Q4 2020 NN Inc Earnings Call
[music].
Okay and welcome to the owner and Inc. Fourth quarter 2020 earnings Conference call.
All participants will be in listen only mode.
After todays presentation, there will be and opportunity to ask questions.
And do you need assistance. Please signal a conference specialist by pressing the star key from a pricing.
Please note. This event is being recorded I would now like to turn the conference over to Mike Sherman and Investor Relations. Please go ahead.
Thank you operator.
Everyone and thanks for joining us and Mark Schuermann, Vice President Treasurer, and Investor Relations and I'd like to thank you for attending todays business update.
Our presenters this morning will be president and Chief Executive Officer, Warren Veltman, and Tom to by our senior Vice President and Chief Financial Officer.
Last night, we issued a press release announcing our financial results for the fourth quarter and full year ended December 31, 2020, as well as the supplemental presentation, which has been posted to the Investor Relations section of our website.
Anyone needs a copy of the press release or the supplemental presentation. You may also contact Lambert and company at 6162585 to 788.
Before we begin I ask that you take take note of the cautionary language regarding forward looking statements contained in today's press release supplemental presentation and and the risk factors section of the company's annual report on form 10-K for the fiscal year ended December 31, 2019, the company's quarterly report on form 10-Q for the three months and.
And at September 32020, and when filed the company's annual report on form 10-K for the fiscal year ended December 31 2020.
The same language applies to comments made on today's conference call, including the Q&A session as well as a live webcast.
Our presentation today will contain forward looking statements regarding sales margins foreign.
And exchange rates cash flow tax rate acquisitions synergies cash and cost savings future operating results performance of our worldwide markets. The impact of the coronavirus COVID-19 pandemic on the company's financial condition and <unk>.
Other topics. These statements should be used with caution are subject to various risks and uncertainties many of which are outside of the company's control.
The presentation also includes certain non-GAAP measures as defined by SEC rules, a reconciliation of such non-GAAP measures is contained in the tables and the final section of the press release and the supplemental presentation.
Reviewing the agenda for today's call Warren will provide an overview of the year and Tom will provide a detailed update of our financial results before turning the call back over to Warren to discuss our segment results and markets as well as the outlook for 2021.
The conclusion of the prepared remarks, there will be a Q&A session.
At this time I will turn the call over one and veltman President and CEO.
Thanks, Mark and good morning, everyone. If you would turn to page four we will review some of the highlights for the year by almost any measure 2020 was a significant year for our company. We worked to overcome the adverse impact of the COVID-19, pandemic, while making significant progress on our business transformation I would like to take this opportunity.
<unk> to acknowledge the tremendous effort from all our employees over the past year. The COVID-19 pandemic took the world by storm, but our team showed resilience and servicing our customers while affirming their commitment to our company and the strategic transformation process, we initiated where those efforts we are deeply thankful throughout.
The year, we executed on our initiatives to conserve cash and improve our operating performance, we reduced our overall, our overall office and operational footprint to better reflect our ongoing needs and restructured our group leadership.
By far the largest transition we accomplished during the year with the completion of our review of strategic alternatives, which resulted in the sale of the life Sciences group for 825 million, consisting of $755 million and cash and a $70 million earn out based on 2022 performance. The cash received from this day.
I was used to significantly reduce our debt levels and provide a stronger foundation upon which we will build our mobile and power solutions business for long term growth overall, it was an eventful year, but one which we believe marks a significant turning point and the ongoing growth and the development of our company.
Turning to page six.
We have summarized some of the key highlights for the fourth quarter. As a reminder results from life Sciences have been reclassified as discontinued operations within our financial statements and the SEC filings from our third quarter 2020 form 10-Q finally onward.
Through the sale and the resulting debt reduction, we are positioned and and as a company with greater financial stability and flexibility to support long term growth.
This improved financial position also inspires greater confidence.
Customers suppliers employees and the communities, where we operate.
During the quarter, we saw ongoing recovery and our businesses from the pandemic related depths of the second quarter and we are optimistic that this recovery will continue into 2021.
The improvement and sales translated into improvements and the bottom line as well as thanks to many of the initiatives, we put in place to conserve cash and reduce operating expenses.
As we look ahead, we're excited about our refreshed and.
Dedicated prospects towards growing the mobile solutions and power solutions group, both groups demonstrated resilience and the face of the pandemic and do shutdowns by our customers and the broader economy, and we believe our competitive advantages will be driving factors and growth and the automotive electrical and general industrial.
Aerospace and defense and medical industries.
Turning to page seven we have summarized some of the other key highlights for the quarter overall, our business continued its strong rebound from the significant impact of the COVID-19 pandemic as we not only posted a sequential but year over year growth during the quarter sales for the quarter were $119 million up seven 5%.
From a year ago and up four 6% from the last quarter. The year over year comparison was also adversely impacted by foreign currency of $1 4 million or one 3%.
The improvement and sales volume coupled with the operational improvements we have implemented and resulted in solid gains at the bottom line.
<unk> operating loss improved significantly to 1 million versus $10 1 million one year ago non-GAAP. Adjusted EBITDA was $16 8 million or 14, 2% of sales up $5 million from a year ago. When EBITDA was 10, 6% of sales.
GAAP EPS from continuing operations was a loss of 44 cents per share versus a 25 cent per share loss from a year ago I would note that the loss for the current period was driven primarily by the $14 $8 million loss from hedge accounting and was recognized and the fourth.
There are 2020.
Our adjusted net income from continuing operations was a profit of <unk> 17 per share versus a loss of <unk> <unk> per share from the prior year.
Hey, Jay to the presentation summarizes our results for the full for the full year.
Our overall results for the year were significantly impacted by three main factors first the impact of the pandemic, which caused a significant decrease in sales mainly in the second quarter as well as the impact of the goodwill impairment that was recognized and the first quarter of 2020.
And the impact of hedge accounting and the fourth quarter.
<unk> sales for the year were $427 5 million down 12, 7% from a year ago.
Year over year comparison was also adversely impacted by foreign currency of $6 2 million or one 3%.
The decrease in sales volume combined with the goodwill impairment of $92 9 million resulted in a reported operating loss of $117 5 million versus a loss of $17 $6 million and 2019.
Non-GAAP adjusted EBITDA was $46 5 million or 10, 9% of sales compared to $56 4 million from a year ago. When EBITDA was 11, 5% of sales.
The reject the reductions and adjusted EBITDA reflect the significant and impact of the pandemic on net sales as well as our efforts to reduce operating costs.
Finally, our non-GAAP adjusted EBITDA fell to a loss of <unk> 16 per share and versus a profit of <unk> 19 per share last year, largely reflecting the impact of the decrease in sales for the year now.
Now I'd like to turn it over to Tom to <unk>. So he can provide a more in depth review of our financial performance for the quarter Tom.
Thanks, Warren let me start by highlighting some of the changes that we made to our presentation as we walk through the slides on todays call and the past I have walked through and earnings bridge and a number of other specific takes tables and great detail for those that appreciate these details they are still available and the appendix.
Two the presentation for reference.
I will address today are some of the high level metrics that define our financial and operational focus.
Please turn to slide nine.
Which highlights the impact of some of these actions we have taken over the past year.
And with continued recovery and our sales.
Despite the sales decrease our non-GAAP adjusted EBITDA fell at a much lower rate than would be expected given our 40% variable margins.
Well, that's the walk through how we get there.
With sales falling $62 million, the 40% variable margin would suggest that the adjusted EBITDA would fall $24 8 million from last year's $56 4 million to and implied $31 6 million.
However, we generated $46 5 million and adjusted EBITDA and outperformance of $14 9 million, reflecting the cost containment actions.
The actions we previously implemented.
Fourth quarter EBITDA was positively impacted by one 4% of sales due to temporary cost reductions associated with employee gain sharing.
Employee benefits and government subsidies that were reinstated in January 2021.
The remainder of the cost reductions are expected to be permanent.
Looking at the bottom chart you can see the continued recovery in our markets as reflected in our net sales.
After falling dramatically and the second quarter due to the impact of the COVID-19 pandemic and related production shutdowns at our customers, we have seen a rapid recovery sequentially and year over year and the fourth quarter.
We anticipate the sales recovery will continue during 2021.
Let's go to slide 10, which provides a look at our continued focus on working capital and its direct impact on our cash generation.
From the second quarter low we have seen a recovery and working capital turns and sales have recovered, but we have maintained discipline on our working capital, particularly inventory and receivables.
Net working capital at the end of the fourth quarter was $109 7 million compared to $109 3 million and the prior year, a slight decrease of <unk> 4 million working capital turns were four three turns versus four turns in the prior year and it.
And have improved sequentially since the second quarter.
Turning to slide 11. This slide shows the disciplined approach we have taken on capital expenditures over the past year with a primary focus on prudently managing our cash and you.
You can see on an absolute basis, we have reduced capex by about half compared to 2019 and in comparison to depreciation expense, we have come down from over 100% of depreciation to about 51%.
Cash capital expenditures, excluding life Sciences were $2 5 million or two 1% of sales for the fourth quarter.
Compared to $7 2 million or six 6% of sales and the prior year.
Total capital expenditures for 'twenty, and 'twenty were $15 9 million or three 7% of sales versus $32 6 million or six 7% and the prior year.
Capex for the full year, 2020 was well below the $20 million level, we discussed and our third quarter call.
We approach capital expenditures in terms of both sustainability as well as growth over the course of 2020, we eliminated or deferred projects that were not of immediate need but maintained the level of spending necessary to ensure long term growth objectives.
Slide 12 shows our chart of our free cash flow for the quarter, including our pro forma calculation.
To eliminate the impact of life science operations and related transaction expenses.
Pro forma free cash flow was $8 million for the quarter, consisting of $10 5 million and cash provided by operating activities less $2 5 million and capital expenditures we.
We are focused on lowering our working capital managing our capital expenditures and improving our profitability to increase free cash flows over the coming year.
Please turn to slide 13.
Net debt at the end of 'twenty, and 'twenty was $45 million versus $757 5 million and the prior year.
Decrease of $712 5 million as a result of the repayment of debt following the sale of life Sciences.
During the past year, our management team had been working on putting in our appropriate capital structure, we have taken a number of measures to reduce costs and improve liquidity as we eliminated the dividend cut capital spending and reduced fixed costs.
Sales of life Sciences, and associated debt reduction, where a big part of this and we continue to evaluate our options to address the upcoming debt maturities and overall capital structure.
We hope to have some more to report on these efforts and the near future.
Before I turn the call back to Warren I am pleased to mention that we have also improved our accounting controls framework throughout 2020 and have successfully remediated. The material weaknesses previously identified we have been working diligently over the past year to enhance our control environment and I am very proud of.
My accounting team, who helped make this happen.
And that I'll turn the call back to warrant.
Thanks, Tom.
On page 15, we outline our view of current marketing conditions within each of our operating groups within mobile solutions, we have seen a resumption of automotive production. Following the shut downs induced by the pandemic. These restarts have varied by region and byproduct and edition, we have recently seen a new challenge emerge and.
Production from a shortage of semiconductor chips that are essential for a variety of applications within each vehicle. These and other supply interruptions have allowed us to differentiate and then from competitors by utilizing our global platform engineering talent and logistic capabilities to maintain a source of.
Supply for our customers.
From an industrial perspective, the medium and heavy truck markets continue their steady growth and North America, Europe, and China, which has driven demand for diesel engines, specifically with China CN six emission standard deadline of July 2021, approaching we are experienced acceleration of volume prior to <unk>.
That effective day.
Within the power solutions energy companies are investing and grid modernization upgrades for aging infrastructure, including smart grid systems Green power generation and storage solutions.
We believe grid infrastructure investment will continue to grow as the transition to electric vehicles creates incremental electric demand.
Certainly these emerging trends and the new administration's prioritization on electric vehicles, and the infrastructure investments will bode well for our power solutions group.
We have presented additional information for each of our operating groups, starting with mobile solutions on page 16.
Mobile solutions sales grew 11, 8% and the fourth quarter from one year ago. As we saw continued recovery from the pandemic as well as favorable comparison on sales to GM suppliers due to a strike impacting the prior year.
We offset by mild headwinds from currency.
GAAP operating profit for the fourth quarter was $4 6 million compared to an operating loss of <unk> 6 million and the prior year adjusted operating profit increased nearly 370% to $6 8 million or nine 1% of sales from $1 5 million or two 2% of sales last year.
Adjusted EBITDA increased to $15 1 million or 21% of sales from $8 9 million or 13, 3% of sales and the fourth quarter of 2019.
Looking forward, we see continued demand growth and all regions, but we remain cautious given the recent supply chain challenges, we will continue to defend our cash flow through disciplined capital spending and working capital management.
On page 17, our power solutions group experienced a <unk>, 8% year over year increase in sales and the fourth quarter, which was driven by an increase and precious metals pricing, partially offset by lower overall demand, which continued to be adversely impacted by the COVID-19 pandemic, although sales were positively impacted.
By higher precious metal costs. These increases directly pass through and a lower margin to our customers, resulting in a headwind to overall margins.
And for some perspective, the price of gold increased 25% during 2020, while the price of silver increased 40% during the year.
GAAP income from operations for the fourth quarter was $1 8 million compared to $1 million and the prior year adjusted operating profit decreased to $5 1 million or 11, 6% of sales from $5 8 million or 13, 4% and sales in the fourth quarter of 2019.
And EBITDA decreased to $5 7 million or 13% of sales from $7 million or 16% of sales and the prior year.
The adjusted numbers also.
Act a conservative approach to what add backs, we employ and calculating our adjusted financial results looking forward, we continue to see positive demand trends and power solutions that we remain cautious given the continued uncertainty and the pandemic recovery.
I would like to now provide and update on our business transformation efforts and our outlook beginning on page 19, we have made significant progress and our business transformation over the past 18 months with actions surrounding sales and operational improvements our balance sheet and financial stability and our people and culture.
Let's start with sales and one of our primary opportunities and growing sales revolves around the synergies between mobile and power solutions. There are a number of near term and long term synergies to exploit between the two groups to enhance our overall sales group, including cross selling to our global diversified customer base.
Utilizing our global mobile platform to service power solutions customers and combining our resources to increase our penetration and the growing electric vehicle market.
Within power solutions, we see significant opportunity to take advantage of huge investment and the electric grid and capitalize on and investment we have made and our aerospace and defense business.
And the smart grid as well as enhanced grid infrastructure spending mark the biggest near term opportunity for growth.
From an operational perspective, we will as always continue to pursue continuous improvement initiatives across our operations globally with a specific focus and apply and best in class operating practices to each group.
And the balance sheet, we are committed to maintaining both and appropriate debt leverage and a disciplined approach regarding capital investments prioritizing projects that will generate long term sustainable growth and return on invested capital further we expect continued improvement and working capital turns to generate additional liquidity.
As it relates to our people, we will pursue a founder's mentality within our team. This means that our people take ownership of processes within their areas of responsibility and adopt and owners approach to operational efficiency and the elimination of waste.
We will invest and our employees to drive continuous improvement and our operations through training programs leadership training utilizing machine and system for problem solving and providing apprenticeship programs. We have also targeted increases and the number of customer development engineers and order to drive sales growth.
<unk> and the power solutions group.
On page 20, we displayed some of the growth markets. We are targeting as we execute our plan to exceed $600 million sales by 200 by 2025 as you can see we serve diverse.
Markets of considerable size with attractive long term growth rates. The majority of our target markets are growing at a compounded annual growth rates and the mid to high single digits with market sizes, ranging from 4 billion to 11 billion, providing plenty of runway for long term sales growth.
Of particular note on this slide and then sales to products that are dependent on the internal combustion engine or ice represented only 28% of our sales and 2020, we expect that percentage to decline to 21% by 2025, while we grow the business, we anticipate that and then we will capitalize.
And the substantial market opportunities afforded by growth and the electric vehicle electrical and aerospace and defense industries.
Turning to slide 21, I would like to summarize various opportunities and mitigating factors associated with the longer term evolution to battery electric vehicles.
As I indicated 72% of the product and then sell are not dependant most of our product portfolio is agnostic between ice hybrid or battery electric vehicles and as depicted on the chart.
And these components will remain in demand even after the last at powered vehicle rolls off the Assembly line.
Second our components are highly engineered and are critical to the performance characteristics of our customers products and.
And as automobiles and become more complex and our customers products and our components will become even more critical creating greater opportunities for additional sales.
Third our equipment is flexible and can be efficiently reconfigured retooled and redeployed to other product applications as customer demand evolves.
Finally, as I previously discussed this evolution will present opportunities for our power solutions group to supply contacts connectors bus bars, and other electrical components for both electric vehicles and the electric vehicle charging infrastructure necessary to support these vehicles.
As I conclude my remarks on page 22, we share our outlook for the coming year, given the continued uncertainty surrounding the COVID-19 pandemic and related recovery, we are not and are positioned to implement formal guidance at this time, but we want to provide some insight and how we see 2021 unfolding we expect a re.
<unk> of more normalized pre pandemic volumes and each of our business segments. However, the quarterly cadence of sales and sales growth will be more difficult to predict though we had a strong start to the first quarter with combined sales in January and February up 4% from the prior year.
As I discussed throughout this presentation, we expect higher sales and operating improvement to drive improved adjusted EBITDA results. Additionally, we will maintain our focus on liquidity and cash management and free cash flow.
For this specific.
Measures underlying our 2021 outlook, we anticipate capex and the range of $22 million, which is an increase over last year as we look to make necessary investments to support our long term growth. In addition, we expect depreciation of approximately $33 million and amortization of approximately $14 million.
Finally, we expect a worldwide tax rate of about 23%.
In summary, 2020 was it Europe significant challenge and challenges that tested <unk>.
Many of our operations, but I am glad to say that our team more than rose to the occasion, we made amazing progress and transforming our business for long term growth right sizing, our balance sheet and driving the financial stability and flexibility that will enable us to achieve our long term growth objectives over the next few weeks. We also plan to hit the road.
And at least virtually with a series of investor meetings to discuss the progress we have made and why we are so excited by the future potential of that net.
And that concludes our prepared remarks, and I will now turn the call back to the operator for questions.
Thank you we will now begin the question and answer session to ask a question you May press star and one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before question Keith.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And first question today comes from Daniel Moore with CJS Securities. Please go ahead.
Good morning, Tom and good morning, and thanks for taking the questions.
Morning.
Comments around the exposure to ice really helpful and how you're thinking about that over the next kind of three to five years. If we think about you know electricals.
And smart grid and particular I know you show a tam of $5 billion for electrical.
But whats the whats the overall exposure to that end market today, and what kind of percentage of revenue do you think that could be and that you know.
Five year timeframe, just trying to frame up.
How you think about the overall revenue opportunity for for NN NN over the next three to five years.
Yeah.
As you look at the electrical.
Industry as I said and my comments, we think that there is tremendous growth opportunities there and what we have on the sheet here is 5% to 7%, but we see subsets of that industry that also have growth profiles that actually exceed that level. So we're very excited about it obviously and as you see we're.
<unk> to go from 10%.
You can just do the math, 10% of 428 million to over 13% on the electrical side of $600 million, that's the opportunity that we're targeting.
As it unfolds in front of US we think that there is opportunity for us to not only grow with the industry. Okay. One of the things that I talked about was that I think that that group has been underserved over the last couple of years from a sales force standpoint, so one of the things that were.
Really focused on bringing in some some new sales representatives are what we call customer development engineers to pursue some of the customers that we have today.
And where there's significant opportunity for us to expand what we provide to them. So not only is there growth and the market, but there is there is additional penetration growth and market share that we think that we can grab with existing customers and other strategic customers that we've targeted.
Good.
That's really helpful. Okay.
And obviously, you've got a new board member and it certainly would be helpful in that regard.
Definitely part of the strategy.
No question.
In terms of <unk> you have a slide earlier that talks about this but if you were to rank order sort of end markets in terms of expected strength in 2021.
If you can provide any more color there that'd be helpful.
Sure I would tell you that.
<unk> talked a little bit about the auto side. There is some uncertainty there with the chip shortage.
And we're concerned about that and we're following that.
But we've seen some resilience still and our customer volumes, there and we haven't seen a lot of interruption most of our customers are pushing forward.
Either putting buffers in place or what have you and.
In order to deal with.
Potential surge.
Once the chip shortage goes away, we have some and customers.
Oems that have said, they're going to continue to build cars that we've seen.
And said they will put the chips and them when they are available later so.
Our volumes have remained relatively strong on the auto side, we see the diesel.
Piece of the business.
And the product that we have this and general industrial for diesel injectors.
Diesel dosing systems, we see that as being a very strong business for us over the next 18 months.
Got it that's helpful, maybe one or two more and I'll pass it off the balance sheet clearly.
And you enter 2021 and as good a shape as we've seen and a long time, maybe just talk about your priorities for capital allocation up until now it's been debt pay down, but we're now down under one times leverage.
You know you talked about capex or are there other.
M&A back on the table.
Share repurchases are at certain levels, just talk about your the overall capital allocation strategy.
Yeah.
Tom made a comment that were still looking at our capital structure, obviously, theres, some finalization and and fine tuning that needs to be done there and we're still working on that but as it relates to capital allocation we feel.
Comfortable.
You go back and look at the history of the company and 2017 and 2018, there was quite a bit of capital deployed.
And for various reasons, including the tariffs and the Chinese economy pulling back in mid 2018 that hasn't been fully utilized so one of the things that our team is doing right now is selling into what we think is some excess capacity that still exists and the business.
And thats going to be a huge positive for us because it will limit the amount of capex that we have to spend going forward and it will have I think a almost a turbo.
Charge the effect on our margins by adding that incremental volume. So that's our focus as we look at Capex spend we've had we've seen and I would tell you we've seen in 2021 or 22 timeframe some opportunity opportunistic opportunities.
Where we've had some other competitors that have had difficulty with product or would their financial situation and now.
Now that we are.
We can demonstrate to our customers that we have financial stability.
There is and they're looking at us frankly differently than they did 18 months ago.
That has brought some additional opportunity as well where customers have come back to us and asked us to help out and situations, where they might have held back on that 18 months ago.
And that's great to hear last from me just on that same topic, just remind us when the interest on the preferred steps up and options and potential timing for redeeming it.
Tom you want and take that one yes. So.
At March 31.
Premiums steps up by $5 million and so as I as I had mentioned Dan.
Working on AR and additional capital structure, but as we speak and we hope we will.
And the announcement and the near future so.
That's on a very hot right now.
Look forward more detail thanks, alright.
Alright, thank you.
Our next question is from Rob Brown with Lake Street Capital markets. Please go ahead.
Good morning.
Good morning.
I think you talked a little bit about kind of cross selling between your electrical segment and your automotive segment and the EV opportunity could.
Could you just give some further color on kind of where you're at in terms of developing that sales pipeline and.
And what kind of opportunities you see there.
At this point.
Yes, when you look.
Rob when you look at the amount of electric vehicles produced today.
And it's not significant.
When you look at a comparison to the overall right and the chart that we showed.
Shows at least the full electric vehicle.
IHS.
Forecast going up to about 20%. So we think that there is certainly a significant amount of time here for us to get engaged in that and there are numerous products that we manufacture today, the and up on electric vehicles.
When you talk about some of the electric power steering systems that we make some of the braking components that we make.
And that provide energy back to the batteries.
We're making some of those types of products today, we havent segregated them out fully in this presentation and that's something that we're going to work to do so as that business evolves. We think that there is significant opportunity.
Not only for the power solutions group, obviously mobile as well with some of the applications that I just talked about but on the power side I think last time, we talked.
Our analysis and show that there is 72 different connecting points within electric vehicle.
Those are areas that we're pursuing there are things that there are other new hu.
Innovations within electric vehicle that will almost like a circuit breaker will will cut off the power in the car and the amount of and accident.
To ensure that there's no electrification of any of the passengers or any rescue personnel that may show up on the scene.
And we're actively quoting and targeting some of those types of applications because they net some of our core capabilities.
So we're pretty excited on what and what.
What the opportunities are that exists there.
Okay great.
And then just some clarity on the talking about the China six emission standard driving some demand.
Could you elaborate on how that is driving demand and how you see that playing out.
Yes.
Some of the new standards.
I think announced 18 months or two years ago become fully into effect in July of 2021. So some of our customers are driving.
And to get so diesel engines and trucks.
As long as they're complete and in inventory by the end of June they can be sold subsequent so we've seen an acceleration of the demand for some of the components that we manufacture for diesel injectors and then we also a couple of years ago.
<unk> got into the diesel dosing side of that equation and we've seen the volumes increase significantly and that area as well.
Okay. Good thank you I'll turn it over.
Okay.
As a reminder, and do you have a question please press star.
The next question is from Steve Barger with Keybanc capital markets. Please go ahead.
Thanks, Good morning, guys.
Okay.
I appreciate all the modeling detail you provided I just want to make sure I understand EBITDA for 'twenty one.
Do you expect improvement from the adjusted <unk> 46, and a half you show on slide nine can you just refresh us on the updated thinking on incremental operating margin flow through from increased revenue this year.
So we say, 40% is our variable margins. So it should drop through of course, when we were going through the year as we get past. This pandemic, obviously travel will increase and and pluses I mentioned you know we had a we reinstall some of the temporary cost savings that we had which is about.
One 4% of our sales and Q4, so that's about $1 million.
Six that will impact.
Impact our margins going forward.
But.
So it should flow through at about a 40% clip.
Right well I know, it's hard to predict you know variable costs and the future like travel and things like that but does that the temporary costs roll off and whatever you are anticipating in the back half does that mean, we're thinking more like a 30% flow through this year or just any any kind of thoughts around that as you.
Normalize your cost structure.
Yes, I think I think you're safe to model and the 30% to 32% range from a flow through standpoint, Steve I mean, as we add some people.
We treat medical and medical and some of the benefits as a fixed cost and some of those will go up.
So tom's right, 100% accurate and that that our true variable as 40, but on a longer term basis as we shift the business and have to bring on additional resources. I think you are safer and the 30% to 32% range.
Got it and.
And and will and and be able to generate free cash flow. This year. After the actual impact of restructuring and variable costs coming back and any refi activity that takes place.
Along with the cash flow items, you listed on slide 22.
We expect that we will be yes.
Yes.
Can you any way to frame up what you expect that could look like.
Well, there's a couple of a couple of elements and we did show that on.
Page.
Page 22, you know what.
And it's going to be lumpy during the year, but.
Because we have this we have a tax payment on the.
On the sale of life Science, that's going to happen on April 15th of about six.
15, and $16 million, and then were expecting a <unk> refund, we'd been expecting a cares refund that kept.
And then pushed to the right, but we anticipate that being done in Q3 for about 12 million, so that'll be to the plus but but overall you know we feel that we're gonna be and let's say.
The high single digits or.
Closer to $10 million of free cash flow for the year around that approximately.
Okay, and as I think about that longer term, just kind of normalized free cash flow margin for NN and margin being percentage of revenue that turns into free cash flow and the average year.
Just given the.
Cost structure, you have in place now and how you think about you know what your capex requirements will be.
So we project our capex requirements to be in the range of about 2000 22 million going forward and as.
And as Warren mentioned, we have the excess capacity as we add.
A number of capital investments in the prior years.
And then we're looking to do more of the cross.
Cross selling and utilization of our factories to Repower and mobile so that should be a good trend going forward.
So well I guess I'll say it this way and a $10 million on whatever revenue is call. It $4 50 or $4 70. This year is very low single digit free cash flow margin can that get to mid single digit or and how do you think about that on a normalized basis in terms of the just the cash the business can generate every year.
Look I think that there is some there's some nuances to our free cash flow generation. This year as we continue to deal with our capital structure and unwinding that I think that our view is that that number can definitely double as we look out.
More than double as we look out into 2022.
Got it and I'll ask one more.
I just want to go back to Slide 20, you list. If I just added up a $40 billion total addressable market with the midpoint average growth rate of around 6% excluding electric vehicles.
The CAGR to the $600 million 2025 targets about 7%. So the plan has you growing at market rate plus or minus despite your unique capabilities as a manufacturer is that the net effect of of ice shrinking or how should I think about market share gains beyond market growth.
Yes, I think that there is some.
And some opportunity I mean, if you look at the ice dependent piece of it Steve.
There really isn't a lot a tremendous amount.
Pull back on that total volume when you multiply the percentages out because we don't expect that that's going to deteriorate significantly.
And it by 2025.
Still opportunities.
And in that business, we still see customers and investing.
And in those areas and asking us to.
Launch new projects.
We're not expecting a significant pullback there so.
Our view is that this is the.
And this is a growth rate and and a target and objective that we feel that we can achieve from an organic standpoint, and one of the questions. I got earlier it was as it relates to additional opportunities for us I think that that once our capital structure is finalized.
<unk> I think that that will put us in a position earlier rather than later to look at potential tuck in acquisitions that could complement what you see here.
Understood. Thank you.
Yes.
This concludes our question and answer session I would like to turn the conference back over to Warren Bachmann for any closing remarks.
Okay. I appreciate everybody's time. This morning, certainly thanks for the questions and I know, we'll have some follow up means that this afternoon, but.
And just overall very pleased with.
With our results for the quarter and pleased definitely with the direction that the company is going and looking forward to our conversation next quarter.
Thank you and thanks accounts.
And thank you for attending today's presentation.
And now this.