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NN (NASDAQ:NNBR)
Q1 2020 Earnings Call
May 08, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to the NN, Inc. first-quarter 2020 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr.

Mark Schuermann. Please go ahead.

Mark Schuermann -- Vice President, Treasurer, and Investor Relations.

Thank you, operator. Good morning, everyone, and thanks for joining us. I'm Mark Schuermann, vice president, treasurer and investor relations. I'd like to welcome you to NN's first quarter 2020 earnings conference call.

Our presenters this morning will be president and chief executive officer, Warren Veltman; and Tom DeByle, senior vice president and chief financial officer. If anyone needs a copy of the press release or the supplemental presentation, please contact Abernathy McGregor at (212) 371-5999. 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 factors section in the company's annual report on Form 10-K for the fiscal year ended December 31, 2019, and when filed, the company's quarterly report on Form 10-Q for the three months ended March 31, 2020. Same language applies comments made on today's conference call, including the Q&A session as well as the live webcast.

Our presentation today will contain forward-looking statements regarding sales, margins, foreign exchange rates, cash flow, tax rate, acquisitions, synergies, cash and cost savings, future operating results, performance of our worldwide markets, the impacts of the coronavirus 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. Presentation will also include certain non-GAAP measures as defined by SEC rules. A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation.

Warren and Tom will provide a business update and review our results, and then we will open up the line for questions. At this time, I will turn the call over to Warren Veltman, president and CEO.

Warren Veltman -- Chief Executive Officer

Thanks, Mark, and good morning, everyone. As everyone is aware, there has been substantial changes in the world since our last conference call two months ago. At that time, the coronavirus threat had not significantly impacted our businesses outside of China, but today, all of our operating segments and geographies have been adversely impacted by the COVID-19 pandemic. I'm proud to say that NN's employees have risen to meet one of the greatest challenges of our generation.

Our employees have adapted to numerous workplace changes and required to combat the spread of the coronavirus and have maintained a safe working environment for all. As a team, they continue to meet our customers' volume requirements, while adhering to the high-quality standard that is the trademark of all NN facilities. So before I start my prepared remarks on the quarter, I want to express my sincere thanks for their collective efforts over the last three months. Thank you.

We'll start with an overview of the first quarter on Page 4. Given this economic uncertainty caused by COVID-19, we took immediate action to react to what we view would be a threat to the health and safety of our employees, any substantial and potentially prolonged reduction in our sales volumes. Our plan is focused in four major areas: one, keep our employees safe; two, meet our customer requirements; three, flex variable costs and reduced fixed costs; and four, fortify our liquidity. From a cost containment standpoint, our operating groups are focused on reducing variable costs commensurate with our sales volume reductions.

These costs would primarily include material and perishable tooling, direct labor and outsource-related costs. Unfortunately, to accomplish this objective, we have furloughed both direct and indirect employees where customer volumes have been dramatically reduced. We have also taken action to reduce some fixed manufacturing SG&A expenses. I will review a summary of those actions later in the presentation.

Fortifying our liquidity is a supreme importance. To that end and prior to the end of the first quarter, we drew down $60 million under our revolving credit facility, and we held $79.2 million in cash at March 31, 2020, including $57.2 million in the United States. We will also review other actions we are taking to retain as much liquidity as possible during the balance of 2020 later in the presentation. Moving on to financial performance in the first quarter.

Our sales were $199 million for the quarter, down $13.5 million or 6.3% from the prior year after consideration of foreign exchange differences. Our Life Sciences Group reported sales of $84 million, down $2 million or 2.3% from a year ago. This decrease is a result of reduced customer demand within the orthopedic end market driven by the timing of product launches and the impact of the COVID-19 pandemic. Mobile Solutions sales were $69.9 million, a year-over-year reduction of $8.2 million, primarily due to lower demand within the global automotive markets resulting from the COVID-19 pandemic, especially during March.

Our Power Solutions group reported sales of $46.4 million in comparison to sales of $49.7 million a year ago. Our reported EBITDA, excluding the will impairment for Q1 was $16.2 million and adjusted EBITDA was $30.4 million. Adjusted EBITDA was slightly down from the first quarter a year ago, due primarily to the year-over-year decline in sales, offset by fixed cost and SG&A reductions. Our Life Sciences Group reported EBITDA, excluding goodwill, of $17.8 million, while Mobile Solutions and Power Solutions each reported $6.2 million for the quarter.

The first quarter operating loss of $245 million is primarily due to the write-off of $239.7 million of goodwill during the quarter. This action resulted in a write-off of 100% of the Power Solutions goodwill and $146.8 million of goodwill associated with our Life Sciences Group. This write-off also adversely impacted our reported EPS as we reported a loss of $5.96 per share versus a loss of $0.47 per share a year ago. Tom will discuss the accounting rationale associated with the goodwill impairment later in the presentation.

Our free cash flow for the first quarter was a use of $1 million, an improvement of $15.7 million from the first quarter a year ago. As we discussed last quarter, we expected an $8 million benefit in the first quarter due to having maintained our trade payables in a better age position at December 31, 2019, versus December of 2018. The remaining improvement is due to cost reductions we have implemented, lower capital expenditures and improved working capital management. Lastly, we previously announced a strategic review where the company will evaluate a broad range of operational, financial and strategic options with the goal of reducing leverage and enhancing shareholder value.

This process is ongoing, and it is clear to us that despite the current economic environment, there continues to be a substantial number of potential buyers for high-quality assets and businesses. As we have said before, we have a great company and really good businesses. And moreover, our organizational structure allows for good flexibility as we continue our strategic review and look to enhance shareholder value. This is the extent of our disclosure and comments regarding this process.

As always, we appreciate your understanding and patience as we continue to pursue alternatives associated with this important initiative. Circling back to our overall COVID-19 plan. Page 5 summarizes some of the action regarding maintaining a safe work environment for our employees. We have taken measures to enhance employee communication and education surrounding the coronavirus and employee-driven preventative actions.

We have also coordinated a standard response protocol with local health officials based on CDC recommendations and are conducting daily temperature screening of on-site personnel and visitors. We're issuing appropriate personal protective equipment and performing frequent and responsive workplace cleaning and disinfection. On Page 6, we have presented a summary of our efforts to further reduce costs and improve liquidity. All of these actions are in addition to our previously announced goal of improving cash flow by $32 million annually.

That goal has been achieved. Given the uncertainty regarding the COVID crisis, we feel that immediate action was required to reduce additional costs and preserve our liquidity. We have already implemented cost reductions that include temporary sale reductions for all executive management team members of 20% to 25% and temporary reductions for other salary personnel of 5% to 15%. Other significant cost reductions include reductions in employee benefits, including the suspension of the 401match and employee and gain sharing programs, suspension of noncritical travel and further streamlining of our indirect and SG&A labor costs.

These new cost reductions exceed $20 million annually. As it relates to the liquidity enhancement measures, we have reduced our capital expenditure expectation to below $35 million with an extreme bias toward authorizing only maintenance capex items going forward. We also expect to benefit from supervisions under the CARES Act. The ability to increase depreciation and interest expense deductions in 2018 and 2019, along with new CARES Act provisions, will allow us to carry back 2018 or 2019 losses back to 2017 to recover taxes paid in those years.

In addition, we will be deferring the employer portion of FICA tax until 2020 and '22. Including the cost actions, we have or in the process of implementing actions that should provide over $45 million in cash savings from our pre-COVID business plan. Turning to Slide 7, which details our first quarter by segment. On a consolidated basis, total revenue decreased 6.3% versus the prior year, due primarily to issues associated with the coronavirus pandemic.

Our China operations for Life Sciences and Mobile Solutions were impacted throughout most of the quarter, and the Mobile Solutions operations in Europe and North America were adversely impacted in the latter part of the first quarter. Now I'd like to turn it over to Tom DeByle so Tom can provide a more in-depth review of our financial performance for the quarter. Tom?

Tom DeByle -- Senior Vice President and Chief Financial Officer

Thanks, Warren. Please turn to Slide 8, which includes our first quarter results on a GAAP, non-GAAP excluding special items and a total adjusted non-GAAP basis. We break down our adjustments into two categories. One category is special items, which are onetime unusual expenses.

And the second category is transition and integration expenses, the company has historically captured due to the number of acquisitions and integration activities made over the past few years. A couple of points on this slide. First, GAAP operating profit was impacted by a noncash charge for the write-off of goodwill of $239.7 million. This was driven by a decline in our market capitalization that was less than our net book value of our shareholders' equity.

The decline in market capitalization of roughly 75% was a triggering event that caused us to perform a goodwill impairment analysis as of March 31 and a write-off of the goodwill. Second, sales were down $13.5 million or 6.3%. Historical variable margins are approximately 42% to 45%. Therefore, expected operating profit decrease would be about $5.7 million to $6.1 million down.

Operating profit on a non-GAAP, excluding special items, was only down year over year, $800,000 circled on the right side of the page. This shows that the business is flexing results on lower volumes through cost cuts and managing production levels. Let's go to Slide 9, which provides a bridge with more granularity between reported GAAP, non-GAAP, excluding special items and total adjusted non GAAP. There are few moving parts on this page that I would like to discuss.

First, let's focus our attention on the upper portion of the bridge. The tax-affected asset writedown of $3.8 million, primarily related to the elimination of the lease allocation for a major portion of the corporate headquarters building. As previously mentioned, there was a noncash charge for the impairment of goodwill of $239.7 million, impacting the results. The discrete tax item of $11.9 million primarily relates to the tax rate impact of the goodwill impairment, as well as the impact of the CARES Act legislation.

In the prior year, the large tax-affected special items consisted of $2.1 million related to the write-off of unamortized debt issuance costs and a discrete tax item of $6 million related to the toll charge for the repatriation of foreign earnings through 2017. Now let's turn our attention to the lower section of the bridge. In Q1 2020, the tax-affected nonoperational adjustments relating to capacity and capabilities development, professional fees and integration and transformation were down $2.4 million year-over-year. Tax-effected foreign exchange on intercompany was up $0.9 million, and the amortization of intangibles was down $0.6 million year over year.

Turning to Slide ten. Net working capital at the end of the first quarter was $187.6 million compared with $199.4 million in the prior year, a decrease of $11.8 million. Working capital turns were 4.3 turns in both years. DSO improved versus prior year by 4.3 days.

Inventory turns were the same in both years and the accounts payable decreased as less inventory was brought in. Please turn to Slide 11. Net debt at the end of the first quarter was $768.9 million versus $848 million in the prior year, a decrease of $79.1 million. EBITDA measured by the credit agreement to fund the debt was 4.89 times versus 5.1 times in the prior year.

During the quarter, we drew $60 million on our revolver for liquidity purposes. Our credit agreement leverage ratio steps down from 5.25 times at the end of the first quarter '20 to five times for the remaining quarters of calendar year '20. Due to the uncertain economic environment related to the COVID-19, we are in constructive discussions with our banks. They have been supportive of our efforts as we continue our strategic review process.

Although we have tangible steps to improve our liquidity and implement cost reductions, given the uncertainty the economic environment, our 10-Q for the first quarter will show us as a going concern. Slide 12 shows our free cash flow for the quarter. Free cash flow showed a cash use of $1 million during the first quarter of 2020 compared with a cash use of $16.8 million in the prior year, a significant improvement. It is worth noting that the first quarter of 2020 represents the fourth consecutive quarter of positive net cash provided by operating activities as shown on the graph.

Slide 13 summarizes our capital spending, depreciation and amortization trends. Cash capital expenditures were approximately $11.3 million in the first quarter compared with $14.1 million in the prior year. For the for the quarter, the company's capital spending was 5.6% of sales, down from prior year's percentage of 6.6%. The company has cut its capital spending forecast from $45 million to $35 million in response to COVID-19.

With that, I'll turn the call back to Warren.

Warren Veltman -- Chief Executive Officer

Thanks, Tom. We have presented additional information for each of our operating groups, starting with the Life Sciences on Page 15. In spite of the year-over-year sales reduction, our Life Sciences Group continues to perform well as evidenced by the expansion of operating profit, EBITDA and adjusted EBITDA as a percentage of sales. EBITDA, excluding goodwill impairment, was up $1.9 million over a year ago due to our continuous process improvement efforts and indirect labor and SG&A cost control activities.

Our backlog is at $163 million, a $15 million increase from Q4 of 2019. In spite of this increase, we are cautious regarding future demand given the significant reductions in elective orthopedic surgeries caused by the coronavirus pandemic. Our focus in Q2 and Q3 is on flex productivity and cost control, given we expect customer demand will be significantly reduced from first quarter levels. The Mobile Solutions business summary is included on Page 16.

As I have indicated, the Mobile Solutions Group was hardest hit by the coronavirus pandemic during the first quarter, as sales were down 10.5% from one year ago. EBITDA declined from $10 million in Q1 2019 to $6.2 million [Audio gap] Normally, I will conclude my commentary by providing guidance for the next quarter and year. However, as you are aware, due to the COVID-19 impact, we withdrew our sales and earnings guidance for the year and do not plan to reinstate any guidance until we have a better view of how the industries in which we operate and world economies will recover. That said, I'd like to provide some additional insight on how we view the remaining portion of the year.

Given its concentration in orthopedic products, our Life Sciences group is dependent on elective surgeries, such as those for joint replacements. Elective surgeries have seen a massive reduction over the last two months and are just now starting to be performed. As a result, we expect our Life Sciences group will have reduced sales from Q1 levels over the next two quarters with a recovery recurring after that and through the first quarter of 2021. We expect the recovery for our Mobile Solutions group will be longer than that in Life Sciences.

We expect that European and North American automotive OEMs will gradually ramp up their production over the next eight to ten weeks, with consumer demand being the ultimate determinant of overall production levels. Given the extreme levels of recent unemployment and uncertainty regarding economic growth, coupled with the significant purchase price of an automobile, we believe that a return to pre-COVID production levels will not happen until the second half of 2021. As I stated previously, I believe the Power Solutions path will lie somewhere in the middle and will be more dependent on economic growth and improvement and consumer confidence. We believe the Q2, Q3 volume reductions will not be as severe as either Life or Mobile and the recovery path will likely not be as sharp as Life Sciences or as long as the Mobile Solutions recovery path.

As a reminder, my comments on market trends and revenue estimates do not represent guidance and are intended for illustrative purposes only as there are many uncertainties surrounding how the COVID-19 crisis will impact demand and revenue. That concludes our prepared remarks, and I will now turn the call back to the operator for questions.

Questions & Answers:


Operator

[Operator instructions] And we'll go to our first question from Dan Moore with CJS Securities.

Unknown speaker

This is actually Lee for Dan this morning. Good morning. So you did a pretty good job outlining the outlook for the various segments. As I look at the cost-cutting measures you've taken, how should we think about sort of levels of EBITDA, either flat EBITDA or perhaps growing EBITDA, given all the costs you've already taken out in your outlook for these segments?

Warren Veltman -- Chief Executive Officer

Yes. I think that, Dan, or not, Dan, sorry. I think our EBITDA clearly is going to be dependent on where the sales volume ends up. And as I indicated, it's really tough for us to provide guidance on that, given how uncertain it is at this point in time.

So we're focused more on providing the guidance as it relates to overall sales and where we think directionally that's going to go at this point in time. I would encourage you to continue to use the rule of thumb that Tom indicated in his prepared remarks that typically, when sales fluctuate, we see a fall through of variable margin, excuse me, at about 42% to 45% of the sales change. And we expect that to continue going forward. I think our teams have done an extremely good job over the last couple of months of flexing our businesses consistent with the change in the sales volume.

Unknown speaker

OK. And then just switching to the liquidity. Can you kind of give us a view of your current level of liquidity, remind us of any near-term debt maturities? And then kind of give us a refresher on the piece of paper that you took out, I guess, late last year in that private placement? And how that impacts both interest expense and liquidity needs going forward?

Warren Veltman -- Chief Executive Officer

Yes. I'll talk about the preferred stock that we issued in the fourth quarter. One of the primary benefits of that issuance was that it didn't create any demands on our liquidity or our cash position. The interest associated that was a pick and that's one of the reasons that we pursued that instrument is that gave us some flexibility from a liquidity standpoint.

Tom, do you want to address some of the comments as it relates to where our cash and liquidity position is today?

Tom DeByle -- Senior Vice President and Chief Financial Officer

Sure. So we have about $4.5 million due every quarter of principal payments. And so that's ongoing as we speak. And right now, Warren had mentioned how much cash we had on the balance sheet that we show at March 31, and we have roughly $75 million of cash today, that's including overseas cash.

Did that answer your question?

Unknown speaker

Yes, it does. Thank you very much. Thank you.

Operator

We'll go to our next question from Steve Barger with KeyBanc Capital Markets.

Steve Barger -- KeyBanc Capital Markets -- Analyst

Hey, good morning guys.

Tom DeByle -- Senior Vice President and Chief Financial Officer

Good morning.

Steve Barger -- KeyBanc Capital Markets -- Analyst

I'm trying to think about the magnitude of revenue decline in mobile in 2Q. We know China has restarted to some degree, but North American auto plants are going to be shut down for half the quarter, probably a slow ramp. Is down 50% a good proxy for how we should think about that revenue decline? Is that not enough to extreme?

Warren Veltman -- Chief Executive Officer

Steve, here's the data points that I'll give you as it relates to our performance in April, OK? The Mobile Solutions group, in comparison to the trend that we had in the first quarter. So in comparison to first-quarter volumes, mobile sales in April were operating at about 45% of what we did in the first quarter. Power was at about 80% and Life is at 90%, but that gives you some chart of indication of what we've seen so far.

Steve Barger -- KeyBanc Capital Markets -- Analyst

Right. No, that's really helpful. So if revenue is down, whatever, pick a number, $30 million, $40 million in 2Q sequentially, what percentage of that revenue loss would be released from working cap? Could it be $10 million or $20 million?

Warren Veltman -- Chief Executive Officer

Yes. When we do our modeling on that, we typically look at somewhere around 20% of the sales change, we should be able to pick up in working capital. It's between 15% and 20%.

Steve Barger -- KeyBanc Capital Markets -- Analyst

Got it. So if you net out what you think happens in 2Q from a revenue standpoint versus a working cap and cost action standpoint, do you burn or generate cash in 2Q? And at what level?

Warren Veltman -- Chief Executive Officer

Well, I think we've modeled out a lot of different scenarios as you might imagine. And certainly, if we're down 30% from our plan on an overall companywide basis, there is a cash burn, OK, before consideration and even after consideration of some of the working capital pickups that we would get.

Steve Barger -- KeyBanc Capital Markets -- Analyst

Is any way to frame the size of the cash burn in 2Q?

Warren Veltman -- Chief Executive Officer

Yes. I would talk, when we look at our liquidity, we're very comfortable that with a 30% down case scenario over the next two quarters with a slight recovery in the fourth quarter that our liquidity will definitely hold up through the end of the year. That's not an issue for us.

Steve Barger -- KeyBanc Capital Markets -- Analyst

Meaning you continue shipping product and meeting your interest in other obligations based on what you can see through the year?

Warren Veltman -- Chief Executive Officer

Correct.

Steve Barger -- KeyBanc Capital Markets -- Analyst

One last question for me. On the impairment, I'm no accountant. So I'm sure I don't understand this, but my thought is that impairments typically relate to the future value of cash flows falling below the carrying cost of goodwill. So does the Life Sciences impairment inherently suggest a lack of profitability in that segment? Or can you just talk through the mechanics of that?

Tom DeByle -- Senior Vice President and Chief Financial Officer

Sure. I'll take that one, Warren. So it's all related to our market capitalization. I mean, our share price went from, let's say, at year-end, our measurement time of like above $1.7 down to $1.50 at March 31.

And so it was just clearly a function of that our market capitalization went down below our book value of our shareholder equity, and we have to do a reconciliation of that. And the result is that with the market capitalization going down 75% or roughly $225 million, you have to write-off well. And otherwise, would have just such an extreme premium on our discounted cash flows out of our businesses that market is not accepting. So it's an accounting machination.

I don't agree with it, but it is what it is.

Steve Barger -- KeyBanc Capital Markets -- Analyst

That's a helpful explanation. Thanks.

Warren Veltman -- Chief Executive Officer

OK. You bet.

Operator

[Operator instructions] next to Rob Brown with Lake Street Capital Markets.

Rob Brown -- Lake Street Capital Markets -- Analyst

Good morning. Life Sciences business, in particular. Obviously, it's a tough environment right now, but how much visibility do you have when things start to improve? How long does it take to sort of flow through into your business as procedures start to happen?

Warren Veltman -- Chief Executive Officer

Well, Rob, I would tell you that we have been in constant contact with our customers on the Life Sciences side as it relates to their expectations for demand through the end of, let's call it, through the end of this summer. I just gave you the statistics as it related to April, and that business held up reasonably well in April, given the fact that there hasn't been significant amount of elective surgeries that have been done over the last six to seven weeks, right? And so that means our customers have still been taking product. And what we're trying to gauge right now is where their inventory levels at and when will they dial some of that back? They clearly believe that most of the data that we've looked at, there's an expectation that the recovery of elective surgeries will happen reasonably quickly. So none of our customers want to be left in a situation where they don't have the inventory on hand to be ready for a surge in volume when that occurs.

So I think that they're probably in a reasonably good position of that at this point in time. So now they're planning their schedules for the summer. And that's why when we talk about where we see the whole in the Life Sciences business, it's more in the late May, June, early July time frame than right now because our customers are trying to make sure they have the inventory in place for potential future volume, and then they'll dial it back once they see how the recovery occurs. So I wish I could give you a more definitive response on that.

But that's what we're seeing, and those are the conversations we're having with our customers today.

Rob Brown -- Lake Street Capital Markets -- Analyst

It's very clear. Thank you. I'll turn it over.

Operator

We'll go next to with Wolf fleet Credit Partners.

Unknown speaker

Hey guys. Thanks for taking the questions. I know you discussed this a little bit, but I was hoping maybe you get a little more detail as far as how the conversations are going with the revolver lenders certainly, it seems like you're getting pretty close against that covenant. So maybe if you could just share any more detail on that topic as far as getting a waiver and whatnot?

Warren Veltman -- Chief Executive Officer

Tom, you want to take that one?

Tom DeByle -- Senior Vice President and Chief Financial Officer

Sure. So we're in active discussions with our left lead bank, Truist. And they're very supportive of what we're doing. We've gone through all of our cost reduction actions.

We've gone through all of our liquidity. We've shared forecast with them, and we're just working together. They want to see us through the strategic alternatives. We want to get through that process to delever the balance sheet as we've discussed before.

And it's going to be a few weeks down the road that we're going back and forth, and it's been productive.

Unknown speaker

OK. As we think about the strategic alternative discussions like, are those still active? It seems like this is a really tough time to pursue those opportunities. So how should we be thinking about that?

Tom DeByle -- Senior Vice President and Chief Financial Officer

Well, I'll start off with that. I mean, we have three great businesses, absolute fantastic businesses. They all have generated positive free cash flow. They're good businesses, and they're sought after assets.

So I mean, I'll let Warren comment on, as he said, he didn't really want to comment anymore on it. But everyone should just remember that we have great businesses and that are valuable. Warren, do you want to add?

Warren Veltman -- Chief Executive Officer

Yes. I think the answer to that question is that certainly, it's a difficult time even where the debt markets are at, and we've had to be creative in the way that we're talking to people and we're trying to evaluate opportunities. But I think the overriding point is that in spite of that and in spite of where the debt markets are at today that we have had what we would consider to be a good success and continuing on with this process. So to answer your question, it is still ongoing.

And we expect that it will continue on with that process in spite of what's going on in the markets today at this point.

Unknown speaker

OK. Also like just going back to the fourth quarter, I remember there was some commentary about cash flow being a little bit weaker because you guys were ahead on your payables and that you expected that to benefit cash flow in 1Q yet working capital was still negative. Did that actually flow through first-quarter result?

Warren Veltman -- Chief Executive Officer

Yes. I mean...

Tom DeByle -- Senior Vice President and Chief Financial Officer

Go ahead, Warren. Please, go ahead.

Warren Veltman -- Chief Executive Officer

Sorry, unfortunately, we're not in the same room and we can't see each other. So we're trying to transition this as smooth as we can. In the fourth quarter, we did indicate that our accounts payable were in much better position, and we expected that we would benefit from that in the first quarter. And we believe that we have.

When you look at our performance in the first quarter a year ago, we had a use of cash of $16.8 million. This year, it was a use of $1 million. So we're up $15.8 million versus a year ago. Certainly, the fact that we were in better shape on our payables at 12/31 contributed to that.

But in addition, the fact that we've cut costs and some of the other things that we've done in the business to improve liquidity has resulted in us being in a better situation today clearly than we were a year ago and actually met our expectations. If you go back to look at the guidance that we provided for the first quarter as it relates to cash generation, free cash flow, we're pretty much in the middle of the range that we provided.

Unknown speaker

OK, great. And just one more for me. On the cost savings activities, is there going to be a cash component to that number? And is there a number you can provide?

Warren Veltman -- Chief Executive Officer

The cash savings of the $20 million that we've itemized out is the cost reduction. That's all cash.

Unknown speaker

I guess, is there a cash component in that cash outlay that you're going to...

Warren Veltman -- Chief Executive Officer

To accomplish There could be some minor severance amounts. The biggest cash outlay that we had was associated with the termination of our lease on almost two full floors in Charlotte. And that is already the cash number that Tom provided earlier, which was the $75 million of cash that we have on our balance sheet that we currently have. That's after actually paying a $4.4 million termination fee to terminate the lease for the Charlotte office.

So that was the biggest item or hurdle that we had in order to accomplish some of our cost reduction efforts. The things that we're doing today, there's very little friction costs related to accomplishing those.

Unknown speaker

Thanks for taking the time. Good luck.

Warren Veltman -- Chief Executive Officer

Sure.

Operator

And at this time, there are no further questions.

Warren Veltman -- Chief Executive Officer

OK. I'd like to just thank everybody for their support and for their time this morning. Once again, a big shout out and thank you to the employees of NN. And everything that they've done for the organization over the last three months really appreciated not only by me, but our whole management team.

Proud to be a leader of that group. And thank you again for your time today.

Operator

[Operator signoff]

Duration: 43 minutes

Call participants:

Mark Schuermann -- Vice President, Treasurer, and Investor Relations.

Warren Veltman -- Chief Executive Officer

Tom DeByle -- Senior Vice President and Chief Financial Officer

Unknown speaker

Steve Barger -- KeyBanc Capital Markets -- Analyst

Rob Brown -- Lake Street Capital Markets -- Analyst

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