Company Overview and History
NN, Inc. is a global diversified industrial company that engineers and manufactures high-precision components and assemblies. The company’s roots can be traced back to 1980 when it was founded as Plastic Components Inc. in Lenoir City, Tennessee. Over the years, NN has grown through a series of strategic acquisitions, expanding its capabilities and customer base. In 2014, the company made a transformative acquisition of Autocam Corporation, strengthening its presence in the automotive and industrial markets.
Today, NN operates 26 facilities across North America, Europe, South America, and Asia, serving a diverse range of end markets including automotive, general industrial, medical, and electrical. The company’s two main operating segments are Mobile Solutions, which focuses on the automotive, general industrial, and medical markets, and Power Solutions, which serves the electrical, general industrial, automotive, and medical markets. NN has faced challenges throughout its history, particularly in the early 2010s when it struggled with integration and performance issues related to some of its acquired businesses. These challenges led to financial losses and required the company to undertake restructuring efforts to streamline its operations and improve profitability. In 2021, NN completed a private placement of Series D Perpetual Preferred Stock, providing additional capital to support its strategic initiatives. This capital raise was part of the company’s efforts to transform its business by strengthening its leadership team, fixing underperforming areas, expanding margins, and improving its sales engine.
Financials and Operational Performance
NN’s financial performance has been mixed in recent years, as the company has navigated various challenges. In the fiscal year ended December 31, 2023, NN reported revenue of $489.27 million and a net loss of $50.15 million. The company’s operating cash flow was $29.34 million, while free cash flow came in at $8.85 million.
For the first nine months of 2024, NN reported revenue of $357.78 million, a decrease of 5.0% compared to the same period in the prior year. The company’s net loss for the nine-month period was $17.30 million. NN’s adjusted EBITDA, a non-GAAP metric, was $35.15 million, down from $34.64 million in the prior-year period.
In the most recent quarter (Q3 2024), NN reported revenue of $113.59 million, a decrease of 8.7% compared to Q3 2023. The net loss for the quarter was $2.56 million. Operating cash flow for Q3 2024 was $4.39 million, while free cash flow was $1.91 million. The year-over-year decline in revenue was primarily due to the sale of the Lubbock operations and rationalized volume at plants undergoing turnarounds.
The company’s Mobile Solutions segment, which accounts for the majority of its revenue, saw sales decline 7.5% year-over-year in the first nine months of 2024 to $216.59 million. This was primarily due to rationalized volume at plants undergoing turnarounds, contractual reductions in customer pricing, and unfavorable foreign exchange impacts. In Q3 2024, the Mobile Solutions segment reported net sales of $70.68 million, a decrease of 10.5% compared to the same period in 2023. The segment reported an operating loss of $1.44 million for the quarter, slightly higher than the prior year period due to lower sales and a customer settlement received in 2023, partially offset by reduced indirect manufacturing costs from optimization actions.
The Power Solutions segment, which includes the company’s stamped products business, reported a 0.9% decrease in sales to $141.32 million during the first nine months of 2024. In Q3 2024, the Power Solutions segment reported net sales of $42.94 million, a decrease of 5.6% compared to Q3 2023. The decline was primarily due to the sale of the company’s Lubbock operations, partially offset by higher precious metals pass-through pricing and improved pricing. Operating income for the Power Solutions segment decreased by $1.43 million year-over-year, mainly due to the lower revenue from the Lubbock divestiture and less favorable product mix, but this was partially offset by lower costs from facility closures in 2023 and increased sublease income.
NN has been actively working to streamline its operations and improve profitability. The company has closed underperforming facilities and taken steps to reduce its cost structure, particularly in its North American Mobile Solutions business. These actions have helped the company make progress towards its goal of achieving a minimum 10% adjusted EBITDA margin in the North American Mobile Solutions segment, which it expects to reach in early 2025.
From a liquidity perspective, NN reported a cash balance of $12.45 million as of December 31, 2023. The company had $21.90 million available under its ABL Facility as of September 30, 2023. NN’s debt-to-equity ratio stood at 0.7333 as of December 31, 2023, while its current ratio and quick ratio were 1.96 and 1.18, respectively.
New Business Wins and Strategic Initiatives
Despite the challenges, NN has continued to make progress on its strategic initiatives. The company’s new business wins program has been a bright spot, with the company securing $113 million in new business over the past 21 months. These new awards are primarily for products that incorporate the company’s technical expertise in areas such as metal forming and precision manufacturing. For 2024, NN had set a target of $55-70 million in new business wins and reported being at around $50 million in new wins by the third quarter, expressing confidence in hitting the full-year target.
NN has also been focused on expanding its presence in the growing Chinese automotive market. The company’s operations in China have seen strong growth, with sales in the Mobile Solutions segment increasing 19% year-over-year in the first nine months of 2024. NN is leveraging its capabilities to support the increasing demand for its products from global Tier 1 customers operating in China.
Additionally, the company has been investing in its medical business, adding dedicated manufacturing capacity to support its growing customer base in the orthopedic implant and medical tool markets. NN’s medical business has been an area of focus, as the company looks to capitalize on the segment’s attractive growth prospects.
NN has also made progress on its goal to reach breakeven EBITDA in a group of seven underperforming plants, stating that they are on track to achieve this goal in 2024.
Risks and Challenges
NN faces a number of risks and challenges that could impact its future performance. The company operates in a cyclical industry, with demand for its products closely tied to the broader economic environment and the performance of its end markets, particularly the automotive industry.
The company is also exposed to various operational risks, including supply chain disruptions, labor shortages, and the ability to effectively manage its global manufacturing footprint. NN’s ability to successfully integrate acquisitions and execute on its strategic initiatives is also critical to its long-term success.
Outlook and Conclusion
Despite the challenges, NN remains focused on executing its transformation plan and driving profitable growth. The company has reaffirmed its full-year 2024 guidance, projecting revenue in the range of $465 million to $485 million and adjusted EBITDA of $49 million at the midpoint. This outlook is subject to potential shifts in North American auto market demand.
NN expects to continue winning new business at a strong rate, focusing on the power, medical, and electrical markets. The company is investing cash flow to support these new business programs, and cost initiatives and plant consolidations are expected to continue having a positive impact on its cost structure and underlying results.
Looking ahead, NN is well-positioned to capitalize on the long-term opportunities in its key end markets, particularly the growing demand for its products in the Chinese automotive market and the medical device industry. The company’s strategic initiatives, including its new business wins program and efforts to improve operational efficiency, are expected to continue supporting its transformation and drive shareholder value over the long term.
NN remains focused on its refinancing strategy to enhance financial flexibility and support its growth initiatives, though the company is taking a measured approach to secure the right partner for this process. While the general industrial, residential/commercial electrical, and medical markets that NN serves are growing, the company notes that the commercial vehicle market has been soft but is expected to improve.
As NN continues to navigate the challenges in its operating environment, the company’s diversified end markets and product portfolios provide some stability. However, ongoing macroeconomic headwinds and supply chain disruptions impacting its key industries will require continued diligence and strategic management to maintain and improve performance in the coming years.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.