Zacks Small Cap Analysis – NNBR: NN’s improved operational profile helps value goal of $7.00 per share. – Cyber Tech

By Thomas Kerr, CFA

NASDAQ:NNBR

READ THE FULL NNBR RESEARCH REPORT

Web gross sales within the 4th quarter had been $112.5 million, which was a lower of 4.6% from the 4th quarter of 2022. This was primarily the results of lowered volumes from current facility closures and partially offset by greater buyer pricing and favorable overseas change results.

Working loss was ($7.9) million in comparison with a loss from operations of ($11.0) million within the prior yr interval. The lower in loss from operations was primarily pushed by facility closures and labor value financial savings.

GAAP internet loss was ($20.5) million in comparison with internet lack of ($12.0) million for a similar interval in 2022. The rise in internet loss is primarily as a result of a non-recurring warrant valuation expense of $10.8 million as a result of a rise within the inventory value. Curiosity expense additionally elevated $1.3 million.

Adjusted working loss for the 4th quarter of 2023 was ($1.4) million in comparison with adjusted working lack of ($3.3) million for the prior yr interval. Adjusted EBITDA was $10.0 million (8.9% margin), in comparison with $7.8 million (6.6% margin) for a similar interval in 2022. Adjusted internet loss was ($4.9 million), or ($0.10) per diluted share, in comparison with adjusted internet lack of ($5.8 million), or ($0.12) per diluted share, within the prior yr interval.

Free money circulation was a era of money of $1.3 million in comparison with a era of money of $6.4 million for a similar interval in 2022.

Within the Energy Options section, internet gross sales for the 4th quarter decreased 13.4% to $43.3 million. The lower in gross sales was primarily as a result of decrease volumes on account of the closure of the Taunton and Irvine services in addition to basic business softness within the business truck and auto element markets. Nevertheless, profitability improved because of the facility closures (which had been shedding cash) as nicely right-sizing initiatives in NN’s (NASDAQ:NNBR) labor pressure. Adjusted working earnings within the quarter was $5.8 million in comparison with $4.5 million within the 4th quarter of 2022. Adjusted EBITDA elevated to $6.6 million within the 4th quarter and elevated to $28.3 million for the complete yr. The corporate additional commented that common each day gross sales elevated sequentially within the 4th quarter and continued to develop. The corporate can be including further gross sales personnel on this section to win new awards.

Within the Cell Options segments, internet gross sales for the 4th quarter of 2023 elevated 1.8% to $69.2 million. The rise in gross sales was as a result of favorable pricing and overseas change, partially offset by decrease volumes. Adjusted working loss was ($2.3) million in comparison with adjusted working lack of ($3.7) million within the 4th quarter of 2022. The advance within the working loss was as a result of value financial savings associated to right-sizing the workforce in addition to an improved product combine. Adjusted EBITDA elevated to $7.1 million within the quarter and decreased to $29.8 million for the complete yr from $33.7 million in 2022. The corporate additional commented that new enterprise wins had been according to plans and that the China enterprise was performing higher than anticipated. The corporate additionally acknowledged that it’s reinforcing the gross sales crew on a worldwide foundation and that it aggressively investing in digital advertising together with processes comparable to SEO.

Full 12 months 2023 Outcomes

For the complete yr 2023, internet gross sales decreased $9.5 million, or 1.9%, to $489.3 million in comparison with $498.7 million for 2022. This was primarily as a result of lowered quantity, together with the affect from the closure of the Taunton and Irvine services, decrease buyer settlements, and unfavorable overseas change, partially offset by higher pricing actions. GAAP working loss elevated barely to ($21.8) million in comparison with ($21.1) million in 2022. On an adjusted foundation, working earnings for 2023 was $3.1 million in comparison with adjusted working earnings of $1.9 million in 2022. Adjusted EBITDA for 2023 was $43.1 million (8.8% margin) in comparison with $43.9 million (8.8% margin) for a similar interval in 2022. The corporate generated free money circulation of $11.7 million in 2023 in comparison with a use of money of $9.8 million in 2022.

Within the Energy Options section, internet gross sales for 2023 had been $185.9 million in comparison with $205.2 million in 2022, a lower of 9.4%, The lower in gross sales was primarily as a result of decrease volumes, together with the affect from the closure of the Taunton and Irvine services, partially offset by greater pricing. Adjusted working earnings for 2023 was $23.9 million in comparison with $20.1 million in 2022. The rise in adjusted working earnings was primarily as a result of facility closure financial savings and a authorized settlement reached in the course of the 1st quarter of 2022, partially offset by decrease gross sales quantity.

Within the Cell Options section, internet gross sales for 2023 had been $303.3 million in comparison with $293.5 million in 2022, a rise of three.3%. The rise in gross sales was primarily as a result of greater buyer pricing, partially offset by decrease gross sales quantity, and decrease buyer settlements. Adjusted working loss for 2023 was ($1.3) million in comparison with $2.7 million of adjusted working earnings in 2022. Adjusted working earnings decreased as a result of decrease gross sales quantity, decrease buyer settlements and unfavorable overseas change results, partially offset by value financial savings and working efficiency.

Steadiness Sheet Optimization

On March 8, 2024, the corporate introduced it had entered into an settlement to promote and lease again three services for an combination buy value of $16.8 million. The transactions should not have any affect on EBITDA. The online proceeds from the transaction will likely be used to repay a portion of the excellent steadiness underneath the corporate’s time period mortgage which is anticipated to decrease future money curiosity bills. As well as, the corporate has lowered its company headquarters footprint by roughly two-thirds via a separate sublease transaction which may also decrease ongoing working prices. The corporate indicated there could also be different sale/leaseback alternatives, notably within the areas of enormous gear holdings.

The corporate’s leverage ratio on the finish of 2023 was 3.20x, an enchancment from 3.37x on the finish of 2022. NN expects the leverage ratio to fall under 3.00x by the tip of 2024.

2023 Strategic Enterprise Wins

NN introduced they’d a file breaking degree of latest enterprise wins in 2023 totaling $62.6 million. The corporate ended 2023 on a powerful word because the acceleration in new enterprise wins was a direct results of the corporate’s new transformational enterprise technique. The corporate was awarded over 60 packages in steering techniques, electrical motors, business automobiles, passenger automobiles, airbag techniques, battery administration, protection, and car sensors. The awards had been diversified throughout numerous finish markets and embody electrical car (EV) and hybrid car functions with complete wins of roughly $30 million, car connector parts and electrical connector shielding with complete wins of roughly $15 million, and diesel components for big gear with complete awards of roughly $9 million.

Precision parts provided by the corporate are proving priceless in supporting developments in noise discount, vibration discount and harshness efficiency necessities by producers. Its capabilities in precision machining, precision stamping, plating, treasured metals and injection molding are accepted within the market, particularly with certifications comparable to ISO-13485, ITAR, IATF-16949, ISO-9001, NADCAP AC7108 & AC7004. These certifications and inner capabilities have allowed NN to right away re-enter the medical enterprise with a centered agenda on surgical devices, handpieces and implants for orthopedic functions, amongst others.

NN delivers single micron tolerance with its precision machining capabilities in Swiss-style, screw, and rotary switch machines with worm milling and kit hobbing. Its micro milling and grinding are perfect for element wants comparable to motor shafts, pinion and worm gears, connectors, injector and spool valve parts and armatures.

The corporate has progressive stamping capabilities with presses from two to 330 tons and specialised data in producing excessive and low voltage connectors, electrical contacts and speak to assemblies, together with EMI connector field shields, bus bars and collector plates. These parts are wanted in EVs, hybrid automobiles, battery storage, meters and energy distribution techniques.

As well as, NN uniquely has in-house gold, silver, palladium, nickel and tin plating capabilities by rack or barrel technique. This offers NN a novel one-stop functionality for buyer’s metallic element necessities.

NN’s pipeline of latest enterprise alternatives coming into 2024 is roughly $580 million in dimension. The corporate continues to evolve and strengthen its development packages by specializing in particular product functions together with electrical steering techniques, electrical techniques, braking techniques, electrical energy distribution, battery administration, fluid administration, EV charging techniques and medical parts.

CEO Harold Bevis acknowledged, “The NN gross sales crew did an incredible job in 2023. Our gross sales development purpose is 5% CAGR, and this degree of latest enterprise wins is in keeping with our goals and reveals that the actions we’ve in place can ship great ahead worth. Coupled with our revamped strategy to operational efficiency, the corporate intends for these new enterprise wins to be additive as we improve our buyer retention charges on current enterprise.”

We’re sustaining our DCF primarily based value goal of $7.00 per share primarily based on the corporate’s up to date long-term objectives of revenues exceeding $650 million in 2028 and acquiring adjusted EBITDA margins to the 12%-13% vary. We additionally decrease our DCF low cost price to account for the seemingly de-risking of the general story.

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