Nn Inc Q2 FY2025 Earnings Call

Welcome to the NN Inc. Second Quarter 2025 Earnings Call. I would now like to turn the call over to your host, Stephen Poe, Investor Relations.

Thank you, operator. Good morning, everyone, and thanks for joining us. I'm Stephen Poe with NN Inc.'s Investor Relations team, and I'd like to thank you for attending today's earnings call and business update. Last evening, we issued a press release announcing our financial results for the second quarter ended June 30, 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]. Joining us from NN management today are 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 2, where you'll find our forward-looking statements and disclosure information. Before we begin, I'd ask that you take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation and in the Risk Factors section in the company's quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2025. 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. A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation. Please turn to Slide 3, and I'd like to turn the call over to our CEO, Harold Bevis.

Thank you, Stephen, and good morning, everyone. I want to begin with a summary of the quarter. We experienced a solid quarter with sales reaching $107.9 million, adjusted for last year's sale of Lubbock. Our adjusted EBITDA was $13.2 million, equal to 12.2% of sales. Our adjusted operating income was $4.9 million, and our adjusted net income stood at $0.02 per diluted share. If you're looking at Page 3 of the slide deck, you'll see the factors behind our performance. We notably improved our gross margins, achieving adjusted gross margins of 19.5%, nearly 20%. Year-to-date, we secured $32.7 million in new business, positioning us well for our annual target of $65 million. In terms of our portfolio, sales breakdown was 39% automotive and 61% non-automotive, reflecting our strategic goal to balance our offerings. We also previously announced the refinancing of our term loan, focusing on reducing its cost and refinancing our preferred stock. Overall, the quarter met our expectations. On the net sales front, the automotive sector is facing global challenges, with a significant sales dip associated with one major Tier 1 customer in Europe. However, we launched over 70 new programs this year to counteract this setback. Our operating income program is on track, contributing nearly $5 million this quarter. We’ve seen continuous growth in adjusted EBITDA over the past two years, driven by a focus on optimizing our sales portfolio, eliminating unprofitable business, and pursuing worthwhile opportunities while managing costs. Our adjusted EBITDA margins improved by 100 basis points compared to last year, and we are on pace with our 5-year targets. Working capital remains challenging; while we’re reducing unit volumes, rising metal prices—including gold, silver, steel, aluminum, and copper—are affecting our balances. Despite becoming more efficient, our metal purchases mean higher working capital levels. We've managed to decrease this as a percentage of sales to 20% and aim to reduce it further, supported by new business wins and stretch goals in certain areas. Turning to our markets, we cater to five primary sectors. The passenger vehicle market accounts for 39% of our revenue. Despite overall light vehicle production being flat globally, inconsistencies among countries and OEMs, along with uncertainties surrounding tariffs and vehicle affordability, persist. Most industry analysts predict a continued flat market into the second half. The Trump administration plans to shift away from focusing on fuel efficiency and EV subsidies, which has led to a resurgence of internal combustion engines. This shift is favorable for us, and our outlook aligns with industry analyst predictions. The second largest market for us is linked to U.S. GDP. We manufacture components for smoke detectors, fire alarms, and industrial lasers, which reflect GDP trends. The first half was weak due to trade uncertainties, but we saw a rebound in the second quarter, although the impact of tariffs remains uncertain and is generally not positive. Our base business relies on GDP performance, and we are enhancing it through new business initiatives. The third market, electrical grid and distribution, has seen slight impacts from U.S. developments. Serving primarily the U.S. market, we are experiencing growth thanks to the surge in data centers, which benefits us directly. In the commercial vehicle sector, both on-highway and off-highway markets have declined year-to-date and are expected to decrease further into next year. Despite this downtrend, our commercial vehicle division is doing well, focusing on fuel efficiency with the engines we provide. Lastly, we’ve re-entered the medical equipment market and are growing our share, significantly outpacing market growth as we rebuild our position and add talent. Overall, while our markets face transitions and uncertainties, we're remaining resilient and engaged, particularly in China despite global challenges. I will now hand it over to Tim for an update on our transformational progress.

Thank you, Harold, and good morning, everyone. I'll walk you through our transformational progress and the steady improvements to the financial performance that have been the result. One critical area of focus in the multi-year transformation has been to grow our profits on our existing sales through stronger cost reduction initiatives, resulting in an overall lift to the margin of our business. Our initial focus was identifying sales that have historically diluted our profits. This resulted in the rationalization of some business and ultimately the closure of 2 underperforming facilities, Dowagiac and Juarez. This and other overhauls have resulted in a much improved fixed and variable cost structure, which will begin to have an even more pronounced effect when our top line begins to meaningfully reflect the continued ramp-up of new business programs won over the trailing 2 years. On Slide 6, we've provided charts on the 2 main categories that we track most closely, adjusted gross margin and adjusted EBITDA margin, both of which have shown consistent and steady improvement over the last 2 years. We launched our transformation program mid-2023, completing that fiscal year with 16.3% adjusted gross margins. Year-to-date, our 18.2% adjusted gross margin is an expansion of 190 basis points. We'll continue to focus on further margin expansion. As part of our long-term plan, we have an internal goal to achieve approximately 20% gross margin, which based on our current results, we believe is achievable. Our adjusted EBITDA margins have also seen meaningful improvement. Over the same timeframe, margins have expanded 230 basis points, trending at over 11% year-to-date. We expect to continue our strong cadence of improved margin capture in the back half of the year, particularly as we begin launching additional new business programs and enact additional cost measures at both the plant and corporate level. We remain on track with our stated multi-year goal of achieving 13% to 14% adjusted EBITDA margins, which is an increase from previously stated objectives. There have been multiple drivers to our demonstrated improvements. As Harold mentioned, there was a step change in our on-time delivery and reduction of backlogs, all with a continued focus on quality, which NN is known for. We've also initiated a OneTeam approach across the facilities. This is the implementation of a shared operational structure moving away from stand-alone teams where practical. This program has been instrumental as we continue to focus on cost reduction and optimization. Since June 2023, we've reduced our staffing by more than 600 or approximately 20%. However, this is not exclusively about reduction. Although we reduced by more than 700, we also strategically added approximately 80 people in those areas where we are seeing the most growth and to increase our talent base in areas of the company such as sales and engineering. The focus is to improve the overall strength of NN. As mentioned earlier, we rationalized our operational footprint with the closure of Dowagiac and Juarez. Manufacturing in both those operations concluded this calendar year with a portion of the business being redistributed to our Marshall and Wellington facilities. These results demonstrate the early progress we've made in improving our operations, lowering our overall cost structure and setting forth a stronger pathway for improved profitability and sustainable value creation. With that, I'll turn the call over to our CFO, Chris Bohnert, who will walk us through our financial performance for the quarter. Chris?

Thank you, Tim. Good morning, everyone. Today, I'll be presenting information on both the GAAP and pro forma basis to provide transparency into our operating results due to the changes such as the sale of the Lubbock facility last year and the exit of certain unprofitable business. We hope this presentation will be indicative of how we're making decisions to transform NN over time. So with that, I'll start on Slide 7, where we'll detail our financial results for the second quarter. This slide shows our as-reported GAAP and non-adjusted numbers on the left side. We 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 early July 2024, rationalized sales volumes and the impact of foreign currency translation year-on-year. Last year's second quarter included $5.9 million of net sales and $0.9 million of adjusted EBITDA associated with the Lubbock plant business, strategically rationalized volumes of unprofitable business that totaled $5.6 million in the prior year period and about $900,000 of impact from foreign currency translation versus last year's exchange rates. On an as-reported basis, net sales for the quarter were $107.9 million, declining about $15.1 million versus last year's second quarter. On a pro forma basis, accounting for the adjustments I noted earlier, net sales modestly declined 2.4% or $2.7 million. Our adjusted operating income for the second quarter was $4.9 million, marking a strong increase of $2.8 million compared to the $2.1 million in the prior year second quarter. On an adjusted pro forma basis, operating income increased $3 million. Adjusted EBITDA results for the quarter were $13.2 million compared to $13.4 million in the prior year period. On a pro forma basis, inclusive of the impacts outlined earlier, our adjusted EBITDA increased 6.5% or $0.8 million compared to the prior year second quarter as we have been able to continue driving improvements to our profitability through solid operational execution and transformational actions taken to improve our returns. These effects were further evidenced in our adjusted EBITDA margin performance as margins of 12.2% of net sales expanded by 130 basis points on an as-reported basis and by 100 basis points inclusive of pro forma adjustments. I'll now turn to some discussion on our segment results starting on Slide 8. In our Power Solutions segment, where our business consists largely of stamp products, net sales results for the quarter were $44.6 million, down $5.5 million compared to $50.2 million in the prior year period, primarily due to the sale of the Lubbock operations in 2024, lower volumes and unfavorable foreign exchange effects of $0.5 million. These decreases were partially offset by higher precious metals pass-through pricing. When compared on a pro forma basis, excluding the contribution from Lubbock, the first quarter net sales increased $1 million or 2.3% as noted in the charts on the right. Power Solutions sales reflected steady unit volumes supported by higher precious metals pricing. We expect demand in our stamp products business to be similar to what we've seen thus far in the first half of the year, and this is reflected in our net sales current outlook. Power Solutions adjusted EBITDA as reported of $9.1 million, a decline of $0.4 million versus last year's second quarter of $9.5 million was driven by the non-recurrence of Lubbock's contribution and some unfavorable mix. On a pro forma basis, our Power Solutions adjusted EBITDA results grew $0.5 million or 5.8% compared to last year's second quarter, with strengthening profitability through effective cost-controlling actions and improved margin mix. As a function of this improved adjusted EBITDA, we have seen stronger margin pull-through with quarterly adjusted EBITDA margins representing 20.4% of net sales, up 70 basis points versus the prior year period. It's also worth noting that during the quarter, we bolstered our Power Solutions sales team, strengthening it with additional sales talent with industry expertise. And thus far, we have seen immediate increases in our new business pipeline for industrial stampings. Our team has achieved multiple new wins this year, many of which have immediate launches this year. In order to support our continued progress and new business growth, we have been strategically investing our CapEx to continue this pace as we go forward and enable further growth. Now turning to Slide 9, our Mobile Solutions segment, which covers our machine products business. Net sales for the second quarter were $63.4 million for the period compared to $72.9 million in last year's second quarter. Net sales comparisons were impacted by rationalized business, slightly lower automotive volume and unfavorable foreign exchange effects of $2.2 million. On a pro forma basis, net sales of $63.4 million were down $3.4 million or 5.4% compared to pro forma net sales of $67 million in last year's second quarter. The decline was driven by strategically rationalized sales volumes and by softer than anticipated concentration, primarily at one global Tier 1 customer. This softness was partially offset by new program launches and ramp-ups during 2025. Our second quarter adjusted EBITDA in the Mobile Solutions segment was $8.6 million, up $0.4 million from last year's second quarter on an as-reported and pro forma basis. This slight year-over-year growth reflects the impacts from rationalizing sales that carried a negative EBITDA impact in 2024. Our focus on cost-out actions and the ongoing reprofiling of our sales mix drove a notable increase in our adjusted EBITDA margins, which climbed to 13.6%, marking a 150 basis point increase year-over-year. The margin expansion is also supported by the rightsizing of our cost structure. Looking ahead, our new business momentum remains strong. At mid-year, we secured $29 million in new awards across a number of individual programs spanning auto, medical, electrical, industrial and commercial vehicle. Our $380 million new business pipeline for this segment continues to reflect solid opportunities going forward. Additionally, we are enhancing our commercial programs with key developments. We're nearing the necessary certifications to manufacture medical and medical technology products at our Kentwood, Michigan plant, which will further strengthen our ability to achieve new business and grow as we expand in this market. We're also installing additional new machining centers for dedicated medical products, bringing our total number of dedicated medical parts machines to approximately 60. Consistent with our strategic growth efforts, we are continuing to reinvest our cash flows into growth in this segment as well. With that, I'll turn the call back over to Tim.

Slide 10 highlights the success of our new business win program and gives insight into our program launch sequence and its impact on NN's top line. In 2025, we anticipate launching approximately 112 new programs with approximately 70 programs launched year-to-date. These programs are forecasted to contribute approximately $26 million to our 2025 top line and an estimated $48 million in annual revenue at peak run rate. Our new business continues to expand. Year-to-date, we have increased our cumulative wins to approximately $172 million. To support this growth, we have made significant capital investments globally. We've invested in dedicated equipment for medical and the China auto markets. In addition, we are actively relocating capacity from previously rationalized automotive programs to meet upcoming industrial demand. The pipeline has grown to a solid $750 million. This is driven by our approximately 40 people in sales and engineering and is perfect for us to continue to drive to our goal of $200 million in cumulative new business wins. With that, I'll turn the call back over to Harold.

Thank you. I wanted to point out that during the quarter, we made a commitment to increase the number of people that we have in the specialized areas where we're trying to grow disproportionately higher. We did bring in a new Chief Commercial Officer, Tim Erro. Tim and I worked together previously in our prior life. Some of you might know I had a 2-year non-compete, non-hire, non-solicit kind of standstill that ended. And in this quarter, I behaved appropriately and hired Tim. Tim has already hit the ground running. He's brought in some new people already. He has an electrical background and entered 8 new markets when he was at CVG and we worked together there. He's really excited to be here and brought in 2 top people with him on day 1 and we had an acceptance of an engineering manager yesterday who has an electrical and medical equipment background. So in the quarter, we have a new – and subsequent, we had a new CCO, a new CTO, 2 new account managers with electrical backgrounds and a new account manager for medical, looking for 1 additional medical and 2 account managers in the stampings business. Regarding the future for us, we now have a core team who understands electrical cable assemblies and we're evaluating an organic entry into that market just as we've done for medical products. Some of you may know I was previously the CEO of an electrical harness business. So we have a core team here and that will really help us with our forward growth objectives. I'll now hand it over to Chris, who will give an update on our outlook and guidance.

Thank you, Harold. We're reiterating our guidance for the remainder of the year on Slide 12. So net sales, we're still expecting in the range of $430 million to $460 million, adjusted EBITDA of $53 million to $63 million. However, we are leaning toward the lower half of the range on both those guidances. New business wins, again, no change, $60 million to $70 million and free cash flow of approximately $14 million to $16 million. That does include the CARES Act refund as well as our investment of approximately $18 million to $20 million in overall capital investment. So this guidance obviously reflects the uncertainty from some of our top customers that we're hearing in the marketplace as well as the unstable macroeconomic environment, but we are holding our guidance at this point. With that, I'd also like to comment that we are planning an Investor Day in December 2025 and we'll look forward to putting out more information on the exact date and time of that Investor Day. With that, I'll turn the call back over to Harold.

Thank you. And Paul, operator, we're now ready to receive any questions that people may have on the phone.

And our first question comes from Rob Brown of Lake Street Capital.

Congratulations on your progress. Could you remind us about the incremental margin associated with the new business wins compared to your base? Additionally, you mentioned some of the verticals you're targeting; what is driving these new wins in terms of gaining market share?

Yes. So for new business wins, there's a few categories. One is if we have existing open capacity and our costs are fully covered in the plants. We price that to win. We'll go down to 15% on that type of a business. The second category is if we don't have open equipment, then those quotes usually have to bear the brunt of an equipment charge and an ROI analysis. For any new investments, we have our floor at 25% ROI for the investments. Any exceptions to that, Tim, myself personally have to approve them with the team. So we've had a couple of exceptions that actually did not end up being wins in the end. So in terms of the win basket that we actually have, it's accretive by 3 or 4 points on the EBITDA line overall. In terms of the areas where we're trying to get after, Rob, it's also in a couple of buckets. If we have open capacity to serve a certain market, we're trying to get more of that type of business. Differently, we're trying to grow faster in electrical and medical, where we don't necessarily have a lot of open capacity for that. So that has led us to add equipment and be very deliberate about our quoting and our activities. Tim maintains a 12-quarter forward look at capital that's tethered to our growth program. So to some extent, we have capital spending boundaries around the new areas.

Okay, great. And then I appreciate your comments on the auto market uncertainty. But on the electrical market and some of the grid and data center markets, what are you sort of seeing there in terms of growth opportunities and demand changes?

Yes. So we are a big supplier to Cummins. If you follow Cummins at all, they have several segments of their market, one of them being power generation. We are participating in their good business growth that they're having, which is approaching 10%. On the distribution and control side, we participate with people like Siemens, Square D, circuit breaker type of contacts. Our product mix is skewed towards residential, the smaller type of circuitry versus the higher voltages. So on the residential side, it's been a little soft in homebuilding in the United States. Our distribution and control customers are kind of flattish. On the power generation side, where we directly participate, we have been growing. So overall, it's a growth area for our company.

And our next question comes from John Franzreb of Sidoti & Company.

Howard, I guess I'd like to start with the guidance. The first half kind of suggests that you need to generate better revenues in the second half than you did in the first, which I just want you to maybe bridge in light of Chris' comments about the stamp being kind of similar in the second half versus the first. What are the key drivers to make that lower end of the revenue guidance?

Yes. So we expect our base business to perform consistently in the second half with the first. However, we're going to benefit from our new business launches. If you look at that on Page 10, that's our quarterly revenue contribution. We're counting on those programs not getting pushed out, John. This expectation is based on the dates that we have. It's possible that if people get nervous, they could push out launch dates on us, and we've had a little of that this year, which we commented on last time. We're not counting on a rebound in any markets per se. We're counting on a continuation of current events. That's primarily what the public filers are saying. It's really an automotive comment given that that sector is a big part of our revenue profile. We've read what GM, Ford, Tesla, BYD all are saying, and they're expecting that the difficulties are going to be just a little bit harder in the second half because they'll have a full half of tariffs versus in the first half, it was mainly the second quarter. We're counting on similar base markets added to from our new program launches, so that's what it takes for us to hit the guidance.

John, I'll just add that we did guide toward the low end of the range in the first quarter and again this quarter. We did add some commentary in the earnings release around macroeconomic events that could be impactful to our estimates as well.

Okay. I just wanted to make sure I knew what the bridge was there. It's going to be new product introductions. – and to support that, it looks like there's going to be a meaningful step-up in capital expenditures. You did $7.6 million in the first half, but you're still guiding $18 million to $20 million. Is that all to support new programs or is there anything else embedded in that number?

Yes. Tim, do you want to take that one?

Sure, sure. Thanks, John. The bulk of it is in new business programs to support the growth. Obviously, there will always be an element of regular CapEx investment, but the vast majority of it is to support that growth.

Good, understood. And I didn't hear any commentary, maybe an update on what we'll call the group of 5 now, Tim? How do those facilities stand as far as profitability contribution relative to expectations?

They remain on track. We're still dealing with some volume requirements within the Wellington facility, which was one of the group of 7. Two of them were part of the rationalized. So that's what makes them the group of 5, as you mentioned. But no, they're all on track to be profitable this year, be at a run rate profitability in Wellington by the end of the year and profitable at all the remaining ones.

Okay. And one last question, I'll get back into queue. You're entering the electrical wiring systems market. Is there a specific end market that you envision that provides an opportunity for you or are you just dipping your toes in right now to see where your competitive advantage may be?

Well, there are several niches that are differentially better. We are ITAR certified, so we're a certified defense contractor. We're ATF certified. We have some unique certifications here as a company, and we haven't determined a launch plan yet, John.

Our next question comes from Mike Crawford of B. Riley Securities.

You talked about your step change in on-time delivery. Can you just go into some more specifics regarding prior performance in that regard and what you're achieving now?

Well, I'm assuming, Harold, you'd like me to take that one?

Yes, please.

Early on, we had red scorecards with multiple customers going back as little as 18 months ago, 18 to 24 months ago. Those scorecards were usually predicated on less than optimal on-time delivery and in full. It also prevents you from being awarded new business wins with those organizations. A compounding factor was increased past due backlog. We focused extensively in that area over the last 18 months, reducing the backlog significantly and increasing our on-time delivery. Now we have green scorecards with all of our customers, meaning that we are a supplier in good standing, and in some cases, identified as a preferred supplier. This allowed us to be awarded new business, which has opened the door for our new business wins program. We've addressed it in prior calls, focusing on the issues of the day to achieve the goals that the customer is looking for. It's been very successful so far, and now we're a supplier in good standing across the board with our customers.

Okay. And then just regarding these 60 dedicated medical machines, are any of those in Kentwood just awaiting certification there? And kind of related, is there a way to think about potential revenue per machine, including by end market, if that makes a difference?

Go ahead, Tim.

Yes, there are a couple of those – the bulk of those machines are sitting in Attleboro Medical, but there are several machines sitting in Kentwood that are awaiting certification, but they are dedicated for medical. If you remember, we talked about our investment in the 9-axis lathes, one of those went to Kentwood as well. As far as identifying the equipment for the market, the reason we're segregating medical is you have different requirements for cutting fluids, cleanliness, and isolation from the rest of the building. As for the remaining equipment, we don't isolate it by market. We identify it by capability, whether it's a milling machine or a lathe. All the equipment has potential to supply multiple markets, but segregating medical is strict due to the ISO 13485 certification requirements.

I'll add to that. We have dedicated machines in Attleboro and Kentwood. A couple arrived in the second quarter. They're currently going through final check-offs and machine approvals, so they're not producing for us yet. We run one shift. The business right now is a $15 million to $18 million run rate. So 2 shifts are normal for us, giving us double the sales possibility, $30 million to $35 million. Then we have the 2 high-speed machines that haven't started yet. I would estimate $40 million of capacity is currently running $15 million to $18 million. We're building dedicated pipelines for those new machines, specifically targeting robotic surgery equipment.

Okay. Just 2 more quick ones for me. One, is there a specific time you expect to get this tax refund? What are the risks or probability that that doesn't happen?

There is a good update. We did get a letter and notification from the IRS that our tax returns have been completed and we expect that refund here in the next few weeks. We did get one letter that confirmed one year. We're waiting on the second letter. So things have actually progressed quite a bit in the past few weeks.

We received communication this week that for the first return, which was $6 million, we got the comical, 'the check is in the mail' email. So it's imminent. We expect it in this quarter.

Great. And then final one from me is, are there specific things you need to execute on given this decision to look at the electrical harness market in addition to this motion toward medical?

Is the question related to our capacity and equipment, Mike?

Well, I mean, I think your quote is that you're evaluating an organic entry into that market.

Right. The type of equipment would be Komax wire strippers, wiring boards, termination equipment. It's very affordable compared to the machining centers we buy that cost $1 million each. It would yield remarkable ROI compared to entering medical. The medical entry relies on high-end machine parts requiring us to purchase advanced equipment to compete effectively. In the harness side, we require much lower cost equipment. We have the factory footprint we need. Just last year, we didn't have a sales team or engineering team to quote competitively, but now we do. We've assembled a full electrical team here, hiring personnel during Q3 after Q2. We're committed to this, and to clarify, we are not looking at automotive. We aim for niche markets that will provide the returns we desire.

And our next question comes from Hans Baldau of NOBLE Capital Markets.

I'm on for Joe. You noted in the press release that the M&A program has been kicked off. Can you provide a little more color on that?

Yes. I am personally leading it. We're very specific with the type of acquisitions we're targeting. We have several active processes underway. A couple of the companies were for sale with processes and a couple were not for sale, but we approached them. We look to advance our strategy. We're not considering anything off-brand. The Board is heavily focused on this too. We aim to refinance our preferred stock and need a little less leverage to do so. We're analyzing areas where we have immediate and natural synergies due to commonality and redundancy between companies. Our main term loan partner is Marathon Capital. We've maintained transparency with them. This is an active process, and we aim to have outcomes within a few quarters.

Okay, great. And kind of along that lines of growth, can you talk a little bit about the lower program launch guidelines from this quarter? Last quarter it was 120 new programs worth $55 million and now it's 112 programs worth $48 million. Can you discuss what was driving that, like timing, cancellations?

Yes. We've experienced some push-outs in the automotive arena. So we haven't had cancellations but rather delays, mainly pushing into the beginning of '26.

Okay, great. And then lastly, you mentioned that the China operations are going well. Can you add a little more detail on that?

Yes. We're a main partner to the Tier 1s in China, both Chinese ones and multinationals in the country, and we're directly serving BYD for steering and braking. The China auto market is very fluid, and there's overcapacity for the number of carmakers in the country. We're working closely with a few top COEMs and China Tier 1s. BYD is competing based on features. The primary feature we're tied into is rear wheel steering or all-wheel steering. They are trying to win by providing the best value through features rather than the lowest price. It has led us to acquire new equipment, and we're leasing it. The guidance Tim provided on $18 million to $20 million includes significant leased equipment, which is financially beneficial compared to our term loan interest rate. We're funding growth locally, whether through cash CapEx or lease CapEx, focusing on the highest-end parts, specifically steering and braking. Our business in China is quite healthy, growing in the quarter year-over-year by about 6%, and we secured new business.

And our next question comes from Barry Haimes of Sage Asset Management.

I had a question on the new business pipeline and in terms of what you're seeing. We had reshoring before the Trump tariffs, and of course, we've had the Trump tariffs, and companies are rethinking supply chains. I'm curious, if we were to look at your opportunity set now compared with 3, 6 months ago, what are you seeing given the turmoil in the supply chain world?

Yes, Barry, that's a good question. Initially, when the Trump administration came in, we experienced a flurry of tariff RFQs from people seeking their options to change supply chains in case needed. Not too much happened initially as companies absorbed the tariffs. We, as a company, have pass-through agreements commercially, so we are not affected. However, we've seen somewhat of a timing delay in that regard. In the second quarter, we experience some margin compression as one substantial customer didn't agree to the tariff pass-through until Q3. Recently, we can see larger RFQs from companies trying to comply with UMCA, optimizing production costs. We're currently pursuing decent-sized RFQs in Germany that we typically quoted from our plants in France and Poland. European customers are reconsidering their costs of production by potentially moving supply chains to China. We have substantial RFQs available now, especially in automotive.

And at this time, we have no further questions. I will now turn the call back over to your host for any closing remarks.

Thank you. I appreciate it, and thank you for the good Q&A that we had here today. Our company is quite optimistic about our future. We have a decent amount of new business that's not yet launched and not in the figures we've shown you. We have another batch readying to launch in '26, and we've a good carry-in into '26 already. The base markets that we're in are somewhat flat and nervous, but we're using this opportunity to accelerate our new business program, hire people, and spend a little more, mostly leasing, to boost the company's transformation plan. Our transformation plan remains intact, and we're not deviating from it. We look forward to discussing our progress in the next call. Thank you for your time this morning.

And this concludes today's conference call. Thank you for attending.