NN Announces First Steps in Balance Sheet Optimization Plan

Rhea-AI Summary

NN, Inc. (NNBR) announced the sale and leaseback of three facilities for $16.8 million to reduce term loan balance, cut cash interest, and strengthen the balance sheet. The move is part of a transformation plan to lower costs, enhance free cash flow, and prepare for future refinancing.

Insights

Financial Analyst

The decision by NN, Inc. to engage in a sale-leaseback transaction for three of its facilities represents a strategic financial move aimed at optimizing its capital structure. By converting fixed assets into liquid capital, NN, Inc. is effectively reducing its term loan balance, which in turn will lower its cash interest obligations. This is a significant action as interest expenses are a recurring cost that can weigh heavily on a company's profitability. By lowering these expenses, NN, Inc. is poised to improve its net income and cash flows, which is an important consideration for investors and creditors alike.

Furthermore, the reduction of the corporate headquarters' footprint signifies a commitment to operational efficiency and cost management. These measures to cut operating costs are likely to be viewed favorably by the market, as they can lead to improved margins and potentially higher earnings per share (EPS). However, it is crucial to monitor the execution of the company's transformation plan to ensure that these cost savings translate into tangible financial improvements without compromising the company's operational capabilities.

Real Estate Investment Analyst

The sale-leaseback arrangement allows NN, Inc. to unlock the value tied up in real estate assets while retaining operational control of the facilities. This is a common tactic used by companies to free up capital for debt reduction or other strategic initiatives. The aggregate purchase price of $16.8 million should be compared against the current market value of similar industrial properties to assess the fairness of the deal. Additionally, the lease terms post-sale will be critical in determining the long-term cost-effectiveness of this transaction.

It is worth noting that such transactions can have varying implications on a company's balance sheet and future financial commitments. While it reduces the asset base, it introduces a future lease obligation that must be carefully managed. Investors should consider how the lease payments might affect future cash flows and whether the terms are in line with market rates. A favorable leaseback deal can enhance financial flexibility, but unfavorable terms could lead to higher long-term costs.

Market Research Analyst

By stating that the transaction will have no impact on EBITDA, NN, Inc. is reassuring stakeholders that its core earnings before interest, taxes, depreciation and amortization will remain stable. This is pivotal for investors who closely monitor EBITDA as a measure of a company's operational performance independent of its financing structure. Nonetheless, it's essential to scrutinize the long-term implications of this move on the company's cost structure and ability to invest in growth opportunities.

The market will also be interested in NN, Inc.'s plans for future refinancing when market conditions are favorable. This indicates a proactive approach to capital management and suggests that the company is looking to take advantage of potentially lower interest rates or more favorable loan terms in the future. Investors should track the company's debt maturity profile and interest rate exposure to understand how refinancing could affect its financial health.

Will reduce term loan balance, reduce cash interest, and strengthen balance sheet

CHARLOTTE, N.C., March 08, 2024 (GLOBE NEWSWIRE) -- NN, Inc. (NASDAQ: NNBR), a global diversified industrial company that engineers and manufactures high-precision components and assemblies, today announced that on March 5, 2024, it entered into a Purchase and Sale and Escrow Agreement to sell and lease back three facilities, for an aggregate purchase price of a $16.8 million that is expected to close on or around March 15, 2024 with no impact to EBITDA. The net proceeds from the transaction will be used to repay a portion of the outstanding balance under the company’s term loan, lowering ongoing cash interest expenses. In addition, the company has reduced its corporate headquarters footprint by approximately two-thirds through a separate sublease transaction, lowering ongoing operating costs.

“These actions mark another strong step forward in the execution of our transformation plan and helps us further strengthen and strategically de-risk our balance sheet,” said Mike Felcher, Senior Vice President and Chief Financial Officer of NN, Inc. “We are taking actions in line with a multi-step 2024 plan to reduce our cost of capital, and to position ourselves for future refinancing when market conditions are favorable. Combined with our continued efforts to drive consistent free cash flow generation through our operations, this is as an important strategic pillar as we align our capital resources for a stronger, more focused long-term growth program.”

NN will continue to operate at these facilities. There will be no impact to NN employees or customers.

About NN, Inc.
NN, Inc., a global 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 facilities in North America, Europe, South America, and Asia. For more information about the company and its products, please visit www.nninc.com.

FORWARD-LOOKING STATEMENTS
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 pandemics, epidemics, disease outbreaks and other public health crises, on our 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, political and geopolitical instability, military conflict, currency fluctuation, and other risks of doing business outside of the United States; inflationary pressures and changes in the cost or availability of materials, supply chain shortages and disruptions, the availability of labor and labor disruptions along the supply chain; 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, as well as expansion of end markets and product offerings; our ability to hire or retain key personnel; 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; new laws and governmental regulations; the impact of climate change on our operations; and cyber liability or potential liability for breaches of our or our service providers’ information technology systems or business operations disruptions. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s filings made with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date of this press release, and the Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how they will affect the Company. The Company qualifies all forward-looking statements by these cautionary statements.

Investor & Media Contacts:
Joseph Caminiti, CFA, or Stephen Poe, Investors
Tim Peters or Emma Brandeis, Media
NNBR@alpha-ir.com
+1 312 445 2870

FAQ

What did NN, Inc. announce regarding its facilities?

NN, Inc. announced the sale and leaseback of three facilities for $16.8 million to reduce term loan balance, cut cash interest, and strengthen the balance sheet.

How will the proceeds from the transaction be utilized?

The net proceeds from the transaction will be used to repay a portion of the outstanding balance under the company’s term loan, lowering ongoing cash interest expenses.

What impact will the reduction of the corporate headquarters footprint have?

The reduction of the corporate headquarters footprint by approximately two-thirds through a separate sublease transaction will lower ongoing operating costs for NN, Inc.

What is the goal of NN, Inc.'s multi-step 2024 plan?

The goal of NN, Inc.'s multi-step 2024 plan is to reduce the cost of capital, position the company for future refinancing, and drive consistent free cash flow generation through operations.