Good morning and welcome to the NN, Inc. Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jeff Tryka. Please go ahead.

Thank you, Andrea. Good morning, everyone and thanks for joining us. I'm Jeff Tryka, Investor Relations contact for NN, Inc. and I'd like to thank you for attending today's business update. Yesterday afternoon, we issued a press release announcing our financial results for the third quarter ended September 30, 2022, as well as a supplemental presentation which have all been posted on the Investor Relations section of our website. If anyone needs a copy of the press release or the supplemental presentation, you may contact Lambert & Co. at 315-529-2348. Our presenters on the call this morning will be Warren Veltman, President and Chief Executive Officer; and Mike Felcher, Senior Vice President and Chief Financial Officer. 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 of the company's annual report on Form 10-K for the fiscal year ended December 31, 2021 and other filings with the Securities and Exchange Commission. The same language applies to comments made in 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, input cost inflation, supply chain constraints, the impact of the automotive semiconductor chip shortage, statements regarding the planned management transition, foreign exchange rates, cash flow, tax rates, acquisitions, synergies, cash and cost savings, future operating results, performance of our worldwide markets and the impacts of the coronavirus pandemic and the Russian-Ukrainian conflict 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 of the company's control. The presentation also includes 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. Reviewing the agenda for today's call, Warren will open with an update on actions the company has taken to position NN for success and then provide a business update from the third quarter. Mike will then provide a detailed review of the financial results before turning the call back over to Warren to discuss our segment results and markets as well as our outlook for 2022 which has been revised based on our current view of the business and external factors influencing our results. There will be a Q&A session following the conclusion of the prepared remarks. At this time, I will turn the call over to Warren Veltman, President and CEO. Warren?

Thanks, Jeff. Good morning, everyone and thank you for joining us this morning. Before we dive into a discussion of our results for the third quarter, I would like to review the other news we announced last night regarding the management transition plan. This transition includes my planned retirement as NN CEO, effective at the end of the first quarter of 2023. I've given this decision a great deal of thought and consideration, as it was very important to me that the timing be right for both me personally and for the company. In the 3-plus years I served as CEO, we have made significant progress to improve the company's financial structure, operating cost drivers and reposition our growth strategy to be focused on the high-growth electric vehicle and electrical markets. I believe these and other initiatives have placed NN on a path for continued success and will ultimately drive improved shareholder value. Our efforts regarding rationalizing our manufacturing footprint is an example of cost reduction efforts to create a more competitive cost structure for NN. We have taken action to close 5 manufacturing facilities by the end of the first quarter of 2023. When complete, we expect to see annualized improvement in adjusted EBITDA versus our 2022 outlook of $10 million to $12 million. The finalization of these closures will be a huge step in creating a more competitive global footprint for NN to support our growth objectives and are actions I hope to complete before my retirement. To address my planned retirement, our Board of Directors has engaged Korn Ferry, a global organizational consulting firm, to identify a range of potential candidates, with particular emphasis on individuals with skills and experience in the electric vehicle and residential and commercial electric grid markets. The Board is targeting to announce a new CEO during the first half of 2023 and I expect that I will remain in my role until a successor is in place. Additionally, I will remain available on a consulting basis beyond that time as necessary to facilitate a smooth transition. In addition to my retirement, we also announced several other management changes, starting with the planned retirement of John Buchan, our Executive Vice President of Mobile Solutions and Power Solutions. John and I have partnered together for many years to create value for our shareholders and I thank him for his commitment to our organization. As we search for John's successor, we have named 2 experienced leaders at NN to new positions to help ensure continuity of our leadership team. NN named Gunars Vinkels to be Interim Chief Operating Officer of Power Solutions and Douglas Campos to be Interim Chief Operating Officer of Mobile Solutions, each reporting to John Buchan. Gunars has almost 30 years of relevant experience within Power Solutions and currently serves as the Vice President of Operations, with a focus on the electrical business. Douglas has experience in a variety of leadership roles, providing a breadth of commercial, operational and geographical experience within Mobile Solutions. We are confident in the abilities of these 2 executives to guide our operating teams through this transition. I would be remiss to not thank the incredible NN team. It has been an honor and my absolute pleasure to have worked with such a talented and dedicated group of individuals. I want to thank all my colleagues for the commitment demonstrated to make such progress in the transformation of NN. We all recognize that the work is not complete and that we must continue the work to make NN better each day. I also want to thank our customers who continue to value our products and capabilities. And lastly, I want to thank all our shareholders for their continued support in NN. Let's now turn our discussion to our performance during the third quarter. On Page 4 of the presentation, we will review some of the key strategic initiatives our team completed during the quarter. We continue to focus our sales efforts on key growth areas centered on the mega trends shaping the future of our markets, including the electrical and EV markets. Our 2025 goal is to generate in excess of 20% of our revenues from these markets. And year-to-date, we continue to make progress against that goal, with 36% of our new business wins associated with electrical or EV markets. To advance these efforts in the third quarter, we showcased NN's process technology and components at the Battery Show in Novi, Michigan. For those of you who might be unfamiliar with this show, it's one of the largest trade shows dedicated to advanced battery and electric and hybrid vehicle technology, also known as the EV Tech Expo. The show attracted more than 15,000 attendees and nearly 800 suppliers to the industry. This was a great opportunity for NN to showcase our process technology and components to a large audience. As I previously discussed, our efforts to optimize our production footprint and reduce cost has been a significant initiative. We announced the closure of the Power Solutions Irvine, California, facility in October which was the culmination of our strategic review of our aerospace and defense business. Additionally, we continued efforts to close 4 additional sites by the end of the first quarter. Turning to Page 5, we felt it important to summarize how we anticipate the company will perform by depicting the expected benefit of fully implemented cost improvements that are underway and will be substantially complete by the end of Q1 2023. First, I will review the impact of the closure of Taunton and Irvine on the Power Solutions business. Both of these facilities manufactured product primarily for the aerospace and defense industries. On this slide, we depict the pro forma 9-month results for the Power Solutions business by removing the financial results of the Taunton and Irvine facilities for the same period. On a pro forma basis, the closure of Taunton and Irvine will result in a significant improvement in operating income and adjusted EBITDA of $7.5 million and $5.8 million, respectively. These pro forma adjustments would increase Power Solutions' 9-month operating income and adjusted EBITDA to $23.2 million and $25.3 million, respectively, on sales of $148.5 million. Pro forma adjusted EBITDA would represent 17% of sales which is more in line with our long-term targets for the business. Further, the strong 9-month performance on our electrical business demonstrates that we have been successful in adjusting our product pricing to recover inflationary cost increases. We have excluded our medical business from the pro forma carve-out, as that business will be relocated to our production facility in Attleboro, Massachusetts. We expect approximately $2 million in closure costs for these facilities but also anticipate proceeds from the sale of equipment in the range of $2 million to $3 million. Lastly, although we have not secured tenants for these facilities, we expect sublease income will approximate our current lease obligations, as we believe our current rental rates are consistent with market terms. Now if you turn to Page 6, we will review the impact of our cost improvement initiatives on the Mobile Solutions business. On this slide, we show a $7.8 million 9-month pro forma impact of our cost improvement initiatives had they been completed at the beginning of 2022. We estimate the annual cost savings associated with facility closures to be approximately $5 million, or $3.9 million for the 9-month period. The 9-month savings can be allocated to $1.7 million associated with reduced facility costs and $2.2 million associated with shifting production to a low-cost facility where certain operations that were previously outsourced can now be performed internally. Although we have been proactive in addressing the effect of inflation, we have experienced a lag from the time of an inflationary cost increase to the time of recovery from our customers. The pro forma impact on adjusted EBITDA of realizing customer price increases at the time of the cost increase would have increased our adjusted EBITDA by $3.2 million during the 9-month period. Note that the pro forma impact on adjusted EBITDA is higher than the pro forma sales adjustment due to the additional inflation recovery at the company's China joint venture. Our China JV sales are not consolidated in our reported results. Lastly, we have reflected a $700,000 pro forma adjustment for excessive production start-up costs. We are tracking these expected cost reductions with area improvement team action plans that are expected to eliminate these cost overruns by the end of Q1 2023. After considering these pro forma adjustments for cost reduction initiatives underway, Mobile Solutions' 9-month pro forma sales and adjusted EBITDA would be $228.2 million and $36.2 million, respectively. This would yield a 15.9% adjusted EBITDA margin, much closer to our expectation for this business. Turning to Page 8, we have summarized some of the results from our third quarter. Let me start my comments by saying that in spite of the fact that several financial metrics show year-over-year improvement, we are not satisfied with our financial results for the third quarter and they clearly did not meet our expectations. We did not see the sales volume increases we were expecting, inflationary cost increases adversely impacted margins and we experienced poor operating performance for program launches in Mobile Solutions and within Power Solutions aerospace and defense facilities. I had previously discussed the actions we are taking surrounding these issues. These issues also impacted our free cash flow during the quarter which was a use of $4.4 million. Sales for the quarter were $127.3 million, up 8.6% from the same period in 2021. Our Power Solutions business experienced a 5% increase in sales compared to the same period in 2021, driven primarily by higher pricing and volume, partially offset by lower precious metal passthrough pricing and unfavorable foreign exchange effects. Pricing and increased demand within the end markets of our Mobile Solutions group resulted in a year-over-year revenue growth of 11% for this segment. We continue to maintain strong liquidity, at $44.7 million and our $60 million swap has provided us a level of protection in an environment of increasing interest rates. On Slide 9, we review new business wins. Year-to-date through the third quarter, we have secured new business wins with peak annualized sales of approximately $31 million. The new business reflects segment growth aligned with our long-term strategy as well as increased share of wallet with industry leaders; particularly, component share gains with our longstanding customer base. Of note, 36% of the new business wins secured through the third quarter were in the EV and electrical segments, further supporting our team's focus on aligning growth consistent with our long-term vision. We continue to take a disciplined approach to programs requiring capital and have maintained a low capital ratio, with the year-to-date wins only requiring $2.1 million of incremental CapEx. We continue to invest in additional sales resources with demonstrated expertise in electrical, battery storage and electric vehicle markets to improve our coverage in business segments that are consistent with our strategic growth initiatives. Turning to Page 10, focused execution from our sales and business development teams continued to deliver pipeline expansion in high-growth markets aligned with our strategy. While the overall pipeline has decreased in recent quarters, it is important to understand that the opportunities in our target markets that are high growth have increased. The decrease also reflects canceled opportunities following the Irvine and Taunton facility closures. The opportunities generated by our teams are encouraging and we remain committed to expansion in our EV and electrical segments. We are currently pursuing several initiatives to strengthen our position in each market. ICE-dependent pursuits continue to decline and can be attributed to the reduction in programs by OEMs and our selective approach to pursuing opportunities in this end market. We are also focused on the opportunity to further expand our presence in the medical market once our noncompete related to the sale of the life science business expires in the fourth quarter of 2023. I will now turn it over to Mike Felcher who will provide a more in-depth review of our financial performance for the quarter.

Thank you, Warren. Slide 11 is a review of our financial highlights for the third quarter. Increased volumes and demand drove an increase of 8.6% in sales versus the prior year period which along with favorable mix and higher JV net income equated to improved year-over-year profitability of approximately $4 million. The JV reported sales of $27 million during the third quarter, up $4.3 million, or 18.8%, from the third quarter of 2021. Year-over-year results were also favorably impacted by reduced incentive and stock-based compensation expense of approximately $3 million. These improvements were partially offset by unfavorable impacts of approximately $2 million due to unrecovered inflation and $1.7 million related to overhead absorption. Turning to Slide 12, our working capital remained consistent with the prior quarter, at 4.2 turns. Similar to recent quarters, we continue to experience challenges with our supply chain and, as a result, have maintained higher-than-usual levels of inventory. While inventory remains above normal levels due to safety stock needed to address increased lead times, we remain focused on reducing inventory levels and are working on several initiatives to reduce them by year-end. Turning to Slide 13, we provide a look at our capital expenditures. We continue to take a disciplined approach as we fund investments to support long-term growth. Year-to-date CapEx has decreased from $14.6 million in 2021 to $14 million in the current year. Moving to Slide 14, free cash flow was a use of $4.4 million in the third quarter of 2022, compared to a free cash flow use of $3.7 million in 2021. Free cash flow used in the quarter was primarily driven by a $3.1 million increase in working capital and lower operating results than expected. We expect working capital to reduce by approximately $9 million in Q4, driven by inventory reduction initiatives and lower accounts receivable due to the collection of a $2 million receivable related to a customer settlement agreed to in 2021 and normal Q4 sales seasonality. In addition, we incurred approximately $1.7 million in cash costs for severance litigation and facility closure costs during the quarter. We expect that these expenditures will be approximately $3 million in the fourth quarter as we make the final payment on CARES Act, FICA deferrals and incur costs related to the previously discussed facility closures. While we will incur some additional facility closure costs early in 2023 and will pay $0.8 million in 2023 per the terms of the agreement to settle breach-of-contract claims regarding the sale of products by us in 2016 that was agreed to earlier this year, the majority of cash outflows for these items are behind us and 2023 cash outflows for these items are expected to be significantly lower than 2022. Please turn to Slide 15. Net debt at the end of the third quarter was $151.5 million, versus $146.3 million in the second quarter of 2022, an increase of $5.2 million. Our net debt-to-adjusted EBITDA ratio stood at 3.15x at the end of the third quarter, a marginal decrease from 3.17x at the end of the second quarter and slightly above our 3x target. We had $44.7 million of liquidity, including cash and availability on our revolver, as of September 30, 2022. Our ABL was drawn by $6 million at the end of the third quarter, with undrawn availability of $32 million. With that, I will turn it back to Warren.

Thank you, Mike. On Slide 17, we broadly outline certain market trends surrounding the electrical market. We continue to view the rapid transformation of the energy and electrical equipment markets as significant opportunities. Government regulations and increased pressure on corporations to accelerate the adoption of sustainable or alternative energy continues to persist. Corporate investments into the energy storage sector reached $22 billion for the first 9 months of 2022, exceeding 2021's investments by 30%. Renewable power generation, electric grids and energy storage account for 80% of total investments within the power sector. On August 19, 2022, President Biden signed the Inflation Reduction Act, with one of the primary goals of increasing the amount of dollars invested to combat climate change. As part of these efforts, the bill allocated $369 billion in funding for energy security and climate change investment through tax credits and loans. We expect legislation in numerous countries to accelerate the amount of investment. On Slide 18, we summarize certain trends in the automotive market. The transition to EV continues to gather momentum. While rising interest rates, increasing energy costs and ongoing supply chain disruptions continue to affect global vehicle production and elevate price levels, we continue to see increased interest from federal and state governments to advance the country's EV infrastructure. As of 2022, the U.S. had a total of 92,000 EV chargers which increased 12% from 2020. More recently, the U.S. Department of Transportation approved EV charging station plans that support all 50 states and cover 75,000 miles on the highway as part of a bipartisan infrastructure package. While we believe the transition to EVs remains inevitable, the ultimate path and time frame for the transition remains uncertain given the recent increase in inflation and sustained impact on the supply chain challenges. That said, recent investments by OEMs across product development and production expansion in EVs remains encouraging and we continue to view the opportunity as exciting. Turning to our segment performance, we will begin with Power Solutions. Power Solutions generated an increase in sales of 5% year-over-year. The increase was primarily driven by higher customer pricing and volume, partially offset by lower precious metal passthrough pricing and unfavorable foreign exchange effects. Profitability increased compared to the prior year period, driven by variable cost efficiencies gained from improved volumes and lower incentive compensation expense. Profitability was also favorably impacted by improved sales mix of our higher value-added series of electrical components. As we discussed earlier, the closure of our Taunton and Irvine facilities are proceeding on schedule. On Page 20, sales in our Mobile Solutions group increased 11% versus the prior year period. The increase was primarily driven by increased pricing and improved volume demand, particularly from China and Brazil. New business launches in Mexico also had a favorable contribution to sales and volumes during the third quarter. Negative foreign exchange effects partially offset those positive trends. Profitability decreased compared to the prior period. The decrease was driven by delayed unrecovered inflation, overhead absorption and the start-up costs. These impacts were partially offset by higher profits due to improved volumes at our China joint venture which reported 9-month sales of $76.4 million, up 11.7% from 1 year ago. Looking ahead, we expect Q4 sales in our Mobile Solutions business to reflect normal seasonality due to reduced number of customer ship days. We continue to negotiate with customers, with the expectation of additional inflationary cost recoveries and are prioritizing pipeline opportunities focused on high-growth, non-ICE markets, consistent with our long-term strategy. Turning to Page 21, we are updating our outlook for 2022 to reflect our reported third quarter results and the changes in market conditions since our last update. Our full year 2022 outlook now reflects the following: net sales in the range of $503 million to $510 million; adjusted EBITDA in the range of $45 million to $48 million; free cash outflow in the range of $9 million to $12 million. Our sales outlook is reduced due to the tempered automotive volume expectation in North America and in China due to higher interest rates, increased OEM inventory and concern regarding the strength of global economies. Additionally, supply chain interruptions, although improved, have adversely impacted our volume expectations for a major Power Solutions customer. Adjusted EBITDA has been negatively impacted by lower sales and lower margin expectations as a result of product launch inefficiencies and delayed delivery of machine tools and automation expected to drive improved productivity. Additionally, operating performance of our aerospace and defense business did not meet expectations due to labor availability, higher labor costs and lower customer volumes, especially at our Irvine, California, site, where adjusted EBITDA declined $800,000 from our previous outlook. Our current expectations also resulted in a reduction in our incentive compensation which had a favorable impact of approximately $3 million. Our free cash flow outlook is driven by the factors previously discussed and includes nonoperating cash flows for the tax on the sale of Life Sciences, repayment of the FICA deferral and litigation, severance and facility closure costs which in total represent approximately $8 million. I would note that our free cash flow does not include the CARES Act tax refund of $11 million, due to uncertain timing. The increase from our prior expected refund of $10 million is a result of expected interest income on the refund. We are actively pursuing this refund through several avenues, including an IRS taxpayer advocate and our congressional representative. As I close my remarks, we have summarized some of our improvement actions on Page 22. Although our third quarter results did not meet our expectations, I believe our efforts have NN on the path to improved financial performance. Our Board is recruiting a successor CEO that will have experience in our targeted strategic markets and we have talented managerial depth. We continue to improve the depth of our sales and business development teams and we have a robust sales pipeline of opportunities which has generated $32 million of new business wins so far in 2022. Our sales efforts are directed by our strategy and we are making smart capital decisions by investing in markets that will drive our future growth. We are within reach of significant cost reduction efforts that are expected to improve our profitability by $10 million to $12 million once complete. We have received approximately $40 million of annualized price increases in 2022 and are focused on additional recovery of inflation-driven cost increases. For these reasons and the commitment and skill of our employees, I believe that NN is on the right path and I am confident in our future. That concludes our prepared remarks and I will now turn the call back to the operator for questions.

[Operator Instructions] And our first question comes from Rob Brown of Lake Street Capital Markets.

My first question is on kind of the pricing improvement. I know it takes a little time to flow through and you said you got, I think, $40 million last year. How much is sort of yet to come and that you've already negotiated? And I guess, how much more is sort of out there that you think you can get?

I would tell you, Rob, it largely depends on how much inflation we see, honestly. As we have indicated, we have what I would call automatic pricing increases currently built in for anything that's material-related with the majority of our customers on the Mobile Solutions side. On the Power side, we've seen increases. Pricing goes up and down as it relates to precious metals and we adjust that pricing on the day of shipment. We've seen significant material-related costs for resins and we've passed that through proactively to our customers. And in those cases, it doesn't require a significant amount of negotiation because we don't have long-term contracts. So as prices move there, we have the opportunity and, as I indicated in my remarks, have demonstrated the ability on the electrical side to pass through that pricing. On the Mobile side, we have the material that is really automatic. I would tell you there's probably another -- I hate to speculate but there's probably, on nonmaterial-related products, there's probably another 5% to 10% as it relates to the cost increases associated with nonmaterial-related applications that we're pursuing from our customers today.

Okay, great. And then moving kind to EV activity, you had pretty good project wins in the quarter, I guess. How is that pipeline building? Do you see that sort of cadence continuing in terms of adding projects? And then I presume it takes a few years to get those into revenue. But what's sort of the base of activity that you've won that can turn into revenue over the next couple of years?

I would tell you, obviously, it's a priority for us, as I indicated. Our team is very heavily focused on that. One of the things that was interesting to me when I attended the Battery Show that I referenced in my comments was that there is a lot of research and development surrounding it. But as it relates to the number of factories today that reside on this continent for manufacturing not only batteries for vehicles but certainly storage-related batteries for utilization in the grid, there's still a lot of development that needs to be done by those customers as it relates to establishing their factories. So the good news is that we're connected with quite a few people that are moving forward with those types of installations. We're seeing a lot of quoting activity for that. We've had some instances on the EV side where we're quoting the same product with multiple customers. So there is a little duplication in the pipeline in some of those types of instances. But I think that we're right at the forefront of this and certainly, our teams are actively engaged as this is developing in the United States.

Okay. Okay, great. And then, maybe just sort of your kind of comments around the macro environment into next year. I know there's some uncertainty but what's sort of the range of kind of outcomes that you've experienced in the past? How much visibility do you have? And how do you kind of manage through changes in volume if things slow down? And I guess, what visibility do you have for next year at this point?

Look, good question. I would tell you that when we did the outlook 3 months ago, I think that we were looking for a little bit more of a bounce, especially on the auto side, in the fourth quarter and through 2023. And I think what we're seeing with some of our customer release schedules is a little bit more cautiousness on their part. You saw that inventory levels for the OEMs jumped up. I think, on average, when we were talking previously, it was in the low 20s. Now it's at the 34-day, 35-day range. Ford, I think, actually was a little bit higher when they announced and some of the data that we're seeing. They were up in the 50 range, getting back more towards where they have been historically. So, I think that there's a certain amount of cautiousness going on as it relates to the higher interest rates. The ability to move product is a result of that. And we've seen that in some of our releases. I would tell you our expectation is that we don't think that it's going to be significantly down from where we are today, at least what we're seeing, simply because we've been operating at lower levels so far in 2022 as a result of the semiconductor chip shortages and supply chain interruptions which impacted us for the majority of the first half of this year. So, I think that NN is well positioned with a diversified portfolio on the electrical side and the automotive side. And certainly, as it relates to our ability to flex, I think that we've proven that we have a very strong and capable management team that demonstrated throughout 2020 that we can do that. The majority of our facilities run a 50-hour work week. So we can flex back 20% on the labor side without losing any skilled machinists or engineers, which is a key part of what we would like to retain in the event that there is a downturn.

The next question comes from Steve Barger of KeyBanc Capital Markets.

This is Jacob [ph] on for Steve. So the first one, just organic growth levels seemed to be pretty decent in the quarter, maybe a little bit lower than the double-digit levels that we were talking about last quarter. Can you just talk about how you see those trends moving into Q4, specifically? And then maybe what that implies for momentum heading into the first half of '23?

Well, I think the guidance that we gave for the whole year that we went through, honestly, I think kind of covers how we expect that to build through the fourth quarter. So we're not at this point in time giving guidance on 2023. We'll do that certainly when we report our year-end results. But as I indicated, our view is that there's some adjustment going on in the market today. We're seeing some cautiousness as it relates to our customers' volumes. We've seen inventories jump just a little bit. They're certainly not as robust as they were pre-COVID and I think that there is some doubt on whether they will get back to that level given how the OEMs have been able to run their businesses and maintain lower inventory levels for a period of time. So our expectation is that we will continue to see improvement in sales throughout 2023. As it relates to the degree, I think we'd like to see things develop a little bit here over the fourth quarter and see where the economy goes, especially post-election.

Okay. Got it. That's some good color there. Second one, just kind of a follow-up on the cost recovery side. I know a lot of your contract negotiations are centered around end of year, maybe only some twice a year. Do you think we're going to have to wait until first quarter to start seeing the majority of the rest of those recoveries coming through?

Most of what we're talking to our customers about right now relates to pricing adjustments on January 1.

Okay, understood there. Just maybe 1 or 2 more for me. Specifically on the medical market, the reentry into your medical market, I know you talk about the noncompete from the Life Sciences business until October of next year but I'm just kind of curious what areas you're specifically targeting in the medical market.

Well, we're not targeting any areas right now because we're still subject to a noncompete agreement. I would tell you that when we get to that point in time, there are applications within the medical space that fit the core processes that NN has. So anything that would be focused on precision turning or grinding or stamping would play very clearly into the skill set that we have. And obviously, we have a small medical business today that was grandfathered in to our noncompete. And some of the capabilities that we have there as it relates to instrument manufacturing, we could expand into other customer relationships.

Okay. Understood. I mean, I guess maybe do you have any sense of sort of the magnitude of what that opportunity could be as you get back into it once this noncompete is up?

Look, it's a $10 million business for us today. Certainly, we think that over a period of time we could -- in a period of time once we're into it, over a 2- or 3-year period of time, we could triple or quadruple the size of that business, I would think.

Okay, got it. And then maybe just one last quick one. In the beginning of your prepared remarks, you talked about getting to 20%-plus of your revenues from sort of those mega trend markets by '25. I'm just curious what that percentage is of your business right now.

Where are we at, Mike? We're at, like, 15%? 14% or 15%, I think?

I think it's 13% or 14%, I think, is where we're at.

So it's getting it to 20% but with sales growth throughout the period, right? So it's not the growth aspect of it. And that's the stated target. Certainly, we've had conversations about setting our goals higher than that. And internally, they are but that is our external stated objective.

The next question comes from Tom Kerr of Zacks Investment Research.

I think most of my questions have been asked and answered. A couple of quick ones. Any current commentary on the inflation situation? You're 1 month into the fourth quarter. Any signs of hope or anything like that?

Well, I think the signs of hope are that we continue to secure pricing adjustments from our customers. As I indicated, we've done that on the Power Solutions side and we'll continue to do that. We have seen on the Power side, the sales are impacted by lower process metal prices. So we've seen silver come down a little bit. And that, from a quarter-over-quarter comparison standpoint, doesn't necessarily change our margins significantly but certainly changes the sales. And I'd say margin, I'm talking about dollar, right? It can impact the percentage margin. But I would tell you that my feeling today is we have a lot of conversations with customers. And I think early on, they were maybe a little bit more adversarial than they have been recently, because I think our customers understand that it's important that they have the conversation with us and we reach some sort of an agreement because they want a healthy supplier supplying them product. And now they've already had an opportunity to talk to the OEMs and deal with some of their pricing-related issues, because they have some of the same concerns. And now that they have a clearer path on how that is working, I think they're more reasonable in the approach in dealing with us.

All right. Sounds good. Any additional color on the China JV? Is that back to normal? Or recovered kind of like you expected?

Look, I would tell you we had a little bump there in our China operations in the second quarter with the COVID. That's still an issue that we're concerned about there. But we're really jamming pretty hard, with a volume $27 million for a quarter. Obviously, well over a $100 million run rate. Our WOFE is performing reasonably well, as well. So we feel pretty good about what's going on in our China operations at this point in time. I think the one negative for us is that we still are negotiating some pricing with a customer for the JV. We concluded on a pricing arrangement with them. It was unfortunate that we didn't conclude on it prior to the end of September but we agreed to an adjustment for the first half of the year. But we concluded on that in October and we didn't get an opportunity to book it in the third quarter but we'll pick that up in the fourth quarter. And then we've already started the negotiations with the customer on the second half of the year. So a little bit of a lag in the China arena as it relates to talking about pricing for inflationary matters.

Got it. Okay. A couple of quick ones. I think last quarter, you talked about the leverage ratio being under 3x at year-end. I'm assuming that's still not a goal? Or can that still happen?

We're obviously focused on getting it below 3x. I think, given the revised outlook, that's probably going to be more early in 2023 than at year-end at this point.

Okay. And last one, you guys talked about how you're not giving 2023 guidance until the next quarter but you did give pro forma segment adjusted EBITDA margins. Can you consider that a goal or expectation going forward on a normalized basis?

So regarding the $10 million to $12 million we outlined, our current view is that sequentially versus 2022 we'd realize about 75% of that in '23. There's obviously some continued impact as we get through the closure of those facilities and the work transfer. When we provide our 2023 outlook in March, we'll have a better estimate on that. It's going to depend on sublease timing and terms and various other factors. But our current view is of the $10 million to $12 million that we outlined for the facility closure savings, that we'd be able to realize about 3/4 of that in 2023.

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

I just want to thank our analysts and shareholders for participating in this call today as well as our employees. Certainly, as I indicated at the beginning, we appreciate the support that we've had from all of our stakeholders and appreciate you taking part in the call today. Thank you. Have a good day.

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