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

Nov 08, 2019 • 09:00 am ET

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

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Presentation
Executive
Warren Veltman

trend is the result of continuous process improvement, installation of automation and improved performance of our international operations.

Our backlog is $186 million, a $20 million reduction from Q2. We have recently launched our new sales and ops planning application that allows us to proactively interact with our customers and improve the process of matching product requirements with expected delivery dates. As this application is more fully implemented, we expect that it will result in a reduction of our backlog.

As we look forward, we expect Q4 to continue the positive trend as it relates to year-over-year comparisons, with greater than 10% growth expectation in the upcoming quarter. 2020 growth expectation is tempered somewhat at 5% to 9% as we do not expect the same level of new product introductions that occurred in 2019. As we expect -- and we expect continued margin improvement due to leveraging incremental sales, while continuing to improve our manufacturing processes during the latter stages of the Paragon integration plan.

The Mobile Solutions business summary is included on Page 15. Mobile sales are down 10.7% from a year ago due primarily to sales declines in North America due to programs moving to end of production, delays in new business launches, a tariff environment that has created uncertainty in the supply chain, and the impact of the GM strike, which started in mid-September. In spite of the sales reductions, both reported EBITDA and adjusted EBITDA increased as a percentage of sales over Q3 2018. The impact of the sales reduction has been offset by reduction in fixed costs.

Through the end of September 2019, indirect labor, SG&A labor and related benefits were reduced by $4.9 million on an annualized basis. The results of the quarter were also positively impacted by the settlement of litigation with a customer that had defaulted on a supplier contract. As previously announced, the Mobile's fourth quarter results will be adversely impacted by the United Auto Workers strike that concluded on October 25. Based on our current customer inventory schedules, we do not believe that the lost volume will be recovered during the fourth quarter. It will likely occur after the first of the year.

We expect modest growth for this group in 2020 due to start-up production on some new programs, and the focus will be on margin improvement through manufacturing process improvements and additional reduction of fixed costs, including the carryover impact of some of the completed 2019 indirect labor reductions. In addition, improved free cash flow is expected from reduced capital expenditures and improvement in working capital management, including reduced inventory levels.

Moving to Power Solutions. As previously discussed, Power sales increased 2.9% year-over-year, was driven by organic growth due to increased demand from smart meters and incremental sales associated with the Technical Arts acquisition. GAAP operating profit and adjusted operating profit both increased in comparison to prior years by 120 basis points and 90 basis points, respectively. Margin improvement is due to reduction in indirect and SG&A labor