Good day and welcome to the NN, Inc. Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal the conference specialist by pressing Star, then Zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then One on a touch-tone phone. To withdraw your question, please press Star, then Two. Please note this event is being recorded. I would now like to turn the conference over to Mike Danahy. Please go ahead. Thank you, Operator. Good morning, everyone, and thanks for joining us. I'm Mike Danahy, Director of Investor Relations and Financial Planning. I'd like to thank you for attending today's business update. Our presenters this morning will be President and Chief Executive Officer Warren Veltman and Mike Felcher, Senior Vice President and Chief Financial Officer. Yesterday afternoon, we issued a press release announcing our financial results for the second quarter ended June 30th, 2021, as well as a supplemental presentation, which have 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 also contact Lambert & Company at 315-529-2348. 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 in the risk factor section in the company's annual report on Form 10-K for the fiscal year ended December 31st, 2020, and when filed, the company's quarterly report on Form 10-Q for the three months ended June 30th, 2021. The same language applies to comments made on today's conference call, including the Q&A session as well as the live broadcast. Our presentation today may contain forward-looking statements regarding sales, margins, foreign exchange rates, cash flow, tax rates, acquisitions, synergies, cash and cost savings, future operating results, performance of our worldwide markets, the impacts of the coronavirus COVID-19 pandemic 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 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 sections of the press release and in the supplemental presentation. Reviewing the agenda for today's call, Warren will provide a business update from the quarter, then Mike Felcher will provide a detailed update of the financial results before turning the call back over to Warren to discuss our segment results and markets, as well as the outlook for the remainder of 2021. At the conclusion of the prepared remarks, there will be a Q&A session. At this time, I will turn the call over to Warren Veltman, President and CEO. Thanks, Mike, and good morning, everyone. Before we get started today, I want to take a moment to welcome Mike Felcher for his first quarterly earnings call as our new Chief Financial Officer. Mike has been a valuable member of our finance team, working closely with Tom Dabaio to enhance our overall accounting and financial reporting functions, which has made this recent transition smooth and seamless. I have great confidence in Mike's ability and look forward to him participating in our investor outreach in the coming years. Now, if you would turn to page five, we will review some of the highlights for the second quarter. The second quarter marked a continuation of the recovery in our global markets from the depths of the pandemic in the second quarter last year. We generated strong revenue growth across both mobile solutions and power solutions as demand continued to rebound. This strong sales performance was essential in our ability to drive higher margins and improved financial results in the quarter. The strong rebound in automotive continued during the quarter despite the ongoing supply chain challenges, which particularly benefited our mobile solutions business, which grew an impressive 80% year over year. While we had strong growth across our business segments compared to the second quarter of 2020, I'll note that we faced increasing supply chain challenges within the quarter, which not only affected our customers' operations but our own operations as well. This was evident in the 2.9% sequential decrease in revenues compared to the first quarter. We continue to be flexible in our operations and responsive to the needs of our customers in light of the current market conditions as we work together to ensure we have adequate supply to maintain productions and meet the needs of our customers. The actions we took over the past year to improve operating efficiencies and reduce overhead and administrative expenses generated another quarter of solid results in both GAAP and adjusted financial results. During the quarter, our SG&A expenses declined to 11% of sales, which is a significant improvement from the prior year's second quarter and pre-COVID periods where sales were not adversely impacted by the pandemic. Additionally, we reinstated a number of employee benefit programs at the beginning of the year. We have maintained the streamlined cost structure that will benefit our operations over the long term. As we previously communicated, our first quarter refinancing has provided a stable financial platform with prudent leverage levels and sufficient liquidity. Our new capital structure has alleviated customer concerns regarding our financial stability that existed previously and provides us the ability to pursue investments for organic growth and tuck in acquisitions that will complement our strategic goals. Subsequent to quarter end, we entered into a cost-effective three-year variable to fixed interest rate swap to hedge our interest expense on $60 million of our debt. We did this to reduce our exposure to higher interest rates and, when factoring in our fixed rate preferred stock, achieve what we believe is the right variable versus fixed rate exposure. We also maintained our focus on working capital by increasing turns for the fourth consecutive quarter, which we expect to enable improved free cash flow over the longer term. While we saw a use of cash in our free cash flow in the second quarter, this amount included $9.2 million in payments related to the sale of life sciences. Turning to page six, we have summarized some of the other key highlights for the quarter. As I mentioned, our business continued its strong rebound from the significant impact of the COVID-19 pandemic as we once again posted solid year-over-year growth in the quarter. Sales for the quarter were $123.2 million, up 56.8% from a year ago. The improvement in sales volume, coupled with the operational improvements we have implemented, resulted in gains in operating income and EPS. Reported operating loss improved significantly to $1.6 million versus a loss from operations of $11.2 million one year ago. Non-GAAP adjusted EBITDA was $13.4 million, or 10.9% of sales, up from $4.9 million a year ago when adjusted EBITDA was 6.2% of sales. GAAP EPS from continuing operations was a loss of $0.17 per share versus a $0.49 per share loss from a year ago. The improvement in our results was driven mainly by the improved gross profit generated from incremental sales volume, along with reductions in SG&A and interest expenses, partially offset by the reinstatement of employee compensation, benefit programs, and other costs previously discussed. Our adjusted net income from continuing operations was $0.00 per share versus a loss of $0.24 per share in the prior year. Now, I'd like to turn it over to Mike Felcher so he can provide a more in-depth review of our financial performance for the quarter. Mike. Thanks, Warren. Please turn to slide seven, which provides a high-level view of our second quarter results along with the continued recovery in our sales trends. With a $44.6 million increase in revenue, we achieved an $8.5 million increase in adjusted EBITDA, which is lower than our normal range of variable margin flow-through of 30%-40%. This was primarily driven by rehiring of hourly and salaried employees laid off during 2020, reinstatement of costs suspended during the pandemic, and the impact of precious metals pass-through pricing. Looking at the bottom chart, we can see the continued recovery in our markets as reflected in our net sales. After falling dramatically in the second quarter of 2020 due to the impact of the COVID-19 pandemic and related production shutdowns at our customers, we have seen a rapid recovery over the past four quarters. We anticipate the recovery to continue in 2021 as we move past the pandemic-related impact and shift to more normal long-term growth patterns. Let's go to slide eight, which provides a look at our continued focus on working capital management. The improvement in working capital turns has continued with higher sales and continued prudent working capital management as shown here. Net working capital at the end of the second quarter was $110.1 million compared to $114.8 million in the prior quarter, a decrease of $4.7 million. Despite the reduction in net working capital, inventory increased by $7.2 million as we made a conscious decision to build inventory to prevent supply chain disruption impacting our customers. We anticipate consuming the inventory build once the supply chain disruption we are experiencing is resolved. Working capital turns were 4.5 turns versus 3.0 turns in the prior year as a result of the strong recovery in sales from the prior year. Sequentially, working capital turns continued to improve from 4.4 turns in the first quarter. Turning to slide nine, we highlight the disciplined approach we have taken to capital expenditures over the past year as we remain focused on prudently managing our cash while continuing to fund growth-related investments. You can see we have increased CapEx compared to 2020 as we resumed a more normal level of investment as volumes recovered. The $5.5 million in CapEx for the quarter is in alignment with our expected net investment of $22 million for the full year. Cash capital expenditures were $5.5 million, or 4.5% of sales for the second quarter, compared to $2.6 million, or 3.3% of sales in the prior year. I'd also note that CapEx of approximately 70% of depreciation remains below our historical spend levels. We are focused on efficient utilization of our existing asset base. In the event we identify an opportunity to monetize an underutilized asset, we would use the proceeds to supplement our expected investment level. For example, we sold a facility in Q3 2021 for approximately $1 million and are evaluating opportunities for further investments in automation with the proceeds given the current labor market constraints. Slide 10 shows a chart of our free cash flow for the quarter. Free cash flow was a use of $7.5 million in the second quarter of 2021 compared to a net cash inflow of $1.2 million in the prior year. Our free cash flow was negatively impacted by $9.2 million of cash payments related to the sale of the life sciences business, which was primarily driven by a tax payment related to the gain on the sale of the business. During the second half of 2021, we expect to receive a net tax refund of approximately $10 million due to lost carrybacks under the CARES Act, partially offset by an additional tax payment related to the life sciences sale. We remain focused on managing our working capital and capital expenditures while improving our profitability to further improve free cash flow generation. Please turn to slide 11. Net debt at the end of the second quarter was $133.2 million versus $767.9 million in the prior year, a decrease of $634.7 million. The reduction was due to the debt paydown following the sale of life sciences as well as the impact of our recent refinancing. Our net leverage ratio stood at 2.15 times at the end of the second quarter, down from 6.06 times a year ago. The preferred stock component of our capital structure, allowing us to maintain a leverage ratio below three times, supports our long-term growth initiatives by alleviating concerns from customers and suppliers regarding our financial stability. Turning to our overall liquidity, we have nearly $67.5 million of liquidity, including cash and availability on our revolver as of June 30th, 2021. Compared to the first quarter of 2021, we saw a reduction in our cash balances due in large part to the tax payment relating to the gain on life sciences during the quarter, while our availability increased modestly as a result of available assets to support the ABL, which remains undrawn. With that, I will turn it back to Warren. Thank you, Mike. On page 13, we outline our view of current market conditions within each of our operating groups. Within mobile solutions, we have seen continued strong demand for vehicles, including demand among consumers for light trucks and SUVs, with global production expected to increase approximately 10% in 2021. In addition, battery electric vehicles are now expected to take a 10% share of global production by 2024. We remain well-positioned to take advantage of this trend with our product offerings of electrical connectors, terminal tabs, safety disconnect components, and bus bars, along with electric motor worms and shafts and other high-precision components for electric power steering and regenerative braking. Industry inventory levels are also at their lowest since 2009, currently less than 1.5 million units or 30-day supply. With these positive demand drivers—excuse me—while these positive demand drivers are important, I would also note the industry is still grappling with an ongoing semiconductor shortage, which impacts a variety of applications within each vehicle, as well as shortages of more specialized materials such as specialty stainless steels, which impact throughput at the OEMs. From an industrial perspective, the medium and heavy truck markets continue their steady growth in North America, Europe, and China, which has driven demand for diesel engines. We have spoken in the past about China's CN6 emission standards, which originally had a deadline in July 2021. The latest indications are that these new standards have been modified such that existing inventories of components may still be sold in the market, providing some breathing room for our key customers in this space. Within power solutions, we see long-term demand drivers as municipal and privately owned power companies are pushing to address aging infrastructure to prepare for new emerging technologies needed under the smart grid. We see emerging demand for power and related infrastructure, particularly with increased adoption of electric vehicles for private and commercial use. These new demand sources for electrical power will mean new charging infrastructure as well as storage infrastructure to meet the evolving demand. While the current administration and Congress continue to negotiate the details of an infrastructure deal, we remain optimistic that the final plan will include investments in technology and power infrastructure, along with incentives to adopt more green technology that will benefit our business over the long term. Ultimately, the markets are aligned and supportive of our 2025 transformational growth initiatives. We have presented additional information for each of our operating groups, starting with mobile solutions on page 14. Mobile solutions sales grew 80% in the second quarter from one year ago as we saw continued recovery from the pandemic as well as strong growth in diesel component demand driven by e-commerce logistics. GAAP operating profit for the second quarter was $2.5 million compared to an operating loss of $4.6 million in the prior year. Adjusted EBITDA increased to $11.1 million, or 15% of sales, from $4.1 million, or 10% of sales in the second quarter of 2020. The increased profitability was driven by the higher sales volume, improved margins resulting from our cost improvement initiatives, and the positive impact of our China joint venture, where sales increased to $22.3 million in Q2 2021 from $14.7 million in Q2 of 2020. These positive factors were partially offset by the resumption of certain costs suspended in the prior year, including employee salaries, benefits, bonuses, and the resumption of travel expenses. The second quarter last year reflected hourly and salary employee layoffs during the peak of the pandemic, the majority of whom have returned to work as of the second quarter of 2021. Looking forward, we see continued strong demand in all regions despite the semiconductor shortage impacting the automotive industry currently. Our focus will be on free cash flow generation through disciplined capital spending and working capital management. In addition, we see a solid foundation for our long-term growth with continued recovery in global auto production, which will benefit our customer base. On page 15, our power solutions group experienced a 31.4% year-over-year increase in sales in the second quarter, which was primarily due to higher demand within the end markets negatively impacted by the COVID-19 pandemic in the prior year. Sales were also positively impacted by increased selling prices for precious metals due to the sharp rise in the underlying silver and gold costs since 2020. On a sequential basis, power solutions recognized a modest $200,000 of sales improvement over the first quarter of 2021. GAAP income from operations for the second quarter was $2.9 million compared to $1.5 million in the prior year. Adjusted EBITDA increased to $6.8 million, or 13.7% of sales, from $6.2 million, or 16.5% of sales in the prior year. As with mobile solutions, power's profitability was also impacted by the resumption of certain costs reduced or suspended in the prior year. Margins were also impacted by precious metal cost increases, which convert the selling price at lower margin, driving down overall margins by approximately 2% in the second quarter compared to one year ago. Looking forward, we continue to see consistent demand trends in power solutions, and management's focus will center on supply chain management, labor productivity, and free cash flow. Longer term, we are encouraged by the continuing shift in the power generation side toward renewable energy resources, which have now surpassed coal within the U.S. power supply. Renewable energy generation is a driver to the power solutions business as utilities need innovative storage solutions to balance the generation of solar and wind energy with demand. As I conclude my remarks on page 16, we share our outlook for the remainder of the year. With the continued uncertainty surrounding the COVID pandemic and related recovery, as well as the recent industry supply chain issues, we are still not in a position to resume formal revenue or earnings guidance at this time, but we wanted to share how we see the second half of 2021 unfolding. We expect a consistent sales environment for the second half of the year compared to the strong post-pandemic recovery seen in the first half, with an adjustment for normal fourth quarter seasonality. We will continue closely monitoring industry and supply chain conditions, particularly with regard to semiconductor issues facing the automotive market. We are fully engaged in achieving synergies between our mobile solutions and power solutions business, both in terms of sales and operations, leveraging client relationships and operational best practices across the organization. We have a stable long-term capital structure in place to support our growth, which is now enhanced by an interest rate swap to hedge potential rate risk. This foundation provides us the flexibility to invest in our growth opportunistically, both organically and through smaller tuck-in acquisitions. Cash generation will remain a priority as we exercise a disciplined approach toward operational efficiency, capital expenditures, and working capital. We will also evaluate opportunities to optimize our production footprint, targeting organic growth to fill current capacity or rationalize as needed. As for specific measures underlying our 2021 outlook, we continue to anticipate net CapEx of approximately $22 million and expect depreciation of approximately $33 million, amortization of approximately $14 million, and cash interest expense of approximately $12 million. In summary, we are pleased with the continued momentum across our business segments, with solid growth in revenues and income compared to the prior year. We are now positioned to grow our business, improve profitability, and deliver increased shareholder value. This concludes our prepared remarks, and I will now turn the call back to the operators for questions. We will now begin the question and answer session. To ask a question, you may press Star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star, then two. At this time, we will pause momentarily to assemble the roster. The first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Good morning. Morning, Rob. Morning. Just first wanted to kind of clarify your comments on some of the supply chain challenges you were managing, I guess, internally in particular. You sound like you managed them pretty well in the quarter. Are those still in flux, and kind of could you tell me what the challenges are? Yeah, sure. I mean, first and foremost has been the semiconductor chip issue impacting our customers. During the second quarter, we had several instances where we had customers shut down their facilities during the quarter, obviously limiting our ability to provide them product and honestly impacting the efficiency of our operations with more of a start-stop type of an approach. In addition, Rob, we've had several instances where we've had customers, because of COVID-related issues within their facility or other supply issues that they're struggling with, notifying us that they would expect to be short on deliveries of the raw materials that we utilize in our manufacturing processes. Now, when that happens, obviously, we look for another source of supply, but given in instances the specialty nature of some of the alloys that we machine, sometimes it's difficult to get a replacement. In that case, we work directly with our customers to find another solution. Fortunately, during the second quarter, we did not have any significant interruptions as a result of those types of situations. Okay. Great. Great. In terms of kind of the EV growth, could you give us a sense of the kind of chip set increase you have on a per-vehicle basis for an EV versus maybe a regular vehicle or just some gauge of what an EV growth really means to you? I think that's still as the electric vehicle car evolves, I think that's still certainly moving around a little bit as the OEMs become more efficient in the transfer of power within the vehicle. As we look at it, certainly we think that there's significant opportunity, especially on the power side. I listed some of the types of components that we have the ability to manufacture for an electric vehicle, and certainly our teams are pursuing that rigorously at this point. Okay. Great. Thank you for the color. I'll turn it over. Yep. As a reminder, if you have a question, please press Star, then one to be joined in the queue. The next question comes from Steve Barger with KeyBanc Capital Markets. Please go ahead. Hey, good morning, guys. It's Ken Newman on for Steve. Yeah, good morning. I just kind of wanted to circle back to the stop-start comments that you'd made, obviously, in probably the auto sector. Can you just quantify what the impact the supply chain challenges were to revenue and EBIT in the quarter, and what are your expectations for that persisting into the third quarter? Yeah. I would tell you, obviously, when we look at the second quarter, the falloff from the first quarter, I think, certainly can be attributable to some of the semiconductor chip issues. As we look out into the balance of the year, we're still seeing we've kind of extended our outlook on that given the fact that we're still seeing issues. Our customers are still experiencing issues. You've seen General Motors talk about the fact that they've had to, in certain instances, idle briefly some of their production lines on the truck side. If they're doing that, you know that the semiconductor chip issue is still prevalent. If Apple is having difficulty getting chips for their phones, it is still an issue for us in the third quarter. That's why, as we look at the volumes in the third quarter, we are still a little bit cautious. That is one of the reasons that we have hesitated to give additional guidance because of the interruptions that we are still seeing as a result of that. From a longer term, we still think that this is going to be an issue in the third quarter and probably will not be fully resolved until the latter part of the fourth quarter or the beginning of 2022. Right. When I think about that in the context of the plant inefficiencies, I mean, how do you view running your plants? Are you expecting to run that at a normalized schedule if there's volumes and manage the costs or any way that you can kind of help us think about potential improvements in margins given the limited visibility? Yeah. For us, as our businesses, as our facilities run, and most of them run in a repetitive type of environment on the auto side, certainly consistency in supply is important for us to fine-tune our facilities. When customers pull out a significant portion of their volume with very short notice due to some plant shutdown or that type of an issue, it's a little bit harder for us to react, especially as it relates to our inventory levels and the flexing down of our variable costs involved in the business. If we can have a more stable environment, certainly we can become more efficient. I can't specifically quantify a margin issue for you, but I would tell you we've talked in the past as it relates to the positive impact of incremental volume on the business being in the 30-40% incremental contribution to EBITDA or gross margin. We still certainly think that that's an appropriate metric in which to use. Okay. I guess tying this together, if the back half revenue is expected to be similar to the front half, is there any way that you can kind of help us contextualize what the step-up in operating income should be for the second half versus the first half? I guess I'm trying to also get a better sense of if you'd expect adjusted net income to be greater than break-even in the second half. Yeah. We're not going to give guidance on that. I would tell you that some of the factors that come into play for us certainly will be the volume that we talked about. I mentioned the seasonality in the second half of the year, normally during the Thanksgiving and the Christmas holidays, where we could potentially lose three to four ship days in comparison to the first year. Certainly, I think all the cost drivers in the business at this point in time, we don't expect to change considerably, at least upward. There's still opportunities to improve the business and improve the margins. We're still seeing improvement, as you saw this quarter, in our overall selling, general and administrative expenses and some of the indirect type of costs that we have. We're still seeing improvement there. Okay. Maybe just one more, then I'll jump back in queue. You talked a little bit about benefiting from buying ahead on inventory. I'm curious, just how much of an inventory step-up are you looking for in the second half and just your confidence and your thoughts on the potential of being free cash flow positive ahead of the working cap build? Yeah. Mike, do you want to address that? Yeah. From an inventory perspective, both in Q1 and Q2, primarily on the mobile side, we had an inventory build where we had some favorable overhead absorption. The favorability in Q2, from an overhead standpoint, it was favorable, but it was less favorable sequentially than Q1. Really, our ability to monetize that inventory in the second half, that inventory build was largely to protect our customers with the supply chain disruption factors, as we noted. Our ability to monetize that in the second half, as Warren said, is going to be dependent on how things materialize from the supply chain chip shortage standpoint. If that's largely resolved, we would expect to be able to reduce that inventory to normal year-end levels and monetize that investment we made in the first half. Got it. Thanks. This concludes our question and answer session. I would like to turn the conference back over to Warren Veltman for any closing remarks. Yeah. Just like to thank everybody for participating in the call today. Certainly, we'd like to thank the NN teams around the globe for continuing to provide value here in a very difficult environment with the interruption supply and certainly the ongoing dealing with the COVID pandemic. Certainly appreciate their support over the last quarter. With that, we'll conclude the call with just a final thanks. Appreciate the time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.