Nn Inc Q4 FY2020 Earnings Call

Good day, and welcome to the NN Inc's Fourth Quarter 2020 Earnings Conference. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Mark Schuermann, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and thanks for joining us. I'm Mark Schuermann, Vice President Treasurer and Investor Relations. I'd like to thank you for attending today's business update. Our presenters this morning will be President and Chief Executive Officer, Warren Veltman and Tom DeByle 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 a 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 & Company at 616-258-5788. Before we begin, I ask that you take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation and in the Risk Factors section in 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 ended September 30, 2020 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 the live webcast. Our presentation today will contain forward-looking statements, regarding, sales, margins, foreign exchange rates, cash flow, tax rates, 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 other topics. These statements should be used with caution and 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 in 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 the financial results before turning the call back over to Warren to discuss our segment results and markets as well as the outlook for 2021. At the conclusion of the prepared remarks there will be a Q&A session. At this time, I will turn the call over to Warren Veltman, President and CEO.

Thanks, Mark, and good morning, everyone. If you return to Page 4, we will review some 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 to acknowledge the tremendous efforts of all our employees over the past year. The COVID-19 pandemic took the world by storm. But our team showed resilience in servicing our customers while affirming their commitment to our company and the strategic transformation process we initiated. For those efforts, we're deeply thankful. Throughout the year, we executed on our initiatives to conserve cash and improve our operating performance. We reduced our overall office and operational footprints to better reflect our ongoing needs and restructured our group leadership. By far the largest transition we accomplished during the year was 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 in cash and a $70 million earnout based on 2022 performance. The cash received from the sale was used to significantly reduce our debt levels and provide a stronger foundation upon which we will build our Mobile and Power Solutions businesses for long-term growth. Overall it was an eventful year, one which we believe marks a significant turning point in the ongoing growth and development of our company. Turning to Page 6, we've 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 SEC filings from our third quarter 2020 Form 10-Q filing onward. Through the sale and the resulting debt reduction, we have positioned NN as a company with great financial stability and flexibility to support long-term growth. This improved financial position also inspires greater confidence with customers, suppliers, employees and the communities where we operate. During the quarter, we saw ongoing recovery in our businesses from the pandemic related disruptions in the second quarter and we're optimistic that this recovery will continue into 2021. The improvement in sales translated into improvements in the bottom line as well, 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 dedicated prospects towards growing the Mobile Solutions and Power Solutions group. Both groups demonstrated resilience in the face of the pandemic induced shutdowns by our customers and the broader economy and we believe our competitive advantages will be driving factors in growth in the automotive electrical, general, industrial, aerospace and defense and medical industries. Turning to Page 7, we have summarized some of the other key highlights for the quarter. Overall, our business continues to strongly 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 7.5% from a year ago and up 4.6% from the last quarter. The year-over-year comparison was also adversely impacted by foreign currency of $1.4 million or 1.3%. The improvement in sales volume coupled with operational improvements we've implemented resulted in solid gains at the bottom line. Reported 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 $0.44 per share versus a $0.25 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 that was recognized in the fourth quarter of 2020. Our adjusted net income from continuing operations was a profit of $0.17 per share versus a loss of $0.02 per share from the prior year. Page 8 of the presentation summarizes our results 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 in the first quarter of 2020 and the impact of hedge accounting in the fourth quarter. Consolidated sales for the year were $427.5 million, down 12.7% from a year ago. The year-over-year comparison was also adversely impacted by foreign currencies of $6.2 million or 1.3%. 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 in 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 reductions in adjusted EBITDA reflect a significant 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 $0.16 per share versus a profit of $0.19 per share last year, largely reflecting the impact of the decrease in sales for the year. Now I'd like to turn it over to Tom DeByle 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 today's call. In the past, I've walked through an earnings bridge and a number of other specific tables in great detail. For those that appreciate this detail, they're still available in the appendix to the presentation for reference. What I will address today are some of the high-level metrics that define our financial and operational focus. Please turn to Slide 9 which highlights the impact of some of these actions we have taken over the past year along with continued recovery in 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 let's 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 an implied $31.6 million. However, we generated $46.5 million in adjusted EBITDA, an outperformance of $14.9 million reflecting the cost containment actions we previously implemented. Fourth quarter EBITDA was positively impacted by 1.4% 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 market as reflected in our net sales. After falling dramatically in the second quarter due to the impact of the COVID-19 pandemic and related production shutdowns at our customers, we've seen a rapid recovery sequentially and now year-over-year in 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've seen a recovery in working capital turns. The sales have recovered but we've maintained discipline on our working capital particularly in inventory and receivables. Net working capital at the end of the fourth quarter was $109.7 million compared to $109.3 million in the prior year, a slight decrease of $0.4 million. Working capital turns were 4.3 turns versus 4 turns in the prior year 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. 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% depreciation to about 51%. Cash capital expenditures excluding Life Sciences were $2.5 million or 2.1% of sales for the fourth quarter compared to $7.2 million or 6.6% of sales in the prior year. Total capital expenditures for 2020 were $15.9 million or 3.7% of sales versus $32.6 million or 6.7% in the prior year. CapEx for the full year 2020 was well below the $20 million level we discussed in 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 maintain 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 Sciences operations and related transaction expenses. Pro forma free cash flow was $8 million for the quarter consisting of $10.5 million in cash provided by operating activities plus $2.5 million in capital expenditures. We're focused on lowering our working capital, managing our capital expenditures and proving our profitability to increase free cash flow over the coming year. Please turn to Slide 13. Net debt at the end of 2020 was $45 million versus $757.5 million in the prior year, a 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 has been working on putting in on appropriate capital structure. We've taken a number of measures to reduce cost and improve liquidity as we eliminated the dividend, cut capital spending and reduced fixed costs. The sale of Life Sciences and associated debt reduction were 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 in the near future. Before I turn the call back to Warren, I'm pleased to mention that we've 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 controlled environment and I'm very proud of my accounting team, who helped make this happen. With that, I'll turn the call back to Warren.

Thanks Tom. On Page 15, we outlined our view of current market conditions within each of our operating groups. Within Mobile Solutions, we have seen a resumption of automotive production following the shutdown induced by the pandemic. These recoveries are varied by region and product. In addition, we've recently seen a new challenge emerge in automotive 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 NN 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 in North America, Europe and China, which has driven demand for diesel engines, specifically with China CN6 emission standard deadline of July 2021 approaching. We're experiencing accelerations of volume prior to that effective date. Within Power Solutions, energy companies are investing in 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 infrastructure investments will bode well for our Power Solutions group. We've presented additional information for each of our operating groups starting with Mobile Solutions on Page 16. Mobile Solutions sales grew 11.8% in 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, partially offset by mild headwinds from currency. GAAP operating profit for the fourth quarter was $4.6 million compared to an operating loss of $0.6 million in the prior year. Adjusted operating profit increased nearly 370% to $6.8 million or 9.1% of sales from $1.5 million or 2.2% of sales last year. Adjusted EBITDA increased to $15.1 million or 20.1% of sales from $8.9 million or 13.3% of sales in the fourth quarter of 2019. Looking forward, we see continued demand growth in 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 0.8% year-over-year increase in sales in the fourth quarter, which was driven by an increase in precious metals pricing partially offset by lower overall demand which continued to be adversely impacted by the COVID pandemic. Although sales were positively impacted by higher precious metal costs, these increases directly passed through at a lower margin to our customers resulting in headwinds to overall margins. 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 in the prior year. Adjusted operating profit decreased to $5.1 million or 11.6% of sales from $5.8 million or 13.4% of sales in the fourth quarter of 2019. Adjusted EBITDA decreased to $5.7 million or 13% of sales from $7 million or 16% of sales in the prior year. The adjusted numbers were also flat. A conservative approach to what add backs we employed in calculating our adjusted financial results. Looking forward, we continue to see positive demand trends in Power Solutions but remain cautious given the continued uncertainty in the pandemic recovery. I would like to now provide an update on our business transformation efforts and our outlook beginning on Page 19. We've made significant progress in our business transformation over the past 18 months with actions surrounding sales, operational improvements, our balance sheet and financial stability and our people and culture. Let's start with sales. One of our primary opportunities in 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 growth 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 in the growing electric vehicle market. Within Power Solutions, we see significant opportunity to take advantage of huge investment in the electric grid and capitalize on the investment we have made in our aerospace and defense business. Investments in 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 on applying best in class operating practices to each group. On the balance sheet, we're committed to maintaining both an 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 in 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 an owner's approach to operational efficiency and the elimination of waste. We will invest in our employees to drive continuous improvement in our operations through training programs, leadership training, utilizing the Shainin system for problem-solving and providing apprenticeship programs. We've also targeted increases in the number of customer development engineers in order to drive sales growth specifically in the Power Solutions group. On Page 20, we displayed some of the growth markets we're targeting as we execute our plan to exceed $600 million in sales 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 compounded annual growth rates of mid-to-high single digits with market sizes ranging from $4 billion to $11 billion providing plenty of runway for long-term sales growth. A particular note on this slide, NN sales to products that are dependent on the Internal Combustion Engine or ICE represented only 28% of our sales in 2020. We expect that percentage to decline to 21% by 2025 while we grow the business. We anticipate that NN will capitalize on substantial market opportunities afforded by growth in 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 products NN sells are not ICE dependent. Most of our product portfolio is agnostic between ICE, hybrid or battery electric vehicles as depicted on the chart, and these components will remain in demand even after the last internal combustion powered vehicle rolls off the assembly line. Second, our components are highly engineered and are critical to the performance characteristics of our customers' products as automobiles become more complex; 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 pandemic and related recovery, we're not in a position to implement formal guidance at this time. But we want to provide some insight into how we see 2021 unfolding. We expect a resumption of more normalized pre-pandemic volumes in 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, cash management and free cash flow. For the specific measures underlying our 2021 outlook, we anticipate CapEx in 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 a year of significant challenges that tested many of our operations. But I'm glad to say that our team more than rose to the occasion. We made amazing progress in 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 years, we also plan to hit the road at least virtually with a series of investor meetings to discuss the progress we have made and why we are so excited about the future potential of NN. That concludes our prepared remarks and I will now turn the call back to the operator for questions.

Your first question today comes from Daniel Moore with CJS Securities. Please go ahead.

Comments around the exposure to ICE are really helpful and how you're thinking about that over the next three to five years. If we think about electrical and smart-grid in particular, I think you show a TAM of $5 billion for electrical. But what's the overall exposure to that end market today and what kind of percentage of revenue do you think that could be in that maybe five-year timeframe, just trying to frame up how you think about the overall revenue opportunity for NN over the next three to five years?

As you look at the electrical industry, as I said in my comments, we think that there are tremendous growth opportunities there. 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 see that level. So we're very excited about it obviously and as you see, we're expecting to go from 10%. You can just do the math, 10% of $428 million to over 13% on the electrical of $600 million. That's the opportunity that we're targeting. As it unfolds in front of us, we think that there’s opportunity for us to not only grow with the industry. One of the things that I talked about was that I think that group has been underserved over the last couple of years from a salesforce standpoint. So one of the things that we're really focused on is bringing in some new sales representatives or what we call customer development engineers to pursue some of the customers that we have today where there's significant opportunity to expand what we provide to them. So, not only is there growth in the market, but there's additional penetration growth in market share that we think that we can grab with existing customers and other strategic customers that we've targeted.

That's really helpful. Okay. And obviously you've got a new board member - that certainly will be helpful in that regard.

Definitely part of the strategy.

Yes, no question. You have a slide earlier that talked about this, but if you were to rank order sort of end markets in terms of expected strength in 2021. If you could provide any more color there, that would be helpful.

Sure. I would tell you that we talked a little bit about the auto side. There's some uncertainty there with the chips shortage and we're concerned about that and we're following it. But we've seen some resilience still in our customer volumes there. We haven't seen a lot of interruption. Most of our customers are pushing forward either putting buffers in place or what have you in order to deal with potential surges. Once the chip shortage goes away, we have some end customers OEMs that have said they're going to continue to build cars that we've seen and said they'll put the chips in them when they're available later so, our volumes remained relatively strong on the auto side. We see the diesel piece of the business. The product that we have that's in general industrial for diesel injectors, diesel dosing systems, we see that has been 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 is clearly - you enter 2021 in as good a shape as we've seen in a long time. Maybe just talk about your priorities for capital allocation up until now it's been debt paid down. But we're now under one-times leverage. You talked about CapEx. Are there M&A back on the table, share repurchases at certain levels? Just talk about your overall capital allocation strategy.

As Tom made a comment, we're still looking at our capital structure, obviously there's some finalization 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. If you go back and look at the history of the company in 2017, 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 in the business and that's 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, almost a turbocharged effect on our margins by adding that incremental volume. So that's our focus as we look at CapEx spend. I would tell you, we've seen opportunistic opportunities where we've had some other competitors that have had difficulty with product or with their financial situation. We can demonstrate to our customers that we have financial stability. They're looking at us frankly differently than they did 18 months ago. So that has brought some additional opportunity as well where customers have come back to us and asked us to help out in situations where they might have held back on that 18 months ago.

That's great to hear. Last from me on that same topic. Just remind us on the interest on the preferred steps up, options and potential timing for redeeming it?

Tom, do you want to take that one?

Yes. So at March 31, premiums steps up by $5 million and so as I had mentioned Dan, we're working on that additional capital structure as we speak and we hope to have an announcement in the near future. So that's where we are right now.

Your next question is from Rob Brown with Lake Street Capital Markets. Please go ahead.

I think you talked a little bit about cross-selling between your electrical segment, your automotive segment and the EV opportunity. Could you just give us further color on where you are at in terms of developing that sales pipeline and what kind of opportunities you sort of see there at this point?

Yes, when you look, Rob, at the number of electrical vehicles produced today, it's not significant. When you look at its comparison to the overall right and the chart that we showed, it shows at least the full electrical vehicle from IHS forecast going up to about 20%. So we think that there's certainly a significant amount of time here for us to get engaged in that and there are numerous products that we manufacture today that end 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, that provide energy back to the batteries. We're making some of those types of products today. We haven't 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's significant opportunity not only for the Power Solutions group, obviously Mobile as well where some of the applications that I just talked about. But on the Power side, I think last time we talked, our analysis showed that there are 72 different connecting points within the electric vehicle, those are areas that we're pursuing. There are new innovations within electric vehicles that will function almost like a circuit breaker will cut off the power in the car in the event of an accident to ensure that there's no electrification of any of the passengers or any rescue personnel that may show up on the scene. We're actively coding and targeting some of those types of applications because they fit some of our core capabilities. So we're pretty excited about the opportunities that exist there.

Okay great and then some clarity on the techs for the China, CN6 emission standard driving some demand. Could you elaborate on how that's stemming demand and how you see that playing out?

Some of the new standards that they announced 18 months or two years ago become fully effective in July of 2021. So some of our customers are driving to get diesel engines in trucks as long as they're complete and in inventory by the end of June they can be sold subsequently. So we've seen an acceleration of the demand for some of the components that we manufacture for diesel injectors and we also, a couple of years ago, got into the diesel dosing side of that equation and we've seen the volumes increase significantly in that area as well.

Okay, good thank you. I'll turn it over.

Your next question is from Steve Barger with KeyBanc Capital Markets. Please go ahead.

I appreciate all the modeling detail you provided. I just want to make sure I understand EBITDA for 2021. You expect improvement from the adjusted 46.5 you show on Slide 9. 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 margin, so it should drop through. Of course when we're going through the year, we get past the pandemic obviously travel will increase and plus as I mentioned, we reinstalled some of the temporary cost savings that we had which is about 1.4% of our sales in Q4, so that's about a $1.6 million that will impact our margins going forward. But it's still about 40% close.

Right, well I know it's hard to predict variable costs in the future like travel and things like that. But does that - the temporary cost roll off and whatever you're anticipating in the back half mean we're thinking more like 30% flow-through this year or just any kind of thoughts around that as you normalize your cost structure?

Yes, I think you're safe modeling in the 30% to 32% range from a flow-through standpoint, Steve. I mean as we add some people. We treat medical expenses and some of the benefits as fixed costs and some of those will go up. Tom, 100% accurate in that our true variable is 40%. But on a longer-term basis as we shift the business and have to bring on additional resources, I think you're safer in the 30% to 32% range.

Got it. Will NN be able to generate free cash flow this year after the actual impact of restructuring and variable costs coming back and any refinancing activity that takes place, along with the cash flow items you listed on Slide 22?

We expect that, we will be yes.

Yes.

Anyway to frame up what you expect that could look like?

Well it's a couple of elements and we did show that on Page 22. It's going to be lumpy during the year. But because we have a tax payment on the sale of Life Sciences that's going to happen on April 15 of about $15 million, $16 million, and then we're expecting a CARES refund that got pushed to the right. But we anticipate that being done in Q3 for about $12 million so that will be to the plus. But overall, we feel that we're going to be in 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. Margin begin percentage of revenue that turns into free cash flow in the average year. Just given the cost structure you have in place now and how you think about what your CapEx requirements will be?

We project our CapEx requirements to be in the range of about $20 million, $22 million going forward and as Warren mentioned we have the excess capacity as we had a number of capital investments in the prior year and then we're looking to do it more of the cross-selling and utilization of our factories through Power and Mobile. So that should be a good trend going forward.

So, well, I guess I'll say it this way, $10 million on whatever revenue is called 450 or 470 this year is a very low single-digit free cash flow margin. Can that get to mid-single-digit? Or how do you think about that on a normalized basis in terms of just the cash the business can generate every year?

I think there are some nuances to our free cash flow generation this year as we continue to deal with our capital structure unwinding. I think that our view is that number can definitely double as we look out more than double as we look out in 2022.

Got it and I'll ask one more. I just want to go back to Slide 20. If I just added up $40 billion total addressable market with a midpoint average growth rate of around 6% excluding electric vehicles. The CAGR to the $600 million 2025 target is 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 ICE shrinking or how should I think about market share gains beyond market growth?

Yes, I think that there’s some opportunity. I mean if you look at the ICE dependent piece of it, there really isn't a tremendous amount of pullback on that total volume when you multiply the percentages out because we don't expect that that's going to deteriorate significantly by 2025. So opportunistically we still see customers investing in those areas and asking us to launch new projects. We're not expecting a significant pullback there. Our view is that this is a growth rate and a target and objective that we feel that we can achieve from an organic standpoint. And one of the questions that I got earlier was as it relates to additional opportunities for us. I think that once our capital structure is finalized, it 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.

This concludes our question-and-answer session. I would like to turn the conference back over to Warren Veltman for any closing remarks.

Appreciate everybody's time this morning. Certainly thanks for the questions, and I know we'll have some follow-up discussions this afternoon. But just overall very pleased with our results for the quarter and pleased with definitely with the direction that the company is going and looking forward to our conversations next quarter. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.