NN, Inc.

Q4 2022 Earnings Conference Call


spk_0: good morning everyone and welcome city and an incorporated fourth quarter and four year twenty two earnings conference call all participants will be a listen only mode should you need assistance please in all conference specialist by pressing the start he followed by zero after today's presentation there will be an opportunity to ask questions to ask a question in me press star and and one to remove yourself from the question to you may press star in two please also noted is of and is being recorded at this time i'd like to turn the conference call over to jazz troika investor relations with and and please go ahead
spk_1: thank you jamie the morning everyone and thanks for joining us i'm just trying to invest relations concert for and and eight 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 four year ended december thirty first twenty twenty two as well as the supplemental presentation which have been posted to the investor relations section of our website if anyone needs a copy the press release or the supplemental presentation you may contact lambert and company at three one five five to ninety two three four eight or presenters on the call this morning will be one thousand and president and chief executive officer myself through senior vice president and chief financial officer and andrew weil sie vice president and chief commercial officer before we began i'd like to ask you to take note of the cautionary language regarding forward looking statements pots and change in today's press release supplemental presentation and in the risk that section of the company's annual report on for ten k for the fiscal year and a december thirty first twenty twenty one the company's quarterly report on form can queue for the three months ended september thirtieth twenty twenty two and when filed the companies and a foreigner form can pay for the fiscal year ended december thirty first when he twenty two the same language applies the comments made on to a conference call including the q and a session as well as the live webcast a 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 market the impact of the current of i was pandemic and do you read russia ukraine ukrainian conflict on the company's financial condition and other topics the statement you have used with caution that are subject to various risks and uncertainties many of which are outside of the companies control the presentation also includes certain and gap measures as defined by fcc rules a reconciliation of such not deaf measures is contained in the cables in the final section of the press release him in the supplemental presentation reviewing the agenda for today it's call war involving with an update on the actions the company is taking to position and then for success andrew will then provide a market updated discussion of new business opportunities finally my for for by the details of financial results for the fourth quarter and four year before turning the call back over to warrant to discuss or outlook for twenty twenty three so be it you and a session following the conclusion of the prepared remarks at this time i will turn to call over the war and belt and president and ceo one
spk_2: thank you jeff and good morning everyone in thank you for joining us this morning let me start my comments by indicating that our teams have continue to adapt to a very challenging environment characterized by supplier interruptions inflationary cost pressures labour constraints and fluctuating customer volumes and and possessive an action or 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 to it by this current environment if you turn to page for of the presentation we have summarize some of the results from our fourth quarter let me start my comments by saying that despite the fact that we made significant progress and are key initiatives or fourth quarter results did not meet our expectations record sales were lower than expected and are prior outlook do to lower production volumes partially driven by coven nineteen interruptions in china due to the government's reversal of at zero tolerance policy during the fourth quarter additionally or results reflect on recovered inflation an operating performance lower expectations particularly at to operating facilities sales for the portable one hundred and eighteen million up six point nine percent from the fourth quarter of two thousand twenty one our solution sales were up eleven point seven percent driven by electric component volume and pricing model solution sales were up three point six percent from the prior year driven by pricing the impact of inflation on our cost archer continues to adversely impact our profit cost increases due to inflation that we're not recovered by higher customer pricing adversely impact in mobile solutions by approximately a million during the quarter we responded by aggressively negotiating now material related price increases with our mobile loosens customers with most become an effective january one two thousand and twenty three and the power solution side we have proactively address expected two thousand and twenty three inflation by implementing a five percent or higher price increase an incoming purchase orders not tied to a long term supply agreement these factors contributed to a net loss for the fourth quarter of a loving million in a non gap adjusted loss of three point three million non gap adjusted ebitda was seven point eight million or six point six percent of sales for the fourth quarter of two thousand and twenty two we continue to maintain strong the quality of forty eight point one million an increase to three point four million from que three of two thousand twenty two as we generated six point four million a free cash flow in the fourth quarter which was in line with our outlook despite profitability been lower than expected if you turn to page five at a presentation i will provide an update on several key initiatives during two thousand and twenty two and two thousand twenty three we were able to increase pricing to address inflationary cost which i was dressed in more detail on a subsequent fly we're focused on continuously improving our core structure as we have previously discussed a major initiative has been to optimize the efficiency of are 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 two thousand and twenty three these closures are expected to generate eleven to twelve million improvement in adjusted ebitda vs are two thousand and twenty two results this week we announced the amendments to our a be term one agreements to provide an increase in the leverage ratio requirement for the remaining duration of the turn want this change will provide us with a reduction in compliance rest given the continued uncertainty surrounding the broader economy inflation and supply chain stability am also will allow our new leadership the ability to focus on executing or 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 corn ferry to identify an interview qualified candidates with the focus of finding the right person to lead and and a person with the relevant industry experience drive the i'll use and commitment to our company's long term vision collecting the right candidate take time particularly in the current environment but our board is committed to invest in the appropriate time to ensure success in this effort we will share more is the ceo search process concludes we currently expect that john back in the atp of are operating groups will retire on march thirty first we are fortunate have built a strong bench of talent within our management team would get ours wrinkles and douglas campos stepping up to lead power solutions and mobile solutions teams respectively and in douglas have been working closely what johnson's early november two fact successful transfer of leadership to turn to page six 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 two thousand and twenty one and through february of two thousand and twenty three we have secured sixty six million in annual eyes price increases to offset material and now material inflation the majority of the price increases secure prior to two thousand twenty two were for the recovery of material inflation however during two thousand and twenty three we have increased our prices within mobile solutions to recover now material information from two thousand and twenty two and we enacted a five percent plus price increase in power solutions to re cover expected two thousand and twenty three inflation and incoming purchase orders not tied to a long term supply agreement these price increases are expected to generate twelve million and incremental revenue over two thousand and twenty two and will have an annual impact of fourteen million lot of price increases of two thousand twenty two and two thousand twenty three are split roughly fifty fifty between our mobile and power groups we are in negotiations with customers for additional price increases over those already secured in two thousand and twenty three primarily within mobile solutions and our teens or mean diligence and proactive and taking steps necessary to recover the unusually high inflation in the current environment turning the page seven 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 eva from are taught in irvine facilities and a reduction in facility cause such as went for that maintenance and utilities associated with other facility closures within power solutions that tottenham irvine facilities are on track for closure by april two thousand and twenty three we have agreed in principle to terms on sublease is for both facilities are in the process of finalizing the respective sub lease agreements the suddenly says will encompass the remaining full term of our leaders and will provide full recovery of our remaining least obligation for both facilities on a combined basis these closures will provide a sequential improvement of approximately nine million and adjusted ebitda in two thousand and twenty three compared to do
spk_3: two thousand twenty two
spk_2: the three mobile solutions facility closures are also expected to be completed by the second quarter of two thousand and twenty three and will provide a sequential improvement of two to three million and adjusted ebitda in two thousand and twenty three vs two thousand and twenty two this improvement includes the benefit of relocating certain production in the united states to our manufacturing location in mexico which is subject to some actually execution risk associated with the relocation i will now turn it over to andrew who will provide a market updates andrew
spk_4: thanks wards and good morning everyone i'm happy to be joining you want a call to review our new business wins and twenty twenty two and updates or market conditions as we move into twenty twenty three daffy turn to page nine our re re re i will review some of the new business growth we achieved and twenty twenty two year to date for the fourth quarter we're scared new business wins with total estimated sales of one hundred thirty one million three twenty twenty six as the efforts of our revitalized team have continued to generate results i would note that we have seen delays in a war timing for several large strategic pursuits however we are strongly position and remain confident in securing this business we continue to our focus and disciplined approach and i would like to note that approximately sixty percent of the new business wins achieved through the fourth quarter were in the electrical electric vehicle and universal auto segments highlighting our teams alarm it 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 sub segment where the solution supplied by in are agnostic to the power train of the vehicles for example are solutions in electric power steering electric braking systems seat and door assemblies an airbag safety systems are all characterized as universal auto as they can be found on t v hybrid and legacy ice vehicles we're also pleased with the low capital ratio we achieve as the new business wins require incremental capital expenditures of just two to three million allowing us a strong opportunity to improve our financial return on our existing equipment makes part of our disciplined approach is knowing what opportunities to for as we declined participation in non strategic for capital intensive opportunities on page ten we highlight some significant news and recognition by customers for the values that in improvised kapler the manufacture of rolling element bearings for automotive aerospace and industrial applications with revenue totaling fifteen point eight billion euros and twenty twenty two out of more than six hundred suppliers and china schaeffler awarded are we she china manufacturing plants with the twenty twenty two best supplier ward highlighting the solid work performed by our team in china and the valuable relationships we have built with major global customers ocelot eleven we had like two wards we receive from comments a leading global manufacture designer and distributor of engines filtration and power generation products with when the eight point one billion in revenue in twenty twenty two at the recent global supply recognition of it comments awarded been in with to best delivery performance it's direct sourcing awards for both the north american and the global category to give you an idea of how significant these two wards are of the thousands of supplier serving comments the company only awards twenty six of these globally in in in one two of them this is an amazing testimony for the hard work and dedication of our team to deliver to come and the precision engineer components for fuel injectors turbochargers and emissions dosing systems which contribute to commons products and have more energy efficient power trains in a broad range of demanding industrial applications turning to slide twelve you will find that we have provided a macro automotive market update
spk_2: in their january executive update l m c has forecasted global like vehicle production to increase four point six percent with a positive production outlook in all regions lingering impacts of supply chain and kobe are expected to affect first quarter all set my stronger outlook for the remainder of the year
spk_4: while positive the forecast is subject to rest of the broader global macro economy ellen see also noted mixed views on the evolution of power trains over the deck over the decades but regardless of how the automotive market evolve in and stands in a strong for the think jimmy competitive position due process technology range and experience why thirteen shows the electrical grid market up dating 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 industry be energy from the sun and wind the global grid battery market is forecast to grow at thirty two percent tiger through the decades reaching a total market size of approximately six point six billion in twenty thirty we estimate that for in in the total addressable segment of the grid scale battery market will be between three hundred and five hundred 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 in in customer group as well as prospective clients we aspire to reach on pace for fourteen we will review our sales pipeline and how it aligns with our longer term growth strategy we are pleased with opportunities generated bar sales in business development teams those teams had 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 marcus this focused approach along with reductions in fuel cell programs by oh he owns has resulted in a decline of ice dependent pursuits and a dramatic expansion in easy an electrical opportunities
spk_2: in twenty twenty three will continue our strategic growth with a focus on the core market areas that define or long term growth plan through twenty twenty five
spk_4: we plan to focus on prof selling to lot april middle 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 twenty twenty six i will now turn the call over to mike who will provide an update on the fourth quarter and full year financial results like
spk_1: thank you andrew now you turn the page sixteen i will review some of the financial highlights the fourth quarter compared to the prior year period sales increase six point nine percent to one hundred and eighteen million driven primarily by price and volume increases partially offset by foreign exchange headwinds given the stronger us dollars from our profitability standpoint net price inflation was approximately three million on favorable year over year comprised of on recovered inflation of approximately one million in the current year and the impact of a customer pricing settlement in the fourth quarter of twenty twenty one of two million overhead absorption negative negatively impacted our result
spk_5: by approximately two million relative to the prior year while son of compensation was one million favorable humming the slide seventeen i will review our financial highlights from the full year total sales increased twenty one point one million or four point four percent from twenty twenty one to four hundred and ninety eight point seven million the sales increase was driven by pricing actions taken throughout the year partially offset by decrease volume and the impact of foreign exchange with the stronger dollar the volume decline was driven by lower sales and mobile solutions as a result of the semiconductor trip shortage supply chain disruptions the resurgence of coven nineteen in china and the impact of the russia ukraine conflict in europe adjusted ebitda for the full year was forty three point nine million down from fifty two point one million and twenty twenty one the main drivers for the decrease were lower volume and on recovered inflation and unfavorable of overhead absorption partially offset by reducing some compensation expense for the year
spk_1: turning the flight a team working capital turns improved and the fourth quarter to four point returns from four point you in the previous quarter with are working capital decrease by thirteen point six million compared to the third quarter as a result of normal seasonality utilization of programs and prove receivable terms and mm toy reduction
spk_6: initiative
spk_5: due to the prolonged impact of supply chain challenges we continue to hold higher than usual levels of them and tory to ensure our ability to me cause for need while him and toy levels remain elevated we will continue our initiatives to further reduce them and tory which we expect will mitigate some of the seasonal increase i'm working capital that usually occurs in the first order by nineteen provides a look at our continued disciplined approach that we have taken the capital expenditures over the past year we have slightly decreased callbacks for the full year to eighty million from eighteen point two million and twenty twenty one this is that the low end of our previously announced guidance of eighteen or nineteen million as we look to maintain focus on cash we will continue to take a disciplined approach to callbacks and allocate capital expenditures to higher growth markets that we have identified as part of our long term growth strategy
spk_1: western aside twenty the slide sell streets are free cash flow for the quarter and full year
spk_5: free cash flow with six point four million and the fourth quarter of twenty twenty two for your free cash flow for twenty twenty was an outflow nine point eight million compared with an outflow of one point two million and twenty twenty one the decline and operating cash flow from the year was primarily driven by an increase in that last partially offset by dividend payments from the china jv fourth quarter and your free cash flow with consistent with our outlook during our third quarter conference call when third approximately two point six million in cash costs for severance litigation and settlement like a deferral repayment and facility closure cost during the quarter the springs are total costs for these items as well as the final
spk_1: like sciences sale tax payments to approximately seven point two million for the foyer
spk_5: turning the fly twenty one net that at end of the fourth quarter with one hundred and forty six point three million versus one hundred and fifty one point five million in the third quarter of twenty twenty two a decrease of five point two million are net that adjusted ebitda ratio stood at three point three three times at the end of the fourth quarter compared to three point one five times are the end of the third quarter we had forty eight point one million dollars of liquidity including cash and availability on a revolver as of december thirty first our ab always was drawn by one million and our domestic with where did he was thirty five point six nine
spk_1: on page twenty two you will see that we have outlined the key terms to our recent memory tar term loan and a be all agreement
spk_5: given the current uncertainty surrounding the broader economy as well continued supply chain an inflationary concerned we proactively negotiated moments that would protect and improve liquidity while reducing the rest of a covenant violation this process also highlights the confidence and from him and of our term one in a be wonders and will allow the management team the focus on improving our results and executing our long term strategy please note we have included additional detail on a memo terms in appendix i will comment on some of the keep terms of the mammoth the term on amendment provide leverage ratio relief through the duration of the term one the costs of the term loan amendment was structured to preserve for improve liquidity by having the incremental interest structured unappealing time basis and having them men and be paid by issuance of penny warrants in lieu of cash the completion of a qualifying equity raised by june thirtieth would provide additional liquidity the existing cap on customer receivable financing programs has been increased from twenty million to thirty million allowing further utilization these programs to improve liquidity and free cash flow finally a new domestic or put it covenant was introduced overall we believe these changes will allow us the flexibility to execute our strategy while reducing compliance
spk_7: risk with that i will turn it back over to warm
spk_2: thank you mike
spk_1: we're presented additional information for each of our operating good starting with power solutions on page twenty four power solutions generated an increase in sales of eleven point seven percent year over year primarily driven by increased electrical components sales and more favorable customer pricing to recover inflationary costs profitability increase comes
spk_2: care to the prior year period driven by variable and fixed cost efficiencies game from improved volume increase pricing and improve make surprise sales with higher margin components
spk_1: looking forward to closures of are taught in irvine facilities are proceeding on schedule and we expect him to be completed in the second quarter we speculate new business plans and market dynamics will offset the loss of our aerospace and defense customers as we complete the shutdown of those facilities
spk_2: on page twenty five sales and our mobile solutions group increase three point six percent 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 two thousand and twenty one as well as foreign exchange had when due to the stronger dollar profitability decrease them all the solutions compared to the fourth quarter of two thousand twenty one do to operational inefficiencies associated with new business launches in our mexico facility price increases not fully recover in inflation and price pricing settlement recorded in the prior year and reduced overhead absorption with lower volume looking ahead we're seeing positive trends customer demand and expect improve sales and the first quarter compared with the fourth quarter we have finalized numerous pricey negotiations to recover two thousand and twenty two now material inflation which are effective january first two thousand twenty three and most cases we have three facility closures expected to be completed in the second quarter of two thousand twenty three which will provide incremental cost savings inefficiencies fine only our efforts to secure new business plans and nan ice markets are showing positive results turning the page twenty six we are introducing our outlook for two thousand and twenty three which reflects the following net sales in the range of five hundred and twenty five to five hundred fifty five million an increase of five to eleven percent compared to two thousand twenty two sales of four hundred ninety eight point seven million adjusted even down range of fifty to sixty million up from fort up fourteen to set thirty seven percent compared to two thousand and twenty two adjusted ebitda a forty three point nine million and a free cash flow range of ten to twenty million compared to the free cash outflow of nine point eight million in two thousand and twenty two we assume no significant ongoing impact from production or supply chain disruption to to the russia you ukraine conflict covert nineteen or the semiconductor chips shortage while we believe that a mild recessionary impact will likely be limited due to the pent up demand in the auto industry are all outlook does not consider the potential impact of a me more severe recession or the impact of higher than expected in trace an auto and housing demand our sales growth will be driven by both increased volume and improve pricing partially offset by foreign exchange and includes unexpected nine million decrease in aerospace and defense sales with the closure of are taught in irvine facilities are just city but the outlook includes a sequential improvement of eleven to twelve million from two thousand and twenty two from our facility closures we spat moderating inflation and reduce the impact of not recovered inflation from pricing actions already taken are underway finally the outlook includes approximately five million in incremental costs for incentive of compensation which was eliminated in two thousand and twenty two our free cash flow outlook reflects next capital expenditures and the range of sixteen eighteen million cash interest of eighteen the nineteen million and cast taxes have two to three million we also include an estimated six million in cash outlay for facility closures also know that are free cash flow outlook is now not include cares act tax refund approximately levin million do too uncertain times i would like to conclude my remarks noting how pleased i am with our teams consistent focus and commitment during what turn 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 expansion of our new business pipeline and maintaining caught discipline in every area of our operations
spk_0: and while we are focused on effectively managing working capital and capital expenditures to prior to drive improved free cash flow and a higher return on invested capital we expect the ultimate result of these efforts will drive improve shareholder value i will now turn to call back to the operator for sustenance thank you ladies and gentlemen at this time will begin the question and answer session to ask a question you may press star and then one on your touchstone telephones you are using a speakerphone we do as the please take up your handset prior to pressing the keys to it's your your questions you may press star into once again that a star and then one to ask a question will pause momentarily to assemble the roster
spk_8: in our first question today comes from the barger from keybank capital markets please go ahead with your question
spk_9: thanks
spk_10: congratulations on your pending or time of one
spk_11: thank you steve
spk_9: ssl
spk_5: flesh it on a on a potential for an equity raise the slide say he of global the quality of forty eight million so what are you seeing that suggests that might be necessary and and what or what should we be watching for you know for the trigger events on that yeah i'll take this is my so you know as we negotiate amendment with without three on that term one in particular i'm you know that they were looking at our domestic liquidity and in particular which a thirty five million we introduced that the twenty million dollar domestic liquidity covenant are i think in exchange for some of the significant if we got on the leverage ratios that they introduced an additional protection via the the domestic liquidity cabinet and they also if you look at the a amendment terms and appendix glide structured the cost about the interest and amendment v odd ten santa by and sent a bias us to pursue or evaluate and equity he raised i think just too have more participation in the capital structure of of the company so it's something that we're evaluating obviously there's a a cost difference on on mehmet that's beneficial if we pursue that
spk_2: well relevant young considering the costs of the equity race it will load alleyway whether that something that would be beneficial force
spk_9: yeah and and see what kind of accepts were talking about ten million dollars right and really a that the cost of that is as my sad is almost one hundred percent covered right now and the construct for that we have with our primary wonder so you know introducing add additional actually now
spk_2: lead rival will be cost neutral to us and over where we are today but provided some additional liquidity that will certainly be viewed i think positively both by our the customer and the supplier communities the we should be thinking that that's more likely than not just based on how you're describing that
spk_9: what will certainly we have day we have to go through the process and talk to
spk_5: party so i wouldn't i wouldn't characterize it as is likely until we get it done frankly but it's something certainly the economically in our view makes sense understood and so you would you know if if it made sense for you and you went through that process could you execute that before the next to his place the he i think that i mean know it'll depend on the to work streams so it's kind of hard to say that we we have told june thirtieth or which was agreement with oak tree they don't want to give us you know an unlimited amount of time the do that so obviously we're going to be now that the amendments been announced we're certainly going to be actively working on what our options there and trying to get that
spk_12: templates know from our standpoint
spk_2: given that the cause trade off it it's and are interested to work through that process as quickly as possible understood and just to this year search what are the primary skill sets of the board is looking for what will certainly somebody that has been in a leadership position in the past is is extremely important someone that has exposure to
spk_13: are targeted strategic industry growth areas primarily the electrical side of the business and someone who has a track record of growing the bit a growing a business
spk_9: historically i think those are the three of the main tenets
spk_4: that they would be looking for
spk_2: got it thank you and
spk_14: can you just talk about the percentage of programs in mobile that are lossmaking making right now or which have returns which are unacceptable the low however you define that
spk_2: i don't know if you look i don't know if we had a broken down by the percentage of the programs certainly one of the issues in the eight we have to specific issues that were focused on right now we've had some difficulty and and a couple program launches out of our mexico facility we're a frankly frankly struggling with some of the technical aspects of some programs that were 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 gonna 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 on some parts that have some relatively tight tolerances so we're working through that i would tell you by and large as easy as you look at mobile around the globe you know are chinese operations are very successful and profitable are brazilian operations are successful unprofitable or poland operations are successful unprofitable and several of the north american based
spk_9: our facilities primarily those in michigan have historically been very profitable as well so we're struggling right now with
spk_2: some program launches in mexico and one program and particular out of our ohio facility or electric power this program that we're launching a model that facility we think will have our hands around that one certainly much sooner than the issues that were struggling live in mexico you know historically and you mentioned some of the areas where your profitable right now it's historically been good at holding tight tolerances is is this a tooling issue or the the machines themselves what what is the source of of the problem yeah it's it's really a process layout issue and from stack of tolerances and frankly it's a it's a it's a person all issue for us eat as much as anything when we look at what's going on and as and we're not alone in this of guy would tell you that the turnover that we've had in that facility and getting employees to stay on a consistent basis you know we train i'm ah there there for a period of time and then they leave for an opportunity where they didn't get a signing bonus someplace else ah you know our turnover per month in our mexican site today is i think in the fifteen percent range or per month so we're having some difficulty with retention we benchmarked ourselves against other suppliers in that region on that are all suffering through the same types of issues so we're looking at it's different opportunities
spk_12: we can potentially move some of the the more difficult machine operations to either sites and in poland low labor costs sites in poland or in brazil but again some of those sexes will be a little bit longer term so i'm working with our technical to
spk_0: teams primarily out of cat would ah some out of brazil and some out of ah wallington is well to help us support ah our whereas facility
spk_15: understood thank you our next question comes from rob brown from lake street capital markets please your head with a question
spk_16: i can link
spk_4: come on the praising actions you've taken how how much is sort of done now and how much is have left in terms of
spk_2: yes so this age or wall i'll take that on
spk_4: you know it is the way i think about it is you know we we we continue to do it every every single day engaging customers to address the uncontrolled inflation that were having i think we've made some pretty stiff the significance
spk_2: the progress in i'd say over last year if you look at the results that worn shared a bit earlier in his lives and were continue to do that in in this quarter or even today right so we're still working through that with customers i don't take the job is done we are start to see some pushback where you know we're a certain small pockets things are or deflating a better place is not as bad but you know where we're continuing to work it so they answer your question i'm kind of hard to say to hell for a long are we we're going to continue to you know to to move it forward and in in be able to report a bit more that after the close of the first quarter rights of said by rob let me let me to say this when you look at this lie that we presented on as you know we talked about twelve million dollars of pricing actions that we've already taken an hour
spk_17: erase some of my comments rights when you look at that does the the not inflationary pricing is is
spk_2: more predominant for us in the mobile solutions area because as we talked about last year we were able to affect price been pretty consistently on the power side as we saw our construct dropped move but when you look at what's going on in the mobile we were able to get not we are able to get material rule laden pricey but it was the now 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
spk_18: eight point six eight point five eight point six million of annualized price increases on the mobile site and he andrew and his team are working most of that was domestic ah
spk_15: north american based ah so we're we're working very hard on the international side right now are in europe and in china where some of the inflation in china hasn't been is great but and or in his teens are pushing hard ah there as well and your i would tell you were probably you know that relates to what we've worked through
spk_16: martell the population were probably sixty sixty five percent 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've andrew and his team have closed down
spk_19: great think for the color there dobbs that and second question xanax and the outlook
spk_2: he talked about kind of and are setting recession or says was kind of the man but but how do you sort of thing through the disability three at this point kim some of the moon pieces other i'm sure it's not great but i think of his ability was so it's us medications say yeah i think that you know when you look at the are the automotive pizza that right you know their project and least the latest update that we got from my cats is projecting some form of ah
spk_4: stability because of pent up demand is andrew sad yeah that it currently is our our expectations so we're we're expecting this stone mountain you know i would call a modest growth
spk_20: on the automotive side out then you have the pricing adjustments that we've made on top of that an era went through some of the things that were seen from a gross and standpoint on the electrical certainly
spk_21: interest rates and how that moves during the year is going to have an impact on that you know as as if mortgage rates continue to stay high or high your ah that could impact some of the business that we have on the electrical cyber new housing starts and that type of thing but we do see you know
spk_19: longer term we see those those markets moving in a positive direction anything and are you want to add their yeah i think the only thing i admit to throw a bit more color if you look at the projects and on the fly that i had on the automotive side you know it is a four point six percent job year over year but we're still looking at the it's still stored of where we were in twenty nineteen
spk_0: bree pandemic right so the context of that i think there's you know are certainly some fed up the man of course the wild card for for it all is is that the potential risk of a of a massive recession rights i think that's the one thing that it's hard to predict but
spk_22: you know i'm a thing you outlined a well we're and or whereas thanks
spk_2: i think you'll turn it or
spk_23: if you aren't as question comes from tom care from zack's investment research please go ahead with your question
spk_2: hi guys the think are most my questions have just been covered any update on the china operations is it back to business as usual or any news there
spk_17: yeah look i would i would tell you that we had you know our of what i would care to is a pretty significant in iraq sent in our visit right near the end of the fourth quarter when the zero tolerance policy went away at one point in time we had a bad i think seventy percent of our employees were
spk_24: up with topic
spk_2: between or the g rgb and on the ah but the interesting
spk_22: i think the interesting aspect of it is you know they were out for a week ten days or what have you ah and then they were back to work at
spk_15: the a snap back i would tell yet that back relatively quickly you know after the first week of january
spk_5: okay that's good
spk_25: and then i'm sort of margin progression served by miss this but looking out the a quarter by quarter during this year
spk_5: how do we look at gross margin recovery lucas to leader half of the your tag situation or is it steady throughout the year
spk_22: the i'll take that i mean i've i think you're going to see sequential improvement as we go through the year i'm certainly accelerating and in the second how i think for two primary reasons or one will have the benefit of the five the closure of the complete in the second quarter an adult some of the income to dinner
spk_0: run rate
spk_26: you to and and one boy and free you for and then the to facilities warren mentioned how we still have a some impact of those stories particularly mexico or in the first half of the year and that improving in the second half of the year so those would be that the two drivers and then also seems the country
spk_9: alarm brothers as we go through the years so we would expect margins to be improving sequentially quarter to quarter to you
spk_12: i have given fella yesterday
spk_4: in our next question is a follow up from steve barger from keybank capital markets please go with your follow up a thanks as just another pricing question you talked about the five percent price increases on no appeal is not tied to long term agreements what presents revenue is tied to l t a's and you expect your build an escalators into lcs and the future j c major war against oh if you look at the the business of power solutions about half of that that business is under some kind of formal agreement in the other half roughly as not so that five percent call it a hundred hundred and five million in that range on this is in the the other half of the business is under sometime of agreements
spk_9: yeah thank god your second question
spk_2: by way of of of the inflation of last year and and things of that nature we've incorporated both material a non it of material inflationary provisions inside of the contract
spk_9: going forwards that we have mechanisms the accurate exercise windows of it's do happen
spk_4: and in in that's where we plan to do going forward sir
spk_2: what's the average term of the l t a's the don't have escalators built and
spk_4: the average terms mean how long do those contracts run before you can build and escalators yeah most most word contracts or joe
spk_12: on the power side in particular or a year to two years maybe to is probably the a better average were before the renewed
spk_2: but you know we dug again we go back and looked at all of our contracts and engaged customers in there's 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 holistic lee if step back and look at your whole business model where what would you have to change to become more flexible are or what how can you adapt to changing input costs on a more real time basis i i think what you just talked about steve is is a primary way to do that and when you look at you know as we said you know the flexibility that we have to do more timely is is has not been an issue for as on the power solutions ice but on the mobile solution side where we have contracts you know if you think about our contracts running the typically five to maybe on the outside seven years the average life is maybe to locked is like two to three years rights which is too long when you see the inflation that we've had over the the past period of time so it's building and some sort of mechanism the going forward and do our contracts is a key to do that and you know historically ah you know and the material side we would take a certain amount of material risk in our contracts and today we're taking were taking zero material risk because the material is the first thing that started moving on us and we were we've been thing that you know for a year year and a half because you know it reads that you know in some cases every six months or reset that the beginning or the end the quarter by the you know the next quarter if you're still in an inflationary environment you're still behind right the so we've seen that over the last year so you know having the reset times be more frequent than semiannual maybe quarterly or may be retroactive resets are the types of things that were looking out with customers and and them to agonize say on the material aside customers have been pretty the compromising on the material pizza that especially in situations you know the business wow where we have a directed source from our customers will we 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 they did ya the non tear your pizza that ross has been an area where you know i'm i'm sure you've talked other automotive supply company we have good relationships with our customers but let's say that this has been a combative period okay said andrew and his team and and our management team have struggled through with our customers and we've had enough numerous instances where are you know we've had to
spk_9: either stop shipments or something like that in order to finally conclude i'm getting some of the cost increases that we need on the now material side so
spk_8: i think the the efforts that we've we've
spk_9: we've accomplished so far january have been solid you know we'd like to see some additional closures here on out price seen over the next couple months and then we need to monitor inflation as we go forward and as we've negotiated the pricing as of january first we've been trying to position ourselves with our customers look if we're still seeing this type of inflation you know
spk_2: through the summer months we're we're going to be back as you case this summer because it's not something that we can continue to absorb right so as you think about your pricing actions and the the challenges on the launch programs in the costs incurred with that and and how you expect volume in mobile to roll out this year is it fair to think that you can get back to the twenty twenty one level in terms of segment margin
spk_5: versus the two and a half percent that you put up and twenty twenty two like is that is that a bridge too far should we be thinking in the middle somewhere out how just out what do you think what do you have line of sight to look at i would tell you that in some of our in some of the businesses that i talked about that are profitable
spk_9: the can we get back to those types of margins i i think definitely
spk_27: with some of the pricing actions that we've taken it's it's the to facilities are talking about mobile it's the to facilities that i outlined where we're having these product launches that are going to be
spk_0: in the case of the war as the slowly a little bit longer term in nature from a corrective action standpoint that it will have a of more have any adverse impact on our margins
spk_2: you know i don't want to get too into the weeds and some of that stuff but maybe that's something that you know we could think about breaking out in the future just so you can understand that it's not about the whole business that is suffering from a margin standpoint we do have some high performing facilities within the group yeah i would say about the other aspect that put some pressure on that on from a margin standpoint speeders is the material passer is all one the one rights on an inflationary environment you're you're you're maintaining your even but the dollars or your operating profit dollars but at at a lower margin and hope whereas inflation stabilizes we can start it correct them about the additional pricing and him maybe she's deflation that will benefit the margins
spk_0: or a german thanks for the time good luck

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