CHARLOTTE, N.C., Nov. 7, 2018 /PRNewswire/ -- NN, Inc.,
(NASDAQ: NNBR), a diversified industrial company, today reported
its financial results for the third quarter ended September 30, 2018.
GAAP Results
Net sales for the third quarter of 2018 increased $57.5 million, or 38.8%, to $205.7 million, compared to $148.2 million for the third quarter of 2017,
driven by sales from acquisitions of $54.4
million and organic sales growth of $5.1 million offset by foreign exchange impacts
of $2.0 million.
On a GAAP basis, income from operations for the third quarter of
2018 was $5.9 million, compared to
$5.6 million for the same period in
2017, due to strong growth in income from organic and acquisition
sales growth in Life Sciences partially offset by higher than
normal costs incurred in new program launches at each of the Life
Sciences, Mobile Solutions and Power Solutions segments. Net loss
on a GAAP basis for the third quarter of 2018 was $13.8 million. This compares to net income on a
GAAP basis of $126.0 million in the
third quarter of 2017. The third quarter of 2018 included
$0.6 million in acquisition costs on
a pre-tax basis and $6.6 million in
debt extinguishment costs on a pre-tax basis. The third quarter of
2017 net income included $129.4
million of income from discontinued operations, net of tax
which was primarily related to the gain on sale of our former
Precision Bearings business.
On a GAAP basis, income from operations for third quarter 2018
in the Life Sciences segment was $6.7
million, compared to $3.0
million for the same period in 2017.
On a GAAP basis, income from operations for third quarter 2018
in the Mobile Solutions segment was $4.7
million, compared to $6.8
million for the same period in 2017.
On a GAAP basis, income from operations for third quarter 2018
in the Power Solutions segment was $2.7
million, compared to $4.2
million for the same period in 2017.
Adjusted Results
Adjusted income from operations for the third quarter of 2018
was $26.4 million, compared to
$14.7 million for the same period in
2017. Adjusted net income increased to $8.7
million, or $0.30 per diluted
share, from $6.4 million, or
$0.23 per diluted share, for the same
period in 2017.
Richard Holder, President and
Chief Executive Officer, commented, "Through our improved business
balance amongst end markets that behave in a counter cyclical
manner, we delivered improved operating margins compared to last
year. However, late in the quarter, our topline was adversely
affected by macroeconomic factors primarily tied to tariff and
trade concerns and uncertainty primarily in China, as well as an unfavorable foreign
exchange and product mix in our Mobile Solutions business."
Life Sciences
Net sales for the third quarter of 2018 were $78.4 million, compared to $22.2 million in the third quarter of 2017, an
increase of 253.7% or $56.2 million.
Adjusted income from operations for the quarter was $16.2 million, compared to $5.3 million in 2017.
Mr. Holder commented, "With the ongoing integration of Paragon
Medical, coupled with strong growth in our legacy businesses, we
continue to anticipate strong momentum in Life Sciences in line
with our expectations."
Mobile Solutions
Net sales for the third quarter of 2018 were $81.8 million, compared to $81.7 million in the third quarter of 2017, an
increase of 0.2% or $0.1 million,
with organic sales growth of 3% being offset by foreign exchange
effects. Adjusted income from operations for the quarter decreased
$1.9 million to $6.6 million, compared to $8.5 million in the third quarter of 2017. The
slowing demand in China, coupled
with costs incurred in new program launches impacted sales and
adjusted operating income during the quarter.
Mr. Holder commented, "Mobile Solutions continues to drive
toward improving its operating performance and production
efficiency as we transition the ramp up of our record number of new
programs from start-up to full production. While global automotive
demand is softening, we anticipate that the continued adoption of
CAFE technologies and our new program launches in this market will
lessen the severity of the impact on our CAFE business."
Power Solutions
Net sales for the third quarter of 2018 were $46.1 million, compared to $44.8 million in the third quarter of 2017, an
increase of 2.8% or $1.3 million.
Adjusted income from operations for the quarter was $7.9 million, compared to $7.3 million in 2017.
Mr. Holder commented, "We are making targeted strategic
investments in Power Solutions, primarily in Aerospace and Defense
to support this growing business. Recently announced investments
into state-of-the-art technologies, as well as the expansion of our
manufacturing capabilities in the northeast and California, are consistent with NN's balanced
portfolio approach and overall focus on expanding our presence in
the electrical and aerospace end markets."
The full set of financial guidance for the third quarter of 2018
can be found in our supplemental presentation posted in the
Investor Relations section of our website at www.nninc.com.
NN will discuss its results during its quarterly investor
conference call on November 8, 2018
at 9:00 a.m. ET. The call and
supplemental presentation may be accessed via NN's website,
www.nninc.com. The conference call can also be accessed by dialing
1-877-260-1479 or 1-334-323-0522 Conference ID: 7616914. For those
who are unavailable to listen to the live broadcast, a replay will
be available shortly after the call for 30 days.
NN discloses in this press release the non-GAAP financial
measures of adjusted income from operations, adjusted net income
(loss) and adjusted net income per diluted share. Each of
adjusted income from operations, adjusted net income (loss) and
adjusted net income per diluted share provide supplementary
information about the impacts of restructuring and integration
expense, acquisition and transition expenses, foreign-exchange,
amortization of intangibles and other non-operating impacts on our
business.
The financial tables found later in this press release include a
reconciliation of adjusted income from operations, adjusted net
income (loss) and adjusted net income (loss) per diluted share to
the U.S. GAAP financial measures of income from operations, net
income (loss) and net income (loss) per diluted share.
NN, Inc., a diversified industrial company combines advanced
engineering and production capabilities with in-depth materials
science expertise to design and manufacture high-precision
components and assemblies for a variety of markets on a global
basis. Headquartered in Charlotte,
North Carolina, NN has 51 facilities in North America, Western Europe, Eastern Europe, South America and China.
Except for specific historical information, many of the
matters discussed in this press release may express or imply
projections of revenues or expenditures, statements of plans and
objectives or future operations or statements of future economic
performance. These, and similar statements, are forward-looking
statements concerning matters that involve risks, uncertainties and
other factors which may cause the actual performance of NN, Inc.
and its subsidiaries to differ materially from those expressed or
implied by this discussion. All forward-looking information is
provided by the Company pursuant to the safe harbor established
under the Private Securities Litigation Reform Act of 1995 and
should be evaluated in the context of these factors.
Forward-looking statements generally can be identified by the use
of forward-looking terminology such as "assumptions", "target",
"guidance", "outlook", "plans", "projection", "may", "will",
"would", "expect", "intend", "estimate", "anticipate", "believe",
"potential" or "continue" (or the negative or other derivatives of
each of these terms) or similar terminology. Factors which could
materially affect actual results include, but are not limited to:
general economic conditions and economic conditions in the
industrial sector, inventory levels, regulatory compliance costs
and the Company's ability to manage these costs, start-up costs for
new operations, debt reduction, competitive influences, risks that
current customers will commence or increase captive production,
risks of capacity underutilization, quality issues, availability
and price of raw materials, currency and other risks associated
with international trade, the Company's dependence on certain major
customers, and the successful implementation of the global growth
plan including development of new products. Similarly, statements
made herein and elsewhere regarding pending and completed
transactions are also forward-looking statements, including
statements relating to the future performance and prospects of an
acquired business, the expected benefits of an acquisition on the
Company's future business and operations and the ability of the
Company to successfully integrate recently acquired businesses
or the possibility that the Company will be unable to execute on
the intended redeployment of proceeds from a divestiture, whether
due to a lack of favorable investment opportunities or
otherwise.
For additional information concerning such risk factors and
cautionary statements, please see the section titled "Risk Factors"
in the Company's periodic reports filed with the Securities and
Exchange Commission, including, but not limited to, the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Except as required by law, we
undertake no obligation to update or revise any forward-looking
statements we make in our press releases, whether as a result of
new information, future events or otherwise.
Financial Tables Follow
NN,
Inc. Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) (Unaudited) Amounts
in thousands of dollars, except per share data
|
|
|
Three Months
Ended
September 30,
|
Nine Months
Ended
September 30,
|
|
2018
|
2017
|
2018
|
2017
|
Net sales
|
$
205,683
|
$
148,156
|
$
571,180
|
$
463,658
|
Cost of sales
(exclusive of depreciation and amortization shown
separately below)
|
156,408
|
111,272
|
431,492
|
340,266
|
Selling, general and
administrative expense
|
22,480
|
16,985
|
71,298
|
51,630
|
Acquisition related
costs excluded from selling, general and
administrative expense
|
597
|
619
|
5,810
|
619
|
Depreciation and
amortization
|
21,259
|
13,384
|
51,798
|
39,006
|
Other operating
income, net
|
(733)
|
-
|
(638)
|
(270)
|
Restructuring and
integration expense (adjustments), net
|
(209)
|
345
|
2,137
|
362
|
Income from
operations
|
5,881
|
5,551
|
9,283
|
32,045
|
Interest
expense
|
18,608
|
12,739
|
46,592
|
39,916
|
Loss on
extinguishment of debt and write-off of debt issuance
costs
|
6,624
|
-
|
19,562
|
39,639
|
Derivative gain on
change in interest rate swap fair value
|
-
|
(27)
|
-
|
(14)
|
Other (income)
expense, net
|
308
|
(755)
|
1,882
|
(1,192)
|
Loss from continuing
operations before benefit for income taxes
and share of net income from joint venture
|
(19,659)
|
(6,406)
|
(58,753)
|
(46,304)
|
Benefit for income
taxes
|
5,609
|
1,724
|
12,732
|
14,204
|
Share of net income
from joint venture
|
266
|
1,202
|
1,744
|
4,139
|
Loss from
continuing operations
|
(13,784)
|
(3,480)
|
(44,277)
|
(27,961)
|
Income from
discontinued operations, net of tax (Note 2)
|
-
|
129,441
|
-
|
140,195
|
Net income
(loss)
|
$
(13,784)
|
$
125,961
|
$
(44,277)
|
$
112,234
|
Other comprehensive
income (loss):
|
|
|
|
|
Reclassification
adjustment for discontinued operations
|
$
-
|
$
(9,243)
|
$
-
|
$
(9,243)
|
Foreign currency
translation gain (loss)
|
(4,193)
|
6,411
|
(14,509)
|
21,027
|
Other comprehensive
income (loss)
|
$
(4,193)
|
$
(2,832)
|
$
(14,509)
|
$
11,784
|
Comprehensive
income (loss)
|
$
(17,977)
|
$
123,129
|
$
(58,786)
|
$
124,018
|
Basic net loss per
share:
|
|
|
|
|
Loss from continuing
operations per share
|
$
(0.48)
|
$
(0.13)
|
$
(1.59)
|
$
(1.02)
|
Income from
discontinued operations per share
|
-
|
4.70
|
-
|
5.12
|
Net income (loss) per
share
|
$
(0.48)
|
$
4.57
|
$
(1.59)
|
$
4.10
|
Weighted average shares
outstanding
|
28,688
|
27,544
|
27,784
|
27,403
|
Diluted net loss
per share:
|
|
|
|
|
Loss from continuing
operations per share
|
$
(0.48)
|
$
(0.13)
|
$
(1.59)
|
$
(1.02)
|
Income from
discontinued operations per share
|
-
|
4.70
|
-
|
5.12
|
Net income (loss) per
share
|
$
(0.48)
|
$
4.57
|
$
(1.59)
|
$
4.10
|
Weighted average shares
outstanding
|
28,688
|
27,544
|
27,784
|
27,403
|
Cash dividends
declared per common share
|
$
0.07
|
$
0.07
|
$
0.21
|
$
0.21
|
Reconciliation of
GAAP Income from Operations to Non-GAAP Adjusted Income from
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Three Months
Ended
|
$000s
|
September
30,
|
|
$000s
|
September
30,
|
NN, Inc.
Consolidated
|
2018
|
2017
|
|
Power
Solutions
|
2018
|
2017
|
GAAP income from
operations
|
$
5,881
|
$
5,551
|
|
GAAP income from
operations
|
$
2,706
|
$
4,166
|
Restructuring and
integration expense
|
(209)
|
345
|
|
Restructuring and
integration expense
|
-
|
-
|
Acquisition and
transition expense
|
9,569
|
2,922
|
|
Acquisition and
transition expense
|
2,139
|
400
|
Amortization of
intangibles
|
11,129
|
5,835
|
|
Amortization of
intangibles
|
3,021
|
2,725
|
Non-GAAP adjusted
income from operations (a)
|
26,370
|
14,653
|
|
Non-GAAP adjusted
income from operations (a)
|
7,866
|
7,291
|
|
|
|
|
|
|
|
GAAP net
sales
|
205,683
|
148,156
|
|
GAAP net
sales
|
46,082
|
44,824
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Three Months
Ended
|
$000s
|
September
30,
|
|
$000s
|
September
30,
|
Mobile
Solutions
|
2018
|
2017
|
|
Life
Sciences
|
2018
|
2017
|
GAAP income from
operations
|
$
4,657
|
$
6,799
|
|
GAAP income from
operations
|
$
6,717
|
$
3,011
|
Restructuring and
integration expense
|
51
|
345
|
|
Restructuring and
integration expense
|
(260)
|
-
|
Acquisition and
transition expense
|
974
|
500
|
|
Acquisition and
transition expense
|
2,532
|
-
|
Amortization of
intangibles
|
885
|
868
|
|
Amortization of
intangibles
|
7,223
|
2,242
|
Non-GAAP adjusted
income from operations (a)
|
6,567
|
8,512
|
|
Non-GAAP adjusted
income from operations (a)
|
16,212
|
5,253
|
|
|
|
|
|
|
|
GAAP net
sales
|
81,805
|
81,664
|
|
GAAP net
sales
|
78,363
|
22,154
|
Reconciliation of
Net Income (Loss) to Non-GAAP Adjusted Net Income (Loss) and
Net
Income (Loss) per Diluted Share to Non-GAAP Adjusted Net Income
(Loss) per Diluted Share
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
September
30,
|
|
|
$000s
|
|
2018
|
2017
|
|
|
GAAP net income
(loss)
|
|
$
(13,784)
|
$
125,961
|
|
|
|
|
|
|
|
|
Pre-tax acquisition
and transition expense
|
|
9,569
|
2,922
|
|
|
Pre-tax foreign
exchange (gain) loss on inter-company loans
|
|
658
|
(538)
|
|
|
Pre-tax restructuring
and integration expense
|
|
(209)
|
345
|
|
|
Pre-tax write-off
unamortized debt issuance costs
|
|
6,624
|
-
|
|
|
Pre-tax gain on
change in fair value of interest rate swap
|
|
-
|
(27)
|
|
|
Pre-tax amortization
of intangibles and deferred financing costs
|
|
12,550
|
7,033
|
|
|
Pre-tax interest
expense on cash held from divestiture
|
|
-
|
2,440
|
|
|
Tax effect of
adjustment reflected above (b)
|
|
(6,737)
|
(2,279)
|
|
|
Income from
discontinued operations
|
|
-
|
(129,441)
|
|
|
Non-GAAP adjusted net
income (loss) (c)
|
|
8,671
|
6,416
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
|
|
September
30,
|
|
|
Amounts per
share, diluted
|
|
2018
|
2017
|
|
|
GAAP net income
(loss) per diluted share
|
|
$
(0.48)
|
$
4.57
|
|
|
|
|
|
|
|
|
Pre-tax acquisition
and transition expense
|
|
0.33
|
0.11
|
|
|
Pre-tax foreign
exchange (gain) loss on inter-company loans
|
|
0.02
|
(0.02)
|
|
|
Pre-tax restructuring
and integration expense
|
|
(0.01)
|
0.01
|
|
|
Pre-tax write-off
unamortized debt issuance costs
|
|
0.23
|
-
|
|
|
Pre-tax gain on
change in fair value of interest rate swap
|
|
-
|
(0.00)
|
|
|
Pre-tax amortization
of intangibles and deferred financing costs
|
|
0.44
|
0.26
|
|
|
Pre-tax interest
expense on cash held from divestiture
|
|
-
|
0.09
|
|
|
Tax effect of
adjustment reflected above (b)
|
|
(0.23)
|
(0.08)
|
|
|
Income from
discontinued operations
|
|
-
|
(4.70)
|
|
|
Non-GAAP adjusted net
income (loss) per diluted share (c)
|
|
0.30
|
0.23
|
|
|
Weighted average
shares outstanding, diluted
|
|
28,688
|
27,544
|
|
The Company discloses in this presentation the non-GAAP
financial measures of adjusted income from operations, adjusted net
income (loss), and adjusted net income per diluted share.
Each of these non-GAAP financial measures provides supplementary
information about the impacts of acquisition, divestiture and
integration related expenses, foreign-exchange impacts on
inter-company loans, reorganizational and impairment charges.
Over the past four years, we have completed seven acquisitions, two
of which were transformative for the Company, and sold two of our
businesses. The costs we incurred in completing such
acquisitions, including the amortization of intangibles and
deferred financing costs, and these divestitures have been excluded
from these measures because their size and inconsistent frequency
are unrelated to our commercial performance during the period, and
which we believe are not indicative of our ongoing operating costs.
We exclude the impact of currency translation from these measures
because foreign exchange rates are not under management's control
and are subject to volatility. Other non-operating charges are
excluded as the charges are not indicative of our ongoing operating
cost. We believe the presentation of adjusted income from
operations, adjusted net income (loss), and adjusted net income per
diluted share provide useful information in assessing our
underlying business trends and facilitates comparison of our
long-term performance over given periods.
The non-GAAP financial measures provided herein may not
provide information that is directly comparable to that provided by
other companies in the Company's industry, as other companies may
calculate such financial results differently. The Company's
non-GAAP financial measures are not measurements of financial
performance under GAAP and should not be considered as alternatives
to actual income growth derived from income amounts presented in
accordance with GAAP. The Company does not consider these non-GAAP
financial measures to be a substitute for, or superior to, the
information provided by GAAP financial results.
(a) Non-GAAP Adjusted income from operations represents GAAP
income from operations, adjusted to exclude the effects of
restructuring and integration expense; non-operational charges
related to acquisition and transition expense, intangible
amortization costs for fair value step-up in values related to
acquisitions, and when applicable, our share of income from joint
venture operations. We believe this presentation is commonly used
by investors and professional research analysts in the valuation,
comparison, rating and investment recommendations of companies in
the industrial industry. We use this information for comparative
purposes within the industry. Non-GAAP adjusted income from
operations is not a measure of financial performance under GAAP and
should not be considered as a measure of liquidity or as an
alternative to GAAP income from operations.
(b) This line item reflects the aggregate tax effect of all
nontax adjustments reflected in the table above. In addition, the
footnotes above indicate the after-tax amount of each individual
adjustment item. NN, Inc. estimates the tax effect of the
adjustment items identified in the reconciliation schedule above by
applying NN, Inc's. overall estimated effective tax rate to the
pretax amount, unless the nature of the item and/or the tax
jurisdiction in which the item has been recorded requires
application of a specific tax rate or tax treatment.
(c) Non-GAAP adjusted net income (loss) represents GAAP
net income (loss) adjusted to exclude the tax-affected effects of
restructuring and integration charges (related to plant closures
and other charges incurred to implement our strategic goals that do
not necessarily represent a major strategic shift in operations),
charges related to acquisition and transition costs,
amortization of intangibles costs for fair value step-up in values
related to acquisitions and amortization of deferred financing
costs, foreign exchange gain (loss) on inter-company loans,
gains and losses in the fair value of interest rate swaps,
estimated interest expense on cash held from divestiture, the
impact of the Tax Cut and Jobs Act and income from discontinued
operations. We believe this presentation is commonly used by
investors and professional research analysts in the valuation,
comparison, rating and investment recommendations of companies in
the industrial industry. We use this information for comparative
purposes within the industry. Non-GAAP adjusted income (loss) from
segment operations is not a measure of financial performance under
GAAP and should not be considered as a measure of liquidity or as
an alternative to GAAP income (loss) from continuing
operations.
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SOURCE NN, Inc.