Good morning, everyone, and welcome to the NN, Inc. Fourth Quarter and Full Year '22 Earnings Conference Call. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Jeff Tryka, Investor Relations with NN. Please go ahead.

Thank you, Jamie. 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 fourth quarter and full year ended December 31, 2022, as well as a supplemental presentation, which have been posted to the Investor Relations section of our website. If anyone needs a copy of the press release or the supplemental presentation, you may contact Lambert & Company at 315-529-2348. Our presenters on the call this morning will be Warren Veltman, President and Chief Executive Officer; Mike Felcher, Senior Vice President and Chief Financial Officer; and Andrew Wall, Senior Vice President and Chief Commercial Officer. Before we begin, I'd like to ask you to 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, the company's quarterly report on Form 10-Q for the 3 months ended September 30, 2022, and when filed, the company's annual report on Form 10-K for the fiscal year ended December 31, 2022. The same language applies to 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, inflation, supply chain constraints, including semiconductor chips, foreign exchange rates, cash flow, tax rate, acquisitions, synergies, cash and cost savings, future operating results, performance of our worldwide markets, the impact of the coronavirus pandemic and the Russia-Ukraine 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 in the supplemental presentation. Reviewing the agenda for today's call, Warren will open with an update on the actions the company is taking to position NN for success. Andrew will then provide a market update and discussion of new business opportunities. Finally, Mike will provide a detailed update of financial results for the fourth quarter and full year before turning the call back over to Warren to discuss our outlook for 2023. 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?

Thank you, Jeff, and good morning, everyone, and thank you for joining us this morning. Let me start my comments by indicating that our teams have continued to adapt to a very challenging environment characterized by supplier interruptions, inflationary cost pressures, labor constraints, and fluctuating customer volumes. NN possesses an action-oriented culture predicated on improving every day and responding swiftly to customer requirements. So I have strong faith that our teams will continue to rise to meet the challenges presented by this current environment. If you turn to Page 4 of the presentation, we have summarized some of the results from our fourth quarter. Let me start my comments by saying that despite the fact that we made significant progress on our key initiatives, our fourth quarter results did not meet our expectations. Reported sales were lower than expected in our prior outlook due to lower production volumes, partially driven by COVID-19 interruptions in China due to the government's reversal of its zero-tolerance policy during the fourth quarter. Additionally, our results reflect unrecovered inflation and operating performance below our expectations, particularly at two operating facilities. Sales for the quarter were $118 million, up 6.9% from the fourth quarter of 2021. Power Solutions sales were up 11.7%, driven by electric component volume and pricing. Mobile Solutions sales were up 3.6% from the prior year, driven by pricing. The impact of inflation on our cost structure continues to adversely impact our profit. Cost increases due to inflation that were not recovered by higher customer pricing adversely impacted Mobile Solutions by approximately $1 million during the quarter. We responded by aggressively negotiating non-material-related price increases with our Mobile Solutions customers, with most becoming effective January 1, 2023. On the Power Solutions side, we have proactively addressed expected 2023 inflation by implementing a 5% or higher price increase on incoming purchase orders not tied to a long-term supply agreement. These factors contributed to a net loss for the fourth quarter of $11 million and a non-GAAP adjusted loss of $3.3 million. Non-GAAP adjusted EBITDA was $7.8 million or 6.6% of sales for the fourth quarter of 2022. We continue to maintain strong liquidity at $48.1 million, an increase of $3.4 million from Q3 of 2022 as we generated $6.4 million of free cash flow in the fourth quarter, which was in line with our outlook despite profitability being lower than expected. If you turn to Page 5 of the presentation, I will provide an update on several key initiatives. During 2022 and 2023, we were able to increase pricing to address inflationary costs, which I will address in more detail on a subsequent slide. We are focused on continuously improving our cost structure. As we have previously discussed, a major initiative has been to optimize the efficiency of our operating footprint with the closure of five facilities. We expect that all these facilities will be closed by the end of the second quarter of 2023. These closures are expected to generate $11 million to $12 million improvement in adjusted EBITDA versus our 2022 results. This week, we announced the amendments to our ABL and term loan agreements to provide an increase in the leverage ratio requirement for the remaining duration of the term loan. This change will provide us with a reduction in compliance risk given the continued uncertainty surrounding the broader economy, inflation, and supply chain stability and also will allow our new leadership the ability to focus on executing our growth strategy and driving improved financial performance. Speaking of new leadership, let me provide an update on the status of the current CEO search. The Board has worked with Korn Ferry to identify and interview qualified candidates with a focus on finding the right person to lead NN. A person with relevant industry experience, drive, values, and commitment to our company’s long-term vision. Selecting the right candidate takes time, particularly in the current environment, but our Board is committed to investing the appropriate time to ensure success in this effort. We will share more as the CEO search process concludes. We currently expect that John Buchan, the EVP of our operating groups, will retire on March 31. We are fortunate to have built a strong bench of talent within our management team with Gunars Vinkels and Douglas Campos stepping up to lead Power Solutions and Mobile Solutions teams, respectively. Gunars and Douglas have been working closely with John since early November to affect the successful transfer of leadership. If you turn to Page 6 of the presentation, we will review some of the pricing actions we have pursued to address the current inflationary environment. Since the onset of significant inflation in 2021 and through February of 2023, we have secured $66 million in annualized price increases to offset material and non-material inflation. The majority of the price increases secured prior to 2022 were for the recovery of material inflation. However, during 2023, we have increased our prices within Mobile Solutions to recover non-material inflation from 2022, and we enacted a 5% plus price increase in Power Solutions to recover expected 2023 inflation on incoming purchase orders not tied to a long-term supply agreement. These price increases are expected to generate $12 million of incremental revenue over 2022 and will have an annualized impact of $14 million. The cumulative price increases of 2022 and 2023 are split roughly 50-50 between our Mobile and Power groups. We are in negotiations with customers for additional price increases over those already secured in 2023, primarily within Mobile Solutions. And our teams will remain diligent and proactive in taking steps necessary to recover the unusually high inflation in the current environment. Turning to Page 7. I will now provide additional detail on our facility closures. We are confident regarding the savings we have estimated to come from these facilities' closures. The vast majority of the benefit is from the elimination of negative EBITDA from our Taunton and Irvine facilities and a reduction in facility costs such as rent, property tax, maintenance, and utilities associated with other facility closures. Within Power Solutions, the Taunton and Irvine facilities are on track for closure by April 2023. We have agreed in principle to terms on subleases for both facilities and are in the process of finalizing the respective sublease agreements. The subleases will encompass the remaining full term of our leases and will provide full recovery of our remaining lease obligation for both facilities on a combined basis. These closures will provide a sequential improvement of approximately $9 million in adjusted EBITDA in 2023 compared to 2022. The three Mobile Solutions facility closures are also expected to be completed by the second quarter of 2023 and will provide a sequential improvement of $2 million to $3 million in adjusted EBITDA in 2023 versus 2022. This improvement includes the benefit of relocating certain production in the United States to our manufacturing location in Mexico, which is subject to some execution risk associated with the relocation. I will now turn it over to Andrew, who will provide a market update. Andrew?

Thanks, Warren, and good morning, everyone. I'm happy to be joining you on today's call to review our new business wins in 2022 and updates on market conditions as we move into 2023. Now if you turn to Page 9, I will review some of the new business growth we achieved in 2022. Year-to-date through the fourth quarter, we have secured new business wins with total estimated sales of $131 million through 2026 as the efforts of our revitalized team have continued to generate results. I would note that we have seen delays in award timing for several large strategic pursuits. However, we are strongly positioned and remain confident in securing this business. We continue our focused and disciplined approach. And I would like to note that approximately 60% of the new business wins achieved through the fourth quarter were in the electrical, electric vehicle, and universal auto segments, highlighting our team's alignment with our long-term strategy. The term universal auto may be new to some of you. For clarity, we define universal auto as a market subsegment where the solutions supplied by NN are agnostic to the powertrain of the vehicle. For example, our solutions in electric power steering, electric braking systems, seat and door assemblies, and airbag safety systems are all characterized as universal auto as they can be found on EVs, hybrid, and legacy ICE vehicles. We are also pleased with the low capital ratio we achieved as the new business wins require incremental capital expenditures of just $2 million to $3 million, allowing us a strong opportunity to improve our financial return on our existing equipment base. Part of our disciplined approach is knowing what opportunities to forgo as we declined participation in non-strategic or capital-intensive opportunities. On Page 10, we highlight some significant news and recognition by customers for the value that NN provides. Schaeffler is a manufacturer of rolling element bearings for automotive, aerospace, and industrial applications with revenue totaling EUR 15.8 billion in 2022. Out of more than 600 suppliers in China, Schaeffler awarded our Wuxi, China manufacturing plant with the 2022 Best Supplier Award, highlighting the solid work performed by our team in China and the valuable relationships we have built with major global customers. On Slide 11, we highlight two awards we received from Cummins, a leading global manufacturer, designer, and distributor of engines, filtration, and power generation products with $28.1 billion in revenue in 2022. At their recent Global Supplier Recognition event, Cummins awarded NN with two Best Delivery Performance - Direct Sourcing awards for both the North American and the global categories. To give you an idea of how significant these two awards are, out of the thousands of suppliers serving Cummins, the company only awards 26 of these globally, and NN won two of them. This is an amazing testimony for the hard work and dedication of our team to deliver to Cummins, the precision-engineered components for fuel injectors, turbochargers, and emissions dosing systems, which contribute to Cummins' production of more energy-efficient powertrains in a broad range of demanding industrial applications. Turning to Slide 12, you will find that we have provided a macro automotive market update. In their January executive update, LMC has forecasted global light vehicle production to increase 4.6% with a positive production outlook in all regions. Lingering impacts of supply chain and COVID are expected to affect the first quarter, offset by a stronger outlook for the remainder of the year. While positive, the forecast is subject to risks of the broader global macro economy. LMC also noted mixed views on the evolution of powertrains over the decade. But regardless of how the automotive market evolves, NN stands in a strong and unique competitive position due to our process technology range and experience. Slide 13 shows the electrical grid market update and key drivers. As we consider the evolution of the power grid towards renewables, grid-scale battery energy storage will become more prominent in order to capture, store and distribute energy from the sun and wind. The global grid battery market is forecast to grow at a 32% CAGR through the decade, reaching a total market size of approximately $6.6 billion in 2030. We estimate that for any end, the total addressable segment of the grid scale battery market will be between $300 million and $500 million, providing a significant runway for growth in this strategically important market. Finally, as you look at the key players in the market, you will see many familiar names from the current NN customer group as well as prospective clients we aspire to reach. On Page 14, we will review our sales pipeline and how it aligns with our longer-term growth strategy. We are pleased with the opportunities generated by our sales and business development teams. Those teams have delivered a significant pipeline expansion in targeted growth markets associated with the electric grid space and electric vehicles. And we are currently pursuing several opportunities to strengthen our position in each market. This focused approach, along with reductions in fuel cell programs by OEMs, has resulted in a decline of ICE-dependent pursuits and a dramatic expansion in EV and electrical opportunities. In 2023, we will continue our strategic growth with a focus on the core market areas that define our long-term growth plan through 2025. We plan to focus on cross-selling to unlock incremental revenue streams by leveraging Power Solutions process technologies to our existing customer base. To enhance our return on invested capital, we will leverage existing capital for new business targets. Finally, we will take a disciplined approach, resulting in profitable growth in sales and improved cash flow through 2026.

Thank you, Andrew. Now if you turn to Page 16, I will review some of the financial highlights for the fourth quarter. Compared to the prior year period, sales increased 6.9% to $118 million, driven primarily by price and volume increases, partially offset by foreign exchange headwinds given the stronger U.S. dollar. From a profitability standpoint, net price inflation was approximately $3 million unfavorable year-over-year comprised of unrecovered inflation of approximately $1 million in the current year and the impact of a customer pricing settlement in the fourth quarter of 2021 of $2 million. Overhead absorption negatively impacted our results by approximately $2 million relative to the prior year, while incentive compensation was $1 million favorable. Turning to Slide 17, I will review our financial highlights from the full year. Total sales increased $21.1 million or 4.4% from 2021 to $498.7 million. The sales increase was driven by pricing actions taken throughout the year, partially offset by decreased volume and the impact of foreign exchange with the stronger dollar. The volume decline was driven by lower sales in Mobile Solutions as a result of the semiconductor chip shortage, supply chain disruptions, the resurgence of COVID-19 in China, and the impact of the Russia-Ukraine conflict in Europe. Adjusted EBITDA for the full year was $43.9 million, down from $52.1 million in 2021. The main drivers for the decrease were lower volume, unrecovered inflation, and unfavorable overhead absorption, partially offset by reduced incentive compensation expense for the year. Turning to Slide 18. Working capital turns improved in the fourth quarter to 4.3 turns from 4.2 in the previous quarter. We saw our working capital decrease by $13.6 million compared to the third quarter as a result of normal seasonality, utilization of programs to improve receivable terms, and inventory reduction initiatives. Due to the prolonged impact of supply chain challenges, we continue to hold higher-than-usual levels of inventory to ensure our ability to meet customer needs. While inventory levels remain elevated, we will continue our initiatives to further reduce inventory, which we expect will mitigate some of the seasonal increase in working capital that usually occurs in the first quarter. Slide 19 provides a look at our continued disciplined approach that we have taken to capital expenditures over the past year. We have slightly decreased capital expenditures for the full year to $18 million from $18.2 million in 2021. This is at the low end of our previously announced guidance of $18 million to $19 million. As we look to maintain focus on cash, we will continue to take a disciplined approach to capital expenditures and allocate capital expenditures to higher growth markets that we have identified as part of our long-term growth strategy. Please turn to Slide 20. This slide illustrates our free cash flow for the quarter and full year. Free cash flow was $6.4 million in the fourth quarter of 2022. Full year free cash flow for 2022 was an outflow of $9.8 million compared with an outflow of $1.2 million in 2021. The decline in operating cash flow from the prior year was primarily driven by an increase in net loss, partially offset by dividend payments from the China JV. Fourth quarter and full year free cash flow was consistent with our outlook during our third quarter conference call. We incurred approximately $2.6 million in cash costs for severance, litigation and settlement, FICA deferral repayment, and facility closure costs during the quarter. This brings our total cost for these items as well as the final Life Sciences sales tax payment to approximately $7.2 million for the full year. Turning to Slide 21. Net debt at the end of the fourth quarter was $146.3 million versus $151.5 million in the third quarter of 2022, a decrease of $5.2 million. Our net debt to adjusted EBITDA ratio stood at 3.33x at the end of the fourth quarter compared to 3.15x at the end of the third quarter. We had $48.1 million of liquidity, including cash and availability on our revolver as of December 31. Our ABL was drawn by $1 million, and our domestic liquidity was $35.6 million. On Page 22, you will see that we have outlined the key terms to our recent amendment to our term loan and ABL agreement. Given the current uncertainty surrounding the broader economy as well as continued supply chain and inflationary concerns, we proactively negotiated amendments that would protect and improve liquidity while reducing the risk of a covenant violation. This process also highlights the confidence and commitment of our term loan and ABL lenders and will allow the management team to focus on improving our results and executing our long-term strategy. Please note, we have included additional detail on the amendment terms in the appendix. I will comment on some of the key terms of the amendments. The term loan amendment provides leverage ratio relief through the duration of the term loan. The cost of the term loan amendment was structured to preserve or improve liquidity by having the incremental interest structured on a paid-in-kind basis and having the amendment fee paid by issuance of penny warrants in lieu of cash. The completion of a qualifying equity raise by June 30 would provide additional liquidity. The existing cap on customer receivable financing programs has been increased from $20 million to $30 million, allowing further utilization of these programs to improve liquidity and free cash flow. Finally, a new domestic liquidity covenant was introduced. Overall, we believe these changes will allow us the flexibility to execute our strategy while reducing compliance risk.

Thank you, Mike. We have presented additional information for each of our operating groups, starting with Power Solutions on Page 24. Power Solutions generated an increase in sales of 11.7% year-over-year primarily driven by increased electrical component sales and more favorable customer pricing to recover inflationary costs. Profitability increased compared to the prior year period driven by variable and fixed cost efficiencies gained from improved volume, increased pricing, and improved mix of product sales with higher-margin components. Looking forward, the closures of our Taunton and Irvine facilities are proceeding on schedule, and we expect them to be completed in the second quarter. We expect that new business wins and market dynamics will offset the loss of our aerospace and defense customers as we complete the shutdown of those facilities. On Page 25, sales in our Mobile Solutions group increased 3.6% versus the prior year period. The increase was primarily driven by increased pricing, partially offset by a customer settlement received in the fourth quarter of 2021 as well as foreign exchange headwinds due to the stronger dollar. Profitability decreased in Mobile Solutions compared to the fourth quarter of 2021 due to operational inefficiencies associated with new business launches in our Mexico facility, price increases not fully recovering inflation, and pricing settlement recorded in the prior year and reduced overhead absorption with lower volumes. Looking ahead, we are seeing positive trends in customer demand and expect improved sales in the first quarter compared with the fourth quarter. We have finalized numerous pricing negotiations to recover 2022 non-material inflation, which are effective January 1, 2023, in most cases. We have three facility closures expected to be completed in the second quarter of 2023, which will provide incremental cost savings and efficiencies. Finally, our efforts to secure new business wins and non-ICE markets are showing positive results. Turning to Page 26. We are introducing our outlook for 2023, which reflects the following: net sales in the range of $525 million to $555 million, an increase of 5% to 11% compared to 2022 sales of $498.7 million. Adjusted EBITDA in the range of $50 million to $60 million, which is up 14% to 37% compared to 2022 adjusted EBITDA of $43.9 million and a free cash flow range of $10 million to $20 million compared to the free cash outflow of $9.8 million in 2022. We assume no significant ongoing impact from production or supply chain disruption due to the Russia-Ukraine conflict, COVID-19 or the semiconductor chip shortage. While we believe that a mild recessionary impact will likely be limited due to the pent-up demand in the auto industry, our outlook does not consider the potential impact of a more severe recession or the impact of higher-than-expected interest on auto and housing demand. Our sales growth will be driven by both increased volume and improved pricing, partially offset by foreign exchange and includes an expected $9 million decrease in aerospace and defense sales with the closure of our Taunton and Irvine facilities. Our adjusted EBITDA outlook includes a sequential improvement of $11 million to $12 million from 2022 from our facility closures. We expect moderating inflation and reduced impact of non-recovered inflation from pricing actions already taken are underway. Finally, the outlook includes approximately $5 million in incremental costs for incentive compensation, which was eliminated in 2022. Our free cash flow outlook reflects net capital expenditures in the range of $16 million to $18 million, cash interest of $18 million to $19 million, and cash taxes of $2 million to $3 million. We also include an estimated $6 million in cash outlays for facility closures. Also note that our free cash flow outlook does not include CARES Act tax refund of approximately $11 million due to uncertain timing. I would like to conclude my remarks noting how pleased I am with our team's consistent focus and commitment during what turned out to be a very challenging year. We continue to make progress to position our company for long-term success by focusing on top-line growth and the expansion of our new business pipeline and maintaining cost discipline in every area of our operations. And while we are focused on effectively managing working capital and capital expenditures to drive improved free cash flow and a higher return on invested capital, we expect the ultimate result of these efforts will drive improved shareholder value. I will now turn the call back to the operator for questions. Thank you.

[Operator Instructions]. And our first question today comes from Steve Barger from KeyBanc Capital Markets.

And congratulations on your pending retirement, Warren.

Thank you, Steve.

Question on the potential for an equity raise. The slides say you have global liquidity of $48 million. So what are you seeing that suggests that might be necessary? And what -- or what should we be watching for the trigger events on that?

Yes, I'll take this. This is Mike. So as we negotiated the amendments with Oaktree on the term loan, in particular, they were looking at our domestic liquidity in particular, which is $35 million. We introduced the $20 million domestic liquidity covenant there. I think in exchange for some of the significant relief we got on the leverage ratios, they introduced additional protection via the domestic liquidity covenant. And they also -- if you look at the amendment terms in the appendix slide, structured the cost of both the interest and the amendment fee to incentivize us to pursue or evaluate an equity raise. I think just to have more participation in the capital structure of the company. So it's something that we're evaluating. Obviously, there's a cost differential on the amendment that's beneficial. If we pursue that relevant -- considering the cost of the equity raise, we'll evaluate whether that's something that would be beneficial for us.

Yes. And Steve, we're talking about $10 million, right? And really the cost of that is, as Mike said, is almost 100% covered right now in the cost structure that we have with our primary lender. So introducing that additional equity, not only will it be cost neutral to us over where we are today but will provide us with some additional liquidity that will certainly be viewed positively by both the customer and supplier communities.

So we should be thinking that that's more likely than not just based on how you're describing that?

Well, certainly, we have to go through the process and talk to parties. So I wouldn't characterize it as likely until we get it done, frankly. But it's something certainly that economically, in our view, makes sense.

Understood. And so you would -- if it made sense for you and you went through that process, could you execute that before the next CEO is in place?

Yes, I think that -- I mean, it will depend on the two work streams. So it's kind of hard to say that. We have until June 30, which was the agreement with Oaktree. They didn't want to give us an unlimited amount of time to do that. So obviously, we're going to be -- now that the amendment has been announced, we're certainly going to be actively working on what are our options there and trying to get that in place. From our standpoint, given the cost trade-off, it's in our interest to work through that process as quickly as possible.

Understood. And to the CEO search, what are the primary skill sets that the Board is looking for?

Well, certainly, somebody that has been in a leadership position in the past is extremely important. Someone that has exposure to our targeted strategic industry growth areas, primarily the electrical side of the business and someone who has a track record of growing a business historically. I think those are three of the main tenets that they would be looking for.

Got it. And can you just talk about the percentage of programs in Mobile that are loss-making right now? Or which have returns, which are unacceptably low, however you define that.

I don't know if -- look, I don't know if we have it broken down by the percentage of the programs. Certainly, one of the issues -- we have two specific issues that we're focused on right now. We've had some difficulty in a couple of program launches out of our Mexico facility. We're frankly struggling with some of the technical aspects of some programs that we're launching down there. So we've engaged some of our global teams to participate and help solve some of the problems down there. It's going to be a little bit longer-term process in order to fix some of that because we're struggling with some process capabilities right now on some parts that have some relatively tight tolerances. So we're working through that. I would tell you, by and large, as you look at Mobile around the globe, our Chinese operations are very successful and profitable. Our Brazilian operations are successful and profitable. Our Poland operations are successful and profitable and several of the North American-based facilities, primarily those in Michigan, have historically been very profitable as well. So we're struggling right now with some program launches in Mexico and one program in particular, out of our Ohio facility, electric power assist program that we're launching out of that facility, we think we'll have our hands around that one, certainly much sooner than the issues that we're struggling with in Mexico.

Historically, and you mentioned some of the areas where you're profitable right now. Historically, you've been good at holding tight tolerances. Is this a tooling issue or the machines themselves? What is the source of the problem?

Yes. It's really a process-layout issue and some stack-up tolerances. And frankly, it's a personnel issue for us as much as anything. When we look at what's going on in Juarez, and we're not alone in this, okay? I would tell you that the turnover that we've had in that facility and getting employees to stay on a consistent basis, we train them, they're there for a period of time, and then they leave for an opportunity where they then get a signing bonus someplace else. Our turnover per month in our Mexican site today is, I think, in the 15% range per month. So we're having some difficulty with retention. We've benchmarked ourselves against other suppliers in that region that are all suffering through the same types of issues. So we're looking at different opportunities to potentially move some of the more difficult machine operations to either sites in Poland -- low labor cost sites in Poland or in Brazil. But again, some of those fixes will be a little bit longer term. So we're working with our technical teams primarily out of Kentwood, some out of Brazil, and some out of Wellington as well to help us support our Juarez facility.

Our next question comes from Rob Brown from Lake Street Capital Markets.

On the pricing actions you've taken, how much is sort of done now? And how much do you have left in terms of negotiations and activity?

Yes. So this is Andrew Wall. I'll take that. The way I think about it is we continue to do it every single day, engaging customers to address the uncontrolled inflation that we're having. I think we've made some pretty significant progression, I'd say, over last year, if you look at the results that Warren shared a bit earlier in his slides. And we're continuing to do that in this quarter even today, right? So we're still working through that with customers. I don't think the job is done. We are starting to see some pushback where in certain small pockets, things are deflating a bit or inflation is not as bad but we're continuing to work it. So to answer your question, it's kind of hard to say how far along we are. We're going to continue to move it forward and be able to report a little bit more of that after the close of the first quarter, right?

So -- but Rob, let me just say this, when you look at the slide that we presented on this we talked about $12 million of pricing actions that we've already taken, and I'll reiterate some of my comments. Right? When you look at that, the non-inflationary pricing is more predominant for us in the Mobile Solutions area because as we talked about last year, we were able to affect pricing pretty consistently on the Power side as we saw our cost structure move. But when you look at what's going on in the Mobile, we were able to get -- we were able to get material-related pricing but it was the non-material piece that they pushed back. And so far, through the first quarter of this year on an annualized rate, I think we've closed out $8.6 -- $8.5 million, $8.6 million of annualized price increases on the Mobile side. And Andrew and his team are working. Most of that was domestic, North American-based. So we're working very hard on the international side right now in Europe and in China, where some of the inflation in China hasn't been as great but Andrew and his teams are pushing hard there as well. And I would tell you, we're probably as it relates to what we've worked through from our total population. We're probably 60%, 65% of the way of working through the issue. So we still have opportunity with Mobile. What we put on the slide was only what we -- Andrew and his team have closed out.

Okay. Great. And then second question is on the outlook. I think you talked about kind of an offsetting recession, issues with some pent-up demand. But how do you sort of think through the visibility on '23 at this point in the -- given some of the moving pieces out there, I'm sure it's not great. But how do you think of visibility and what are your sort of customer indications say?

Yes. I think that when you look at the automotive piece of it, right, they're projecting at least the latest update that we got from IHS is projecting some form of stability because of pent-up demand, as Andrew said, that currently is our expectation. So we're expecting some, I would call it, modest growth on the automotive side then you have the pricing adjustments that we've made on top of that. And Andrew went through some of the things that we're seeing from a growth standpoint on the electrical. Certainly, interest rates and how that moves during the year is going to have an impact on that. If mortgage rates continue to stay high or higher, that could impact some of the business that we have on the electrical side with new housing starts and that type of thing. But we do see -- longer term, we see those markets moving in a positive direction. Anything, Andrew, you want to add there?

Yes. I think the only thing I'd mention just for a little bit more color. If you look at the projection on the slide that I had on the automotive side, it is a 4.6% jump year-over-year but we're still looking at -- still short of where we were in 2019, pre-pandemic, right? So the context of that, I think there's certainly some pent-up demand. Of course, the wildcard for it all is the potential risk of a massive recession, right? I think that's the one thing that is hard to predict, but I think you outlined it well, where we're at. So thanks.

Our next question comes from Tom Kerr from Zacks Investment Research.

I think most of my questions have just been covered. Any update on the China operations? Is that back to business as usual or any news there?

Yes. Look, I would tell you that we had, what I would characterize as a pretty significant interruption in our business right near the end of the fourth quarter when the zero-tolerance policy went away. At one point in time, we had, I think, 70% of our employees were out with COVID between our JV and our wholly owned. But the interesting -- I think the interesting aspect of it is they were out for a week, a week to 10 days or what have you, and then they were back to work. And they kind of snapped back. I would tell you, snapped back relatively quickly after the first week of January.

Okay. That's good. And then on sort of margin progression -- sorry if I missed this, but looking out quarter-by-quarter during this year, how do we look at gross margin recoveries? Is it a later-half-of-the-year type situation? Or is it steady throughout the year?

Yes, I'll take that. I mean, I think you're going to see sequential improvement as we go through the year, certainly accelerating in the second half, I think for two primary reasons. One, we'll have the benefit of the five facility closures that will be completed in the second quarter and that will be encompassed in our run rate in Q2 and then fully in Q3 and Q4. And then the two facilities Warren mentioned, we still anticipate some impact to those facilities, particularly Mexico in the first half of the year and that improving in the second half of the year. So those would be the two drivers and then also some sequential volume growth as we go through the year. So we would expect margins to be improving sequentially quarter-to-quarter through the year.

And our next question is a follow-up from Steve Barger from KeyBanc Capital Markets.

Just another pricing question. You talked about the 5% price increases on new POs not tied to long-term agreements. What percentage of revenue is tied to LTAs? And do you expect you'll build in escalators into LTAs in the future?

Yes. Steve, Andrew Wall again. So if you look at the business, Power Solutions, about half of that business is under some kind of formal agreement and the other half roughly is not. So that 5%, call it, $100 million, $105 million in that range. And then the other half of the business is under some term of agreement. Yes. I think your second question by way of the inflation of last year and things of that nature. We've incorporated both material and non-material inflationary provisions inside of the contracts going forward. So we have mechanisms to exercise when those events do happen and that's what we plan to do going forward.

What's the average term of the LTAs that don't have escalators built in?

Yes. Most of our contracts are on the power side, in particular, are a year to two years, maybe two is probably a better average, before they're renewed. But we -- again, we've gone back and looked at all of our contracts and engaged customers and the -- there are some but not a significant proportion that doesn't have some kind of provision that's been built into it.

Got it. And just more holistically, if you step back and look at your whole business model, where -- what would you have to change to become more flexible? Or how can you adapt to changing input costs on a more real-time basis?

I think what you just talked about, Steve, is a primary way to do that. And when you look -- as we said, the flexibility that we have to do it more timely has not been an issue for us on the Power Solutions side. But on the Mobile Solutions side, where we have contracts and if you think about our contracts running typically five to maybe on the outside seven years, the average life is maybe -- left is like two to three years, right, which is too long when you see the inflation that we've had over the past period of time. So building in some sort of mechanism going forward into our contracts is a key to do that. And historically, on the material side, we would take a certain amount of material risk in our contracts. And today, we're taking zero material risk because the material is the first thing that started moving on us. And we were -- we've been chasing that for a year, one and a half years because it resets in some cases, every six months or resets at the beginning or the end of the quarter. But the next quarter, if you're still in an inflationary environment, you're still behind. So we've seen that over the last year. So having the reset times be more frequent than semiannual, maybe quarterly or maybe retroactive resets are the types of things that we're looking at with customers. And I would say on the material side, customers have been pretty compromising on the material piece of it, especially in situations and you know the business well, where we have a directed source from our customers, where we only have one person we can go to, it's very difficult for them to argue that they're not going to take that. But the non-material piece of it for us has been the area where I'm sure you've talked to other automotive supply companies. We have good relationships with our customers, but let's face it. This has been a combative period okay, that Andrew and his team and our management team have struggled through with our customers, and we've had numerous instances where we've had to either stop shipments or something like that in order to finally conclude on getting some of the cost increases that we need on the non-material side. So I think the efforts that we've accomplished so far in January have been solid. We'd like to see some additional closures here on pricing over the next couple of months. And then we need to monitor inflation as we go forward. And as we've negotiated the pricing as of January 1, we've been trying to position ourselves with our customers. Look, if we're still seeing this type of inflation through the summer months, we're going to be back at you guys this summer because it's not something that we can continue to absorb.

Right. So as you think about your pricing actions and the challenges on those launch programs and the costs incurred with that and how you expect volume in Mobile to roll out this year, is it fair to think that you can get back to the 2021 level in terms of segment margin versus the 2.5% that you put up in 2022? Like is that a bridge too far? Should we be thinking in the middle somewhere? How do you just -- what do you think -- what do you have line of sight to?

Look, I would tell you that in some of our -- in some of the businesses that I talked about that are profitable, can we get back to those types of margins? I think definitely with some of the pricing actions that we've taken. It's the two facilities -- talking about Mobile, it's the two facilities that I outlined where we're having these product launches that are having a more of an adverse impact on our margins. I don't want to get too into the weeds on some of that stuff, but maybe that's something that we could think about breaking out in the future, just so you can understand that it's not the whole business that is suffering from a margin standpoint. We do have some high-performing facilities within the group.

Yes. And I would say the other aspect that puts some pressure on it from a margin standpoint, Steve, is the material pass-through is all one-to-one, right? So in an inflationary environment, you're maintaining your EBITDA dollars or your operating profit dollars but at a lower margin. And hopefully, as inflation stabilizes, we can start to correct some of that via additional pricing and maybe see some deflation that will benefit the margins.

And ladies and gentlemen, with that, we're going to conclude today's question-and-answer session. I'd like to turn the floor back over to the management team for any closing remarks.

Yes. Thank you, operator. I want to thank our analysts for participating in the call today. Especially in concluding, I want to thank, again, the NN greater team, this potentially could be my last earnings call. So I'd like to thank them for the support and the dedication that they've given to this company certainly over the last 3.5 years that I've been the Chief Executive Officer. Also would like to in parting thank John Buchan for the service that he's had over the past 20-plus years to the company and wish him well in his retirement. Thank you very much for your time today.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.