Q1 2024 NN Inc Earnings Call

Participants

Stephen Poe; IR; Alpha IR Group

Harold Bevis; President, Chief Executive Officer, Director; NN Inc

Mike Felcher; Senior Vice President & Chief Financial Officer; NN Inc

Tim French; Chief Operating Officer, Senior Vice President; NN Inc

Joe Gomes; Analyst; Noble Capital Markets, Inc

John Franzreb; Analyst; Sidoti & Company

Rob Brown; Analyst; Lake Street Capital Markets, LLC

Mike Crawford; Analyst; B. Riley Securities

Tom Kerr; Analyst; Zacks Investment Research, Inc.

Presentation

Operator

Good day and welcome to the NN Inc. First Quarter 2024 earnings 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 your touchtone phone. And 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 Mr. Steven PoE, Investor Relations.
Please go ahead, sir.

Stephen Poe

Thank you, operator. Good morning, everyone, and thanks for joining us on Stephen Polk, Investor Relations contact for NN, Inc., I'd like to thank you for attending today's business update. Last evening, we issued a press release announcing our financial results for the first quarter ended March 31st, 2024, as well as a supplemental presentation, which has been posted on the Investor Relations section of our website. If anyone needs a copy of the press release or the supplemental presentation, you may contact Alpha IR Group at NBR. at Alpha dash ir.com. Our presenters on this call will be Harold Davis, President and Chief Executive Officer, and Mike Salter, Senior Vice President and Chief Financial Officer. Tim French, our Senior Vice President and Chief Operating Officer, will also join us for the Q&A portion of the call.
Please turn to Slide 2, where you'll find our forward-looking statements and disclosure information.
Before we begin, I'd ask that you take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation and one file in the risk factor section in the company's quarterly report on Form 10 Q for the fiscal quarter ended March 31st, 2020, for the same language applies to comments made on today's conference call, including the Q&A session as well as a live webcast.
Our presentation today will contain forward-looking statements regarding sales margins, inflation, supply chain constraints, sporting changes, cash flow, tax rates, acquisitions and divestitures, Cinergy's cash and cost savings, future operating results, performance of our worldwide markets, general economic conditions and economic conditions in the industrial sector, the impacts of pandemics and other public health crises in military conflicts on the Company's financial condition and other topics. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside of the company's control. The presentation also includes certain non-GAAP measures as defined by SEC rules. 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 will now turn the call over to our CEO. Heron business.

Harold Bevis

Thank you, Stephen, and good morning, everyone. Please turn to Page 4 in our earnings deck and then had a successful first quarter, highlighted by growth in our core plants and continued execution of our business transformation strategy, which was underlined by a number of observable operational improvements at our underperforming locations. We also continued our commercial momentum, winning new business in the quarter at a very strong pace, capturing more of the $17 million of new awards, which we estimate to be about three times market growth rates. Our transformation is fully underway, and we're now entering our 2nd year, and I can save for the team this year time flies when you're having this much funds. And we are indeed pleased with our results over the last year and we're looking forward to highlighting some of them today and then taking questions at the end. First, I'm happy to report that Q1 2024 was the third consecutive quarter of exceeding our upward goals and expectations for adjusted EBITDA, free cash flow and new business wins, we have been driving our trailing 12 month EBITDA up. We believe this is a function of natural company strengths, a stronger team made up of both homegrown leaders and outside professionals, a strong set of improvement initiatives and being accountable to outcomes and to each other. First and foremost, we've been delivering strong operational improvements. Some of you might wonder what does that mean?
Operational improvements?
A pretty pretty big term for us. It means right-sizing our headcount negotiating with non-direct suppliers, leveraging our global procurement power, upgrading plant managers where needed combined in SG&A roles where possible and having an organized plan at every plant to take out costs. Additionally, in certain areas we've had to negotiate engage with customers on basic economics. Another term for this is continuous improvement or CII., and we are committed to increasing our margin and profit rates on an ongoing basis, and it's working to be sure it is sustainable and becomes a layer of goodness that we build upon. We have to change our culture in many areas, and that's working also sometimes winning and becoming successful is just plain hard work and we're all about that. As we have noted in the past a year ago, the Company had seven unprofitable plants that were causing a big impact to our bottom line in our cash flows. Our aggressive actions over the last year at these plants has shown clear and immediate results with three plants returning to profitability already, and the remaining four are making dramatic improvements. The goal is for this group to become profitable by year end 2024 this year. The commercial team has also been very successful over the last year, and we have secured growth at three times the market growth rates by our estimations. This will enable us to layer in new growth and contribute to our adjusted EBITDA totals in future quarters.
Before turning to our first quarter financial results, I'm happy to announce that Rio We are reaffirming our free cash flow and new business win outlooks for the year, while also tightening our outlooks for net sales and adjusted EBITDA, we expect to deliver full year bottom line growth, along with continued strong growth in new business wins, and Mike will cover this in more detail in his section.
Please turn to page 5 in your deck and it delivered solid first quarter results with net sales of $121.2 million and adjusted EBITDA of 11.3 year-over-year. Net sales volumes were mostly flat after some onetime movements, but adjusted EBITDA grew strongly through the actions that I just walked through. It was our third quarter of year-over-year growth in adjusted EBITDA and our truck trailing 12 month adjusted EBITDA of $46.3 million is up 20% of the trailing 12 month adjusted EBITDA of a year ago or about $7.7 million improvement our adjusted EBITDA margin is now 9.3% and is up significantly compared to last year as the turnaround of troubled plants and broader operating cost reductions continue to improve our bottom line.
Before turning the call over to Mike, I'd like to recognize our global energy team in a period of significant change for the Company. A lot of it instigated by me, our employees and colleagues are performing in an outstanding basis on on-time delivery, quality and safety. We're reorienting and injecting best practices in our entire company as we go along and changing our culture and in sales pipeline is as large and as healthy as it's ever been. And we continue to aim to continue winning new business with both new and existing customers globally.
With that, I'll turn the conversation over to Mike, who will walk through our financial performance in a more detailed manner.
Mike?

Mike Felcher

Thanks, Harold, and good morning, everyone. I'll start on Slide 6, where we will detail our results for the first quarter. Net sales for the quarter of $121.2 million were down 4.6% compared to last year's first quarter. For the period, we had roughly flat sales volumes due to a rationalization of volume of approximately $4 million underperforming plants, mostly offset by $3 million of sales growth at healthy plants. From a pricing standpoint, our prior year results included $3 million of end-of-life premium pricing associated with the closure of the Irvine plant looking at profitability, our operating loss of $4.8 million improved by $2.3 million compared to the $7.1 million operating loss in last year's first quarter on an adjusted basis, our first quarter adjusted operating loss was $0.7 million, which was slightly higher than the adjusted operating loss of $0.4 million seen in the prior year.
As Harold referenced earlier, adjusted EBITDA results of $11.3 million by $3.2 million or 39% versus last year's $8.1 million result, our consolidated adjusted EBITDA margin results expanded by 290 basis points to 9.3% versus last year's first quarter. This improvement on our profitability on a lower revenue base relative to last year speaks to our early success in improving our base business performance as we continue through 2024, our focus on attacking any and all underperforming areas of the business will continue to anchor our priorities as part of our multiyear transformation efforts. In particular, we expect to see a more pronounced pull through of the impacts from our operational improvement initiatives and total cost productivity programs. With those results accreting more thoroughly to our profitability figures. As many of these only began benefiting us in the second half of 2023. As we have stated in the past, we remain committed to capturing an additional $10 million in adjusted EBITDA improvement once our actions are completed.
Turning to our segment results.
Starting on Slide 7. In our Power Solutions segment, where our business is largely standard products, our sales decreased 1.7% year over year to $48.2 million, down $0.9 million from the $49.1 million of sales in last year's first quarter. While we are experiencing strong demand in our business from US customers focused on the electrical grid. This demand strength was partially offset by volume rationalization as part of the ton in Irvine facility closures from last year, despite the lower sales volume. The positive impacts from facility closures and cost reduction actions have driven solid results as seen for our improved adjusted EBITDA. Our quarterly adjusted EBITDA of $7.8 million improved by $1 million compared to the $6.8 million delivered in last year's first quarter. We believe it is a testament to our refocused efforts and commitment to our strategic transformation plans, both operationally and commercially, that the business delivered higher adjusted EBITDA and expanded margins by 290 basis points year over year as we begin to layer in stronger sales figures from new business wins. We expect to continue expanding our profitability as we capture improved fixed cost absorption through operating leverage, combined with the commitment to our costs and productivity programs that Harold walked through earlier on the call Operationally, our focus remains on expanding our Connect and Protect business, improving underperforming plants, continuing to rightsize the cost structure, contemporize our engineering and processes and ultimately executing on a healthy and strong growth pipeline across growing key end markets.
Turning to Slide 8 and our Mobile Solutions segment, which covers our machining products business sales decreased 6.4% versus the prior year's first quarter declined by $4.9 million to $73.1 million for the period. The decrease was primarily driven by rationalization of underperforming business and the impact of some mix shift in our retained business in line with the trend we have seen across the Company, our profitability in the Mobile Solutions segment grew versus last year's first quarter as the segment's adjusted EBITDA results of $8.6 million increased by $3 million compared to the $5.6 million in the first quarter of 2023. This markedly improved adjusted EBITDA performance was driven in part by stronger profits from our China joint venture, which continues to show market strength and attractive growth. Additionally, operating performance improvements with within our underperforming plants reflect the early impact of our cost and productivity programs, which continue to gain momentum.
Now turning to slide 9, you can see a summary of our free cash flow, capital expenditures and net debt and resulting leverage. We are committed to maintaining positive free cash flow and will therefore take a measured measured approach and capital investments required for our new business wins. This includes utilizing equipment financing opportunities as we did in the first quarter, where we executed a $4.9 million equipment sale leaseback transaction.
With that, I will turn the call back to Harold to discuss some of our additional developments before wrapping our prepared remarks.
Carol?

Harold Bevis

Thank you, and please turn to Slide 10. Our structural and process improvements have been accretive to our bottom line since the initiation of our global continuous improvement program last year and our trailing 12 months. Ebitda is now up to $46 million and it's up almost 20%, as I mentioned, since first quarter last year. And it's improved for four quarters in a row. And additionally, as a result of targeted cost reductions, better operational planning and headcount rationalization, our EBITDA per headcount is up 42%. And I just wanted to share some a look into the operational improvement program that we have underway led by our Chief Operating Officer, Tim French, who's on the phone later for questions, but we've progressively been working down our headcount overtime. And this chart shows you what our headcount is outside of our JV because we have another 700 people inside of the JV. But these are on our non-JV headcounts. And you can see that we've been taking down our headcount while taking up our EBITDA, therefore driving up our productivity. So we're going to continue this balanced focus on growing earnings through growth as well as cost out initiatives. And it's helping us make improvements in our free cash flow generation also by having quite a bit of people off the payroll, and this remains an important focus going forward, as this story is not over, we're underway and with optimizing here, a lot of it's focusing on our underperforming underperforming plants and it will lead to an improvement in our overall capital structure. Also, we believe that we'll be able to put the periods of financial stress behind us. And if we haven't already as we evolve our capital structure to be more reflective of our current performance, continued impact on implementing our transition strategy. This is a block. This is one quarter at a time one improvement at a time sequential improvement saying counting taking forward actions and improving base productivity.
On highlighted on page 11, if you just turn the page and I'd like to flip and turn about our commercial program. Our organic growth program has been performing very well, and we're encouraged by our early success and ongoing success, accelerating the growth of new business wins is another key to our transformation plan. And after having won a record $63 million of new business awards during calendar year '23, we delivered another $17 million of new awards in the first quarter this year making a total of $80 million in a short amount of time. We're on pace to deliver the similar amount this year, $55 million to $70 million, we put in a range there because it's really hard to tell when you're going to close on things in your pipeline. But we're on pace now with the middle point of our guidance range here, as you can see from the results, which would mean $120 million to $135 million of new business won over eight quarters are our key growth areas continue to be the China automotive markets, which are just flourishing with indigenous and export opportunities. The U.S. electrification and grid technologies where we specifically are on the grid edge and selective vehicle programs in the markets of North America, South America and Europe. We're continuing to be selective in the medical markets. We're mindful of our the amount of CapEx we've attached to growth plans in French as a reminder of our CapEx budget, and we've walked away from some opportunities that were just too CapEx intense for us. So we continue to leverage our installed base on an ongoing basis. And this batch of growth is much more capital effective capital efficient and prior experiences about a company and we're leveraging our installed capacity very well.
If you turn to page 12, we'd like to reaffirm our free cash flow and new business line outlooks, while slightly tightening our net sales and adjusted EBITDA guidance ranges. And for the full year, just to repeat it here, we're expecting net sales in the range of $485 million to $505 million up slightly from prior year. The midpoint adjusted EBITDA in the range of $48 million to $54 million, up over 20% at the midpoint, free cash flow in the range of $10 million to $15 million, again slightly at the midpoint compared to the improved free cash flow generation of last year and new business wins in the range of $55 million to $70 million. Our guidance continues to reflect steady end market demand despite some observed weakness in North American industrial markets relative to 2023. Specific to an end, we can we expect to continue executing our aggressive growth program, ultimately driving free cash flow and profitability across several new markets and customer platforms.
With that, I'd like to thank you for listening, and I'll turn the call back over to the operator for questions.

Question and Answer Session

Operator

Thank you. And 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're using a speakerphone, please pick up your handset before pressing the keys. If any time your question has been addressed. He would like to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Joe Gomes with NOBLE Capital.
Please go ahead.

Joe Gomes

Good morning. Thanks for taking my questions and nice quarter.
Thank you, Joe.
So just you mentioned under the seven facilities, three are back to profitability now and you're hoping to get the other four by year end. And I think previously you talked about there's $100 million of revenue associated with them that was unprofitable. How much of that $100 million of revenue would you say is now return to profitability?

Harold Bevis

Yes, it's about half of it, Joe. And we're underway with the goal by the end of the year for that group to cross the line and make money for us on the way to making 5%. So we're going to go from losing over 10% to making plus 5%, which is slightly below our average. But those plants specifically have some of our older assets and then some special purpose assets that we've set realistic goals for now. But right now, we're kind of clearing waivers on about half of the revenue.
Joe.

Joe Gomes

Excellent, And then you kind of touched on it a little bit as well and maybe give us a little more color on on some of the medical efforts in the Connect and Protect, you know, is there anything specific you can point out maybe contract wins, our size and some of the stuff that you're bidding on in that type in those markets?

Harold Bevis

Yes, there's a couple of constraints that we look at with regards to saying, yes, to some of the growth for us when we get down to the final line, we've walked away from a couple big opportunities, to be honest, that we're extremely capital intense. And when we say capital intense for us, it means it's more than $1 of capital for $1 of sales. And we're way below that right now because we've been careful about leveraging the Company's assets and adding to into adjacent markets where if you say you needed for machine centers to complete a product, we have a capacity on to and need to de-bottleneck to some of the some of the opportunities in medical because we weren't in it for three years. As you say there for machine centers needed, we don't have any of them. So we've been careful about those opportunities, whether they're in medical or other adjacent markets and for stretching our growth CapEx.
So I would say the overriding metric for us is largely financial income. And we've been we've been stretching the CapEx across some of these that will get eventually get to the point where we have a little more firepower. But with the capital structure we have at the moment on and required a step down in covenants and be compliant. We need to be frugal on capital spending.
And we are Tim Tim Francis on the phone. Tim's look forward 12 quarters into our cash CapEx requirements.
And Tim, I know you've looked at the details more than me here. Do you want to have anything you want to add at this time.

Tim French

I would you say, Harold, that are we're being very efficient in how we're spending capital on new business wins. And as you as you suggested, it's significantly below $1 for $1 of revenue. So where we're really focusing on utilizing idle assets are on our underutilized assets today, and it's and it's proving to be very effective on our gaining new business.

Joe Gomes

Okay, great.
Then began. And at least relative to the next question I had you talked about, you know, open capacity are under utilized assets. How much if you were to utilize them at normal utilization rate, what kind of revenue additional revenue could you generate just from the existing assets and open capacity?

Harold Bevis

Yes, it's a good question, Tom. A lot of the assets that we have are older vintage and capable of making certain products, but not able to handle tolerance on certain others. For instance, we have a decent amount of equipment in our automotive engine parts areas. We make a lot of parts for high end engines, especially diesel and Adam, on a piece of paper, it looks like they ought to be able to make medical products. But when you get down to the tolerance needed, they can't hold. They can't hold us back. So they become what we call special purpose assets so we have a decent amount of that. If you look at our balance sheet, we have over $400 million with the machines. And generally speaking, we're one running one shift. And if you say that the growth programs are running $0.5 to $1 of growth, some and that's some sort of potentially financially speaking, a lot a lot of open capacity, a lot of open capacity, but it's not it's kind of fake news because it's the capacity is only capable of certain type of supporting certain type of growth initiatives and then on a growth basis, we're really focused on accretive growth on versus just filling up stuff. And so a lot of it remains idle, Joe. And to be honest, we're thinking through what our rooftop footprint should look like. And especially it turns back to the underperforming plant areas where they're mainly light on volume, light on volume, and they're mainly light on volume because they can mainly make commodity products. So when you look at, do you want to invest in those machines to be able to do other things or you want to call it a day. So we're getting progressively machine by machine smart about that.
And if I had to just give you a number though, Joe, I would say the numbers between $50 million and $100 million on is what's realistic on paper. You could come up in a lot higher number by also the math I just laid out there, but it. It's around $50 million to $100 million.

Joe Gomes

Thanks for that, Harold. And then one last one for me and I'll get back in queue. Last quarter, you had talked about potential more equipment sale leaseback transactions. Just wondering kind of what the status of those are.
Yes, Mike, when you take that one?

Mike Felcher

Sure.
Yes, we did, as I noted on my comments, $4.9 million in Q1. We're evaluating doing a little bit more this year. It's going to tie into our CapEx projections. So we're our viewpoint is we want to maintain positive free cash flow in the range we provided, and we'll look to supplement CapEx spend with either equipment sale leasebacks or financing.

Joe Gomes

Great.
Thanks for taking my questions. I'll get back in queue.

Operator

Thank you, Joe. The next question will come from John Franzreb with Sidoti & Company.
Please go ahead.

John Franzreb

Good morning, everyone, and thanks for taking the questions. And again, I want to start with with the changes you made to your guidance wasn't much, but I'm curious as to what were any underlying assumptions you might have changed either positive or negative to maybe your revenue assumption in the year ahead?

Harold Bevis

Yes, Michael, I'll take that one.

Mike Felcher

Sure.
You know, it wasn't a big change. We pulled down the top line on on revenue, a little bit of the high end of the range at the bottom, the same, and that's what form for over four months into the year. We just had a better feel for where we see the year coming in from a revenue standpoint, I don't think anything and overall changed in viewpoint other than just where we've been seeing the volume and how we see the rest of the year shaping up. And then on the EBITDA side, really, we just pull both the bottom and up a little bit and tighten that. And again, that's based on. It's been a third of the way through the year and having a little bit more confidence and where we see that coming into the for the full year.

Harold Bevis

So there's no specific end market yet think is growing more solid than previously, only one only one, our exposure to the US residential construction market, John, we haven't been specific mix exposure we make shafts for age fact compressors, and we're because of our machinery and the heritage of that business, we're really our mix is towards the low end side of those products and with the high interest rates and what's happening with housing starts, we expected it to be soft, but just a little softer than we thought on. We haven't lost position and if you look at housing from then in HB. or any of the housing product, the forecasters there's expected to be relief from when the fun when the Fed gets after rates. But right now it's rates are higher for longer. And so we're saying software for longer. Our customers continue in that area continue to give us, you know, flat. And then I'm going to turn off. Platinum is going to turn up, but it is keeps being flat. So we're calling it flat for right now.
John makes sense.

John Franzreb

Thanks, Harold and Dan, as far as rationalized volume is concerned, I assume that means that you were exiting the businesses. Where do you stand in that process and how much additionally will be rationalized and how does it flow through the year?
Yes. So if you look at kind of right now, I think you're talking about right now for John, the outlook.

Harold Bevis

Yes, yes. So we're still staring at customer economics at one of our main underperforming plants. This whereas on we have we are evaluating a potential consolidation of rooftops, which when you do that, it automatically make some you look at the specific strips of business and should you spend money to move them or should you attempt to end of life program.
So we don't have a concrete plan today, we're just doing evaluation on what's next for the facilities. We've taken out. We think a lot of the excess headcount or the that was standing around in those operations, and we're going to get them to slightly profitable with no closures needed and no attacking customer contracts needed, but that's not good enough. So we're already laddering our improvement program into 2025 at this point. And our goal is to continue sequential improvement in our trailing 12-month EBITDA. And if we're looking forward, we know we're going to have to attack all, I'm going to say $20 million to $30 million of this is shown on that debt. It doesn't make sense yet in terms of the cost to make the products and what we get for a price. So we've 80 20 to, but we have a we have probably $20 million ago, Tim French do modify my answer in any manner.

Tim French

No Harold, I think I think you've hit the number. We are looking at them in detail, and I think there is some more to go. And I think you've captured the quantity perfectly.

John Franzreb

And can you just just from just for me that $20 million to $30 million is not part of the $100 million you expect actually turnaround in profitability?

Harold Bevis

No, it is. I mean, is embedded in that number.
(multiple speakers)

John Franzreb

On one last question. In the fourth quarter, you had a slide that talked about where you are in the process now used to process because it's fashionable playoff season at the end with 38%. If you had 30% as of the end of the last quarter, can you just give us an update of where you stand in that process and down and your thoughts about where you expect to be at year end?

Harold Bevis

Yes, sure. On the last year had been characterized by Tim and I coming in and working with the team that was here dealing embracing there are realities decisioning upon items and just being firm fair and friendly and moving out and making decisions and moving then I'd say we're through that. Phase two is supplementing our in-place homegrown management with professional management, professional leaders who can take us to the next level. We're starting that now on. And then secondarily, for the plants where we've tried to improve them as much as we could in place, we're sheltered in place and they're still the dilutive addressing that from a rationalization standpoint, either with a customer or for retain it with our own actions, we spent almost we spent no money on and rationalization, Tim and I haven't since I've been here, so that's next.
So I'd say where 30% to 40% a long-term and the next phase will be addressing our footprint and bringing in a little bit more outside management to steer our actions that have been through these things before. So and we're building upon the great work that we've done in the last year, but it will climb. We're climbing the ladder here and we're looking forward on people and actions and laddering into '25.
Tim, as the cat on the hot tin roof here managing the CapEx because at the same time, we want to generate free cash flow and pay down debt as we go.
So on the things that you said, want to spend more. They want to consume more CapEx. So we're picking and choosing carefully. We don't have a '25 plan yet. We're not ready to give '25 guidance, but obviously, we know we're going to increase so that we're putting in place a set of actions to do that.

John Franzreb

Tim, Tim, although other operations report to you on how would you answer his question of what percentage along the way are you?

Tim French

I think we're right in that 40% range. As you as you mentioned, we're looking at bringing in professional managers to help with the with the next phase. And the next phase tends to be a little more difficult. And then what we've done so far when I when you look at footprint rationalization and that type of thing consolidations. So 40% is a good, a good percent for me as far as where we are today versus where and where we are today.

John Franzreb

Excellent. And one last question, I'll get back into queue. Tom, can you just update me on the interest expense costs? What was the cost of debt during the end of the first quarter. I haven't seen it at 10 Q filing yet, so I'm just curious what would that look like?

Mike Felcher

Give me one sec to get you there the actual P & Ls.
We did file our 10 Q. John, I know I know that you have a lot of things you read up on Syniverse here, but our Q is on file, then I'm going to blame FactSet if they are interest expense for Q1 was $5.4 million.

John Franzreb

And what was the rate on that?

Mike Felcher

The majority of that would be the term loan, which is currently up 14.3%.

John Franzreb

Okay. Thank you, Mike.
Thank you, guys.
I'll get back into queue for a second John.

Operator

The next question will come from Rob Brown with Lake Street Capital Markets.
Please go ahead, payroll, Mike.
Okay.

Rob Brown

And just following up on kind of the new business award activity how would you characterize the margin profile of that? I assume it's profitable, but how does that sort of fit into into where you're trying to get to?

Harold Bevis

Yes, it's a good question and there are some prisms onto that answer. And largely, we're trying to leverage the capacity we have in place and the capacity we have in place, except for the plants that are just a few plants that are negative, have their have their costs covered and generating margin at the plant level. So then you get into how do you treat the use of an existing asset, the risk spread across new business or do you look at it totally on a variable basis if all your costs already covered?
I can tell you that we set IRR goals from on the new business, and they're reviewed by Tim and I and it's accretive as a group.
And how much do you keep to the bottom line also enter weaves into what optionality do you have over the existing capacity because in some cases we're getting awards for which if you look at your existing capacity, you're constrained but if you look at swapping out and keeping the existing and reusing repurposing the capacity for the new business, it's just a net margin improvement of several points. But overall, it's accretive because we've we're being pretty disciplined about that. We use Salesforce.com and Tableau. So we have contemporary tools to house all of our pipeline activity as well as our one business. And then it goes out by quarter on the use of cash for both capital and working capital. So we can see what we're obligating the company to and for periods from being capital efficient. So the show is still going here filling in the future periods, and I'm not ready yet to discuss exactly how accretive it is, but I'll take that as an action item and for the next call.

Rob Brown

Okay, great.
Thanks for all the color there on. And then he went through several categories of the new business activity, but grid in electrical activities was one of the areas you highlighted. What do you sort of seeing there in terms of activity and how do you see the growth looking in that area.

Harold Bevis

And so we have two main product lines there. One is, you know, your old fashioned circuit breakers and distribution box, electrical distribution and control any others, grid edge devices for control of the grid in the case of grid grid edge devices or smart meters. And that sort of thing they're actually used in electrical and water. And so if you look at the public filings by our customers there. They're growing in both from water, utility control and electrical utility to control their customers are utilities and cities and municipalities and water districts and so on the grid edge devices, which were associated with, they're seeing steady growth on that. And we have a good mix there on electrical distribution and control a little different because we're tied in mainly, again, to residential, and that's tied into the same dynamic, as I mentioned earlier, for us on chefs in our machine business. That one, though we've had some decent amount of new wins. And so we're not turning down in that area due to share gain. And but the base business is a little softness. I think contactors on connectors grounding on an all types of electrical distribution across points. So we're able to make that with powdered metal powder metal products as well as assembled copper bar and busbar on So overall volume is growing a little bit and has sizable backlogs, sizable backlog. So in that arena, our customers talk about book-to-bill and there's a couple of year backlog. Backlogs go over a couple of years.

Rob Brown

Okay, great. Thanks for the color. I'll turn it over.

Harold Bevis

Thank you, Rob.

Operator

The next question will come from Mike Crawford with B. Riley.
Please go ahead.

Mike Crawford

Thank you. You've given some prior pipeline information like you had a $500 million pipeline at year end. Did you state what the pipeline is? Currently?

Harold Bevis

We have grown a little bit, it's closing in on around $550 million, Mike.

Mike Crawford

Okay. And then I was hoping you could maybe elucidate on how these new program wins layer into your existing base of business. So many can add what, $489 million of revenue last year, but is what is there like a related metric and how much of that is somewhat recurring or somewhat bleeding off?

Harold Bevis

Yes. So there's a few there's a few important metrics. One is that the average time from securing an award nomination, which is industry-leading and go on to hitting peak annual sales or run-rate sales is about 18 months. Generally speaking, we're a Tier two provider to a Tier one, making a subsystem that's going through their internal development in the case of vehicles and vehicle crash testing and vehicle certification and P. packaging, which is a quality term used in the industry.
So I look at the vast majority of our new wind profile.
And is it 18 months from award to peak annual sales?
On the second point you touched on, which was comparing last year to this year.
I think the third question is why isn't it going up more now that gets into the lack of lending that was going on in 22 and early 23 that would have manifested itself around now. So there will be an inflection on the contribution of new business onto our base business was the takeaway business that's going through end of life production EOP into production. And we have looked forward and we kind of know what that is and we know what the look of it is, and our goal is to do much higher growth and market growth. And so we're the business we're securing. If you do the math on it, we're on $65 million on $500 million. And so that's way above our market growth.
Our markets growing 3% to 5%. You know, we're winning around 13% to 15% because of the takeaways in the production, which is just as gets into single digits takeaway. So the game plan here is to create a growth portfolio that layers and gives us the confidence to say no to continuation of underperforming business and walk away, and we're just starting. So we're right at four quarters here since Tim and I have been here and the commercial team, which is led by a gentleman named Berlin Bush from Berlin was new in the job after I got here, I promoted him into that position and done. He's been winning. His team has been winning at a much higher rate than the Company ever has, and it's not slowing down. So the net of the net amount is coming to us in future quarters. Sometimes we'll get drop in business Mike, like in the first quarter, we did have a decent amount of immediate start-up wins. Immediate start-up usually means it will start in two or three quarters versus five or six and right now inside the company, we're launching close to 40 programs, which has a very high level of new product launching than the company's ever been associated with in terms put in place, a phase gate program Phase zero program and people being disciplined. And these entities bolstered his ops team with the professional managers who have done this at a high level from a mass quantity. So if the numbers and then us do it properly, so you don't stumble. And right now, we're operating near our capacity for our ability to quote much on and we have space on CapEx to do more, but these programs need to be implemented. So we're kind of comfortable with where we are right now.
Mike, not ready to take that aspiration part of our go-forward plan up. We're really committing to do that amount. And when we've proven, we can launch programs and they are accretive and we do post-mortem and we get it right muscle Now we will look at taking up the dollars of growth that we intend to get the markets there. We're seeing opportunities. We're just kind of cherry picking right now, Tim, anything else? Any other modifiers on that?

Tim French

And again, Harold, I think you nailed it that he wouldn't have anything to add to that.
Thank you.
Thanks.

Mike Crawford

Mike, I'll just thank you. Just one one follow-up to that question. So when do you have your 18 months on average from award to peak revenue? And then what on average is the ELP. tail after that.

Harold Bevis

Are you asking how long do we generally retain a program?
Yes, around eight years through. So they're like annuity strips. If you look at the amount of business per year numerically that the company has, you know, it's not all eight year business. We have some PO business too, but it times out. And then needs to be replaced. So let's say the net amount, the net amount, probably half of the win rate will be we'll get smarter on that for the next call, Mike.

Mike Crawford

Okay. And then just a final question for me. So you're you're right now thinking you can capture another $10 million of EBITDA once your restructuring actions are completed, particularly at these maybe for other plants that remain on the low profitability arm. What is the anticipated span that you need to invest to achieve this goal? And maybe if you could frame that in the context of, as you know, EBIT versus adjusted EBITDA, that would be very helpful for us. Thank you.

Harold Bevis

Okay. Look, I'm going to talk a little, Tim and Mike on the adjusted EBIT EBIT, EBITDA of the business that we spoke about that loses money in 2023, we had about $100 million of business that lost a little more than $10 million at the plant level, we articulated a goal to rationalize that business, trying to retain business trips that were good, but to increase and 24 versus 23 about $10 million of EBITDA. So if you do that math, that gets you about back to about break even on an annualized basis. But that's not the end point for those assets the goal really is to get to plus $5 million.
So then you say how much capital is needed to get from minus 10 to zero?
Basically nothing not much de minimus. Second part of your question is so how much capital would be needed to get from zero to plus five k. different?
That's a different question. So right now, Tim and I foresee some capacity rationalization, which will take some money plant closures, plant consolidations or whatever color you want to put on. And it will also take us going in first a couple of hard talks with a few customers, not a lot, but if you come and then in the case of assets that become idled through that process, do you move them or do you modify them right now, Tim, and I think a conservative assumption is that we're going to have to modify some of the equipment to be able to compete and be repurposed into our growth program. So that has a use of capital. And that's one reason Tim's looking for 12 quarters here against our current capital market constraints. And right now it all works. So we're going to be of the probably 60 40 CapEx on growth versus cost. And we haven't spent a lot of capital on costs since we've been here we've been using it mainly on growth and maintenance of business that we're going to need to spend some money on on making that capacity profitable on a go forward basis, either through facility rationalization for investment in the equipment, so can be repurposed to do something else?
I'll hand it to Tim and then Tim, if you'll hand it to Mike on the financial question.

Tim French

Sure.
And we're putting that analysis together now. So I don't I wouldn't want to quote a number as far as what the capital required for that is because we're just finalizing that and you can take that as an action item for future calls. But Herald Herald is completely correct. It was virtually no capital to two or will be virtually no capital to get it to that group of facilities to breakeven. But there will be some form of capacity rationalization and it will require capital.
But at this point, I couldn't quota a number.
And we're working within our overall idea of spending around $20 million, Mike, on CapEx. So right now, we're not letting go of that, that constraints self imposed on ourselves.
Right. And then on the on the third point on the third point on EBITDA EBITDA, Mike, would you handle that one?

Mike Felcher

Yes, I think you covered it in the $10 millions and better than our 24 outlook relative to 23.
And then going forward, Tom, as Tim said, we spent some CapEx for facility rationalization that wouldn't impact EBITDA and if we had any any costs incurred our plant consolidation, we would typically exclude those from our adjusted EBITDA, but yet to be defined in terms of on capital and expense for future footprint decisions at this point there, there's no Mike Crawford done on plant consolidations.
As you know, no one likes adjusted EBITDA. It's included, but there are some GAAP accounting that fall off if you're going to consolidate a facility. And so I would say we're not going to do anything other than follow GAAP accounting on IT rationalization that we're going to do and it's not a big thing. It's a minor thing. It's not going to be a big use of capital, but it will be a use of capital at Tim's point we'll get our arms around it and be able to give a numerical information next time.

Mike Crawford

All right.
Thank you very much.
Thank you, Mike.
Again, if you have a question, please press star then one.

Operator

Our next question will come from Tom Kerr with Zacks Investment Research.
Please go ahead.

Tom Kerr

Good morning, guys.
Most of my questions have been answered.
Just curious about the China business and what's driving that sort of growth improvements there?
Is it product specific or more macro type issues?

Harold Bevis

Yes, I'd say it's mostly self cause. So a year ago when Tim and I came in and we kind of challenged the global commercial teams to grow in adjacent areas that make sense for us and don't pursue any kind of silly moon shots. The China team had a lot of opportunities in front of them with the top 50 OE.s in China and has been very successful. The team there led by Rex Swann, and it's very heavy, Tom and a steering electric power steering EPS, we call it. So we've steered away from engine components in that market. Obviously, there's government mandates to switch to a fully electric vehicles from new generation vehicles like home. And so we haven't pursued engine parks in that market were primarily after vehicle control sensors, steering braking, seat controls window controls on anything that has a worm gear. So if you looked at our machine business and machine businesses primarily turned parts turn to parts, there's a lot of different types of machining in the world. We're an expert in turn to parts. I'm down to the national level. So that's a smaller group of people that can do what we do with that level of precision. And so we're fundamentally in China looking at where are turned machine parts on vehicles and getting after them. And obviously, there's a tremendous amount of steering and if you look at self-op, self-driving vehicles and automated vehicles, that the precision steering and braking is dramatically increased from. And so there's a higher need for precision parts. So we saw we saw the opportunity to grow in adjacent markets are basically low risk for us and basically leveraging existing capital on some cases with new customers, some some cases with existing customers and in our company, that's that's the only facility that's nearing capacity, 24, seven. So they've done a great job there. And if you look at the vehicle production inside of China in China, there's an ability for the industry to produce two times the amount of vehicles consumed indigenously. So I know you follow the market, but last year or recently China passed Japan on the global, the number one global vehicle exporter. And that's getting a lot of press in the Wall Street Journal, President Biden and Trump and President of premier energy is in Europe right now with Micron and meeting with European leaders. And top conversation is, hey, you guys are coming in hard with your automotive products here, um, and so they've they're really aggressive about exporting in this industry and the biggest export market for China right now, Russia, Australia and Mexico, and we're participating in it. So we're we're participating in the Chinese government's strong export behavior on on vehicles made in China. And we're participating in China, China for China program of electric autonomous self-driving vehicles. And additionally, China is one of our lowest cost plants that in our Brazil plant. And these customers are global and we become globally approved as a supplier when we when we win these positions. So it's actually opening up opportunities for us in the United States. You'd normally think a US-based company like us with leverages relationships into China. This is the reverse, and we're leveraging our successful business model in China and becoming approved in the US and in Europe and in Brazil. So it's really key to our future.
If you look at our growth strategy, Tom, it was a big pie chart growing in China is about a third of that. So we're going to we're going to continue doing that in China. It's very important to us.

Tom Kerr

Thanks for the color and how the growth at times. We'll take the rest of questions offline. Thanks.

Harold Bevis

Well, thank you, everyone, for joining us today and for the for the excellent questions Tim and I and Mike got some action items here and we'll be responsive to them that next time, our transformation continues to take shape operationally, commercially and culturally. And while there's more to be done. We believe that we're going to continue to execute and deliver profitable growth for all of you shareholders on the phone. And we're committed global team and excited about this year, really excited about share, and we're getting excited about 25 also, and we look forward to sharing our successes with you in future quarters.
And with that, I appreciate it, and everyone have a good day or in the call now.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.