NN, Inc. (NNBR) — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing reports annual results; it does not provide a separate Q4 income statement or clear standalone fourth-quarter financial values.
Business context
NN designs and manufactures high-precision components and assemblies through Mobile Solutions, serving automotive, industrial and medical markets, and Power Solutions, serving electrical, industrial, automotive and medical markets. The company operated 27 facilities across six countries. Its new CEO, Harold Bevis, joined in May 2023.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Net sales | $489.3 million | $498.7 million |
| Loss from operations | $21.8 million | $21.1 million |
| Net loss | $50.2 million | $26.1 million |
| Basic and diluted loss per share | $1.35 | $0.83 |
| Cash from operations | $29.3 million | $7.7 million |
| Capital expenditures | $20.5 million | $18.0 million |
- Revenue declined 1.9%. Operating loss equaled 4.5% of sales, versus 4.2% in 2022; net loss equaled 10.2% of sales, versus 5.2%. Cost of sales excluding depreciation and amortization was 85.7% of sales, up from 84.4%.
- Operating cash flow less reported capital expenditures was approximately $8.8 million, compared with approximately negative $10.2 million in 2022. The 2023 cash flow improvement was primarily driven by reductions in receivables and inventory.
- Cash and cash equivalents were $21.9 million at year-end; working capital was $100.9 million, down from $112.9 million.
- Total debt carrying value was $153.3 million, including $148.1 million outstanding under the term loan and $10.7 million in international loans, offset by unamortized issuance costs and discount. The company had $26.4 million available under its ABL facility, net of letters of credit.
- The term loan bore a 14.331% rate, including paid-in-kind interest, at year-end. Management estimated annual cash interest of about $18.3 million plus $2.9 million of accrued PIK interest. The term loan matures in September 2026.
- Series D perpetual preferred stock had a $77.8 million carrying value at year-end, including $31.1 million of accumulated unpaid and deemed dividends. The company declared no common dividends.
Changes versus prior year
- Mobile Solutions sales rose 3.3% to $303.3 million, but its operating loss widened to $11.7 million from $2.2 million, reflecting cost pressure, lower volume and product-launch challenges.
- Power Solutions sales fell 9.4% to $185.9 million, while operating income rose to $11.1 million from $3.5 million. Facility closures, sublease income and premium pricing contributed to the improvement.
- Interest expense increased $6.1 million to $21.1 million, largely due to higher rates and PIK interest. Other expense was $10.7 million, versus other income of $5.1 million in 2022, primarily reflecting noncash derivative fair-value losses in 2023 rather than gains in 2022.
- Net loss increased by $24.1 million. Net sales were also affected by lower volume, facility closures and $0.6 million of unfavorable foreign exchange, partly offset by higher pricing.
Outlook, management commentary and risks
- Management initiated an enterprise transformation plan focused on growth, improved margins and free cash flow, footprint optimization, customer service and operational improvement. It plans $100 million of capital expenditures over five years; no specific earnings or revenue guidance is provided in the filing.
- During 2023, the company closed the Taunton and Irvine Power Solutions sites and three underutilized Mobile Solutions sites, and said further footprint changes remain possible.
- After year-end, NN agreed to sell and lease back three properties for an aggregate $16.8 million, subject to closing conditions. Proceeds are expected to repay term-loan borrowings; NN expects to lease the properties for 20 years and continue operating there.
- Key risks include leverage and high variable-rate interest costs, customer concentration (the top ten customers represented about 47% of sales), supply-chain and labor disruption, inflation, global conflict, foreign exchange, product quality and recall exposure, cybersecurity, and environmental or regulatory obligations. No single customer represented 10% or more of annual sales.
- An $11.6 million CARES Act tax refund receivable remained subject to IRS review, with timing uncertain. The company disclosed remaining Brazilian ICMS tax cases with potential liability below $5.0 million, inclusive of interest and penalties; management expects indemnification from former owners and had not accrued the remaining exposure.
- The company reported compliance with its debt facility requirements at year-end. The independent auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Progress on the transformation plan, including whether margins and cash generation improve enough to support planned investment.
- Term-loan refinancing or repayment plans before the September 2026 maturity, and the effect of variable rates and PIK interest on debt service.
- Completion and net proceeds of the property sale-leaseback, including the resulting long-term lease costs.
- Collection timing and ultimate receipt of the $11.6 million tax refund, and developments in the Brazilian tax disputes and related indemnification.
- Whether Mobile Solutions can address operating losses and whether Power Solutions can sustain improved operating income amid lower sales volumes.