NN, Inc. Reports Financial Results For Second Quarter Of 2022

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CHARLOTTE, N.C., Aug. 04, 2022 (GLOBE NEWSWIRE) -- NN, Inc. (NASDAQ: NNBR), a global diversified industrial company that manufactures high-precision components and assemblies for a variety of markets including electric vehicles and the power grid, today reported its financial results for the second quarter ended June 30, 2022.

Warren Veltman, President and Chief Executive Officer, said,“I am pleased with our team's focus and commitment during the second quarter, and we made meaningful progress towards achieving our long-term strategic goals. While supply chain disruptions have persisted longer than anticipated and inflation has created additional cost and pricing pressures, we delivered a net sales increase of 1.8% versus the second quarter of 2021. We remain focused on the growth opportunities created by the transition to electric vehicles and the transformation of the electric grid, and we are determined to convert our growing pipeline of opportunities into new business wins as we leverage capabilities across our Power and Mobile Solutions businesses. As we evaluate the evolving state of the global economy, we are committed to improving our overall cost structure through facility and labor optimization initiatives to provide flexibility for any economic downturn and to improve overall margins, while continuing to exceed our customers' expectations. We firmly believe our unique manufacturing capabilities and global platform will enable us to grow and create increased value for all our stakeholders.”

GAAP Results

Net sales were $125.4 million, an increase of 1.8% from the second quarter of 2021, primarily due to increased pricing to recover certain inflationary costs and underutilized fixed costs caused by lower-than-expected customer demand. These increases were partially offset by lower volume demand in Mobile Solutions, which was adversely impacted by the war in Ukraine, COVID-19 disruptions in China, continued supply chain disruptions, and unfavorable foreign exchange effects of $0.5 million.

Loss from operations was $4.5 million compared to loss from operations of $1.6 million in the second quarter of 2021. Loss from operations increased primarily due to inflationary costs and higher selling, general and administrative expenses due primarily to $1.8 million of increased stock compensation expense, and $0.4 million increase in legal expenses associated with a recently settled shareholder litigation, and was partially offset by lower severance and retention costs compared to the prior year.

Income from operations for the Power Solutions segment was $1.4 million compared to $2.9 million for the same period in 2021. Income from operations for Mobile Solutions was $1.7 million compared to $2.5 million for the same period in 2021.

Net loss was $8.6 million compared to a net loss of $5.4 million for the same period in 2021. The increase in net loss was primarily driven by higher input costs and increased selling, general, and administrative expenses. Net loss was also affected by reduced income from the Company's China Joint Venture whose operations were negatively impacted during the quarter by an increase in COVID-19 cases in the region where the operations are located, and culminating in the temporary closure of that facility in June.

Adjusted Results

Adjusted income from operations for the second quarter of 2022 was $0.1 million compared to adjusted income from operations of $3.2 million for the same period in 2021. Adjusted EBITDA was $10.9 million, or 8.7% of sales, compared to $13.4 million, or 10.9% of sales, for the same period in 2021. Adjusted net loss was $3.6 million, or $0.09 per diluted share, compared to adjusted net loss of $0.2 million, or $0.00 per diluted share, for the same period in 2021.

Free cash flow was a use of cash of $2.8 million compared to a use of cash of $7.5 million for the same period in 2021. The improvement in free cash flow was primarily driven by a tax payment of $9.2 million related to the sale of Life Sciences that was made in the prior year.

Power Solutions

Net sales for the second quarter of 2022 were $52.0 million compared to $49.3 million in the second quarter of 2021, an increase of 5.6% or $2.8 million. The increase in sales was the result of increased electric component sales, which were up 15.6% year over year, primarily due to higher customer pricing to recover inflationary costs and improved volume, offset by lower sales to automotive and aerospace and defense customers. Adjusted income from operations was $4.6 million compared to $5.7 million in the second quarter of 2021. The decrease in adjusted income from operations was primarily due to inflationary costs which were not fully recovered from pricing, variable cost inefficiencies associated with supply chain disruptions, and uneven customer ordering patterns.

Mobile Solutions

Net sales for the second quarter of 2022 were $73.4 million compared to $73.9 million in the second quarter of 2021, a decrease of 0.7% or $0.5 million. The decrease in sales was primarily due to lower European demand, which was impacted by the war in Ukraine, pandemic interruptions in China and unfavorable foreign exchange effects of $0.5 million. Adjusted income from operations was $2.6 million compared to $3.3 million of adjusted income from operations in the second quarter of 2021. The decrease was due to lower volume as well as increased material and other inflationary costs which were not fully recovered from pricing, variable cost inefficiencies associated with supply chain disruptions, and uneven customer ordering patterns.

2022 Outlook

Warren Veltman commented,“While our results for the second quarter did not meet our expectations, our team managed through a number of difficult macroeconomic challenges including inflationary conditions, supply chain disruptions and labor shortages that continue to impact our business in 2022. As we look to the remainder of the year to address these challenges, we have taken actions to improve our cost structure, and we remain proactive in our approach to address evolving economic, market and supply chain conditions as they arise. Given this uncertain backdrop, we have adjusted our full-year outlook as follows:”

• Revenue in the range of $510 million to $525 million
• Adjusted EBITDA in the range of $51 million to $57 million
• Free cash flow in the range of breakeven to $5 million
• Free cash flow outlook does not include CARES Act tax refund of ~$10 million due to uncertain timing

Additionally, we have received and evaluated financial information from the acquirer of the Life Sciences business that was sold in October 2020, and concluded a contingent payment will not be made as the minimum threshold for an earn out will not be met.

Conference Call

NN will discuss its results during its quarterly investor conference call on August 5, 2022, at 9:00 a.m. ET. The call and supplemental presentation may be accessed via NN's website, The conference call can also be accessed by dialing 1-877-317-6789 or 1-412-317-6789, Conference ID: 10167967. For those who are unavailable to listen to the live broadcast, a replay will be available shortly after the call until August 5, 2023.

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 U.S., GAAP financial measures of income (loss) from operations, net income (loss), net income (loss) per diluted common share, and cash provided (used) by operating activities.

About NN, Inc.

NN, Inc., a global diversified industrial company, combines advanced engineering and production capabilities with in-depth materials science expertise to design and manufacture high-precision components and assemblies for a variety of markets on a global basis. Headquartered in Charlotte, North Carolina, NN has 31 facilities in North America, Europe, South America, and China.

Except for specific historical information, many of the matters discussed in this presentation 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 NN, Inc. based on current beliefs of management as well as assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as“anticipate,”“believe,”“could,”“estimate,”“expect,”“forecast,”“guidance,”“intend,”“may,”“possible,”“potential,”“predict,”“project” or other similar words, phrases or expressions. Forward-looking statements involve a number of risks and uncertainties that are outside of management's control and that may cause actual results to be materially different from such forward-looking statements. Such factors include, among others, general economic conditions and economic conditions in the industrial sector, including, but not limited to, inflation, rising interest rates and labor shortages; the impacts of the COVID-19 pandemic on the Company's financial condition, business operations and liquidity; competitive influences; risks that current customers will commence or increase captive production; risks of capacity underutilization; quality issues; material changes in the costs and availability of raw materials; supply chain shortages and disruptions; economic, social, political and geopolitical instability, currency fluctuation, and other risks of doing business outside of the United States; our dependence on certain major customers, some of whom are not parties to long-term agreements (and/or are terminable on short notice); the impact of acquisitions and divestitures; the level of our indebtedness; the restrictions contained in our debt agreements; our ability to obtain financing at favorable rates, if at all, and to refinance existing debt as it matures; unanticipated difficulties integrating acquisitions or failing to recognize the expected benefits of divestitures; new laws and governmental regulations; the impact of climate change on our operations; cyber liability or potential liability for breaches of our or our service providers' information technology systems or business operations disruptions; and other risk factors and cautionary statements listed from time-to-time in our period reports filed with the Securities and Exchange Commission. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein or therein to reflect future events or developments.

For additional information concerning such risk factors and cautionary statements, please see the section titled“Risk Factors” in the Company's periodic reports filed with the Securities and Exchange Commission, including, but not limited to, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and when filed, the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2022. Except as required by law, we undertake no obligation to update or revise any forward-looking statements we make in our press releases, whether as a result of new information, future events or otherwise.

FOR FURTHER INFORMATION:

Jeff Tryka, CFA
Investor Relations Contact

(616) 258-5766

Financial Tables Follow

NN, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)

NN, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

NN, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Reconciliation of GAAP Income (Loss) from Operations to Non-GAAP Adjusted Income (Loss) from Operations

(1) Non-GAAP adjusted operating margin = Non-GAAP adjusted income (loss) from operations / GAAP net sales

*2022 expense includes $0.5 million of professional fees and $0.5 million of integration & transformation fees. 2021 expense includes $0.2 million of professional fees and $0.9 million of integration & transformation fees.

(2) 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

Reconciliation of Operating Cash Flow to Free Cash Flow

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. NN, Inc. estimates the tax effect of the adjustment items identified in the reconciliation schedule above by applying the applicable statutory rates by tax jurisdiction unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment.

(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.

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