NN - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered pro forma stability but headline declines: net sales $105.7M (-12.8% YoY; -1.3% YoY pro forma), adjusted EBITDA $10.6M (10.0% margin), and adjusted EPS $(0.03).
• Against S&P Global consensus, revenue missed ($105.7M vs $109.7M*) while Primary EPS modestly beat ($(0.03) vs $(0.0367)*)—a small upside on EPS, offset by top-line softness due to rationalization, the Lubbock divestiture, lower volumes, and FX.
• Management lowered FY 2025 net sales guidance to $430–$460M (from $450–$480M) on macro/GDP uncertainty, reaffirmed adjusted EBITDA $53–$63M, and initiated free cash flow guidance of $14–$16M (including CARES Act refund).
• Near-term catalysts: 120 program launches worth $55M peak annual sales ramping through 2H’25 and the completed refinancing (ABL + term loan) extending maturities to 2030 to support transformation and FCF improvement.

What Went Well and What Went Wrong

• What Went Well

  • New business momentum: $16.4M wins in Q1; 120 programs worth $55M (peak annual sales) launching in 2025 to bolster 2H revenue and structurally improve mix. “We now have 120 programs that we've won ramping up this year worth $55 million in annualized sales”.
  • Cost actions tracking: ~$15M 2025 cost reduction program progressing; adjusted operating income improved to $2.0M from $(0.7)M YoY; adjusted EBITDA margin rose to 10.0% (vs 9.3% YoY).
  • Balance sheet flexibility: successful two-step refinancing—$65M ABL and $118M term loan, both to 2030—supports pivot and FCF, with FCF guidance initiated at $14–$16M.

• What Went Wrong

  • Headline revenue decline: net sales fell 12.8% YoY to $105.7M, missing consensus and driven by rationalization, the Lubbock sale, lower volumes, and FX; pro forma revenue was down 1.3%.
  • Lowered net sales guidance: FY 2025 net sales cut to $430–$460M on U.S. macro/GDP uncertainty; management expects EBITDA toward the lower half of range absent stronger base volumes.
  • Segment pressures: Power Solutions profitability impacted by unfavorable mix and precious metal pass-through (compressing margin rates), and Mobile Solutions revenue reduced by Juarez closure and lower auto volumes.

Transcript

Operator (participant)

[Today], and welcome to the NN, Inc. First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 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 touchstone 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 call over to Mr. Stephen Poe, Investor Relations. Mr. Poe, the floor is yours, sir.

Stephen Poe (Analyst)

Thank you, Operator. Good morning, everyone, and thanks for joining us. I'm Stephen Poe with NN, Inc 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 first quarter ended March 31, 2025, 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; Chris Bohnert, Senior Vice President and Chief Financial Officer; and Tim French, our Senior Vice President and Chief Operating Officer. Please turn to slide two, 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 in the risk factors section in the company's quarterly report on Form 10Q for the fiscal quarter ended March 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, 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, including the potential impacts and ramifications of tariffs, the impacts of pandemics and other public health crises, and military conflicts on the company's financial condition, among 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, 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. The 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 three, and I will now turn the call over to our CEO, Harold Bevis.

Harold Bevis (President and CEO)

Thanks, Stephen, and good morning, everyone. I'd like to address a few key points at the beginning of the update today. The first point is regarding market demand, tariffs, and new business. Business uncertainty increased during the quarter and since we last reported, and that caused us to have lighter sales than planned in Q1 at a few customers, especially in global automotive, which is now about 40% of our sales. Quite a few public companies in our segments are reporting down sales and negative outlooks. We're reporting flat sequential sales and flat year-over-year sales on a pro forma basis. We're able to do that due to our successful new business program, which keeps delivering results, gaining share, and gaining new positions.

During the quarter, we did see our base business softening, and we shifted our business development focus onto closing and winning immediate ramp-up sales, and it's working well. We nicknamed it the PIGS program for Profitable Immediate Growth Strategy, and it was a focus on immediate ramp-up business, and the complexion of 2025 already looks different. We now have 120 programs that we've won ramping up this year, worth $55 million in annualized sales, which is a steep increase since we last reported. Our biggest new win is in industrial products, where we will convert certain automotive production assets over to produce these new products. This $55 million in new business is ramping up during the remainder of 2025, and it adds to whatever our base business will be.

At this point, we're assuming a flat base business market environment from our legacy customers with this additional layer of business. It bolsters our outlook, and it gives us confidence to reconfirm our guidance, which Chris will walk through. This has turned out to be a speed bump, not a roadblock, and we're working through it and winning immediate business. If our base markets improve, then it's all the better and will add additional to our outlook. The second point is on operations. Given the base business uncertainty, we decided to go ahead and increase the amount of cost reduction that we have underway for 2025. Our operations team is well underway with this, and we've already actioned many staff reductions during Q1, which will further bolster our profit rates in Q2, Q3, and Q4. Tim French is going to cover that in a few minutes.

We've progressively increased our cost-out plans and new product launch plans from 2023 to 2024 and now to 2025, and we're on track for this year's $15 million cost reduction plan, as well as the 120 ramp-up plans, which almost every plant is participating in. It gives us confidence with the rest of the year and gives us a good carry-in for 2026 as well. Our third point is that the combination of our commercial performance and operational performance gives us confidence to update our 2025 guidance and five-year goals. We are reiterating our full-year guidance for EBITDA and for new business awards, and we're initiating free cash flow guidance at $14-$16 million.

In the first quarter, we cannot be aggressive with our cash management activities as we refinanced our ABL at the very beginning of the quarter, and we refinanced our term loan at the very end of the quarter. We kept our balances comfortable to fund all activities and go through bank transfers. This was temporary, and it's not the case going forward. Our fourth point is that our company transformation is on track. On the commercial side, a key point to remember is that we have a significant amount of open capacity globally. We're largely running one-shift operations everywhere in the world, and this enables a full-blast new business program for existing products. We're set up to pursue a wide spectrum of additional business for legacy products. On the pivoting side, we're selectively adding new assets that are market-based for those products.

This balanced program of both leveraging existing capacity and know-how, as well as adding new capacity in certain areas, is working well. We have now won $160 million of new business, and we have kept our growth CapEx spending modest, and we continue to gain momentum in our new targeted areas, and we are going to cover that today as well. On the operational side, this one-shift plant situation gives us many opportunities for footprint optimization, and we are progressively squeezing the redundancy and excess cost from our global cost and working capital structures. We have a full program for 2025, but we also are opportunity-rich on a go-forward basis. I would like to say that a key summary point is that we are optimistic about both 2025 and our long-term goals, and we look forward to discussing them with you.

Please turn to page four, where our CFO, Chris Bohnert, will cover some key performance metrics. Chris?

Chris Bohnert (CFO)

Thank you, Harold. We added this slide to focus on some of our key metrics first. I'll get into our more detailed quarterly results later. First up is our net sales for the quarter. As Harold mentioned, we were flat on a pro forma basis and roughly flat sequentially from the fourth quarter. Our adjusted gross margins were 16.9%. We feel like we're on track to hit our five-year goal in the 19%-20% range as we continue our cost-out programs and layer in new business in the coming quarters and years. Our adjusted operating income was actually positive at $2 million, which was an increase of $2.7 million quarter on quarter. Our adjusted EBITDA came in at $10.6 million, and as Harold mentioned, we're reconfirming our guidance in the range of $53-$63 million for the full year of 2025.

Adjusted EBITDA margins came in about 10% for the quarter, on track with our five-year goals in the 13%-14% range. We also spent a lot of time working on working capital. Tim will cover this in more detail, but our working capital through the first quarter was $84.8 million. It's on track for our goals to be down $4.6 million year-on-year. Our working capital as a percent of our trailing 12-month sales is 19.1%, and that's down considerably, as Tim will talk about here shortly. New business wins came in at $16.4 million. We're again reconfirming our guidance there in the $60-$70 million range for the full year. We also obviously track cash CapEx and cash very closely.

Cash CapEx for the first quarter was $3.9 million, and we're roughly going to target about $10 million for the full year, keeping it pretty stringent for the year. Those are just a few of our key metrics. I'll talk about the quarter in more detail, but with that, I'd like to turn it back over to Harold.

Harold Bevis (President and CEO)

Thank you. One of our key charts that we've been providing updates around is our transformation plan and our tracker. Our enterprise transformation is roughly 70% complete after our first seven quarters, and we're on track with our targets for the full year of 2025. Going down the list, we're about 90% complete with enhancing our leadership to mirror our new Ford agenda. Secondly, we've been isolating and actioning against the underperforming parts of the company. These are customer-specific, program-specific, and plant-specific. This requires aggressive customer interactions, arriving at mutual agreements to either improved economics or professional transitions. We're about 70% complete with this. We nicknamed this the Group of Seven because it was concentrated into seven plants, and 2025 will be a turning point for those plants, and they will deliver positive margins for us.

Margin expansion is a result of these fixes, but also leaning out of our cost structures globally. We call it our One Team program, and it's a multi-year endeavor with a strong 2025 game plan that's underway, and we're about 60% complete with that. To make our turnaround a little bit more challenging, we inherited a debt structure that was nearing the end of its life expectancy, and we were able to extend the duration of our capital structure for another five years. Along the way, we learned that we had plenty of options to alter the complexion of our China operations, and we are underway with doing this. This will materially help our domestic debt profile. The last point is regarding organically growing sales.

You need to follow the comparatives here as we sold the Lubbock business in July of 2024, and we began rationalizing money-losing business in multiple plants in 2024. We call it price clearing, and if we could get the prices we needed to keep the business, we did. This is largely done, and we're on a pro forma basis, as we've reported, and Chris will characterize we were flat in the quarter. Conversely, on a go-forward basis, we have about $55 million in new business that's launching now, and we have likely another $100 million in 2026. We believe we're at a turning point here. We're calling this about 60% complete because it's yet to happen, although we have a tremendous amount of business in hand.

Turning to page six, I would like to talk a little more deeply about our new business program due to the importance of it. We wanted to be more transparent about exactly what we're doing, and we get a decent amount of questions about this, so we're sharing more specifically today. Here you can see our overall plan, our specific targets, and our specific status against those targets. Our targets are based on leveraging our significant open capacity, which is largely CapEx-free when we quote it, as well as our most investment-intensive portfolio pivots. It's almost tautological that to increase our positions in new areas, we need something new. For us, it's generally a few people and some specific investment. We're doing this progressively. I wanted to point out a few key items for you.

First, about half of our prospecting and half of our pipeline is into new areas. If you add up the sum of the columns, you'll see that. It's almost exactly half. We're gaining steam in medical, and we're on the verge of a few large foundational wins. Medical, to get back into medical, we've had to do a lot of reapproval and reacquaintances and renewing our approved supplier status. To a large extent, we're through that. In this area, we are almost one-for-one needing additional machines as we gain business, at which we are. We've had a lot of wins in the industrial market this year, as another point. They're largely immediate ramp-up. In fact, our largest win of the year is an industrial products win. There has been a global rebalance amongst our automotive business and our customers between ICE, EV, and hybrid.

We read a lot about it in the U.S., but it is indeed global. Basically, the kind of rapid transitions that we're underway have all slowed down globally, and it's more of a calm business development environment. Turning to page seven here, we wanted to share some summary facts and figures. A key point to make is that we're progressively winning a higher amount of programs with a higher amount of revenue. If you see the statistics here, we won 118 programs in 2023, 188 programs in 2024, and we're on pace to win over 200 programs this year. It's a steady increase in performance, and we're steadily adding people that have relationships that we don't have or product knowledge that we don't have, and we continue to open new doors with new and existing teammates.

Another interesting point is that our new business prospects and activity have not slowed down with global uncertainty and the tariff wars. Not at all. In fact, our activity has increased, and we are now also getting a decent amount of tariff RFQs on top of our own prospecting. Some of the RFQs are quite large and would alter our game plans, and we're participating in those that fit us. We're well along with multiple targeted RFQs that are at the contracting stage, so we look forward to continuing to report out on this. Our prospecting pipeline also continues to increase in size. We're not necessarily chasing that. It is a byproduct, though, of our activity, and it's now almost $750 million and well-balanced.

This part of our game plan is working quite well, and we can foresee that our pipeline will continue to grow as we get better and better at this game. Please turn to page eight, and we wanted to give further insight into a couple of new business win areas by sharing two vignettes with you. We get a decent amount of questions around medical, and we wanted to share about medical, what we're doing. We wanted to show exactly where our metal part-making know-how is ending up in the medical market. A big area for us is in the extremities and instruments markets, which are metal-based. It's funny to say it, but you're obviously not going to find plastic parts going in for these activities. They have to be sterilized. They have to be rigid. They just have to work, and they're metal.

It fits right into our metal-making know-how. Our number one product in the first quarter is the ratcheting handle used in shoulder surgery kits, and you can see the picture here. If you look at the picture at the bottom of this page, you'll see that it's the same basic shape as a rack and pinion shaft. Hence, the extrapolation of our know-how to make long, thin, high-tolerance parts is transferable to this market. It needs a slightly different machine, unfortunately, as it turns out, but it's a close cousin to what we already do and already know how to do, and it's easy for us to get into that game. That's an example of our top metal part that we've made for the medical business.

We now have a $40 million pipeline, which is a peak pipeline since we re-entered this business, and we're quite optimistic about the rest of the year here. On page nine, similar to our other plants, our NN plant in France has been a one-shift operation with ample open capacity. For those of you that follow France plants, it's also a short work week, so it's a lot of open capacity. We have been very actively prospecting for additional business, and we've had three recent wins there that financially correct this plant. The wins are listed here. I'm not listing the customers, but we're now underway with three ramp-ups in that plant, which will financially turn the plant around, and it will become accretive for us on an EBITDA and a positive free cash flow basis.

That's just a couple of examples to share with you, and we'll take your feedback on whether you want more of this or less of this as we go forward, but we wanted to share the direct impact of the new business and what it's doing for us. With that, I'd like to turn it over to Tim French, who's going to walk through our operational performance. Tim?

Tim French (SVP and COO)

Thank you, Harold. Good morning, everyone. On slide 10, the operations team continues to focus on achieving the cost reduction targets in an effort to improve our EBITDA and cash flow metrics. A key aspect of this initiative is right-sizing our workforce in all the areas of the company: direct, indirect, salaried, and SG&A. The data on the slide demonstrates the progress that has been made since Q2 2023. Total headcount has declined 16.1% during that time period, which is equal to about 525 net head reductions. Sixty-seven are salaried or SG&A positions, which is a 16.5% reduction in this category. It also should be noted that during this time period, excuse me, some areas, such as our APAC region, added employees to handle significant growth they were experiencing. These additions, although necessary to effectively run the business and meet customer demand, muted the impact of the overall reductions.

The key metric on this slide is the impact these actions have had on our adjusted EBITDA per salaried headcount. This metric has increased significantly from $115,000 in the first quarter of last year to $142,000 this quarter. This is a 25% improvement over the last 12 months, and it's a prime example of our efforts to right-size and improve the efficiency of our team. Our efforts in this area are continuing. Direct labor will always need to flex to reflect demand. However, we are continuing our One Team implementation, creating a shared service infrastructure across facilities to support our manufacturing operations. This will allow us to progressively improve the efficiency of our salaried and SG&A workforce and better match our team to the needs of a company the size of NN. In subsequent earnings calls, I'll be excited to talk to you about additional actions planned for 2025.

Now, turning to slide 11, another area of focus has been reducing our working capital requirements, which has had a favorable impact on our free cash flow. Overall, working capital has been reduced by 20%, or $21.6 million, over the last nine quarters, and $4.8 million compared to Q1 of 2024. Working capital as a percent of revenue finished at 19.1%, which is down from 22.4% in Q1 2023. Again, we are not done focusing in this area. Our goal is to further reduce working capital by an additional $5 million over the next two quarters, with our ultimate goal of reducing it to 16%-17% of revenue. Overall, we are happy with our progress in these two areas, but we're not finished. We know there is more to be done to reduce our cost structure, improve our profitability, and generate additional free cash flow.

Before I turn it over to Chris to review our financial performance, I'd like to give a brief snapshot on the start of Q2. April finished strong with our consolidated volumes exceeding our internal forecast. Our finishing operation had its best revenue month since June of 2022. Our key North American machining facility had its best ship month since March of 2022. Our medical facility had its best ship month within the last 12 months. We are optimistic that what we are initially seeing in April will represent the balance of the year. With that, I'll turn it over to Chris to review our financial performance. Chris?

Chris Bohnert (CFO)

Thank you, Tim. Similar to last quarter, I'll be presenting information on both a GAAP and pro forma basis to provide transparency into our operating results due to the recent changes, such as the sale of the Lubbock facility back in July of 2024 and the exit of a certain unprofitable business, which we call rationalized volume. We hope this presentation will be indicative of how we're making changes and decisions to transform NN over time. I'll start on slide 12, where I detail the financial results for the first quarter. This slide shows our as-reported GAAP and non-adjusted numbers on the left side. We have again lined out the pro forma adjustments to our quarterly results in the table in the middle, with our quarterly pro forma results on the right side of the table.

The pro forma adjustments include last year's contribution from the Lubbock plant, which was sold in July 2024, rationalized sales volume, the impact of foreign currency translation. Last year's quarter included $5.4 million of net sales and $0.6 million of adjusted EBITDA associated with the Lubbock plant. Strategically, rationalized volumes of unprofitable business totaled $5.9 million in the prior year, and a $2.8 million impact from FX rounds out the three pro forma changes that we highlight. On an as-reported basis, net sales for the quarter were $105.7 million, declining $15.5 million versus last year's first quarter. As we note here, on a pro forma basis, accounting for the items I noted earlier, net sales modestly declined 1.3%, or $1.4 million. Our adjusted operating income for the first quarter was $2 million, marking an increase of $2.7 million compared to the loss of $700,000 in the prior year first quarter.

On an adjusted pro forma basis, operating income increased $2.5 million. Adjusted EBITDA results for the quarter were $10.6 million compared to $11.3 million for the prior year period. On a pro forma basis, inclusive of the impacts I outlined earlier, our adjusted EBITDA was flat with the prior year first quarter, as we were able to drive profitability through solid operational execution. I'll now turn over to our segment results, starting on slide 13. In our power solution segment, where our business consists largely of stamped products, net sales for the quarter were $43.5 million, down $4.7 million compared to $48.2 million in the prior year period, due primarily to the impact of the Lubbock facility and $800,000 of unfavorable impact from foreign exchange translation. These items were partially offset by volume and mix, with precious metals pass-through driving much of that increase.

On a pro forma basis, excluding the contribution from Lubbock, first quarter net sales increased $1.5 million, or 4%, as noted in the charts on the right. Power solutions' adjusted EBITDA results of $6.3 million declined $1.5 million versus last year's first quarter of $7.8 million, driven by the non-recurrence of Lubbock's contribution and unfavorable mix. Adjusted EBITDA margins on a percentage basis tend to compress during periods of rising precious metal costs. However, these costs are passed through to customers. On a pro forma basis, our power solutions' adjusted EBITDA results were down $0.7 million compared to last year's first quarter, with the slight year-over-year comparison driven by the same volume mix factor I noted with precious metals.

It's worth noting that during the quarter, we bolstered our power solution sales team, strengthening it with additional industry experts, and thus far, we have seen immediate increases in our new business pipeline for industrial stampings. Our team has achieved multiple new wins year to date through April, a number of which have immediate launches this year. In order to support our continued progress and new business growth, we have been strategically adding physical assets and equipment, and we intend on continuing this pace as we go forward. Now, turning to slide 14, highlighting our mobile solution segment, which covers primarily machine products, our machine products business. The net sales for the first quarter were $62.2 million for the period, compared to $73.1 million last year in last year's first quarter.

Net sales comparisons were impacted by the rationalized business of $5.9 million, lower automotive volumes of $3 million, and unfavorable foreign exchange impacts of $1.9 million. On a pro forma basis, net sales of $62.2 million were down $3.1 million, or 5%, compared to pro forma net sales of $65.3 million in last year's first quarter. The decline was driven largely by lower overall volumes in the automotive business. Our first quarter adjusted EBITDA in the mobile solution segment was $8.1 million, down $0.5 million from last year's first quarter on an as-reported and pro forma basis. The slight decrease was due to lower volumes and foreign exchange impacts. While our adjusted EBITDA results showed slight compression, our cost-out actions and the ongoing reprofiling of our sales mix drove a notable increase in our adjusted EBITDA margins to 13%.

The margin growth is also supported by the right-sizing of our cost structure to more appropriately fit the business where we're headed, which Harold touched on earlier in the call. As we look ahead, our new business wins for the segment are outpacing our plan in Q1. We installed new machining equipment dedicated specifically to our medical business, and we are utilizing capacity converted from strategically rationalized automotive business. We have also recently won new programs that are set for launch in the first quarter of 2026, which will contribute $5.6 million in peak sales. We will use this freed-up capacity to serve these wins from the industrial market. Slide 15 presents our updated outlook for 2025, which I noted a few items earlier this morning.

Given the uncertainties that have negatively impacted U.S. GDP in the first quarter, we now expect net sales between $430 million-$460 million due to current economic uncertainties and a lack of transparency on volumes, primarily in the North American market. This is going to be partially offset by our SOPs during 2025, stemming from new business awards from prior years. We have no change to our adjusted EBITDA range of $53 million-$63 million. However, as we mentioned previously, we expect future market conditions to push our results to the lower half of the range. Countering this, we're going to step up our cost-out program, which we believe will help offset the impact of lower net sales. New business wins remain unchanged between $60 million-$70 million. Our Q1 2025 results have NN on pace to achieve full-year guidance, and we anticipate maintaining this pace through 2025.

Finally, we're initiating free cash flow guidance in the range of $14 million-$16 million for the year. This reflects the impact of our cost-out actions, improved margin capture, and anticipated proceeds from the CARES Act. With that, I'll turn the call back over to Harold for some final remarks. Harold?

Harold Bevis (President and CEO)

Thanks, Chris. On page 16, I wanted to remind our investors of the pillars of our five-year plan to drive profitable growth and convert that into improved sustainable shareholder value. Our plan still remains intact. The kind of volume speed bump we had in Q1 here just only caused us to be recommitted and reconvicted to the successful outcomes. We have listed our near-term progress against each of them, and we are fully committed to it. Thank you for paying attention here and listening to us. We will now turn the call back over to the operator for questions. Mike?

Operator (participant)

Hey, thank you, sir. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star, then two. Again, it is star, then one to ask a question. At this time, we will just pause momentarily to assemble our roster. The first question we have will come from Rob Brown of Lake Street Capital. Please go ahead.

Rob Brown (Senior Research Analyst, Founding Partner and Chief Strategy Officer)

Good morning and congratulations on all the progress.

Harold Bevis (President and CEO)

Thank you, Rob.

Rob Brown (Senior Research Analyst, Founding Partner and Chief Strategy Officer)

First, I just wanted to get a little more detail on some of the tariff-related RFQs. You talked about seeing some incremental activity for quoting, I guess, and interest. Just want to get a sense of what's happening there and where your plants have capacity to take on that business.

Harold Bevis (President and CEO)

Yes. The biggest two material streams of tariff-related activity, one is reshoring into the United States, and one is European supply moving to China. In the case of our U.S. opportunities, they're from Canada, reshoring from Canada to the U.S., and reshoring business from China to the U.S. They're fairly fast-paced, and they're large. In some cases, we have the equipment, and in some cases, we don't. They're in the quoting stage. Of course, like everything, there's multiple people bidding on them. It's primarily automotive, Rob. Our desire to spend a lot of money on U.S.-based automotive is lower than other areas. The numbers are going to have to be terrific for us to be interested at the end of the day. We have a couple that fit us.

On Europe to China, we're seeing a lot of activity from currently sourced metal parts that are in Europe for Europe. Europeans are looking to dramatically lower their costs to become neutral to the tariffs into the U.S. They're quoting large chunks of business to move to China, then be shipped to Europe, assemble the tier-one system, assemble the vehicle, ship it to the U.S. It is an attempt to lower the price of the vehicle. In that case, we are underway with certain expansions, and we do have certain open capacity. Other parts of the programs would require capital. It is mainly automotive, and it is meant to work around the tariffs to cost-neutralize them. It primarily involves 50% new capital, 50% reuse of existing capital.

Rob Brown (Senior Research Analyst, Founding Partner and Chief Strategy Officer)

Okay. Great. Thank you. That is great color. Then on the automotive market in particular, you talked a little bit about sort of the activity in the EV and hybrid sort of moderating a little bit and balanced more with the ICE activity. Just a sense of how that is changing your new business opportunities and some of the stuff that is going on there as that rate of change has changed.

Harold Bevis (President and CEO)

Yep. It is generally helpful for us that this has slowed down and has become balanced. A lot of our legacy assets in Europe and in South America and in North America were kind of dialed in for fuel systems. A move to straight EV would be a declining market situation for us. A move into hybrid is balanced because it needs either a generator or an engine in addition to the battery. The popularity of hybrid rising causes us to have a higher available market to us. On the EV side, we initiated the shielding and connector stamped products business, which we highlighted on our new wins chart. That continues to have legs. That was a brand new market entry for us. At this point, we have a balanced portfolio. We are using existing assets almost exclusively, including the stamped products.

It's just different dies on the same machine. For us, it gives us a larger available market, Rob, to use our legacy assets in both machining and stamping.

Rob Brown (Senior Research Analyst, Founding Partner and Chief Strategy Officer)

Okay. Good. Thank you. I'll turn it over.

Harold Bevis (President and CEO)

Thank you.

Operator (participant)

Next, we have Hans Baldau of NOBLE Capital Markets.

Hans Baldau (Equity Research Analyst)

Hi. Thanks for taking my questions and great progress on the transformation.

Harold Bevis (President and CEO)

Thank you.

Hans Baldau (Equity Research Analyst)

I was hoping you could talk a bit more about the $55 million of new business wins expected to be seen this year, as well as the $740 million in the pipeline. Can we talk about the timing of those? Are they going to be weighted in the back half of the year, or can we expect them evenly distributed?

Harold Bevis (President and CEO)

Yeah. It's a good question. What we call immediate win programs is a program where we have a green light to ramp up. That means that we have to hard tool, go through the prototyping, go through the customer testing, then lock in what we call a PPAP or a standardized way to certify the product and the process and the materials so that it's repetitive quality. Generally speaking, an immediate ramp-up has about a six-month lag in order for it to hit revenue. Some of them could be done maybe in three months, but it's a three- to six-month kind of a ramp-up is the timing. Now, we mentioned that we had a big one that we won where the customer was targeting a Q1 2026 start.

That is because, generally speaking, they are either ramping out of their current supplier and ramping in a new supplier. There is a stranded inventory to work through, which is a part of the agreement, either coming in or going out. You work to their dates and/or their program launch. I guess it is three to nine months overall. The immediate ramp-up that we focus in on with our PIGS program, the profitable immediate growth strategy, was to impact this year. A big portion of it will impact the second half of this year.

Hans Baldau (Equity Research Analyst)

Okay. That's very helpful.

Harold Bevis (President and CEO)

About half of it.

Hans Baldau (Equity Research Analyst)

Okay. About half in the second half.

Harold Bevis (President and CEO)

Yeah.

Hans Baldau (Equity Research Analyst)

Okay. Great. A similar question with the $15 million of cost savings you are targeting. Is that expected to be evenly distributed throughout the year as well?

Harold Bevis (President and CEO)

Yep. Tim, I'll give that one to you.

Tim French (SVP and COO)

Yeah. A lot of it evenly distributed. There's a little bit of back-end loading, but for the most part, it's evenly distributed throughout the year.

Hans Baldau (Equity Research Analyst)

Okay. Thank you. A couple more questions. With the remaining plants, are you expecting any more closures with those, or are those seven plants the base to go forward with?

Harold Bevis (President and CEO)

We have a couple more that we're looking at and aggressively on the payback of the consolidations. It's down to two plants. There are two left on the list that are on the bubble that are dilutive to our overall goals. We don't have a firm plan in place right now to start or announce anything. We're in the evaluation stage on both of those plants.

Hans Baldau (Equity Research Analyst)

Okay. Understood. That's everything for me. Thank you.

Harold Bevis (President and CEO)

Thank you.

Operator (participant)

Again, as a reminder, if you'd like to participate on today's Q&A, press star then one to ask a question. Again, star then one. The next question we have comes from John Franzreb of Sidoti & Company.

John Franzreb (Senior Equity Analyst)

Good morning, guys. Thanks for taking the questions. I apologize if this has been addressed. I've been juggling conference calls this morning. I'm curious about the free cash flow guidance. Does that include the CARES Act refund, and what's the [audio distortion].

Harold Bevis (President and CEO)

Yeah. Chris, I'll give you that one.

Chris Bohnert (CFO)

Sure. Sure, John. You broke up a little bit. Yes, the free cash flow guidance does include the CARES Act. The CARES Act is about $12.3-$12.4 million in that range.

John Franzreb (Senior Equity Analyst)

Okay. Is there anything else [audio distortion]?

Chris Bohnert (CFO)

John, you broke up again. I think, is there anything else in there? Generally, it's operational activities. As we mentioned, we spent about $4 million in cash CapEx on capital so far in the first quarter. We have a target of $10 million for the year. You can kind of build it up from there.

John Franzreb (Senior Equity Analyst)

Okay. Does it include CapEx or not? Or does it exclude CapEx?

Chris Bohnert (CFO)

It includes it, meaning it's net of it, right? Yeah.

John Franzreb (Senior Equity Analyst)

Okay. Just wanted to make sure. Okay. What are you seeing as far as trends in the April, early May timeframe compared to what you expected, say, three months ago?

Chris Bohnert (CFO)

Tim, did you want to address that a little? Tim addressed that a little bit. Tim, you want to go ahead and repeat that?

John Franzreb (Senior Equity Analyst)

Sorry about that.

Tim French (SVP and COO)

I'm sorry. It cut out for me. Could I get you to please repeat the question?Yes.

Harold Bevis (President and CEO)

I can answer it. Tim covered it, that our initial start to the quarter here has been stronger than our forecast. We have actually had—and it is broad-based, and he gave a few examples across several plants. It makes us optimistic about our comments today and our recommitting to our guidance, John.

John Franzreb (Senior Equity Analyst)

Okay. Fair enough. You know what? I'll just reread the transcript. And I apologize for asking the questions too aggressively.

Harold Bevis (President and CEO)

That's okay. Thank you.

John Franzreb (Senior Equity Analyst)

Thank you all.

Chris Bohnert (CFO)

Thank you, John.

Harold Bevis (President and CEO)

Thank you.