NN, Inc. Reports Financial Results For Fourth Quarter and Full Year 2021

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NN, Inc. Reports Financial Results For Fourth Quarter and Full Year 2021
Provides Outlook for Full Year 2022

CHARLOTTE, N.C., March 10, 2022 (GLOBE NEWSWIRE) -- NN, Inc. (NASDAQ: NNBR), a diversified industrial company, today reported its financial results for the fourth quarter and full year ended December 31, 2021.

Warren Veltman, President and Chief Executive Officer, said, “Our team made meaningful progress towards achieving our long-term goals during fiscal year 2021. Despite the ongoing challenges facing our Company and the industries we serve, we are optimistic given the trends in our businesses, including the continued growth in our sales pipeline and in new business wins heading into the new year. In January 2022, we welcomed Andrew Wall as our Chief Commercial Officer who will be responsible for advancing our business growth strategy and capturing additional market share driven by end market megatrends. Our sales pipeline includes several new programs of meaningful size that utilize capabilities across Mobile and Power Solutions in strategic growth areas such as electric vehicles and the power grid. Subsequent to year-end, we successfully adjusted our debt covenants with no increase in interest rate and announced the closure of our Taunton facility to rationalize our manufacturing footprint and cost structure. We are confident that these actions provide the platform we need to achieve growth and deliver increased shareholder value during 2022.”

Fourth Quarter GAAP Results

Net sales were $110.4 million, a decrease of 7.3% from the fourth quarter of 2020, primarily driven by lower sales in Mobile Solutions which was partially offset by an increase in Power Solutions sales.

Loss from operations was $3.8 million compared to an operating loss of $1.0 million in the fourth quarter of 2020, primarily as a result of lower sales, irregular customer production scheduling due to supply chain constraints, and material and labor cost inflation.

Income from operations in the Mobile Solutions segment was $0.7 million compared to $4.6 million for the same period in 2020. Loss from operations for Power Solutions segment was $0.1 million compared to income from operations of $1.8 million for the same period in 2020.

Net income was $0.5 million compared to net income of $147.4 million for the same period in 2020. The reduction in net income was primarily driven by the gain on sale of the former Life Sciences business in 2020, partially offset by the discontinuation of hedge accounting on an interest rate swap which resulted in a loss of $14.8 million during the fourth quarter of 2020.

Fourth Quarter Adjusted Results

Adjusted income from operations for the fourth quarter of 2021 was $0.8 million compared to an adjusted income from operations of $7.3 million for the same period in 2020.

Adjusted EBITDA was $12.1 million, or 10.9% of sales, compared to $16.8 million, or 14.2% of sales, for the same period in 2020.

Adjusted net loss was $0.8 million, or $0.01 per diluted share, compared to adjusted net income of $7.0 million, or $0.17 per diluted share, for the same period in 2020.

Free cash flow was $6.2 million compared to use of cash of $7.1 million for the same period in 2020.

"Sales in our Power Solutions business increased year over year on top of a strong rebound from COVID-19 that occurred in the fourth quarter of 2020.  Our Mobile Solutions business was adversely impacted by the ongoing semiconductor chip shortages reducing our customers’ production schedules.  We are in the process of implementing price increases to mitigate cost increases which we expect to be in place for most of 2022.   We generated $6.2 million of free cash flow during the fourth quarter of 2021 which included the negative impact of a $1.4 million repayment of deferred FICA amounts from 2020 CARES Act initiatives.” said Veltman.

Mobile Solutions

Net sales for the fourth quarter of 2021 were $65.6 million compared to $75.1 million in the fourth quarter of 2020, a decrease of 12.6% or $9.5 million. The decrease in sales was primarily driven by the ongoing impact of the semiconductor shortage’s affecting the automotive industry, resulting in production shutdowns at a number of our customers’ facilities during the quarter. Adjusted income from operations was $1.5 million compared to $6.8 million of adjusted income from operations in the fourth quarter of 2020. Adjusted income from operations decreased as a result of lower sales volume, an increase in input costs, the reintroduction of expenses and benefits temporarily suspended in the prior year due to the COVID-19 pandemic, and operating inefficiencies which were partially offset by a customer pricing settlement.

Power Solutions

Net sales for the fourth quarter of 2021 were $44.8 million compared to $44.0 million in the fourth quarter of 2020, an increase of 1.8% or $0.8 million. The increase in sales was primarily driven by stronger demand from continued recovery within end markets that were adversely impacted by the COVID-19 pandemic in the prior year. Adjusted income from operations was $2.7 million compared to $5.1 million in the fourth quarter of 2020. The decrease in adjusted income from operations was primarily due to an increase in input costs as a result of inflation, operating inefficiencies in our Aerospace, Defense & Medical (“AD&M”) business, and the reintroduction of expenses and benefits temporarily suspended in the prior year due to the COVID-19 pandemic, partially offset by higher sales volumes.


Full Year Results

Key highlights from the year include:

Net sales increased $50.1 million, or 11.7%, to $477.6 million compared to $427.5 million for 2020, driven by an increase in net sales of 12% in both the Power Solutions and Mobile Solutions segments.

GAAP operating loss was $9.0 million compared to a GAAP operating loss of $117.5 million in 2020, primarily driven by the $92.9 million impairment of goodwill in Power Solutions in 2020.

Income from operations for 2021 in Mobile Solutions was $9.0 million. Income from operations for 2021 in Power Solutions was $6.5 million.

On an adjusted basis, income from operations for 2021 was $10.1 million compared to adjusted income from operations of $7.8 million in 2020. Adjusted EBITDA for 2021 was $52.1 million, or 10.9% of sales, versus $46.5 million, or 10.9% of sales, for the same period in 2020. Free cash flow was a use of $2.6 million compared to a use of cash of $8.2 million in 2020.

Mike Felcher, NN Senior Vice President and CFO, commented, “We are pleased with the progress we made during 2021 and look forward to building on the momentum in our operations during 2022. Our successfully completed financing strengthens our balance sheet and provides us with a solid foundation to pursue opportunistic initiatives that will drive long-term growth. While our team faced several challenges during the second half of fiscal 2021, the recovery in Mobile Solutions and continued momentum in Power Solutions reinforces our confidence in our 2025 sales growth targets.”

Mobile Solutions

Net sales for 2021 were $285.9 million compared to $256.4 million in 2020, an increase of 12% or $29.5 million. The increase in sales was driven by stronger demand from the COVID-19 pandemic recovery in the first half of the year, offset by the ongoing impact of the semiconductor shortage’s affecting the automotive industry, resulting in production shutdowns at a number of customer facilities during the third and fourth quarter. Adjusted income from operations for 2021 was $13.0 million compared to $11.2 million of adjusted operating income in 2020. Adjusted operating income increased as a result of improved sales volume and a customer pricing settlement, partially offset by the reintroduction of costs suspended in the prior year due to the COVID-19 pandemic and material and labor inflation.

Power Solutions

Net sales for 2021 were $191.8 million compared to $171.3 million in 2020, an increase of 12% or $20.5 million. The increase in sales was primarily driven by stronger demand within the end markets which were adversely impacted by the COVID-19 pandemic in the prior year. Adjusted income from operations for 2021 was $17.9 million compared to $22.2 million in 2020. The decrease in adjusted operating income was primarily due to an adverse shift in sales mix, increased input costs, operating inefficiencies in our AD&M business, and the reintroduction of expenses and benefits that were temporarily suspended in the prior year due to the COVID-19 pandemic, partially offset by higher sales volumes.

2022 Outlook

  • Revenue in the range of $515 million to $540 million
  • Adjusted EBITDA in the range of $57 million to $63 million
  • Free cash flow in the range of $14 million to $20 million
  • Free cash flow guidance does not include CARES Act tax refund of ~$10 million due to uncertain timing

The 2022 Outlook assumes normal supply of semiconductor chips in the second half of 2022 and that we will not experience significant production or supply disruptions as a result of the Russia-Ukraine conflict or COVID-19.

Conference Call

NN will discuss its results during its quarterly investor conference call on March 11, 2022, 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 1-877-317-6789 or 1-412-317-6789, Conference ID: 10155662. For those who are unavailable to listen to the live broadcast, a replay will be available shortly after the call until March 11, 2023.

NN discloses in this press release the non-GAAP financial measures of adjusted income (loss) from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per diluted common share, and free cash flow. Each of these non-GAAP financial measures provides supplementary information about the impacts of restructuring and integration expense, acquisition and transition expenses, foreign exchange impacts on inter-company loans, amortization of intangibles and deferred financing costs, and other non-operating impacts on our business.

The financial tables found later in this press release include a reconciliation of adjusted income (loss) from operations, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income (loss), adjusted net income (loss) per diluted share, and free cash flow to the U.S. GAAP financial measures of income (loss) from operations, net income (loss), net income (loss) per diluted common share, and cash provided (used) by operating activities.

About NN, Inc.

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 31 facilities in North America, 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 statements may discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to NN, Inc. (“the Company”), based on current beliefs of management as well as assumptions made by, and information currently available to, management. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. Forward-looking statements involve a number of risks and uncertainties that are outside of management’s control and that may cause actual results to be materially different from such forward-looking statements. Such factors include, among others, general economic conditions and economic conditions in the industrial sector; the impacts of the COVID-19 pandemic on the Company’s financial condition, business operations and liquidity; competitive influences; risks that current customers will commence or increase captive production; risks of capacity underutilization; quality issues; material changes in the costs and availability of raw materials; economic, social, and political instability, currency fluctuation, and other risks of doing business outside of the United States; our dependence on certain major customers, some of whom are not parties to long-term agreements (and/or are terminable on short notice); the impact of acquisitions and divestitures; the level of our indebtedness; the restrictions contained in our debt agreements; our ability to obtain financing at favorable rates, if at all, and to refinance existing debt as it matures; unanticipated difficulties integrating acquisitions; new laws and governmental regulations; the impact of climate change on our operations; cyber liability or potential liability for breaches of our or our service providers’ information technology systems or business operations disruptions; and other risk factors and cautionary statements listed from time-to-time in our periodic reports filed with the Securities and Exchange Commission. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein or therein to reflect future events or developments.

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, 2020, , the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2021, and, when filed, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. 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.

FOR FURTHER INFORMATION:

Jeff Tryka, CFA
Investor Relations Contact
jtryka@lambert.com        
(616) 258-5766

Financial Tables Follow

NN, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)

    Three Months Ended
December 31,
  Twelve Months Ended
December 31,
(in thousands, except per share data)     2021       2020       2021       2020  
Net sales   $ 110,379     $ 119,028     $ 477,584     $ 427,534  
Cost of sales (exclusive of depreciation and amortization shown separately below)     91,868       93,982       389,995       343,594  
Selling, general, and administrative expense     11,148       13,877       51,489       58,055  
Depreciation and amortization     11,335       11,561       46,195       45,680  
Goodwill impairment                       92,942  
Other operating expense (income), net     (190 )     582       (1,091 )     4,720  
Loss from operations     (3,782 )     (974 )     (9,004 )     (117,457 )
Interest expense     3,489       1,862       12,664       18,898  
Loss on extinguishment of debt and write-off of debt issuance costs                 2,390       144  
Derivative payments on interest rate swap           4,133       1,717       4,133  
Loss on interest rate swap           11,669       2,033       11,669  
Other expense (income), net     (2,578 )     (280 )     (5,366 )     (213 )
Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture     (4,693 )     (18,358 )     (22,442 )     (152,088 )
Benefit (provision) for income taxes     1,144       1,037       1,756       8,972  
Share of net income from joint venture     2,805       1,834       6,261       3,626  
Loss from continuing operations     (744 )     (15,487 )     (14,425 )     (139,490 )
Income (loss) from discontinued operations, net of tax (Note 2)     1,200       162,864       1,200       38,898  
Net loss   $ 456     $ 147,377     $ (13,225 )   $ (100,592 )
Other comprehensive income (loss):                
Reclassification adjustment for discontinued operations   $     $ 5,961     $     $ 5,961  
Foreign currency translation loss     415       4,953       (1,135 )     (1,683 )
Interest rate swap:                
   Change in fair value, net of tax     235             59       (12,443 )
   Reclassification adjustment for losses included in net loss, net of tax     33       12,149       2,906       18,987  
Other comprehensive income (loss)   $ 683     $ 23,063     $ 1,830     $ 10,822  
Comprehensive loss   $ 1,139     $ 170,440     $ (11,395 )   $ (89,770 )
Basic net loss per common share:                
Loss from continuing operations per common share   $ (0.07 )   $ (0.44 )   $ (0.82 )   $ (3.60 )
Income (loss) from discontinued operations per common share     0.03       3.85       0.03       0.92  
Net loss per common share   $ (0.04 )   $ 3.41     $ (0.79 )   $ (2.68 )
Weighted average common shares outstanding     44,454       42,285       44,011       42,199  
Diluted net loss per common share:                
Loss from continuing operations per common share   $ (0.07 )   $ (0.44 )   $ (0.82 )   $ (3.60 )
Income (loss) from discontinued operations per common share     0.03       3.85       0.03       0.92  
Net loss per common share   $ (0.04 )   $ 3.41     $ (0.79 )   $ (2.68 )
Weighted average common shares outstanding     44,454       42,285       44,011       42,199  


NN, Inc.
Condensed Consolidated Balance Sheets
(Unaudited) 

(in thousands, except per share data)   December 31, 2021   December 31, 2020
Assets        
Current assets:        
Cash and cash equivalents   $ 28,656     $ 48,138  
Accounts receivable, net     71,419       84,615  
Inventories     75,027       62,517  
Income tax receivable     11,808       8,800  
Other current assets     9,372       11,148  
   Total current assets     196,282       215,218  
Property, plant and equipment, net     209,105       223,690  
Operating lease right-of-use assets     46,443       50,264  
Intangible assets, net     88,718       103,065  
Investment in joint venture     34,045       26,983  
Deferred tax assets     314        
Other non-current assets     4,194       5,742  
Total assets   $ 579,101     $ 624,962  
Liabilities, Preferred Stock, and Stockholders’ Equity        
Current liabilities:        
Accounts payable   $ 36,710     $ 37,435  
Accrued salaries, wages and benefits     17,739       21,296  
Income tax payable     2,072       3,557  
Current maturities of long-term debt     3,074       4,885  
Current portion of operating lease liabilities     5,704       4,797  
Other current liabilities     8,718       31,261  
   Total current liabilities     74,017       103,231  
Deferred tax liabilities     7,456       11,178  
Long-term debt, net of current portion     151,052       79,025  
Operating lease liabilities, net of current portion     51,295       55,053  
Other non-current liabilities     17,289       17,237  
   Total liabilities     301,109       265,724  
Commitments and contingencies        
Series D perpetual preferred stock - $0.01 par value per share, 65 shares authorized, issued and outstanding at December 31, 2021     53,807        
Series B convertible preferred stock - $0.01 par value per share, 100 shares authorized, issued and outstanding at December 31, 2020           105,086  
Stockholders' equity:        
Common stock - $0.01 par value per share, 90,000 shares authorized, 42,686 and 43,027 shares issued and outstanding at December 31, 2020 and 2021, respectively     430       427  
Additional paid-in capital     474,757       493,332  
Accumulated deficit     (219,100 )     (205,875 )
Accumulated other comprehensive loss     (31,902 )     (33,732 )
Total stockholders’ equity     224,185       254,152  
Total liabilities, preferred stock, and stockholders’ equity   $ 579,101     $ 624,962  

NN, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

    Twelve Months Ended
December 31,
(in thousands)      2021       2020  
Cash flows from operating activities        
Net (loss)   $         (13,225 )   $         (100,592 )
Adjustments to reconcile net (loss) to net cash provided by operating activities:        
Depreciation and amortization of continuing operations     46,195       45,680  
Depreciation and amortization of discontinued operations           35,731  
Amortization of debt issuance costs and discount     1,381       15,692  
Goodwill impairment of continuing operations           92,942  
Goodwill impairment of discontinued operations           146,757  
Other impairments           4,148  
Loss on extinguishment of debt and write-off of debt issuance costs     2,390       1,532  
Total derivative loss (gain), net of cash settlements     (3,259 )     15,309  
Share of net income from joint venture     (6,261 )     (3,626 )
Gain on disposal of discontinued operations, net of tax and cost to sell     (1,200 )     (233,824 )
Compensation expense from issuance of share-based awards     3,216       4,226  
Deferred income taxes     (4,845 )     (21,697 )
Other     (2,611 )     (4,730 )
Changes in operating assets and liabilities:        
   Accounts receivable     13,698       10,831  
   Inventories     (12,959 )     5,114  
   Accounts payable     343       (8,606 )
   Income taxes receivable and payable, net     (4,516 )     (633 )
   Other     (2,761 )     11,295  
      Net cash provided by operating activities     15,586       15,549  
Cash flows from investing activities        
Acquisition of property, plant and equipment     (18,221 )     (23,773 )
Proceeds from sale of property, plant, and equipment     1,418       3,317  
Proceeds from (cash paid for post-closing adjustments on) sale of business, net of cash sold     (3,880 )     743,178  
Cash settlements of interest rate swap     (15,420 )     (4,133 )
Other           695  
      Net cash provided by (used in) investing activities     (36,103 )     719,284  
Cash flows from financing activities        
Cash paid for debt issuance costs     (7,360 )     (661 )
Proceeds from issuance of preferred stock     61,793        
Redemption of preferred stock     (122,434 )      
Proceeds from long-term debt     171,000       66,195  
Repayments of long-term debt             (93,729 )             (776,331 )
Repayments of short-term debt, net     (1,563 )     (924 )
Other     (5,150 )     (3,133 )
      Net cash provided by (used in) financing activities     2,557       (714,854 )
Effect of exchange rate changes on cash flows     (1,522 )     (3,544 )
Net change in cash and cash equivalents     (19,482 )     16,435  
Cash and cash equivalents at beginning of period (1)     48,138       31,703  
Cash and cash equivalents at end of period   $ 28,656     $ 48,138  

_______________________________

(1) Cash and cash equivalents include $13.8 million of cash and cash equivalents that were included in current assets of discontinued operations as of December 31, 2019.

Reconciliation of GAAP Income (Loss) from Operations to Non-GAAP Adjusted Income (Loss) from Operations

  Three Months Ended December 31,

$000s
NN, Inc. Consolidated   2021       2020  
GAAP income (loss) from operations $ (3,782 )   $ (974 )
Acquisition and transition expense*   1,030       3,694  
Amortization of intangibles   3,587       3,587  
Fixed asset impairments         1,019  
Non-GAAP adjusted income (loss) from operations (a) $ 835     $ 7,326  
       
Non-GAAP adjusted operating margin   0.8 %     6.2 %
GAAP net sales $ 110,379     $ 119,028  
       
  Three Months Ended December 31,

$000s
Power Solutions   2021       2020  
GAAP income (loss) from operations $ (66 )   $ 1,754  
Acquisition and transition expense         592  
Amortization of intangibles   2,749       2,748  
Non-GAAP adjusted income (loss) from operations (a) $ 2,683     $ 5,094  
       
Non-GAAP adjusted operating margin   6.0 %     11.6 %
GAAP net sales $ 44,774     $ 43,962  


  Three Months Ended December 31,

$000s
Mobile Solutions   2021       2020  
GAAP income (loss) from operations $ 697     $ 4,603  
Acquisition and transition expense         359  
Amortization of intangibles   838       838  
Fixed asset impairments         1,019  
Non-GAAP adjusted income (loss) from operations (a)   1,535       6,819  
       
Share of net income from joint venture   2,805       1,834  
Non-GAAP adjusted income (loss) from operations with JV $ 4,340     $ 8,653  
       
Non-GAAP adjusted operating margin (1)   6.6 %     11.5 %
GAAP net sales $ 65,615     $ 75,068  
       
  Three Months Ended December 31,

$000s
Elimination   2021       2020  
GAAP net sales $ (10 )   $ (2 )
       

      

(1) Non-GAAP adjusted operating margin = Non-GAAP adjusted income (loss) from operations / GAAP net sales

*2021 expense includes $1.0 million of professional fees, and 2020 expense includes $0.6 million of capacity and capabilities development expenses, $0.5 million of professional fees, and $2.6 million of integration and transformation fees.

Reconciliation of GAAP Income (Loss) from Operations to Non-GAAP Adjusted Income (Loss) from Operations

  Twelve Months Ended December 31,

$000s
NN, Inc. Consolidated   2021       2020  
GAAP income (loss) from operations   (9,004 )     (117,457 )
Acquisition and transition expense*   4,802       16,939  
Amortization of intangibles   14,348       14,348  
Impairments (Goodwill and fixed assets)         93,967  
Non-GAAP adjusted income (loss) from operations (a) $ 10,146     $ 7,797  
       
Non-GAAP adjusted operating margin   2.1 %     1.8 %
GAAP net sales   477,584       427,534  
       
  Twelve Months Ended December 31,

$000s
Power Solutions   2021       2020  
GAAP income (loss) from operations   6,493       (85,983 )
Acquisition and transition expense   386       4,235  
Amortization of intangibles   10,994       10,993  
Impairments (Goodwill and fixed assets)         92,948  
Non-GAAP adjusted income (loss) from operations (a) $ 17,873     $ 22,193  
       
Non-GAAP adjusted operating margin   9.3 %     13.0 %
GAAP net sales   191,800       171,269  


  Twelve Months Ended December 31,

$000s
Mobile Solutions   2021       2020  
GAAP income (loss) from operations   9,039       5,229  
Acquisition and transition expense   566       1,594  
Amortization of intangibles   3,353       3,352  
Impairments (Goodwill and fixed assets)         1,019  
Non-GAAP adjusted income (loss) from operations (a) $ 12,958     $ 11,194  
       
Share of net income from joint venture   6,261       3,627  
Non-GAAP adjusted income (loss) from operations with JV $ 19,219     $ 14,821  
       
Non-GAAP adjusted operating margin   6.7 %     5.8 %
GAAP net sales   285,863       256,360  
       
  Twelve Months Ended December 31,

$000s
Elimination   2021       2020  
GAAP net sales   (79 )     (95 )
       

      

(1) Non-GAAP adjusted operating margin = Non-GAAP adjusted income (loss) from operations / GAAP net sales

*2021 expense includes $2.3 million in professional fees and $2.5 million in integration and transformation fees while 2020 expense is comprised of $2.4 million of capacity and capabilities development fees, $3.2 million professional fees, $7.5 million integration and transformation fees, and $3.9 million of asset write-downs

Reconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA
  Three Months Ended December 31,

 
000's   2021       2020  
GAAP net income (loss) $ 456     $ 147,377  
       
Benefit for income taxes   (1,144 )     (1,037 )
Interest expense   3,489       1,862  
Pre-tax derivative loss, net of cash settlements         15,802  
Change in fair value of preferred stock derivatives and warrants   (2,403 )     (338 )
Depreciation and amortization   11,335       11,561  
Acquisition and transition expense   1,030       3,694  
Non-cash stock compensation   635       56  
Non-cash foreign exchange (gain) loss on inter-company loans   (117 )     (534 )
Costs related to divested businesses and litigation settlement         247  
(Income) loss from discontinued operations, net of tax   (1,200 )     (162,864 )
Fixed asset impairments         1,019  
Non-GAAP adjusted EBITDA (b) $ 12,081     $ 16,845  
       
Non-GAAP adjusted EBITDA margin (2)   10.9 %     14.2 %
GAAP net sales $ 110,379     $ 119,028  

(2) Non-GAAP adjusted EBITDA margin = Non-GAAP adjusted EBITDA / GAAP net sales

  Twelve Months Ended December 31,

 
000's   2021       2020  
GAAP net income (loss) $ (13,225 )   $ (100,592 )
       
Benefit for income taxes   (1,756 )     (8,972 )
Interest expense   12,664       18,898  
Write-off of unamortized debt issuance cost   2,390       144  
Pre-tax derivative loss, net of cash settlements   3,750       15,802  
Change in fair value of preferred stock derivatives and warrants   (7,009 )     (499 )
Depreciation and amortization   46,195       45,680  
Acquisition and transition expense   4,802       16,850  
Non-cash stock compensation   3,529       3,581  
Non-cash foreign exchange (gain) loss on inter-company loans   474       274  
Costs related to divested businesses and litigation settlement   1,500       247  
(Income) loss from discontinued operations, net of tax   (1,200 )     (38,898 )
Fixed asset and goodwill impairments         93,967  
Non-GAAP adjusted EBITDA (b) $ 52,114     $ 46,482  
       
Non-GAAP adjusted EBITDA margin (2)   10.9 %     10.9 %
GAAP net sales   477,584       427,534  

(2) Non-GAAP adjusted EBITDA margin = Non-GAAP adjusted EBITDA / GAAP net sales

Reconciliation of Net Income (Loss) to Non-GAAP Adjusted Net Income and Net Income (Loss) per
Diluted Common Share to Non-GAAP Adjusted Net Income (Loss) per Diluted Common Share
 


  Three Months Ended December 31,
000's   2021       2020  
GAAP net income (loss) $ 456     $ 147,377  
       
Pre-tax acquisition and transition expense   1,030       3,694  
Pre-tax foreign exchange (gain) loss on inter-company loans   (117 )     (534 )
Pre-tax change in fair value of preferred stock derivatives and warrants   (2,403 )     (338 )
Pre-tax amortization of intangibles and deferred financing costs   3,919       4,000  
Pre-tax derivative loss, net of cash settlements         15,802  
Pre-tax impairments of fixed asset costs         1,019  
Pre-tax costs related to divested businesses and litigation settlement         247  
Tax effect of adjustments reflected above (c)   (510 )     (5,019 )
Non-GAAP discrete tax adjustments   (2,000 )     3,629  
(Income) loss from discontinued operations, net of tax   (1,200 )     (162,864 )
Non-GAAP adjusted net income (loss) (d) $ (825 )   $ 7,013  
       
  Three Months Ended December 31,
Per diluted common share   2021       2020  
GAAP net income (loss) per diluted common share $ (0.04 )   $ 3.41  
       
Pre-tax acquisition and transition expense   0.02       0.09  
Pre-tax foreign exchange (gain) loss on inter-company loans         (0.01 )
Pre-tax change in fair value of preferred stock derivatives and warrants   (0.05 )     (0.01 )
Pre-tax amortization of intangibles and deferred financing costs   0.09       0.09  
Pre-tax interest rate swap payments and change in fair value         0.37  
Pre-tax impairments of fixed asset costs         0.02  
Pre-tax costs related to divested businesses and litigation settlement         0.01  
Tax effect of adjustments reflected above (c)   (0.01 )     (0.12 )
Non-GAAP discrete tax adjustments   (0.04 )     0.09  
(Income) loss from discontinued operations, net of tax   (0.03 )     (3.85 )
Preferred stock cumulative dividends and deemed dividends   0.05       0.08  
Non-GAAP adjusted net income (loss) per diluted common share (d) $ (0.01 )   $ 0.17  
Weighted average common shares outstanding   44,454       42,285  


Reconciliation of Net Income (Loss) to Non-GAAP Adjusted Net Income and Net Income (Loss) per
Diluted Common Share to Non-GAAP Adjusted Net Income (Loss) per Diluted Common Share
 


  Twelve Months Ended December 31,
000's   2021       2020  
GAAP net income (loss) $ (13,225 )   $ (100,592 )
       
Pre-tax acquisition and transition expense   4,802       16,939  
Pre-tax foreign exchange (gain) loss on inter-company loans   474       274  
Pre-tax write-off of unamortized debt issuance costs   2,390       144  
Pre-tax change in fair value of preferred stock derivatives and warrants   (7,009 )     (499 )
Pre-tax amortization of intangibles and deferred financing costs   15,729       16,056  
Pre-tax derivative loss, net of cash settlements   3,750       15,802  
Pre-tax impairments of fixed asset costs         1,026  
Pre-tax costs related to divested businesses and litigation settlement   1,500       247  
Tax effect of adjustments reflected above (c)   (4,569 )     (10,432 )
Non-GAAP discrete tax adjustments   (913 )     31  
(Income) loss from discontinued operations, net of tax   (1,200 )     (38,898 )
Goodwill impairments         92,942  
Non-GAAP adjusted net income (loss) (d) $ 1,729     $ (6,960 )
       
  Twelve Months Ended December 31,
Per diluted common share   2021       2020  
GAAP net income (loss) per diluted common share $ (0.79 )   $ (2.68 )
       
Pre-tax acquisition and transition expense   0.11       0.42  
Pre-tax foreign exchange (gain) loss on inter-company loans   0.01       0.01  
Pre-tax write-off of unamortized debt issuance costs   0.05        
Pre-tax change in fair value of preferred stock derivatives and warrants   (0.16 )     (0.01 )
Pre-tax amortization of intangibles and deferred financing costs   0.36       0.38  
Pre-tax interest rate swap payments and change in fair value   0.09       0.37  
Pre-tax impairments of fixed asset costs         0.02  
Pre-tax costs related to divested businesses and litigation settlement   0.03       0.01  
Tax effect of adjustments reflected above (c)   (0.10 )     (0.25 )
Non-GAAP discrete tax adjustments   (0.02 )      
(Income) loss from discontinued operations, net of tax   (0.03 )     (0.92 )
Goodwill impairments         2.20  
Preferred stock cumulative dividends and deemed dividends   0.49       0.29  
Non-GAAP adjusted net income (loss) per diluted common share (d) $ 0.04     $ (0.16 )
Weighted average common shares outstanding   44,011       42,199  

Reconciliation of Operating Cash Flow to Free Cash Flow

  Three Months Ended
December 31,
000’s   2021       2020  
Net cash provided by (used in) operating activities   9,895       (3,795 )
Acquisition of property, plant and equipment   (3,665 )     (3,255 )
Free cash flow $ 6,230     $ (7,050 )

                                     

  Twelve Months Ended
December 31,
000’s   2021       2020  
Net cash provided by (used in) operating activities   15,586     $ 15,549  
Acquisition of property, plant and equipment   (18,221 )     (23,773 )
Free cash flow $ (2,635 )   $ (8,224 )

The Company discloses in this presentation the non-GAAP financial measures of adjusted income (loss) from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per diluted common share, and free cash flow. 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 five years, we have completed several acquisitions, one of which was 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 (loss) from operations, adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per diluted common share, and free cash flow provides 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 (loss) from operations represents GAAP income (loss) 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, non-cash impairment charges, 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 (loss) 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 (loss) from operations.

(b) Non-GAAP adjusted EBITDA represents GAAP net income (loss), adjusted to include income taxes, interest expense, write-off of unamortized debt issuance costs, interest rate swap payments and change in fair value that was recognized in earnings, change in fair value of preferred stock derivatives and warrants, depreciation and amortization, charges related to acquisition and transition costs, non-cash stock compensation expense, foreign exchange gain (loss) on inter-company loans, restructuring and integration expense, costs related to divested businesses and litigation settlements, income from discontinued operations, and non-cash impairment charges, to the extent applicable. 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 EBITDA 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.

(c) This line item reflects the aggregate tax effect of all non-tax adjustments reflected in the respective table. NN, Inc. estimates the tax effect of the adjustment items identified in the reconciliation schedule above by applying the applicable statutory rates by tax jurisdiction 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.

(d) Non-GAAP adjusted net income (loss) represents GAAP net income (loss) adjusted to exclude the tax-affected effects of charges related to acquisition and transition costs, foreign exchange gain (loss) on inter-company loans, restructuring and integration charges, amortization of intangibles costs for fair value step-up in values related to acquisitions and amortization of deferred financing costs, non-cash impairment charges, write-off of unamortized debt issuance costs, interest rate swap payments and change in fair value, change in fair value of preferred stock derivatives and warrants, costs related to divested businesses and litigation settlements, income (loss) from discontinued operations, and preferred stock cumulative dividends and deemed dividends. 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.


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Source: NN, Inc.