Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to the NN, Inc.

First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

turn NN. over to Investor Jeff like with Relations now the to conference Tryka, I'd ahead. go Please

Jeff Tryka

Thank you, for morning, attending Jeff I'd Anthony. Good to today's Trika, us. for like Investor I'm business joining update. Relations you contact thank NN, and everyone, Inc., for and thanks

our Yesterday issued been Relations the code as supplemental may XXX-XXX-XXXX. release which have a If Company announcing for & Investor financial results website. well afternoon, first XXXX, at quarter a contact please of of the as on needs we posted section the release the area Lambert press you ended the press copy our March anyone XX, presentation, presentation, supplemental of or

President and and Vice of Financial Wall, on Senior Commercial Operating Interim Andrew Chief Chief presenters call will the be Vice Our Officer; President and morning Solutions. Officer Chief this Douglas Officer; Mobile Campos, Mike Senior Felcher,

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

are the cost condition of the acquisitions, which markets, to company's statements These exchange pandemic and subject savings, are of Russian-Ukrainian other cash performance and outside various be used conflict chain and the topics. coronavirus including foreign constraints, with and the many risks contain cash company's caution financial uncertainties, on statements should the and rates, of control. operating worldwide will supply our results, forward-looking rates, semiconductor tax today regarding impact sales, future presentation inflation, margins, of Our flow, chips, synergies,

in in The presentation release reconciliation defined financial tables the section such by also non-GAAP supplemental in and is of press non-GAAP presentation. rules. measures as SEC the includes certain A contained the of measures the

Douglas agenda taken opportunities; update will will over company our our conclusion to success; before remarks. today's will provide financial each the a XXXX. first Mike an has following results then with an actions conclude discussion an will who position of be provide business the of the segments then of update the quarter to and update the call, Andrew for Reviewing remainder quarter; will and -- NN a a to business the taken open Mike discussion then with for overview There of will back market of the Q&A update call a detailed session the the Mike on for of first new provide prepared for turning of outlook

At I Vice Felcher, Mike over CFO. this time, will Senior to President turn call the and

Mike Felcher

morning, and Jeff, Thanks, and good you for joining. thank everyone,

due situation that Let Warren family. with a unable by join his to today noting the call me start health to is

business, including our ongoing and our of impacted construction a the commercial to business. that number quarter Solutions of in first The slowdown presented challenges XXXX residential Power

environment. team within areas minimize of and the to effectively the to resilient control current adverse the on Our continues focused our managing macroeconomic effects be

volume XX% throughout the a XXXX, from strategic lower quarter and were partially If XXXX. wins XX% in sales a on Solution of down inventory you by driven from first our turn to the electric results Sales and component new X.X% presentation, segments. partially of volume. quarter. Page million, Mobile actions summarized Solution X.X%, to the offset driven sales year, from were had X the by start quarter $XXX.X customer by business first up reductions, of was We we were the increase by pricing X.X% have year the pricing. with lower from our some down strong for prior offset prior Power taken year

Net basis, our price to facility to benefit in driven inflation was pricing customer facility. a year-over-year primarily close meet on of agreeing at Irvine before achieved premium for by us quarter $X extend the we the million first production requirements a

price which previously subsequent Power we increases first long-term are significantly As the communicated, implemented Solutions benefit that during X%-plus customers quarters. for most on contracts quarter, not will

as quarter a absorption due the COVID-XX were and and restrictions lower from volume China joint results overhead impacted by lower unfavorable to end result Year. Chinese also First of income our of the New venture

quarter $X.X the loss first operations Non-GAAP adjusted $X.X the non-GAAP from EBITDA of quarter loss a and adjusted of Combined for from X.X% for operations million. XXXX. was of of million to these million sales factors or first contributed $X.X

to $XX liquidity maintain of continue million. We strong

Our outflow free considerable cash a the the in of quarter over a free million, cash from first was year was the flow $X.X use improvement first quarter. which prior

enhanced swap, further the During which liquidity. improvement resulting to in proceeds a $X.X challenging the manage first million, despite rate quarter, continued environment. of operating capital was result interest working of $XX more our terminated The our we efforts million effectively

will turn several initiatives. on you X key an Page of If to provide the presentation, I update

slower for on Let the an number are The Wellington are expected. the facilities the operating improvements leadership proceeding fourth plan, but which results experiencing with at improvements the to inefficiencies, start our at been area team. we has update Improving Juarez me we than on operational quarter Juarez one focus implementing operational two according noted call. is

leadership Vinkels Douglas Mobile Gunars and perspective, of teams, operations Solutions Power an into Campos the respectively. and Solutions transitioned have From

the operating the performance You will each from segment a Douglas hear he little as later during first quarter. highlights of

our closure of announced, to previously by closed which of footprint be of to all with the We the have we as the of quarter end facilities expect XXXX. operating five worked second optimize

our expected term. Taunton approximately sublease secured are the lease results. have closures and which million offset adjusted Irvine generate obligations We in agreements versus over EBITDA our will XXXX remaining improvement for These to the $XX facilities,

in by estimate will $X $X overall continue benefit and, approximately XXXX. quarter, reduced in review to million we XX%, closures, indirect second we operating the million savings in during facility a with which costs of result annualized cost Beyond labor over we

to 'XX, increase During achieving pricing million and of able $XX year-over-year we address inflationary pricing. approximately XXXX costs to were

anticipates the future. the company transition The near an CEO very in making announcement regarding

And provide now, our the an update turn I to growth who over Andrew, and on will will key markets call initiatives.

Andrew Wall

Thanks, conditions. good strategy, market today's be and Mike, and morning updates our happy business review on I'm joining on go-to-market you wins to everyone. to current call new

estimated quarter wins some totaled Now $XX.X million of I in up sales new We up the annual these last if quarter business you new prior total will nearly of to was compared secured XXXX, of Page XX% review turn XX% with first the business for Peak which the $XX year. to million, sales wins wins the through compared to XXXX. first year. X,

with that value where emphasize our most are proposition wins results resonates market NN's these on customers. new I'd attractive of team revitalized business in unique the business applications new potential focusing opportunities

improved XX With with percentage compared approach, we these points associated refined prior the the to wins year. by have margins approximately the new business

right side next volumes the of of see of the the market can years. wins three page, you this new by On over breakdown business segment annual sales

with EV strategy. focused, portion to and of taken selective significant aligned our have new the new which in resulting is a in business universal our approach business, auto segments, disciplined and We

ahead, multiple the be pursuits next for awarded are the we well with look As over we space positioned in expect quarters. two power strong electrical will growth we and

efforts our the $X.X support low efficiency to would I CapEx of these Finally, a investment note sales with sales. million

customer year. than vehicles. it's turn with we we Not presents global market this This a additional a in with sales new EVs the X leader business you relationship this player presentation, particular is $X.X a future. exciting to electric global an does player million program If a at the that as X represent our consider breakthrough in opportunity Page more of that expected key is only major million win new produce win review this significant will win team for in to achieved a programs peak,

NN's three but be over to relationship experience our steering speed, relationship relationship. our we up what to the electric expertise key contribution the including Yes, award, will was than months the after production and of to in to ability a time. value to less critical winning and customer this the this responsiveness solutions reflects start power initial business, growing every bring heart

potential that relationship high-potential market generate over the of electric new It case, new volume of This for. also assets growth with vehicle. This time. represents look leader results a we growth checks all highlights a in production that growth a what potential. this existing has relationship significant boxes near-term and This financial highlights strategic market, win leveraged also significant a to in also

have recognize our X, to commercial additional team wins, Page effectively on to drive detail we that motivate provide I growth. has key To sales Turning new business our some we actions implemented force. to to effectively drive will start,

business incentivize growth. modernized and programs our compensation we new So, to motivate

We bringing in enable more This work directly high on components performers. variable higher new team earnings approach the compensation increasing based sales members you business. of have to ties "eat kill" shifted to our performance, their payouts what for to opportunity total

our electrical wins. closely new and a for to these business EV tied We target incentives also emphasizing priorities, strategic hybrid XX%

we engage needs customers, chartered We with on business With to are and XX%. focused better the proactively selling, undiluted also NN. expanding our understand by will close more feet on sales team for be and street positioned problems

our hybrid relationships in improving drive to team vehicle talent experience results. and focused new of and attracting are power We sales on with depth specific EV electric markets, the the

Finally, process leveraging market of as our awareness differentiated we as are approach to proposition, well the NN's capabilities, technologies. of value and working enhance differentiation multiple

to business makers development the target by We industry are and goal in our markets. this accomplishing and key our shows deepening people connect participation forums in associations, our with trade expanding decision

awareness the our advertising and vital our releases, will added journey. of Reaching target have we markets creating and and addition, and to customers enhance in press value is In importantly connections to increase prospective social with of media existing posts, volume NN. most to target growth continue

win tools that refreshed papers as We varieties business cross business selling new most basics development of training and and such These of white a lot these opportunities. training drive enable effective include pitch sales have to efforts the for growth. importantly, team a to decks website, and, them through positioned and

you if efforts in to space. XX, example electrical we turn of Page our growth successful an outlined Now the drive solving by have problems to

our renewable timeline compressed footprint grounding solar resources durable in this requirements, met develop and that customer faced countries -- we of safety allowed We a was our With assembly turned finalize global customers meet in-house brought stamped solar resources to and did a and bear to to energy electrical integration them that design, a of a installation the in-house large optimize durable develop completion. -- to project. multiple timeline met to support NN. space safely scale We durability One help for the our stamped with that the manufacturing without at the to the speed bring to this engineering their to projects expertise customer were to for able manufacturability. in compressed with

multiple with be this provided developers future industry growth with leveraging Perhaps for start that from win the more orders across with us can with a in customer the additional market. power potential this This our foothold We NN importantly, strength. solar opportunities. renewable projects, solar provides leveraged

On nearly EV Page business auto strategy. with XX% approach universal pipeline $XXX of electrical, our in our segments highlight the focused with new long-term we alignment XX, the business targeted to hybrid and new on million

not eliminated projects total Looking decrease growth of providing at the pursuits some our factors, the that We the with was as active or well intensive do do unattractive the strategic actions. flow. several in have reduction are capital as This of pursuit. cash objectives that result proposals we our which strategic under are of result align pipeline, a

duplicative consistent We Taunton more potential program the facilities. Irvine eliminate to projects with was also same by providing data. proposals within customers also closures reviewed of the impacted for for The different the pipeline and pipeline

opportunities feel focus we the the our good after. given of strategic those pipeline, we are greater about particularly going Overall, size of

we've markets. Slide XX, the in highlighted commercial macro On residential construction key trends and

the long-range residential As to demand the interest and as as conditions current electrical on widely presented construction, and inventory softness residential project in outlook recovery demand in by housing. robust. the have increasing well commercial as macroeconomic a construction rates Industry certain near-term forecasts and reported, Despite for components, growth and reductions activity. home a formations remains mid- the customers, long drive new demographics drag

approximately will in provided macro to outlook production their we executive you March Turning that a market XX, global positive all increase In you X% automotive -- has find forecasted light Slide LMC key me, update, excuse have that a with update. vehicle to regions. will find production

in result While in lingering is the the a LMC session global second notes likely year. effects deeper interest the not a XXXX of on in half expected, growth will drag rates inflation higher and of

global end see comprising the team is industry high continued the win. a hybrid EV to of positioning decade Long entire our term, in on where This focused the adoption majority through we of and target expansion of the rapid our market eventually and growth NN production. is

turn the Mike, results. financial who provide quarter now first will call I to the will an over Mike? on update

Mike Felcher

Thank you, Andrew.

XX, year, $XXX.X New with volume; profitability primarily Now quarter. if income favorable eliminating to and and will approximately unfavorable $X sales page million. by for benefit of of some to This by million partially offset year-over-year. prior and actions. Year; absorption I China million, the by you the $X financial headwinds, price due turn COVID-XX the volumes Chinese driven reduction inflation impacts joint offset From $X.X of to first exchange the driven $X overhead foreign million, million associated by approximately Compared to X.X% lower venture lower highlights was lower decreased was of restrictions a net volume review unfavorable standpoint, a pricing of

by Slide improved as in the turns capital of the normal environment. working from managed million by to compared we quarter in previous seasonality, quarter in X.X current first of $X.X Turning the as result receivables increase $X.X quarter. million working XX, from the payables We but XXXX quarter our the decreased inventory fourth capital turns more to saw turns first X.X and a to effectively

in Turning we increased $X $X.X the CapEx have million XXXX. to from first to Slide slightly XX, million for quarter

stance cash, have of and As growth as of our we expenditures markets a disciplined to key our we maintain higher on that focus continue strategy. identified allocate to maintain capital approach taking will and CapEx to we end long-term part growth previously

quarter XX. cash slide free a Slide to the first This our Free use of in for the million turn XXXX. was flow $X.X illustrates of cash quarter. Please flow

of the $X.X first advance the million quarter from of an swap cash some severance, an The equipment the were outflow the from outflow $X.X those costs sales. million first $X.X positively $X.X results a in first payments interest million We quarter terminated sales, facility Our incurred with settlement is of in impacted rate closures along million. by including benefit million $X.X $X.X of improvement approximately XXXX, million and for with during quarter. compared quarter in of in the on

fourth was $XXX.X the versus in increase XX, end of million. first the Turning quarter an net $X.X $XXX.X to at Slide million debt of million quarter the of XXXX,

of stood Our million availability net $XX March our XX, X.XXx as at first had ratio fourth debt to to of quarter. X.XXx the liquidity, adjusted the at of revolver of compared end EBITDA XXXX. and including quarter the at the global cash We end on

$XX drawn Our by domestic liquidity million. and ABL million was our $X was

$XX would and in XXXX. We covenant not that we raise, domestic an if to complete raise like net would improve emphasize the cost and liquidity June execute million The still would interest million raise. QX our evaluating are preferred required of target liquidity so PIK by based of the a we domestic warrant cost I $XX We attractive. decision will equity through which to ability million a is to on be only conclude $X are would a on the raise preferred would XX, liquidity potential which incremental we to approximately and term reduction loan from $XX capital secure million. reduce and our do equity equity

to our I to would that, cover to like segment turn highlights. over it Douglas quarter With first

Douglas Campos

Thank everyone. good you, and Mike, morning

each additional with have Solutions Page of Power We our group, presented information starting on XX. for

industrial by decreased year-over-year, X.X% sales and decreased housing due Solutions lower general sales starts. component primarily to electrical Power driven

were customer premium reductions. the in inventory favorable from which facility, sales recognize first the stemming you the improve As in with quarter see year-over-year movements they with Irvine XX% profit quarter. down helped almost connection of We along for closure first the on pricing graph, can our and California

offset Taunton increased by driven facility impact Profitability within the favorable prior-year the partially unprofitable and compared pricing by business period, rationalizing volumes. to lower premium from Irvine

the in on to them closures quarter. we continue to of proceed the completed facilities and schedule and expect Looking Taunton second Irvine forward, be our

continue growth new the market that drive and of business remainder will XXXX. through expect dynamics to wins We

On by stronger Page pricing, as X.X% partially Solutions sales primarily period. in XX, well increased prior-year increase exchange The offset due as headwinds volumes through reduced foreign Mobile dollar. group driven the versus to quarter the increased was our by the

compared the Mobile by in decreased Profitability Wellington facilities. Solutions to XXXX, quarter first our driven of challenges in and performance Juarez

each are We addressing performance at these mentioned. Mike as previously facilities, issues of

facility the peso Juarez the operations, the in dollars primarily strengthening progress time. our a Profitability complicated further to facility expenses are but good seeing relative generally by are Juarez bit We in as challenging Wellington more are U.S. but sales of at the in and our require is pesos. paid labor will is dollar additional

adversely known down. joint to the reductions Profitability was of the the Festival, New the the the restrictions of impact the the as COVID-XX in festival including to experienced shut China when quarter, Spring Due impacted China, year involved closures pandemic. also since venture relaxation by income Chinese volume due of was business start through this business the also longer Year the than

the Looking first continue and right-sizing start second to cost to sales in see some labor compared ahead, We second the this positive our the stronger facility of year customer incremental with savings the efficiencies quarter the in indirect the and of trends operations. we recognize three in quarter should associated expect quarter. as to of closures demands in and

to I back that, With Mike? over Mike. now turn it

Mike Felcher

Douglas. you, Thank

our outlook market conditions taking markets, expected as XXXX, well more resetting levels to for inventory reflects which by lower patterns. approach Page as customers a and Turning are to end we driven XX, updating across ordering cautious volume

updating are we our outlook drivers, these follows: of result a As as

million a previous range Net to million of range. $XXX sales from reduction our the $XX million, $XXX of in

a range. the previous $X in $XX million of our range from EBITDA million, to $XX Adjusted reduction million

in million range flow million cash $XX free of a reduction million, of previous our $X the range. And to from $X

conversion adjusted as in to sales the and will lower begin which labor, Juarez operation. second volume well expectation cash free indirect Our EBITDA in as of outlook reflects We results the a our flow in implemented improvement show reduction XX% impact slower-than-expected quarter.

free cash settlement the does $XX Our timing. severance refund million but includes not approximately tax due of include and guidance million flow facility Act outlays cash costs, $X in uncertain closure an CARES to estimated for

as success conclude our cost operations, our long-term free cash like looking my for expenditures to to are growth make maintain flow. would efforts we to our are and team of position top-line progress effectively noting on efficiency. expansion I new to improved our These area for focusing drive every new business enhanced we And discipline pipeline. in working that continue company on remarks solid of and to while capital opportunities capital focused drive managing by

now turn operator back to questions. the the will call for I

Operator

session. begin Our now question-and-answer with [Operator will We Capital Markets. Brown question first Lake the from come Rob Instructions] Street will

ahead. go may You now

Rob Brown

morning. Good

Mike Felcher

Rob. morning, Good

Rob Brown

On sort Solutions outlook, Solutions us I Power mostly in the some or is the it could guess, revised terms of lower give and Mobile of in split color, evenly outlook? between Power market the you is it

Mike Felcher

I in particularly saw the little a first bit towards we was quarter Yes, Power. softness the think volume weighted more

QX both we labor full will realized obviously in the pretty slower-than-expected for for starting groups reduction evenly the significant year, some in I the QX. with a QX well QX in impacts and with is and of took Solutions benefit Mobile the a that think savings we XX% terms recovery saw the in Juarez profitability of as action pretty And volume challenges, as indirect within obviously, Juarez operational segment. as

Rob Brown

some point, of have current outlook? rest on do confidence But I market of visibility year you business, this know the you sort real the kind statistics. gave the and at the level the of in much there? Okay. what's Solutions And how visibility then, Power for

Andrew Wall

a talking This their We Yeah, the in carefully, so obviously trends at have baked back to Hey, take that is outlook. customers all studying further Andrew. and the outlooks into it regularly been assessing our year-end looking Power that bit been about feelings. some getting Rob. we have I'll that. one. Solutions We're of business, Yeah, their very and recent that little

with role out. pans go to in forward going how think going year play a I what's the will rates interest on certainly

we be to going to of I year, got time, but sight a still we've about what if achieve Solutions. think we're tough So, it's think have estimating our the line for view, to a Power at same

it the all to just we're roadblocks and and So, going getting keep watching carefully, lot working through the of with making feedback that removing a volumes business sure customers. we're

to the of supply they're lot hasn't have is a or their that's starting chain levels. that that thing we're impacted last I'll improvement, off to older wean inventory would that say, I say One going where several at us see healed reordering the an over be to reduced starting the customers the take better, has as rate. quarters, about number again And gotten

the of as terms So probably well. that will completing help in year

Rob Brown

I helpful Great. become win products And my think you several supply new that Thank Are on at question point... product and the what's there. color. last the other sort you. of that I product of could there kind is with products That's a business guess you manufacturer. the them very one then, What's EV implied opportunity?

Andrew Wall

Yeah, asked absolutely. you I'm glad it. about Yeah,

So driving power is their for electric system system. power of component part their the -- electric

we're in we're early stage, that already that seeing customer, a number It's good from So, where same anticipate an is particular but market true a proving our that electric is, now based up can leader this already a we business, of we that really are, customer a the it's moment. had right? other what for the size capabilities And opening. how awesome for what things, they're has what opportunities in how It's so, the a we and And out, we're on sorry, win represented a this us brain space. do, they've ramping power steering, ourselves of for freeze do us breakthrough. -- seen I

So...

Rob Brown

over. you. turn Thank great. I'll Okay, it

Operator

Kerr will next Our Investment question Zacks Research. Instructions] come Tom with from [Operator

may ahead. You now go

Tom Kerr

guys. morning, ones. quick Couple of Good

it of questions earnings the -- you the the my of China it for word call, in most the Did back think or Because it the quarter? snap snapping said turn I been during what last or was thought about kind slowdown? there was I was answered. -- that timing in did expected talk worse have Can of back on as going January. the think I you

Douglas Campos

is this that take I'll one. Hey, Douglas.

the of And Year is it Chinese impacted call they travel since our first there. was in contact after close holiday New by course, extended were to -- was Spring years family. in they the So, we've team which with what Festival, mostly been QX, an the for It COVID after Eve. -- the several visit time pandemic around, the that the -- able

So, impacted most extended, So, business shutdown was and that okay? that QX.

Going closely, forward, economy course, there. overall market to we overall of compared QX. improvement see monitoring But we're and an going Chinese the the market the how keeps

Tom Kerr

All right.

Okay. Thanks. All right.

that recall memory I can that. on refresh don't the you at is a process Or just involved? a area, Another details Like, Is Juarez? there the challenges stuff issue? on labor my

Douglas Campos

And I will too. take that one,

three contact the all, of with this leadership I in going an early the close affecting would there. basis this factors the often first there, and is to role since took in myself So January team highlight in year, main been Juarez Juarez. I've I

First an the assembly It's one turnover labor, company. need a regarding us, not labor type region of that we thing only is that have We're in there of high high-skilled region. labor. kind the because we is affecting there

of facing other is machine's the And overall launches Number new that associated with in third with efficiencies the that's because efficiencies some we we're capability. So areas. regarding So condition this number one. one, two efficiency some struggles in lower business capabilities have in some process

understand. going We very of what's assessment have clear on. We

everything okay? a plan, a issue, course. have control. It's under our complex is Not of We

to and the are of plans conversations with the that Some we have we customers are having solutions there. linked our

going it. we're how address to that's So

Tom Kerr

any one One Mike. Thanks for outlook $XX capital that. in year. still for range? on this color on didn't the for great. see right, it All expenditure the quick I Is million comment

Mike Felcher

say, of net outlook from that I million would $XX think range. $XX million and would be in of to -- Yes, which was of still gave proceeds from million net we Taunton capital sales about That I expenditures, the Irvine. equipment expect we we're original $X.X

Tom Kerr

right, that's now. for All All right, great. have Thanks. I all

Operator

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

Mike Felcher

thank many the today. look of with Thank you like call follow-up to Certainly, you. on to the you. day. for I'd joining calls in speaking later everyone Thank forward

Operator

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

disconnect. You may now

NN (NNBR) 5 May 232023 Q1 Earnings call transcript