NNBR - Earnings call transcript Q1 2022

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Operator

Good morning, and welcome to the NN, Incorporated First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Jeff Tryka. Please go ahead.

Jeff Tryka

Thank you, Operator. thanks us. and everyone, morning, for joining Good I'm and for I'd Investor Relations attending NN, Inc., contact for like business Jeff update. Tryka, today's to thank you for release Yesterday as XXXX, our the a have our a Investor we which as quarter press presentation, posted afternoon, financial March issued well results website. been the supplemental XX, Relations first ended of announcing on section copy supplemental & a needs of (XXX)-XXX-XXXX. presentation, Company may anyone release the the If or Lambert you contact at press

this will and Felcher, be call Officer. President the Chief Executive Mike Veltman, on and and Senior presenters Our morning Chief Warren Officer; President Vice Financial

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

measures used worldwide presentation our margins, caution rates, results, performance be chain of update agenda of conflict cost for press or a contained input statements of the certain supplemental the final non-GAAP update exchange in from SEC detailed and cost regarding defined synergies, shortage, provide coronavirus pandemic the provide release for company's which first operating of rates, the are business tax a to and the and the in financial financial outside the and future with markets, section the These conditions the includes today should acquisitions, topics. statements impact company's call, sales, then quarter cash will Warren the the The of Mike will today's Reviewing foreign cash COVID-XX presentation. supply the results. uncertainties, the is impact flow, rules. such control. subject on constraints, tables presentation forward-looking by savings, and inflation, of will Our also semiconductor as Russian-Ukrainian automotive various chip the non-GAAP are many A reconciliation and risks measures contain other of

back remainder outlook over XXXX segment as would the turn session our discuss there fiscal markets the Q&A this the for of well At over Warren be to President year, call to I Warren? the Warren the to of time, as results following and prepared a the turning Before to CEO. conclusion the call like remarks. Veltman, and will

Warren Veltman

morning, good and Jeff, everyone. Thanks,

and during would for I turn with If Page highlights the will our of we the quarter to you of first team quarter. some the accomplishments X, XXXX. the of results review pleased am

Our first up strong last over sales first year, of $XX.X and very adjusted the in strong quarter quarter we EBITDA, X% a result generated best since were which last year. our is million

Additionally, from XXXX and Sales we adjusted posted adjusted EBITDA XXXX. QX our progression to operating XX% $XX.X sequentially, our points. improved XXX grew QX margin solid basis a million or and

were experienced quarter. impressive several the headwinds results Our during given

XXXX of in place chain impact ability and United throughout operate facilities peak related to efficiently. on variant including spread early absenteeism North American chips a to COVID-XX interruptions, First, QX those continue semiconductor operations. XXXX supply continued reached other to Omicron absenteeism our during This several our the and QX to as Employee States. our the pressure

cost pressures. quarter first adversely structure impacted cost our Second, was inflationary by

pressures allows supplies strong have us discrete quality supplies, have agreements, labor, delivery material, by relationships more other in customer patterns utilities, are in which concluding inflationary is through to Solutions, mitigate to negotiations supply Power and governed team customer our to nearly opportunity additional inflationary ordering POs sales typically customer and teams our inflation long-term an of environment. which agreements, the recover typically maintained required our impacted impact. did among Solutions nature pricing interaction. of customer of The costs. substantial direct majority a on and difficult tremendous metrics Likewise, manufacturing material versus cost all drivers. operations numerous Mobile secure Our The long-term negotiation spite job first a the quarter cost

We XXX% on mobile have material most customers. costs been for successful securing in pass-through

quarter, and increased we gains was of As the on receivable other within with sequential for cash as accounts flow labor relationships. million a with have in cost cost for Solutions a work of continued to $X.X Mobile those productivity recovery balancing Free customers driven inflation, this by result increase sales. our use expectations

the Likewise, which our grew our Dependent more year. year the of first pipeline net the our to pipeline. residential seen ranges movements XXX% increased quarter. vehicle pursuit electric target Conversely, XX%. and with These in within ICE Dependent total from X, XX% at current commercial projects of and long-term XX% Our will expectations. vehicle X% selective gasoline goals, Consistent with opportunities invested Page the grid strategic and our automotive ICE we compared capital our with liquidity the with are a On end from decreased X% opportunities on focus ago we of review from saw electric to return we of have aligned debt to electric electrical remained on to pipeline, pipeline increased sales XX%. pipeline prior higher

for to in-depth Mike financial of like can a provide Felcher, Mike? review quarter. so more to turn over I'd Now the performance our it he

Mike Felcher

Thanks, Warren.

in some strong have business chain we pressures was quarter up continued to for demand affected our the the sector, were pandemic-related resulting ago the employee Sales operational to supply Turning million, a to the continue XX% We and actions. automotive decrease quarter XXXX, absenteeism. X.X% customers in the X by to sequentially, summarized which up most inflationary as of Throughout Page were chip supply $XXX.X by for of a the with us supplier the COVID-XX million quarter. of labor. Mobile of segment. as revenue growth shortage for automotive X% group, from the X, key revenues year industry offset cost inclusive $XX.X Solutions This X% Solutions Tier Power of also by performance in due including decreased year-over-year the disruption, in growth pricing ongoing the resilience customers. items and material we constraints, or impacted in affecting well the particularly stemming semiconductor from face our supplier first Results on inefficiencies due saw impacted

$XX.X the Our claims EBITDA related of Power products year XXXX. $XX.X customer Solutions charge of or a a of for a us sales settle quarter in to from sale or former XX.X% of sales, result brought Non-GAAP $X.X million ago. was million XX.X% an breach also include adjusted to regarding first contract by the agreement million by down

was margin cost adversely EBITDA inflation. and by Our labor material impacted

Lower Although, also lower $X.XX price costs points. diluted we basis approximately had on the margin by loss were increases passed done effect at adjusted the inventory GAAP customers loss in quarter dilutive through a absorption of majority therefore, our per XX and the quarter EPS a often first zero those share basis approximately margins on of the these points EBITDA of XX reduced $X.XX for in of XXXX. a margin. was versus increases,

income warrant $X.X higher million income, million increase a increase in share from joint quarter of by of results our to interest offset due primarily other reflect partially and $X.X China venture, revaluation expense Our million. $X.X a in our current

with interest debt in of with swap. connection first an issuance the write-off quarter costs of associated and The $X.X our included refinancing of terminating costs XXXX million a for rate loss

was non-GAAP share Our income in of adjusted diluted the $X.XX year. versus breakeven EPS prior per

more lead remains X, have Inventory material the Slide X.X We normal as working to as remain ability above to fourth also XXXX. to capital focused stock due turns The customers times on improved chain ensure while increased ongoing to due turns we issues anticipating well to current Turning serve quarter first return the carrying supply inventory amount chain our experienced. a inflation quarter levels issues. historical capital needed safety normal semiconductor our of the of other address supply to return has as from working to increased trends. our by in our to due the shortages the to managing levels

have long-term disciplined we expenditures to year we approach X, that in Slide we growth. past to at look the our as provide investments fund capital a our continued taken Turning over

down CapEx XXXX, from see year. have can last basis, million You $X.X to absolute million decreased on we an $X.X to compared

year. XXXX million million accounts quarter. the Free cash generated of in USDXX by cash was from a the of $X.X prior flow flow the free are increase of in sequential We to fourth an $XX in USDXX and quarter. come million our shows between the CapEx million XX Slide quarter our of cash full million. year use projecting revenue in for primarily free the flow still of direct of result first growth million chart receivable a driven a quarter Free shows -- was compared in as to $XX.X the cash $X.X

the the in were final of we cash the $X.X These payment, and incurred approximately $X.X costs net tax. addition, Life tax for Sciences by dividend, during cash China partially quarter. severance from million offset received In JV outflows million costs litigation

Regarding the was turn in of continues which capital our an IRS tax of first the quarter receipt was $XXX.X increase balances and was at to higher refund be $XXX tax of by the Life the of from of previously versus of with the $XX.X uncertain receipt Net our payments Please due CARES XX. expected timing reduction increase in process. debt year, to cash end Act million. the sale working refund, the year, year-over-year the prior million million prior our associated mainly is as to The review the Slide Sciences. driven

a to of use end EBITDA X.Xx liquidity, accounts was it below cash X.Xx net We million of had to previously as to ago year from at first Warren. decrease availability free in XX, Our March and our the our increase the adjusted from growth cash due turn in ABL and at XXXX, $X.X of up that, million $XX.X by XXXX, With quarter, XXXX, QX back I ratio our will target. which sequential sales Xx debt driven flow our on including and stood a noted. of still of receivable QX

Warren Veltman

we impacted well base XX.X to chip relating approximately production, auto outline term. from semiconductor XXX,XXX the of or the down to The COVID current light support as semiconductor transition with new in issue flat of gather to million significant China up lower has the quarter the has over we from XXXX over sequentially main light the within Mike. ongoing units design global decrease automotive, resulting the to or for revised momentum boundary outbreak The disruptions and on expected continue shortage million employee Page with production. factors their as and are of markets. truck per On to units you, XX, overall vehicle conditions first related related uncertainty semiconductor Thank X in shortage a units Russia-Ukraine the supply view effectively investment, quarter to continues of production commercialization. XX.X broadly chain been Volume see XXXX as outlook our to recent each impact Within war well industry challenges X% market in million XXXX. in approximately as development in including the the OEM compensation to continued near chip to EVs fourth. shift additional EV plan to the

the well are support to Mobile both growth in our We group. Solutions EVs and through Power positioned

approximately expects Institute to improve $XXX two well increasing demand. invest that mandated rapid a digitization. the energy. and are on goals to world meet will to three-pronged transformation implementing of decentralization billion electrical incentives electrical accelerate the markets renewable the of as Edison energy see annually government next years policies grid over and U.S. to with and around as infrastructure decarbonization, sustainable we Within equipment energy meet changing the space, the Governments adoption focus utilities

year We XX. the recovery. The variable the quarter caused This pass-through inventory price additional operating with from pandemic have on strong groups, also was to rates. by uneven prior lower build. patterns stemming for quarter driven Mobile exchange by higher our as year ago, profitability by driven The labor supply January. cost first from chain Solutions customer due fell favorable presented reflected supply to was interruptions, by constraints associated COVID-XX inefficiencies sales Solutions first X.X% volumes included demand lower XXXX, an as well during which and with one interruptions, of particularly overhead associated primarily with Page pandemic-related partially and comparison increases of starting sales FX a absorptions ordering offset information each Mobile in quarter in constraints

our reflect on zero the cost actions mobile material Finally, recovery margin. at pricing side primarily

Looking customer continued forward, improve. has demand to

demand. continue semiconductor risks to the the China chip However, of COVID-XX shortage, reemergence in Ukrainian-Russian and to present conflict

cost stronger inflationary Solutions general year-over-year working managing which To we for manufacturing CapEx healthy the closure to and expectation of with and pricing Similar commercial Massachusetts continued COVID-XX-related recoveries. including actions. Power Power Solutions. needs Taunton, is capital proceeding impacted continue On in by by and by consolidation working actively sales driven electric with inflationary associated of XX, in negotiate for increase constraints the and and our expenditures. remain protective demand group experienced supply due chain cost Profitability interruptions on We shifts, in was flow inefficiencies are absenteeism. Page Solutions, The within applications, additional adversely protect customers with residential facility quarter, Power industrial a cash to flow, was schedule. mix components first managing labor capital and our of to cash we Mobile capital Solutions

XXXX. our reaffirming guidance Turning to we are Page for XX,

in increase between to $XXX and that and chain sales year. first the of the in anticipate issues gradual recovery shortage million. semiconductor the XX% resulting range second We For will of we of the throughout to headwind XXXX, the are X% the in half full a year from $XXX sales net a million with remain net the anticipating supply year, half

due to not to does adjusted on range an does it due arise $XX in to assumptions, full nor generate the COVID-XX anticipate non-GAAP to beyond EBITDA expect guidance X% million reflect that we of disruptions of Based any Our to quarter, the million conflict. first $XX these significant the for disruptions the year, XX%. increase Russian-Ukrainian production may

for we the year. million USDXX flow, cash full USDXX free and to to million between generate Turning expect

deferral and executed approximately million former the severance of Life result includes initial we outlook litigation, payment, for -- a outflows our guidance litigation, $X amount from as with increased costs. FICA a final million Sciences Our settlement $X repayments, a closure tax severance cash customer. facility agreement of This by

is $XX does due our negotiating process. the summary, diligent not tax the our executing customers. throughout a the to remained team in As million of with and challenging receipt it environment noted in CARES guidance approximately timing IRS expected of review refund uncertainty Act previously, include of given quarter the In in pricing

We continue needs meet support key number to future success. sheet our the of but a growth. of pipeline ahead the operations continue customers, of necessary and build current to still to and of uncertainties long-term opportunities is a sales measured our challenges balance we of maintain us, our our strength strategic to drive We to and the will which make future and investments to the future have improve our

Investor to like I'd on update an Lastly, provide on our May virtual Day upcoming XX.

this to the event our been growth from number expect videos our the a our have on direction meet global providing facilities to see you strategic and to of We will a sense the hard provide team and coming we hope opportunity with working better achieve and with in that years. overall of management

back website will the at the call to event the and for turn of register concludes remarks, for our questions. prepared our section I can Investor You investors.inninc.com. on now the Relations That operator

Operator

Street first Please [Operator Brown ahead. from Rob Lake go Our question with Capital. comes Instructions]

Rob Brown

Thanks call. morning. taking good for Hi, the

that pipeline, what's give growth growth a sort of the they're effort us developed market? you what's had products just the quarter. your there more more sort are around market? having sales adjusted have and you sense of just that you happening, EV happening Or But good of driving because just the opportunities in specifically? On of in new growth Could sort

Warren Veltman

the Good question. Rob. morning, for Sure. Thanks

-- business effort these of both. team refocused year, it's pursuing. talked I We've about to the them type as types the it, made that a to as it And parameters as increased XX be might over relates of our expand parameters return whereby as of sales focus we're that that as to think we away relates type of the has programs over activities. the last of that would Dependent. it to we've concerted pursue Certainly, months more contract the applications ICE we've changed from the really business. last and goals a term some combination our invested internally, We've done changing surrounding the We've requirements issues. well surrounding the of we've capital that other by on some for accept

the the reacted accordingly. clearly been electrical focus and have and on our So our EV grid has teams

Rob Brown

And update Okay, you some of of about throughout of chip sort some just then so it the looking back shortage what's signals the same the helpful. getting far seen real-time supply stuff, and in I great. year? the That's half you're sort in Or is the the QX to chain more customer of terms better supply? that guess, have here? and the of for still the on of

Warren Veltman

that you of we that has it look on if the I been mobile at units. the think there million I had, that update, consistency chart X shows Look, some Yes. think at

has experts disruption. analyzing to I think it relates needing it stabilized be year in still the hard -- people to they understanding and we'll where might then So based I back We're is it with a fourth get and have seeing still And some as $XXX,XXX signals that customers on it our expect the we But level. better period reacting the gradually the disruption it because to our to ready more our parts. range the for dial of said, not current market, in it's some talking to to we of as we'll as time, potential inconsistent some of at run demand the throughout quarter. down expect to including relates come market, that the outages

Operator

Veltman back our to turn question-and-answer conference Warren any remarks. session. to This now over closing concludes like the I for would

Warren Veltman

everyone we that May definitely XX. Investor good to in just on call hope their a Thanks to time for everybody thank Have today. like on upcoming to day. and our speak I'd again the dialing Day for

Operator

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

disconnect. may You now

NN (NNBR) 6 May 222022 Q1 Earnings call transcript