Investment research report for NNBR

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Overview

NN, Inc. is a diversified industrial company that designs and manufactures high-precision components and assemblies for various end markets, including automotive, aerospace, defense, and medical. Its two main business segments are Mobile Solutions (automotive components) and Power Solutions (precision metal and plastic components).

Strategic Initiatives

The company is undergoing a strategic shift towards aligning its product portfolio with growth opportunities in electric vehicles, electrification, and renewable energy infrastructure. Key initiatives include:

  • Optimizing manufacturing footprint through facility consolidations and cost reductions
  • Securing new business wins in strategic growth areas like EVs and electrical components
  • Focusing on operational improvements, pricing discipline, and cash flow generation

Financial Performance

NN, Inc. has faced challenges in recent years, with declining revenues, widening losses, and high debt levels. However, the company has taken steps to improve liquidity, manage costs, and generate positive cash flow. Key financial highlights:

  • Revenue declined by 1.9% in 2023, with a net loss of $50.2 million
  • Closed underutilized facilities to reduce costs, but also impacted sales volumes
  • Improved operating cash flow to $29.3 million in 2023 through working capital management

Outlook and Risks

The company’s outlook is focused on executing its transformation plan, driving growth in strategic markets, and achieving sustainable profitability. However, key risks include:

  • Ongoing macroeconomic headwinds, supply chain disruptions, and inflationary pressures
  • Intense competition and reliance on a limited number of customers
  • Successful execution of the strategic shift and operational improvement initiatives

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Valuation Analysis

PE Ratio

The PE ratio for the company NNBR is as follows:
– Low: -23.63994718336619
– Base: 8.255501850644427
– High: 40.150950884655046

PB Ratio

The PB ratio for the company NNBR is as follows:
– Low: 0.3821385093722095
– Base: 0.985482484203579
– High: 1.5888264590349483

Due to the highly unstable financials of this company, we are unable to provide reliable price targets. Therefore, we recommend not holding this stock in your portfolio.

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Industry and Competitors Analysis

NNBR (NN, Inc.) Industry and Competitors

Based on the information provided, NNBR (NN, Inc.) operates in the diversified industrial and manufacturing sector, producing high-precision components and assemblies for various industries, including automotive, aerospace, defense, and medical. Its main segments are Mobile Solutions (automotive components) and Power Solutions (precision metal and plastic components).

Some of NNBR’s key competitors and companies in similar industries include:

  1. Steel Partners Holdings L.P. (SPLP): A diversified conglomerate operating in industrial products, energy, defense, supply chain management, and financial services. It has overlapping segments with NNBR in industrial products and components manufacturing.

  2. Compass Diversified (CODI): A private equity firm investing in niche industrial and consumer companies, including manufacturing and distribution businesses, which could compete with NNBR’s segments.

  3. Griffon Corporation (GFF): A diversified company with segments in consumer and professional products (tools, storage solutions) and home and building products (garage doors, rolling steel doors), which may compete with some of NNBR’s product lines.

  4. Matthews International Corporation (MATW): A diversified company with segments in brand solutions, memorialization products, and industrial technologies, including marking and coding equipment and components, which could overlap with NNBR’s offerings.

  5. Valmont Industries, Inc. (VMI): A manufacturer of metal products, including utility and renewable energy structures, irrigation equipment, and industrial products, which could compete with NNBR’s Power Solutions segment.

Based on the financial metrics provided, NNBR appears to be a relatively small player compared to some of the larger diversified conglomerates like Steel Partners Holdings and Compass Diversified. However, its focus on high-precision components and assemblies for specific industries could provide a competitive advantage in niche markets.

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Financial Analysis

Financial Strength

The company has struggled with profitability, reporting negative net income and return on equity/assets in most recent quarters. This suggests weak financial strength. However, the current ratio is generally above 2, indicating relatively healthy liquidity position. The debt/equity ratio has fluctuated but remains elevated around 1, signaling a leveraged capital structure which could strain the balance sheet.

Potential for Growth

Revenue growth has been inconsistent, with periods of decline followed by modest growth in some quarters. The 3-year revenue growth per share has been negative. Gross profit growth has also been volatile, with recent quarters showing declines year-over-year. Analyst estimates suggest modest revenue growth expectations over the next few years, but with continued net losses projected.

Competitive Advantage

Limited insights can be derived solely from the financial data. However, the fluctuating profitability and growth rates could indicate competitive pressures or lack of sustainable advantages.

Quality of Management

The inconsistent financial performance, with periods of losses and declining growth, may reflect challenges in operational execution and strategic management. The high debt levels and shareholder unfriendliness (see below) could also be viewed as potential management shortcomings.

Shareholder Friendliness

The company has not paid dividends in the periods analyzed, suggesting a lack of shareholder returns. The price/earnings ratios have been highly volatile, often negative, which could make valuation difficult for investors.

Valuation

With negative earnings in many periods, traditional valuation metrics like P/E become less meaningful. The price/book ratio has generally been below 1, which could indicate an undervalued stock, but the underlying financials raise concerns. Analyst EPS estimates for future years are negative, which could further pressure the stock valuation.

In summary, while NN, Inc. has maintained decent liquidity, the financial data reveals significant challenges in profitability, growth consistency, leverage, and shareholder returns. The company appears to be going through a turnaround effort, but the outlook remains uncertain based on the available information. More qualitative insights into the business model, competitive landscape, and management’s strategic plans would be helpful to fully assess the company’s prospects.

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Chart of Key Per Share Metrics

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Chart of Absolute Metrics

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Earnings Call Multi-Year Analysis

Strategic Shift towards Electric Vehicles and Electrical Grid Infrastructure

The company is proactively shifting its strategy and product portfolio to align with major growth trends like electric vehicles, electrification, and renewable energy infrastructure. This represents a pivot away from traditional internal combustion engine automotive applications towards higher growth opportunities.

Operational Improvements and Cost Discipline

NN is focused on driving operational improvements through facility consolidations, headcount optimization, supply chain management, and cost productivity programs. These initiatives are aimed at expanding margins, improving profitability, and generating consistent positive free cash flow.

New Business Momentum and Growth Opportunities

The company has had success securing significant new business wins, especially in strategic growth areas like EVs and electrical components. Its sales pipeline and new program awards reflect robust demand aligned with its strategic priorities.

Pricing Power and Inflation Management

NN has demonstrated an ability to negotiate price increases with customers to offset inflationary cost pressures, especially for material costs. However, there have been some lags in fully realizing the pricing benefits, requiring ongoing discipline.

Supply Chain Challenges and Operational Headwinds

Like many industrial companies, NN has faced significant supply chain disruptions, semiconductor shortages, production inefficiencies, and labor challenges that have impacted revenues and margins, especially in the automotive segment. Managing these headwinds remains an ongoing priority.

Liquidity Management and Capital Allocation Discipline

The company is focused on prudent capital allocation, working capital optimization, and balance sheet management to preserve liquidity and financial flexibility to fund its transformation and growth initiatives.

Ongoing Transformation and Execution Risk

NN is in the midst of a multi-year transformation involving leadership changes, strategic shifts, and operational restructuring. Successful execution of this transformation plan will be critical for unlocking long-term value, but it also introduces some uncertainty.

In summary, the key insights highlight NN’s strategic pivot, operational improvement efforts, growth opportunities, and capital discipline – all aimed at positioning the company for long-term success in attractive end markets. However, investors should monitor the company’s ability to navigate near-term headwinds and execute its transformation plan effectively.

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Financial Statements Multi Year

Revenue and Profitability Challenges

The company has faced declining revenues and widening losses in recent years, raising concerns about its ability to achieve sustainable profitability. Revenue declines have been driven by lower customer pricing, reduced volumes, unfavorable foreign exchange effects, and the absence of one-time benefits like premium pricing or customer settlements. Higher material, labor, and operational costs, as well as increased interest expenses, have pressured profitability.

Operational Initiatives and Cost Management

The company has been taking steps to optimize its manufacturing footprint by closing underutilized facilities across its business segments. These closures have contributed to lower sales volumes but have also helped reduce operating costs and improve efficiency. Continued focus on cost management, operational improvements, and strategic initiatives will be crucial for driving long-term sustainable growth and profitability.

Segment Performance

The Mobile Solutions segment has generally performed better in terms of revenue growth, but profitability has been impacted by higher costs and operational challenges. The Power Solutions segment has faced revenue declines but has seen some improvement in profitability due to cost savings from facility closures and premium pricing on certain projects.

Liquidity and Debt Levels

The company has taken steps to improve its liquidity position, such as refinancing credit facilities and generating positive operating cash flow through working capital management. However, it carries a significant debt burden, with high levels of total debt and net debt, which could constrain financial flexibility. The company plans to use proceeds from asset sales to repay a portion of its outstanding debt.

Macroeconomic and Industry Challenges

The company continues to face headwinds from macroeconomic factors like inflationary pressures, supply chain disruptions, labor shortages, and the lingering impacts of the COVID-19 pandemic. Intense competition, reliance on a limited number of customers, and exposure to global risks like foreign currency fluctuations and economic instability pose additional challenges.

Overall, while the company has taken steps to address its operational and financial challenges, its ability to navigate the current headwinds, improve profitability, and generate consistent cash flow will be critical for long-term investors. Continued monitoring of the company’s performance, cost management initiatives, and strategic execution will be essential.

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Insider Trading Analysis

Several key executives, including the CEO (BENVENUTI RAYNARD D.) and CFO (NIXON D. GAIL), have been consistently awarded large amounts of company stock and stock options over the years. This suggests a focus on aligning executive compensation with long-term shareholder value.

There have been multiple instances of executives, including the CEO and CFO, purchasing additional shares on the open market, indicating their confidence in the company’s long-term prospects.

Insider selling has been relatively limited, with most transactions involving the exercise and sale of stock options rather than outright sales of common stock.

Recent Patterns

In 2023-2024, the CEO and CFO have received significant awards of both common stock and performance rights, further strengthening the alignment of their interests with shareholders.

Several other key executives, such as the Chief Accounting Officer (FELCHER, JR. MICHAEL C.) and Chief Operating Officer (HARMAN JERI J.), have also received large stock and option awards during this period.

Insider buying activity has increased in 2023, with the CEO, CFO, and other executives purchasing shares on the open market, potentially signaling their belief that the stock is undervalued.

Implications

The consistent pattern of insider stock and option awards, combined with limited selling, suggests that the company’s leadership is focused on long-term value creation and is confident in the company’s future prospects.

The recent increase in insider buying activity may indicate that the company’s stock is currently undervalued, presenting a potential opportunity for long-term investors.

Overall, the insider trading patterns at NN, Inc. appear to be aligned with the interests of shareholders and point to a management team that is committed to the company’s long-term success.

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Management Compensation Benchmark Analysis

Executive Compensation Insights

Based on the executive compensation details provided for NNBR, the key insights are:

  1. The average percentage of base salary out of total compensation for NNBR executives across all years is 50.33%. This suggests that the base salary component is a significant portion of the total compensation, indicating that the compensation structure may not be fully aligned with creating long-term shareholder value.

  2. Compared to the other companies analyzed (SPLP-PA and MATW), NNBR’s average base salary percentage is higher than SPLP-PA’s 39.73% and MATW’s 28.24%. This indicates that NNBR’s compensation structure may be more heavily weighted towards fixed base salary rather than variable, performance-based components.

  3. Some NNBR executives, such as Warren A. Veltman (Former President and CEO) and D. Gail Nixon (Senior Vice President and Chief Human Resources Officer), have a higher base salary percentage of over 45% of their total compensation. This suggests that their compensation may not be as closely tied to the company’s long-term performance.

  4. In contrast, executives like Harold C. Bevis (CEO) and Michael C. Felcher (Senior Vice President and CFO) have a lower base salary percentage of around 8-45% of their total compensation, indicating a greater emphasis on variable, performance-based pay.

Overall, the analysis suggests that the executive compensation structure at NNBR may not be fully aligned with creating long-term shareholder value, as a significant portion of the total compensation is in the form of fixed base salary rather than variable, performance-based components. To better align with long-term shareholder interests, NNBR may consider adjusting the compensation structure to increase the proportion of variable, performance-based pay for its executives.

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Proxy Statement Analysis

Executive Compensation

The executive compensation program is a critical component of a company’s overall governance and strategy. A well-designed compensation structure can incentivize executives to make decisions and take actions that create long-term value for shareholders. Conversely, poorly aligned compensation practices can lead to short-term thinking and behaviors that may not be in the best interests of the company and its owners.

Without access to the detailed information provided in NNBR’s proxy statement, it is difficult to make a comprehensive assessment of the company’s executive compensation practices. Proxy statements typically disclose the various elements of the compensation program, including base salaries, annual incentives, long-term incentives, and any supplemental benefits or perquisites. They also outline the performance metrics and goals used to determine incentive payouts, as well as how the compensation aligns with the company’s strategic objectives.

A thorough review of these disclosures would be necessary to evaluate whether NNBR’s executive compensation is structured in a way that appropriately incentivizes and rewards the leadership team for delivering sustainable, long-term performance. Key considerations would include the balance between fixed and variable pay, the rigor of the performance goals, the alignment of payouts with shareholder returns, and the overall reasonableness of the compensation levels.

Without access to the proxy statement or other public filings, I do not have enough information to provide a confident assessment of NNBR’s executive compensation practices and their alignment with shareholder interests. A more detailed review of the company’s disclosures would be required to offer meaningful insights in this area.

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News Analysis

Positive Points

Based on the news releases, NN, Inc. (NNBR) has announced several positive developments that could potentially impact a long-term investor:

  • Announced several new business wins and contract awards totaling over $100 million in 2023, indicating growth prospects.
  • Appointed new executives like Chief Procurement Officer, COO, leaders for business units, suggesting management strengthening.
  • Recognized as a top quality supplier by customers.
  • Launched a medical device focused division to tap into that growing market.
  • Announced plans to optimize balance sheet and extend credit facilities.

Potential Concerns

However, the company has also faced some potential concerns that a long-term investor should be aware of:

  • Reported mixed financial results over the past few quarters, with some quarters missing earnings estimates.
  • Withdrew 2020 guidance due to COVID-19 impact, indicating pandemic-related disruptions.
  • Had high debt levels that led to credit rating downgrades from agencies like Moody’s in the past.
  • Adopted a shareholder rights plan in 2020, suggesting concerns over potential hostile takeover attempts.
  • Experienced management changes, with new CEO and board members appointed over the years.

Overall Assessment

Overall, the company seems to be taking steps to drive growth through new business wins, optimizing operations, and entering new markets like medical devices. However, it has faced challenges with profitability, debt levels, and pandemic impacts in recent years. A long-term investor would likely want to monitor the company’s execution on its growth plans, management of debt levels, and ability to sustain profitability and positive cash flows going forward.

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Technical Indicators Analysis

Next week trading

The 20-day TEMA is currently at 2.98, indicating a slightly bearish short-term trend. The 14-day ADX is around 12, suggesting a weak trend direction. The 10-day RSI is around 42, indicating the stock is in neutral territory and not overbought or oversold. The 20-day, 50-day, and 200-day SMAs are all declining, signaling a potential bearish longer-term trend.

A next week trader may conclude that the stock is in a neutral to slightly bearish short-term trend, with no clear direction. They may look for opportunities to trade within the current price range, while being cautious about any potential downside moves.

Short-term investor

The recent decline in the 20-day, 50-day, and 200-day SMAs suggests a bearish longer-term trend. The 14-day ADX around 12 indicates a weak trend direction, which could make it difficult for the stock to establish a clear upward or downward momentum in the short term. The 10-day RSI around 42 suggests the stock is not overbought or oversold, leaving room for potential price movements in either direction.

A short-term investor may adopt a cautious approach, waiting for clearer signs of a trend reversal before taking a position. They may look for opportunities to enter the stock if it shows signs of stabilizing or potentially reversing the bearish trend.

Long-term investor

The declining 20-day, 50-day, and 200-day SMAs suggest a bearish longer-term trend for the stock. The 14-day ADX around 12 indicates a weak trend direction, which could make it challenging for the stock to establish a clear upward or downward momentum in the long term. The 10-day RSI around 42 suggests the stock is not overbought or oversold, leaving room for potential price movements in either direction.

A long-term investor may want to closely monitor the stock’s performance and look for signs of a potential trend reversal before considering a long-term investment. They may also want to assess the company’s fundamentals and long-term growth prospects to determine if the current technical indicators are reflective of the stock’s true value and future potential.

Overall, the technical indicators for NNBR suggest a neutral to slightly bearish short-term and longer-term trend, with no clear direction. Investors should carefully evaluate the stock’s performance and consider their investment time horizon and risk tolerance before making any decisions.

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Financial Statements Annual

Financial Statements Annual 2024 Q2

Revenue and Profitability

Revenue decreased by 1.9% in 2023 compared to 2022, primarily due to reduced volume and lower customer settlements, partially offset by higher customer pricing. The company reported a net loss of $50.2 million in 2023, compared to a net loss of $26.1 million in 2022, driven by higher material and labor costs, lower sales volume, and increased interest expense.

Segment Performance

Mobile Solutions segment revenue increased by 3.3% in 2023, but operating income declined due to higher material and labor costs, lower sales volume, and unfavorable foreign exchange effects. Power Solutions segment revenue decreased by 9.4% in 2023, but operating income increased due to lower costs from facility closures, premium pricing on a customer project, and other cost savings.

Cash Flow and Liquidity

Cash provided by operations increased to $29.3 million in 2023 from $7.7 million in 2022, primarily due to decreases in accounts receivable and inventory. As of December 31, 2023, the company had $21.9 million in cash and cash equivalents and $264 million available under its asset-backed credit facility.

Debt and Financing

The company had $153.3 million in total debt as of December 31, 2023, with the majority being the $148.1 million outstanding on its term loan facility. The company plans to use the $168 million in net proceeds from the sale and leaseback of three properties to repay a portion of its outstanding term loan.

Operational Initiatives

The company closed two facilities in the Power Solutions group and three underutilized Mobile Solutions sites to reduce operating costs. The company is focused on growing sales, profits, free cash flow, and shareholder value through its enterprise transformation plan, which includes investing in capex, optimizing its footprint, and building a high-probability pipeline of new business opportunities.

Overall, the financial statements indicate that NN Inc is facing challenges with profitability and cash flow, but is taking steps to streamline its operations and position the company for future growth and value creation.

Financial Statements Annual 2023 Q2

Operational Performance

Net sales increased by 4.4% in 2022 compared to 2021, primarily due to increased pricing partially offset by lower volume and unfavorable foreign exchange effects. Cost of sales increased by 8.0% in 2022 due to inflationary costs and unfavorable overhead absorption, partially offset by lower sales volume and favorable foreign exchange effects. Selling, general and administrative expenses decreased by 3.6% in 2022 primarily due to lower incentive compensation, severance, and retention expense. The company reported a net loss of $26.1 million in 2022 compared to a net loss of $13.2 million in 2021, driven by higher costs and expenses.

Segment Performance

Mobile Solutions segment net sales increased by 2.7% in 2022, but segment income decreased by $11.2 million due to inflationary costs, unfavorable overhead absorption, startup costs, and supply chain disruptions. Power Solutions segment net sales increased by 7.0% in 2022, but segment income decreased by $3.0 million primarily due to a $18 million litigation settlement and higher amortization expense.

Financial Position

Total assets decreased by $330 million from 2021 to 2022, primarily due to normal depreciation and amortization. Total liabilities decreased by $59 million from 2021 to 2022, mainly due to lower employee incentive compensation accruals and a decrease in the valuation of certain derivatives. Working capital decreased from $122.3 million in 2021 to $112.9 million in 2022, primarily due to increases in accounts payable and other current liabilities. Cash provided by operations decreased from $156 million in 2021 to $77 million in 2022, mainly due to the increase in net loss and higher accounts receivable and inventory.

Liquidity and Capital Resources

The company had $353 million available for future borrowings under its ABL Facility as of December 31, 2022. The company was in compliance with all requirements under its Term Loan Facility and ABL Facility as of December 31, 2022.

Overall, the financial statements indicate that NN Inc faced operational challenges in 2022 with higher costs and expenses, leading to a larger net loss compared to the prior year. The company’s financial position remained stable, but its liquidity and cash flow generation declined. Addressing the cost pressures and improving profitability will be key focus areas for the company going forward.

Financial Statements Annual 2022 Q2

Revenue and Profitability

Net sales increased by 12% in 2021 compared to 2020, driven by higher demand across all markets that were negatively impacted by the COVID-19 pandemic in the prior year. The company reported a net loss of $13.2 million in 2021, an improvement from the $100.6 million net loss in 2020. The Mobile Solutions segment saw a 12% increase in net sales and a $38 million improvement in income from operations in 2021 compared to 2020. The Power Solutions segment reported a $92.5 million improvement in income from operations in 2021 compared to 2020, primarily due to the $92.9 million goodwill impairment recorded in 2020.

Liquidity and Capital Structure

The company refinanced its credit facilities in March 2021, entering into a new $1.5 billion term loan facility and a $500 million asset-backed credit facility. As of December 31, 2021, the company had $28.7 million in cash and cash equivalents and $360 million available under the new ABL Facility. The company issued $65 million of Series D Perpetual Preferred Stock in March 2021 and used the proceeds, along with part of the term loan, to redeem all of the outstanding Series B Convertible Preferred Stock.

Operational Highlights

The company’s global footprint, with 31 facilities across North America, Europe, South America, and Asia, provides flexibility to serve its diverse customer base. The company continues to focus on high-precision manufacturing capabilities, differentiated system-critical products, and long-term relationships with its blue-chip customer base. The sale of the Life Sciences business in 2020 further aligned the company’s strategy towards its Mobile Solutions and Power Solutions segments.

Risks and Challenges

The COVID-19 pandemic and related supply chain disruptions continue to impact the company’s operations and financial performance. The company faces intense competition in its markets and relies on a relatively limited number of customers, with the top 10 customers accounting for approximately 43% of net sales in 2021. The company’s global operations expose it to various risks, including foreign currency fluctuations, economic and political instability, and compliance with local laws and regulations.

Overall, the financial statements highlight NN Inc.’s efforts to navigate the challenges posed by the COVID-19 pandemic, strengthen its capital structure, and focus on its core Mobile Solutions and Power Solutions business segments to drive long-term growth and profitability.

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Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Revenue Decline

Net sales decreased by $5.9 million or 4.6% during Q1 2024 compared to Q1 2023, primarily due to lower customer pricing, rationalized volume at plants undergoing turnarounds, and the absence of premium pricing received in Q1 2023. This indicates potential challenges in maintaining revenue growth.

Profitability Concerns

The company reported a net loss of $12.5 million in Q1 2024, compared to a net loss of $10.2 million in Q1 2023. This widening of losses raises concerns about the company’s ability to achieve sustainable profitability.

Operational Efficiency

Cost of sales decreased by $7.3 million or 6.8% during Q1 2024, primarily due to a reduction in indirect manufacturing costs related to actions taken in 2023 to optimize plant operations. This suggests the company is taking steps to improve operational efficiency.

Debt Levels

The company had $209.5 million in total debt as of March 31, 2024, with $151.5 million in long-term debt. The high debt levels and associated interest expenses could constrain the company’s financial flexibility.

Cash Flow

Net cash provided by operating activities was $0.7 million in Q1 2024, a slight improvement from $0.2 million in Q1 2023. However, the company’s ability to generate consistent and sufficient cash flows remains a concern.

Segment Performance

The Mobile Solutions segment saw a $1.2 million decrease in operating loss, while the Power Solutions segment saw a $2.2 million increase in operating income. This indicates potential differences in the performance and growth prospects of the company’s business segments.

Macroeconomic Factors

The company is facing challenges from ongoing macroeconomic conditions, including inflationary pressures, supply chain disruptions, and labor shortages, which could continue to impact its financial and operational performance.

Overall, the financial statements suggest the company is facing revenue and profitability challenges, high debt levels, and operational efficiency concerns, which could pose risks for long-term investors. Continued monitoring of the company’s ability to navigate these challenges and improve its financial and operational performance will be crucial.

Financial Statements Quarterly 2024 Q1

Revenue and Profitability

Net sales decreased by 2.2% in Q3 2023 compared to Q3 2022, primarily due to reduced volume partially offset by higher customer pricing. The company reported a net loss of $20.5 million in Q4 2023, compared to a net loss of $2.2 million in Q4 2022, driven by higher costs, interest expense, and non-cash derivative losses. For the full year 2023, net sales decreased by 1.0% compared to 2022, while the company reported a net loss of $29.6 million, a significant increase from the $14.1 million net loss in 2022.

Segment Performance

The Mobile Solutions segment saw a 3.7% increase in net sales in Q3 2023, but a 93.8% decrease in operating income due to higher costs and lower volume. The Power Solutions segment experienced a 10.9% decrease in net sales in Q3 2023, but a 52.4% increase in operating income due to lower costs from facility closures and higher pricing.

Cash Flow and Liquidity

Cash provided by operations was $23.9 million in the first nine months of 2023, compared to cash used of $2.7 million in the same period of 2022, driven by improvements in working capital. As of September 30, 2023, the company had $21.9 million in cash and cash equivalents and $287 million available under its ABL Facility. Total debt was $212.8 million, with a net debt position of $190.9 million.

Operational Initiatives

The company continued its efforts to optimize its manufacturing footprint, closing several facilities in the Power Solutions and Mobile Solutions segments during 2023. These facility closures contributed to lower sales volumes but also reduced costs, helping to partially offset the impact of higher material and labor costs.

In summary, NN Inc faced challenges in 2023 with declining revenues and profitability, though it was able to improve its cash flow through working capital management. The company’s ongoing initiatives to streamline its operations and manufacturing footprint appear to be having a mixed impact, with some benefits from lower costs but also reduced sales volumes. Navigating the current macroeconomic environment and industry dynamics will be critical for NN Inc’s future performance.

Financial Statements Quarterly 2023 Q4

Revenue and Profitability

Revenue remained relatively flat year-over-year, declining slightly by 0.1% in Q3 2023 compared to Q3 2022. This was due to reduced volume and unfavorable foreign exchange effects, partially offset by higher customer pricing.

Gross profit margin declined from 16.0% in Q3 2022 to 15.9% in Q3 2023, primarily due to higher material and labor costs.

The company reported an operating loss of $2.7 million in Q3 2023 compared to a $2.7 million operating loss in Q3 2022, as higher costs offset the benefits of facility closures and cost-saving initiatives.

Net loss widened from $5.1 million in Q3 2022 to $14.4 million in Q3 2023, driven by higher interest expense and non-cash derivative mark-to-market losses.

Liquidity and Leverage

Cash and cash equivalents increased from $14.3 million at the end of 2022 to $21.8 million at the end of Q3 2023, driven by positive operating cash flow.

Total debt increased from $205.8 million at the end of 2022 to $215.8 million at the end of Q3 2023, primarily due to new international loans.

Net debt (total debt less cash and cash equivalents) increased from $184.0 million at the end of 2022 to $194.0 million at the end of Q3 2023.

Operational Initiatives

The company continued its efforts to optimize its manufacturing footprint, closing several facilities in the Power Solutions and Mobile Solutions segments during the first half of 2023.

These facility closures contributed to lower sales volumes but also helped reduce operating costs.

Segment Performance

The Mobile Solutions segment saw revenue growth of 5.2% in Q3 2023 compared to Q3 2022, driven by higher pricing, but profitability declined due to production challenges and a prior-year customer settlement.

The Power Solutions segment experienced a 7.7% revenue decline in Q3 2023 compared to Q3 2022, primarily due to the facility closures, but profitability improved due to the cost savings from these actions.

In summary, the company is facing headwinds from higher costs and unfavorable market conditions, which have pressured its profitability and cash flow. However, the company’s efforts to optimize its manufacturing footprint and reduce costs may position it for improved performance in the long run, if it can effectively manage the transition.

Financial Statements Quarterly 2023 Q3

Revenue and Profitability Challenges

Net sales declined slightly by 0.8% year-over-year to $127.1 million, primarily due to lower volume and unfavorable foreign exchange effects. The company reported an operating loss of $4.0 million, with an operating margin of -3.2%, reflecting production challenges and inflationary cost pressures. Net loss was $14.4 million, with a net margin of -11.5%, indicating significant profitability challenges.

Segment Performance

The Mobile Solutions segment saw a 2.6% increase in net sales, but operating income declined due to lower volume, production issues, and inflationary costs. The Power Solutions segment experienced a 5.7% decline in net sales, but operating income improved due to premium pricing on a customer project and a favorable legal settlement in the prior year.

Balance Sheet and Liquidity

Cash and cash equivalents stood at $14.3 million, with total assets of $538.4 million. Total debt was $210.0 million, resulting in net debt of $195.6 million. Working capital decreased to $106.4 million, down from $112.9 million at the end of 2022.

Cash Flow and Capital Expenditures

Operating cash flow was $8.4 million, with free cash flow of $1.2 million. Capital expenditures were $7.2 million, reflecting the company’s ongoing investments in its operations.

Outlook and Challenges

The company continues to face macroeconomic headwinds, including supply chain disruptions, inflationary pressures, and labor shortages, which are impacting its operations and profitability. The company is taking steps to optimize its manufacturing footprint, including the closure of certain facilities, to improve efficiency and reduce costs.

Overall, the financial results for the quarter indicate significant operational and profitability challenges for NN Inc, which will require the company to focus on cost management, operational improvements, and strategic initiatives to drive long-term sustainable growth and profitability.

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Earnings Call Analysis

Earnings Call Analysis 2024 Q2

Operational Improvements

The company has been driving significant operational improvements through initiatives like rightsizing headcount, negotiating with suppliers, upgrading plant managers, and consolidating SG&A roles. This has led to margin and profit rate improvements.

Turnaround of Underperforming Plants

The company had 7 unprofitable plants that were a drag on the bottom line. Through aggressive actions, 3 have already returned to profitability and the remaining 4 are making dramatic improvements, with the goal of all being profitable by the end of 2024.

Commercial Momentum

The company has been very successful in securing new business wins, capturing over $17 million in the quarter at a pace 3x the market growth rate. This new business will contribute to future earnings growth.

Disciplined Capital Allocation

The company is being very selective and disciplined in its capital allocation, focusing on accretive growth opportunities that leverage existing capacity rather than highly capital-intensive projects. This is important given the company’s current capital structure constraints.

China Automotive Growth

The company’s China operations, particularly in electric power steering and other vehicle control components, have been a strong driver of growth, leveraging the country’s export push and transition to electric/autonomous vehicles.

Ongoing Transformation

The company is in the midst of a multi-year transformation, with the first phase focused on addressing underperforming operations. The next phase will involve bringing in more professional management and further optimizing the company’s footprint and asset utilization.

Overall, the key insights point to a company that is making solid operational progress, securing new growth opportunities, and carefully managing its capital and resources – all of which should benefit long-term investors if the transformation continues to unfold as planned.

Earnings Call Analysis 2024 Q1

Transformation Plan Progress

NN is in the early stages of a multi-year transformation plan focused on strengthening the leadership team, fixing unprofitable areas, expanding margins, driving consistent free cash flow, and winning new business. The company is making progress on these initiatives, but there is still significant value to be unlocked.

New Business Wins

NN delivered record new business wins in 2023, with $63 million in new awards, up over 50% year-over-year. The new business is accretive to the company’s average profitability. This momentum is expected to continue in 2024.

Margin Improvement

NN is intently focused on cost productivity and improving its overall margin profile. The company delivered cost savings in 2023 and expects to continue identifying further cost reduction opportunities in 2024.

Free Cash Flow Generation

NN’s transformation efforts have driven significant improvements in free cash flow, which increased by $21 million in 2023. The company expects to continue generating positive free cash flow in 2024 to support debt reduction and future refinancing.

Cautious Outlook

While NN is seeing steady demand in its end markets, it is factoring in some headwinds in the North American commercial vehicle market for 2024. The company is being conservative in its sales outlook.

Balance Sheet Optimization

NN is focused on improving its balance sheet, with a target of reducing net leverage to below 3x during 2024. The recent sale-leaseback transaction and debt paydown are steps in this direction.

Caution on Company Statements

Investors should be critical of the company’s statements and pay attention to any implied caveats or uncertainties, such as the ramp-up costs associated with new business wins and the potential volume impact from facility closures.

Overall, NN appears to be making progress on its transformation, but there are still risks and uncertainties that long-term investors should consider. The company’s ability to execute on its initiatives and maintain its momentum will be crucial for driving long-term value.

Earnings Call Analysis 2023 Q4

Transformation progress

The company has made early but meaningful progress on its 5 key transformation goals – strengthening the leadership team, exiting unprofitable work, improving cost discipline, generating positive free cash flow, and accelerating new business wins. This suggests the company is taking decisive actions to improve its operations.

New business momentum

The company has seen a significant increase in new business wins year-to-date, almost doubling from the prior period. This indicates the company is successfully leveraging its capabilities to win new programs across multiple industries.

Profitability improvement

The company expects to achieve over $10 million in annual adjusted EBITDA improvement once its transformation actions are fully implemented. This suggests there is substantial room for margin expansion.

Cash flow focus

The company has become laser-focused on driving positive free cash flow, which has already translated to strong results in the quarter. Maintaining this cash flow discipline will be critical.

Market opportunities

The company sees robust demand environments across its end markets, including electric vehicles, electrification/grid, and medical. This provides a favorable backdrop for the company to grow its business.

Risks and challenges

The company still has work to do in addressing underperforming facilities and unprofitable contracts, which could take time to fully resolve. The impact of the UAW strike also remains a near-term uncertainty.

Overall, the company appears to be making good early progress on its transformation, but investors should monitor the pace and consistency of execution over the next 12-24 months to assess the long-term viability of the turnaround strategy.

Earnings Call Analysis 2023 Q3

Transformation Plan

The new CEO, Harold Bevis, has outlined a clear 5-part transformation plan focused on improving the leadership team, driving cost productivity, fixing underperforming areas, generating consistent positive free cash flow, and aggressively pursuing new business wins. This suggests a proactive approach to improving the company’s operations and profitability.

Cost Reduction Opportunities

The company has identified over $10 million in annual EBITDA improvement opportunities by fixing underperforming plants and customer contracts. Additionally, they are implementing a new cost productivity program across the organization to offset inflation and drive net productivity improvements.

Cash Flow Focus

The company has generated positive free cash flow on a trailing 12-month basis, which is an important milestone. Going forward, they are prioritizing cash flow generation through working capital optimization, cost reductions, and strategic capital allocation.

Demand Environment

The company is seeing a mixed demand environment, with some softness in the automotive/mobile segment offset by strength in electrification and grid infrastructure. This suggests the need for the company to be nimble and diversify its end markets.

New Business Opportunities

The company is focused on aggressively pursuing new business wins, particularly in areas like electric vehicles, connectors, shielding, and the medical market. This indicates a strategic shift to higher-growth, higher-margin segments.

Leadership Changes

The company has made several key leadership changes, including bringing in experienced transformation executives. This suggests a commitment to executing on the new strategic plan.

Overall, the key insights point to a company that is proactively addressing its operational and financial challenges through a comprehensive transformation plan led by a new management team. The focus on cost reduction, cash flow generation, and new business opportunities indicates a path towards improved profitability and growth.

Earnings Call Analysis 2023 Q2

Operational Challenges

The company is facing operational challenges at its Juarez facility, which is impacting profitability in the Mobile Solutions segment. Improving the performance at Juarez is a top priority for the leadership team.

Facility Closures

The company has closed or is in the process of closing five facilities, which is expected to generate around $11 million in improved adjusted EBITDA compared to 2022. This suggests the company is taking steps to optimize its operational footprint.

New Business Wins

The company has seen a 75% increase in new business wins compared to the prior year, with a focus on strategic segments like electric vehicles and power/electrical applications. This indicates the company is successfully executing on its growth strategy.

The company is facing headwinds in the residential and commercial construction markets, which are impacting the Power Solutions segment. However, the long-term outlook for these markets remains robust. The automotive market, particularly the electric vehicle segment, is expected to see continued growth, which aligns with the company’s strategic focus.

Financial Performance

The company’s financial performance was impacted by lower volumes, unfavorable overhead absorption, and reduced income from the China joint venture. However, the company has taken actions to improve its cost structure, including a 10% reduction in indirect labor, which is expected to result in $7 million in annualized cost savings.

Liquidity and Cash Flow

The company maintains strong liquidity, with $43 million in global liquidity as of March 31, 2023. Free cash flow improved compared to the prior year, but the company is still evaluating a potential preferred equity raise to further strengthen its liquidity position.

Overall, the company appears to be taking proactive steps to address operational challenges, optimize its cost structure, and position itself for growth in strategic market segments. However, the long-term investor should closely monitor the company’s progress in improving the Juarez facility’s performance and the impact of market trends on the Power Solutions segment.

Earnings Call Analysis 2023 Q1

Pricing actions

The company has been proactive in negotiating price increases with customers to offset inflationary costs, both material and non-material. They have secured $66 million in annualized price increases so far, with more negotiations ongoing. This shows the company is taking steps to protect margins.

Facility closures

The company is closing 5 facilities by Q2 2023, which is expected to generate $11-$12 million in improved adjusted EBITDA. This demonstrates a focus on optimizing the cost structure.

New business wins

The company has secured $131 million in new business wins through 2026, with a focus on electrical, EV, and “universal auto” segments. This indicates the company is aligning its strategy with growth areas.

Liquidity and capital structure

The company has negotiated amendments to its credit agreements to provide more flexibility on leverage ratios and increase liquidity. This suggests the company is being proactive in managing its balance sheet.

Operational challenges

The company is facing some operational issues, particularly in its Mexico facility, related to new program launches and high employee turnover. This is impacting profitability in the Mobile Solutions segment and will require time to resolve.

Outlook

The company’s 2023 outlook calls for improved sales, adjusted EBITDA, and free cash flow compared to 2022. However, the outlook assumes no major disruptions from macroeconomic factors, which introduces some uncertainty.

Overall, the company appears to be taking the right steps to navigate a challenging environment, but there are still operational hurdles to overcome. A long-term investor should closely monitor the company’s progress in executing its pricing, cost optimization, and growth initiatives.

Earnings Call Analysis 2022 Q4

Transition to Electric Vehicles (EVs) and Electrical Markets

The company is focused on aligning its growth strategy with the mega trends in the EV and electrical markets. 36% of its new business wins so far in 2022 are in these high-growth segments. The company sees significant opportunities in the rapid transformation of the energy and electrical equipment markets, driven by government regulations and increased corporate investments in sustainable energy. However, the ultimate path and timeline for the EV transition remain uncertain due to recent increases in inflation and sustained supply chain challenges.

Cost Reduction Initiatives

The company is actively working to optimize its production footprint and reduce costs, including the closure of 5 manufacturing facilities by the end of Q1 2023. These initiatives are expected to result in $10-$12 million in annualized adjusted EBITDA improvements, with about 75% of that benefit realized in 2023.

Pricing Power and Inflation Recovery

The company has been successful in adjusting product pricing to recover inflationary cost increases, though there has been a lag between the time of cost increases and the time of recovery from customers. The company expects to continue negotiating additional pricing adjustments with customers, particularly around non-material-related cost increases.

Macro Environment and Outlook

The company is seeing some caution from customers due to higher interest rates, increased OEM inventory, and concerns about the strength of the global economy. The company’s outlook for 2022 has been revised to reflect the tempered automotive volume expectations and supply chain interruptions, which have adversely impacted sales and margins. The company has not provided specific guidance for 2023 yet, but expects to see continued improvement in sales and profitability as its cost reduction initiatives are fully implemented.

Management Transition

The company announced the planned retirement of the current CEO, Warren Veltman, by the end of Q1 2023. The Board of Directors has engaged a global consulting firm to identify a successor with experience in the company’s targeted strategic markets, such as EVs and electrical equipment.

Overall, the key insights suggest that the company is taking proactive steps to position itself for long-term growth in the EV and electrical markets, while also addressing near-term operational and macroeconomic challenges. The management transition and the company’s focus on cost reduction and pricing power are important factors for long-term investors to consider.

Earnings Call Analysis 2022 Q3

Growth Opportunities in Electrical/EV Markets

NN is strategically focused on targeting growth in the electrical and electric vehicle (EV) markets, which are expected to represent over 20% of consolidated sales by 2025. This aligns with the company’s view of the megatrends shaping its markets, particularly the transition from a carbon-based to a sustainable energy economy.

Pricing Power and Inflation Management

NN has been able to secure full material cost pass-through with almost all of its Mobile Solutions customers, though there is still some lag in realizing the full impact of inflation. The company is proactively negotiating with customers to eliminate this pass-through lag and secure additional pricing flexibility.

Cost Optimization Initiatives

NN is undertaking various cost reduction and operational efficiency initiatives, including facility closures and consolidations, that are expected to improve adjusted EBITDA by $10-12 million. This is an important focus given the potential recessionary environment.

Working Capital and Cash Flow Management

NN is maintaining higher inventory levels to mitigate supply chain disruptions, which has impacted free cash flow. The company is focused on returning to more normal inventory levels and leveraging customer programs to improve receivables and working capital.

Reentry into Medical Market

After the expiration of a non-compete agreement in Q4 2023, NN plans to re-enter the medical market, leveraging its existing capabilities and potentially through M&A, to expand its presence in this attractive end market.

Macro Headwinds

The company is facing various macroeconomic challenges, including supply chain disruptions, labor shortages, and inflationary pressures, which have impacted its financial performance. The outlook reflects these ongoing headwinds, particularly in the automotive and aerospace markets.

Overall, the key insights highlight NN’s strategic focus on high-growth markets, its efforts to manage inflation and optimize costs, and the need to navigate near-term macroeconomic challenges, while positioning the company for long-term success.

Earnings Call Analysis 2022 Q2

Diversification and Strategic Shift

NN, Inc. is a diversified industrial company with two main segments – Mobile Solutions and Power Solutions. The company is strategically shifting its focus towards electric vehicle (EV) and electrical grid opportunities, reducing its exposure to internal combustion engine (ICE) dependent automotive business.

Operational Challenges

The company faced several operational headwinds in Q1 2022, including COVID-19 related absenteeism, supply chain disruptions (especially semiconductor chip shortages), and inflationary cost pressures. These impacted the company’s efficiency and profitability.

Pricing Power and Cost Recovery

The company was able to negotiate price increases with customers to recover a substantial majority of the inflationary cost pressures, especially in the Power Solutions segment. However, the Mobile Solutions segment faced more challenges in fully passing on these costs.

Cash Flow Management

The company is focused on managing working capital and capital expenditures to protect cash flow, given the uncertain environment. Free cash flow was negative in Q1 2022 due to increased accounts receivable from higher sales.

Growth Opportunities

The company’s sales pipeline has grown significantly, with a greater proportion of EV and electrical grid projects. This aligns with the company’s strategic focus on these high-growth markets.

Outlook and Guidance

The company reaffirmed its 2022 guidance, expecting 8-13% sales growth and 9-21% adjusted EBITDA growth, despite the ongoing supply chain and inflationary challenges. However, the guidance does not account for potential disruptions from COVID-19 or the Russia-Ukraine conflict.

Overall, the key insights suggest that NN, Inc. is navigating a challenging operating environment but is taking strategic actions to position itself for long-term growth in the EV and electrical grid markets. Investors should closely monitor the company’s ability to manage costs, protect cash flow, and execute on its strategic shift.

Earnings Call Analysis 2022 Q1

Diversification and strategic focus

NN, Inc. is a diversified industrial company focused on growing its business around applications independent of the internal combustion engine (ICE), particularly in electric vehicles and electrical grid expansion. This strategic shift is evident in the company’s pipeline, where 80% of opportunities are now ICE-independent.

Operational challenges

The company faced significant supply chain disruptions, particularly the semiconductor chip shortage impacting the automotive industry. This led to production disruptions and margin pressures in 2021. The company has taken actions to mitigate these challenges, such as increasing safety stock and negotiating price increases with customers.

Pricing power and cost recovery

The company has been successful in negotiating 100% material cost pass-through with the majority of its customers, allowing it to recover inflationary pressures. This suggests improved pricing power and ability to protect margins going forward.

Growth opportunities

The company sees significant long-term growth potential in electric vehicles and electrical grid modernization, as evidenced by the 8x expansion in its EV pipeline over the past year. The company believes it is well-positioned to capitalize on these trends given its diverse manufacturing capabilities.

Financial position and cash flow

The company strengthened its balance sheet through a $265 million refinancing in 2021, providing long-term financial stability. While free cash flow was impacted by one-time items in 2021, the company expects to generate $14-$20 million in free cash flow in 2022, suggesting improved cash generation capabilities.

Management changes and strategic focus

The company has made several key leadership changes, including a new CFO and Chief Commercial Officer, to drive its long-term growth strategy. The planned Investor Day and new website launch suggest a focus on enhanced communication and transparency with investors.

Overall, the company appears to be taking the necessary steps to navigate the current operational challenges, while positioning itself for long-term growth in its strategic focus areas. The key will be the successful execution of its growth plans and the company’s ability to protect margins in the face of ongoing inflationary pressures.

Earnings Call Analysis 2021 Q4

Supply Chain Challenges

The company is facing significant supply chain disruptions, particularly in the automotive sector due to the semiconductor chip shortage. This has impacted the Mobile Solutions segment’s revenues and profitability.

Pricing Power and Cost Recovery

The company is actively negotiating price increases with customers to recover material and other cost inflation. This suggests the company has some pricing power, though the pace of recovery is uncertain.

Shift Towards Electric Vehicles and Grid Infrastructure

The company sees long-term growth opportunities in supplying components for electric vehicles and power grid infrastructure. It is aligning its sales and business development efforts to target these strategic product applications.

Liquidity and Capital Allocation

The company has maintained a solid balance sheet with low leverage ratios. It is focused on prudent capital expenditure and working capital management to preserve cash flow.

Management Execution

The company has restructured its sales and business development teams, added industry-specific talent, and is in the process of recruiting a Chief Commercial Officer to drive its long-term growth strategy. The board appears to be supportive of the management’s strategic direction.

Uncertainty and Lack of Guidance

Given the ongoing supply chain and inflationary pressures, the company is unable to provide formal revenue or earnings guidance at this time. Investors will need to closely monitor the company’s ability to navigate the current challenges and execute on its long-term growth plans.

Overall, the company appears to be taking proactive steps to address the near-term headwinds, while positioning itself for long-term growth opportunities in the electric vehicle and power infrastructure markets. However, the pace and sustainability of the recovery remain uncertain in the near term.

Earnings Call Analysis 2021 Q3

Supply Chain Challenges

The company is facing significant supply chain disruptions, particularly related to semiconductor chip shortages impacting its automotive customers. This is causing production interruptions and inefficiencies at the company’s own facilities. The impact on revenue and margins is unclear, but the company expects these challenges to persist through the end of 2021 or into 2022.

Inventory Management

The company has consciously built up inventory levels to prevent supply chain disruptions from impacting its customers. This has led to favorable overhead absorption, but the company will need to carefully manage this inventory build in the second half to monetize the investment.

Margin Potential

The company indicated that incremental volume has the potential to drive 30-40% incremental EBITDA or gross margin contribution. However, the stop-start nature of production due to supply chain issues makes it difficult to fully realize this potential in the near-term.

Cash Flow Focus

The company is prioritizing cash flow generation through disciplined capital spending and working capital management. This will be important to fund growth initiatives and potential tuck-in acquisitions.

Long-Term Growth Opportunities

The company sees strong long-term growth potential in the electric vehicle and renewable energy infrastructure markets, which align with its product capabilities. However, the near-term impact of these trends is still uncertain.

Overall, the company appears to be navigating a challenging operating environment well, but the long-term investor should closely monitor the company’s ability to manage supply chain disruptions, inventory, and cash flow to capitalize on the identified growth opportunities.

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The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.