NN, Inc. (NNBR) is a global diversified industrial company that engineers and manufactures high-precision components and assemblies for a variety of end markets, including automotive, general industrial, electrical, aerospace, and medical. The company has a rich history dating back to its founding in 1980 as a small bearings manufacturer in Tennessee. Over the years, NN has transformed itself into a leading player in the industrial components space through strategic acquisitions and a focus on expanding its product portfolio and geographic reach.
Business Overview
NN's operations are organized into two main segments - Mobile Solutions and Power Solutions. The Mobile Solutions group focuses on serving the automotive, general industrial, and medical end markets, leveraging its expertise in manufacturing highly complex, tight tolerance, and system-critical components. The Power Solutions segment, on the other hand, combines materials science expertise with advanced engineering and production capabilities to design and manufacture a wide range of high-precision metal and plastic components, assemblies, and finished devices for the electrical, general industrial, automotive, and medical industries.
The company's history dates back to the 1940s, and it has since grown to operate 26 facilities across North America, South America, Europe, and China as of December 31, 2024. NN has faced various challenges throughout its history, including financial difficulties in the early 2000s that led to a restructuring of operations and the closure of underperforming manufacturing facilities. The company also weathered the impact of the 2008 financial crisis on demand across many of its end markets.
Despite these challenges, NN has achieved significant milestones, including the acquisition of Autocam Corporation in 2014, which expanded its capabilities in the automotive and industrial end markets and helped diversify its customer base and geographic reach. In 2021, the company completed a private placement of Series D Perpetual Preferred Stock, raising additional capital to support its growth initiatives and providing financial resources for strategic opportunities.
NN has consistently invested in enhancing its technological capabilities and manufacturing processes, developing expertise in areas such as high-precision machining, progressive stamping, laser welding, and material science. These capabilities have enabled the company to produce complex, tight-tolerance components for its customers across various end markets.
Financials and Operations
For the full year 2024, NN reported net sales of $464.3 million, a 5.1% decline compared to the prior year. This top-line contraction was primarily driven by the divestiture of the company's Lubbock, Texas operations, strategic rationalization of certain unprofitable business lines, and unfavorable foreign exchange impacts of $3.5 million. However, NN's focus on operational efficiencies and disciplined cost management allowed it to expand profitability, with adjusted EBITDA increasing 12% year-over-year to $48.3 million and adjusted EBITDA margins improving 160 basis points to 10.4%.
Looking at the segment performance, the Power Solutions group delivered a solid showing in 2024, with revenue increasing 5% on a pro forma basis and adjusted EBITDA climbing 11.5% to $29 million. The Mobile Solutions segment, which is more heavily weighted toward the automotive industry, saw a 2.2% pro forma revenue decline, but was able to significantly expand adjusted EBITDA margins by 270 basis points to 12.5% through cost optimization initiatives.
The Mobile Solutions segment reported net sales of $283.9 million in 2024, a decrease of 6.4% compared to the prior year. This decline was primarily due to rationalized volume at plants undergoing turnarounds, contractual reduction in customer pass-through material pricing, a customer settlement received in 2023, and unfavorable foreign exchange effects. The segment's loss from operations was $18.1 million in 2024, which changed unfavorably by $6.3 million compared to 2023, primarily due to the impairment of machinery and equipment at a plant that will close in 2025, higher depreciation expense, and increased selling, general and administrative costs.
The Power Solutions segment reported net sales of $180.5 million in 2024, a decrease of 2.9% compared to 2023. The decrease was primarily due to the sale of the Lubbock operations, premium pricing received on a certain customer project during the first quarter of 2023, and unfavorable foreign exchange effects, partially offset by higher precious metals pass-through pricing. Income from operations for the Power Solutions segment increased by $2 million in 2024 compared to 2023, primarily due to an increase in sublease income earned on closed facilities and lower depreciation and amortization expense.
For the fourth quarter of 2024, NN reported revenue of $106.5 million and a net loss of $21 million. The company's net loss for the full year 2024 was $38.3 million, an improvement from the $50.2 million net loss reported in 2023. Annual operating cash flow for 2024 was $11.1 million, while annual free cash flow was negative $7.2 million.
In terms of geographic distribution, 64% of NN's products were sold to customers in North America, 17% to customers in Asia, 10% to customers in South America, and 9% to customers in Europe in 2024.
Liquidity
As of December 31, 2024, NN had a debt-to-equity ratio of 2.64, indicating a significant level of leverage. The company's liquidity position included $18.1 million in cash and cash equivalents. NN had $5.4 million in outstanding borrowings under its $50 million ABL Facility, with $15 million available for future borrowings.
The company's current ratio stood at 2.00, while its quick ratio was 1.26 as of December 31, 2024, suggesting a reasonable ability to meet short-term obligations.
2025 Outlook and Strategic Initiatives
For the upcoming fiscal year 2025, NN is guiding for net sales in the range of $450-$480 million and adjusted EBITDA of $53-$63 million. This outlook reflects the company's ongoing efforts to rationalize unprofitable business lines and focus on higher-margin opportunities in the medical, electrical, and industrial end markets. The company is also targeting new business wins of approximately $65 million at the midpoint for 2025.
To support this growth strategy, NN has been actively investing in new product development, capacity expansion, and operational excellence programs. The company has a robust $720 million new business pipeline and is building on the $73 million in new business secured in 2024.
Additionally, NN is in the process of optimizing its manufacturing footprint, having closed two underperforming facilities in 2024 and with plans to shutter one more in 2026. These consolidation efforts, combined with the implementation of lean manufacturing principles and shared overhead structures, are expected to drive further margin improvements going forward.
It's worth noting that NN's guidance assumes its key markets and currencies remain stable and aligned nearly with 2024 levels. However, the company acknowledges that global markets are experiencing significant volatility due to fluid and shifting international trade policies, which could drive results to the lower half of the projected ranges.
Risks and Conclusion
While NN's diversification strategy and operational optimization initiatives appear to be gaining traction, the company does face several risks that investors should be aware of. These include continued volatility in its key end markets, supply chain disruptions, labor shortages, and the potential for further macroeconomic headwinds. Additionally, NN's highly leveraged balance sheet could constrain its financial flexibility and limit its ability to pursue strategic growth opportunities.
Overall, NN's transformation efforts seem to be yielding positive results, as evidenced by its improved profitability and new business momentum. The company's focus on strengthening its team, fixing unprofitable areas of the business, advancing and strengthening profitability, improving its balance sheet, and accelerating sales growth as part of its ongoing enterprise transformation plan shows promise. However, the company still has work to do to fully realize the benefits of its diversification strategy and optimize its cost structure.
Investors should closely monitor NN's progress in these areas, as well as its ability to navigate the evolving market landscape, in order to assess the long-term growth potential of this industrial components player. The company's performance in executing its strategic initiatives, particularly in light of the challenging global economic environment, will be crucial in determining its future success and ability to create shareholder value.