NN, Inc. (NNBR) Earnings Call Transcript & Summary

Hello. I'm Gail Nixon, Senior Vice President and Chief Human Resources Officer at NN. And I'd like to welcome you to our Virtual Investor Day. I'll outline the schedule of events for today and introduce our speakers. But before I do, let me share a few housekeeping items. With the exception of the historical information contained in this presentation, the matters described herein contain forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties that may cause actual results to be materially different from such forward-looking statements. Such factors include, among others, general economic conditions and economic conditions in the industrial sector, the impacts of the COVID-19 pandemic on the company's financial condition, business operations and liquidity, competitive influences, risks that current customers will commence or increase captive production, risks of capacity underutilization, quality issues, material changes in the cost and availability of raw materials, economic, social and political instability, currency fluctuation and other risks of doing business outside of the United States, our dependence on certain major customers, the impact of acquisitions and divestitures, the level of our indebtedness, the restrictions contained in our debt agreements, our ability to obtain financing at favorable rates, if at all, and to refinance existing debt as it matures, unanticipated difficulties integrating new acquisitions, new loans and governmental regulations, the impact of climate change on our operations, cyber liability or potential liability for breaches of our or our service providers' information technology systems or business operations disruptions, and other risk factors and cautionary statements listed from time to time in the company's periodic reports filed with the Securities and Exchange Commission, including, but not limited to, the company's annual report on Form 10-K for the fiscal year ended December 31, 2021, and the company's quarterly report on Form 10-Q for the 3 months ended March 31, 2022. With respect to any non-GAAP financial measures included in the following presentation, the accompanying information required by SEC Regulation G can be found at the back of this presentation. NN disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements included herein or therein to reflect future events or development. We aim to provide a broad overview of NN, Inc. and our long-term growth strategy for investors throughout the day. And today's event will include 2 question-and-answer sessions. To start the day, Warren Veltman, our President and Chief Executive Officer, will provide a high-level overview of the company. Andrew Wall, our Senior Vice President and Chief Commercial Officer, will then provide insights into our strategy to grow our business and capitalize on the significant macroeconomic trends shaping the industries we serve. John Buchan, our Executive Vice President of Mobile Solutions and Power Solutions, will follow that with an overview of our operations and how we serve our customers. We will then break for our first Q&A session, which will be conducted electronically. You may submit questions at any time through the question submission feature on the Investor Day website. Following the Q&A session, Matt Heiter, our Senior Vice President and General Counsel, will review our sustainability efforts and how we approach environmental, social and governance priorities. Mike Felcher, our Senior Vice President and Chief Financial Officer, will then provide a financial review and update to our long-term financial goals. Finally, Warren will return with some concluding remarks before our final Q&A session. Now it's my pleasure to introduce NN's President and CEO, Warren Veltman.

Hello, and welcome to NN, Inc.'s 2022 Virtual Investor Day. I'm Warren Veltman, President and CEO of NN. And I'm excited to share with you today a broad overview of our business and why we think NN is a compelling investment opportunity. Over the next several hours, you will have an opportunity to hear from our executive team regarding our strategy and 2025 vision, target markets, operations, governance and financial structure and performance. But most importantly, we expect that you will hear our plan on how we expect to create value for our shareholders. We have also arranged for a video presentation from several of our facilities to bring you on site to see our advanced manufacturing operations up close. This will also allow you an opportunity to meet some of our associates and to better understand the continuous improvement and customer service culture we have built at NN. When we think about our elevator pitch for our company, I believe that it comes down to the idea that we are a process technology company with a unique and diverse set of process capabilities that enable our long-term customers to meet the emerging challenges of a massive transformation of our industrial economy from the last century to a modern, sustainable economy. Our mission at NN is to provide the highest quality products and services to our portfolio of global customers at the lowest total cost. This mission has served us well and is responsible for long-term strategic relationships with premier companies like Robert Bosch, ZF, Cummins and Itron, to name a few. We expect that those relationships will serve as the backbone of our overall strategy to grow NN. Our defined growth strategy is centered on the confluence of mega trends shaping the future of our markets. What are those megatrends? At the most basic level, we are talking about the transition from a carbon-based economy, to a sustainable energy economy. For our Mobile Solutions business, that main mega trend is driven by the rapidly evolving transition from internal combustion engines to hybrid electric and battery electric vehicles. For our Power Solutions business, this is marked by the expansion and modernization of the electric grid that includes evolutions of smart grid technology as well as the transition to renewable energy. This transformation will require significant investment in infrastructure to balance the generation of energy with its associated demand. NN has a set of unique tools to help our customers achieve their bigger picture goals on this green energy transition. Our process technologies encompass precision CNC turning, grinding and milling, progressive stamping, plastic injection molding and precious metals plating, all of which require extremely tight tolerances and exceptional quality, typically at exceedingly high volumes that are critical to our customers' success. John Buchan, our Executive Vice President of Mobile Solutions and Power Solutions, will talk in greater detail on these capabilities. The NN culture also makes a critical difference in our success and is something you will hear about throughout the presentations today. While we may think that the core of our culture lies in continuous improvement, we start with a founder's mentality that originates from the book of the same name. We want all our team members to act like founders, having an owners' mindset with a frontline obsession in embracing the insurgency that shapes our future. [Presentation]

When each of us act like owners, taking responsibility for how we use our resources with a frontline obsession, we are always elevating the needs of our customers and working to exceed their expectations, and we naturally embrace continuous improvement as an outgrowth of that mentality. From a practical standpoint, the result of these efforts are improved quality, reduced scrap, enhanced equipment and facility optimization that generates improved margins. We have made tremendous progress in setting the table for achieving the insurgent vision we established a year ago with our 2025 goals. We recapitalized our balance sheet, reducing our cost of capital and providing the flexibility and time horizon we need to achieve these goals. We also assembled a leadership team equipped with the needed tools to achieve our long-term vision. This leadership includes a management team with the experience and capabilities to lead our company through the completion of our transformation. It also means a revitalized and diverse Board of Directors with a distinct experience and networks that can amplify the performance of our management team. When I indicated that NN is a compelling investment opportunity moments ago, the core of that assertion lies in the journey to transform NN due to the company's excessive financial leverage. Starting in 2014, NN had moved to grow and diversify its business through a series of significant acquisitions that created a diversified, advanced manufacturing company that was saddled with unsustainable balance sheet, including high debt and a leverage ratio in excess of 6x adjusted EBITDA. This inevitably created concerns with our lenders, suppliers and customers to the point that it inhibited our ability to grow through new customer awards and secure appropriate liquidity to operate the business. In September 2019, the Board determined that a change in leadership was necessary and appointed me as CEO. I restructured our management team, and we took immediate action to reorganize the business, reduce overhead and SG&A costs, optimize our operational footprint, eliminate the quarterly dividend and reduce capital expenditures by prioritizing important growth programs and those that had a short payback period. The focus was on securing liquidity, conserving cash and deleveraging the balance sheet. In 2020, following challenges presented by the coronavirus pandemic, we announced that we had begun a review of strategic alternatives. This process was designed to determine the best avenue forward to provide the greatest return for our shareholders. Ultimately, our options consisted of selling one of our operating groups, a combination thereof or the whole company. Concurrent with this strategic review, we faced the impact of the COVID-19 pandemic with actions to ensure the safety of our employees while balancing the needs to continue servicing our customers. As a result of those actions, we initiated another round of cost reductions and cash conservation measures conserving approximately $16 million in cash. In October 2020, the Board and management team concluded with the strategic review, and we closed on the sale of our Life Sciences business. This divestiture provided us with the funds to reduce our debt, thereby strengthening our balance sheet and broadening our financial flexibility. However, as a result of the short-term tenor of our existing credit facility, we still had more work to do on the balance sheet. In early 2021, we announced the refinancing transaction, which allowed us to transition to a longer-term capital structure that provides flexibility and financial stability to execute against our growth initiatives at an overall lower cost of capital. Today, NN is a new transformed company that is a strategic supplier of highly customized solutions for our customers, delivering over 1.5 billion components or subassemblies annually from 17 locations around the globe. Our best-in-class operations are able to achieve tight tolerance requirements as low as 1 Micron with a part per million defect rate typically below 5. Our company currently operates in 2 segments. Our Power Solutions Group, whose primary focus is manufacturing components and subassemblies for the electric and general industrial end markets, along with aerospace and defense, medical and auto components. Our Mobile Solutions group manufactures components and subassemblies for automotive and general industrial applications such as electric power steering, braking, electric motors and gasoline and diesel fuel systems. Through these groups and the diverse capabilities they possess, NN is well positioned to benefit from significant end market megatrends that are shaping our economy and culture today. As an example, the transition from internal combustion engine, or ICE, to more sustainable hybrid-electric or battery electric vehicles provides 2 to 3x the value-added opportunities for our manufacturing and process technologies within the automotive market. NN is unique, and although we are a legacy supplier for certain ICE-related applications. We also possess through our Power Solutions group, the technology and knowledge to evolve and transition to a world where battery electric vehicles play a more prominent role. Andrew will have some additional perspectives on the transition, along with further comments on content per vehicle. In addition, we embrace the change at NN, and our culture is predicated on it. In order to continually improve, you have to make changes to improve. It is in our DNA. We are problem solvers. Over the years, NN has successfully transitioned from throttle body injectors to multiport injectors to high-pressure direct injection. We were at the forefront of the evolution to electric power steering and now regenerative braking. We view the BEV transition as being similar. We have an opportunity to work with our customers to provide a manufacturing solution that utilizes our existing capabilities, and we look forward to it. On the core Power Solutions business, it's hard to overestimate the impact of the transition to electric vehicles will have on the nation's power grid and infrastructure. As more consumers opt for battery electric vehicles, the need for increased investment in charging will be significant, placing additional demand on the nation's power grid. While the transition to smart grid technology over the past 2 decades has been transformational, the additional demand for electricity from EVs will require significant upgrades in generating, transmitting and distributing capacity throughout the system. This will mean additional demand for essential components and then provides or has the process capability to produce. The transition to renewable power generation will also result in changes in our grid infrastructure. Historically, power generation was flexible and responsive to changes in demand within certain limitations. This resulted in a very reliable power supply to homes, industry and business. Renewable energy such as wind and solar are naturally less flexible and responsible to changes in demand. After all, if the wind is calm or an increase in electricity demand happens at night, there are limited options to respond to those changes when considering wind and solar. As a result, more technology and infrastructure are needed to effectively balance supply and demand. This means additional battery storage solutions, incremental connectors, bus bars and other components we provide to ensure that when demand spikes, the power will be there. When we restructured our management team in late 2019, we did so with a belief that NN could best serve our electric and automotive customers by combining the leadership of our business development and sales teams instead of having them operate in separate silos. The transition to BEV and the transformation of electric grid will require diverse manufacturing processes that are resident in either mobile or power. Establishing a common strategy and direction, has allowed us to streamline our sales efforts and represents NN's numerous capabilities, thereby cementing our status as a strategic supplier. This has also benefited our global manufacturing operations as well as NN's operating system, problem-solving techniques and culture are more aligned and consistent with each passing day. Our global footprint is highly relevant to our customers and unusual for a company of our size and, frankly, unmatched by our competitors. NN has 17 locations with 31 facilities spread across 6 countries. While many companies of varying sizes have pursued a low-cost country strategy and expanded in a variety of emerging markets, our strategy has been focused on being in the right locations to serve our customers. Typically, we are in the region manufacturing product for the region. As you will see in a few minutes during John's presentation, we are focused on creating consistency in our manufacturing operations throughout the globe. NN is the preferred supplier for several components where we supply parts subject to a global contract and quality consistency is critical. For example, we make the same power steering components in Europe, North and South America and China. Although the origin of our footprint was to service our customers in a geographic region and was not specifically designed to reduce labor costs, we still benefit from improved costs overall, whether from labor, operating costs or logistics. This footprint has clearly been a key advantage post-pandemic as global supply chains have been stretched to the limit since 2020 and more companies have returned to an emphasis on localized supply chains to support their operations across the globe. They are minimizing the risk that a major production hub might be sidelined due to a supply disruption halfway across the planet. As these concerns have risen, NN has been there, a local supplier to our customers across the Americas, Asia and Europe. In fact, we were recognized by several customers for our strong delivery record throughout the pandemic, which is a testament to our locations, but more importantly, to the dedication of our team across the globe. While discussing our global operations, I want to highlight our China joint venture, which is part of a substantial footprint we have in the China market. Because we do not consolidate the results, but instead report the JV under the equity method, it is often overlooked or misunderstood by investors. NN reports its 49% share of the net income on an after-tax basis in the income statement. And the amount, while meaningful to our bottom line, could underrepresent the true size or value of the operation. We formed a joint venture in 2005 to provide critical fuel systems components to a significant customer in China. That customer encouraged the union of the businesses as NN possessed the technology and operations management necessary to manufacture the complex components needed, while [indiscernible], our partner, also had a strong customer relationship and the knowledge and size to administer the business locally. The JV has consistently grown revenues to reach approximately $100 million annually, which has generated consistent income to benefit NN's bottom line and even more importantly, consistent cash flows through the dividend to each of the JV partners. Recently, we have made significant capital investments in order to ready the business for increased customer requirements. There continues to be a shift towards more complex next-generation product where we have higher content, and our customer continues to grow through increased market share and growth in the overall China market. We expect these factors to continue to drive incremental growth through 2025. The JV operates out of a 220,000-square-foot facility that is 1 wing of our 440,000-square-foot facility constructed in 2018. Our wholly owned China entity operates in the other half of that facility. The following video should demonstrate that our China operations are state-of-the-art, staffed by highly technical engineers and machinists and are comparable to any of our North American plants. [Presentation]

Throughout my discussion this morning, I have talked about the growth opportunity presented to NN as a result of the modernization of the electric grid and the evolution of BEVs. We believe the electrical grid expansion offers us opportunities in areas where we have existing capabilities or customer relationships. Additional connection points for renewable energy resources, battery electric storage, additional penetration of smart meters and expanding the electric distribution network provides us with an opportunity to make more components for switchgears, transformers and circuit breakers, among other opportunities. Our focus will be on those applications that align with our current capabilities, but we will not waiver to invest for a strategic opportunity. Based upon our internal analysis and input from third-party industry experts, we believe this market offers an annualized growth rate of 6% to 10% through 2025. Likewise, evolution to battery electric vehicles provides us growing target markets for battery systems, sensors, electric motors and charging stations where we can manufacture increased volumes of terminal plate and tabs, connectors, bus bars and electric motor shafts, as examples. Obviously, the production of battery electric vehicles will experience significant annualized growth through 2025. By many estimates, BEVs will grow 16% to 20% annually. Given our projected increase in content per vehicle for BEVs versus gasoline ICE vehicles, we expect our growth rate on our ICE independent applications to be 5% to 9% through 2025. In everything we do, we are striving to be a valued partner to our customers. We possess state-of-the-art engineering capabilities to help provide solutions to complex problems. Close tolerances and manufacturing down to the single micron level, along with in-house tooling development to enhance the efficiency of our processes allows us to offer a distinct competitive advantage to our customers. We are integrated in their supply changes, I noted earlier. We are located where they operate, enhancing the speed of delivery and our ability to respond to emerging needs. We have a relentless focus on quality and have been recognized for our low defect rates on components that are produced hundreds of millions of times. Being a good partner means providing the quality, tight tolerances, speed and capacity to meet their needs, but it goes beyond that. It means having engineering capabilities that allow us to work closely with customers to bring their ideas from design to prototype, not just to produce the components they design, but to work closely with them to develop solutions that meet their technical needs and specifications but also provide a context of manufacturability, which drives a lower total cost. These relationships with our customers are what enable the scale insurgency we want to achieve. By working to solve problems and add value to customers, we become a trusted partner the first call they make when trying to solve challenging problems within their business. We are much more than a high-precision contract manufacturer, but a trusted partner to help enable our customers to meet their goals. Let me take a moment to highlight the exceptional team that we have established to lead NN in achieving our long-term vision. John Buchan and I have worked together for over 20 years, and John has demonstrated that he is an incredible hands-on operations leader with expert knowledge of lean principles and problem-solving techniques that are critical to leading the combined operations of mobile and power solutions. Michael Felcher joined NN as our Chief Accounting Officer in 2018 and was responsible for reorganizing our accounting and finance functions to remediate 5 material weaknesses in NN's internal accounting control, which he accomplished. Mike also played a critical role in our strategic initiatives process and our 2021 recapitalization and was appointed CFO in July 2021. As I discussed earlier, we made an important strategic decision in 2019 to have the sales teams for power and mobile work and collaboration. The final piece of the puzzle was the addition of Andrew Wall as our Chief Commercial Officer in January of 2022. Andrew possesses in-depth experience in the electrical market that will help define our efforts in achieving revenue synergies across our business. Matthew Heiter has been a key member of our leadership team as General Counsel, was a critical contributor to our strategic initiatives process and has recently taken the lead in documenting and enhancing our environmental, social and governance policies and practices with our recently published sustainability report. And Gail Nixon, who is NN's longest tenured member of the team, serving as the Lead of Human Resources. Gail has done tremendous work in enhancing our culture from an HR perspective, improving internal employee communication and leading the redesign of our website to better reflect the new NN. Beyond the management team, we have also completely revitalized the Board with a group of high caliber leaders that bring significant value to our company. To tell you more about them, I'll turn it over to our Chairman, Jeri Harman.

Hello, and thank you for joining us today at NN's Virtual Investor Day. I'm Jeri Harman, Chairman of the Board of Directors for NN, and I'd like to speak to you today regarding our approach to leadership and governance. We've been through a lot over the past few years and made great strides, but we know we have more to do. NN is built on strong and differentiated capabilities developed over decades serving demanding end markets and world-class customers across the globe, applying advanced manufacturing processes, including 1 micron tolerances. This foundation is also applicable to emerging technologies and transformational market opportunities, such as the transition to electric vehicles and the modernization of the power grid. These are some of the reasons why we remain excited about NN's long-term future. Let me share a bit about my background. I bring more than 35 years' experience in private equity, capital markets and investment management. I've experienced serving on numerous private boards advising management teams on issues related to strategy, value creation, capital markets and balance sheet management. I also bring board-specific experience in business services and the automotive aftermarket base. Since joining the Board in 2019, I have overseen a dramatic transformation, not only our senior management team, but also in the Board of Directors. Indeed, 8 of the 9 Board members of our current Board have joined since 2019, and creating what I believe is one of the most well-qualified and diverse boards in our industry today. Shortly after joining the Board, it was apparent that company needed new senior leadership to guide it through a strategic alternative evaluation process to address the unsustainable leverage that existed at that time. Warren Veltman was the logical choice to lead this effort, given his experience in similar situations in his career and extensive background in manufacturing operations and finance executive roles. Perhaps even more importantly, Warren had extensive knowledge of the company and its operations and had earned the respect and confidence of NN's leadership team and the larger organization. Warren stepped in as Interim CEO in 2019 and was named NN's President and Chief Executive Officer in early 2020. He harnessed a team of high-caliber operations, engineering and financial executives and successfully led NN through a strategic evaluation process, culminating with the sale of the Life Sciences business in October of 2020 and the refinancing of the company's capital structure in March of 2021. This process was conducted in the height of the COVID pandemic. which creates significant additional challenges that were met with meaningful and tireless efforts of NN's executive leadership. We also recognize the need to enhance our Board of Directors to fully support and mentor the management team as they set about executing the tactical elements necessary to achieve our long-term strategic vision. That is achieving significant growth across key markets by capitalizing on the dynamic trends in electric vehicles and grid modernization, continuing reduction of ICE-dependent revenue streams and meaningful margin improvement through footprint rationalization and operational excellence. To that end, we assembled a strong team of Board members with diverse backgrounds, experiences and financial expertise that will be the envy of much larger competitors in our space. I'd like to take a few moments to highlight some of the industry leaders serving on NN's Board. Robert Brunner is our longest-serving board member, bringing deep automotive expertise from his decades of leadership at Illinois Tool Works, providing solid insights into precision manufacturing. Also joining the Board with me in 2019 were Chris Carroll, bringing over 30 years experience in valuation, strategy, capital markets and M&A; and Tom Wilson, who brings deep experience in M&A as well as technology and financial management. Ray Benvenuti joined our Board in 2020 and brings decades of experience in investment advisory and private equity with relevant and significant operational experience in aerospace, automotive and industrial manufacturing. As we continue to build out the relevant experience of the Board, we achieved significant progress in 2021 with the addition of 3 new Board members that brought industry-leading expertise to NN as we seek to rapidly grow our presence in the confluence of 2 emerging technologies, electric vehicles and the modernization of the power grid that will be essential to transforming the global economy to a more carbon-neutral future. Dr. Shihab Kuran, who you'll also hear from today, joined the Board in March of 2021 and is a global leader in renewable energy and smart grid technology that we've already levered in our Power Solutions business. Whether solar, wind or other renewable power generation technologies, Shihab brings amazing knowledge and a network of global industry contacts that can help our leadership team in driving future results. A month after Shihab joined the Board, João Faria brought his decades of executive leadership experience in electric vehicles, e-mobility, power management and energy efficiency with a global reach, which will prove invaluable to our efforts to expand our business over the long term. Lastly, in May of 2021, Dr. Rajeev Gautam, joined the Board, bringing extensive experience in manufacturing, process technologies, and automation that can be levered in both power solutions and mobile solutions. Moreover, João and Rajeev's leadership roles at 2 world-class companies, Eaton and Honeywell, respectively, will benefit NN management's focus on continuous improvement and operational excellence. Our goal as a Board is to be fully engaged with the management team to provide the insight, strategic counsel and thoughtful solutions to support the management team as they lead our company towards the bright future that we all envision. Our independent directors are active and engaged in supporting the management team and holding them accountable for achieving our long-term strategic objectives that will ultimately allow us to achieve the long-term goals of all our stakeholders.

As I conclude my opening comments, I want to note that 2025 Vision we outlined a year ago. We've been through a lot since that time, but we remain committed to achieving that long-term growth vision. Throughout the presentations that follow, I hope you will see that we have the right people, customer relationships, technical capabilities and capital structure in place to achieve these goals. [Presentation]

And now I'll turn the presentation over to Andrew Wall, our Chief Commercial Officer, to discuss how we are targeting our 2025 top line growth.

Thank you all for joining us today. My name is Andrew Wall, and I'm the Chief Commercial Officer at NN. Let me start with an overview of my experience, then discuss our value proposition where you can find NN products and the commercial strategy I plan to lead in this new role at NN. Regarding our strategy, I will touch on the areas of highest focus for growth, including a summary of key target markets and segments, our disciplined approach to growth and how we will win in the market. First, a bit about me. I joined NN after nearly 19 years with ABB, a global electrification, automation, and digital technology company. I began my work at ABB as a junior in college at North Carolina State University and while completing my MBA at Elon University. While at ABB, I worked in the Power Technologies and Electrification businesses, primarily in the North American market, leading teams in strategy, corporate level marketing, product marketing, sales, operations and general management, including profit and loss responsibility for one of the U.S. business units. It is fascinating to imagine the road ahead in the power and electrical world. I plan to leverage this experience, knowledge and deep relationships developed over the years to drive growth for NN. Many aspects excited me about the opportunity to join NN, including the talents and values of the people, the clear sense of purpose of the organization and the strong committed strategy of the business as Warren communicated earlier. One of the most exciting and intriguing aspects of NN that I want to emphasize is the value proposition that we create for our customers. You see, we don't simply offer one part or a specific component, although we do produce hundreds of millions every year. Rather we solve our customers' most complex component needs using our advanced process manufacturing technologies to produce at the highest quality and tightest tolerances by leveraging our industry-leading engineering and manufacturing expertise with the ability to produce at high volume. To add color to tolerances, we have the technology to produce its submicron tolerance levels for unique cases and commonly produce at single-digit tolerance levels. Moreover, our breadth of processing technologies, precision machining stamping, injection molding, plating and cladding create a unique value proposition as few competitors have the range of technologies we possess. Our sales engineering and manufacturing experts work hand-in-hand with customers to determine the optimal solutions for the components they require when considering the intersection of the components utility in the customer's product, manufacturability of the component, performance requirements and cost. A very complex set of decisions to optimize. We partner with customers to evaluate options and make informed incisions for their product. And then we build the components that enable our customers' products to form flawlessly. So while the tangible result of this process is the individual component that enable our customers' products to function, the value we deliver occurs in every stage of the process. Given our global footprint, we can service our customers on a local level to solve unique and regional needs as an extension of their own team. We have proactively positioned ourselves at the forefront of the emerging trend to localized supply chains. The COVID pandemic and resulting disruptions to the global supply chain made many firms realize that the trend toward globalization over the past 4 decades was built on a series of assumptions that resulted in a brittle supply chain that was vulnerable to unexpected shot. As a key partner, we have already established plants in many key areas where our customers operate, including Asia, Europe and the Americas. As a result, we are the local supplier to our customers wherever they operate, including locations in many low-cost countries. I am pleased to already share with you the key actions or perhaps imperatives for growth for which I plan to leave in the commercial organization. While I will build on these with context and details throughout this discussion, I want to be purposeful in sharing these critical actions for clarity and understanding upfront. First, we must leverage our relationships with long-standing, strong and industry-leading customers to deliver share gains and incremental growth for NN. We have many strong relationships that must be exercised for increasing our share of wallet. Second, we must continue to strengthen the sales and business development organization in areas critical to our growth. Our highest priorities in the near term include building up technical sales experience in electrical and electric grid applications as well as solidifying the competencies of the team to cross-sell our Mobile and Power Solutions businesses. Third, we must passionately target opportunities that incorporate multiple process technologies, creating a unique value proposition for customers and enhancing our position for margin expansion. Four, we must aggressively pursue opportunities associated with electric vehicles and high-growth segments of the electrical market, specifically the electric grid and electric distribution systems in homes and buildings that complement our capabilities and competencies. And finally, we must increase marketing of NN and target segments to improve awareness of our capabilities, articulate our unique value and improve our positioning across the market. Again, I will share context for each of these imperatives throughout the discussion. One of the most impressive aspects of NN that I learned is the unwavering focus the organization has on customers. And it shows in the profile and qualities of the customers we serve. NN supplies a multitude of strong, well-respected and well-known companies across a range of market segments. Many of them have truly global presence. Our customers lead their field in technology in many cases. Our customers are industry leaders in what they do. Since joining NN, I have been in countless meetings and calls where the focus is centered on creating value for our customers whether it be optimizing a solution for the customer, guiding customers through option on key product decisions, flexing for unique delivery needs and/or improving the customer experience. I have met with various customers that share appreciation for our genuine care for their business. We must continue to live a customer-focused existence. We must challenge ourselves each day to do even more for customers. Our strategy is to ensure the aforementioned strong, well-respected and well-known customers fundamentally depend on it in as they navigate major changes ahead for their portfolio. For example, the electric vehicle evolution and electrification of everything. We must stand ready. Did you know our components are almost certainly in your home and across a range of products. For example, our components are used to operate HVAC systems, smoke detectors, garbage disposals and are in your circuit breaker panels. We supply components that make your coffee in the morning and are in the energy meter that connects your home to your local utility. Our innovative solutions extend beyond your home and are inside the vehicles you drive every day, in your engine, whether it be gas or electric; in your breaks; in your seats; operating windshield wipers as well as systems that keep you safe, such as airbags and seatbelts. So when you take a step back and think about it, NN plays an important role in making products and systems around you work. As we look ahead, there are several avenues that will drive growth for NN. While our primary focus will be organic growth, this growth will be concentrated in established, sustainable and high-growth end markets, many of which we have discussed over the last 2 years. We remain committed to our Mobile Solutions and Power Solutions structure and our go-forward strategy for growth will involve further integration of our commercial activities and initiatives between our 2 business units, allowing us to expand and deliver on new opportunities through cross-pollinating our sales efforts, raising our collective voice and positioning inside target growth segments and leveraging our broad portfolio of process technologies to solve customer challenges and needs. It is imperative we employ the best of both of Mobile Solutions and Power Solutions to properly optimize solutions for customers and create differentiation with competition. In the automotive market, we believe we are incredibly well positioned to participate in the global transition to electric vehicles. NN has a long and successful history in the powertrain space within the automotive industry. For decades, NN played a critical role in the development of technologies that enhanced fuel efficiency and reduced environmental impacts of internal combustion engine vehicles. With this experience, we have developed an intimate understanding of the dynamics, nuances and drivers of the automotive market. We pride ourselves on the relationships we have developed with many of the key players and many of the attributes that made us successful in the internal combustion engine space are even more critical to the successful production of electric vehicles, things like exceptional quality, tight tolerances, working with challenging materials, need for engineered solutions and overall manufacturability. I would be remiss if I failed to emphasize the unique position of NN in the automotive space, when considering we are one of the few suppliers with the capability to play in both internal combustion engine and electric vehicle space fully. NN has and will continue to leverage our knowledge and experience to support customers as they navigate the transition to electric. Importantly, we view the transition to electric vehicles will increase the available market to NN when considering the systems that are required in an electric powertrain. In addition to familiar applications for which we supply components today, like power steering and braking, windshield wipers, seat adjusters and airbag components, electric vehicles also require components for battery packs, battery and power management inverters and advanced sensors, just to name a few, all of which will require precision parts and components produced by NN. We have defined the opportunity within the automotive market using the concept of content per vehicle. This analysis not only defines what we currently produce for customers within the industry but also where we will target additional growth based on the value we provide. Based on this analysis, we see an increase of 2 to 3x in the addressable market on a per vehicle basis with the range of 2 to 3x based on the design of the electric powertrain. With this road map, we continue to drive growth within the electric vehicle space, utilizing the cash generated by our legacy automotive business to fund this growth. Turning to the Electrical segment. Our intensity will increase to further penetrate the market strongly. This is a market undergoing a substantial transformation such as the transition to renewable energy, the significant work to upgrade the aging grid, the deployment of smart grid technologies and building out of infrastructure to support electrification of the transportation segment. New stresses and requirements continue to rise, such as increasing demand; increasing prevalence of high power consumption loads, such as electric vehicles and data centers; growing prevalence of distributed generation; and complex loads from electronic components. These changes are forcing grid operators to seek new ways to augment the aging grid, not only to distribute, but also receive power from a distributed generation network. Also, new technologies that are plugged into the grid in addition to new system requirements continue to increase the stress on the grid which is already fully loaded in a majority of cases. Governments around the world are active in passing policy and incentives to drive efficient use of energy systems by incorporation of sustainable energy sources and advancement of transformational technologies. Edison Electric Institute expects investment levels to reach nearly $140 billion in 2023 and 2024 for the U.S. grid, which would be a high point over the last 2 decades. The investments are needed to meet government-mandated renewable energy goals and to booster the reliability of the grid as outages become longer and more frequent, mainly due to capacity constraints and distributed generation. Our stamping, plating and molding experience play a vital role in the products and technologies that enable these major transitions and to address these challenges. As a starting point, we will leverage our history. NN has been active in the electrical market for decades, most notably with our supply of brainin powdered metal contacts inside circuit breakers and other applications where electrical connections are made. We have played a vital role in the metering segment and in the development of smart meter technology. You may recall in not too long ago, your local utility company would send a technician to your home to read the meter for your electrical usage each month. Today, with smart meter technology, usage is captured and digitally transmitted to the utility, which dramatically improves the efficiency of utilities and their workforces. Our precision components are hard at work inside the meter, enabling this solution. In terms of share for circuit breakers and smart meter components, we are currently in a low share position and are working diligently every day to increase our positioning and gain share in these applications. Staying with electrification. We will also expand our reach in the battery storage industry with a primary focus in the U.S. market. We view the battery storage market in the U.S. as a key critical opportunity during this strategic period when considering our footprint, resources and market access. To be sure, we will evaluate all opportunities on a global basis. However, we view our ability to penetrate more expediently, and with larger impact lies in the U.S. As per various research agencies, the overall battery energy storage market is forecasted to grow at a compound annual growth rate of 20% to 25% through 2027, reaching almost $2 billion. The growing use of battery energy storage is attributable to the increase of renewable generation and the expansion of uninterruptible power supply requirements often referred to as critical power in applications such as data centers, telecommunications, process industry and medical facilities. Battery energy storage systems utilize batteries, module packs, connectors, cables and bus bar as part of the manufacturing process, each of which align strongly to in-end competencies and expertise. Currently, we have several significant pursuits in this space and feel we are positioned well to achieve breakthrough wins in the storage market. In addition, within the electrical market, we are engaged with manufacturers of equipment and systems across the distribution grid. A few key examples where NN has organic growth opportunity, includes switchgear, transformers and other apparatus such as switches and connectors. These systems are the workhorses of the grid and designed to maintain the controlled flow of safe and reliable electricity. Inside the switchgear and apparatus systems are precision components and assemblies, many of which we produce today such as contacts, bus bars and stampings, where a clear opportunity exists to achieve incremental growth through share gain and by leveraging our precision machining, injection molding and assembly portfolio. We also are focused on supplying tap changer manufacturers in the transformer market. During the last week of April, NN participated in the Transmission and Distribution Grid Summit hosted by the Institute of Electrical and Electronics Engineers, or IEEE, in New Orleans. I commonly refer to this event as the biannual Super Bowl for the electric industry. This is the conference where thought leaders from electric utilities, academia, government, industry groups and industry suppliers come together to engage on priorities and challenges, exchange developments in technology, shaping the electric delivery of today and tomorrow and showcase products and systems employed across the wide-ranging electrical market. NN played a prominent role in the event, including engaging of potential customers on the challenges facing their business and how NN can address. Our sales, business development and engineering teams uncovered numerous intriguing pursuit opportunities over the 3-day conference. Participation in events such as this as well as continuous engagement with industry communities such as IEEE is critical for our electrical mission and will remain a priority. So how do we decide on target markets and growth activities? Our process for developing new business begins with in-depth, intensive analysis of our target markets in the context of our competencies and capabilities, our experiences, our expected profitability levels and risk. Our business development team analyzes the portfolios of OEMs, product manufacturers and system providers in key target market segments. This team meticulously assesses the data available for a given product, equipment or system to identify the material content, the manufacturing requirements and scale or volume to determine feasibility and interest. Simply stated, we are committed to identifying opportunities that allow us to provide value to our customers in a way that will also yield accretive returns for NN. Following this analysis, we leverage our network across the organization and within the industries we serve. And with our homework done, we approach customers with meaningful insights as to what we can provide and to inquire about the challenges they face or changes they are considering. Customers appreciate both our curiosity around helping improve their business and that we approach them with an assessment, even one they did not request. We have found this approach is critical for gaining the attention of prospective clients and create differentiation between ourselves and competition. In that regard, I'm exceptionally pleased with the development of the pipeline of opportunities over the last year. Despite being restricted by COVID, the team has increased the volume of customer engagements and outreach to potential customers dramatically. Even more importantly, the pipeline of quoted business, meaning opportunities we have tendered, including our evaluation for strategic and financial fit has increased fourfold over the past 18 months. Our segment mix for the pipeline is also impressive, with more than 50% in the very attractive electrical, electric vehicle and general industry spaces. So how do we grow demand? First, we must embrace our hunter's mentality. Customers do not and will not knock on our doors to give us their business. Our commercial teams must take our story to the customer every day and with good purpose. We have set expectations with our teams, including KPIs related to opportunity pipeline development in our strategic areas, in addition to typical KPIs, such as new business wins, sales and price quality. Using Salesforce, we monitor the contributions of the teams from an activity level and strategy perspective. Our team has embraced the hunt and working with a high activity rate. In addition, we will continue and improve on the blocking and tackling with our commercial activities to expand the business. For starters, we will improve the general marketing and promotion of the business. We will develop a stronger awareness for who we are as NN and what we do inside our key target market segments of electrical and electric vehicle in addition to ongoing marketing in our traditional markets, such as automotive, aerospace and defense, general industry and medical. By performing focused marketing, we will achieve presence and familiarity of NN and our value proposition to customers and industry players. This quarter, we expect to launch a refreshed company website, which better reflects our company and our unique capabilities. The website provides a more clear and insightful representation of our business where current and prospective customers can both learn and engage directly from us. We will actively participate in various industry forums such as National Electric Manufacturers Association, or NEMA, and IEEE to enhance our knowledge base, broaden our market window and allow us to expand our network. We're adding a marketing communications leader with a primary mission to amplify our voice inside of the target market segments. In this role, this person will create strong messaging for our business, such as how we solve customer needs and why we are unique. We will increase activity in areas such as social media, press releases, white paper publications and speaking engagements at industry forums under the leadership of the marketing communications leader. As the macro environment continues to improve, we remain focused on getting in front of the market in-person, in instances where we can do so safely. In 2022, we will participate in a total of 4 trade shows focused on electric grid, battery storage and electric vehicles. In addition, our sales team is extremely active in securing face-to-face meetings with current and target customers to create relationships and develop share gains for NN.

It's a pleasure to be with you today at NN's Virtual Investor Day. I am Dr. Shihab Kuran, one of the most recent directors to join the Board of NN, and I'd like to speak to you today about how the diverse knowledge and perspectives, represented on our Board, provide valuable insight to our senior management team in developing and executing the strategic vision for our company. Let me start with my background and why I chose to join NN's Board. I have focused much of my career on a field that is rapidly coming to the forefront of our global efforts to combat climate change through sustainability and through the reduction of greenhouse gas emissions. My focus on renewable energy started while I was still in undergraduate school as I designed and installed solar systems to support my education. Having earned a bachelor's degree and a Ph.D. in electrical engineering, my passion for the sustainable energy industry has only grown over the past 3 decades, as I increased my focus on renewable energy, electric mobility and smart grid technology. A transition from carbon-based electricity generation to more renewable energy sources, coupled with electrifying the global transportation sector, requires a paradigm shift in how we generate, store and transport that energy. This is one of the key reasons that I founded Petra Solar, Power Edison and EV Edison, 3 companies that are focused on solar energy, energy storage and electric vehicle charging, respectively. A smarter electric grid is required for solar, storage and EV charging to operate effectively. Such a grid incorporates battery storage solutions, smart switches, connectors and other essential components to guarantee reliable and sustainable supply and delivery of electricity. These diverse technical needs brought me to NN. As I recognize, this company plays a critical role in making the smart grid possible. The precision components manufactured by NN's Power Solutions group facilitate efficient generation, storage and transmission of sustainably-generated electricity. In addition, I saw the Mobile Solutions business providing essential components to the other side of the sustainability coin, with key initiatives to support the transition away from internal combustion and towards electric vehicles. Rarely have I seen a company that operates right at the confluence of 2 industry megatrends like NN. So when I took the opportunity to serve on NN's Board, I realized that I could add immediate value to the efforts of management to grow this business and leverage our expertise to the new green energy economy. I seek to contribute broad industry perspectives that will assist our leadership team as they shape the long-term strategy for NN and identify new and emerging technologies that allow us to position NN for strong revenue growth and profitability over the coming decades. I also try to leverage my network of industry contacts to, again, bring valuable insight and perspective to our management team, allowing them the flexibility to explore new ideas that might, in turn, help to shape our company's direction. In summary, Jeri and the executive team have completed a Board transformation, establishing a Board with diverse backgrounds and experiences that serve as a key resource to achieving our long-term strategic vision and ultimately generating strong returns for our shareholders and meaningful improvement in the lives of all our stakeholders.

One final topic to touch on is the challenge associated with general inflation and raw material volatility in terms of availability and cost. As a starting point, the team has done tremendous work to mitigate the impact associated with sourcing raw materials when we require them for production and working with customers to adjust price due to unavoidable cost increases. We have found the transparency of the situation, use of data and reinforcement of the value proposition has aided in reaching settlement on imperative price changes with our customers. I am pleased to report that we have secured nearly $32 million in price increases in 2022. I should note that these price increases have not and will not book to the P&L at one time as many of the increases are for revenue to come from backlog and for new orders moving forward. We will continue to monitor costs and act as proper. In closing, I'm excited about the opportunities ahead of us and the team we have assembled to take advantage of opportunities to deliver profitable growth. NN wins, when we partner with customers to solve problems and live with unwavering customer focus, engaging with customers as a trusted adviser to evaluate options associated with product utility, manufacturability of the component, performance requirements and cost is where we differentiate. We established a strong relationship we aid in decision-making. And fundamentally, we provide confidence for our customers in a well optimized solution for their portfolio, thereby enabling our customers to win. Thank you for this opportunity to share with you today. [Presentation]

Thank you for joining us for the NN 2022 Virtual Investor Day. I'm John Buchan, Vice President of Mobile Solutions and Power Solutions, and I'm excited to share with you today how we are meeting the needs of our customers amid rapidly evolving market trends. Even more importantly, I'll be revealing how well positioned NN's global operations are to take advantage of these new market demands and drive sustainable growth for the long run. To start with a brief background, I came to NN through the Autocam acquisition in 2014, where I was Chief Operations Officer. With decades of experience in engineering, project management and manufacturing operations, I've spent much of my career in the automotive space, working closely with customers to improve quality and performance of their products by leveraging our core competencies as experts in high-precision manufacturing and our culture of continuous improvement. As the operations leader of both Mobile Solutions and Power Solutions, my role is to continue advancing our vision of providing highly engineered components essential to the performance of a broad range of end products by utilizing the combined manufacturing capabilities of each group. Our diverse set of process capabilities and vast experiences with complex components within critical end customer product technologies, positions NN to be a strategic manufacturing partner for our targeted growth customers. Andrew just spoke about many of the changes that are happening in our end markets and certain mega trends that are shaping our business. The EV evolution and rapid investments to improve our nationwide electric grid are trends that are changing and challenging customers to find suppliers that have the depth of process and product knowledge to partner with them to help develop innovative end market solutions. So let's talk about our capabilities and how they match with the trends shaping these markets. NN is the leader in process technologies. But really, what does that mean? When you think about what we offer our customers, there are many processes that are relatively common in industrial applications. For example, stamping, turning, grinding, plastic injection molding, heat treatment, plating and metal finishing. Where we truly differentiate ourselves is in the level of precision and quality we provide with components that are difficult to manufacture due to tolerances, specialty alloys used or a combination of processes required. We are able to produce components for our customers with tolerances as tight as a single micron. We referenced that dimension several times this morning, but not many people know how small and precise a micron is. To give you a sense of how small micron is, the width of a human hair is only 88 microns in diameter. NN is able to manufacture components repeatedly at high or low volumes at single-digit micron levels. In many cases, these tolerances are so tight that they can only be measured with specialty non-contact optical gauging equipment. Often, these components are manufactured with codeveloped specifications based on our customers' manufacturing and assembly processes, which in turn allows them to operate at higher yields and greater efficiencies. In effect, our parts become tuned to their assembly line. So why does this matter? If we were producing basic components like screws or bolts, fasteners or other basic hardware, single-digit micron tolerances would not be required. However, we purposefully target and produce product technologies where our precision manufacturing capabilities provide a process solution for the customer. These situations provide us with an opportunity to add incremental value truly associated with higher margin opportunities and create a more sticky customer relationship. Additionally, these products are typically mission-critical components for the end product function and end user satisfaction. For instance, if one of our electrical contacts doesn't work each and every time, electricity wouldn't be available in your home or business. Worse yet, there may be an electrical arching that may result in a fire. As another example, NN is a global leader in the manufacture of motor shafts for steering, braking, pumps and compressor applications. It's not too difficult to imagine the consequences of quality problems with any of these components were they not to work each and every time. Our application engineers work side-by-side with our customer's product design teams to innovate manufacturing solutions early on from the initial design through the prototype and eventually to the launch of production for these critical components. We are not a make-to-print supplier. We become our customers' manufacturing partner and a component expert, in essence, we become an extension of our customers' internal teams, enhancing their value and strengthening our relationships. [Presentation]

As we think about those trends that are rapidly shaping our business, in many ways, it comes down to electrification, the electrification of everything. And this is where NN has the advantage, not just in providing solutions for machined or turned components, but plating and electrical connections as well. Electrical motors can be highly complex assemblies. Motors have electrical connections, switches, shafts, worm gears, all of which are complicated components, and NN is one of the few suppliers that can manufacture and provide solutions for the entire electric motor assembly with unmatched quality at high volumes. With electric vehicles, there's no background engine noise. So the need for quieter electric motors, actuators, shafts and other components has increased. This creates an incremental opportunity for us to provide components with even smoother surfaces, tighter tolerances with unique geometries and material compositions, to effectively reduce overall cabin noise. In addition, autonomous driving further increases the need for precision components used in steering, braking, sensors and adaptive controls. As a result of the expansion of both electric vehicle charging and renewable power generation, the electric grid will require investments in transmission, substations, switching, storage solutions and monitoring. NN and has extensive experience with these products. They're unique conductive materials and associated manufacturing processes. We have long-standing relationships with the customer development centers actively engaged in upgrading the grid. As we presented, our mission is to engage the customers and solve component challenges with innovative manufacturing solutions and then execute to that plan. We accomplished this mission by having well-established and extensive global toolbox. We have the tools and ability to simulate our manufacturing processes, to generate rapid prototypes, to measure the tightest of tolerances, to evaluate the composition of materials and in many cases, to validate our life cycle test, the component. We have in-house tool design and build capability. This includes stamping dies, injection molds and cutting tools. We also have an in-house automation group capable of automating existing processes, validating component quality or developing innovative new equipment. Each of these tools enables NN to reduce development time from weeks to days. We are then able to complete numerous iterations of improvement cycles within a time frame, our competition might be working on its first iteration. We have global new business development, innovation centers in each of our regions. Our sales, project management and operation teams utilize global development and launch protocols. This allows our global teams to share best practices and execute cascading new business launches in multiple sites around the world. Finally, our global footprint and available production capacity creates considerable manufacturing flexibility and opportunities to drive margins higher as volumes grow. We are constantly evaluating equipment utilization and selecting production sites based on the component complexity and customer expectations. As you can see, NN has a comprehensive process portfolio and toolbox to solve customer problems. However, our secret sauce and ultimately, our success starts with our people. They are the foundation of everything we do. They are the ones producing these highly engineered components with the tightest of tolerances and at the highest quality at volume. When we think of quality, it is a behavior that is built through culture, not just procedures. Our common mission is to continuously seek out innovations to improve quality and eliminate waste. We reinforced this philosophy through our ongoing associate development programs, ranging from onboarding orientation, core skills training, pay for skills recognition, apprenticeship certification and NN leadership development. Our teams are encouraged to take calculated risks to challenge the status quo and seek out innovative ideas to improve based on their customers' need. In all cases, teams work together, utilizing NN's unique area improvement team, problem-solving methodology. [Presentation]

You've heard many of our executives talk today about our people and our culture, but let me provide some concrete examples of how we've worked to solve specific customer problems. The following are a few short examples within the Mobile Solutions group. We had a customer come to us in need of a diesel dosing nozzle that had extremely tight geometric tolerances, surface finish and material durability requirements. Initially, we tested various techniques of machining with conventional tools, including drills, reamers and boring bars. However, none of those machining methods were able to consistently achieve the component specifications. Simultaneously, our team worked with several laser manufacturers to investigate an alternative process capable of generating such a complex nozzle feature. Early development samples look so encouraging that our team went on to develop a fully production-ready, automated specialty machine, including fixturing, atmospheric controls and 100% part qualification. This unique solution resulted in a significantly better component and a savings to the customer of over $400,000 per year. NN now produces 100% of this components' worldwide volume. In another example, our customer needed a part with a small, but very high precision channel, single-digit micron tolerances for parallelism and depth. The customer's internal development team proposed a specialty chemical machining process. The customer asked NN to assist with this development. Our team attempted to develop this initial approach. However, it was not capable and not easily scalable to production. Simultaneously, our team developed a unique micro milling process to machine these features to print. Keep in mind that this level of micro milling had not been attempted at these small feature sizes, tolerances and volumes before. Even the gauging of the component had to be developed and calibrated with our customers' end product. Our team successfully developed a fully production-ready process. In addition to achieving the component specifications NN's micro milling solution allows the customer to easily create many different geometries to further improve their end product design, while avoiding the costly tooling requirements and development time of their original approach. This unique solution provided a component vital to the customer's end product that previously was not manufacturable. Our customer also estimated that our approach, the new process, saved them well over $1.5 million on an annual basis in projected component costs. NN now produces 100% of this component's worldwide volume. For both of these examples, NN was able to provide the customer with a better component at a lower cost. In return, we were awarded sole source new business at pricing levels that reflects the significant value add. In short, these innovations generated value for the customer and above-average margins and an elevated ROIC for NN. [Presentation]

Now let me walk through a few examples of how we solve the custom problems on the Power Solutions side. As we've talked, NN continuously works with customer design teams to value engineer improvements in the component design and associated manufacturing costs. In this case, our team identified potential material savings by modifying the existing design to replace 2 solid silver contacts with 4 bimetal contacts, which only have silver on the functional side. This change resulted in a significant reduction in silver content and saved our customer over $4 million annually. Our in-house development capability allowed our team to create the initial designs, develop prototypes and validate the electrical connection of the alternative options. In another example, we have developed a relationship with a prismatic battery manufacturer to reduce the cost of critical components within their battery pack. The top cap assembly of a battery is traditionally constructed from a variety of parts, including stampings, molded parts and machine parts. Our team utilized NN's diverse process expertise to develop a unique and innovative approach to the molding process, which significantly reduced the total number of parts within the top cap assembly. This innovation not only allows us to produce and assemble a product that is more reliable but also provides an impressive cost savings of nearly 20% to the customer. Again, our engineered solutions approach creates component innovations, which provide value for the customer at competitive pricing, while generating above-average margins for NN. As you can see from these few examples, every day, our people make the difference and supercharge our growth. Their commitment to delivering high-quality solutions allows us to achieve customer excellence. The culture at NN is the backbone of our success. Our culture has allowed us to maintain a strong track record of excellence and provides us with a strong foundation as we move forward. These examples we have discussed, demonstrate how NN works with its customers to create a lowest cost scenario for them, thinking outside the box and proposing new alternative processes like laser machining or micro milling, our solutions are valued by our customers because we have delivered value in the form of lower total cost for their organization. And it is those types of activities that create a long-term and embedded strategic customer relationship. Another indication of how our customers value our contribution has recently been reflected through our outstanding quality and delivery performance throughout the pandemic, which also has strengthened our reputation as a valued supplier. Most of our customers designated NN as an essential manufacturer due to the critical nature of our components we supplied during the pandemic. Many of those same customers awarded specific recognitions for our contribution to their successes during this most difficult period. We appreciate the relationships we have forged with our customers and are thankful for the opportunity they are providing for our future. Our manufacturing teams are innovative, experienced, disciplined, diligent and excited to execute our growth strategy. Thank you.

Thank you for joining us today, and welcome to our first Q&A session. We'll be conducting our Q&A session electronically. As a reminder, you may submit questions at any time using the question submission feature on the Investor Day website. And now let's go to our first question. This question is for Andrew from an individual investor. What is your long-term goal for the breakdown between Mobile and Power? Right now, you're 60-40. Are you aiming for that to be more like 50-50?

Yes. So thanks. Very good question. The way that we're thinking about our long-term sales mix is actually not oriented around the Mobile Solutions and Power Solutions structure that we have, management structure that we have. But rather, we're extremely focused on the target markets for which we want to reach our full potential as NN. If you reflect back on the comments that Warren shared a bit earlier, excuse me, in terms of our strategy, looking out in those target segments, he shared the profile of where we want to be and what we want to look like, and that's critically important for the markets that we're after. If you think about 2, in particular, the electric vehicle market as well as the grid battery storage market, this is a perfect opportunity for NN. It really brings together the full range of process technologies that we have because the players in that market, they need solutions. They need companies and suppliers like us that can come in and bring a precision packaged assembled solution together to be able to reach their goals. We're seeing a lot of value from customers -- appreciation of the value that we're creating inside of those markets in particular. So I'd reflect back on that slide that really shows the target market segments and where we want to be, and that's really where we're focusing all of our energy and focus of our organization so that we can indeed reach our full potential as NN.

Next question is for Warren from a current shareholder. On the organic growth side, you showed your target revenue breakdown, and we can see significant growth in EVs, but electrical seems to grow more slowly. Does that seem conservative to you? Should this end up with a larger share of the pie given the significant industry investments in the grid?

Thank you for the question. First, on that slide, if you'll look at the vision going from where we were in 2021 to $650 million, there's an implied growth rate there of 6% to 8% depending on how you handle pricing, and the electric side of the business grows from 13% to 14%. So we're projecting in our vision growth in excess of 8% in that market segment. Certainly, it could be bigger than that, given some of the resources that we're funneling into our sales group from an effort standpoint and some of the opportunities that we see in our pipeline. It certainly is one of the fastest-growing segments of our pipeline is the electrical focus that we have. It could definitely be bigger than what we're projecting. And certainly, we hope that it is.

Next question is for John, also from a current shareholder. Being an extension of your customers' teams would imply that you're adding value to the relationships. How does this manifest itself? Can you quantify this?

That's a good question. Somebody asking for data. And if you look back at some of the videos and some really nice interesting technologies we're exposed there, when you look at what NN provides to our customer, what is our product, what is our IP, it is that manufacturing solution. It's how we provide a manufacturing process, and we have a breadth of processes that we can bring to the customer's table. We are that partner for that customer to develop manufacturing solutions for their end product. And in doing that, we look for ways to reduce cost, to increase that value for that customer. We do that in development centers in all of the regions, North America, Europe, Asia, working with that customer to come up with those solutions. And it's with the most difficult kind of problems. So it's not what every or any supplier can do, is a very few suppliers that can provide these solutions. So by getting embedded with the customer, we usually have a first look at that product. What is the next-generation product that's coming forward? How can we apply that vast process knowledge and our expertise with difficult materials or difficult processes to give them a better value at their end product to reduce their costs. And in turn, as we showed with a couple of examples, get more of the volume and in many cases, the sole supplier position and ultimately a better margin product for us. Then the question about how do you measure that? And as you can tell, we measure a whole lot of things. How we measure this, how we're engaged, first is how are we doing on our pipeline, and Warren and Andrew mentioned that. The other is our new business wins. Are we winning business for the future? And I'd say a leading indicator of that is how we invest in the people in new business development. And I can tell you our pipeline for development of talent in that area has been accelerating over the last year.

Our next question is for Andrew from an individual investor. How is the cross-selling pollination between Mobile and Power going? Do you have some examples of success stories that you can share?

Yes. Another really good question. And I'd like to start the answer with a congratulations and a thank you to the organization for some really strong work that's been done over the last 12 months to really perform as a cross-selling organization. Some things that were done include: intensive training of the organization, the selling organization of the whole portfolio of NN; establishment of the key account management sales structure where that sales leader will have responsibility for both Mobile and Power with that customer set that they're responsible for; and last but not least, the implementation of what we call capture team selling, which is for those bigger programs we bring together a cross-functional team, whether it be the sales organization, business development, operations, legal, finance, we bring it all together and work as a team of one to be able to achieve success for those types of opportunities. So really good work is underway, and we're going to continue to build on it, right? I think that one of the most key things that we can do, again, in those target market segments that we've identified is approach that market as NN with our full capabilities because that really does drive value for our customers, and frankly, it creates differentiation for us. There are not a lot of players out there that can do what we do in a precision way and be able to pull it together. And so just tremendous value out there in the marketplace. So that's a priority for us. We're going to continue to build on it and make sure that it works out for our benefit. So...

Our next question is from Warren or John from Steve Barger at KeyBanc. How many competitors are there that can hold single-digit micron tolerance as a production volumes or just how differentiated are NN's capabilities.

Maybe I start, John.

Sure. Sounds good.

Steve, thanks for the question. First, I would tell you that from a competition standpoint, there are certainly a handful of competitors that we routinely see in the marketplace as well as the capabilities that reside with inside our customers' manufacturing operations, that's always a decision that our customers make, whether they want to manufacture a critical component internally or whether they want to source that with a company like NN. So there is competition out there, but I would tell you, there are machine tools out there that have the capability of manufacturing in the single-digit micron range. But one of the things that John talked about in his section was the culture and the capability that we have organizationally, including you saw a clip as it relates to our tool room where Greg Parker indicated that 1/3 of the tools that we manufacture -- or 1/3 of the tools that we utilize are manufactured internally by NN. So along with the machine tool comes the process and the tooling that goes along with it, that allows us to create a part with that type of tolerance. And the key piece of that is, not only do you have to make the part to that tolerance, but we talk about volume. To be able to do that in high volume consistently at the ppm rates that we have experienced organizationally is something that really differentiates us. John, would you like to add something to that?

Yes. It's a good question, Steve. The production volume component of your question is exactly it. There are a lot of machines that you can buy, whether it's on the Power side with stampings and assemblies or the Mobile side with machining, they can do single digit. There's more to it than just buying that machine. It is also all the tools, the people, the training, the material and an expertise and a range of areas that you have to have to be able to make high-volume single-digit type capabilities. The other differentiating factor, and we run into a few of these competitors when we talk about a single market or a single product in a region. There's maybe 1 or 2 that we see that's global that has the ability of extending development centers throughout the world and follow the customer as these technologies are implemented in different time schedules. And the other aspect is we have not ran into more than maybe 1, maybe 2 that has Mobile and Power. So the trend that we see is that our customers, since we're providing the manufacturing capabilities, those solutions, they're going to start talking about combining the electrical buy with the mechanical buy, the component buy, and we'll be able to then apply our Mobile and Power solutions in a cross-selling solution effort.

Our next question is for Andrew from Ryan Stein. How can B2B content be 2 to 3x that of ICE?

Yes, good question, Ryan. So over the last couple of months, we've done some very intensive analysis to get to the point where we are seeing that 2 to 3x opportunity for us. One of the key attributes that's making that happen, I think, is if you look at the engine -- excuse me, the electric vehicle powertrain, it's really a game changer in terms of working the intersection of our precision machining portfolio as well as other process technologies, such as stampings, such as plated materials, such as injection molding. And those are coming together in the engine in the powertrain space that is incrementally significantly bigger for us. The other part of it that I would comment on is something that I think Warren touched on when he was speaking earlier, which is the precision required in electric vehicle due to the noise, the -- has to be even more precise componentry so that you don't hear them like you would and kind of getting overridden, I'll say, by the internal combustion engine-type noise level. So those 2 things as much as anything. Now why the range of 2 to 3x? It really depends on the car manufacturer, the automobile technology that they're going to use for the electric vehicle. So it is a range. But we do see a significantly larger window space for us to reach that market. So...

Our next question is from Rob Brown at Lake Street. Warren and Andrew, you have a strong EV project pipeline. Is your market share increasing? Also, how does your average revenue per vehicle compare between an EV and a traditional vehicle?

Yes. Thank you for the question, Rob. First, I'd say, Andrew went through the market, the electrical market that we're pursuing. And as you saw, it's billions of dollars, so an extremely large market. So our focus is on what is the growth of that market. And are we achieving that same growth level or beyond similar to my last question. So our focus is to grow faster than the market rate. And we believe, given what we have going on in the pipeline that we have the ability to do that. Now Andrew just answered a question as it relates to the content per vehicle. And hopefully, that answers the second part of your question on how we see that growing.

Our next question again is for Andrew from Ben Turk. There's a disconnect between breadth of capabilities, market opportunities, customer list and financial performance. What's the binding constraint to growth?

Good question. I want to have to unpack that one just a bit. So the disconnect between breadth of capabilities. What is the binding constraint? I don't -- nothing's come to my mind that is a significant constraint. I think we have the technology portfolio set. We have market, and we're talking to the market, and they're leaning in to us about what we can do for them. So I don't see any significant constraints. We -- at this time, we have capacity in our operations to be able to perform. So nothing's coming to the top of my head on that. I don't know if anyone else had any things they could build on. But...

Yes. I think that what we talked about is that the breadth of our capabilities we see as a significant advantage because our customers can come to us and we can go to them and offer up all the different process capabilities that we have to solve their problems. So I think the thrust of the question, is there a disconnect there? I don't think there is. I think that there is a positive synergy that we expect to experience over the next couple of years where we're bringing all these process capabilities to our customers. We become a larger partner with them from a strategic perspective. And because of that, it gives us an opportunity to expand our margins because we're providing more value to our customers.

And I think the other aspect to that, Warren, is the last 2 years have been an abnormal condition. We've got supply chain. We've got inflation. We had the restructuring of the business to take on. So those things were focus areas that get us away from the growth. We know we have capacity. We know that as this starts evolving, we can apply with limited investment.

That was our final question. Now I'll turn the presentation over to Matt Heiter, and we'll return for our second Q&A session shortly.

Hello. I'm Matt Heiter, Senior Vice President and General Counsel of NN. And I'm glad you could join us today. On behalf of more than 3,400 of my fellow employees and my colleagues on our ESG Leadership Committee, I'm here to talk to you today about our sustainability strategy and how we believe our approach to sustainability will enable us to provide meaningful benefits to all of our stakeholders. Like everything else we do at NN, sustainability is a team effort that permeates across our entire organization. Sustainability isn't new to us. It has shaped operations since our founding. In 2021, we launched a comprehensive effort to formalize our strategy and enhance our public disclosure around these efforts. We invite you to join us at our sustainability journey. Under the other side of our Board of Directors, we established the NN's Sustainability Executive Council, led by Warren Veltman, our President and CEO, and includes all of the senior executives you are hearing from today. At the management level, we established the ESG Leadership Committee, which includes management representatives from each of the key functional areas in our organization. This committee conducted an environmental, social and governance, or ESG, materiality assessment to identify our most significant economic, environmental and social impacts. We engage with our stakeholders, utilizing their frameworks and assessment topics of a Task Force for Climate-Related Financial Disclosures, also known as the TCFD, and the sustainability accounting standing boards to develop our strategy. And in doing so, we ensure we are aligned with best practice in this increasingly important effort. This work resulted in the 4 pillars that serve as a foundation for our sustainability strategy. Our people, sustainable operations, sustainable products and responsible management. Each of these pillars represents a fundamental set of principles tied to business outcomes that set our ESG priorities and drive our behavior. The connection of business outcomes means that we are not simply pursuing sustainability for its own sake, but we see it as closely aligned with operating a successful business for the long term. Simply put, it makes us a better company. People are the heart of our business and the drivers of our success. You've heard this across our management team today. It's critical that we attract and retain the most skilled and dedicated workforce possible, more now than ever. People want to work for companies with a purpose that goes beyond simply making a profit. You've heard a lot today about our culture of continuous improvement. That culture extends to how we engage with our people, their families and our communities. We are focused on the continuous improvement of the health and well-being of our employees and the communities we serve. This was plainly evident in our rapid response to the COVID-19 pandemic in 2020. We prioritized the health and safety of our team, and we saw our business slowing down along with the global economy, we all shared the sacrifice to ensure that we were stronger on the other side. We are also committed to human rights, diversity and inclusion, and we demonstrate this commitment throughout the organization. This means that we strive to ensure that every member of our team is treated with dignity and respect. It also means that we make conscious efforts to be inclusive and incorporate diversity from the boardroom to the shop floor. Our commitment to human rights extends to the communities in which we live and operate. We want to be good neighbors. That means supporting our communities economically by providing good jobs, minimizing our impact on the environment and contribute to events, non-profit organizations and community groups to make our communities great places to live and work. Better community relations make it easier to be good neighbors, but it also enables us to gain their support when we need to grow. One example of our investment in people are our training and apprenticeship programs established to address the critical skill shortage in manufacturing. For some time, manufacturing and many skills traits has suffered from fewer younger people entering this industry and pursuing these careers. As a result, many manufacturing operations don't often have the pipeline of talent to meet the demand for growth. To address this lack of talent, we supplement our recruiting efforts and develop our talent internally through structured training and apprenticeship programs. We see this as a mutual investment as we invest in our workers' development, they invest in us for a long-term career. Training and apprenticeship programs help develop the skilled work that we need, but more importantly, a loyal workforce that shows up every morning and is much less likely to leave for other opportunities. In fact, of our global workforce, 35% have been with us for more than 10 years, and some have been with us for as long as 40 years. Now let's turn to a brief video, highlighting the impact of these training and development programs on [ Obed Santos ], a machinist at our Kentwood facility. [Presentation]

At NN, we understand our impact and influence on the environment. Our approach to operating sustainably includes taking proactive measures and implementing policies designed to minimize our impact on the environment and ensure we operate responsibly, eliminating waste, efficiently using of materials and equipment, recycling. These efforts have a positive impact on the environment, but they also make us more profitable. Reducing scrap and being more responsible in our production, offers the dual benefit of diverting material from landfills and reducing our cost of operations, thus providing us both an environmental and a business benefit. Responsibility also means doing the right thing for our people and communities. This means appropriate focus on air quality, effective water and wastewater management, waste recycling and proper disposal of hazardous waste. Minimizing waste generation and recycling allows us to reduce our environmental impacts and our operating costs, resulting in a happier workforce, better community relations and a brighter bottom line. As we operate responsibly through recycling programs and enhanced efficiency, we will also see a reduction in our overall impact on the environment, reducing our own greenhouse gas emissions and making sure we are doing our part to ensure the long-term health of our planet. At NN, we see climate action and energy efficiency as driving forces for innovation. As we strive to further understand our climate impact, we will continue to look for innovative solutions to improve energy efficiency and reduce our carbon footprint. Throughout its history, NN and has been in the forefront of delivering products to our customers for their sustainable solutions. Our products have long been incorporated into end products that are making the world cleaner and more efficient. Since its founding, Mobile Solutions has enabled auto manufacturers to increase the miles per gallon of their vehicles by making engines run more efficiently. We've been intricately involved in advanced fuel injection systems, better emissions controls, improved sensors and components for hybrid vehicles. And we've helped the auto industry shift to the modern fuel-efficient cars of today. Power Solutions has been manufacturing electrical components for an even longer period, helping utilities produce and transmit power more efficiently, but also enabling more efficient use of power within homes and businesses with components that make appliances and machines more energy efficient. As you heard from Warren, Andrew and John earlier today, our future growth depends on our further penetration into the electric vehicle and smart power grid infrastructure markets. We've taken several steps to enhance these efforts. As Jeri mentioned as well, in 2021, we added 2 new directors, Mr. João Faria, who has significant experience in the electric vehicle market and Dr. Shihab Kuran, an expert in electrification and the smart power grid. This year, Andrew Wall joined the team as our Chief Commercial Officer, and brings with him deep experience organizing high-performing sales organizations and more than 15 years in the electric power industry. We also structured our compensation programs across the entire organization to incentivize and reward our employees for increasing our business in these markets and to hold ourselves accountable. It should be fall short of achieving these objectives. We believe these efforts put our organization in a strong position to capitalize on the shift from gasoline-based components to alternative energy components to ensure a resilient and sustainable future for us. When we manage responsibly, we often start with the governance, the G in ESG. But it's more than that. It's really demonstrating ethical behavior in every aspect of our business. When we act ethically and strive to always do the right thing, we find that the tactical efforts of managing our business and effective corporate governance comes more naturally. There's a natural consistency between what we say and what we do. When we consider good corporate governance, we recognize that it starts at the top, our Board. Over the past few years, we've assembled a diverse group of industry leaders that bring with them the highest standards and desire to support our management as we run the business. As we lead ethically managing the legal and regulatory environment becomes much more straightforward. It's much easier to ensure compliance with our regulatory and legal obligations in a company whose culture is doing business the right way. Finally, in the modern environment, data security and protecting intellectual property have become increasingly important. And these are areas where we work to maintain the best possible controls and processes. As I conclude in my comments, I hope you can see that at NN we are not approaching sustainability as a tactical checklist to accomplish or a check-the-box type of effort. This is a fundamental set of principles, our principles that lie at the core of how we do business. It's been that ways as our founding and continues today. Operating sustainably is not only good for our employees, our customers, our suppliers and our communities, it's also good for our business. Thank you.

Thank you all for joining us today. It is my privilege to speak to you about the strides we have taken to strengthen the financial health of our company and position NN for long-term profitable growth. For those not as familiar with my time at NN, I first joined the company in 2018 as Chief Accounting Officer and in 2021, was named Chief Financial Officer. During that short time, we made significant progress as it relates to our finance and accounting function. As Warren and John both mentioned, the success of NN begins with our people. And I'm very proud of the team of professionals we have assembled in our accounting and finance departments that have made that success possible. Over the past 3 years, we were able to guide our company through a review of strategic alternatives, ultimately resulting in the sale of our Life Sciences business, rightsize our balance sheet, effectively respond to a global pandemic and remediate material weaknesses over our internal controls, a tremendous set of accomplishments. We are very proud of the progress we achieved over the last several years to set ourselves up for the next phase of our growth strategy. Let's take a step back and review our financial performance in the Mobile and Power Solutions segments as well as our overall company since we began our transformation. Our historical revenue was impacted by several significant factors. Our financial condition prior to our refinancing made it difficult to win long-term business with new and existing customers. In many of our core businesses, customers begin to question your financial viability when your leverage to EBITDA exceeds 3x. And in 2018, we were at 6x leverage. Our balance sheet became an impediment to securing long-term sales contracts, which are critical among Tier 1 automotive supply arrangements. Secondly, the COVID-19 pandemic caused a significant reduction in revenues in 2020 that we have rebounded from in 2021. Finally, the semiconductor chip shortage caused a reduction in revenues in 2021 and continues to impact us in 2022. We expect our sales to fully recover once the semiconductor supply constraint is resolved. When looking at gross margin progression, we can see the impact of lower volumes on the Mobile Solutions business. However, the changes in margins in Power Solutions was more acute. Gross margins in Power Solutions remain below 2018 and 2019 levels despite the revenue recovery from pandemic lows. There are 2 significant factors contributing to those lower margins. First, the impact of costs associated with underutilized facilities, particularly those in our AD&M business. In 2018, capacity was built in anticipation of accelerated acquisition-driven growth that did not occur, resulting in expensive production facilities operating at suboptimal volumes. We acted to address this issue, which I'll discuss in greater detail in a moment. The second factor, though smaller, is still meaningful, the impact of precious metals pass-through pricing on margins. As precious metals prices rise, as we saw in 2020 and 2021, we pass those increases on to customers at a low margin, which is dilutive to the overall margin of the business. One of the most significant accomplishments of the past 3 years has been the dramatic improvement in our balance sheet. While the Life Sciences sale provided significant proceeds to reduce overall debt, we were still left with a short-term capital structure with accelerating redemption premiums on the preferred stock that was issued with an intended duration to get us through the strategic alternatives process. Immediately following the Life Sciences sale, we took action there to improve our balance sheet. And in early 2021, implemented a new capital stack that included a $150 million term loan, $65 million in preferred equity and a $50 million ABL to provide short-term liquidity. The addition of the preferred equity afforded us the ability to maintain a consistent, lower leverage ratio and alleviate potential customer concerns. The new structure provided us with a longer 4- to 5-year duration and a reduction in our overall cost of capital. Today, our capital structure provides financial and operational flexibility with long-term strategic partners that will allow us to focus on serving our customers and delivering value to our shareholders. To further strengthen our financial position, we took 2 additional steps following our refinancing. In July 2021, we entered a 3-year $60 million notional amount variable to fixed interest rate swap. With this transaction, 60% of our debt obligations, including the preferred term loan and capital leases, will be fixed over the period, a timely move given the recent increase in rates. In March 2022, we announced an amendment to our 5.5-year $150 million term loan with funds managed by Oaktree Capital Management. This proactive measure increases our maximum total leverage ratio covenants for 2022 and 2023 and provides us with flexibility to make the right long-term decisions for the business as we navigate the current challenging operating environment. I'd now like to discuss our outlook for 2022. We expect the automotive customer demand to remain under some pressure in the near term as the semiconductor chip shortage continues and the Russia, Ukrainian conflict has adversely impacted, not only European production volumes, but the supply of essential materials for overall global production. Over the last month, automotive industry experts have pulled back global production estimates by approximately 4%, with some downside estimates at a 10% overall reduction from previous forecasts. Most material inflationary costs were successfully passed through to customers. Nonmaterial inflationary costs and lost contribution from below contract volume demand have been recovered with varying degrees of success. We continue to take a proactive approach to recover or mitigate material and labor inflation and are leveraging the long-term partnerships we have with our customers to reach solutions that are equitable to both parties. These efforts, along with our first quarter results, allow us to reaffirm our fiscal '22 outlook of sales between $515 million and $540 million, adjusted EBITDA between $57 million and $63 million and free cash flow between $14 million and $20 million. Our free cash flow guidance does not include the CARES Act tax refund of approximately $10 million due to uncertainty of timing as the refund is in the IRS review process. As we continue to transform our operations, we remain focused on taking actions to reduce costs, increase efficiencies and improve overall margins. We have made significant improvements in our overall operating footprint, resulting in greater operating efficiencies and reduce costs. We will continue to evaluate our footprint and make production decisions based on what makes the most sense in terms of efficiency and our ability to consistently and reliably serve our customers. In early 2022, we announced the closure of our Taunton, Massachusetts facility, an unprofitable facility that had a $5 million negative impact on EBITDA during 2021. We have rationalized on profitable business and will consolidate the remaining profitable business in other NN facilities by the end of 2022. We expect that we will be able to sublease the facility providing a significant cost reduction. The closure of the Taunton facility was one of our more recent efforts to cut costs and optimize our facilities and is 1 of 4 facilities we have slated for closure throughout 2022. If you look at the last 5 years, we have made meaningful progress shifting production to a more global perspective by optimizing our global footprint, especially with an increased presence in low labor cost locations, we will be better positioned to meet demand as we continue to grow, while providing reliable quality and delivery to customers at better overall costs. Amid the transformative efforts and operational progress we have achieved since 2019, our dedication of rightsizing our business has extended throughout our company, including the corporate office. From 2019 to 2021, we reduced our corporate headcount from 61 to 25 and reduced the size of our corporate office from 76,000 square feet to just 19,000 square feet, resulting in significant lease cost appointments. All told, these efforts and the dedication from our team have assisted us in reducing SG&A spend on an annual basis from 14.1% of sales to 10.8% of sales during the period. Our journey towards improving our margin levels to at or above historic levels has not been as smooth as we would have liked. Even as we emerged from the pandemic, we face new challenges with supply chain disruptions, including the semiconductor chip shortage that has impacted OEM production in many of our Tier 1 customers. We will continue to work closely with our customers and suppliers to ensure that we live up to our commitments and maintain our valued relationships. In addition to supply chain challenges, we are now dealing with a new emerging challenge of inflationary pressures on labor and material costs. In our Power Solutions business, which is approximately 40% of the overall business, we can pass-through the majority of the cost increases. In Mobile Solutions, a substantial majority of our customers are now taking responsibility for 100% of all cost increases associated with material, but are still expecting us to deliver productivity to offset some of the other inflationary pressures in our business. However, the impact of pass-through of costs resulted in incremental revenue at 0 margin, which is dilutive to our overall margins. As a result, we are negotiating with customers to engage in more equitable and creative solutions to ensure that we can maintain margins over the long run, but also recognizing that in the short run, we will likely face margin dilution. In this new inflationary environment, we are also targeting new business and structuring relationships to provide added flexibility to recover increased costs faster, while also preserving margins. Now let's discuss our capital allocation strategy. Broadly speaking, our capital priorities remain unchanged. We strive to maintain a balanced approach. However, that does not necessarily mean each priority will receive equal funding because we do differentiate and prioritize how we strategically deploy capital to support our growth. Our primary focus is on organic growth given our robust pipeline and our strategic focus areas. We will continue to prioritize organic growth opportunities that we view as necessary to growing our share and our profitability within the EV and electric grid markets. We will allocate capital expenditures disproportionately to higher-growth markets to further boost our topline, while taking a more disciplined approach to new ICE-dependent business and investing only when it provides strong returns on invested capital over a shorter time horizon. We will continue to focus on operational excellence, using lean operating principles to drive productivity, as we have historically done. We also invest cash and cost reduction opportunities that have a short payback and are low risk. This will include facility optimization that can quickly reduce costs and provide a more sustainable long-term cost structure. As for inorganic growth opportunities, we will be opportunistic. We are not proactively seeking tuck-in acquisitions to provide incremental growth. However, we continue to evaluate opportunities. And should we identify an opportunity with attractive fundamentals and one that supports our strategy growing in the EV and electric grid market, we would consider it. We will be disciplined in our acquisition evaluation in terms of valuation, and any acquisition would have to fit within our existing leverage parameters. Another priority for our cash is maintaining a solid balance sheet by effectively servicing our debt and preferred as well as opportunistically reducing our debt. Our term loan requires us to make prepayments with the excess cash flow if we are above certain leverage ratios. These payments will reduce our exposure to higher interest rates on the unhedged portion of the term loan. In addition, we may consider cash dividend payments on our preferred stock, which have a rate 2% below the paid-in-kind dividends, subject to the restrictions in our credit agreement on the amount of cash dividends we allowed to make. It is important that we are deliberate in capital deployment and allocate it to areas that will most effectively support our growth strategy. We will focus our cash flow on these areas and do not intend to pay dividends to common shareholders or buy back shares in the near future. This will best position us to refinance our capital structure at an attractive cost of capital. While the refinancing we achieved in 2021 set us on a sustainable path, we realize that our current structure will need to be reassessed in 2024 or 2025. The current structure was established with a 4- to 5-year duration with a 5.5-year term loan, the preferred instrument that has a 40% liquidation premium before year 3 and increasing dividends after year 5. As a result, we will likely review refinancing options in 2024 with the objective of further lowering our cost of capital. To that end, we would look to eliminate the preferred stock component of our capital structure and refinance our term loan at more attractive rates driven by a more attractive credit risk profile resulting from our financial performance in the intervening years. As a final piece of the renewed structure, we will likely seek to maintain a low-cost ABL to provide short-term liquidity needs. A year ago, we introduced our 2025 goals of achieving $600 million in revenues and adjusted EBITDA margins of 16% to 18%. While it's only been a year since we introduced those goals, it's been an eventful one to say the least. We maintain our expectations of solid growth in both Mobile Solutions and Power Solutions based on the emerging growth trends that Andrew discussed earlier. In addition, our 2025 revenue goal now reflects pass-through pricing to recover inflationary costs. We are, therefore, now estimating 2025 revenues of $650 million. In terms of our adjusted EBITDA goal, we have reframed our target from a margin percent to a dollar target of $100 million. While this target is consistent with our prior goal, the resulting adjusted EBITDA margin may be modestly lower, given the challenge in recovering inflationary costs at essentially a breakeven level. As mentioned earlier, we are also targeting new business structure with better inflation protection in the event that the current inflationary environment persists. These efforts to improve inflation protection may be offset in the early years as we typically experience lower margins as volumes ramp with new business wins. As you can see from this chart, we expect to generate volume-based improvements in each of our segments as well as additional actions taken to rationalize facilities and improve operating costs. These efforts will be partially offset by an increase in SG&A as we add resources to support our growth initiatives. Let me conclude by sharing we are confident in our strategy and believe we are well positioned to deliver our 2025 goals. Our growth strategy that is centered on 2 markets with significant growth expected over the next 10 to 15 years will provide a sustainable platform for us to be a market leader and drive further improvements in profitability and strong returns to our shareholders. And now I'll turn it back over to Warren.

As we end our Virtual Investor Day, I would like to leave you with a few concluding ideas. First, we have made tremendous progress over the past 2.5 years, and now the initial phase of our transformation is complete. We have a stable platform from which to grow and create value. That platform includes the right capital structure, the right people to drive growth, a culture to drive margin improvement and a company stocked with technical talent and diverse manufacturing processes that are valued by our blue-chip customer base. Now our focus is on value creation, and we can do that by executing and taking advantage of the opportunities that are in front of us. We have amazing growth opportunities focused on the megatrends that will completely revolutionize the global economy. NN is one of the few companies positioned to benefit from the transition to electric vehicles as well as the transformation of the electric grid that will power them. We have strong relationships with our customers that will ensure we have a place at the table while these dramatic changes are taking place. We have the ability to become more efficient through optimizing our manufacturing processes and operational footprint. Clearly, some of this will be challenging, but I believe that we have the team and the culture to accomplish the task. As I started the day, I mentioned that NN was a compelling investment opportunity, alluding to the fact that we believe our share price is currently undervalued. On this slide, we outline a couple of factors that drive our view, along with what we believe would be the potential stock price impact of our achieving our 2025 goals and the market recognizing that achievement. First, our current valuation on the trailing EV over EBITDA basis is well below our peer group, currently standing at 6.9x adjusted EBITDA compared to the median of 11.6x for our peer group, a 41% discount. On a forward multiple basis, we see similar discount of 42% relative to the median peer group multiples for 2022. The first step in estimating the value opportunity would represent value in our common stock at the median peer multiple. If that were to happen, the stock price would potentially add another $5.55 from current levels. Step 2 would be to reflect the market impact of achieving 2025 vision of $100 million in annual EBITDA while continuing to assume a median peer group multiple. That assumption would further increase our share valuation by $11.36. This certainly highlights the value of execution against our 2025 vision, and it is truly compelling. Finally, I would point out that several members of our Board and management team have purchased stock over the last several quarters, reflecting our belief in NN's future. NN is a growing process technology company with a bright future ahead of us, but now is the time for generating results. We are all singularly focused on achieving our 2025 goals with a focus on driving top line growth, controlling costs and enhancing margins and generating free cash flow. With execution, we will create long-term value for our shareholders as the market recognizes our performance. And now we are happy to open up our second Q&A session.

Welcome back to our second Q&A session for NN's Virtual Investor Day. [Operator Instructions] Our first question is for Andrew from Steve Barger. You said NN is pursuing several significant opportunities in battery storage. What size are those? And what is your time estimate for securing contract wins?

Yes. So thanks, Steve. Indeed, we are pursuing several significant opportunities in the energy storage space. I feel like we're positioning ourselves very well for those. In terms of size, there's a range, some of which are -- in a peak year, would be more of the $3 million or $4 million or $5 million range. And then there are others that are as high as $40 million to $50 million in a peak year. Also, I'd probably note, too, that once you get that going, that we expect them to be over multiple years. So if you look at the program value, it would be a needle mover for us here at NN. I'd also say, as far as timing, it's always hard to predict. Look, we're working with customers to understand their needs and to solve their problems and to bring all of the capabilities we have together to create a solution. It's not like we are responding to an ironclad specification. In a lot of work we're doing, we are co-creating a solution with our customers through partnership. And by doing so, we're positioned well. So we like the outlook there. But also as far as timing, it's always a little bit uncertain. We do expect some to be awarded this year and into next year. What we're really committed on also is just continuing to build the pipeline so that we have lots of these types of opportunities so that we can lean into the ones that are the best fit for us, whether it be from a competency and capability perspective, but also from a margin and profitability of NN perspective, where our value can be recognized financially. So that's where we are and look forward to it and hope to be able to come back to this group and celebrate a few key wins looking towards the end of this year and into next year.

Our next question is for Warren from [ Ben Turk ]. Is there any quantifiable evidence of synergies between mobile and power? In the next 3 years, how much incremental revenue do you need to generate to validate further integrating these 2 divisions?

Yes, Ben, thanks for the question. I would tell you, yes, there's a lot of quantifiable evidence that this merging, to a certain extent, mobile and power together, has generated synergies for NN. It's helped us definitely from a cost standpoint. If you go back 2 years ago, we gained synergies through the combination of our finance teams, our human resource teams, our -- other functional groups that we have within the organization. But it's also helped us from a cultural standpoint where we felt that the Mobile Solutions group was the more mature business model that we had from an operating standpoint. And we've been exporting that model more fully into the Power Solutions group by integrating and sharing some engineering resources and some of our other continuous improvement coordinators. So a lot of positive developments there. From a sales standpoint, certainly, we've shared our 2025 vision. And a big part of that vision is how we're going to grow the company through the synergies between mobile and power, as Andrew has talked about. We've talked about the fact that our customers -- several of our customers value the multiple processes that we can bring to the table, whether it's plastic injection molding, precision turning, precision stamping, you've heard it all throughout today. But we -- it is certain that the customers that we are pursuing value the multiple process approach. And some of the industries that we're pursuing, whether it be the expansion of the electric grid or electric vehicle, will also value all these processes. So we're very confident going forward that we're going to see that benefit on the sales side as well.

Our next question is for Matt, from an individual investor. What are some examples of ways you've worked with the communities where you operate to make things better?

Great. That's a great question. Thank you for the question. Let me start off answering that with this. Our approach to engaging with the community is we will look for opportunities that align with our values and aligns also with our sustainability strategy. So a few examples. Well, first of all, today, you've heard a lot, myself, you've heard John, Andrew, Warren, the entire team, talk about how important people are to our business. Our success is geared towards our people. In fact, if you go to our website, we published our first sustainability report just recently, and our first pillar in that report are our people. So let me give an example around that, where we both engage the community and we're assisting our people. And again, you heard today, [ Obed Santos ], one of our participants in our apprenticeship program, he's a great example. We have other programs as well that are intended to, with [ Obed ] is a good example, to introduce high school students, college students and other young adults into careers, potential careers in engineering or in manufacturing that they might not otherwise be aware of. And so the programs -- and we're passionate about this, programs like STEM programs at local high schools, Career Quest. We also engage with local colleges. For example, we sponsor first robotics competition at a local college on one of our sites. That's a good example where we engage the community. We're offering a service to that community where, again, we're introducing people to potential careers, and we've seen people take those careers, both benefits us as well and our industry. So that's a good example of how we engage a community that helps the community, it helps us be a good neighbor, but it also drives a business outcome for us. We end up occasionally with employees that come to work for us. And we have a dedicated workforce. We have a good employee that's going to help or be successful for our people. So I think that probably would be the best example I can give you on community engagement. Thanks for the question.

Warren and Mike, our next question is from [ Colin Foster ]. NN has experienced short-term headwinds to performance, notably reduced vehicle volumes related to the semiconductor shortages. If headwinds persist and we see an economic downturn, does NN have access to the liquidity it needs without dilution to the shareholder?

Yes. Let me start with that before we shift to Mike on the liquidity side of it. I would tell you that certainly, over the last 2 years, this management team has dealt with a lot of issues, from COVID to semiconductor chip shortages, et cetera. So this is a team that is used to dealing with fluctuations in volume and, I would argue, in a very constructive way. So I have a strong level of confidence going forward that we're going to be able to do the same thing. A couple of cautionary things, as it relates to the recession scenario, were actually positive things from our standpoint, is that if you look at automotive inventory levels today, they're substantially below where we've been historically at 60 days. At the beginning of April, North American automotive levels were at 25 days of sales, so half of where they normally are. So any recessionary scenario would still allow potentially the OEMs to put some inventory back into place. So for us, that's a positive. Secondarily, on the electric grid side of it, certainly, some of that is being driven by construction. But another -- a substantial portion of it is being driven by our governments investing in infrastructure. And even in a recessionary scenario, at least my belief that, that investment will continue because it is necessary in order to position North America and Europe and China for this next generation of vehicles and the additional draw on electric on the grid. Mike?

Thanks, Warren. In terms of preparing for an economic downturn, I think we've been proactive on 2 fronts to prepare our company to be able to withstand an economic downturn. The first is on the cost side. As noted, we've reduced our SG&A as a percent of sales from 14.1% to 10.8% over the last 3 years. We also announced the closure of the Taunton facility, and 3 other facilities slated for closure have been determined in 2022. On the capital structure side, we've talked about the recapitalization that we did in the first quarter of last year. We've also been proactive. Last July, we put an interest rate swap in place for $60 million to convert from variable to fixed rate. We did that because of concern about the inflationary environment and raising interest rates, which that's proven to be a very good decision. We also were proactive in amending our term loan from a leverage ratio standpoint to give us more cushion on our leverage ratios for 2022 and '23. Again, that was done proactively given the uncertain economic environment to give us more flexibility to operate during that time frame. I would note that our partner, Oaktree, was -- worked with us on that amendment, and we're confident that they will continue to work with us as needs arise. Finally, we ended the first quarter with $58 million of liquidity and no amount drawn on our ABL. So we feel we have adequate liquidity at this point, given the business needs and challenges ahead.

Our next question again is to Mike from Rob Brown of Lake Street. How have you adjusted contracts to manage inflationary impact? And what percentage of the Mobile segment is still exposed to material inflation?

Thanks, Rob. Great question. We certainly have done a lot of work on this over the last 6 to 9 months. We've talked historically a lot of the customers in mobile had an 80% material pass-through. In most cases, we've managed to convert nearly all customers in mobile to 100% material pass-through as we entered 2022. So we believe we're protected on the material side. We've also had discussions with customers in terms of volume protection. And in particular, regarding new contracts, we're working to put additional protection in place, not only for material inflation, other inflationary pressures as well as stronger volume commitments from customers. And then we've also implemented, in most cases, every 6 months, discussions with our customers on price given the inflation that we've seen. So a lot of work to be done there, and we'll obviously continue to monitor that as things materialize on the inflation front.

Our next question comes from [ Tom Karatsachs ]. Mike, can you comment on annual capital expenditure levels over the next 4 to 5 years, either in dollars or as a percent of revenue?

Thanks, Tom. For this year, we're expecting capital expenditures to be in the $20 million to $22 million range. Of that, $78 million reflects maintenance capital. We expect that to be a normal level of capital investment. However, the caveat I would put on that is we do have a strong pipeline with a lot of opportunities. Some of those larger opportunities involve, at times, larger capital expenditure. So we would evaluate ways to finance that, but it could result in higher capital expenditures in a given year depending on the size of the program we're winning, particularly if it fits within our strategic focus areas.

Warren and Mike, our next question comes from Steve Barger. Given the accounting adjustments in our financials, I think investors are more focused on free cash flow than EBITDA. What do you think the sustainable free cash flow margin will be as growth returns against the rationalized cost structure?

Thanks, Steve. We're very focused on free cash flow as well, and that's something that is very critical to the success of our business. I think we've laid out our expectation for 2022 of $14 million to $20 million, with about $7 million of free cash flow. That's for transaction-related items or closing facilities. As we look at that going forward, a lot of the components of our free cash flow structure from an interest standpoint, a tax standpoint, capital standpoint are fairly fixed. So as we're able to grow the top line, we would be -- we would expect to convert that incremental EBITDA to free cash flow at 80% to 100% even with the working capital investment that we would need to make. So definitely think as we grow the top line and EBITDA, that we'll be able to get better free cash flow conversion.

That concludes our second Q&A session. Thank you again for joining us today for NN's Virtual Investor Day. If we didn't get to your question, we'll respond to you directly. If you have any additional questions, please feel free to reach out to us.