Good day, ladies and gentlemen, and thank you for standing by. Welcome to the NN Inc. Third Quarter 2013 Conference Call. [Operator Instructions] This conference is being recorded today, November 6, 2013. 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) 837-3746, and we will be happy to send you a copy. Before we begin, we ask you to take note of 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 Richard Holder, President and Chief Executive Officer, and members of 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, Rich, I will turn the call over to you.

Thanks, Marilyn, and good morning, everyone. Today marks my second investor call and my 6th month as the CEO of NN. I've now visited all the NN locations, and I've met the vast majority of our 1,800 or so employees. Additionally, I visited with many of our top customers, and I can tell you, I'm even more excited now than our last call. We have tremendous opportunity and a lot of work to do, but I'm more confident that we'll be able to accomplish the aggressive goals we're laying down for ourselves over the next several years. I'm excited to be nearing the completion of our new strategic plan, which, due to holiday scheduling and some difficulties in getting rooms and such, we'll be pushing out into January for an Investor Day in New York. We'll give you a little bit more information on that later. With that said, let me turn it over to Jim to go over the financials, and I'll be back with you shortly.

Thanks, Rich, and good morning, everyone. We had another good quarter at NN in the third quarter. It was our third sequential quarterly improvement in profitability as a percentage of sales for this year. Operating profit margins have risen from 2.3% in Q4 of last year to 6.0% in Q1 to 8.2% in Q2 and 8.4% this quarter. The strong U.S. automotive market, combined with a slowly improving European auto market and a strong European large truck market, helps to boost sales, while a new emphasis on improving incremental profitability helped bring more of the sales to the bottom line. Historically, our third quarter is down about 8% to 9% from the second quarter due to seasonality in Europe. This year, we were only down 4% currency adjusted, so the impact of slowly improving markets and increased market penetration is apparent. Versus 2012 and adjusted for currency changes, sales in Q3 were up $4.3 million or 5%. Operating profit was up $1.9 million. If you exclude the FX impact in the profit, we brought 38% of the higher sales to -- down to operating profit, which is higher than our historic incremental profit margins. We expect to continue to bring higher levels of profit to pretax income as the recovery continues and as we continue to improve our operating performance. We earned $0.29 per share in the quarter, compared with $0.18 per share last year, and this is despite having a 32% tax rate this year versus 24% last year. And as you may recall, we did not accrue taxes on U.S. earnings in 2012, so the tax rate comparison is negative versus last year. For the fourth quarter of this year, we expect for the tax rate to average in the 32% to 34% range, depending on our mix…

Thanks, Jim. As Jim discussed, we're gaining momentum in revenue growth and more importantly, in margin expansion. I've asked our management team to be laser focused on getting our improved sales efforts online quickly, and we expect to do that in a much more profitable way than before. We're currently in the throes of our 2014 profit-planning process, and I believe that based on outlook so far, we'll have a very promising year. On the economic front, the European automotive recovery seems to be slowly gaining momentum, and the European heavy truck market remains strong. Unfortunately, the industrial markets and the oil and gas markets continue to appear relatively weak across all geographies. In spite of this, our net sales increased during the third quarter of 2013 from third quarter 2012, principally due to better overall market penetration with our customers, greater North American and Asian automotive demand and higher demand in the European heavy truck market. The quarter-over-quarter growth with our customers in North America and the Asian automotive markets was generally consistent with the overall growth in those geographies. That is to say, we only slightly outgrew our end markets relative to the normal market increase. However, the better market penetration with our customers was due to winning back market share and expanding markets for our products through winning new customers. Our positive sales momentum continues to be partially offset by lower demand in the European automotive market and generally weak European industrial markets in general. As these markets begin to return to normalized levels in 2014 and beyond, we're really well positioned to bring stronger incrementals to the bottom line and we're certainly looking forward to that. In the quarter, we continued to deemphasized the nonstrategic products and programs. As I stated in our last call, while…

[Operator Instructions] Our first question comes from the line of Steve Barger from KeyBanc.

Can you give us some more detail around the comment that you had better overall customer penetration? What geography did that happen? Is that new programs or takeover programs? And just maybe give us an update on how those conversations with customers are going.

Okay. Yes. With respect to the geography question, the geography portion of it, that penetration took place in both Europe and in North America. So it was pretty well, evenly spread in both sides of the ocean. The conversations with the customers really are around different mechanisms that we're using for pricing, some cost reductions that we're able to pass along due to our own increased productivity and efficiencies within the factory and the formation of, I'd say, greater long-term strategic partners with -- partnerships with those customers. Additionally, relative to entering into different verticals, we have been having, principally in our European markets, some fairly robust conversations and planning and R&D efforts around the expansion of our products into different verticals with new customers and existing customers. I'm really not at liberty to kind of go through the exact customer, but it's pretty exciting, and I will just say, it's in the verticals that line up fairly well with our strategic plan.

Is that something that could be a positive benefit to 2014?

Yes. We think that will be positive probably second half 2014, but we're still kind of working through that.

Got it. And you talked a little bit about some of the order rates in European heavy truck and automotive in Asia and North America. Can you talk about order rates in October in general or whatever trends you were seeing in 3Q persisting, any notable differences, plus or minus?

Well, I think -- I mean, October, I will tell you, we're pretty bullish about October. I won't get deeply into the numbers. But we think we are continuing to see the improvement in North America. We're certainly feeling it maybe now even more so than last quarter. The European truck market is continuing to be strong. So all those things are lining up appropriately in October and appear to be lining up candidly for the balance of the year. So, not sure if that answers your question.

Yes. That's good. So given the puts and takes of end markets and how you the rest of the year coming forward, should we be thinking revenue is up year-over-year in 4Q but down sequentially, or do you think you could be flat sequentially with what you put up in 3Q?

I think -- first of all, we need to consider a couple of things with Q4, right, there's the seasonality that we have to account for and there's work days that we need to account for relative to December. I think the way we're modeling the thing right now, we're just kind of holding the course. So I guess we'll call that flat.

And similar question on the operating margin, taking seasonality into account, do you expect the progression that you've seen through the year, you can hold that or just -- will seasonality drive that margin down a little bit in 4Q?

Yes. We think we're going to hold that. We're not -- we are continuing to drive margin expansion. So we think this sort of 0.75 point that we've picked up so far, we're going to hold that into the balance of the year and of course, we're going to do our best to push that up a little bit more.

[Operator Instructions] And our next question comes from the line of Keith Maher from Singular Research.

I don't know if you could give maybe a little bit more detail on this, just the better penetration of your customers. Is that in terms of what kind of products those are in or the segments that might be occurring in?

Okay. So yes, the segments are both in the -- our Metal Bearing business and in our precision machining business. Those are where you're seeing the biggest movement. I would say, if I have to order them, we probably had the biggest penetration in our precision machining business, very, very closely followed by Metal Bearing, where in our Plastics and Rubber business, we've actually had quite a few successes, and we're making some structural stages in that business, so it's much less apparent because they happen to be the -- sort of taking the brunt of the shedding of the nonstrategic portion of our business. So we're kind of cleaning that business up as we go through this.

Okay, great. And then on -- you mentioned some possible acquisitions, should I assume -- same kind of question. Is that Precision Metal components mainly, your targets you're looking at?

Yes, I think we've been -- and we'll talk more about this with the strategic plan, but I think what we're saying is, is that we're feeling pretty comfortable with all 3 segments of our business. So when we look at acquisitions and so on, I think it's reasonable to assume it could come in any of our segments. So without kind of giving anything away, I think we're looking at things across the board.

Okay, that's helpful. And obviously, your CapEx has been down, running below your plan for the year. Could you give any color as to where that might be next year, and also depreciation next year?

Yes, that's a little tough right now. I think we're modeling that and if -- for no other reason, if we should be fortunate enough to close these acquisitions before year end, that's going to change the entire model. So I'm not sure that it would be healthy for me to throw any of that out. But we'll probably throw some of that out in first quarter to give some guidance on that.

Okay, but -- okay, that's fair enough. But on depreciation, would it not be running a little bit lower next year just because of the lower level of CapEx this year?

Well, I think on a straight-line basis, you can say that. But if you made -- let's just say, for example, you did some changes in capacity and you have some recapitalization, that could change the entire model. So again, like I said, we're cleaning up one of our businesses in a big way. So it's likely that depreciation could be down, but I wouldn't commit to that right now.

Okay. And then, I guess this might be for Tony [ph], but the tax rate you mentioned, I think, 33% -- 32% to 34% for this quarter, any guidance for maybe the longer-term tax rate? Should we expect a number similar to that going forward?

I think that it should be fairly similar that it's all about the mix of the U.S., which is, of course, the highest tax rate that we have in the world and then lower tax rates internationally. And so it depends really where our profit comes, but it should remain in that basic rate.

[Operator Instructions] And we have a follow-up question from the line of Steve Barger from KeyBanc.

In the past, you guys have talked about being able to put up really solid incremental contribution margins on recovery and revenue. Rich, now that you've been to all the facilities, any change in how you're thinking about that in terms of seeing revenue come back and what you think the profitability of the business could be?

I think fundamentally, I don't think there's any change. But I will tell you, we have a bit of a different focus on how we're running the operation today. And so we have a drive for what we call flex productivity. And so essentially, what it's saying is we have an expectation of an incremental or decremental should we lose sales. And so irrespective of what the business plan may be, the relative productivity improvement has to fall through every dollar, and that's something that we look at every month in an extremely detailed way. So these things are helping drive a different focus on how we run the business, and it's helping to extract some margin expansion.

Got it. And any -- I think there was some opportunity, potentially, to leverage the material line [ph], and some of the back office functions could be more efficient. Any update on how those initiatives may be going?

Yes, I actually -- I think that's going really well. We have that buried into our planning for 2014 that we'll actually be presenting to our board next week. I think it's a good number. I think it's certainly in line with what you would expect from a relatively immature consolidated buyer. So we think, on a net basis, it will definitely help us expand margin even greater in 2014.

[Operator Instructions] And I show no further questions in the queue. I'd like to turn it back to management.

Okay. With that, thank you very much for joining us on our call. If you -- I think, Marilyn will kind of close this out. We really appreciate it. We are feeling pretty bullish about the year and the future here at NN, and it's just an extremely exciting time for us right now. So thank you very much for joining us.

And ladies and gentlemen, this concludes the NN Inc. Third Quarter 2013 Conference Call. If you'd like to listen to a replay of today's conference, please dial 1 (800) 406-7325, and use the access code of 464-5821. ACT would like to thank you for your participation, and you may now disconnect.