NN Inc. (NASDAQ:NNBR) Q3 2019 Earnings Conference Call - Final Transcript

Nov 08, 2019 • 09:00 am ET


NN Inc. (NASDAQ:NNBR) Q3 2019 Earnings Conference Call - Final Transcript


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Warren Veltman

our adjusted EPS was $0.27 this year versus $0.30 in 2018. Please note that adjusted net income was $11.4 million this quarter and $8.7 million in Q3 of 2018, and the number of weighted shares outstanding increased 46% to 42 million shares, resulting in an EPS number lower than the previous year. Both reported EBITDA and adjusted EBITDA increased consistently between the periods, with adjusted EBITDA increasing to $40.2 million in Q3 2019 or 18.8% of sales, in comparison to 18.2% of sales the previous year. NN generated $17.5 million in free cash flow in the third quarter, an increase of $29.4 million over the same quarter one year ago, resulting in a reduction of net debt during the quarter to $855 million.

Some significant highlights during the quarter include our announced plan to improve free cash flow through reductions in operating expenses and reduced capital expenditures. We also have eliminated the quarterly cash dividend. Life Sciences operating margins continued to improve. Power Solutions sales were up 2.9% on organic growth associated with smart meters, and Mobile Solutions continues to effectively reduce its fixed costs in response to lower sales volumes. We will review these highlights in more detail throughout the presentation.

The company had previously announced a refinancing of its capital structure that we expected to close this week. Due to the cost profile of the initial refinancing structure, we are evaluating other financing options to ensure we are achieving a result that is in the best interest of all of our stakeholders. We remain committed to establishing a capital structure that aligns with our strategic plan, and we are optimistic that such a structure can be established on reasonable terms. We have retained external advisers to assist us in fully evaluating our strategic options.

As a result of the delay in the financing, our revolving credit facility will be current prior to the filing of our Form 10-Q. Consequently, the company, in response to the technical accounting guidance surrounding these situations and with consultation with our independent auditors, will be incorporating going concern language in our 10-Q. We are optimistic that we will be able to establish a capital structure consistent with our strategic plan prior to the expiration of our revolving credit facility in October 2020.

We've provided additional detail on the select cost-reduction initiatives on Page 5. When I first started as interim CEO, I informed our employees that our focus would be on three things: one, servicing the customer by exceeding their expectations for quality and delivery; two, improving our operating margins; and three, improving free cash flow with a focus on paying down debt. I told the team that our overhead and SG&A costs were excessive, and we would immediately focus on reducing those expenses. To date, we have reduced the headcount of our corporate group by 20%, yielding an immediate $5 million reduction in expense.

At the same time, we are consolidating the footprint of our corporate group and expect to achieve a