Financial Data and Key Metrics Changes - Sales for Q1 2023 were $127.1 million, down 0.8% from Q1 2022, primarily due to lower volumes and foreign exchange headwinds, partially offset by pricing actions [33][50] - Free cash flow was a use of $3.7 million, an improvement of $5.7 million compared to an outflow of $9.4 million in Q1 2022 [27][34] - Non-GAAP adjusted EBITDA was $8.1 million, or 6.4% of sales for Q1 2023 [34] Business Line Data and Key Metrics Changes - Power Solutions sales decreased 5.7% year-over-year, driven by lower electric component volume and customer inventory reductions [52] - Mobile Solutions sales increased 2.6% from the prior year, primarily due to pricing actions taken throughout 2022, partially offset by lower volume [54] Market Data and Key Metrics Changes - The global light vehicle production is forecasted to increase approximately 5% in 2023, with a positive production outlook in all key regions [4] - Current macroeconomic conditions and increasing interest rates have presented a drag on construction activity, impacting demand for residential and commercial electrical components [24] Company Strategy and Development Direction - The company is focused on new business opportunities in the EV and universal auto segments, with nearly 80% of its $546 million new business pipeline aligned with this strategy [22][49] - The company is modernizing its compensation programs to incentivize sales force performance, emphasizing a target for electrical and EV hybrid new business wins [19] Management's Comments on Operating Environment and Future Outlook - Management noted that the ongoing slowdown in residential and commercial construction has impacted the Power Solutions business, but they remain resilient in managing the macroeconomic challenges [2] - The company anticipates stronger sales in Q2 compared to Q1, driven by new business wins and market dynamics [67] Other Important Information - The company has strong liquidity of $43 million and is evaluating a potential preferred equity raise to improve domestic liquidity [13][28] - The company is closing five facilities, expected to generate approximately $11 million improvement in adjusted EBITDA versus 2022 results [36] Q&A Session Summary Question: What is the visibility for the Power Solutions business for the rest of the year? - Management indicated that the volume softness was more weighted towards Power Solutions, and they are monitoring the situation closely [62] Question: What are the challenges at the Juarez facility? - The challenges include high labor turnover, process capabilities for new business launches, and machine condition affecting overall efficiency [79][91] Question: What is the outlook for capital expenditures this year? - The capital expenditure outlook remains in the $17 million range, net of proceeds from equipment sales [92]

Financial Performance - Net sales decreased by 0.8% year-over-year, from $128.1 million to $127.1 million[31] - Non-GAAP adjusted EBITDA decreased by $5.3 million, from $13.4 million to $8.1 million[31] - Non-GAAP adjusted EBITDA margin decreased by 406 bps, from 10.5% to 6.4%[31] - Free cash flow showed a use of $3.7 million, but was positive $2.7 million over the past 6 months[8] Segment Performance - Power Solutions sales decreased by 5.7% year-over-year due to lower volume[4, 59] - Mobile Solutions sales increased by 2.6% year-over-year due to increased pricing[86] Strategic Initiatives - Implemented a global plan to reduce indirect labor by 10% in Q2, expecting over $4 million benefit for the full year 2023[7] - Facility closures are on track, with an estimated adjusted EBITDA improvement of ~$11 million over 2022[5, 178] - New business wins increased by 75% from Q1 2022, with 76% in strategic segments[162, 180] Liquidity and Debt - Net debt to adjusted EBITDA leverage ratio was 3.82x, with liquidity of $43 million as of March 31, 2023[7] - The company is targeting a $10 million preferred equity raise to improve domestic liquidity[43] Market Outlook - Global Light Duty Vehicle Production is forecasted to increase by ~5.0% YoY in 2023[21]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited financial statements, management's analysis, market risk disclosures, and internal controls for the reporting period [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including statements of operations, balance sheets, changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, segment performance, debt, equity, revenue, and fair value measurements for the three months ended March 31, 2023 - The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments necessary to fairly state the company's financial position and operating results for the interim periods[22](index=22&type=chunk) - Certain information and footnote disclosures normally included in U.S. GAAP consolidated financial statements have been condensed or omitted[23](index=23&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29%20%28Unaudited%29) This statement details the company's revenues, expenses, and net loss, along with other comprehensive income components for the three-month periods | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | Change (YoY) | | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------ | | Net sales | $127,088 | $128,067 | (0.8%) | | Cost of sales | $108,421 | $104,578 | 3.7% | | Selling, general, and administrative expense | $13,165 | $13,454 | (2.1%) | | Depreciation and amortization | $11,516 | $11,429 | 0.8% | | Other operating expense, net | $1,061 | $2,026 | (47.6%) | | Loss from operations | $(7,075) | $(3,420) | (107.0%) | | Interest expense | $4,288 | $3,439 | 24.7% | | Other income, net | $(2,208) | $(2,996) | (26.3%) | | Loss before provision for income taxes and share of net income from joint venture | $(9,155) | $(3,863) | (137.0%) | | Provision for income taxes | $(1,301) | $(1,531) | (15.1%) | | Share of net income from joint venture | $281 | $2,092 | (86.6%) | | Net loss | $(10,175) | $(3,302) | (208.1%) | | Foreign currency translation gain | $1,840 | $2,600 | (29.3%) | | Interest rate swap: Change in fair value, net of tax | $(230) | $1,187 | (119.4%) | | Reclassification adjustment for losses (gains) included in net loss, net of tax | $(468) | $34 | (1476.5%) | | Other comprehensive income | $1,142 | $3,821 | (70.1%) | | Comprehensive income (loss) | $(9,033) | $519 | (1840.8%) | | Basic and diluted net loss per common share | $(0.29) | $(0.13) | (123.1%) | | Weighted average common shares outstanding | 45,309 | 44,594 | 1.6% | [Condensed Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%28Unaudited%29) This statement presents the company's assets, liabilities, and stockholders' equity at specific points in time | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change | | :-------------------------------------- | :------------------------------------ | :------------------------------------ | :----- | | Total assets | $547,273 | $546,127 | 0.2% | | Total current assets | $200,505 | $191,700 | 4.6% | | Property, plant and equipment, net | $194,513 | $197,637 | (1.6%) | | Intangible assets, net | $69,327 | $72,891 | (4.9%) | | Investment in joint venture | $32,212 | $31,802 | 1.3% | | Total liabilities | $305,057 | $295,162 | 3.4% | | Total current liabilities | $91,340 | $78,806 | 15.9% | | Long-term debt, net of current portion | $146,228 | $149,389 | (2.1%) | | Series D perpetual preferred stock | $67,752 | $64,701 | 4.7% | | Total stockholders' equity | $174,464 | $186,264 | (6.4%) | [Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity%20%28Unaudited%29) This statement outlines the changes in the company's equity accounts, including net loss, dividends, and other comprehensive income | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Balance as of Dec 31, 2022/2021 | $186,264 | $224,185 | | Net loss | $(10,175) | $(3,302) | | Dividends accrued for preferred stock | $(3,051) | $(2,538) | | Share-based compensation expense | $381 | $949 | | Other comprehensive income | $1,142 | $3,821 | | Balance as of March 31, 2023/2022 | $174,464 | $223,028 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) This statement reports the cash inflows and outflows from operating, investing, and financing activities for the period | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by (used in) operating activities | $226 | $(5,223) | | Net cash used in investing activities | $(3,962) | $(4,226) | | Net cash provided by (used in) financing activities | $1,251 | $(1,516) | | Effect of exchange rate changes on cash flows | $222 | $2,936 | | Net change in cash and cash equivalents | $(2,263) | $(8,029) | | Cash and cash equivalents at beginning of period | $12,808 | $28,656 | | Cash and cash equivalents at end of period | $10,545 | $20,627 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Interim Financial Statements](index=8&type=section&id=Note%201.%20Interim%20Financial%20Statements) This note outlines the company's business nature, the basis of presentation for the unaudited interim financial statements, and details on accounts receivable sales programs and assets held for sale due to strategic footprint optimization - NN, Inc. is a global diversified industrial company that designs and manufactures high-precision components and assemblies primarily for the automotive, general industrial, electrical, aerospace, defense, and medical markets[21](index=21&type=chunk) - The company incurred **$0.2 million** in fees related to the sale of receivables on a non-recourse basis during the three months ended March 31, 2023[25](index=25&type=chunk) - A **$0.5 million** loss on sales of machinery and equipment from Irvine and Taunton locations (part of Power Solutions segment) was recognized in Q1 2023, as part of a strategic shift to optimize manufacturing footprint[26](index=26&type=chunk) [Note 2. Segment Information](index=8&type=section&id=Note%202.%20Segment%20Information) This note details the company's two reportable segments, Mobile Solutions and Power Solutions, and presents their financial performance, showing a slight decrease in total net sales but a significant increase in loss from operations - The company operates in two reportable segments: Mobile Solutions (automotive and general industrial) and Power Solutions (electrical, general industrial, automotive, and medical)[27](index=27&type=chunk) Net sales by Segment (in thousands) | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | Change (YoY) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | **Net sales:** | | | | | Mobile Solutions | $78,018 | $76,070 | 2.6% | | Power Solutions | $49,072 | $52,011 | (5.7%) | | Intersegment sales eliminations | $(2) | $(14) | (85.7%) | | Total | $127,088 | $128,067 | (0.8%) | | **Income (loss) from operations:** | | | | | Mobile Solutions | $(3,319) | $1,969 | (268.6%) | | Power Solutions | $1,747 | $364 | 380.0% | | Corporate | $(5,503) | $(5,753) | 4.3% | | Total | $(7,075) | $(3,420) | (107.0%) | [Note 3. Inventories](index=9&type=section&id=Note%203.%20Inventories) This note provides a breakdown of inventory components, showing a slight increase in total inventories from December 31, 2022, to March 31, 2023, driven by increases in work in process and finished goods, partially offset by a decrease in raw materials | Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------- | :---------------------------- | :------------------------------- | | Raw materials | $31,462 | $32,146 | | Work in process | $25,433 | $24,610 | | Finished goods | $24,883 | $23,926 | | Total inventories | $81,778 | $80,682 | [Note 4. Intangible Assets, Net](index=9&type=section&id=Note%204.%20Intangible%20Assets%2C%20Net) This note presents the changes in intangible assets, net, by segment, indicating a decrease due to amortization. Despite market capitalization falling below stockholders' equity, an impairment analysis concluded no impairment charge was necessary | Segment | Balance as of December 31, 2022 (in thousands) | Amortization (in thousands) | Balance as of March 31, 2023 (in thousands) | | :---------------- | :--------------------------------------------- | :-------------------------- | :------------------------------------------ | | Mobile Solutions | $22,356 | $(839) | $21,517 | | Power Solutions | $50,535 | $(2,725) | $47,810 | | Total | $72,891 | $(3,564) | $69,327 | - No impairment charge was recorded during the three months ended March 31, 2023, despite market capitalization being less than the net book value of stockholders' equity, which triggered an impairment analysis[32](index=32&type=chunk) [Note 5. Investment in Joint Venture](index=9&type=section&id=Note%205.%20Investment%20in%20Joint%20Venture) This note details the company's 49% equity method investment in Wuxi Weifu Autocam Precision Machinery Company, Ltd., showing an increase in the investment's carrying value due to its share of earnings and foreign currency translation gains - The company owns a **49% equity method investment** in Wuxi Weifu Autocam Precision Machinery Company, Ltd. (JV) in Wuxi, China[33](index=33&type=chunk) Investment in Joint Venture (in thousands) | Item | Amount (in thousands) | | :------------------------ | :-------------------- | | Balance as of December 31, 2022 | $31,802 | | Share of earnings | $281 | | Foreign currency translation gain | $129 | | Balance as of March 31, 2023 | $32,212 | [Note 6. Income Taxes](index=9&type=section&id=Note%206.%20Income%20Taxes) This note explains the company's effective tax rates for the three months ended March 31, 2023, and 2022, highlighting deviations from the U.S. federal statutory rate due to foreign subsidiary earnings and limitations on loss carryforward benefits - The effective tax rate was **(14.2)% for Q1 2023**, compared to **(39.6)% for Q1 2022**[35](index=35&type=chunk) - Deviations from the **21% U.S. federal statutory tax rate** are primarily due to tax accrual on non-permanently reinvested unremitted earnings of foreign subsidiaries and limitations on tax benefits for loss carryforwards[35](index=35&type=chunk) - The effective tax rate was unfavorably impacted by the U.S. tax on foreign subsidiary earnings under the global intangible low-taxed income regime[36](index=36&type=chunk) [Note 7. Debt](index=10&type=section&id=Note%207.%20Debt) This note provides details on the Term Loan Facility and ABL Facility, including recent amendments to adjust covenants and replace LIBOR with SOFR. It outlines outstanding balances, interest rates, payment terms, and confirms compliance with all debt requirements | Debt Type | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------ | :---------------------------- | :------------------------------- | | Term Loan Facility | $147,000 | $147,375 | | ABL Facility | $1,000 | $1,000 | | International loans | $11,290 | $8,729 | | Total principal | $159,290 | $157,104 | | Long-term debt, net of current portion | $146,228 | $149,389 | - The Term Loan Facility and ABL Facility were amended on March 3, 2023, to adjust covenants and replace LIBOR with SOFR for interest rate calculations[37](index=37&type=chunk) - The Term Loan Facility bore interest at **11.782%** as of March 31, 2023, and will include paid-in-kind (PIK) interest (**0.50% to 2.00%**) starting in Q2 2023. The ABL Facility had a weighted average interest rate of **6.89%** as of March 31, 2023[39](index=39&type=chunk)[43](index=43&type=chunk) - The company was in compliance with all requirements under both the Term Loan Facility and ABL Facility as of March 31, 2023[40](index=40&type=chunk)[45](index=45&type=chunk) [Note 8. Leases](index=11&type=section&id=Note%208.%20Leases) This note provides supplemental cash flow information related to the company's operating and finance leases, detailing cash payments for lease liabilities and the value of right-of-use assets obtained | Item | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :---------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Operating cash flows used in finance leases | $84 | $80 | | Operating cash flows used in operating leases | $4,056 | $4,204 | | Financing cash flows used in finance leases | $689 | $700 | | Right-of-use assets obtained in exchange for new finance lease liabilities | — | $395 | | Right-of-use assets obtained in exchange for new operating lease liabilities | $477 | $1,305 | [Note 9. Commitments and Contingencies](index=11&type=section&id=Note%209.%20Commitments%20and%20Contingencies) This note discusses the Brazil ICMS Tax Matter, where the company is defending against disallowed tax credits, and other routine legal matters. The company expects indemnification from former shareholders for the Brazil tax matter and does not anticipate a material loss - The company is vigorously defending against disallowed ICMS tax credits in Brazil, believing it has substantial legal and factual defenses[49](index=49&type=chunk) - The cumulative potential liability for the remaining open lawsuits in the Brazil ICMS Tax Matter is estimated to be less than **$5.0 million**, inclusive of interest and penalties, in the event of unfavorable decisions[49](index=49&type=chunk) - The company expects indemnification from the former shareholders of Autocam for amounts owed related to the Brazil tax matter, and therefore does not expect to incur a loss[50](index=50&type=chunk) [Note 10. Preferred Stock and Stockholders' Equity](index=12&type=section&id=Note%2010.%20Preferred%20Stock%20and%20Stockholders%27%20Equity) This note details the Series D Perpetual Preferred Stock, including its classification as mezzanine equity, dividend rates (cash and in-kind), and changes in its carrying value due to accruals and amortization - The Series D Preferred Stock was issued at **$1,000 per share** with detachable warrants, earning cash dividends at **10.0% per year** or an increase in liquidation preference by **12.0% per year** if not paid[52](index=52&type=chunk) - The Series D Preferred Stock is classified as mezzanine equity due to features that could require redemption upon a change of control not solely within the company's control[53](index=53&type=chunk) Series D Perpetual Preferred Stock (in thousands) | Item | Amount (in thousands) | | :------------------------------ | :-------------------- | | Balance as of December 31, 2022 | $64,701 | | Accrual of in-kind dividends | $2,410 | | Amortization | $641 | | Balance as of March 31, 2023 | $67,752 | [Note 11. Revenue from Contracts with Customers](index=12&type=section&id=Note%2011.%20Revenue%20from%20Contracts%20with%20Customers) This note summarizes revenue recognition policies and presents revenue breakdowns by customer geographical region and industry for Q1 2023 and 2022, along with deferred revenue information Total Net Sales by Region (in thousands) | Region | 2023 Total Net Sales (in thousands) | 2022 Total Net Sales (in thousands) | Change (YoY) | | :------------------------ | :---------------------------------- | :---------------------------------- | :----------- | | United States and Puerto Rico | $77,426 | $78,282 | (1.1%) | | China | $14,561 | $13,796 | 5.6% | | Brazil | $11,721 | $11,065 | 5.9% | | Mexico | $7,767 | $9,805 | (20.8%) | | Germany | $1,806 | $1,345 | 34.3% | | Poland | $1,861 | $1,344 | 38.5% | | Other | $11,946 | $12,430 | (3.9%) | | **Total Net Sales** | **$127,088** | **$128,067** | **(0.8%)** | Total Net Sales by Industry (in thousands) | Industry | 2023 Total Net Sales (in thousands) | 2022 Total Net Sales (in thousands) | Change (YoY) | | :------------------------ | :---------------------------------- | :---------------------------------- | :----------- | | Automotive | $64,607 | $60,674 | 6.5% | | General Industrial | $34,818 | $38,140 | (8.7%) | | Residential/Commercial Electrical | $14,585 | $17,199 | (15.2%) | | Other | $13,078 | $12,054 | 8.5% | | **Total Net Sales** | **$127,088** | **$128,067** | **(0.8%)** | - Deferred revenue increased to **$1.2 million** as of March 31, 2023, from **$0.7 million** at December 31, 2022. **$0.3 million** of revenue recognized in Q1 2023 was from deferred revenue as of December 31, 2022[61](index=61&type=chunk) [Note 12. Share-Based Compensation](index=14&type=section&id=Note%2012.%20Share-Based%20Compensation) This note outlines the components of share-based compensation expense, which significantly decreased in Q1 2023 compared to Q1 2022, and provides the status of unvested restricted stock awards | Type of Award | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | Change (YoY) | | :---------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Restricted stock | $167 | $604 | (72.3%) | | Performance share units | $200 | $289 | (30.8%) | | Stock options | $14 | $56 | (75.0%) | | **Total** | **$381** | **$949** | **(59.9%)** | - As of March 31, 2023, there were **396 thousand unvested restricted stock shares** with a weighted average grant-date fair value of **$3.55**[66](index=66&type=chunk) [Note 13. Accumulated Other Comprehensive Income](index=14&type=section&id=Note%2013.%20Accumulated%20Other%20Comprehensive%20Income) This note presents the components of accumulated other comprehensive income (loss) (AOCI), including foreign currency translation and interest rate swap effects, showing a decrease in accumulated other comprehensive loss from December 31, 2022, to March 31, 2023 | Item | Foreign Currency Translation (in thousands) | Interest Rate Swap (in thousands) | Income Taxes (in thousands) | Total (in thousands) | | :-------------------------------------- | :------------------------------------------ | :-------------------------------- | :-------------------------- | :------------------- | | Balance as of December 31, 2022 | $(40,172) | $3,149 | $(97) | $(37,120) | | Other comprehensive income (loss) before reclassifications | $1,840 | $(327) | $97 | $1,610 | | Amounts reclassified from AOCI to interest expense | — | $(468) | — | $(468) | | Net other comprehensive income (loss) | $1,840 | $(795) | $97 | $1,142 | | Balance as of March 31, 2023 | $(38,332) | $2,354 | — | $(35,978) | [Note 14. Net Loss Per Common Share](index=15&type=section&id=Note%2014.%20Net%20Loss%20Per%20Common%20Share) This note details the computation of basic and diluted net loss per common share, showing an increased net loss per share in Q1 2023 compared to Q1 2022, and lists securities excluded from diluted EPS calculation due to their anti-dilutive effect Net Loss Per Common Share Calculation | Metric | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Numerator for basic and diluted net loss per common share (in thousands) | $(13,226) | $(5,840) | | Shares used to calculate basic and diluted net loss per share (in thousands) | 45,309 | 44,594 | | Basic and diluted net loss per common share | $(0.29) | $(0.13) | Anti-dilutive Securities Excluded (in thousands) | Anti-dilutive Securities Excluded (in thousands) | 2023 | 2022 | | :----------------------------------------------- | :--- | :--- | | Options | 516 | 600 | | 2019 Warrants | 1,500 | 1,500 | | Total | 2,016 | 2,100 | [Note 15. Fair Value Measurements](index=15&type=section&id=Note%2015.%20Fair%20Value%20Measurements) This note explains the company's fair value measurement policies, focusing on embedded derivatives (warrants and preferred stock put feature) and the interest rate swap. It details the valuation methods and the impact of changes in fair value - Embedded derivatives include **2023 Warrants (1.0 million shares)**, **2021 Warrants (1.9 million shares)**, and a Series D Preferred Stock put feature, all with an exercise price of **$0.01 per share**[78](index=78&type=chunk)[79](index=79&type=chunk)[81](index=81&type=chunk) Fair Value of Embedded Derivatives (in thousands) | Item | Amount (in thousands) | | :------------------------ | :-------------------- | | Balance as of December 31, 2022 | $2,959 | | Issuances | $2,712 | | Change in fair value | $(2,009) | | Balance as of March 31, 2023 | $3,662 | - The **2021 interest rate swap**, with a notional amount of **$60.0 million**, was terminated in Q1 2023, resulting in cash proceeds of **$2.5 million**. The gain will be recognized as a reduction to interest expense through July 31, 2024[87](index=87&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition for the three months ended March 31, 2023, compared to the prior year. It discusses macroeconomic factors, footprint optimization initiatives, and detailed consolidated and segment-specific results, highlighting a significant increase in net loss despite a slight decrease in net sales - The company is a global diversified industrial company manufacturing high-precision components for electrical, automotive, general industrial, aerospace, defense, and medical markets[94](index=94&type=chunk) - Macroeconomic conditions, including inflationary cost pressures, rising interest rates, supply chain disruptions, and labor shortages, are expected to persist in 2023[98](index=98&type=chunk)[100](index=100&type=chunk)[102](index=102&type=chunk) - The company is undertaking footprint optimization by closing Taunton and Irvine sites (exiting Aerospace and Defense precision machined components) and three Mobile Solutions sites in 2023 to reduce operating costs[103](index=103&type=chunk) Consolidated Results (Three Months Ended March 31, in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :------------------------------------------ | :-------- | :-------- | :------- | :------- | | Net sales | $127,088 | $128,067 | $(979) | (0.8%) | | Cost of sales | $108,421 | $104,578 | $3,843 | 3.7% | | Selling, general, and administrative expense | $13,165 | $13,454 | $(289) | (2.1%) | | Other operating expense, net | $1,061 | $2,026 | $(965) | (47.6%) | | Loss from operations | $(7,075) | $(3,420) | $(3,655) | (107.0%) | | Interest expense | $4,288 | $3,439 | $849 | 24.7% | | Other income, net | $(2,208) | $(2,996) | $788 | (26.3%) | | Net loss | $(10,175) | $(3,302) | $(6,873) | (208.1%) | - Mobile Solutions net sales increased by **2.6% to $78.0 million**, but income from operations changed unfavorably by **$5.3 million** to a loss of **$(3.3) million**, primarily due to lower sales volume, production challenges, and unrecovered inflationary costs[112](index=112&type=chunk)[113](index=113&type=chunk) - Power Solutions net sales decreased by **5.7% to $49.1 million**, but income from operations increased by **$1.4 million** to **$1.7 million**, driven by premium pricing on a customer project and a legal settlement in the prior year, partially offset by lower sales volume[114](index=114&type=chunk)[115](index=115&type=chunk) - Cash provided by operations was **$0.2 million** for Q1 2023, a significant improvement from **$5.2 million used** in Q1 2022, primarily due to an increase in accounts receivable related to higher sales[119](index=119&type=chunk) - The company had **$32.5 million** available for future borrowings under the ABL Facility as of March 31, 2023, and was in compliance with all credit facility requirements[122](index=122&type=chunk)[125](index=125&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=22&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to financial market risks, specifically interest rate risk and foreign currency risk, and the strategies employed to mitigate these risks, including the use of debt mixtures and derivatives - The company manages interest expense using a mixture of fixed and variable rate debt and may use interest rate swap agreements to mitigate interest rate risk[130](index=130&type=chunk) - The **2021 interest rate swap**, which fixed the LIBOR-based component on **$60.0 million** of variable rate debt, was terminated in Q1 2023, resulting in **$2.5 million cash proceeds**[131](index=131&type=chunk) - A **one-percent increase** in one-month LIBOR would result in a net increase in interest expense of **$1.5 million** on an annualized basis for the Term Loan Facility[132](index=132&type=chunk) - The company is exposed to foreign currency risk from operating cash flows and intercompany transactions but did not hold any foreign currency derivatives as of March 31, 2023[133](index=133&type=chunk) [Item 4. Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms that management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of March 31, 2023. No material changes to internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and concluded to be effective as of March 31, 2023[134](index=134&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended March 31, 2023[135](index=135&type=chunk) [PART II. OTHER INFORMATION](index=23&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional disclosures on legal proceedings, risk factors, equity transactions, and other required information [Item 1. Legal Proceedings](index=23&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the disclosures regarding legal proceedings from Note 9 of the Condensed Consolidated Financial Statements - Legal proceedings are disclosed in Note 9 of the Condensed Consolidated Financial Statements[137](index=137&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) This section highlights a new risk factor concerning the potential for assets held at financial institutions to exceed FDIC insurance coverage, citing recent bank failures as context for potential negative impacts on liquidity and operations - A new risk factor identifies that assets held at financial institutions may exceed FDIC insurance coverage, which could severely negatively affect operations and liquidity in the event of a bank failure[138](index=138&type=chunk) - Recent bank failures, such as Silicon Valley Bank and Signature Bank, underscore the potential for loss if deposits exceed insurance limits, although the company did not have funds deposited with these specific banks[138](index=138&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=23&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides information on shares purchased by the company during Q1 2023, which were primarily shares withheld to cover tax obligations upon the vesting of restricted stock awards Shares Purchased (Q1 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :----------- | :------------------------------- | :--------------------------- | | January 2023 | — | $— | | February 2023 | 10,005 | $2.19 | | March 2023 | 73,721 | $1.02 | | **Total** | **83,726** | **$1.16** | - The shares purchased were withheld to pay for tax obligations due upon the vesting of restricted stock held by certain employees under the 2019 Omnibus Plan[140](index=140&type=chunk) [Item 3. Defaults Upon Senior Securities](index=23&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[141](index=141&type=chunk) [Item 4. Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that the item regarding mine safety disclosures is not applicable to the company - Mine Safety Disclosures are not applicable to the company[142](index=142&type=chunk) [Item 5. Other Information](index=24&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report under this item - No other information is reported under this item[143](index=143&type=chunk) [Item 6. Exhibits](index=24&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amended by-laws, common stock purchase warrants, and amendments to credit agreements - Key exhibits filed include Amended and Restated By-Laws, Common Stock Purchase Warrant, Amendment No. 2 to Term Loan Credit Agreement, Amendment No. 1 to Credit Agreement (ABL Facility), and Warrant Letter Agreement[144](index=144&type=chunk) [SIGNATURES](index=25&type=section&id=SIGNATURES) This section contains the official signatures of the company's principal executive and financial officers, certifying the accuracy and completeness of the quarterly report - The report was signed by Warren A. Veltman, President, Chief Executive Officer and Director, and Michael C. Felcher, Senior Vice President - Chief Financial Officer, on May 5, 2023[147](index=147&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION (Exact name of registrant as specified in its charter) Washington, D.C. 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-39268 NN, Inc. Delaware 62-1096725 (State or other jurisdiction of incorporation or organ ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 000-23486 NN, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) 6210 Ar ...

NN, Inc. (NASDAQ:NNBR) Q1 2022 Earnings Conference Call May 6, 2022 9:00 AM ET Company Participants Jeff Tryka - IR Warren Veltman - President and CEO Mike Felcher - SVP and CFO Conference Call Participants Rob Brown - Lake Street Capital Operator Good morning, and welcome to the NN, Incorporated First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Jeff Tryka. Please go ahead. Jeff Tryka Thank you, Operator. ...

| --- | --- | --- | |-------|-------|-------| | | | | | | | | Forward Looking Statement & Disclosures Except for specific historical information, many of the matters discussed in this presentation 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 th ...

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis for the first quarter [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of NN, Inc. for the three months ended March 31, 2022 and 2021, including statements of operations, balance sheets, changes in stockholders' equity, and cash flows, along with detailed notes providing further context and disclosures [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29%20%28Unaudited%29) This statement provides a summary of the company's revenues, expenses, and net loss, as well as other comprehensive income (loss) for the three months ended March 31, 2022 and 2021 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) | Metric (in thousands, except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | | Net sales | $128,067 | $126,804 | | Income (loss) from operations | $(3,420) | $978 | | Loss before benefit (provision) for income taxes and share of net income from joint venture | $(3,863) | $(7,064) | | Net loss | $(3,302) | $(4,913) | | Comprehensive income (loss) | $519 | $(5,409) | | Basic net loss per common share | $(0.13) | $(0.46) | | Diluted net loss per common share | $(0.13) | $(0.46) | [Condensed Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%28Unaudited%29) This statement presents the company's financial position, including assets, liabilities, and stockholders' equity, as of March 31, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets | Metric (in thousands) | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Total current assets | $217,307 | $196,282 | | Total assets | $595,848 | $579,101 | | Total current liabilities | $91,834 | $74,017 | | Total liabilities | $316,475 | $301,109 | | Series D perpetual preferred stock | $56,345 | $53,807 | | Total stockholders' equity | $223,028 | $224,185 | [Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity%20%28Unaudited%29) This statement details the changes in the company's stockholders' equity for the three months ended March 31, 2022 and 2021, reflecting net loss, dividends, share-based compensation, and other comprehensive income (loss) items Changes in Stockholders' Equity (Three Months Ended March 31, 2022) | Item (in thousands) | Common Stock (Par Value) | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total | | :-------------------------------------- | :----------------------- | :------------------------- | :------------------ | :-------------------------------------------- | :---- | | Balance at December 31, 2021 | $430 | $474,757 | $(219,100) | $(31,902) | $224,185 | | Net loss | — | — | $(3,302) | — | $(3,302) | | Dividends accrued for preferred stock | — | $(2,538) | — | — | $(2,538) | | Share-based compensation expense | $9 | $940 | — | — | $949 | | Foreign currency translation gain | — | — | — | $2,600 | $2,600 | | Balance at March 31, 2022 | $439 | $473,072 | $(222,402) | $(28,081) | $223,028 | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) This statement outlines the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2022 and 2021 Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $(5,223) | $7,884 | | Net cash used in investing activities | $(4,226) | $(20,877) | | Net cash provided by (used in) financing activities | $(1,516) | $9,628 | | Effect of exchange rate changes on cash flows | $2,936 | $(1,740) | | Net change in cash and cash equivalents | $(8,029) | $(5,105) | | Cash and cash equivalents at end of period | $20,627 | $43,033 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) These notes provide detailed disclosures and explanations for the condensed consolidated financial statements, covering accounting policies, segment performance, specific asset and liability categories, debt, equity, revenue recognition, share-based compensation, and fair value measurements [Note 1. Interim Financial Statements](index=7&type=section&id=Note%201.%20Interim%20Financial%20Statements) This note describes the company's business and the basis of presentation for the interim financial statements, including recent accounting pronouncements - NN, Inc. is a global diversified industrial company that designs and manufactures high-precision components and assemblies for automotive, general industrial, electrical, aerospace, defense, and medical markets[22](index=22&type=chunk) - The adoption of ASU 2020-06 (Accounting for Convertible Instruments and Contracts in an Entity's Own Equity) and ASU 2021-04 (Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options) effective January 1, 2022, did not have a material impact on the consolidated financial statements[26](index=26&type=chunk)[27](index=27&type=chunk) [Note 2. Segment Information](index=8&type=section&id=Note%202.%20Segment%20Information) This note provides financial data for the company's Mobile Solutions and Power Solutions operating segments - The company operates in two reportable segments: Mobile Solutions (focused on automotive and general industrial markets) and Power Solutions (focused on electrical, general industrial, automotive, aerospace, defense, and medical markets)[29](index=29&type=chunk)[32](index=32&type=chunk) Segment Net Sales and Income (Loss) from Operations (in thousands) | Segment | Three Months Ended March 31, 2022 (Net Sales) | Three Months Ended March 31, 2021 (Net Sales) | Three Months Ended March 31, 2022 (Income (Loss) from Operations) | Three Months Ended March 31, 2021 (Income (Loss) from Operations) | | :------------------------ | :-------------------------------------------- | :-------------------------------------------- | :---------------------------------------------------------------- | :---------------------------------------------------------------- | | Mobile Solutions | $76,070 | $77,776 | $1,969 | $6,090 | | Power Solutions | $52,011 | $49,075 | $364 | $2,432 | | Corporate & Consolidations | $(14) | $(47) | $(5,753) | $(7,544) | | Total | $128,067 | $126,804 | $(3,420) | $978 | [Note 3. Inventories](index=8&type=section&id=Note%203.%20Inventories) This note details the composition of inventories, including raw materials, work in process, and finished goods Inventories Breakdown (in thousands) | Inventory Type | March 31, 2022 | December 31, 2021 | | :-------------- | :------------- | :---------------- | | Raw materials | $31,108 | $27,221 | | Work in process | $28,857 | $24,960 | | Finished goods | $21,274 | $22,846 | | Total inventories | $81,239 | $75,027 | [Note 4. Intangible Assets, Net](index=9&type=section&id=Note%204.%20Intangible%20Assets%2C%20Net) This note presents the carrying values and amortization of intangible assets by segment, and discusses impairment considerations Changes in Intangible Assets, Net (in thousands) | Segment | Balance as of December 31, 2021 | Amortization (3 months ended March 31, 2022) | Balance as of March 31, 2022 | | :---------------- | :------------------------------ | :------------------------------------------- | :--------------------------- | | Mobile Solutions | $25,709 | $(838) | $24,871 | | Power Solutions | $63,009 | $(2,749) | $60,260 | | Total | $88,718 | $(3,587) | $85,131 | - Despite a decline in market capitalization below the net book value of stockholders' equity, an impairment analysis on long-lived assets as of March 31, 2022, concluded that carrying values were recoverable, and no impairment charge was recorded[34](index=34&type=chunk) [Note 5. Investment in Joint Venture](index=9&type=section&id=Note%205.%20Investment%20in%20Joint%20Venture) This note outlines the company's equity method investment in a Chinese joint venture and changes in its carrying value - The company holds a **49%** equity method investment in Wuxi Weifu Autocam Precision Machinery Company, Ltd. (the 'JV') in Wuxi, China[35](index=35&type=chunk) Changes in Investment in Joint Venture (in thousands) | Item | Amount | | :---------------------------------- | :----- | | Balance as of December 31, 2021 | $34,045 | | Share of earnings | $2,092 | | Dividends paid by joint venture | $(4,026) | | Foreign currency translation gain | $66 | | Balance as of March 31, 2022 | $32,177 | [Note 6. Income Taxes](index=9&type=section&id=Note%206.%20Income%20Taxes) This note explains the effective tax rate and its components for the reporting periods, including factors impacting tax expense Effective Tax Rate | Period | Effective Tax Rate | | :------------------------------ | :----------------- | | Three Months Ended March 31, 2022 | (39.6)% | | Three Months Ended March 31, 2021 | 10.7% | - The effective tax rate for Q1 2022 was unfavorably impacted by the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries, limitations on tax benefits for loss carryforwards in certain jurisdictions, and U.S. tax on foreign subsidiary earnings under the global intangible low-taxed income regime[37](index=37&type=chunk) [Note 7. Debt](index=9&type=section&id=Note%207.%20Debt) This note details the company's debt structure, including the Term Loan Facility and ABL Facility, and associated interest rates Debt Balances (in thousands) | Debt Type | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Term Loan Facility | $148,500 | $148,875 | | International lines of credit and other loans | $10,302 | $10,930 | | Total principal | $158,802 | $159,805 | | Long-term debt, net of current portion | $150,400 | $151,052 | - The Term Loan Facility has **$148.5 million** outstanding as of March 31, 2022, bearing interest at **7.875%** (one-month LIBOR, subject to a **1.000%** floor, plus **6.875%** margin). An interest rate swap fixes **$60.0 million** of this at **1.291%**[39](index=39&type=chunk)[41](index=41&type=chunk) - The ABL Facility provides **$50.0 million** in revolving credit, with **$37.8 million** available for future borrowings as of March 31, 2022. No outstanding borrowings were present[44](index=44&type=chunk)[45](index=45&type=chunk) [Note 8. Leases](index=10&type=section&id=Note%208.%20Leases) This note provides supplemental cash flow information related to the company's finance and operating lease activities Supplemental Cash Flow Information Related to Leases (in thousands) | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Operating cash flows used in finance leases | $80 | $57 | | Operating cash flows used in operating leases | $4,204 | $4,103 | | Financing cash flows used in finance leases | $700 | $846 | | Right-of-use assets obtained in exchange for new finance lease liabilities | $395 | $60 | | Right-of-use assets obtained in exchange for new operating lease liabilities | $1,305 | — | [Note 9. Commitments and Contingencies](index=11&type=section&id=Note%209.%20Commitments%20and%20Contingencies) This note discloses potential liabilities from legal matters, including tax disputes, a class action lawsuit, and a breach of contract settlement - For the Brazil ICMS Tax Matter, the cumulative potential liability in the event of unfavorable decisions on all remaining matters is estimated to be less than **$5.0 million**, inclusive of interest and penalties. The company expects indemnification from former shareholders of Autocam[49](index=49&type=chunk)[50](index=50&type=chunk) - A class action lawsuit (Securities Offering Matter) alleging violations of the Securities Act of 1933 is ongoing; the company believes the allegations are without merit and intends to vigorously defend itself[51](index=51&type=chunk) - A **$1.8 million** settlement for breach of contract claims with a former customer was reached and recognized as an operating expense during the three months ended March 31, 2022[52](index=52&type=chunk) [Note 10. Preferred Stock and Stockholders' Equity](index=12&type=section&id=Note%2010.%20Preferred%20Stock%20and%20Stockholders%27%20Equity) This note describes the Series D Perpetual Preferred Stock, its dividend terms, classification, and carrying value changes - The Series D Perpetual Preferred Stock, issued March 22, 2021, has an initial liquidation preference of **$1,000 per share** and earns cash dividends at **10.0% per year**, or an in-kind increase in liquidation preference of **12.0% per year** if not paid in cash[54](index=54&type=chunk) - The Series D Preferred Stock is classified as mezzanine equity due to potential redemption upon a change of control event not solely within the company's control[55](index=55&type=chunk) Series D Preferred Stock Carrying Value (in thousands) | Item | Three Months Ended March 31, 2022 | | :---------------------------------- | :-------------------------------- | | Beginning balance | $53,807 | | Accrual of in-kind dividends | $2,142 | | Amortization | $396 | | Ending balance | $56,345 | [Note 11. Revenue from Contracts with Customers](index=12&type=section&id=Note%2011.%20Revenue%20from%20Contracts%20with%20Customers) This note disaggregates net sales by geographical region and customer industry, and provides information on deferred revenue Net Sales by Geographical Region (in thousands) | Region | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | United States and Puerto Rico | $78,282 | $77,197 | | China | $13,796 | $15,920 | | Brazil | $11,065 | $9,860 | | Mexico | $9,805 | $8,412 | | Germany | $1,345 | $1,931 | | Poland | $1,344 | $1,184 | | Other | $12,430 | $12,300 | | Total net sales | $128,067 | $126,804 | Net Sales by Customer Industry (in thousands) | Industry | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Automotive | $60,674 | $60,569 | | General Industrial | $38,140 | $39,684 | | Residential/Commercial Electrical | $17,199 | $15,354 | | Other | $12,054 | $11,197 | | Total net sales | $128,067 | $126,804 | - Deferred revenue was **$0.4 million** as of March 31, 2022, down from **$0.5 million** as of December 31, 2021. Revenue recognized from deferred revenue for Q1 2022 was **$0.3 million**[63](index=63&type=chunk) [Note 12. Share-Based Compensation](index=14&type=section&id=Note%2012.%20Share-Based%20Compensation) This note details share-based compensation expense by award type and provides information on restricted stock and performance share units Share-Based Compensation Expense (in thousands) | Award Type | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Stock options | $56 | $89 | | Restricted stock | $604 | $548 | | Performance share units | $289 | $249 | | Total compensation expense | $949 | $886 | - During Q1 2022, **897,000 shares** of restricted stock were granted with a weighted average grant date fair value of **$3.31 per share**. Total unvested restricted stock at March 31, 2022, was **1,101,000 shares**[69](index=69&type=chunk)[71](index=71&type=chunk) - As of March 31, 2022, there were **576,000** unvested TSR Awards and **228,000** unvested ROIC Awards outstanding[79](index=79&type=chunk) [Note 13. Accumulated Other Comprehensive Income](index=17&type=section&id=Note%2013.%20Accumulated%20Other%20Comprehensive%20Income) This note presents the components of accumulated other comprehensive income (loss), including foreign currency translation and interest rate swaps Components of Accumulated Other Comprehensive Income (Loss) (in thousands) | Component | Balance at December 31, 2021 | Net Other Comprehensive Income (Loss) (Q1 2022) | Balance at March 31, 2022 | | :---------------------------- | :--------------------------- | :---------------------------------------------- | :------------------------ | | Foreign Currency Translation | $(32,016) | $2,600 | $(29,416) | | Interest rate swap | $151 | $1,547 | $1,698 | | Income taxes | $(37) | $(326) | $(363) | | Total | $(31,902) | $3,821 | $(28,081) | [Note 14. Net Income (Loss) Per Common Share](index=17&type=section&id=Note%2014.%20Net%20Income%20%28Loss%29%20Per%20Common%20Share) This note outlines the computation of basic and diluted net loss per common share, including anti-dilutive securities Net Income (Loss) Per Common Share Computation | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Numerator for basic and diluted undistributed net loss per common share (in thousands) | $(5,840) | $(19,442) | | Weighted average common shares outstanding (in thousands) | 43,308 | 42,836 | | Shares used to calculate loss per share, basic and diluted (in thousands) | 44,594 | 42,672 | | Basic and diluted loss per common share | $(0.13) | $(0.46) | - Securities that were anti-dilutive and excluded from diluted net loss per common share calculation for Q1 2022 include **600,000 options** and **1,500,000 2019 Warrants**[89](index=89&type=chunk) [Note 15. Fair Value Measurements](index=17&type=section&id=Note%2015.%20Fair%20Value%20Measurements) This note describes the fair value measurements for derivative liabilities and assets, including preferred stock derivatives and interest rate swaps Derivative Liabilities Measured at Fair Value (in thousands) | Description | Fair Value as of March 31, 2022 (Level 1) | Fair Value as of March 31, 2022 (Level 3) | | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Derivative liability - other non-current liabilities | $5,453 | $228 | - The change in fair value of Preferred Stock derivatives resulted in a **$(2,543) gain** during Q1 2022, recognized in 'Other income, net'[97](index=97&type=chunk) - The company uses a fixed-rate interest rate swap (2021 Swap) with a notional amount of **$60.0 million** and a fixed rate of **1.291%** to hedge variable interest rate debt, designated as a cash flow hedge[101](index=101&type=chunk) Interest Rate Swaps Measured at Fair Value (in thousands) | Description | Fair Value as of March 31, 2022 (Level 2) | | :---------------------------------------- | :---------------------------------------- | | Derivative asset - other current assets | $364 | | Derivative asset - other non-current assets | $1,337 | | Total | $1,701 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition for the three months ended March 31, 2022, compared to the same period in 2021, highlighting key factors influencing results, segment performance, and changes in financial condition and liquidity - Net sales increased by **$1.3 million** (**1%**) YoY, primarily due to increased pricing to recover inflationary costs, partially offset by decreased automotive demand due to the global semiconductor shortage[118](index=118&type=chunk) - Income (loss) from operations decreased by **$4.4 million** YoY to **$(3.4) million**, impacted by a legal settlement and increased material costs[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - Cash used in operating activities was **$5.2 million** in Q1 2022, a significant change from **$7.9 million** provided in Q1 2021, mainly due to an increase in accounts receivable[135](index=135&type=chunk) - Total assets increased by **$16.7 million** and total liabilities increased by **$15.4 million** from December 31, 2021, to March 31, 2022, primarily driven by increases in accounts receivable, inventories, accounts payable, and accrued liabilities[132](index=132&type=chunk)[133](index=133&type=chunk) - The Term Loan Facility had **$148.5 million** outstanding, and the ABL Facility had **$37.8 million** available for future borrowings as of March 31, 2022. The company was in compliance with all debt covenants[138](index=138&type=chunk)[141](index=141&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to financial market risks, specifically interest rate risk and foreign currency risk, and outlines the strategies and instruments used to manage these exposures - The company manages interest rate risk using a mixture of fixed and variable rate debt, and employs interest rate swap agreements, such as the 2021 Swap with a notional amount of **$60.0 million** at a fixed rate of **1.291%**[145](index=145&type=chunk)[146](index=146&type=chunk) - A **one-percent increase** in one-month LIBOR would result in an annualized increase of **$0.5 million** in interest expense on the Term Loan Facility, due to the LIBOR floor[148](index=148&type=chunk) - The company is exposed to foreign currency risk from operations and intercompany transactions but did not hold any foreign currency derivatives as of March 31, 2022[149](index=149&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms that the company's disclosure controls and procedures were effective as of March 31, 2022, and reports no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[150](index=150&type=chunk) - There were no material changes in the company's internal control over financial reporting during the fiscal quarter ended March 31, 2022[151](index=151&type=chunk) PART II. OTHER INFORMATION This section provides updates on legal proceedings, risk factors, equity sales, and other required disclosures [Item 1. Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the disclosures regarding legal proceedings from Note 9 of the Condensed Consolidated Financial Statements, which include the Brazil ICMS Tax Matter, a Securities Offering Matter, and a recent breach of contract settlement - Legal proceedings, including the Brazil ICMS Tax Matter and a Securities Offering Matter, are detailed in Note 9 of the financial statements[154](index=154&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) This section updates the company's risk factors, specifically highlighting the potential adverse impacts of the Russia-Ukraine military conflict on international operations, financial condition, and prospects due to sanctions, supply chain disruptions, and increased energy costs - The ongoing military conflict between Russia and Ukraine poses a new risk, potentially affecting the company's international operations, financial condition, and prospects through reduced consumer demand, supply chain disruptions, and increased costs for transportation, energy, and raw materials, particularly impacting European facilities[155](index=155&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the company's purchases of its own equity securities during the quarter, primarily for withholding shares to cover tax obligations upon the vesting of restricted stock Shares Purchased During Q1 2022 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------ | :------------------------------- | :--------------------------- | | January 2022 | — | $— | | February 2022 | 9,785 | $2.98 | | March 2022 | 19,803 | $2.90 | | Total | 29,588 | $2.93 | - The shares purchased were withheld to pay for tax obligations due upon the vesting of restricted stock held by certain employees[157](index=157&type=chunk) [Item 3. Defaults Upon Senior Securities](index=26&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reported period - There were no defaults upon senior securities[158](index=158&type=chunk) [Item 4. Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that the disclosure requirements for mine safety are not applicable to the company - Mine Safety Disclosures are not applicable to the company[159](index=159&type=chunk) [Item 5. Other Information](index=27&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report under this item - No other information is reported under this item[160](index=160&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including amendments to credit agreements, certifications, and XBRL data files - Exhibits filed include Amendment No. 1 to Term Loan Credit Agreement, Certifications of Principal Executive and Financial Officers (31.1, 31.2, 32.1, 32.2), and XBRL Instance Document and Taxonomy Extensions[161](index=161&type=chunk) SIGNATURES This section contains the official signatures of the company's authorized officers, certifying the accuracy and completeness of the report [SIGNATURES](index=28&type=section&id=SIGNATURES) This section contains the official signatures of the company's authorized officers, including the President, Chief Executive Officer, and Senior Vice President - Chief Financial Officer, certifying the accuracy and completeness of the report - The report is signed by Warren A. Veltman, President, Chief Executive Officer and Director, and Michael C. Felcher, Senior Vice President - Chief Financial Officer, on May 6, 2022[164](index=164&type=chunk)

Financial Data and Key Metrics Changes - Sales for Q4 2021 were $110.4 million, down 7.3% year-over-year, with a 1.8% increase in Power Solutions but a 12.6% decrease in Mobile Solutions due to supply chain challenges [24][25] - Non-GAAP adjusted EBITDA for Q4 was $12.1 million or 10.9% of sales, down from $16.8 million or 14.2% of sales a year ago [28] - GAAP EPS from continuing operations was a loss of $0.07 for Q4 2021, an improvement from a loss of $0.44 per share in Q4 2020 [29] - Full year sales increased 11.7% to $477.6 million, with GAAP operating loss improving to a loss of $9 million from a loss of $117.5 million in the prior year [31] Business Line Data and Key Metrics Changes - Mobile Solutions experienced a significant decline in sales due to the semiconductor chip shortage, impacting production volumes [44] - Power Solutions saw a year-over-year increase in sales driven by recovery in demand in the electrical market, despite reductions in automotive sales [46] Market Data and Key Metrics Changes - The global automotive industry faced a 14% decrease in light vehicle production in Q4 2021 compared to Q4 2020, primarily due to semiconductor shortages [40] - The LMC global production outlook for 2022 was revised upward to approximately 85.8 million units, indicating a recovery trend [41] Company Strategy and Development Direction - The company aims to grow its business around applications independent of internal combustion engines, focusing on electric vehicles and the expansion of the electrical grid [9] - A significant increase in the pipeline for Power Solutions (161% year-over-year) indicates a strategic shift towards larger, more consistent contracts [9][65] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain challenges and inflation pressures but expressed optimism about future growth driven by strategic initiatives and market recovery [17][39] - The company anticipates net sales to increase between 8% and 13% in 2022, with adjusted EBITDA expected to rise by 9% to 21% [48][49] Other Important Information - The company has taken steps to improve its operating margins and cash flow, including the closure of the Taunton facility, which is expected to yield annual savings of $5 million starting in 2023 [52] - The company plans to enhance investor communications and is developing its first corporate sustainability report [21][22] Q&A Session Summary Question: How much of the revenue guidance is in backlog or firm line of sight? - Management indicated that the revenue guidance is primarily based on awarded contracts and existing business, with macroeconomic conditions being a potential uncertainty [60][63] Question: What does the 161% increase in the power pipeline represent? - The increase reflects a combination of identified opportunities, customer requests for quotes, and actual quotes in the marketplace, indicating effective sales strategies [65] Question: How confident is the company in achieving better contribution margins? - Management expressed cautious optimism about achieving better margins due to successful negotiations for material cost pass-throughs and the potential for larger, more complex contracts [69][80] Question: How has visibility changed compared to the previous quarter? - Management noted that while there are still uncertainties, particularly regarding COVID-19 and geopolitical issues, overall visibility has improved compared to a year ago [86]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 000-23486 NN, Inc. (Exact name of registrant as specified in its charter) Delaware 62-1096725 (State or other jurisdiction of incorporation or organ ...