NN Inc (NNBR) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the NN, Inc. first-quarter 2010 conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Monday, May 10, 2010.

I would now like to turn the conference over to Marilyn Meek. Please go ahead, ma'am.

Thank you. Good morning. Welcome to NN's 2010 first-quarter results conference call. If anyone needs a copy of the press release, please call my office at 212-827-3746 and we will be happy to send you a copy.

Before we begin, we ask that you take note of the cautionary language regarding forward-looking statements contained in (technical difficulty) press release. The same language applies to the comments made on today's conference call and live webcast, available at www.earnings.com.

With us this morning is Rock Baty, Chairman and Chief Executive Officer, and members of NN's management team. First management will give an update and an overview of the quarter and afterwards we will open up the lines for questions.

With that said, I would like to turn the call over to Rock. Rock, please go ahead.

Marilyn, thank you, and good morning, everybody, and thanks for joining the call. With me here in Johnson City this morning I have Jim Dorton, our CFO and Senior VP of Business Development; Will Kelly, our Chief Administrative Officer; and Tom Burwell, our Corporate Controller. Today, Jim will offer an analysis and commentary on the first-quarter and year-to-date results through March 31, 2010. I will conclude the call with additional comments regarding the first quarter as well as our most recent revenue outlook for both the second quarter and full year.

With that, I would like to turn the call over to Jim.

Thanks, Rock, and good morning, everyone. As pointed out in the press release, sales for the quarter were up -- were $85.3 million, up $27.4 million or 47% versus the first quarter of last year. This is a stunning recovery. But to put it in perspective, in dollar terms, this gets us halfway back to the pre-recession first quarter level of $121.5 million.

So we have some distance to go, but the good news is that we are seeing positive sales momentum in almost all sectors of the business. There could be some restocking going on in our customer base, but frankly we don't see it. Our customers don't seem to building any inventories, so we believe that most of the demand is for current production.

We were just above breakeven on reported net income, but if you take out the nonoperating or special items, we would have had net income from normal operations of $1.3 million. The special items are detailed in the press release. I will just review them quickly.

The first was a charge related to the closing of the Tempe plant, which we previously announced. The charge was for $1.5 million and that is $0.5 million in severance and $1 million in accelerated depreciation. We will have similar charges in the second and third quarter and then that will be finished.

We had $1.1 million pretax charge for the issuance of restricted shares. Normally when we issue restricted shares the charge will be spread over the three-year vesting period, but these shares vested immediately. So we took the hit up front.

Offsetting these $2.6 million in charges were a couple of positive items. The first was an FX gain of $0.9 million after tax and an adjustment to accruals for some European labor issues and that totaled $0.6 million after tax. So the net of the special items was $1.1 million. Adding that to the $0.3 million -- $0.2 million that we reported net income gives you the $1.3 million from normal operations.

Other than the special items, the major factor in the quarter was the increased volume at all of our plants. And for the remainder of the year, as I mentioned, we will take similar charges for the closure of the Tempe plant and we will also have other restructuring charges as necessary to continue to streamline our operations.

taking out the unusual items, we had net income of $1.3 million or 1.5% of sales. EBITDA was $9.2 million positive and this is versus $5.5 million negative this same quarter last year. For the past couple of quarters, I reviewed the gross margin trend by quarter and I will do that again today.

Starting with the first quarter of last year, the gross profit margins have gone from 3% to 5% to 11% to 15% and now to 19.2% this quarter. We mentioned in the past that we've taken many moves to cut costs and to improve our profitability profile and the results of the first quarter illustrate this. Prior to making the changes we did, NN's breakeven point for net income was in the $380 million range in annual revenue and now the breakeven point is below $330 million. We continue to believe that NN will be a more profitable company on the other side of this recession.

Our tax rate was 80% for the quarter, which continues to look strange because we are only booking tax charges or benefits at a few locations, principally the Netherlands and Italy, where we made money this quarter. We are not yet able to book tax offsets in the US and in some other locations. And due to the accounting rules, we need to be profitable with a three-year look back to start taking tax benefits in the US, and this probably will not occur until 2011.

The euro continues to fall against the dollar. The average rate was $1.48 in the fourth quarter and the average in the first quarter was $1.39. And as you probably know, the euro is below $1.30 today. Normally a weaker euro hurts NN profitability by reducing the dollar impact of euro earnings, the dollar amount of euro earnings. Right now, however, we have less of an impact to this translation effects because our overall earnings are low, but we see a larger impact on gains from the revaluation of US dollar intercompany receivables held by our European entities. This was the primary driver in the $1.1 million pretax -- $0.9 million after tax FX gain during the first quarter.

Looking at our financing position, we had total debt of $87.6 million, which was up less than $1 million from year-end. Our debt to EBITDA ratio is not yet back to normal, but it is getting there quickly. If you annualize the Q1 EBITDA, the debt to EBITDA ratio would have been 2.4 times. So we easily made all of our revised debt covenants for our amended credit agreements that we put in place in March.

If you look at the balance sheet, you can see a $10.3 million increase in accounts receivable, which reflects our rising sales levels. However, our inventory was flat with year-end. We are continuing to hold down inventory even as our production levels rise dramatically. We think we are seeing this phenomenon occur in a lot of industrial companies and with our customers. This is one reason that we are not overly concerned that our sales increase is due to restocking.

We have had a fairly slow start to our announced $16.7 million capital spending program. We only spent $1.4 million in the first quarter. Overall, our debt is a little more than $5 million below what we expected, and this is because of three factors. One, our earnings are higher. Two, the CapEx as I mentioned, had a slow start. And this, those two things were offset by the fact that we have higher receivables.

With the continued improved earnings, our net debt will likely be quite a bit below the forecast we gave the banks back in March.

That concludes my comments. Now Rock will talk more about the quarter, our recovery, and our business prospects.

Thank you, Jim. Let me begin with general comments regarding the first quarter. Like many industrial companies worldwide, NN experienced a very encouraging increase in demand in corresponding revenue during the first quarter of 2010. As Jim mentioned, revenues were up 47% in comparison to the same period of 2009. Equally encouraging is the sequential improvement we have experienced beginning in the third quarter of 2009. We have seen three quarters of revenue increases, up 15%, 18%, and then 13% respectively.

While both our automotive and industrial end market are growing, global automotive improvements have been very significant and the rate of increase in automotive has outpaced that of general industrial markets.

It is important to note that industrial end markets lagged our automotive markets entering into the recession by approximately a full quarter and this appears to be the case on the recovery side. The industrial markets have shown promise recently and forecasts are for the pace of the improvement to accelerate into the second and successive quarters.

From a margin and profitability perspective, we are also pleased with overall performance during the first quarter as revenues continued to improve. Based upon the cost reduction, cash preservation, and restructuring actions taken in late 2008 and 2009, we have dramatically lowered both our cash flow and net income breakeven point. The sequential margin enhancement we are seeing in each quarter reflects our most efficient -- our more efficient cost structure as we emerge from the recession.

Specifically on a 13% rise in revenue in the first quarter of 2010 from the fourth quarter of 2009, we achieved almost a 4% better gross profit margin. Our incremental revenue dollars are dropping to the gross profit line at a rate of 40-plus%. This is better leverage on the upside than we have ever experienced historically at NN.

I said in our year-end release and call that we were managing our working capital and cost structure very carefully as revenues improved. As Jim mentioned, inventories were essentially flat from year-end levels on an annualized revenue run rate increase of approximately 30%. Our business units continued to do an excellent job of managing all three elements of their working capital components.

In addition, they remain focused on the avoidance of permanent fixed cost additions to our cost structure as business conditions improve. Overall, the operating performance from each of our three business units, bearing components, rubber and plastics, and precision metal components, was excellent during the first quarter of the year.

I would now like to conclude today's call by commenting on the current quarter outlook that is the second quarter as well as discuss the full-year outlook.

I mentioned earlier that we have experienced three consecutive quarters of sequential revenue increases. We expect quarterly revenue sequential improvement to continue on into the second quarter of 2010. Based upon our current visibility through the end of the quarter, we forecast that revenues -- and I would note that currency may play a role in this comparison due to the recent strengthening of the dollar -- we will be up in the second quarter versus the first quarter by approximately 6% to 8%.

If this occurs, it would represent a whole year of quarter-over-quarter improvement for us and strong evidence from our perspective that the strength of the global economic recovery is very robust.

We are reconfirming our previous annual guidance for 2010 in the range of $315 million to $335 million. Based upon our experience during the first half actual and forecast run rates, we would expect to be at the higher end of this revenue range for the full year.

One cautionary note Jim spoke to. Although all indications are at least through the first half of 2010, it would appear the rate of growth will be excellent. We do have some concern that the so-called restocking effect will have run its course by the last half of the year and as a result could -- we could experience lower sales levels in the last half.

Although none of the macroeconomic numbers with respect to inventory supports this concern, for example, we haven't seen large growth in our customers' inventories as of yet, the underlying economic growth in our end markets are currently lower than we are experiencing in terms of improvement for the first half of the results, which at this point is somewhat unexplainable to us.

We will need to see continuing good news on the economic front in terms of growth in order to sustain our first-half results on into the second half of the year.

Jim touched on our capital spending plans for the year, a total of $16.7 million, a big number for us at NN. I mentioned in the March call that over 65% of the spending or $10.8 million is in support of five new programs for our precision metal components business unit, Whirlaway. These programs will be delivering -- will begin delivering up to $20 million of incremental new business in 2011 and are currently on schedule in terms of installing additional manufacturing capacity to accommodate the new business.

Obviously if the good news continues on the economic front, we expect to experience a corresponding improvement in net income, EBITDA, and cash flow from operations throughout the year. Leveraging our new and improved cost structure remains an ongoing focus of the entire Company.

As Jim mentioned, we anticipate further restructuring activities during 2010, including finalizing the Tempe, Arizona plant closing, among other activities in the remaining three quarters of 2010.

With that final comment, we would be glad to answer any questions you may have.

(Operator Instructions) Mark Parr, KeyBanc Capital Markets.

Good morning, guys. I had a little time in between United Technologies, Eaton, and Ingersoll-Rand, so I thought I would listen in this morning.

Thank you. Really appreciate it, Mark.

Any time, and you can strike that from the final transcript if you want. I've got no concern about that.

Hey, your comment about negative raw material passthrough effects and mix changes in the fourth quarter, could you -- or in the first quarter, could you talk a little bit about that and the sustainability of it moving into the second quarter and the third quarter?

Are you talking about specifically in the Q, Mark?

Well, just in the release. (multiple speakers)

Oh, in the release, I'm sorry. You know, that is just timing based upon passthrough versus what we are seeing. As I mentioned, I think I mentioned in the March call what we are seeing midyear. We actually had some reductions going back through the end of the fourth quarter of 2009 on into January 1 of '10. But the reality is that we are seeing increases midyear beginning probably June/July timeframe for most of our global buyers moving forward.

Okay, but you talk about negative effects of raw material passthrough, so that means you had increases on January 1 you haven't passed through yet?

No, reductions that we pass through to customers that had a corresponding revenue reduction in sales.

Remember, that's versus the first quarter of last year, not the fourth quarter. So it's hard to get -- it's not sequential. It's the same effect as currency. Currency was negative if you look at it from the fourth quarter point of view, but was a positive effect versus the first quarter of last year.

That's important to keep in mind on the currency effect, no doubt. And then the mix changes, that commentary was also on a year-over-year basis then, right?

Yes.

Okay, what do you think about your mix looking into 2Q and 3Q? Any commentary you can provide there?

See a slight change probably beginning in the third quarter based upon my comments associated with automotive strength versus the industrial end markets lagging. And so we would expect that we'd see some improvement on the mix front associated with industrial coming back a little bit stronger than we've seen in the first at least first quarter.

Does that have a lot to do with the seasonality of the automotive business?

Not necessarily the seasonality of automotive as much as just the fact that -- well, a little bit, probably, Mark, but honestly the industrial markets, as we mentioned, we saw a big lag entering and we have seen about a quarter lag exiting in terms of improvement. And of course our industrial markets and the unit prices from our private consortia with industrial are higher, tend to be higher companywide. That's the reason.

Any color you can provide as far as the profit recovery at Whirlaway versus your legacy businesses? It sounds like the first quarter surprised you a little bit on the upside. You are ahead of plan. Is that more in the shaft business or is it more in the ball and roller business where you are seeing the positive surprises?

I would say that the positive surprises versus our plans were across all three business units, mellow components, our bearing and our ball and roller businesses as well as plastics and rubber and the Whirlaway business. I will say this, though, that the earnings at Whirlaway for 2010 given the fact that we are ramping up new -- five new programs as well as consolidating a significant amount of business from Tempe into the Ohio operation, really have suppressed earnings for 2010 versus what we'd normally be seeing from them based on the recovery.

And so -- and of course that means we've got new employees in there, training new employees for the five-year program, the result of the Tempe consolidation. And so there are so many efficiencies associated with that business unit, but again, they are beating expectations versus plan, but not nearly to the degree that our other two business units are.

Okay, any sense about the quarterly run rate of the costs associated with that consolidation activity that's running through the P&L?

I don't think we -- we don't have that at our favorite tips, Mark. We can certainly get you that.

Okay. I just had another little just some bookkeeping items. The accrued severance payments, where did that show up in the P&L, the $0.5 million? Was that is in SG&A or cost of sales?

No, we have it in a separate restructuring line.

Okay, that's in a restructuring line.

That's the piece, the only piece that got in the restructuring line.

Okay, and then the labor cost adjustments, the $700,000?

Mostly cost of sales.

Cost of sales, okay, terrific. Hey, congratulations and I will get back to the Boeing conference call now.

Thank you, Mark. We love you, man.

We love you too.

Holden Lewis, BB&T.

Thank you, good morning.

We love you too, Holden.

Thank you very much, very sweet. Just trying to get a sense of -- these charges that you took, and I understand sort of the first two that you mentioned related to Tempe Arizona, and severance and things like that, and how that's truly sort of one-time restructuring type stuff. But these other three, should we be treating these as kind of unusual items because you're not going to take more charges related to the issuance of shares this year. But I mean, is that kind of an annual item?

And the issue with the European labor, again, is that kind of just maybe truing up some costs that are normalized going forward? And then same thing with the foreign currency gain. Are these -- they may have been sort of hitting this quarter in particular but do they represent constant ongoing things that might be somewhat random in the time they hit but are always kind of there and therefore shouldn't be stripped out?

Let me talk about the last two and if it's okay, Rock, you can talk about their stock. I think that the labor adjustments really were one-time because they related to some government programs, but one of them related to the government program related to the recession and that was just over accrued on our part. I think that his one-time, not that huge, but --.

And the other was related to a labor contract that probably could've gone either way, but we thought it fit in a one-time. So I think those are okay in that -- oh currency? Yes, you've got good point about currency. That can go either way, and so until we can get our unbalanced foreign-currency position balanced, which we are working on, we thought we would call that out as a separate item because it's a fairly big exposure, and we would like to get that -- we are trying to structure around that so we don't have that exposure. But until then, we were going to call it out as a special item, not just normal operations.

And then, Holden, on the grant of stock of shares, it is unusual to the extent of the magnitude of the charge. It is true that we don't expect to do it any more for the balance of 2010. To your point in 2011 and beyond, is something that is a normal cycle, but the magnitude of the charge, the $1.1 million significant versus what a normal charge would be. A normal charge might be in the $300,000, $250,000 to $300,000 range for a full year and this was $1.1 million for the quarter based upon the fact that the shares are fully vested at the award date.

Was there some reason why you opted to fully vest them immediately as opposed to doing your normal three-year routine?

There was. I think the compensation committee of the Board of Directors fully vested them on the basis of an acknowledgement of performance over the last 18 to 24 months. There were awards that went to 22 top managers in the Company and it was simply an acknowledgment of performance and the ability, frankly, to do it in a non-cash way versus obviously no ability to do that from a bonus perspective, given our current numbers.

And then just sort of flipping back to the ForEx earlier, Jim, as the currency swings more negatively for you then, can we kind of expect that that other line may also kind of have similar type swings in the negative direction? What is kind of the expectation for that?

Right. Well, the foreign-currency hit was taken at a euro rate -- the gain was taken at a euro rate of $1.36. If it stays where it is today, I think the euro is about $1.28 as we speak. We would have another big gain in the second quarter based on that. Of course, trying to predict the currency rate is -- (multiple speakers) we don't know. So if it's above $1.36, we will have a loss versus in the second quarter.

Got it, okay. I understand. And you said until you get things kind of balanced out, do you have any anticipation of when that might be so that these things can kind of come out of the model?

We think that we can do it within the next few months, but it's really a tax question and it's a kind of a complex question, so we are working on it. I think it's fair to assume right now that we will have volatility in that line item for a quarter or two and if we can get it resolved before then. Maybe we won't.

Okay, and then that item falls into that other line, right?

Right.

Okay, on the revenues, I am just trying to get a sense of -- if you don't think it's restocking but your markets seem to be or you seem to be growing faster than your markets, is there any sense either that you're gaining meaningful market share over somebody? Is there a sense that maybe there is companies that are getting a bit more flush or simply outsourcing more work to you?

What are the various scenarios that could go to explain why you are seeing your revenues do better than what you think they should be based on the market conditions?

I said and told it in my comments that it's somewhat unexplainable to us and it truly is. I do think -- I'm not sure if you saw the comments from the CEO of Caterpillar many months back. There was an article regarding the bullwhip effect and further down the supply chain you are, the bigger the snap relative to visualizing a bullwhip on the upside. And of course, we don't know the inventory. We have a pretty good feel for the inventory restocking and the fact that it has not occurred one level up from us in the supply chain, and that is our customers.

But our customers' customers and their ultimate customers, we don't have a good view of that. And I think if we did have a good view of it, we would see that their ordering patterns are reflecting somewhat of a restocking in the first six months of the year.

And of course we couldn't explain on the downside a year ago right now when we were going through the whole explanation of how far down we were, which is more than 50% in the first six months of '09 versus '08, we couldn't explain that either. And so I think the reality is that there is some of this dramatic increase that is associated with restocking based on our customers' customers.

But again if you look at the macro data and I'm sure you have -- well actually some of your industrial report shows it very well every week, Holden, but inventories just from a pure macro perspective on industrial companies have not grown. They have come down and they flatlined and we are not -- at NN, we are not unique. We took $20 million out of inventory during the recession. In the first quarter, we flatlined. We haven't added inventory. Those revenues have increased. And I don't think we're unique. I think that's pretty much what every industrial company is trying to accomplish out of the recession here.

Okay. Fair enough. And then with regards to sort of this 315 to 335 I think was kind of the sales number that you are looking at, that range, that implies that the second half is going to be anywhere from down mid-single digits to up high single digits in the second half over the second half of last year. I know that comps are certainly a factor here, but given the growth you are seeing in the market, does that --? I guess what negative scenarios would have to occur for you to actually see revenues down year-over-year in the second half? What are sort of the scare scenarios for you?

I think I mentioned that we obviously need to consider to see continuing economic improvements like we have been quarter-to-quarter for --. But of course, the comps get a little bit tougher in the second half because as I mentioned in my comments, we've had four consecutive quarters of incremental growth quarter-to-quarter. And so the last -- we really started seeing improvement in the last half of '09 at a much better rate, annual run rate than obviously we did in the first half.

And we also -- I also said that obviously you see that we would be at pretty much at the top end of the revenue guidance. We contemplated maybe bumping the guidance up a little bit, but then said you know what? We are just -- I don't know if it's called snake bit or what, but we just said, hey, let's just keep it the way it is but also give folks the guidance that we really expect to be at pretty much the top end of the guidance itself.

Okay. What are you expecting in terms of tax rate for the balance of the year?

That's a real tough one. I've got 15% in my forecast model, but it could -- it really varies. So you could put zero in there. You could put a small amount like 10% or 15%, but it really depends on where we make the money and --

Okay, and then when you look forward into '11 and '12, do the tax rates get higher going forward or lower given that you might be able to recognize some of these losses a little bit more easily?

I'm going to ask Tom Burwell, our Controller, to comment on this, but in general when we come back into profitability with a look back, then we will get -- we will take a gain on the deferred tax. Maybe you can comment on that -- how it would happen, and then we get back to the 37% or so average rate again.

Essentially as of now, we are -- any tax benefit that we would recognize in the US would basically be at a zero rate, so we are recognizing taxes that our Netherlands subsidiary, which has about a 25% rate and our Italian subsidiary, which has a tax on their labor that they have to pay, so their rate looks very inflated and very low net income level but kind of it becomes lower as the net income rises.

But what will happen in 2011 if that's the point where we get the three-year look back where we are profitable, we will recognize a benefit -- could be of the magnitude that we -- of the [decrement] that we have recognized in Q2 of 2009, you know, $5 million to $6 million or so or more depending upon what that amount is at the point that we recognize the deferred taxes again. At the same time as we utilized in the previous quarters too.

But the timing on that is pretty difficult to predict.

It is very difficult to predict. It has to do basically with a three -- we have to look at a three-year look forward essentially actual at the point where our US-based businesses are -- have a cumulative net income from a three-year standpoint.

But if we had to hazard a guess right now, we would say that the tax rate would come back in 2011.

We'd book this gain and then we would go back to the 37% average rate (multiple speakers) in 2011 would be our guess.

That's our guess right now, Holden, but --.

You would just look at the gain as kind of being a one-time tax benefit? Other than that, it would be back in sort of that 37% rate?

Right. And the magnitude of the gain would depend upon how much we utilize in the quarters leading up to that point. Of those (multiple speakers)

But it's reasonable to sort of be using kind of a mid-30% type range in the out years?

Yes, because that's the rate in the US. It's lower, which is the highest rate in the world -- except for Italy, where we have the special labor tax which for GAAP purposes counts as income tax. So it puts us at 37% or so.

I guess just last thing, you talked about doing 40% plus type incremental margins at the gross margin line. How long would you expect that to be able to sustain itself? I guess this leads into a question about SG&A, just when costs begin to come back in the model at a more normal clip, what level of revenues or what have you do you think you start to see some degradation of rate of incremental improvement?

A slight degradation in 2011, Holden. As I mentioned, we don't have normal SG&A costs in for employee variable comp and management variable comp on the bonus side. There obviously hasn't been any of that in 2009 and 2010, so you would expect to see a small degradation associated with that. But honestly we don't see adding to the fixed costs base of the Company in 2011 much beyond an issue like that.

And I would also say that we continue to look in '10 as a transition year to fully capture additional restructuring in the Company where it makes sense. And Jim spoke to that in his comments. But beyond Tempe, we continue to have areas of focus where we want to restructure the Company so that beginning in 2011 particularly, we have somewhat of a clean slate associated with our fixed cost structure as we respond or rebound from the recession.

So any other restructuring that you do, you actually plan on having that completed as well in 2010?

Yes.

Okay. So you haven't necessarily announced some things yet but you would anticipate that anything else you do can be both announced and completed pretty quickly in the 2010 frame?

Yes, some of them aren't major, but again, they involve looking at the entire Company and the cost structure and our footprint globally and saying what makes sense moving forward. So yes, we would have -- we would expect to have all that done, announced, and finished by the end of this year.

Okay. Thanks, guys.

(Operator Instructions) John Walthausen, Walthausen & Company.

Yes, good morning. In terms -- particularly in your metal bearings components business, can you talk about what capacity utilization you are operating at right now?

If we had to guess right now, it would be in mid-60s to 70.

Okay, and since we've had the big surge back, does that imply that you probably are carrying more capacity than you need even to deal with surges that customers might have?

As of today, yes, we could answer yes to that.

I think it's fair to comment -- we didn't say this earlier -- we also have some raw material limitations in that our inventories are low. The raw material inventories are low and there is a long lead time on getting sealed. So we have lots of excess capacity. In some cases, we can't meet customer demand today because of raw material.

Right, okay, that makes sense. If you're at 60%, 70% capacity utilization, that would imply that for at least another 10% or even maybe even 20% incremental volume, you should be able to capture those high incremental margins.

Yes, that's correct, I would also comment that when we respond with a 65% to 70% rate from utilization, we are talking normal operations. When I say normal operations, they tend to be five days a week, three shifts a day, 24 hours a day.

And many of our operations because of such a high fixed cost capital intensive business from the equipment side and successfully run, then add another 10% to 20% to that number with one additional day of schedule in a seven-day week.

Good, good. And then you may have mentioned this, I'm not sure. The suggestion that the second quarter might be 6% to 8% incrementally higher on revenues than the first quarter, was that based on first-quarter exchange rates or on current exchange rates?

It was actually based on the average for the first quarter exchange rate.

Right, so we should need to haircut it a bit if they stay down where they are. Okay, good. Thanks an awful lot.

(Operator Instructions) a follow-up from Holden Lewis, BB&T.

Thanks, guys. Why were the receivables up as much as they were? Is that just a function of demand or is a pop like that -- is there something else in the number there?

No, there's nothing in it except the actual sales increase over the previous few months. We had -- and timing issues. There's no collection issues per se. Our days sales outstanding was up two days, but that's really just kind of a month-end phenomenon of where we ended with some customers owing us.

With the small number, relatively small number of big customers, what you collect on the last day versus what you collect three days later can make a big swing for us. And that's all that is.

Okay, and then just getting to Mark's question earlier about sort of the price mix element, how should we look at that as you go forward? Obviously it's gotten bigger and bigger each time, but like you said, if automotive production stabilizes and industrial grows, presumably mix starts to work for you, you have the passthroughs that are going to start to work for you. But does that line then simply turn positive as you go into the second half or is it in a hole such that even with improvements it's going to take awhile before that slips to positive maybe into 2011? How is that line going to work?

The timing is very difficult to predict, Holden, but if we had to guess, again, we would expect to see it to trend probably positive beginning in the last half, sometime in the last half of 2010 versus the same period of a year ago.

Okay, so in your revenue projections, what are you assuming for price mix in Q2 for that component of it?

Well, flat in for -- in that projection it would be -- we would be actually forecasted flat.

Is that just kind of a plug or that's kind of where you think that comes in?

Well, it's kind of a plug but we actually looked at it and said just under the same basis as the mix in the first quarter, where would we be in the second as well?

Okay. Great, that should do it. Thanks.

[Frederick Brown], Janney Montgomery Scott.

Sir, is it possible to break down your sales domestically and internationally? And is it -- is one -- have you seen an increase from one over the other?

It's a good question. I don't think we can give you any breakdown specifically, but I would say that the improvement that we have seen historically has been global in every way. We have got a single facility in China and the results have been very strong there.

What are you passing me there, Tom? Yes, slight -- slightly more improvement in Europe than North America and a much bigger improvement in Asia/China. Of course that's a much smaller percentage of our total revenue, so the impact there doesn't -- you could somewhat dismiss. But slightly higher improvement in Europe than North America.

Thanks very much.

Thank you. Management, there are no further questions at this time.

Okay, let me conclude today's call by stating that we are very encouraged by the results we are experiencing in all of our global operations. The recession of 2008 and 2009 was global in nature and our recovery then has been global in nature as well.

Each of the global regions we serve, North America, Europe, and Asia, has shown real improvement over the last several quarters. Although we remain somewhat guarded in our enthusiasm, it is also safe to say that we like our recovery prospects at (inaudible) end. We are well positioned to respond to our customers' increasing demands from a capacity point of view and to do so profitably.

We look forward to the coming year and the promise of a significantly better global economic outlook. Thank you again for listening to today's call.

Ladies and gentlemen, this concludes the NN, Inc. first-quarter 2010 conference call. If you would like to listen to a replay of today's conference, please dial 1-800-406-7325. For international participants, please dial 1-303-590-3030 and enter the access code 429-3844 followed by the pound key. The replay will be available until May 17, 2010. Thank you for your participation. You may now disconnect.