NN, Inc.

Good morning everyone and welcome to the NN incorporated fourth quarter and full year 22 earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To remove yourself from the question queue, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Jeff Troika, Investor Relations with NN.

Please go ahead. Thank you, Jamie. Good morning, everyone, and thanks for joining us. I'm Jeff Troika, 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 31st, 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 Beltman, 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 31st, 2021. The company's quarterly report on Form 10-Q for the three months ended September 30th, 2022. And when filed, the company's annual report on Form 10-K for the fiscal year ended December 31st, 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 rates, acquisitions, synergies, cash and cost savings, future operating results, performance of our worldwide markets, the impacts of the coronavirus pandemic and the Russian-Ukrainian conflict on the company's financial condition and other topics. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside of the company's control. The presentation also includes certain non-GAAP measures as defined by SEC rules. A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and 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 challenge presented by this current environment. If you turn to page four 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 solution 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 a 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 solution 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 five 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 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 the focus of finding the right person to lead NN, a person with a 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 31st. We are fortunate to have built a strong bench of talent within our management team, with Gunars Vinkles 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 effect a successful transfer of leadership. If you 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 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 we'll 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 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?