NNBR - Earnings call transcript Q1 2021

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Operator

Good day and welcome to the NN Incorporated First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mike Danehy, Director of Investor Relations and Financial Planning. Please go ahead sir.

Mike Danehy

operator. you, Thank and everyone joining us. Good thanks morning for Relations Mike Planning. Director Investor Danehy, of and Financial I'm to you like I'd thank business update. for attending today's

anyone presenters our DeByle, be Warren Our afternoon, ended we Chief will March Chief press Yesterday for posted needs morning Officer, release well the contact a Executive quarter as XXX-XXX-XXXX. announcing Financial President copy Officer. you our Veltman supplemental to been results the as Vice has of presentation Senior and Investor Tom issued President XXXX financial press and XXst, website. and Lambert the this first which If a of supplemental at release section Relations presentation, and or Company also may

language report presentation when language year statements Form December release, applies and report regarding same as conference XX, made today's press begin, company's months for to in The in for live and the in call, the forward-looking fiscal on XX-Q comments XXXX the Q&A ended take we on broadcast. Before ask cautionary filed that contained March supplemental I Risk XXXX. well session the Form three XX-K annual you the Factors today's Company's ended the on XXst, including section the note the as quarterly of

and control. is as the reconciliation statements savings, SEC operating Coronavirus future certain overview the today's of which Our are condition final from of the A Warren rates, Tom. will various presentation our section tables of the by a followed forward-looking results, results caution discuss acquisitions, The other are financial an Company's this to Warren conclusion the of Veltman, for and used rules. will remarks, non-GAAP risks uncertainties cost impact with the and of outlook be by should financial as agenda the of from provide I call, presentation. today on includes the a then defined performance session. many the to may in foreign regarding call At measures detailed the markets, non-GAAP presentation exchange Reviewing will margins, also statements XXXX. segment worldwide prepared rates, quarter, our update well over contained there sales, and and These topics. turn cash contain press the and President and COVID-XX remainder the key measures end-markets will At Q&A outside of subject time, release as cash in flow, company's be the the results synergies, of supplemental highlights for CEO. pandemic Warren tax

Warren Veltman

Thanks, Mike and good morning everyone.

turn review If The even half of you the New accelerated the of X, achieved quarter. solid XXXX in will to we first many highlights in would the momentum page into for Year. and the ways second we continued some

provide our the our recovery completed With the being the stable progress the that will and margin to the We business growth we refinancing by and financial we pandemic. of and NN flexibility impacts cost put capital boosting has substantially on economic made overcome footing a the XXXX reduced quarter, which tailwinds need long-term our overall COVID-XX achieve that our encouraged of of targets. customers, of during our are to

automotive saw had quarter of on quarter, a we in high sequentially incremental along generated this undertaken on faster. the in of products improvement and impact our in adjusted -- We XXXX influence operational conversion with With sales. of broad in increases the many EBITDA another business, GAAP achieved significant initiatives with strong grew even our and year-over-year the the results results both especially which and during solid growth recovery, Solutions another year-over-year. quarter revenues cost both Mobile strong a our The financial which growth in

increasing by capital working resulting on focus generation. our a flow the and turns third for cash in free quarter sequential maintained rebound also We

some Turning page the highlights key other quarter. X, for summarized of the we have to

the the though the our improved operation X.X% goodwill resulted from $XX.X pandemic operational last loss earnings a improvements significant was EBITDA included $XX.X up mentioned, operations ago of implemented $XXX.X GAAP a versus business a swap. for COVID-XX when period $X I that year a that of million refinancing was million, a driven share with income $X.XX and share The million operating EBITDA year loss sales. loss to was note the were ago. or significant impact current of a a $XXX.X prior quarter. was volume rebound per continued year we As of operating and quarter elimination from in interest XX.X% by to of the year our Reported would from well ago the of continuing and X.X% $X.XX million from of per have up from the sales impairment. improvements Non-GAAP rate coupled X.X% loss from costs year sales as associated versus the per in I EPS adjusted as transaction as one in significant EBITDA up with from primarily improvement share. million ago results from sales, note the adjusted income

year. income share profit $X.XX net continuing a prior per a of share of $X.XX in per the versus adjusted from Our loss was operations

like it to Tom DeByle. to over I'd Now turn

a quarter. in-depth provide the review can Tom? he of our financial So for more performance

Tom DeByle

is EBITDA margin EBITDA conscientious absorption normal highlights income net management Note first increased gain continued inventory which big XX% the increase such our With reinstated than inventory increase the adjusted was achieved you view Warren. partially quarter in Please than The slide which EBITDA, beginning impact and sales our the our prevent in along decision a million million our we at results that revenue, margins. of the offset improvement by higher in through. might incremental of to temporary reductions of X, $X of trend. usual with We made customers. much picture JV variable impact a volume, saw was into in Sales to our in sharing, supply given year-over-year. which our flow as $XX XXXX. an the increase increase our a recovery impacting adjusted Thanks, expect turn cost stronger to disruption EBITDA

the also due and the sequential related falling recovery have to quarters. the pandemic continue We production Looking the we past shutdowns more bottom XXXX past markets in seen normal impact our the and into recovery our customers, rapid continued at shift recovery After move second anticipate the pattern. over as as pandemic-related growth we chart, in see the three to can XXXX we dramatically sales. of our at reflected impact quarter in of COVID-XX to the net

as capital go as at continued Let's $XXX.X is at The management ultimately quarter there. continued increase capital and versus prior customers. impacting Sequentially, from turns improve focus on capital the turns the X.X working the prior volume primarily higher sales quarter. million showing the our was $XX.X Net which X.X turns supply fourth working improvement of by quarter. with provides also working receivable of This our an was over slide past prevent were continue the an turns X, compared Inventory disruption to $XXX within three is mentioned working driven management. end in increase in to previously capital a the working capital higher turns million first recovery the prudent due in sales in look turns higher to with accounts X.X to million, Working capital quarters. year. an year, continued in

and past to Turning year expenditures have X, we remain focused cash. highlight our managing taken we to over capital slide the the approach on prudently disciplined

depreciation in capital by to about we Cash You can see capital of XX% we depreciation million spending as down in sales $X.X X.X% on nearly as growth. reduced terms the X.X% XX%. XXXX We from absolute quarter, compared an approach for year. and expenditures have of or capital XXX% to sales $X.X compared of of have basis, both sustainability come were first expense prior million well to comparison or in the with expenditures

have projects and as of we long-term deferred projects immediate to invested eliminated our growth. not past, were or the in critical that need even we Over

rise. Free a in million quarter cash capacity use the the of in $X in compared our a to of Science. first number cash our facilities have remain the available flow to $X.X chart free we prior we demand million XX year, quarter. a addition, flow Life increased In continues Slide of responding as it was at flexible for which of to cash included shows still

XXXX be Our flow impacted free will quarters. by future cash in in items two

cash the million the by be business. Sciences $X related of to the spin we negatively tax Life a second First payment in quarter, will impacted off

in that. under we quarter we fourth refund due the Second, to tax the approximately of million estimated of the receive will are the carrybacks loss $XX care that

million profitability in debt the million our versus the our We paydown working first decrease Net year, due quarter the are to capital cash sale debt $XXX.X Please of was year. and to throughout free prior reduction $XXX.X Life recent XX. expenditures The refinancing. the improving of of managing and million. the flow on turn of end following to was capital our Sciences increased focused $XXX.X a the slide at while prudently

from call leverage more as for turn net regarding our a points financial Maintaining end Our back important stability. quarter, times. our suppliers three concerns year that initiatives our long-term growth X.X Warren. the customers a I ratio at of ago. and stood ratio couple to of leverage It's times below at the at/or first X.X alleviates the down from times long-term A before

First, XX of and our liquidity not currently revolver. XXXX we have million March over $XX have on as of drawn

working liquidity a our size needs. of $XX revolver approximately we versus Although XXXX, balance. our in XXXX, $XX our resulting of million by quarter a the from decreased liquidity fourth in our we million cash million decreased support quarter ample versus $X.X The to million increase had and fourth believe of we in our refinancing have decrease to $XX capital the

shifted a stock debt. chart our you Second, a call that fourth to see our refinancing can debt our is lower to term the the This due right-hand cost the quarter preferred that, With we lower from structure in Warren. from higher as XXXX. to I'll back increased cost capital term turn

Warren Veltman

are we within page current North essential Thanks stainless and to operating of of materials with reaching a within have the The automotive our On XXXX. we nearly such Mobile vehicle for of variety chips continued view recovery combating of our production the volumes increase expected steels. as conditions Solutions applications shortage XXXX of that industry XX, Within American market seen of XX% as as each each of ongoing groups. levels Tom. well outline also shortage is specialty the a

China, in With the growth which and medium has issues our heavy customer these customers and inventory we various engines. actions feedback. steady their generated remain for safety industrial markets has including demand truck stock, automotive supply perspective, North increasing diesel driven positive supporting which proactive an chain through America From in Europe continue

CNX execute also electric related and reduction the have Solutions, experiencing expect with and to to of of prepare standard in increased XXXX prior grid grid solutions. resulting Specifically additional incentive business will deadline we demand July power support penetration to see to the power the approaching, effective necessary With upgrades the and carbon continued investment renewed we trillion in Within them, over installations both vehicles We and justify China's storage vehicles benefit of to to green and systems, segments grow companies prioritized emission recent generation are electric infrastructure volume long-term. The continue our focus of from accelerations power aging for with demand for grid proposal. green infrastructure market. has of to $X.XX infrastructure smart the current believe Power infrastructure initiatives on date. future administration

profit profitability e-commerce operating million of as $X.X from of $XX.X operating the sales million million sales page of grew to was pandemic general to by each cost increased we sales as million groups $X.X was the profit on quarter recovery demand to higher from Mobile an continued first improvement margin from We growth our strong well our for for volumes, our first and operating have Solutions one sales variable of the XX.X% Solutions XX.X% million sales driven starting operating of prior the XX. profit or in sales last in quarter industrial $X.X ago as with in resulting XXX% cost from year. Chinese million, increased inventory, fixed initiatives of or EBITDA the presented first increased XXXX. information in additional The increased year the or compared or the XX.X% and impact of saw logistics. Mobile nearly quarter venture. Adjusted by driven from $X.X joint $X.X Adjusted GAAP absorption X.X% X.X% of year.

address ago. joint our as joint million the to increase during moment. the growth me million our it contributed year line, one bottom Let an and China profitability venture venture saw We $X.X quarter strong improved $X.X a for from of from

in forward to throughout quarter earlier XXXX. over period. the million the from Our Obviously year these with almost JV pleased generated and $XX look are sales we the continued tripling during excellent performance results sales

Looking chain pandemic. remain in will strong forward, as but success, demand issues we due see our be, regions, to key supply most both continued manpower and the requirements managing to

power will We cash focus pandemic. quarter, which the partially markets was year-over-year -- experienced an by impact the On our management. many year offset lower capital and X.X% pricing continued overall continue not disciplined to from see XX, the free and did by COVID, second increase quarter. spending in driven to a begin sales COVID metals capital by through be precious demand, in an solutions on sales first Group which flow in to Power impacted page adversely Prior Solutions until increase working particularly

QX were QX sales addition, recognized of by In over X.X improvement also XXXX. adjustments On Power of XXXX at for a customer. basis, meter million key smart sequential Solutions inventory a components, impacted sales adversely

of the $X.X of the margins. goodwill are sales decreased for first positively profit was quarter to the million, operations to first year, impacted XXXX. lower million directly resulting increases or impact these year. are overall XX.X% Adjusted or costs EBITDA headwind higher to million at total million compared facility a results from $X.X of in and in which, costs, of adjusted included excluding Adjusted from GAAP $X.X in prior sales results our commencement by were the precious to from sales, metal operating income million in XX.X% quarter were for XX% Although $XX.X impairment of prior $X.X margins, new in passed our cost customers of exclude production period from of million $X million sales, certain incurred of to before XX.X% the or quarter the to first Prior or XXXX. the normalized $X.X decreased sales costs, development operating through XXXX.

in demand the uncertainty but given remain Looking in forward, we recovery. the consistent see we continued pandemic Power cautious Solutions, trends

remain through will cash capital flow We segment protective CapEx of working the prudent in management. and

As our XX, my of remarks I for the year. on conclude share we outlook page the remainder

share, at in implement the related to are recovery, uncertainty still we the COVID this to rest continued of year, surrounding XXXX But how pandemic time. the the With and position we we not a formal unfolding. the see guidance wanted rest of

year, quarter, -- production We half production growth impacted the excuse strong the year. the consumer to chip OEMs in expect for create last inconsistent to semiconductor first both shut-down shortages, and facilities driving including second shortages, interruptions. compared of selectively certain Material the demand heavily particularly me results could

on remain demand. investments supply capital on as supply ensure a Free customer consumer to will and of to source focus cash teams capital optimization. disciplined priority generation demand we -- remain working will Our chain logistics material a flow meet, and

Power Solutions and leveraging We to across businesses practices organization. revenues our efforts costs, achieve operational Mobile client our terms both, will Solutions and relationships of best and in between synergies continue the

footprint our we reductions. improvement for other cost evaluate Additionally, will global optimization facility and continuous

our per XXXX investments outlook, continue support measures to anticipate million, we specific make growth. to approximately As look our $XX necessary to CapEx underlying long-term we as of

remain while over team for And to and for customers' management QX improving our of material amortization and discussed, and That million. with of call profitability these Session concludes strong summary, in the into expectations structure. group but cost Question-and-Answer points I depreciation focused in of wary delivery economic we have questions. momentum, associated $XX turn started quarters, growth with both, spite QX, the In coming now remarks. will certain back continue the we year In labor. We we quality addition, our the on meeting the will I challenges, remain approximately expect have the of to expect shortages our our recovery million in prepared stress revenues range In $XX of seen continuously solid operator

Operator

you. Thank

KeyBanc Steve question-and-answer Barger come ahead. Markets. first We will And will Please question with the begin session. from Capital the Instructions] [Operator go

Steve Barger

morning Good guys.

Tom DeByle

morning, Steve. Good

Warren Veltman

Good morning.

Steve Barger

Good some that your things you the volumes to chip did of XQ, mitigate unpredictable through some But note stabilizing. see should shortage. but mix

First, Mobile? will expect up in do you do that second, revenue be I have And sequentially, right?

Warren Veltman

First, it you have right.

that Steve. the a disproportionate We it, protected America chip somewhat, And say, high for share of that's truck are majority. concerned SUV the North portion because I and in lot shortage about should product But semiconductor a -- us a significant our of ends-up product on them. has a margin large OEM platforms.

supply they that to shortages. it So relates prioritizing are as

from somewhat So think benefited we've that. I

mean, As comparison consistency second I quarter. it to this of at we volumes, -- At relates the point, seeing to quarter point first time. the in at we're were looking sequential this in

Steve Barger

Consistency, okay.

Warren Veltman

Yeah.

Steve Barger

auto says American will production And similar be XX% from is year. recover expect North last slide your expected XX to amount? segment you Do up a mobile

Warren Veltman

going over a But overall North we're that give was Again, right? global with automotive the fluctuate our statistic not volumes are to related supplier, long-term. But we productions. certainly America. guidance to So primarily

Steve Barger

Right. about year-over-year way reasonable what the could to look a it think Still, is increase like?

Warren Veltman

so. think automotive production as mean, we that, volumes certainly. benefit the I recover should I from overall

Steve Barger

or heavier the there And schedule, confidence to what a in disruptions or risk about, you Class is the trucks, eight have production do same the side reason? for

Warren Veltman

is been have very fixing had where problems, and conjunction solve of our those the been far has actually our I we of issue Yeah, chip I customers but first we in with semiconductor something wouldn't teams of has pervasive, types diligent that -- say that situations. we've with cooperatively material so the shortages, teams had have the to any throughout think to This because some cropped business in up that, obviously, been -- our -- unrelated interruptions have. it quarter we've in

we're to – the wary that wary word, well the still relates with throughout discussions of we overall reasonably to customers, So of end the but of as I those think our in it volumes hold we expect year. our

Steve Barger

With capacity, just Got any explored. something it. direction for equipment for flowing this make And that the that parts more all shortages talk of me. you've is for semiconductor investment and in about world you or one do capital part chip the

Warren Veltman

and and something some there we have the in would made I is that guess is into we've related explored on Solution exact that we certainly electronic for sure. the semiconductor to connectors side, Power that the – It – applications amount ends that but or my product up look are

Steve Barger

Thanks. it. Got

Operator

The Dan CJS next go question come from will Please with Moore Securities. ahead.

Pete Lucas

for Hi, morning, Lucas a of you for of expectation talk gross quarters the in have? rapidly next it's going Pete good and about the Dan. light little Can steel prices rising couple that's to just impact margins your over

Warren Veltman

either in obviously In pay of mobile quarterly Yes, start. price occurs. cost upside. through with XX%, on to cases is to our customer that on of that there tell pass that would cases a we have primarily than relationship at goes. stainless which some contracts true-up the greater customer, adjustments, the and cost some the most that more is each the customer year, ability the Most occurs to on now on I pressure about sit there our us review to depending allow length of specialty or through where you movement occurs Tom one customers. and the I'll side, take the back down material it that Right pass depending we the contracts. the paid at materials, the steels of way talked We've and material get end where

and that. talking be a we So us do contracts our increase to about would price our customers allow to

Solution of to priced the On relates actually metals it on day Those have as precious side metals. shipment. the the Power we ability are

the customer time passed a that's to shipment. the price that's real through So day of on

of orders norm ability other not to relates typically do that's in it that business because materials, are we the we purchase long-term given some reprice the the that not, to group. supply As although have types arrangements have new is

to have ability we as do the So new customers order reprice products.

Pete Lucas

Thanks. helpful. Very

it industrial general seems there. be demand, terms to momentum of gaining In

worth As that side, that particular standout end-markets here? noting or looking geographies at far as our any from

Warren Veltman

our so in Well has related GI business product it's diesel passenger the with on not for us been dosing diesel that group in report far engines XXXX. and we side do that a because and car strong

Pete Lucas

you do terms the sourcing And forward? of forward, focused me, the large are on terms last with size Thanks. how so be what table what Great. deals, going going in about one and just at looking for on that deals type you're you would of deals and in comfortable would of think if, M&A, how leverage

Warren Veltman

– over some that are is we would our we month show bit talked think little we flow to positive consistent. our we thought Investor and process and call I ago, here QX. cash a Yeah conference did about free about when a is What like QX

out would we customer. something some size and in We at three, evaluate are at and that's see position our maintain or that and fourth gave below strategic the would fit that a that. was if probably the a Certainly objective. landed marketplace On the Certainly, to up fit or something set third starting to leverage leverage an better to basis position, be look go with right right, of to transactions additional maybe what saw us like to us. what's we We'd get would it type we the look in really technology us early with if X.X, could XXXX overall period. and would plan an strategic down our our we

Pete Lucas

Very you Thank helpful. very much.

Warren Veltman

You bet.

Operator

Capital Please go come [Operator Rob Brown next from will Street Markets. Instructions] Our Lake with ahead. question

Rob Brown

morning. good Hi,

of see rest feel through Just that It out market you how bit kind that the you're sense of managing sort wanted but kind this QX see year? the a sounds do you for gives of it the now see a how more to like risks. the sort for can stabilize sort it, follow out you is the little as do uncertain. of that like you of Do stepping year, up the of of half playing back on kind disruption of of

Warren Veltman

us, take through to read I with for risk I've we're of the based frame of to least quarter lines. production there second given as on Yes, seeing, be what sure end on it that it's going will the probably with and well, at in will the be us some chip and what going bring think it's that semiconductor quarter manufacturers third to be the the time additional

most six our something So aware Certainly, is teams period not mobile of they're schedules that out it be impacted standpoint to next get we're from of schedules a looking are and at weeks automotive on. months. schedule. but an those for it and to the obviously XX XX over We tend focused run which do they're that on side, are would firm the – planning production

but customers and can us going gives any in chip and we expecting we it of forward. QX QX, it shortage are the strong again, So occur, QX, how a with forecast relates little have see interruption subject amount may unusual how we dealing any we're a reasonable from OEMs right reasonably things want don't a to is now that with current develop the QX. bit to comfort, what as to expect

Rob Brown

how Okay. the maybe terms design Thank the new customer they are us for on you've areas discussion for particular, EV about, things is and you in products there then in the growth you. And that in quoting the activity I guess, and some of you give stages. of of getting looking and talked pipeline market. Are sort the are on Power business,

Tom DeByle

Yes, it's tell I would you, fluid.

every we $X ends awards or last being business I that product weeks, in electric that is some battery would on as sourced tell relates going We an be -- of million Our new received -- $X.X on battery seven on vehicle. six some it electric and focused million quarter. product connections to connections you of to teams that steering to the a relates is to example vehicles up used the power vehicles, electrical vehicle system are electric within solely

seen awards with programs traction, the So from talked those the to standpoint a that last the as we've about good sales focus of groups that on we're battery pressing pretty been awards and I those five teams get electric over six strategic are would our or hard and tell a looking at, we've weeks are we're some on vehicles. you, some it's

think of volume ongoing, of transition constraints media, and ability to given in take that We the manufacture portrayed obviously, exist types charging maybe will time little the it is bit than longer So infrastructure that things. may talked batteries in and about. it's what's some we've with that as those the a

Rob Brown

Thank very it I’ll over. Okay. much. turn you

Operator

come ahead. will from question KeyBanc go with Capital Steve Please Barger next The Markets.

Steve Barger

for out by thanks kind on that Are of to and accelerating companies great drive just Warren something upgrades. approved as wish is about Hey, those the comment more follow-up. that you or funded your of power a regulators, there efforts list? the initiatives see

Warren Veltman

No, I think making go Steve to every public their they're if especially, through process, utility has investment. an

order has of their an that it the As they at make if type that individual to investment have to in I understand the work with look to investment Utility they're regulators rates to get making sure it supports improved. investment each in

the people how we our you that from on and growth seeing process are experts done just based that marketplace. would we're That's has our I research in a we to So that the team decision the marketplace and and tell how in formulated talking the perspective. in view what engaged

Steve Barger

look take that to a it upgrade how you you those size? benefit And that years of once long work as start, does at give as and grid incremental programs or project you does quarters

Warren Veltman

the group am going that and period infrastructure over is think great people that I a most in time. longer happen of think I to

a across grid I countries to place say take update long time with is for years been our and going XX of would to for a then going has years for some this a existing XX of period share to on So wallet in more. that I our be them that This continuing I an many pursue think or country decade. is time breadth and think benefit expanding customers right to that reach And to that infrastructure us critical. us that will in and

Steve Barger

Yes, all right. been a long certainly materialize. It and seems it's to slow like it's been time coming

projects going that. projects So sources smart or whether you do I upgrade that what use? track it's renewable those planning do mean, how hopefully, business you to do installations for grid meter we're

Warren Veltman

Yes.

utilize market So -- that. we we we research have different firms that use for

use obviously automotive industry for our seen IHS. research. side we And the Board. On we you've itself we MarketsandMarkets. one putting It's Obviously, experts then in the manifested called another use a in that on has this interest company used company's

excited We about battery on knowledge individuals you we connected and hear is to for have strategy. lot more and we're the that will renewable how directionally with my the types but be developing preeminent that have energy going in there Apologize the so that, to one running and a our where knowledge those including the fine-tuning of us of Board things. is can assist grid, green going also outside that and we're storage

Steve Barger

And should Makes sense. What use quick Tom ones you. Yes. of now expense? for for we quarterly couple interest just a

Tom DeByle

Quarterly be no, it will $X excuse me, $X million expense going million forward. -- roughly interest

Steve Barger

All right. $X million.

Tom DeByle

Yes.

Steve Barger

certainly a that And is rate? quarter minority good interest had nice a benefit run this

Tom DeByle

not the guidance, very yes, earlier JV mean, We're strong. is but, giving it Warren as talked about I going

So I be that probably would say that reasonable. would

Steve Barger

Thanks. Okay.

Tom DeByle

Bye. Great.

Operator

[Operator to go for conference back question-and-answer to would sir. Warren Please over Instructions] the concludes any turn closing ahead I our session. Veltman This like remarks.

Warren Veltman

a significant a cash the you view time again. quarter good first earnings, Thank only all Obviously, was we're morning our flow thank the quarter. you to Well, the results you. Thank listening and sales the for certainly again, the very but for free And I the day. excited about and our and this quarter you not in your during wish the appreciate accomplishment. time

Operator

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

now disconnect. You may

NN (NNBR) 9 May 212021 Q1 Earnings call transcript