we have received our first dedicated capacity. Tim, you want to speak about that?

Sure, sure. As Harold said, we've received, we ordered two dedicated capacity lines, the citizens that we've talked about before the multi access lights. The first one has been received and is going to be fully commissioned by mid-November, and then be operational. The second one will be arriving within the next two weeks, and it will be commissioned by the end of the month. So we'll have that capacity up and running before year end.

So we have, Joe, we have, we have new business tagged to run on that equipment. So as the machines come online, we will initiate production one in November, one in December kind of a thing. So before the end of the year we'll have our first two dedicated medical machines up and running with business.

Okay. Great. And then just one more from me. Kind of on a technical note. Again, looking on the income statement you have, I think it was about $5.3 million of other income. Was that all related to the sale of the gain from the sale on Lubbock, or were there other things in the other income line?

No, that's gain on sale. It's all late.

I'll get back in queue. Thank you.

Thank you.

The next question comes from Rob Brown at Lake Street Capital Markets.

Good morning.

Good morning, Rob.

Just wanted to dive in a little bit to kind of your goal for the 10% adjusted EBITDA margin. I think you made good progress getting to sort of breakeven in the troubled plants. But could you give us a sense of how your current efforts to reduce costs further can kind of get you there, and what really needs to happen and what sort of the timeline you're thinking now, in getting to that goal?

Yes. So Tim French is our architect there and we reviewed that this morning. Tim, you want to just give an overview there?

Yes, we're on track for getting to the 10% EBITDA in North American Mobile. We're looking at early preliminary numbers for 2025, and that's where we're rolling up to and how we got there. And I've talked about this before, it's basic blocking and tackling. It's a bunch of little projects that all add up to having a significant improvement when you look at the Group of Seven. We did shed unprofitable business, but the majority of it has been increasing efficiencies and throughputs through the existing line, the existing equipment. So it's been a good result so far. And we're really just, as we said in the presentation, we're only about 40% of the way there, because the objective is to get those that Group of Seven to profitability, not just breakeven.

I'll just add on there too. So two main blocking, two big pieces are plant closures. One of them is announced the [Washiak] and underway. The other one's not yet announced. So we have some rules to follow there. But we in, we're in communications with the customers that are impacted, and so we're underway with it. We'll probably be making the announcement. I don't know, Tim. January, February, it's going to be Q1 kind of a thing.

Yes, it'll be a Q1.

Yes. So they've agreed to take all of our inventory we have left. And so, we're running that out and we've agreed to help them transition to a new supplier. And the rationalized volume is having an impact. We had a chart on Page 9 there that showed that we rationalized $2.4 million of revenue, but it made our EBITDA go up almost $1 million. So we're getting rid of a business that can't be repriced or fixed. So rationalizing business closing a couple plants and targeted SG&A reduction. And the first pass is that, we're over 10% actually going into next year. So we might reset our goals. But right now we're tracking to deliver that, which has been our initial goal for those businesses, and that'll be a watershed event for us. And then we're focused in on being free cash flow positive there for the ongoing future. And we're on track and we're thankful for it.

A lot of hard work. Okay. Great. And next question is on the kind of the new growth markets. And you laid out a number of markets you're going after, but specifically in the power grid area, are there growth dynamics there that you can maybe take greater share or see some growth there that's above some of the other markets, or is there kind of have your customers there and that's kind of more incremental?

Well, we have a portfolio of opportunities there. I will say our biggest, largest single opportunity is in power grid. But we also have a lot of small ones and a big one for us would be like $20 million a year kind of a thing. These are customers like Siemens and Schneider and Eaton, the power grid people ABB. But I would say that it's similar to the rest of the business. The average size of opportunity might be. We were looking at it. The average wind value this year is around $400,000 per year. And it has a longer program, a higher program value, but peak annual sales around 400 and powers like that. But we do have a couple big ones in that arena, and it's stamped products predominantly and we have a couple that would require plant expansions. So I don't know, I don't know what the, what else to say other than we're pretty excited about it and we're gaining steam. We've added some people that had prior relationships in the industry, and we've been able to unlock a lot of opportunities here. And the Chris mentioned the pipeline is up to $230 million now. So we're picking and choosing here so that we can get on a steady path of growth in that business.

Okay. Thank you. Congratulations on all the progress. Turnover.

Thank you. Thank you.

[Operator Instructions] The next question comes from Tom Kerr at

Good morning, guys.

Good morning.

A couple quick ones. All these new business wins say in 2024. Are these contracts materially different than what's been going on the last three to five years? And then related to that, is the contract signed to revenue still in the 24-month range or something like that?

What was the second part of the question, Tom?

The signing to revenue generation. I think you guys said it was 24 months or something. If I had that right?

Yes, yes. So a little more information, on Page 7. So the first question was, is there anything different about the business you're winning versus the business that's going into life or that you're rationalizing? The answer is yes. Generally speaking, we are not pursuing takeover business. We're not just going in and trying to bust off a piece of existing business by just going in with pricing. So instead of that, we're participating in the new products, the innovation at these customers. So generally speaking, the awards we're getting are for new products and most of the time the new product has some type of a new machine feature enabling it to have a new product feature. So we're replacing generally older legacy business that's in, not being innovated and it's basically into an economic, steady state cycle. And we're generally pursuing new business that has some initial value and pricing in it because of its newness. And we had previously given some information that the average gross margins on the new business are over 20%, and they're generally replacing business that's around 11%. So it's a, it's a big increase in gross profit. And that's, that continues to be true. So we're going to keep doing that. Usually, we've looked at a little bit of takeover business, but generally speaking, the IRR isn't that good. When you look at the working capital that you have to put against it and the taking up of machine time, it's better to pursue something with better initial pricing. So we're staying true to that.

Okay, thanks. And then on the refi of the ABL on the term loan, does that, or could that involve a preferred stock refinance or take out or. I guess the question is what else can you do about the preferred stock? Is that a second transaction than sort of refinancing the term in ABL?

Yes. Yes. So Chris.

Yes, I'm taking that, Harold. Thanks. Yes. So right now we're focused on trying to get some additional flexibility to support our growth initiatives. So that's our key focus right now. Obviously the prep is out there, and it's going to be part of our optimization of the capital structure at some point. But initially we want to get the ABL, and the term loan set up so that we've got the capacity and the ability to grow the business. And I think the pref may or may not be part of that, but probably a second tier or second approach.

Got it. And last question for me on the China seems like good growth there, but you look at the macro and you see the economy slowing down, consumer slowing down, car sales slowing down. So what is the dynamic there that you guys can grow in sort of a slowing market?

Yes. So the China market is growing and they have some government mandates and government incentives to encourage auto procurement. But also earlier this year, China passed Japan in terms of the largest exporter of vehicles globally. And they are a large exporter, so they have a goal to lead in the export markets. There's some tariffs in the United States on products made in China. But not so in the rest of the world as much. Some smaller ones in Europe, but their big export markets are, they're doing fine. So there's a lot of pressure on people that are serving the market like us. We are nearing capacity in our ability to produce products both for vehicles that are going to be made and sold in China, and vehicles that are going to be made and exported from China. So the impact is on vehicles that are high priced, and the overall global production of cars is flat year-to-year. It's not declining. There's some sport on powertrains with ice going down a little bit, electric vehicles going up a little bit, hybrid going up. And you can get into powertrain talk. But overall, the number of vehicles being made globally is up just a little bit. And China is winning in that market and we're a supplier into it, so we're benefiting from that.

Great. Thanks for the answers. Nice job. That's all I have for now. Thank you.

Thank you.

At this time, there are no further questions. I would like to turn the conference back over to management for closing remarks.

Thank you for calling in. We appreciate it and we're pretty excited about our forward looking here, and we look forward to speaking about the fourth quarter, and 2025 goals in our next call. Thank you.