NNBR - NASDAQ

Good day, and welcome to the NN, Inc. fourth quarter 2025 earnings conference call. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Joseph Kameniti, Investor Relations. Please go ahead.

Thank you, Chloe. Good morning, everyone. Thanks for joining us. I am Joseph Kameniti with the NN, Inc. Investor Relations team, and I would 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 fourth quarter and full year ended 12/31/2025, 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 [email protected]. Joining us today from NN, Inc.'s management team are Harold C. Bevis, President and Chief Executive Officer; Christopher H. Bohnert, Senior Vice President and Chief Financial Officer; and Timothy M. French, our Senior Vice President and Chief Operating Officer. Please turn to slide two, where you will find our forward-looking statements and disclosure information. Before we begin, I would like for you to take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation, and the Risk Factors section in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025. The 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, tax rates, acquisitions and divestitures, synergies, cash and cost savings, future operating results, performance of worldwide markets, general economic conditions and economic conditions in the industrial sector, including the potential impacts or ramifications of tariffs, impacts of pandemics and other public health crises and/or military conflicts, 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 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 financial section of the press release and the supplemental presentation. Please turn to slide four, and I will now turn the call over to CEO, Harold C. Bevis.

Thank you, Joe, and good morning, everyone. Thanks for spending a few minutes with us as we give you an update on the business and the state of the transformation in 2026. On slide four, I will begin with spending some time discussing the highlights of the fourth quarter. And Joe, can you advance to slide four? Mine looks like the webcast is slow. Thank you. 2025 marked NN, Inc.'s third consecutive year of improved results, and we were able to increase adjusted EBITDA results toward recent company highs and our adjusted operating income grew meaningfully, showing a significant improvement versus 2024. And we were able to fund a large vintage year of growth programs with our free cash flow. Importantly, we completed the majority of the heavy-spending portion of our transformation plan, which saw us close and consolidate four plants and right-size about 800 people. Second point is we are well underway in showing success in strategically evolving our business portfolio. We are intentionally shifting our sales profile towards higher-value end markets and higher-value capabilities and intentionally shifting away from low-value commodity automotive part-making and certain markets in the automotive arena. We are fixing and/or exiting the unprofitable plants that we inherited and business trips, and we are replacing this business with new wins in desirable areas. Our new business wins program continues to perform well, and we continue to focus it away from commodity auto part business. We have now won more than $200 million worth of new business since the launch of this transformation plan in mid-2023. Ahead of us this year are record levels of program launches. On top of that, we have a pipeline now that stands at over $800 million of high-quality prospects. One fun point that I wanted to point out is that we recently achieved our first new business win in the data center market. It is now a key target market for NN, Inc. and we fit nicely into it. We are making the high-precision watertight couplings that go into water-cooled computing equipment. In 2026, we are already migrating a bigger portion of our cash flow used toward investment in new business since the majority of our cost restructuring has been completed. Now we are in a better position to fund growth-related CapEx. In 2026 versus 2025, we are roughly doubling the amount of capital spending that we are putting into the business for growth purposes. That ability to fund comes from a higher level of EBITDA as well as completion of projects. 2026 is going to be a year where NN, Inc. returns to net sales growth, and it is happening right now in the first quarter. This is going to be an important pivotal year in our transformation, and our 2026 forecast calls for an end to focus on top-line growth going forward. One caveat that I want to point out, and Joe touched on it and it is in our risk factors in our 10-Ks also, is that volatility remains high in our markets. We are a supply chain participant in a lot of global supply chain decisions, and there is a lot of influence by tariffs, precious metals pricing, and ongoing geopolitical unrest. The volatility has increased a little bit here with the Middle East happenings. Except for that, we have the same type of risk factors this year as we had last year. Turning to slide five in the deck, I wanted to give a little more detail on Q4 and the full-year 2025 metrics. Our fourth quarter came in at $104.7 million; our full year at $422.2 million. This is a little lighter than we had hoped. Some of our main end customers reduced their inventory positions towards the end of the year and are now getting caught up in the first quarter, and we are feeling it. Tim, Chris, and I had not seen a good, healthy backlog of typical business since we have been here, and we are happy to say that we do have backlogs here in the first quarter because people are getting caught up with some of their end-of-the-year decisions to reduce their inventories, and we are having a good quarter. But a takeaway on our sales is that we were able to rationalize some commodity, no-profit automotive parts, and we have largely done that with these plant closings and exits, and we are happy to say that that is largely behind us. Our adjusted operating income also has been nicely improving. Adjusted EBIT, which is what we are focused on as well, in the fourth quarter was $3.3 million, and we had $14.2 million for the full year. Those results are roughly three times the prior year, and we foresee and forecast a nice improvement this year again. The results are coming from a leaner, more efficient operating model across all of our operations, and we are running a cleaner set of business through our machines because we have rationalized some of the low-end stuff. Now we have a more structurally supportive model to deliver positive operating income and adjusted EBITDA. Our adjusted EBITDA continues to improve. It was almost $13 million in the quarter, $12.9 million for the full year. These results were above prior year and also pushing towards company highs. Despite the continued weakness and volatility in the global automotive and commercial vehicle markets, we were able to perform at that level. Our adjusted EBITDA margins are forecast to expand again this year, and the Q4 margins were up 90 basis points year over year, and we are continuing to improve in line with our long-term goal that we have stated in past talks like this, 13% to 14%. Our new business wins continued on the same pace, and we were awarded more than $4.07 billion for the full year. We exceeded our guidance and expectations. We were still somewhat capital-limited last year on this topic because we were spending a lot of money on restructuring still, and we have more to spend now on a go-forward basis. That is one reason why we have increased our goals now that we are intending to pursue new business. The key wins were concentrated in our focus areas and especially beneficial to us last year and continuing is the surging defense electronics industry in the United States. We are directly benefiting from that, and it is immediate ramp-up type of business. We continued to secure new awards that were at accretive gross margins and are still averaging over 25%. We are positioned to continue winning business in 2026. We have a couple of large foundational programs underway right now in medical and in defense, and they are going to be gateway wins for us. We already have a large multiyear re-win in our electrical power business that we have accomplished this year year to date, where we beat out two large global competitors and secured that business on a go-forward basis. Our adjusted gross margin performance was 18.8% in the fourth quarter and 18.5% for the full year, which again has us trending towards our five-year goal of 20% consolidated gross margins, and in this area, we are ahead of our plan and we are encouraged by our progress. This strong performance is driven by the operating improvements that I have touched upon here a couple of times, as well as the shifting in our portfolio towards our profit business. On cost and operational leadership, it is an ever-present goal for us as a manufacturer to be better and better at manufacturing with a continuous improvement mindset, and we accomplished our goals in 2025. SG&A as a percentage of sales continued to drop as well and is now at 10.9%. We have all but eliminated an expensive executive layer that was here when we arrived, and we have reinvested some of that payroll savings into a bigger business development team. We are happy to report that we achieved our cost-out targets of $15 million for the year, which offset all inflation and pricing and implemented the re-rationalizations that we wanted to do, and we have plans for another $10 million out this year. This operational performance and ability to lower costs has helped us overcome the rapid rise in precious metal cost inflation, which has been a big deal for us that we have been able to conquer and still increase our ratios on top of it. Please turn to slide six, Joe. I wanted to talk a little bit about 2026, and then Chris and Tim are going to add portions to it as well. As already mentioned, we are forecasting revenue growth in each quarter and across the full year of 2026, and that growth is happening. It started immediately in January, as I mentioned, because there was some curtailment of supply chains at the end of 2025, which are now being refilled, and we will continue growing through this year. The global automotive markets are expected to grow slightly in 2026, a couple of percent, but the growth outlooks are very region-specific, and so we have outlooks for North America, South America, EMEA, and Asia that are specific to the region and take into account adoption rates of EVs as well as affordability issues. The commercial vehicle market is expected to begin growing this year in 2026, and it has already started out that way with strong orders over the last three months. Just yesterday, ACT Research came out with the February orders, and they were some of the highest orders ever received for that time of the year. There is an EPA 2027 mandate that is forthcoming, and the long-awaited pre-buy in that market seems like it has started, and we will benefit from that and are benefiting from that, and that is one of the sources of our positive back orders right now too. We have a strong supply chain of orders in that area already, and it happened rather quickly. It happened in December, January, February. Our 2026 outlook calls for gross margin growth and adjusted EBITDA growth, and this will be balanced through the year, also starting in Q1. Our outlook for this year is supported by gradually improving markets. We do not really see any V-shaped recoveries, if you will, the hardest growth that we are participating in, the most upward, is U.S. defense business. It is likely to get stronger as all the munitions are being used and weapons are being used, and that is where we are participating in that. We are seeing increased volumes. We do have another $10 million cost-out program this year, and we have a record amount of new business launches that is underway, and we have a record amount right now in the quarter. So we have a lot of positive tailwinds right now in the business, and we are thankful for that. Tim and Chris, please knock on wood after I said that. Unfortunately, although our sales rates and production rates of U.S.-made cars are growing, we expect the U.S. auto parts market to remain volatile. Industry forecasts call for automobiles to be made and sold, but there are continued supply chain issues stemming from global tariffs, U.S.-caused trade wars, a fundamental reset that is going on between vehicles and internal combustion engines, overall affordability of U.S.-made vehicles, EPA resets, and now war in the Middle East on top of the Russia-Ukraine war. The automotive supply chains in the world are very global, and these are very disruptive things that are happening right now. The new normal will be volatility, and I would just say it is continuing. It does require tactical maneuvering on our part. As a supply chain participant, really, we are a taker on a lot of these decisions that are at the OE level. But we are upsizing our new growth program, and we have more CapEx to spend this year, and therefore, we have set higher goals and we are committing to a higher outcome. We are now looking to achieve between $70 million to $80 million of new wins this year, and I will just tell you, we have already started off this year in the first quarter on that pace. Overall, we still remain capital-constrained due to our capital stack, and I will give you an update on that later. But we have incrementally increased the amount of CapEx that we are going to spend on growth. It is very deliberate; it is very intentional. Tim and I approve them one by one. We look at every one of them. What market are they in, who is the customer, what is the part, do we want to spend money on that, do we want to spend money on that right now? I can tell you that we are hands-on with the growth topic. It is very deliberate. Overall, we are excited for this year. We can see that it is going to be stronger than last year. Our performance in the first quarter is already on track to achieve higher outcomes, and we are off to a good start. With that as an introduction, I will now turn the call over to Christopher H. Bohnert and Timothy M. French, and then I will come back and review some of the market information later. Chris?

Thank you, Harold. Good morning, everyone. Today, I will be presenting our financial information on both a GAAP, or an as-reported basis, and pro forma basis to provide transparency into our operating results, primarily due to the exit of certain unprofitable business in this year and part of last year. I will start on slide seven, where we detail our financial results for the fourth quarter. I will get into the full year as well. Slide seven shows our as-reported GAAP results on the left side, pro forma adjustments in the middle, and pro forma results on the right side, as we have done in previous quarters. As a reminder, we use these adjustments to provide a representation of how management views and makes decisions about our business on a current and go-forward basis. The pro forma specific adjustments to the fourth quarter include last year's contribution from strategically rationalized sales volumes and the impacts of foreign currency translation on our non-U.S. operations. On an as-reported basis, net sales for the quarter were $104.7 million, declining by about $1.8 million versus last year's fourth quarter. On a pro forma basis, accounting for the adjustments I referenced earlier, our net sales increased $1.4 million, up about 1.4% versus the prior-year fourth quarter. Adjusted operating income for the fourth quarter was $3.3 million compared to $2.4 million in last year's fourth quarter. On a pro forma basis, operating income was down slightly to $3.2 million, or about 5.7% versus the prior year. Our adjusted EBITDA was $12.9 million, as Harold mentioned, for the quarter, up from $12.1 million a year ago. On a pro forma basis, adjusted EBITDA increased $1.1 million, or 9.3% year over year. Adjusted EBITDA margin was 12.3% of net sales. This represents about a 100 basis point improvement on an as-reported basis, expanding 90 basis points on a pro forma basis, so a nice increase there. Now turning to slide eight for the full year 2025. Our pro forma results and comparisons also normalize for the sale of the Lubbock business, which was divested in 2024. On an as-reported basis, net sales for the year were $422.2 million, declining $42.1 million versus last year. On a pro forma basis, adjusting for the sale of Lubbock, strategically rationalized sales volumes, and FX impacts, net sales decreased $7.4 million, or 1.7%. Adjusted operating income for the year was $14.2 million, up $9.1 million from $5.1 million in the prior year. On a pro forma basis, the results marked a steep improvement, more than doubling from the $7.0 million in 2024 on a pro forma basis. Adjusted EBITDA for the year was $49.0 million compared to $48.3 million for the prior year. Pro forma, our results increased $2.2 million, up about 4.7%. Adjusted EBITDA margin was 11.6% of net sales, representing an expansion of about 70 basis points on a pro forma basis. We worked through the transformation across our business; we have grown our adjusted EBITDA now towards pro forma company records. Meaningfully growing our operating income, and we have expanded our margins and advanced margin capture toward multiyear targets. Notably, we have done this work to improve our structural profitability despite a smaller top line, which has reflected the impacts of our exit of dilutive sales volumes. We are now prepared to continue delivering our growth through our operating income and adjusted EBITDA, coupled with an expected return to sales growth beginning in 2026. Now I would like to turn to slide nine, where I will detail our performance across our operating segments. For year-over-year comparisons, I will be speaking to our pro forma numbers. In our Power Solutions segment, where our business consists largely of stamped products, net sales for the quarter were $45.5 million, up $5.9 million, or 14.9%, compared to $39.6 million in the prior-year period. This improvement was driven by the increase in precious metals pass-through pricing, as well as the benefit of new program launches in electrical and defense business. This improvement was partially offset by lower sales volumes concentrated in one stamping products customer. For the full year, Power Solutions pro forma net sales of $178.6 million improved 5.3% compared to pro forma net sales of $169.6 million. Power Solutions adjusted EBITDA results as reported of $6.4 million increased $0.8 million versus last year's fourth quarter of $5.6 million. This improvement was driven by sales growth, particularly in defense and electronics products, and was further supported by operational cost reductions, higher margins, and an overall improved sales mix. On a full-year basis, Power Solutions segment adjusted EBITDA of $30.7 million improved by $3.0 million, or 10.8%, compared to the full-year results of $27.7 million as a function of our adjusted EBITDA growth, 90 basis points versus 2024. We won an additional $3.1 million in new business awards for the segment in the fourth quarter, bringing the full-year total to $13.2 million. Our wins have largely been concentrated in key target growth markets of electrical, defense, and electronics products, which we expect to remain strong growth sectors for our business.

Now turning to slide 10, our Mobile Solutions segment, which covers our machined products business. Net sales for the fourth quarter were $59.3 million compared to the prior year of $63.8 million. Net sales comparisons were primarily impacted by the rationalization of dilutive business and lower volume in North American auto customers, partially offset by favorable foreign exchange effects. For the full year, pro forma net sales of $244.0 million declined $25.0 million, or 9.3%, compared to results of $269.0 million in the prior year. We note that while we observed weakness in the North American auto markets across the year, our sales comparison was largely concentrated to one specific auto part customer which had pushed out volumes due to its own production disruptions. Our fourth quarter adjusted EBITDA in the Mobile Solutions segment was $10.0 million, up slightly versus last year's fourth quarter on a pro forma basis. Quarterly adjusted EBITDA results reflected our successful shedding of unprofitable sales, which has improved the margin mix of the business, combined with overall lower operating costs. These factors have helped drive adjusted EBITDA margins to 16.9% for the quarter, up about 160 basis points from the same period a year ago. For the full year, Mobile Solutions adjusted EBITDA of $33.5 million declined 4%. Notably, adjusted EBITDA margins of 13.7% showed expansion of about 70 basis points for the full year versus full-year 2024, displaying the impact of business rationalization and footprint consolidation. On the new business front, we continued achieving new wins in innovative programs totaling $26.2 million in the fourth quarter and $58.6 million for the full year. We won over 200 individual award programs in 2025, including machined parts in defense and medical markets, as well as high-quality automotive programs focused on more innovative next-generation fuel efficiency for internal combustion powertrains. Thank you. With that, I will turn the call over to Tim, who will discuss our commercial and operational progress. Tim?

Thank you, Chris. I will begin with slide 11. Our new business momentum has continued to build and is now translating into meaningful scale and future growth. As Harold mentioned towards the top of the call, over the trailing three years, we have secured over $200 million of new business wins. With quarterly commercial performance remaining consistently strong across that timeline. Importantly, these awards are coming in at an average gross margin of about 27% and are concentrated in strategic markets where we see the best long-term value. It is worth noting that the implied margins on these wins are meaningfully above the multiyear goal of 20% and higher than current levels for the business. As these programs launch, they will be accretive to the overall margin profile and help support profitability and earnings improvement. Over the last three years, we have fundamentally rebuilt our sales pipeline, which had atrophied in the years before the launch of the transformation. Now our pipeline sits strongly at $800 million of potential opportunities. Our commercial execution is focused on disciplined growth. We are winning where our technology and differentiation matter most, particularly across defense, medical, data center, and other high-reliability applications. Supporting this outlook, our global team of roughly 40 commercial and technical personnel are actively pursuing and executing against the pipeline. These opportunities convert to wins, launch cadence steps up meaningfully. 2026 will be a very big year for launches as we expect to launch over 100 programs. As I mentioned, the new programs are margin accretive and continue to shift our mix towards structurally stronger, higher-reliability end markets while reducing relative exposure to commodity automotive. Overall, the combination of strong bookings, a deep pipeline, and strong launch schedule gives us confidence in the durability and quality of our growth trajectory. Turning to slide 12, I will briefly touch on our long-term roadmap. Notably, we remain well on track to meet our long-term goals that we have laid out as part of our enterprise transformation. Our 18.5% adjusted gross margins consistently showing improvement in each sequential quarter and pulling in line with our 20% adjusted gross margin goal. Our adjusted EBITDA, supported by an improved, leaner, and more efficient operating structure, is expected to continue improving and delivering on higher margin rates. Expect to grow at a 10% compounded annual growth rate, reaching $80 million in adjusted EBITDA by 2030. Overall, we see approximately 5% market growth, further supplemented by the benefit of approximately 2% share gain, as we hone our commercial efforts in electric grid, data center, defense, electronics, and medical markets. As we do this, we are strategically deemphasizing less valuable elements of our portfolio, with the explicit intent to continue lowering our overall portion of the company attached to commodity automotive parts. In parallel, we will continue advancing our successful cost-out programs across our operations. In 2026, we aim to drive approximately $10 million with cost rationalization, which will help offset pressure from inflation and pricing. And finally, as we move forward, we are going to continue sharpening our focus on areas critical to our growth that align with our highly valued capabilities. These include robotics—

Did we lose Tim? Operator, can you hear Tim?

Can you not hear me, Harold?

Yeah. I can hear you.

Okay. Well, then just closing, these include robotics, artificial intelligence, automation equipment, as well as opportunities for material and vendor substitution. With that, I will turn the call back over to Harold. Chris, are you able to hear me?

Yeah. I can hear you, Tim.

Harold, is your line muted? Everyone, please stand by while I check the speaker line. Harold, please proceed.

Thank you. Tim, are you there?

Yes. I am.

Okay. I got dropped for some reason. Are you to me now?

Yeah. I completed, and we are ready for you on slide 13.

Thank you. I apologize to the listening group here. I got dropped off the call somehow. I would like to talk about the markets for a moment, starting with the electrical grid and data center market, which is 60% of our sales, that there is a strong market outlook for this year. There are many announcements being made to expand aggressively the data center infrastructure. We participate in this market in the U.S. and in China. There is a big announcement by Amazon and a lot of the data center builders, and we continue to see growth in this area. The next market underneath that on the chart is the China automotive market, where we have been in that market for about twenty years, in the China automotive market and the China commercial vehicle market, and the China data center market now. But the automotive market has a good outlook for the year. It started off at the beginning of the year kind of weak. BYD and Geely being big end OEs that we service, they have had some timing issues in their local market. But this remains a strong element of the NN, Inc. portfolio, both sales for use in China as well as the export market for those vehicles and those parts. On the commercial vehicle side, we expect to see this market improving this year. As I previously mentioned, the growth looks like it is going to be sooner than had been forecast, as orders have come in strong for the first few months of the year already, and there are structural reasons for that if you follow that market, so it looks sustainable. It is not a fluke. Defense electronics is 10% of our business, and it is growing strongly, specifically with an end customer we serve being Raytheon and the desire for their missile defense systems. We are basically increasing our production capacity and our ability to make larger parts as well. Our own organic growth here is expected to remain strong through the year, and it is building, and we have already been given multiyear volume increase outlooks from several customers as forward indication of what we need to do. On industrial, we are really tied into GDP-level growth here, a lot of building products as well, like smoke detector parts and security system parts, and our primary focus in this area is innovation takeover business, and we are having good success. Medical remains a steady and growing market for us. For us specifically, we have been increasing the breadth of our team that focuses on this market. We now have a very large, strong pipeline of opportunities, and I mentioned earlier in my initial comments, we are on the edge of foundational large programs that will enhance our credibility. Global automotive is North America, South America, and Europe. We carry tempered expectations for the year here, not negative per se but tempered by volatility. The view here is that we will continue to participate in the high-end part of the market for very precise parts, and our goal here is over time to hold our sales flat by re-winning the amount of sales that go into production and replacing them, staying flat, keeping our capacity equally full, not going backwards, and it is not a focus area for us. It is really a hold-your-own kind of area, and this part of the company's portfolio will shrink over time. Intentionally. On page 14, in December, we announced that our Board had launched a committee to look at our financial and strategic options. We have previously discussed in some of our calls together that our capital stack is problematic. There is basically too much debt plus preferred equity, and we would like to solve that over time. We are looking at various options here. We really have no updates that are concrete. I just want you to know that it is underway. It is a Board process, and it is ongoing, and when there is something big to say, we will say it. But right now, we do not have anything, and instead, we are just focusing on looking at our options and basically letting the business grow right now, which is what is happening. Turning to slide 15, I would like to talk about 2026 and what our guidance is. We are guiding to net sales growth, which is meaningful to us: $445 million to $465 million in sales, which covers the consensus outlooks on us, anchored by the new program launches which Tim walked through, and they are expected to occur through the year, and we have already been winning new business that is immediate ramp-up for this year. So this will be a strong area for us during 2026. We have overall strengthening of some of our end markets, as I mentioned, commercial vehicle markets coming back after a three-year freight recession, and defense is growing much stronger than anyone had expected. No one had expected President Trump to be able to go through as many munitions as we have in a short amount of time, and we participate in the reloading of that supply chain. Adjusted EBITDA—we are starting with a wider range here as the year starts, and we will narrow it and focus it as the year unfolds. But as I mentioned, the first quarter is already starting off very well, and it is supported by higher contribution margins. Our mix is naturally higher now and we have unit volume growth underway, and we expect that to continue through the year, and so we are going to have good mix. Usually people talk about getting hurt by mix; we are going to benefit from mix, mix that we have caused. Furthermore, we are going to reduce costs another $10 million this year to more than offset the inflation and pricing agreements that we have in place, and we are going to increase our new business wins target to $70 million to $80 million. We have a long-term goal to get to $600 million in organic sales, as Tim touched on. We do have EOPs during the five years, so another way to think about it is our sales plan is replace EOP plus another $200 million. To do that, we have to win above that $200 million rate because we do have EOPs during the period as well. As mentioned, our pipeline is more than sufficient. We are running over a 20% hit rate and carrying an $800 million prospective pipeline. This is just a matter of doing the job on a continuous basis and making it happen. We have continued to add key personnel in defense, electrical products, data center products, electronics, and medical. We are looking forward to this year, and we are excited about this year, and we think that it is going to be a nice record year for the company. With that, I would like to turn the call over to our operator to answer any questions that you might have.

Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. Our first question today comes from John Edward Franzreb with Sidoti. Please go ahead.

Good morning. This is Justin on for John.

Hello, Justin.

Hey. Can you expand on the data center end market opportunity, including any additional color on the size, expected ramp timeline, and margin profile of your first direct data center win?

Yes. We have a couple of product angles into the data center market. We are focused on the cabinetry that houses the equipment and specifically the cooling. It is a very high-precision, micron-tolerance type setup so that the cooling does not escape the cooling system and damage equipment, and it plays right into our capability as a very precise, micron-level tolerance achiever. The first entry point was to become an approved supplier to the equipment-building crowd as a provider of watertight coupling, and it turns out it is very much needed. The cabinets are dense with this type of product. We are putting our hands around the size of the TAM. It is a very specific thing, and we do intend to report out on it in our next public call. We have a team underway with that right now. The second product that we are targeting into the data center market is cable assemblies. At the top of the rack is a distribution of the electricity busbar as well as high-voltage cable assemblies, and we can make those also. The new team we hired at the end of last year from the electrical products background, with Mohammed Farhad as our leader technically, and then Tim Merrill and three other people that are account managers that know the industry well, are now prospecting. We do have formal pipelines, and we do have customers delineated, and that is what we are doing. It is not a long ramp-up either. It is not like the gestation period for getting onto a medical equipment or an automobile or commercial vehicle. It is an immediate ramp-up kind of industry because the supply industry is behind. There is a need for more gigawatts of power in data centers than is in place, so it is an immediate ramp-up business for us. We are quite excited about it.

Very helpful. Thanks for the color there. Maybe shifting gears to transformation, with the heavy lifting behind you, including plant closures and exiting dilutive businesses, what does the roadmap for sustaining sales growth in 2026 look like?

Yeah. So roughly speaking, if you look at the 10-K and the numbers that Chris and his team have put out there, we are going to be doubling our capital spending. The biggest use of our free cash flow is cash interest to service our debt, and the second is CapEx, and so we are increasing the amount of CapEx that we are going to allocate to growth to really continue the paths that we are on. So this year, growth primarily, 85% to 90% is from new wins, and it is going to come from wins that preceded the beginning of the year. We are ramping up business that we already won. This year's wins primarily will benefit 2027 to 2028, with the exception of areas that are immediate ramp-up like data center, like defense ramp-ups that are happening right now, like the volume increases that are going on in commercial vehicle platforms where we are already approved. There is just an increased production rate. So 2026, we can see very well, Justin, and the new wins program for this year will create the outline for 2027 and 2028.

Great. Thanks. Good luck in 2026. I will turn it back.

Thank you, Justin.

The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Congratulations on all the progress. On the kind of the ramp of new business in 2026, I think your chart showed a pretty strong ramp of sort of full program kind of ramp rates. But what is the cadence of ramp in 2026 in terms of revenue this year versus future years?

Yeah. You want to take that one?

Sure. Obviously, when we are ramping up launches, it is not an immediate turn-on of the peak annual sales. So we are launching over 100 programs this year, and we would expect to see somewhere around between $20 million and $25 million of revenue from those launches that occur in 2026. But you also have to keep in mind that we launched programs in 2025 that will continue to escalate as well. But from launches purely in 2026, it will be between $20 million and $25 million of revenue.

Okay. Great. That is very helpful. And then on your CapEx outlook, I think doubling that would put it around $25 million to $30 million. What sort of CapEx activity are you planning, and what program areas do you need CapEx for?

You want to do that, Tim?

Sure. The bulk of our CapEx goes towards growth programs. We will be spending well over $15 million in growth programs, and it is not focused on any specific area. It is tied to a program launch and capability requirements within that. But 75% of our CapEx spending will be focused on capital required for launching new business. Does that answer your question?

Yep. Very good. Thanks, Tim. I guess one last question just on Q1 activity. You mentioned some strength in Q1. How much visibility do you have beyond that? Is Q2 looking strong as well, or is that really hard to say at this point?

We have released orders into the second quarter already, and we have, Rob, a real healthy backlog already. We have a shippable backlog that hit us a little bit by surprise with the strength that happened in commercial vehicles over the last few months. We have forecasts with our customers. Generally, we force specificity through our raw material lead times, so we can already see Q2. Yes. For Q3 and Q4, we do not have firm releases that go out that far, so we just have expectations from our customers, and it is looking to be very, very consistent with the sales guidance we just gave. I wanted to add another point to your last question, Rob, on CapEx. If you look at our net CapEx last year, it was about $10 million, and this year it is going to be about $20 million, and to Tim's point, it is primarily going to be on more growth, funding more growth programs that will help this year and next year, and primarily next year. Primarily, the capital spending for this year will help make 2027 larger because we are basically saying yes to more programs. In fact, we yesterday said yes to a pretty large program that was about $1 million of capital, for example, and it will take about six months to get the machine. It is one machine that we need, that we are out of capacity on, and we already have the load for it. The spending this year, primarily the extra spending, will primarily help next year. The $10 million kind of rate, we had already pre-spent that with programs that we were awarded last year. So absolutely inflecting up intentional growth in these target areas, and it is already hitting the first quarter.

Okay, great. Thank you. I will turn it over.

Thank you.

We will conclude our question-and-answer session, and I would like to turn back to Harold C. Bevis for any closing remarks.

Thank you, Chloe. Thank you, everyone, for staying on the phone for a bit with us, and we are pretty happy to report this update on the business. It is quite positive. It is a nice inflection point for us to be reporting on growth and growth and growth now, and we want to get more growth. It has been our game plan all along to get the ugly restructuring out of the way. We had to part ways with about 800 employees and sever them and pay those severances. We had to close four plants. But it is behind us, and we are thankful for that, and we have a more profitable, cash-generative company now, and we are using it to our advantage to be competitive in the areas where we want to. We are off to a good start. Thank you for your support, and we look forward to speaking with you again in the future. With that, we will end our call for today.

Thank you.