NN, Inc. (NNBR) Q1 2013 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and thank you for standing by. Welcome to the NN, Inc.’s First Quarter 2013 Conference Call. During today’s presentation, all participants will be in a listen-only model. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Tuesday May 7, 2013. And I would now like to turn the conference over to Marilyn Meek. Please go ahead.

Thank you and good morning. Welcome to NN’s conference call. If anyone needs a copy of the press release, please call my office at 212-837-3773 and we will be happy to send you a copy. Before we begin, we ask you take notice the cautionary language regarding forward-looking statements contained in today’s 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 the NN’s management team. First, management will give an update and an overview of the quarter, and then afterwards, we will open up the line for questions. With that said, Rock, I will turn the call over to you.

Thank you, Marilyn. Good morning everybody and thanks for joining the call this morning. With me in Johnson City, I have Jim Dorton, our Senior Vice President and Chief Financial Officer; Will Kelly, our VP and Chief Administrative Officer and Tom Burwell, our Vice President and Chief Accounting Officer. Today, Jim is going to offer an analysis and commentary on our Q1 2013 results and I will conclude the call with additional comments regarding the quarter as well as providing updated guidance on our revenue outlook for 2013. With that, I will turn the call over to Jim. Jim

Thanks, Rock, and good morning, everyone. I would like to start out by saying that we counted up and this is Rock’s 65th conference call with NN and that is quite a ride for any CEO and we just wanted to say thank you for that. Okay. So onto the quarter, we did not see a fundamental recovery in Europe and Asia markets during this first quarter, but we did see some pockets of improvement. Sales of $93.8 million were 10.3% below the first quarter of last year, but up 17% from the fourth quarter. European sales of tapered rollers were stronger than expected and sales of balls or also a little better than expected. The US automotive markets were fairly strong in terms of unit sales, but production on some of the platforms that NN serves was soft due to inventory levels for the U.S. automakers. We saw some of this we mentioned in the fourth quarter and it continued into the first quarter as well. Asian markets were still fairly week, with sales a little above the fourth quarter levels for us. So to summarize the demand situation, we can say that the US remains fairly strong, but that the recovery in Europe and Asia has yet to begin in earnest. We believe that our major customers are still keeping tight inventories and so we haven't seen much evidence of a reversal in destocking impacts that we mentioned in previous quarters. We are expecting still an improvement in volume in the second half based on some modest market recovery and improving inventories. Meanwhile our profitability performance remains quite strong. Gross margins of 20.6% were above our plan and well above the 18.1% we had in the fourth quarter. EBITDA margins from normal operations were 11.4%, which was also above our plan in the fourth quarter level. Our Level 3 continuous improvement program continues to deliver excellent savings that are offsetting the impacts of low volume and inflation. I’d like to note that the gross margin change on the $10 million sales decline was at a 21% rate whereas we expect gross margins to increase at a 30% to 35% marginal rate. The fact that the marginal decline was at a much lower rate level shows our ability to hold down fixed cost in a difficult environment. Net income from normal operations was $3.6 million or $0.21 per share, this compares with net income from normal operations of $6.6 million or $0.39 per share in the first quarter of 2012. Gross margin percentages were at the same level as last year, which is really good considering the 10% lower revenue. The difference in net income from last year was primarily due to the lower sales levels and higher tax rates which as you will recall from the fourth quarter are higher now that we are again taking tax expense against earnings from U.S. operations. The effective tax rate this quarter was 32.8% versus 18.2% in the first quarter of last year when we did not accrue tax on U.S. operations. And we would expect the tax rate for the remainder of this year to be near the first quarter level. We had three items that we excluded from normal operations during the quarter. The first is the exclusion of the foreign exchange losses on inter-company loans totalling $552,000 pretax or $350,000 aftertax or $0.02 per share. We exclude these gains and loss each quarter and they typically net out during the year. The next excluded item was a charge for an early retirement program at one division and a reduction in force at another unit totalling 415,000 pretax or 301,000 aftertax about $0.02 a share. And the last item was the exclusion of some follow on costs related to our European cash repatriation project which we completed in the fourth quarter and this had an impact of little less than $0.01 per share. And you may recall we talked about this in the fourth quarter of that project and we did exclude all those costs from normal operations in the fourth quarter. So in total, we excluded $749,000 in aftertax costs of $0.04 per share from normal operation during the first quarter. SG&A was $9.1 million during the quarter including the non-operating items that I just covered. This compares with $8.1 million in the first quarter of last year and $7.3 million in the fourth quarter of this year. And we thought this was worthy of some explanation. The fourth quarter number was unusually low due to year end adjustments of accruals so the apparent increase over year end is artificially high. However, SG&A spending was approximately $1 million higher than we expected due to several non-repeating items that include restructuring and severance costs that I mentioned; recruiting and relocation costs; professional fees for completed projects; and foreign exchange on non-U.S. dollar sales and those are foreign exchange gains and losses that we always include in normal income. Going forward for the rest of this year, we would expect SG&A to average about $8.1 million per quarter from normal operations, which would bring the total to 8.9% of revenue for the full year using the middle of our revenue guidance range and this is fairly near our historic average. The other income statement items were in line with the previous year and with our plans. We are still on track to have higher pretax income and EBITDA in 2013 than in 2012, which was a record in both net income and EPS. And this assumes no further weakening of the U.S. market and some very modest recovery in Europe and Asia. Looking at the balance sheet, you’ll see the normal seasonal impact of the low December sales versus higher sales in February and March. AR was up $15 million, but DSO actually dropped slightly. We kept a tight control on the inventories, so we actually had a decrease of $1.6 million in inventory and a 10 day decrease in days of inventory. Payables were up slightly with the higher volume levels. We had capital spending of $3.2 million during the quarter, which is in line with our announced plan of $17 million for the year. The majority of the spending as expected was for new sales programs at . As mentioned last year, we will gage capital spending to the actual business levels we’d see for the remainder of the year. So for the quarter we had negative cash flow of $5.5 million, which is in line with our normal seasonal trend. We continue to expect to have positive cash flow in 2013 at similar levels as in 2012. This will allow us to fund debt reductions, acquisitions, and dividends or buybacks if declared. That concludes my comments. Now Rock will give you some further information on the quarter and the remainder of the year.

Thank you, Jim. I’ll begin with the general comments that pretty much mirror what Jim said regarding the first quarter. Revenue and earnings for the first quarter we are up actually 6% from our internal business plans, which again we anticipated continuing soft demand in Europe when we built the plant. As we expected, we experienced sequential growth from the fourth quarter of 2012 in each of our businesses based upon seasonality that Jim also mentioned. Total revenue was up 17% from Q4 of 2012; however, consolidated sales revenues were up $93.8 million during the quarter were down 10.2% with comparison to the first quarter of 2012. The results on the revenue front were mixed. North America revenue remained healthy; however, we were impacted in the first quarter by inventory adjustments at two of the three automotive OEMs in North America. Asia was essentially flat and Europe was down 11%. As Jim, the European reduction was associated with the rest of recessionary conditions continuing in much of the EU region we serve. From a profitability perspective, the first quarter EPS of $0.21 from normal operations was down from $0.39 in the first quarter of 2012 nearly 25% of that difference was associated with the increase in tax was associated recognizing tax expense for our U.S. entities that Jim mentioned. Although balance of the earnings reduction was volume related. From a margin perspective, the results were very encouraging better than our beginning of the year objectives. Total gross profit margins of 20.6% were virtually identical to the first quarter of 2012 margins and $10.7 million less in revenue. All three of our business units continue to contribute to very good margin improvement and margin performance given the revenue pressures we are currently experiencing. And as Jim also mentioned our Level 3 program is producing exceptional results company-wide. I’d like to conclude today’s call with general comments regarding the outlook as we have it and then just some general comments as well. Based upon our first quarter results, which were slightly better than our internal plan as I mentioned, we anticipate full-year revenues in the same range as we guided in March namely $365 million to $375 million. Although Europe is still the big unknown, we expect revenues in the second quarter to be very close to the revenues we experienced in Q1. As Jim mentioned, we are still forecasting marginal improvement or recovery for the second half of 2013. If we experience that incremental improvement quarter-to-quarter, we are very well positioned to leverage the additional revenue to meaningful earnings improvement. In our earnings release, we reconfirm that our cash flow and debt retirement bill for the year remains at $15 million. As we mentioned previously, our balance sheet is now well positioned to support complementary acquisitions in our metal bearing components business as well as the precision metal components business as well as our renewed focus on shareholder value actions. Finally, the search committee of the board has made real progress with respect to the recruiting a new President and CEO we anticipate the timing of a public announcement naming my successor in the transition to a new CEO to remain at or near Annual Shareholders Meeting, which is scheduled for next week, May 16. I’d like to now open up the call to any questions that you may have and any answers we can provide.

Thank you, sir. (Operator Instructions) And our first question comes from the line of Steve Barger with KeyBanc Capital Markets. Please go ahead. Steve Barger – KeyBanc Capital Markets: Hi, good morning, guys.

Good morning, Steve.

Hi, Steve. Steve Barger – KeyBanc Capital Markets: 65 conference calls, congratulations.

Thank you. Steve Barger – KeyBanc Capital Markets: Rock, I heard you say that you think 2Q revenue probably looks like 1Q. I missed it if you said what you think the sequential operating margin looks like? Do you think that you can drive that up via lower SG&A spending or will it look similar?

It will be up slightly based upon lower SG&A spending. Steve Barger – KeyBanc Capital Markets: Okay.

Yep. Steve Barger – KeyBanc Capital Markets: Can you frame up your revenue decline by region versus what you think the end market was down? And especially in Europe, how much did you underperform the end markets?

I wouldn’t say underperforming the end markets per se in Europe, they really track basically with what the production rates particularly in automotive were down, Steve. So if you think about it in terms of our total revenue miss versus ‘12, about 60% to 65% of that mills was in Europe. Steve Barger – KeyBanc Capital Markets: Yeah

And that was all absolutely in line with the production level reductions principally in automotive. And then call it another 20% or 25% associated with the issue in North America that we outlined in our press release as well as Jim’s and my comments and that was really two OEMs, GM and Chrysler that were not the sales data that’s been coming out, that’s still very, very positive. But if you look at the first quarter with the respect to both two OEMs, which is where we have the predominance of our business either second or third year, those were down call it 8% to 9% in Q1. Their production rates in Q1 were down 8% to 9% in ‘13 versus ‘12 to similar quarter – the first quarter in 2012. We saw that and but that’s we consider that to be kind of a one-off situation and moving forward, I think their production rates will line up with the improving sales rates moving forward. Steve Barger – KeyBanc Capital Markets: Okay. And was it pretty much all volume or was part of the 10% decline giving up price?

Virtually all volume, I mean, there was a little less price on the side of pass through but by and large it was virtually all volumes. Steve Barger – KeyBanc Capital Markets: Okay. And your end market outlook projects improving volumes in the second half on modest recovery and improving inventory. Can you quantify what modest recovery means? Is that low single-digit revenue increase year-over-year or is that more like a mid-single against the easy comps?

Low single. Steve Barger – KeyBanc Capital Markets: Okay. And is the commentary about expecting modest revenue recovery based on actual conversations with customers, are you just thinking that we’re running at unsustainable levels that have to reverse at some point?

I think it’s from our perspective it’s based on two things. One is the issue of this inventory situation… Steve Barger – KeyBanc Capital Markets: Right.

…not being able to continue. And then the other of course is talking to customers and of course, listening to what they say not only to us, but publicly as well. Steve Barger – KeyBanc Capital Markets: Got you. One more question and then I’ll jump back and see if anybody else is in line. Accounts receivable increased by about $15 million in the quarter. Are you seeing customers push out terms or slowdown payments or just what’s kind of going on from a working capital standpoint?

There are no changes in payment terms there. As I mentioned, our day sales outstanding actually declined slightly. so it’s all volume related… Steve Barger – KeyBanc Capital Markets: Got it.

And it’s related to the last part of November, December low volume versus the higher volume in January and February – well, February and March. Steve Barger – KeyBanc Capital Markets: Okay. I’ll jump back in line if nobody else is there, I’ll come back.

Thanks, Steve.

Our next question comes from the line of Keith Maher with Singular Research. Please go ahead. Keith Maher – Singular Research: Good morning, gentlemen.

Good morning. Keith Maher – Singular Research: I was wondering if you could maybe talk a little bit more about inventory levels out there, your customers, just a little bit more color. Are there particular regions your segments where you think things are in pretty good shape now and other words where you think maybe the inventory clearing is not necessarily completed yet?

Keith, what we saw in the fourth quarter was kind of at the end of the year, several automakers in the U.S. that Rock mentioned, decided they had enough inventory and they cut back on their orders through the first tier suppliers, and then that cut back our orders and we saw that’s continuing on into the quarter. Even though you saw a good robust sales numbers, but there was just a little bit overbuilding I think that has to get through the system in the U.S. In the Europe, in the European market, there it’s – we think a little bit different, you’re actually seeing in some of the models that we end up with our product and the volume that the demand is down and you see still good demand on some of the European luxury models and less so on some of the lower tier models and that’s where we end up having predominance of our sales. So there you have an actual kind of a demand still being held back and but the impact on the inventory situation more in the U.S. Keith Maher – Singular Research: Okay, all right. That was helpful. I realize most of the investment this year in CapEx is related to Whirlaway. I wonder if you could talk maybe about some of those programs. I don't know how much detail you can give us, but do they have the potential to have better margins than some of your existing Whirlaway business and kind of the timing as to when we would start seeing revenues from some of those programs?

Yeah, in terms of the some of the programs have better margins and some are about the same. In general though we are going to have higher revenue levels that will help us absorb the fixed cost there, which will be an increase of profitability there. And all of these programs we’re investing in now don’t start new revenue until in 2014. Keith Maher – Singular Research: Okay. That’s all I have, thanks a lot.

Our next question comes from the line of Ross DeMont with Midwood Capital. Please go ahead. Ross D. DeMont – Midwood Capital Management, LLC: Hi, guys. Rock congratulations on your tenure. Well done.

Thank you so much. Ross D. DeMont – Midwood Capital Management, LLC: In terms of – we had listened to the commentary out of your largest customer in Europe on and on their calls and slides, it sort of indicated that they now had inventories in line with production and that they weren't expecting to take down inventories that much more. We were somewhat encouraged by that because we understood that destocking was a part of the problem that you had faced. But it sounds like you didn't experience an abatement of the destocking in the first quarter. Is that fair to say?

Yes. Not a whole lot, that’s correct. And so that is the bases for some of our why we think marginally and incrementally quarter-over-quarter we could see improvements even if there is no real improvement in market conditions and that kind of assets. Ross D. DeMont – Midwood Capital Management, LLC: But the current guidance of $365 million to $375 million doesn't presume much improvement on the destocking front. Is that a fair way to characterize it?

A little bit and what we comment of that low-single digits of improvement. Ross D. DeMont – Midwood Capital Management, LLC: Okay, got you. Because now if second quarter is roughly like first quarter from a revenue level that would mean $185 million in the first half, that would mean your guidance implies something like $178 million to $188 back half. That almost makes it sound like that sort of implies potential sequential decline in the back half as opposed to an uplift that. I guess it seems like there is a bit of a disconnect there.

Yeah. Well, yes and of course you have seasonality in our business relative to our first half versus our second half particularly in Europe. The third quarter is very seasonally down, but having said that I think that as we look at it it’s still a virtual one known to us of course in terms of what we [transfer], but we just look at it that seasonally incrementally, we could see low single digit improvement in the third and fourth and sequentially versus the first and second. At which case our revenue guidance would be a little bit on the conservative side. Ross D. DeMont – Midwood Capital Management, LLC: Okay, okay. Fair enough. And just to make sure I heard you correctly, your currently thinking EBITDA ‘13 is at or above ‘12 levels.

That’s correct. Ross D. DeMont – Midwood Capital Management, LLC: Okay, that’s all I’ve got. Thanks so much, guys.

Thanks you.

(Operator Instructions) And our next question comes from the line of Bruce Geller with DGHM. Please go ahead. Bruce Geller – DGHM: Hey, good morning, guys.

Good morning. Bruce Geller – DGHM: How far below trend line would you say Europe is running? It’s obviously down a lot but I'm just trying to frame in revenues how far below normal it is because I'm trying to get a sense as you build your way back, you mentioned the 30% incremental margin. I am just trying to get a sense for the kind of earnings leverage you may get as that comes back towards trend line?

This is Tom. The one data point that we had from looking at the market data was a new car registration within the Euro zone. In quarter-over-quarter, those were down about 10%. Now it’s from an already lower about 8% to 10% down in Europe last year. So if you look at anywhere from 15% to 20% down from where we were in 2011. Bruce Geller – DGHM: What does that translate into revenues though for you guys? Roughly what are you running today versus what you ran on average from 2007 through 2011? I am just curious how far below normal fairly normalized demand you are?

I was going to say about $40 million or $50 million worldwide below where we should be with the same market share that we had a couple of years ago, which we don’t think has changed substantially.

I mean we were a $420 million company in 2011 and they were down to $360 million and most all of that volume that we’ve seen dropped in Europe in particular. Bruce Geller – DGHM: So you don’t think there is any market share shift at all in there?

No really. Bruce Geller – DGHM: Okay.

The European picture a lot of it as Jim said earlier is which programs and platform we’re on in which some of the higher margin or premium brands BMW and Audi are not down as much as the Peugeots, Renaults, and Fiats. So a lot of it just to makes which platforms you are on. Bruce Geller – DGHM: Okay. So it sounds like the third quarter is where you expect to see the inflection point on the revenue side?

Yes, but I would also caution a little bit on the (inaudible) the third quarter inflection point as you put at it that’s also seasonally and sequentially down historically for us since we’ve been since 40% plus of our revenue been in Europe. We see a sequential reduction in the third quarter based on seasonality only. Bruce Geller – DGHM: Okay. And in your prepared comments, you made reference to the expectation for positive cash flow similar to 2012. Were you referring to operating cash flow or free cash flow or both?

Free cash flow, but I guess, it would be both because capital spending is expected to be roughly the same level. Bruce Geller – DGHM: Roughly similar. So even with the higher tax rate you would still expect your free cash flow to be…

Yes. Bruce Geller – DGHM: …in similar range. Well, that’s pretty good considering the environment out there, so that’s encouraging.

Yeah, I remember even though we are accruing taxes on the U.S., we have a large NOL left over from the 2008 and 2009 timeframe. So we it won’t really impact cash taxes for awhile. Bruce Geller – DGHM: All right.

It will be a couple of years. Yeah, I believe that’s one reason why the tax doesn’t really matter on a cash flow. Bruce Geller – DGHM: Okay, I see. And then again with respect to cash flow, I know that you have made reference on past calls and even in this release to potential strategic initiatives one of which my assumption includes a possible reinstatement of the dividend. How does that play into your commentary about expected debt repayment and free cash flow similar to last year?

If any acquisitions and/or are reinstatement of the dividend decision are excluded from the $15 million objective relative to cash flow and debt retirement. So in other words the $15 million does not consider anything that we might do acquisition vise or on the shareholder side relative to a dividend of share buyback. Bruce Geller – DGHM: Fair enough. And lastly, acquisitions or strategic initiatives are things that you have spoken about for a while without much really happening in the recent past. I am curious what your pipeline looks like, how close you feel that you might be to some things taking place this year?

We’ve had some really good activity I think, I mentioned in the March call in terms of pipeline in both precision metal component as well as metal bearing components. And I would say that they are far enough along to present to our board in our upcoming board meetings. But I would also say that we have a transition in my position and of course, our new President and CEO will absolutely want to weight in on the strategic acquisition front as well. And so I’m not sure that that will ultimately create some big delay in terms of executing on the strategy long-term in way of the shortest of short-terms my success has been well away in that. Bruce Geller – DGHM: That makes a lot of sense. That was actually going to be my next question is how do you present an acquisition to the Board when you have not even announced a new CEO? So that all makes sense. I appreciate you clarifying that.

Great. Okay.

(Operator Instructions) Our next question is a follow-up question from Steve Barger with KeyBanc Capital Markets. Please go ahead. Steve Barger – KeyBanc Capital Markets: I know you guys may not have an exact answer at hand for this but I'm wondering if you can help quantify the positive impact of the Level 3 programs. What do you think the operating margin or the decremental would have been a year ago if you had had this revenue level? Is there any way you can frame that up?

Yeah. It would be down in the 17% to 18% range. Level 3, Steve, since we instituted it 3005 has been delivering marginally 2% to 3% on the revenue front or the margin front, year-in and year-out. Steve Barger – KeyBanc Capital Markets: 2% or 3%?

Yes. Actually, last year, it was 4%. But I mean, on average in the eight years that we’ve been at it, it’s ranged from 2% to 3%. Steve Barger – KeyBanc Capital Markets: So going back to the prior question, the implication is that you should have much better leverage, when the revenue does return.

absolutely, that’s the message we tried to deliver in the press release as well as our comments this morning, and if we didn’t deliver, I want to deliver it based on your question right now. Steve Barger – KeyBanc Capital Markets: Good, message received. And last question from me, given the level of activity that you’re seeing in the end markets, and how you’re projecting revenue to go? How are you thinking about your current manufacturing footprint? I guess the question is directed primarily at Europe, where it needs to be or is there any rationalization work that needs to take place?

We really do not anticipate any additional rationalization of any of our European manufacturing facilities in the medium term at all. As you know, we rationalized in 2008-2009, two facilities there. But in our product mix, balls versus tapered rollers and our operations in Netherlands and Italy and Slovakia, we’re sized just about where we need to be, not only at the current depressed levels, but we’re ready, willing and able to respond to the increases in demand hopefully in the next 12 to 24 months given our current footprint, so no real changes there. Steve Barger – KeyBanc Capital Markets: And so even if the European situations dragged on a little further than we expect and let’s hope that doesn’t happen, you think you can control costs to the point where you can maintain a reasonable level of profitability and it’s really just a waiting game for volume.

That’s exactly right, Steven. once again, I think I’d like to say that if you just look it where our revenues in Europe today, versus where they were at 2008 and 2009 in some cases, some of our plans are above at the level they were in 2009 in the global recession, when the global recession hit. And we hemorrhaged red ink in 2009, we’re profitable today. Steve Barger – KeyBanc Capital Markets: Right.

On those same levels, and a lot of it has to do with the fixed cost that were removed as I mentioned, but a lot of it has to deal with a continuous improvement activities going on in each of our facilities globally. So... Steve Barger – KeyBanc Capital Markets: Right, not to look too far ahead but I guess the implication again of the Level 3 activities and the operating leverage inherent in volume suggests that if you got into a nice sustained uptick that operating margin could go to double digits at some point?

Well...

Rock, you’re leaving.

Yeah. I’m leaving, that’s right. But I would also say that at the current level of revenue, there’s nothing to preclude us from a cash flow, operating cash flow perspective that would preclude us from executing on the strategy. And by that, I mean our balance sheet is going to continue to remain healthy and continue on, we’re going to continue to pay down debt, post or pre any acquisition activity of course. And so, we’re comfortable from a strategic perspective that yeah, we can execute aggressively on the growth initiatives. Now, we don’t need to wait for market improvement to make that happen. Steve Barger – KeyBanc Capital Markets: That’s great detail, I appreciate the time gentlemen.

Thank you.

Your next question comes from the line of (inaudible) from Kingsdale Capital. Please go ahead.

Hi, Rock. How are you?

Good morning. I’m good, how are you?

Good. I just had a couple of quick questions. My first question is given how weak the yen has been are you seeing the Japanese exporters become more aggressive?

I would say not in any great detail. We haven’t seen a whole lot of that. Of course, our Japanese competitive have manufacturing facilities in each of the regions that we compete with them. They have facilities in Europe, they have facilities in North America and of course, they have facilities in Japan. so now the exchange rate hasn't had a big impact on them becoming more aggressive out of their Japanese facilities and exporting into Europe and/or the U.S. as an example that at least we witnessed in the last six to nine months.

Okay. That’s good. And my second question is on the acquisition pipeline. Given how good the core business is today despite the depressed conditions. Are you seeing a lot of acquisitions that are either better businesses than the core business that we have or cheaper in terms of valuation or both?

It’s interesting, I can comment on a couple of situations in the pipeline and say that from an EBITDA margin perspective, we aren’t interested. One of our screens of course, is that I’m not going to say never here, because as somebody else mentioned, I guess Steve, I'm leaving. But one of our screens of course, is to look at the margins that the current businesses are in targets, potential targets are achieving and how they relate to our core business and our total corporate averages and in one of our screens is that we don’t want to do anything dilutive margin wise. and we’ve been able to find nice businesses that are at or above our current margins, and then consolidated margins. So that hasn’t really been an issue thus far. And moving forward, I think that there’s plenty of opportunities that will be at or above our core business margin wise.

But those businesses that you have higher margins, I would presume that that are trading at significantly higher prices than what we’re trading at.

Well, of course we’ve talked about this, and when our enterprise multiple is below five, that’s true. but we also don’t think that we have to execute on some of these acquisitions, we don’t think we have to be in the status here with respect to up significantly above five, relative to what we thought some of these businesses could be acquired for.

Okay, thank you. I appreciate it. It’s just without knowing more about the potential acquisitions and knowing a little bit about NN, it just seems like the benchmark was a baseline against, which the acquisitions should be compared. It seems like an acquisition of $2 million or $3 million of our shares, which are trading at a pretty good price and this business that we know well and obviously like.

Very good, I appreciate that input.

Great, thanks very much.

Thank you.

And I’m showing no further questions in the queue. I’ll turn it over to management for closing remarks.

Okay, I’ll conclude today’s call with a summary comment regarding our current view and outlook for 2013. We’ve already mentioned the economic outlook of course and particularly in Europe and that it remains uncertain. But I also said in the Q&A that at these reduced sales level, our resulting level of profitability and cash flows remain very healthy and more than sufficient to begin an aggressive execution of our current strategic growth plan. For that reason, we remain very optimistic regarding our outlook at NN and the ability to resume our top and bottom line growth into the immediate future. Thank you again for listening to today’s call.

Ladies and gentlemen, this does conclude our conference for today. If you would like to listen to a replay of today’s conference, please dial 303-590-3030 or 1-800-406-7325 with access code 4615406. Thank you for your participation. You many now disconnect.