NN, Inc. Reports Third Quarter 2019 Results

CHARLOTTE, N.C., Nov. 7, 2019 /PRNewswire/ — NN, Inc., (NASDAQ: NNBR), a diversified industrial company, today reported its financial results for the third quarter ended September 30, 2019. The Company also announced that it has retained J.P. Morgan to conduct a full strategic review aimed at identifying and exploring opportunities for NN to drive increased value for shareholders.  

GAAP Results

GAAP net sales grew $8.2 million, or 4%, to $213.9 million, compared to $205.7 million for the third quarter of 2018. The increase was primarily driven by organic growth of $9.0 million due to higher core volume in the Life Sciences business as well as $0.6 million of net sales attributable to the Technical Arts acquisition. Net sales were partially offset by lower demand within the automotive end market in the Mobile Solutions business and unfavorable foreign exchange effects of $1.4 million, primarily in Europe and China.

Third quarter 2019 GAAP income from operations was $7.7 million, compared to $5.9 million for the same period in 2018. Reduction in acquisition related expenses of $0.6 million, along with margin improvement associated with Life Sciences organic growth and synergy capture initiatives, were partially offset by increases in depreciation and amortization of $1.4 million.

Third quarter 2019 GAAP net loss was $5.6 million, compared to GAAP net loss of $13.8 million in the third quarter of 2018. The improvement was driven by an increase in operating income of $1.8 million along with a reduction of $3.9 million in interest expense and write-off of debt issuance costs of $6.6 million, which was partially offset by an unfavorable $4.3 million year over year decrease in income tax benefit. 

Adjusted Results

Adjusted EBITDA was $40.2 million or 18.8% of sales versus $37.4 million, or 18.2% of sales in the prior year. Adjusted income from operations for the third quarter of 2019 was $27.5 million, compared to $26.4 million for the same period in 2018. Adjusted net income was $11.4 million, or $0.27 per diluted share, compared to $8.7 million, or $0.30 per diluted share, for the same period in 2018. Adjusted income from operations growth was primarily driven by increased organic volume and overall cost reduction initiatives. Third quarter 2019 free cash flow was $17.5 million and was positively impacted by lower working capital and lower capital expenditures. Net debt decreased by $9.0 million in the third quarter of 2019 to $855.0 million from $864.0 million in the same period a year ago.

Warren Veltman, Interim President and Chief Executive Officer, commented, “We continue to see strong potential in our businesses and end markets, particularly in Life Sciences, where demand is driving margin strength and expansion, and Power Solutions, which is benefitting from growth associated with smart meters and our acquisition of Technical Arts.   Mobile Solutions faces ongoing headwinds, which we anticipate will continue over the next few quarters, but we are squarely focused on reducing fixed costs and optimizing our facilities footprint to offset the impact of lower sales.

At the same time, we are actively identifying opportunities to improve our overall financial performance and put the right cost structure in place. We announced expense reduction and cash savings initiatives last month, which we expect will generate cash savings of $32 million per year. Lastly, we have engaged outside advisors in a process to review our portfolio and explore strategic options to ensure we are delivering shareholder value.”

Life Sciences

Net sales for the third quarter of 2019 were $94.0 million, compared to $78.4 million in the third quarter of 2018, an increase of 20.0% or $15.6 million. Adjusted income from operations for the quarter was $20.5 million, compared to $16.2 million in the third quarter of 2018.  Performance was driven primarily by increased core volumes in the orthopaedic and delivery systems businesses.

Mobile Solutions

Net sales for the third quarter of 2019 were $73.1 million, compared to $81.8 million in the third quarter of 2018, a decrease of 10.7% or $8.7 million. Adjusted income from operations for the quarter was $5.0 million, compared to $6.6 million in the third quarter of 2018. The recently concluded United Auto Workers strike, coupled with lower demand in the North American automotive market and unfavorable foreign exchange effects drove the decline.

Power Solutions

Net sales for the third quarter of 2019 were $47.4 million, compared to $46.1 million in the third quarter of 2018, an increase of 2.9% or $1.3 million. Adjusted income from operations for the quarter was $8.5 million, compared to $7.9 million in the third quarter of 2018. Strong demand for smart meter products and the Technical Arts acquisition drove the increase.

Strategic Review

The Company will evaluate a broad range of operational, financial and strategic options to reduce leverage and enhance shareholder value. NN has retained J.P. Morgan as its financial advisor and Simpson Thacher & Bartlett as its legal advisor to assist with this evaluation. The strategic options include further cost savings and cash generation initiatives, capital allocation opportunities, and the sale of part or all of NN, among others. There can be no assurance that the Company will pursue any particular action or transaction; however, NN will assess all viable paths to enhancing shareholder value. NN does not intend to provide updates regarding its strategic review unless or until it determines that further disclosure is necessary.

Other Developments

The Company also announced that Janice Stipp is stepping down from the NN Board of Directors, effective November 14, 2019. Ms. Stipp is departing for personal reasons. “During Janice’s tenure with NN, she has provided valuable insights with respect to financial and accounting matters and our recent executive management changes,” said Robert Brunner, Chairman of the Board. “We thank her for her contributions to NN and wish her all the best.” The board has commenced a search to fill the vacant board seat.

NN will discuss its results during its quarterly investor conference call on November 8, 2019 at 9:00 a.m. ET.  The call and supplemental presentation may be accessed via NN’s website, www.nninc.com. The conference call can also be accessed by dialing 1-800-353-6461 or 1-334-323-0501 Conference ID: 5526885. For those who are unavailable to listen to the live broadcast, a replay will be available shortly after the call for 30 days.

NN discloses in this press release the non-GAAP financial measures of adjusted income from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income per diluted share, free cash flow and net debt.  Each of adjusted income from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income per diluted share and free cash flow 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. Net debt is defined as debt and finance leases less cash.

The financial tables found later in this press release include a reconciliation of adjusted income from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow to the U.S. GAAP financial measures of income from operations, net income (loss), net income (loss) per diluted share and net cash provided by (used in) operating activities.

NN, Inc., a 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 50 facilities in North America, Europe, South America and China.

Except for specific historical information, many of the matters discussed in this press release may express or imply projections of revenues or expenditures, statements of plans and objectives or future operations or statements of future economic performance. These, and similar statements, are forward-looking statements concerning matters that involve risks, uncertainties and other factors which may cause the actual performance of NN, Inc. and its subsidiaries to differ materially from those expressed or implied by this discussion. All forward-looking information is provided by the Company pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these factors. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “assumptions”, “target”, “guidance”, “outlook”, “plans”, “projection”, “may”, “will”, “would”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “potential” or “continue” (or the negative or other derivatives of each of these terms) or similar terminology. Factors which could materially affect actual results include, but are not limited to: general economic conditions and economic conditions in the industrial sector, inventory levels, regulatory compliance costs and the Company’s ability to manage these costs, start-up costs for new operations, debt reduction, competitive influences, risks that current customers will commence or increase captive production, risks of capacity underutilization, quality issues, availability and price of raw materials, currency and other risks associated with international trade, the Company’s dependence on certain major customers, and the successful implementation of the global growth plan including development of new products. Similarly, statements made herein and elsewhere regarding pending and completed transactions are also forward-looking statements, including statements relating to the future performance and prospects of an acquired business, the expected benefits of an acquisition on the Company’s future business and operations and the ability of the Company to successfully integrate recently acquired businesses or the possibility that the Company will be unable to execute on the intended redeployment of proceeds from a divestiture, whether due to a lack of favorable investment opportunities or otherwise.

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, 2018 and the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2019. 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.


AT ABERNATHY MACGREGOR, Claire Walsh, (General info), (212) 371-5999