NN - Earnings Call - Q1 2021

Transcript

Operator (participant)

Good day, and welcome to the NN, Inc First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mike Danahy, Director of Investor Relations and Financial Planning. Please go ahead, sir.

Mike Danehy (Director of Investor Relations and Financial Planning)

Thank you, Operator. Good morning, everyone, and thanks for joining us. I'm Mike Danahy, Director of Investor Relations and Financial Planning. 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. Yesterday afternoon, we issued a press release announcing our financial results for the first quarter ended March 31st, 2021, as well as a supplemental presentation, which has been posted to the Investor Relations section of our website. If anyone needs a copy of the press release or supplemental presentation, you may also contact Lambert & Company at 616-258-5788.

Before we begin, I'd 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 factor section of the company's annual report on Form 10-K for the fiscal year ended December 31st, 2020, and when filed, the company's quarterly report on Form 10-Q for the three months ended March 31st, 2021. The same language applies to comments made on today's conference call, including the Q&A session, as well as the live broadcast. Our presentation today may 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 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 the company's control. The presentation also includes certain non-GAAP measures as defined by SEC rules. A reconciliation of 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 key highlights from the quarter, followed by a detailed financial results update from Tom. Warren will then discuss our segment results and in markets, as well as the outlook for the remainder of 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.

Warren Veltman (President and CEO)

Thanks, Mike, and good morning, everyone. If you would turn to page five, we will review some of the highlights for the first quarter. The solid momentum we achieved in the second half of 2020 continued and, in many ways, even accelerated into the new year. With the tailwinds of economic recovery boosting our business and that of our customers, we are encouraged by the progress being made to overcome the impacts of the COVID-19 pandemic. We completed our refinancing during the quarter, which has substantially reduced our overall cost of capital and put NN on a stable long-term financial footing that will provide the flexibility we need to achieve our 2025 growth and margin targets. With the broad recovery, we achieved another quarter of strong growth in revenues, both sequentially and year-over-year.

We saw this growth, especially in our automotive products during the quarter, which had a significant influence on our mobile solutions business, which grew even faster. The impact of our many cost improvement and operational initiatives undertaken in 2020 generated solid results in the quarter, with year-over-year increases in both GAAP and adjusted financial results, along with a high conversion of EBITDA on the incremental sales. We also maintained our focus on working capital by increasing turns for the third sequential quarter, resulting in a rebound in free cash flow generation. Turning to page six, we have summarized some of the other key highlights for the quarter. As I mentioned, our business continued to rebound from the significant impact of the COVID-19 pandemic, as sales for the quarter were $126.8 million, up 9.1% from a year ago and up 6.5% from last quarter.

The improvement in sales volume, coupled with the operational improvements we have implemented, resulted in significant improvements in operating income and EBITDA, as well as earnings per share. Reported operating income improved to $1 million versus a loss from operations of $103.9 million one year ago, though I'll note that the prior year results included a significant goodwill impairment. Non-GAAP adjusted EBITDA was $16.9 million, or 13.3% of sales, up from $10.1 million a year ago when adjusted EBITDA was 8.7% of sales. GAAP EPS from continuing operations was a loss of $0.46 per share versus a $5.96 per share loss from a year ago. I would note that the loss from the current period was driven primarily by costs associated with the refinancing transaction and the elimination of our interest rate swap.

Our adjusted net income from continuing operations was a profit of $0.05 per share versus a loss of $0.16 per share in the prior 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?

Thomas DeByle (CFO)

Thanks, Warren. Please turn to slide seven, which highlights the big picture view of our first quarter results, along with the continued recovery in our sales trends. We saw a much stronger increase in our adjusted EBITDA than you might expect, given our usual incremental margins. With an $11 million increase in revenue, we achieved a $7 million increase in our adjusted EBITDA, which is higher than our normal 40% variable margin flow-through. Sales volume, JV net income, and the impact of absorption into inventory increased EBITDA year-over-year. Note that management made a conscientious decision to increase inventory to prevent supply disruption impacting our customers. The improvement in EBITDA was partially offset by the impact of temporary cost reductions, such as gain sharing, which was reinstated at the beginning of 2021.

Looking at the bottom chart, we can also see the continued recovery in our markets as reflected in our net sales. After falling dramatically in the second quarter of 2020 due to the impact of the COVID-19 pandemic and related production shutdowns at our customers, we have seen rapid sequential recovery over the past three quarters. We anticipate the recovery to continue into 2021 as we move past the pandemic-related impact and shift to more normal growth patterns. Let's go to slide eight, which provides a look at our continued focus on working capital management. The recovery in working capital churns has continued with higher sales and continued prudent working capital management, as shown in improvements over the past three quarters. Net working capital at the end of the first quarter was $114.8 million, compared with $104 million in the prior year, an increase of $10.8 million.

This was primarily due to an increase in accounts receivable, ultimately driven by higher sales volume within the quarter. Inventory was also higher, as previously mentioned, to prevent supply disruption impacting our customers. Working capital returns were 4.4 churns versus 4.5 churns in the prior year. Sequentially, working capital churns continued to improve from 4.3 churns in the fourth quarter. Turning to slide nine, we highlight the discipline approach we have taken to capital expenditures over the past year and remained focused on prudently managing our cash. You can see on an absolute basis, we have reduced capital spending by 26% compared to 2020. In comparison to depreciation expense, we have come down from nearly 100% of depreciation to about 70%. Cash capital expenditures were $5.5 million, or 4.3% of sales for the first quarter, compared with $7.4 million, or 6.4% of sales in the prior year.

We approach capital expenditures in terms of both sustainability as well as growth. Over the past, we have eliminated or deferred projects that were not of immediate need, and even as we invested in projects critical to our long-term growth. In addition, we have available capacity at a number of our facilities. We remain flexible in responding to increased demand as it continues to rise. Slide 10 shows a chart of our free cash flow for the quarter. Free cash flow was $2.4 million in the first quarter, compared to a use of cash of $1 million in the prior year, which still included Life Sciences. Our free cash flow in 2021 will be impacted by two items in future quarters. First, in the second quarter, we will be negatively impacted by a $9 million cash tax payment related to the spinoff of the Life Sciences business.

Second, we are estimating in the fourth quarter that we will receive the tax refund of approximately $11 million due to the loss carrybacks under the CARES Act. We are focused prudently on managing our working capital and capital expenditures while improving our profitability to increase free cash flow throughout the year. Please turn to slide 11. Net debt at the end of the first quarter was $123.3 million versus $768.9 million in the prior year, a decrease of $645.6 million. The reduction was due to the paydown of debt following the sale of Life Sciences and our recent refinancing. Our net leverage ratio stood at 2.3 times at the end of the first quarter, down from 5.4 times a year ago.

Maintaining a leverage ratio at or below three times is important for our long-term growth initiative, as it alleviates concerns from our customers and suppliers regarding our long-term financial stability. A couple of more points before I turn the call back to Warren. First, we have over $75 million of liquidity as of March 31st, 2021, and currently have not drawn on our revolver. Although our liquidity decreased by approximately $17 million versus the fourth quarter of 2020, we believe we have ample liquidity to support our needs. The refinancing decreased the size of our revolver from $60 to $50 million, and we had a $5.1 million increase in working capital versus our fourth quarter of 2020, resulting in a decrease in our cash balance. Second, in the lower right-hand chart, you can see that our term debt increased from the fourth quarter of 2020.

This is due to our refinancing as we shifted our capital structure from a higher cost preferred stock to a lower cost term debt. With that, I'll turn the call back to Warren.

Warren Veltman (President and CEO)

Thanks, Tom. On page 13, we outline our view of current market conditions within each of our operating groups. Within mobile solutions, we have seen a continued recovery of automotive production, with 2021 North American volumes expected to increase 24% and nearly reaching the levels of 2019. The industry is also combating the ongoing shortage of chips that are essential for a variety of applications within each vehicle, as well as a shortage of materials such as specialty stainless steels. With these supply chain issues, we remain proactive in supporting our automotive customers through various actions, including increasing inventory safety stock, which has generated positive customer feedback.

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's CN6 emission standards deadline of July 2021 approaching, we are experiencing accelerations of volume prior to the effective date. Within power solutions, power companies have continued to justify and execute upgrades for aging infrastructure to prepare for installations of smart grid systems, green power generation, and storage solutions. We believe grid infrastructure investment will continue to grow, with future power demand resulting from increased penetration of electric vehicles in the market. The current administration has also prioritized green initiatives and carbon reduction in the recent $2.25 trillion infrastructure proposal.

With renewed focus and incentives on electric vehicles and the related grid infrastructure necessary to support them, we expect to see additional demand to benefit both of our business segments over the long term. We have presented additional information for each of our operating groups, starting with mobile solutions on page 14. Mobile solutions sales grew 11.3% in the first quarter from one year ago, as we saw continued recovery from the pandemic, as well as strong growth in general industrial demand driven by e-commerce logistics. GAAP operating profit for the first quarter was $6.1 million, compared to an operating profit of $0.3 million in the prior year. Adjusted operating profit increased nearly 377% to $7.1 million, or 9.1% of sales, from $1.5 million, or 2.1% of sales last year.

Adjusted EBITDA increased to $14.9 million, or 19.2% of sales, from $7.4 million, or 10.6% of sales in the first quarter of 2020. The increased profitability was driven by the higher sales volumes, fixed cost absorption in inventory, increased variable margin resulting from our cost improvement initiatives, and the impact of our China Joint Venture. Let me address our China Joint Venture for a moment. We saw strong growth and improved profitability from our joint venture during the quarter, as it contributed $1.4 million to the bottom line and an increase of $1.7 million from one year ago. Our JV generated over $23 million in sales during the quarter, almost tripling the sales from the year earlier period. Obviously, we are pleased with these results and look forward to continued excellent performance throughout 2021.

Looking forward, we see continued strong demand in most regions, but managing supply chain requirements and manpower will be key to our success, as both remain issues due to the pandemic. We will continue to focus on free cash flow through disciplined capital spending and working capital management. On page 15, our power solutions group experienced a 5.8% year-over-year increase in sales in the first 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. Prior year sales in many power solutions markets did not begin to see an impact from COVID until the second quarter. In addition, Q1 2021 sales were also adversely impacted by inventory adjustments for smart meter components at a key customer. On a sequential basis, power solutions recognized $5.1 million of sales improvement over Q4 of 2020.

Although our total sales were positively impacted by higher precious metal costs, these cost increases are directly passed through to customers at lower margins, resulting in a headwind to overall margins. GAAP income from operations for the first quarter was $2.4 million, compared to $2.6 million in the prior year, excluding the goodwill impairment impact of $92.9 million from the first quarter of 2020. Adjusted operating profit decreased to $5.5 million, or 11.2% of sales, from $7 million, or 15% of sales in the first quarter of 2020. Adjusted EBITDA decreased to $6.8 million, or 13.9% of sales, from $8.4 million, or 18.1% of sales in the prior year. Prior period results were adjusted to exclude certain development costs and new facility costs incurred before the commencement of normalized production, which are included in our operating results for 2021.

Looking forward, we see consistent demand trends in power solutions, though we remain cautious given the continued uncertainty in the pandemic recovery. We will remain protective of cash flow in the segment through prudent working capital and CapEx management. As I conclude my remarks on page 16, we share our outlook for the remainder of the year. With the continued uncertainty surrounding the COVID pandemic and related recovery, we are still not in a position to implement formal guidance at this time, but we wanted to share how we see the rest of the year, the rest of 2021 unfolding. We expect strong growth for the first half of the year, particularly in the second quarter compared to the heavily impacted results last year. Material shortages, including semiconductor chip shortages, driving OEMs to selectively shut down certain production facilities could create, excuse me, inconsistent consumer demand and production interruptions.

Our teams will focus on supply chain and logistics to ensure a source of material supply to meet consumer demand, customer demand. Free cash flow generation will remain a priority as we remain disciplined on capital investments and working capital optimization. We will continue our efforts to achieve synergies between our Sobile solutions and Power Solutions businesses, both in terms of revenues and costs, leveraging client relationships and operational best practices across the organization. Additionally, we will evaluate our global facility footprint for optimization and other continuous improvement cost reductions. As for specific measures underlying our 2021 outlook, we continue to anticipate CapEx of approximately $22 million as we look to make necessary investments to support our long-term growth. In addition, we expect depreciation in the range of $33 million and amortization of approximately $14 million.

In summary, we started the year strong with solid growth in revenues and improved profitability. We expect the economic recovery momentum we have seen in Q1 to continue into Q2, but remain wary of certain stress points I have discussed associated with shortages of material and labor. In spite of these challenges, our management team will remain focused on meeting our customers' expectations for both delivery and quality over the coming quarters while continuously improving our cost structure. That concludes our prepared remarks, and I will now turn the call back to the operator for questions.

Operator (participant)

Thank you. We will now begin the Q&A session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Steve Barger with KeyBanc Capital Markets. Please go ahead.

Steve Barger (Equity Research Analyst)

Morning, guys.

Warren Veltman (President and CEO)

Morning, Steve.

Steve Barger (Equity Research Analyst)

Good to see some things stabilizing, but you did note unpredictable volumes through 2Q, but that your mix should mitigate some of the chip shortage. First, do I have that right? Second, do you expect revenue will be up sequentially in mobile?

Warren Veltman (President and CEO)

First, you have it right. We are concerned about the semiconductor chip shortage, Steve, but a significant portion of our product in North America ends up on SUV and large truck platforms. I should say a disproportionate share of it, a majority. That has protected us somewhat because the OEM, that's a high-margin product for them. They are prioritizing that as it relates to supply shortages. I think we've benefited somewhat from that. As it relates to sequential, I mean, we're looking at the second quarter. At this point, we're seeing consistency of volumes in comparison to the first quarter at this point in time.

Steve Barger (Equity Research Analyst)

Consistency, okay. Slide 13 says North America auto production is expected to recover 24% from last year. Do you expect your mobile segment will be up a similar amount?

Warren Veltman (President and CEO)

Again, we're not going to give guidance over the long term, but certainly our volumes fluctuate with overall automotive productions. We are a global supplier, right? That statistic was primarily related to North America.

Steve Barger (Equity Research Analyst)

Right. Still, is it a reasonable way to think about what the year-over-year increase could look like?

Warren Veltman (President and CEO)

I think so. I mean, as the overall automotive production volumes recover, we should benefit from that, certainly.

Steve Barger (Equity Research Analyst)

What about the Class 8 side or the heavier truck? Do you have confidence in the production schedule, or is there risk to disruptions for the same reason?

Thomas DeByle (CFO)

Yeah, I think that obviously, we actually, in that business, we have had some interruptions because of material shortages unrelated to the semiconductor chip issue. Our teams have, this is something that has been, I wouldn't say pervasive, but it has cropped up throughout the first quarter where we've had to solve problems in conjunction with cooperatively with our customers. Our teams have been very diligent in fixing any of those types of situations. I think wary is the word. We're still wary of that, but as it relates to overall volumes in our discussions with our customers, we expect those to hold reasonably well throughout the end of the year.

Steve Barger (Equity Research Analyst)

Got it. One more from me. With all this talk about chip shortages and just investment flowing in that direction for capacity, do you make any parts for the semiconductor capital equipment part of the world, or is that something you've explored?

Warren Veltman (President and CEO)

It certainly is something that we've explored. I would have to look into the exact amount, but my guess is that on the power solution side, there are some connectors and product that we make that ends up in semiconductor or electronic-related applications, for sure.

Steve Barger (Equity Research Analyst)

Got it. Thanks.

Warren Veltman (President and CEO)

Yep.

Operator (participant)

The next question will come from Dan Moore with CJS Securities. Please go ahead.

Dan Moore (Managing Director)

Hi, good morning. It's Pete Lucas for Dan. Can you just talk a little bit about your expectation for gross margins over the next couple of quarters in light of rapidly rising steel prices and the impact that that's going to have?

Thomas DeByle (CFO)

Yeah. Tom, I'll take that one to start.

Dan Moore (Managing Director)

Let's do it. Yeah.

Thomas DeByle (CFO)

We've talked at length about our ability to pass through material costs to our customers. Most of the contracts, I would tell you on the mobile side, most of the contracts that we have allow us to pass through material price adjustments where there's a movement greater than 10%. Depending on the customer relationship, that true-up occurs. In some cases, it occurs quarterly. In some cases, it occurs at the end of each year where we sit down with the customer and review the cost of materials, primarily the specialty stainless steels, and either get paid back or pay the customer depending on which way it goes. Right now, obviously, there's more pressure on the upside. We would be talking to our customers about a price increase, and our contracts allow us to do that.

On the power solution side, we have the ability, as it relates to precious metals, those metals are actually priced on the day of shipment. That is a real-time price that is passed through to the customer on the day of shipment. As it relates to other types of materials, typically, we have the ability to reprice when new purchase orders are given because that business is not, although we do have some long-term supply arrangements, that is not the norm in that group. We do have the ability to reprice as customers order new product.

Dan Moore (Managing Director)

Oh, very helpful. Thanks. In terms of general industrial demand, it seems to be gaining momentum there. As far as looking at that from our side, any particular end markets or geographies worth noting that stand out to you?

Thomas DeByle (CFO)

On the GI side, we do report our business with diesel engines and diesel dosing in that because it's not passenger car related, and that has been a strong product group for us so far in 2021.

Dan Moore (Managing Director)

Great. Thanks. The last one for me, just in terms of looking at M&A, how do you think about that going forward in terms of how would sourcing deals, what size deals you're focused on, and are large deals on the table? If so, what type of leverage would you be comfortable with going forward?

Thomas DeByle (CFO)

Yeah, we are. When we did our investor conference call about a month ago, we talked a little bit about that, and I think our thought process is consistent. What we would like to show here is some positive free cash flow over Q1 and Q2. We are starting to look at some transactions to see what's out in the marketplace and what could fit us. Certainly, if we saw the right fit and the size was right, it would be something that we would look at probably in the 3rd or 4th, maybe early 2022 period. We'd like to get our leverage down below 3. That's our objective on an overall basis and to maintain that type of leverage position.

Would we go up to three and a half if something really fit with our strategic plan and gave us an additional technology or landed us a better position with a strategic customer? Certainly, we would evaluate that.

Dan Moore (Managing Director)

Very helpful. Thank you very much.

Thomas DeByle (CFO)

You bet.

Operator (participant)

Again, if you have a question, please press star, then one. Our next question will come from Rob Brown with Lake Street Capital Markets. Please go ahead.

Rob Brown (Senior Research Analyst)

Hi, good morning. Just wanted to follow up a little bit more on the kind of the market disruption risks. It sounds like Q2 is sort of you're managing through it, but how do you kind of see that playing out for the back half of the year? Do you sort of see that now as uncertain? Do you feel like it can kind of stabilize? Just give us a sense of how you sort of see that stepping out for the rest of the year.

Warren Veltman (President and CEO)

Yeah, I think for sure it's going to be with us. At least that risk will be with us through the end of the second quarter. Based on what I've read and what we're seeing, it's probably going to be there in the third quarter as well, given the time frame that it will take some of the semiconductor chip manufacturers to bring on additional production lines. We're looking at it over the next six months, certainly, as something that our teams are aware of and focused on. We do get production schedules on the mobile side, which would be most impacted, obviously, from an automotive standpoint. Those schedules tend to run out for a period of 10-12 weeks. They're not firm, but they're planning schedules.

It gives us a reasonable amount of comfort subject to any unusual interruption that may occur as it relates to what we can expect in Q2. Q3 right now is a little bit, we're expecting a reasonably strong Q3 and Q4, but again, we don't have any current forecast from customers, and we want to see how things develop with how the OEMs are dealing with the chip shortage going forward.

Rob Brown (Senior Research Analyst)

Okay. Thank you. On the power business, some of the new growth areas you've talked about, where are you in terms of getting customer activity for sort of the EV products in particular, I guess? Are they in the design and discussion stages? Are you quoting on things? Maybe give us a sense of how the pipeline is looking there for that market.

Thomas DeByle (CFO)

Yeah, I would tell you it's fluid. Our teams are focused on it. Product is being sourced every quarter. I would tell you in the last six or seven weeks, we've received new business awards on $3.5 to $4 million of product that ends up on electric vehicles, battery electric vehicles. Some of that relates to connections, electrical connections within the vehicle. Some relates to, as an example, a power steering system that is solely going to be used on a battery electric vehicle. It's been a focus, as we've talked about, of the teams, our sales groups from a strategic standpoint. Those are the programs that we're looking at, and we're pressing hard on to get those awards.

We have seen some pretty good traction, I would tell you, over the last five or six weeks with some awards that are on battery electric vehicles. It is ongoing. Obviously, it will take time. As we have talked about, we think that transition maybe is a little bit longer than what is portrayed in the media, given some of the constraints that may exist with the ability to manufacture batteries in that volume, charging infrastructure, and those types of things.

Rob Brown (Senior Research Analyst)

Okay. Thank you very much. I'll turn it over.

Operator (participant)

The next question will come from Steve Barger with KeyBanc Capital Markets. Please go ahead.

Steve Barger (Equity Research Analyst)

Hey, thanks for the follow-up. Warren, on your comment about power companies accelerating efforts to drive grid upgrades, are those initiatives funded and approved by regulators, or is that more of something that you just kind of see out there as a wish list?

Warren Veltman (President and CEO)

No, I think, Steve, every public utility has to go through their process, especially if they're making an investment. As I understand it, if they're making an investment, they have to look at their rates to make sure that it supports the investment. Each individual utility has to work with the regulators in order to get that type of investment approved. I would just tell you, based on the research that our team has done, what we're seeing in the marketplace, and talking to experts and people that are engaged in the process in the marketplace, that's how we've formulated our decision and how we view that from a growth perspective.

Steve Barger (Equity Research Analyst)

As you look at that, once those programs start, how long does it take to benefit you? Does that give you quarters or years of incremental work as a grid upgrade project starts?

Warren Veltman (President and CEO)

I think most people think that, and I'm in that group, that the grid infrastructure is going to happen over a longer period of time. I think that for us, continuing to pursue our existing customers on that, expanding our breadth of reach and wallet share with them is going to be critical. I think that that will benefit us for a long period of time. I would say a decade. This is going to take some time to update a grid and an infrastructure across this country and many countries that has been in place for 50 to 80 years, right, or more.

Steve Barger (Equity Research Analyst)

Yeah. No, it seems like it's been a long time coming, and it's certainly been slow to materialize. Hopefully, we're going to do that. How do you track those projects for planning that business, whether it's grid upgrade or renewable projects or smart meter installations? What sources do you use?

Warren Veltman (President and CEO)

Yeah. We have different market research firms that we utilize for that. On the automotive side, we use IHS. Obviously, we use a company called Marketsandmarkets is another one that we use for research. Obviously, you have seen the company's interest in this has manifested itself in putting industry experts on our board. We have one of the preeminent individuals with knowledge about how green renewable energy is going to be connected to the grid, including battery storage and those types of things. Apologize for that. There is a lawnmower running outside my office so you can hear that, but helping in fine-tuning our strategy.

Steve Barger (Equity Research Analyst)

Makes sense. Tom, just a couple of quick ones for you. What should we use now for quarterly interest expense?

Warren Veltman (President and CEO)

Yep.

Steve Barger (Equity Research Analyst)

Minority interest certainly had a nice benefit this quarter. Is that a good run rate?

Thomas DeByle (CFO)

We're not giving guidance, but yeah. I mean, as Warren talked about earlier, the JV is going very strong. I would say that that would probably be reasonable.

Steve Barger (Equity Research Analyst)

Okay. Thanks.

Operator (participant)

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

Warren Veltman (President and CEO)

Thank you for your time this morning and listening to our results for the quarter. Obviously, we're very excited about the quarter, not only the sales and the earnings, but the free cash flow during the first quarter was certainly, in our view, a significant accomplishment. Again, appreciate the time and wish you all a good day. Thank you. Thank you again.

Operator (participant)

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