NN(US:NNBR)2021-05-09 20:27Financial Data and Key Metrics Changes - Sales for Q1 2021 were $126.8 million, up 9.1% year-over-year and up 6.5% sequentially [13] - Reported operating income improved to $1 million from a loss of $103.9 million a year ago, with the prior year including a significant goodwill impairment [14] - Non-GAAP adjusted EBITDA was $16.9 million or 13.3% of sales, up from $10.1 million or 8.7% of sales a year ago [14] - GAAP EPS from continuing operations was a loss of $0.46 per share, improved from a loss of $5.96 per share a year ago [14] - Net debt decreased to $123.3 million from $768.9 million a year ago, resulting in a net leverage ratio of 2.3 times, down from 5.4 times [22] Business Line Data and Key Metrics Changes - Mobile Solutions sales grew 11.3% year-over-year, with GAAP operating profit of $6.1 million compared to $0.3 million in the prior year [29][30] - Adjusted operating profit for Mobile Solutions increased nearly 377% to $7.1 million or 9.1% of sales from $1.5 million or 2.1% of sales last year [30] - Power Solutions experienced a 5.8% year-over-year increase in sales, driven by higher precious metals pricing, but faced lower overall demand due to COVID-19 impacts [33] Market Data and Key Metrics Changes - North American automotive production is expected to increase by 24% in 2021, nearing 2019 levels, despite ongoing chip shortages [25] - The medium and heavy truck markets in North America, Europe, and China continue to grow steadily, driven by demand for diesel engines [26] - Power companies are executing upgrades for aging infrastructure, with a focus on smart grid systems and green power generation [27] Company Strategy and Development Direction - The company aims to achieve growth and margin targets by 2025, supported by a stable long-term financial footing following refinancing [10] - Focus on free cash flow generation through disciplined capital spending and working capital management [32] - Plans to evaluate global facility footprint for optimization and continuous improvement cost reductions [40] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the economic recovery and its impact on business, while remaining cautious about supply chain issues and material shortages [10][39] - The company anticipates strong growth in the first half of 2021, particularly in Q2, but acknowledges potential production interruptions due to material shortages [39] - Management is focused on maintaining customer expectations for delivery and quality while improving cost structures [43] Other Important Information - Free cash flow for Q1 2021 was $2.4 million, compared to a cash use of $1 million in the prior year [21] - Capital expenditures were reduced by 26% compared to 2020, with a focus on sustainability and growth [19][20] - The company has over $75 million in liquidity as of March 31, 2021, and has not drawn on its revolver [23] Q&A Session Summary Question: Expectations for revenue and chip shortages - Management acknowledged concerns about semiconductor chip shortages but noted that a significant portion of their products is used in high-margin SUV and large truck platforms, which may mitigate some impacts [49][50] Question: Gross margins outlook amid rising steel prices - Management indicated that most contracts allow for passing through material price adjustments, which should help manage gross margins despite rising costs [62] Question: M&A strategy and deal sizes - The company is exploring potential transactions and aims to maintain a leverage ratio below three times, but may consider going up to 3.5 times for strategic fits [67] Question: Market disruption risks and future outlook - Management expects market disruption risks to persist through Q2 and possibly into Q3, but remains optimistic about strong performance in the latter half of the year [72][74] Question: Customer activity for EV products - The company has seen new business awards related to electric vehicles, indicating a positive pipeline for EV-related products [76]