NN INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Five-Year Plan: Focus on sales growth (aiming to win $65M/year in new business), aggressive cost reduction (3% annual cost reduction, plant footprint consolidation), and balance sheet refresh (generate free cash flow, invest $12-15M/year in CapEx ex-China).
• Underperforming Plants: Closed 2 plants, process of closing 2 more, 1 underway. Fixed or closed 7 underperforming plants, with remaining facilities expected to be adjusted EBITDA positive in 2025.
• New Business Development: Approximately $150M in new business awards as of last night, 70 new business win programs launching in 2025.
• Tariffs: US manufacturing supply chains are global; reshoring has minimal long-term impacts so far, with positive impact seen already.
• China Operations: China funding itself, sending money back, and seeing increasing demand, with operations at capacity and adding capacity.

Segment Performance

• Power Solutions:
  • Fourth-quarter as-reported net sales: $39.2 million (down 5% vs prior year Q4). Pro forma: +$900,000 or 2%.
  • Fourth-quarter adjusted EBITDA: $5.6 million (down from $6.6 million prior year Q4). Pro forma: $5.6 million vs prior year's $5.9 million.
  • Full-year net sales: $180.5 million (down 3% vs prior year). Pro forma: +$8.7 million or 5%.
  • Full-year adjusted EBITDA: $29.2 million (up 3% vs prior year). Pro forma: $29 million vs prior year's $26 million, 11.5% increase.
• Mobile Solutions:
  • Fourth-quarter revenue: $67.4 million (down 2% vs prior year Q4). Impacted by foreign exchange, unprofitable business exit.
  • Fourth-quarter adjusted EBITDA: $10 million (up 41% vs prior year Q4). Margin 14.8%, up from 10.3% prior year Q4.
  • Full-year revenue: $283.9 million (down 6% vs prior year). Impacted by exit of unprofitable business, foreign exchange, but offset by China growth.
  • Full-year adjusted EBITDA: $35.6 million (up 19% vs prior year). Margin 12.5%, up from 9.8% prior year.

Guidance

• 2025 net sales projection: $450 to $480 million.
• 2025 adjusted EBITDA projection: $53 million to $63 million.
• New business wins midpoint: $65 million.
• Assumes key markets and currencies stable; market volatility could affect results to lower half of ranges.

Risks

• Tariff Impacts: Uncertainty in US manufacturing supply chains and potential long-term effects on volumes and profits.
• Operational Challenges: Plant closures and restructuring, need to continue optimizing operational footprint and headcount.
• Market Volatility: Global market conditions and international trade policy changes can impact results.

Question and Answer

Q: Turnaround of Group of Seven plant and EBITDA margin outlook?

A: Harold and Tim discuss revenue growth, reshoring programs, and improving scorecards with customers.

Q: Medical and electrical components business update?

A: Harold talks about medical growth targets, pipeline, and electrical stamped products progress.

Q: Tariffs impact on Class 8 trucks and business?

A: Harold explains that their business isn't tied to Class 8 trucks, focusing on work trucks instead.

Q: Deliveries and new order wins correlation?

A: Tim and Harold discuss past due backlogs reduction leading to new business wins with existing customers.

Q: JV breakdown and export of China-made products?

A: Harold talks about JV with WayFoo and exports to various markets.

Q: New business wins margin and plant closing timelines?

A: Harold and Tim discuss new business wins pricing, cherry-picking, and plant closing details.

Q: Balance sheet refinancing timing?

A: Chris Bohnert updates on term loan refinance timeline and preferred equity consideration.