NN Inc (NNBR) (Q1 2024) Earnings Call Transcript Highlights: Strategic Wins Amidst Challenges
Net Sales: $121.2 million in Q1 2024, down 4.6% year-over-year.
Adjusted EBITDA: $11.3 million in Q1 2024, up 39% from $8.1 million in Q1 2023.
Adjusted EBITDA Margin: Increased to 9.3%, up 290 basis points year-over-year.
Operating Loss: Improved to $4.8 million from $7.1 million in the previous year.
Free Cash Flow: Positive, with a focus on maintaining this through measured capital investments.
New Business Wins: $17 million in Q1 2024, contributing to a total of $80 million recently, with a full-year expectation of $55 million to $70 million.
Full-Year Net Sales Guidance: Expected to be between $485 million and $505 million.
Full-Year Adjusted EBITDA Guidance: Projected to be between $48 million and $54 million.
Full-Year Free Cash Flow Guidance: Anticipated to be between $10 million and $15 million.
Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
NN Inc (NASDAQ:NNBR) reported a successful first quarter with growth in core plants and continued execution of its business transformation strategy.
The company achieved its third consecutive quarter of exceeding goals for adjusted EBITDA, free cash flow, and new business wins.
Operational improvements were significant, including right-sizing headcount, leveraging global procurement, and upgrading plant management, which contributed to profitability.
NN Inc (NASDAQ:NNBR) secured $17 million in new business awards during the quarter, estimated to be about three times the market growth rates.
The company reaffirmed its full-year outlooks for free cash flow and new business wins, while tightening its outlooks for net sales and adjusted EBITDA.
Negative Points
Net sales for the quarter were down 4.6% compared to the previous year's first quarter, primarily due to rationalization of volume at underperforming plants.
The company reported an operating loss of $4.8 million, although this was an improvement from the previous year's loss.
NN Inc (NASDAQ:NNBR) is still in the process of turning around seven previously unprofitable plants, with the goal for all to become profitable by the end of 2024.
There are ongoing challenges with certain underperforming plants and customer contracts that need to be addressed to improve profitability.
The company faces the need for careful capital management and potential additional capital expenditures to achieve further operational improvements and rationalizations.
Q & A Highlights
Q: Can you provide an update on the profitability of the seven facilities you mentioned, specifically how much of the $100 million in unprofitable revenue has returned to profitability? A: Harold Bevis, President and CEO of NN Inc, responded that about half of the $100 million in revenue from those facilities has returned to profitability. The company aims to transition from a 10% loss to a 5% profit margin, which is slightly below their average but realistic given the older assets at these plants.
Q: Could you elaborate on the efforts and specific contract wins in the medical and Connect and Protect markets? A: Harold Bevis explained that capital intensity is a major consideration for new opportunities, particularly in the medical sector. They have avoided highly capital-intensive projects, aiming for a capital-to-sales ratio significantly lower than 1:1. Tim French, COO, added that they are focusing on using underutilized assets efficiently to secure new business.
Q: Regarding the underutilized assets, what additional revenue could these generate if utilized at normal rates? A: Harold Bevis noted that while theoretically, these assets could generate an additional $50 million to $100 million, practical constraints related to product specifications and market demand limit this potential. The focus remains on accretive growth rather than merely filling capacity.
Q: What changes have been made to the financial guidance for the year? A: Mike Felcher, CFO, mentioned minor adjustments to the revenue projections based on better visibility into the year's performance and a slight tightening of the EBITDA range, reflecting increased confidence in achieving these targets.
Q: Can you discuss the new business award activity and its margin profile? A: Harold Bevis indicated that new business awards are generally accretive, with careful consideration given to the return on investment and the use of existing capacity. The exact margin impact varies, but the focus is on improving profitability through strategic asset utilization.
Q: What is driving the growth improvements in your China business? A: Harold Bevis attributed the success in China to strategic targeting of growth opportunities in electric power steering and other vehicle control systems, leveraging existing capabilities and responding to local market demands. This approach has also facilitated global approvals, enhancing their market position internationally.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
