Financial and Strategic Highlights
- Net sales of
$125.2 million flat versus prior year period; - Operating loss of
$4.0 million and Adjusted EBITDA of$10.5 million ; - Free cash flow results of
$3.0 million with positive free cash flow generation over the trailing year; - Key program wins including attractive wins in EV electric power steering markets;
- Revised second half forecast based on softening market conditions;
- New leadership executing strategic transformation;
- Announced streamlining of Board of Directors;
- Integration of sales and operations teams to accelerate growth and utilize existing capacity;
- Addressing three underperforming facilities and several unprofitable customer agreements; and
- Prioritizing free cash flow generation through operations and cost management.
Bevis continued, “NN has unique precision machining and stamping capabilities and a huge global installed base of machinery. We are experts at what we do and a member of a select set of companies that can deliver precision components at a sub-micron level. We have historically been focused on a few long-cycle markets but are expanding our commercial aperture to include multiple other markets that our machines and people can serve including medical, electrification, and next-generation vehicles. Our focus is clear, and we have the right team, platform and capabilities to significantly accelerate our growth and profitability.”
Second Quarter GAAP Results
Net sales were
Loss from operations was
Income from operations for Power Solutions was
Net loss was
Second Quarter Adjusted Results
Adjusted income from operations for the second quarter of 2023 was
Free cash flow was a generation of cash of
Power Solutions
Net sales for the second quarter of 2023 were
Mobile Solutions
Net sales for the second quarter of 2023 were
2023 Outlook
Based on results for the first half of the year, as well as expectations for the remainder of the year, the Company has revised its expectations for financial results for the full year as follows:
- Revenue in the range of
$485 million to$505 million ; - Adjusted EBITDA in the range of
$40 million to$46 million ; and - Free cash flow in the range of
$7 to$13 million .
Free cash flow outlook does not include the CARES Act tax refund of
Conference Call
NN will discuss its results during its quarterly investor conference call on
NN discloses in this press release the non-GAAP financial measures of adjusted income (loss) from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per diluted common share, and free cash flow. Each of these non-GAAP financial measures provides supplementary information about the impacts of restructuring and integration expense, acquisition and transition expenses, foreign exchange impacts on inter-company loans, amortization of intangibles and deferred financing costs, and other non-operating impacts on our business.
The financial tables found later in this press release include a reconciliation of adjusted income (loss) from operations, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income (loss), adjusted net income (loss) per diluted share, free cash flow to the
About
Except for specific historical information, many of the matters discussed in this press release may express or imply projections of revenues or expenditures, statements of plans and objectives or future operations or statements of future economic performance. These statements may discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to
Investor & Media Contacts:
NNBR@alpha-ir.com
312-445-2870
Financial Tables Follow
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) |
|||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||
(in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | |||||||||||
Net sales | $ | 125,206 | $ | 125,362 | $ | 252,294 | $ | 253,429 | |||||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | 107,684 | 103,889 | 216,105 | 208,467 | |||||||||||
Selling, general, and administrative expense | 10,975 | 14,794 | 24,140 | 28,248 | |||||||||||
Depreciation and amortization | 11,550 | 11,340 | 23,066 | 22,769 | |||||||||||
Other operating expense (income), net | (956 | ) | (147 | ) | 105 | 1,879 | |||||||||
Loss from operations | (4,047 | ) | (4,514 | ) | (11,122 | ) | (7,934 | ) | |||||||
Interest expense | 5,457 | 3,488 | 9,745 | 6,927 | |||||||||||
Other expense (income), net | 5,641 | (67 | ) | 3,433 | (3,063 | ) | |||||||||
Loss before provision for income taxes and share of net income from joint venture | (15,145 | ) | (7,935 | ) | (24,300 | ) | (11,798 | ) | |||||||
Provision for income taxes | (325 | ) | (1,051 | ) | (1,626 | ) | (2,582 | ) | |||||||
Share of net income from joint venture | 1,093 | 419 | 1,374 | 2,511 | |||||||||||
Net loss | $ | (14,377 | ) | $ | (8,567 | ) | $ | (24,552 | ) | $ | (11,869 | ) | |||
Other comprehensive loss: | |||||||||||||||
Foreign currency transaction loss | (2,374 | ) | (8,490 | ) | (534 | ) | (5,890 | ) | |||||||
Interest rate swap: | |||||||||||||||
Change in fair value, net of tax | — | 373 | (230 | ) | 1,560 | ||||||||||
Reclassification adjustment for losses (gains) included in net loss, net of tax | (449 | ) | 31 | (917 | ) | 65 | |||||||||
Other comprehensive loss | $ | (2,823 | ) | $ | (8,086 | ) | $ | (1,681 | ) | $ | (4,265 | ) | |||
Comprehensive loss | $ | (17,200 | ) | $ | (16,653 | ) | $ | (26,233 | ) | $ | (16,134 | ) | |||
Basic net loss per common share: | |||||||||||||||
Net loss per common share | $ | (0.38 | ) | $ | (0.25 | ) | $ | (0.67 | ) | $ | (0.38 | ) | |||
Weighted average common shares outstanding | 46,357 | 44,708 | 45,836 | 44,649 | |||||||||||
Diluted net loss per common share: | |||||||||||||||
Net loss per common share | $ | (0.38 | ) | $ | (0.25 | ) | $ | (0.67 | ) | $ | (0.38 | ) | |||
Weighted average common shares outstanding | 46,357 | 44,708 | 45,836 | 44,649 |
Condensed Consolidated Balance Sheets (Unaudited) |
|||||||
(in thousands, except per share data) | 2023 |
2022 |
|||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 14,337 | $ | 12,808 | |||
Accounts receivable, net | 79,302 | 74,129 | |||||
Inventories | 77,386 | 80,682 | |||||
Income tax receivable | 12,496 | 12,164 | |||||
Prepaid assets | 4,653 | 2,794 | |||||
Other current assets | 9,243 | 9,123 | |||||
Total current assets | 197,417 | 191,700 | |||||
Property, plant and equipment, net | 192,241 | 197,637 | |||||
Operating lease right-of-use assets | 44,924 | 46,713 | |||||
Intangible assets, net | 65,765 | 72,891 | |||||
Investment in joint venture | 31,570 | 31,802 | |||||
Deferred tax assets | 102 | 102 | |||||
Other non-current assets | 6,395 | 5,282 | |||||
Total assets | $ | 538,414 | $ | 546,127 | |||
Liabilities, Preferred Stock, and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 51,416 | $ | 45,871 | |||
Accrued salaries, wages and benefits | 13,317 | 11,671 | |||||
Income tax payable | 485 | 926 | |||||
Current maturities of long-term debt | 6,810 | 3,321 | |||||
Current portion of operating lease liabilities | 5,361 | 5,294 | |||||
Other current liabilities | 13,630 | 11,723 | |||||
Total current liabilities | 91,019 | 78,806 | |||||
Deferred tax liabilities | 5,728 | 5,596 | |||||
Long-term debt, net of current portion | 148,636 | 149,389 | |||||
Operating lease liabilities, net of current portion | 49,149 | 51,411 | |||||
Other non-current liabilities | 18,490 | 9,960 | |||||
Total liabilities | 313,022 | 295,162 | |||||
Commitments and contingencies | |||||||
Series D perpetual preferred stock - |
70,948 | 64,701 | |||||
Stockholders' equity: | |||||||
Common stock - |
470 | 439 | |||||
Additional paid-in capital | 462,525 | 468,143 | |||||
Accumulated deficit | (269,750 | ) | (245,198 | ) | |||
Accumulated other comprehensive loss | (38,801 | ) | (37,120 | ) | |||
Total stockholders’ equity | 154,444 | 186,264 | |||||
Total liabilities, preferred stock, and stockholders’ equity | $ | 538,414 | $ | 546,127 |
Condensed Consolidated Statements of Cash Flows (Unaudited) |
|||||||
Six Months Ended |
|||||||
(in thousands) | 2023 | 2022 | |||||
Cash flows from operating activities | |||||||
Net loss | $ | (24,552 | ) | $ | (11,869 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 23,066 | 22,769 | |||||
Amortization of debt issuance costs and discount | 880 | 662 | |||||
Paid-in-kind interest | 744 | — | |||||
Total derivative loss (gain), net of cash settlements | 5,691 | (3,237 | ) | ||||
Share of net income from joint venture | (1,374 | ) | 1,515 | ||||
Compensation expense from issuance of share-based awards | 851 | 3,555 | |||||
Deferred income taxes | 110 | 94 | |||||
Other | (721 | ) | (2,763 | ) | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (5,078 | ) | (13,264 | ) | |||
Inventories | 3,920 | (10,586 | ) | ||||
Accounts payable | 6,927 | 11,960 | |||||
Income taxes receivable and payable, net | (730 | ) | (475 | ) | |||
Other | (1,091 | ) | (905 | ) | |||
Net cash provided by (used in) operating activities | 8,643 | (2,544 | ) | ||||
Cash flows from investing activities | |||||||
Acquisition of property, plant and equipment | (12,196 | ) | (9,703 | ) | |||
Proceeds from sale of property, plant, and equipment | 2,777 | 422 | |||||
Net cash used in investing activities | (9,419 | ) | (9,281 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from long-term debt | 35,000 | 20,000 | |||||
Repayments of long-term debt | (34,725 | ) | (19,482 | ) | |||
Cash paid for debt issuance costs | (55 | ) | — | ||||
Repayments of short-term debt, net | 3,648 | — | |||||
Other | (1,610 | ) | (1,528 | ) | |||
Net cash provided by (used in) financing activities | 2,258 | (1,010 | ) | ||||
Effect of exchange rate changes on cash flows | 47 | (635 | ) | ||||
Net change in cash and cash equivalents | 1,529 | (13,470 | ) | ||||
Cash and cash equivalents at beginning of period | 12,808 | 28,656 | |||||
Cash and cash equivalents at end of period | $ | 14,337 | $ | 15,186 |
Reconciliation of GAAP Income (Loss) from Operations to Non-GAAP Adjusted Income (Loss) from Operations | |||||||
(in thousands) | Three Months Ended |
||||||
2023 | 2022 | ||||||
GAAP income (loss) from operations | $ | (4,047 | ) | $ | (4,514 | ) | |
Professional fees | 119 | 678 | |||||
Personnel costs (1) | 622 | 17 | |||||
Facility costs (2) | 1,022 | 333 | |||||
Amortization of intangibles | 3,563 | 3,586 | |||||
Fixed asset impairments | — | (14 | ) | ||||
Non-GAAP adjusted income (loss) from operations (a) | $ | 1,279 | $ | 86 | |||
Non-GAAP adjusted operating margin (3) | 1.0 | % | 0.1 | % | |||
GAAP net sales | $ | 125,206 | $ | 125,362 | |||
(in thousands) | Three Months Ended |
||||||
Power Solutions | 2023 | 2022 | |||||
GAAP income (loss) from operations | $ | 2,583 | $ | 1,430 | |||
Professional fees | — | 165 | |||||
Facility costs (2) | 244 | 274 | |||||
Amortization of intangibles | 2,724 | 2,747 | |||||
Non-GAAP adjusted income (loss) from operations (a) | $ | 5,551 | $ | 4,616 | |||
Non-GAAP adjusted operating margin (3) | 11.5 | % | 8.9 | % | |||
GAAP net sales | $ | 48,062 | $ | 52,049 |
(in thousands) | Three Months Ended |
||||||
Mobile Solutions | 2023 | 2022 | |||||
GAAP income (loss) from operations | $ | (1,461 | ) | $ | 1,729 | ||
Personnel costs (1) | 40 | — | |||||
Facility costs (2) | 778 | 59 | |||||
Amortization of intangibles | 838 | 839 | |||||
Fixed asset impairments | — | (14 | ) | ||||
Non-GAAP adjusted income (loss) from operations (a) | 195 | 2,613 | |||||
Share of net income from joint venture | 1,093 | 419 | |||||
Non-GAAP adjusted income (loss) from operations with JV | $ | 1,288 | $ | 3,032 | |||
Non-GAAP adjusted operating margin (3) | 1.7 | % | 4.1 | % | |||
GAAP net sales | $ | 77,153 | $ | 73,350 | |||
(in thousands) | Three Months Ended |
||||||
Elimination | 2023 | 2022 | |||||
GAAP net sales | $ | (9 | ) | $ | (37 | ) | |
(1) Personnel costs include recruitment, retention, relocation, and severance costs | |||||||
(2) Facility costs include costs associated with opening or closing facilities and equipment relocation | |||||||
(3) Non-GAAP adjusted operating margin = Non-GAAP adjusted income (loss) from operations / GAAP net sales |
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted EBITDA | |||||||
Three Months Ended |
|||||||
(in thousands) | 2023 | 2022 | |||||
GAAP net income (loss) | $ | (14,377 | ) | $ | (8,567 | ) | |
Provision for income taxes | 325 | 1,051 | |||||
Interest expense | 5,457 | 3,488 | |||||
Change in fair value of preferred stock derivatives and warrants | 5,754 | (694 | ) | ||||
Depreciation and amortization | 11,550 | 11,340 | |||||
Professional fees | 119 | 678 | |||||
Personnel costs (1) | 622 | 17 | |||||
Facility costs (2) | 1,022 | 333 | |||||
Non-cash stock compensation | 471 | 2,607 | |||||
Non-cash foreign exchange (gain) loss on inter-company loans | (445 | ) | 654 | ||||
Fixed asset impairments | — | (14 | ) | ||||
Non-GAAP adjusted EBITDA (b) | $ | 10,498 | $ | 10,893 | |||
Non-GAAP adjusted EBITDA margin (4) | 8.4 | % | 8.7 | % | |||
GAAP net sales | $ | 125,206 | $ | 125,362 | |||
(4) Non-GAAP adjusted EBITDA margin = Non-GAAP adjusted EBITDA / GAAP net sales |
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted Net Income and GAAP Net Income (Loss) per Diluted Common Share to Non-GAAP Adjusted Net Income (Loss) per Diluted Common Share |
|||||||
Three Months Ended |
|||||||
(in thousands) | 2023 | 2022 | |||||
GAAP net income (loss) | $ | (14,377 | ) | $ | (8,567 | ) | |
Pre-tax professional fees | 119 | 678 | |||||
Pre-tax personnel costs | 622 | 17 | |||||
Pre-tax facility costs | 1,022 | 333 | |||||
Pre-tax foreign exchange (gain) loss on inter-company loans | (445 | ) | 654 | ||||
Pre-tax change in fair value of preferred stock derivatives and warrants | 5,754 | (694 | ) | ||||
Pre-tax amortization of intangibles and deferred financing costs | 4,090 | 3,916 | |||||
Pre-tax impairments of fixed asset costs | — | (14 | ) | ||||
Tax effect of adjustments reflected above (c) | (64 | ) | (1,027 | ) | |||
Non-GAAP discrete tax adjustments | — | 1,098 | |||||
Non-GAAP adjusted net income (loss) (d) | $ | (3,279 | ) | $ | (3,606 | ) | |
Three Months Ended |
|||||||
(per diluted common share) | 2023 | 2022 | |||||
GAAP net income (loss) per diluted common share | $ | (0.38 | ) | $ | (0.25 | ) | |
Pre-tax professional fees | — | 0.01 | |||||
Pre-tax personnel costs | 0.01 | — | |||||
Pre-tax facility costs | 0.02 | 0.01 | |||||
Pre-tax foreign exchange (gain) loss on inter-company loans | (0.01 | ) | 0.01 | ||||
Pre-tax change in fair value of preferred stock derivatives and warrants | 0.12 | (0.02 | ) | ||||
Pre-tax amortization of intangibles and deferred financing costs | 0.09 | 0.09 | |||||
Tax effect of adjustments reflected above (c) | — | (0.02 | ) | ||||
Non-GAAP discrete tax adjustments | — | 0.02 | |||||
Preferred stock cumulative dividends and deemed dividends | 0.07 | 0.06 | |||||
Non-GAAP adjusted net income (loss) per diluted common share (d) | $ | (0.08 | ) | $ | (0.09 | ) | |
Weighted average common shares outstanding | 46,357 | 44,708 |
Reconciliation of Operating Cash Flow to Free Cash Flow | |||||||
Three Months Ended |
|||||||
(in thousands) | 2023 | 2022 | |||||
Net cash provided (used) by operating activities | $ | 8,417 | $ | 2,661 | |||
Acquisition of property, plant, and equipment | (7,199 | ) | (5,441 | ) | |||
Proceeds from sale of property, plant, and equipment | 1,742 | 386 | |||||
Free cash flow | $ | 2,960 | $ | (2,394 | ) |
The Company discloses in this presentation the non-GAAP financial measures of adjusted income (loss) from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per diluted common share, and free cash flow. Each of these non-GAAP financial measures provides supplementary information about the impacts of acquisition, divestiture and integration related expenses, foreign-exchange impacts on inter-company loans, reorganizational and impairment charges. Over the past five years, we have completed several acquisitions, one of which was transformative for the Company, and sold two of our businesses. The costs we incurred in completing such acquisitions, including the amortization of intangibles and deferred financing costs, and these divestitures have been excluded from these measures because their size and inconsistent frequency are unrelated to our commercial performance during the period, and which we believe are not indicative of our ongoing operating costs. We exclude the impact of currency translation from these measures because foreign exchange rates are not under management’s control and are subject to volatility. Other non-operating charges are excluded as the charges are not indicative of our ongoing operating cost. We believe the presentation of adjusted income (loss) from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per diluted common share, and free cash flow provides useful information in assessing our underlying business trends and facilitates comparison of our long-term performance over given periods.
The non-GAAP financial measures provided herein may not provide information that is directly comparable to that provided by other companies in the Company's industry, as other companies may calculate such financial results differently. The Company's non-GAAP financial measures are not measurements of financial performance under GAAP and should not be considered as alternatives to actual income growth derived from income amounts presented in accordance with GAAP. The Company does not consider these non-GAAP financial measures to be a substitute for, or superior to, the information provided by GAAP financial results.
(a) Non-GAAP Adjusted income (loss) from operations represents GAAP income (loss) from operations, adjusted to exclude the effects of restructuring and integration expense; non-operational charges related to acquisition and transition expense, intangible amortization costs for fair value step-up in values related to acquisitions, non-cash impairment charges, and when applicable, our share of income from joint venture operations. We believe this presentation is commonly used by investors and professional research analysts in the valuation, comparison, rating, and investment recommendations of companies in the industrial industry. We use this information for comparative purposes within the industry. Non-GAAP adjusted income (loss) from operations is not a measure of financial performance under GAAP and should not be considered as a measure of liquidity or as an alternative to GAAP income (loss) from operations.
(b) Non-GAAP adjusted EBITDA represents GAAP net income (loss), adjusted to include income taxes, interest expense, write-off of unamortized debt issuance costs, interest rate swap payments and change in fair value that was recognized in earnings, change in fair value of preferred stock derivatives and warrants, depreciation and amortization, charges related to acquisition and transition costs, non-cash stock compensation expense, foreign exchange gain (loss) on inter-company loans, restructuring and integration expense, costs related to divested businesses and litigation settlements, income from discontinued operations, and non-cash impairment charges, to the extent applicable. We believe this presentation is commonly used by investors and professional research analysts in the valuation, comparison, rating, and investment recommendations of companies in the industrial industry. We use this information for comparative purposes within the industry. Non-GAAP adjusted EBITDA is not a measure of financial performance under GAAP and should not be considered as a measure of liquidity or as an alternative to GAAP income (loss) from continuing operations.
(c) This line item reflects the aggregate tax effect of all non-tax adjustments reflected in the respective table.
(d) Non-GAAP adjusted net income (loss) represents GAAP net income (loss) adjusted to exclude the tax-affected effects of charges related to acquisition and transition costs, foreign exchange gain (loss) on inter-company loans, restructuring and integration charges, amortization of intangibles costs for fair value step-up in values related to acquisitions and amortization of deferred financing costs, non-cash impairment charges, write-off of unamortized debt issuance costs, interest rate swap payments and change in fair value, change in fair value of preferred stock derivatives and warrants, costs related to divested businesses and litigation settlements, income (loss) from discontinued operations, and preferred stock cumulative dividends and deemed dividends. We believe this presentation is commonly used by investors and professional research analysts in the valuation, comparison, rating, and investment recommendations of companies in the industrial industry. We use this information for comparative purposes within the industry.
Source: NN, Inc.