Standard Motor Products, Inc.

Please stand by. Your program is about to begin. If you need audio assistance during today's program, please press star zero. Good day, everyone, and welcome to the Standard Motor Products fourth quarter and full year 2021 earnings call. To enter full screen mode, hover over the slide and click the full screen icon in the center of your viewer. To exit the full screen mode, click the X in the upper right-hand corner of the screen. During today's webcast, you can verbally ask questions to the presenters. To ask a question today, please dial in to the number provided. Once connected, you may press star one at any time. If you require technical assistance during today's event, you can reference the help link at the top of the screen. Please note, today's call will be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Larry Sills, Chairman of Standard Motor Products. Please go ahead.

Good morning, everybody, and welcome to Standard Motor Products' fourth quarter conference call, and we thank you for attending. I am Larry Sills, Chairman of the Board. With me today Eric Sills, President and CEO, Jim Burke, Chief Operating Officer, Nathan Iles, Chief Financial Officer, and we welcome a new participant, Tony Cristello, the Vice President of Investor Relations. Tony has just recently joined our company. Many of you already know Tony. He's been in our industry for many years, both on the analyst side and the business side, and we think you will be a great addition, and Tony, we welcome you to our team. Our agenda for today, Tony will start with the forward-looking statement, then Eric will provide an overview of company performance, both for the fourth quarter and for 2021. Jim will review some key areas of operations. Nathan will do a deep dive into the numbers and provide some initial thoughts about 2022. Then, of course, we'll open for Q&A. So with that, here we go. Let's start, and I will turn it over to Tony for the forward-looking statements.

Before we begin this morning, I'd like to remind you that some of the material that we'll be discussing today may include forward-looking statements regarding our business and expected financial results. When we use words like anticipate, believe, estimate, or expect, these are generally forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they are based on information currently available to us and certain assumptions made by us, and we cannot assure you that they will prove correct. You should also read our filings with the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward-looking statements. I'll now turn the call over to Eric Sills, our CEO.

Well, thank you, Tony, and good morning, everyone, and welcome to our fourth quarter earnings call. I'd like to begin by thanking all of the S&P employees worldwide. This was a tumultuous year full of challenges, and through their skills and dedication, we were able to post the best year in our history. We set a record for sales and profits, consummated three strategic acquisitions, garnered substantial new business wins, and did so during the complexities of an ongoing pandemic, major supply chain disruption, and various other obstacles. I could not be more proud of our people. Overall, we're delighted with our quarter and our full year. From a revenue standpoint, we posted our sixth consecutive record quarter with both divisions performing extremely well. We beat last year's fourth quarter by nearly 10%, and we're up 15% for the full year as we were able to capitalize on multiple elements, which I will highlight as I review the two segments separately. On the bottom line, our full year earnings per diluted share of $4.45 also set an all-time record. Heating last year's record by 84 cents or 23%. So let me review each segment, beginning with engine management, our larger division. Engine management sales were up in the quarter by 6% and through the year by 12%. As we've been stating for the last several calls, there are multiple components to the growth. First, we are pleased to say that we had a very successful year in terms of new business wins with multiple customers. We believe that the combination of our value proposition of being a full-line, full-service supplier of professional-grade products, together with our better-than-average ability to overcome supply chain challenges, will help to further solidify our customer relationships. As evidence of this, we are proud to have been the recipient of various awards from many customers, including multiple prestigious Supplier of the Year awards. Secondly, we enjoyed the industry-wide benefit of ongoing strong demand, Thank you for joining us. Thirdly, we were aggressive in our acquisitions, and the three deals consummated this past year added over $50 million in sales in 2021, all in the specialized original equipment channel, which I will speak more about in a minute. And finally, we saw a modest bump in the fourth quarter related to pricing actions. The more of these are expected to hit in early 2022. Moving to temperature control, we experienced far and away the strongest year we have ever had, up nearly 24%. Beyond the favorable industry dynamics I just spoke of, this was the longest and hottest selling season on record. Customer sell-through began earlier than usual, as preseason orders started moving off the shelf early in the second quarter, and the momentum has continued to this day. Next, I'd like to briefly touch on our gross margins, and Jim and Nathan will delve a bit deeper. As we have stated over the last couple of quarters, we have seen some compression from historic levels, mostly within engine management, due to two factors – First has to do with the inflationary headwinds the whole industry has been experiencing. As mentioned, we have begun passing these on with price increases, and as such, we saw a rebound from our low point in the third quarter, and again, more of these pricing actions are occurring earlier this year. The second reason has to do with our ongoing strategic mix shift towards our specialized original equipment business as we expand our sales into niche OE channels. We've been pushing in this direction for a while, and the three acquisitions this year created a stepwise increase. As stated in the release, this channel represented 24% of our engine management business in the fourth quarter, up from 17% the previous year. We have previously described how this channel has a different margin profile than our aftermarket business. While it has a lower gross margin, this is entirely offset by lower SG&A, as there are substantially lesser costs associated with distribution, Sales, and Marketing, and therefore it has comparable operating margins. So let me spend a few minutes talking about the strategic thrust. While the North American aftermarket absolutely continues to be our core business, we have found that the specialized OE channel has become a very complementary adjacency. We've been focusing on it and investing in it, and have grown it to be a meaningful $300 million channel with diverse product capabilities, expansive customer lists with blue-chip accounts, and our geographic reach. We are in the process of integrating our three recent acquisitions with those that came before them, and as we look at cross-selling opportunities, we truly believe that the potential is great. It also augments our forward-looking objective of being able to continue to thrive in a post-internal combustion engine world. The majority of our sales in specialized OE are from product categories that are either powertrain neutral, meaning they exist on vehicles of all powertrains, are specific to alternative energy vehicles. And as we look at our overall business, including the aftermarket, we are making great strides in building out a product portfolio of categories that are not beholden to the internal combustion engine. And while it is strongly believed that conventional ICE vehicles are going to dominate the vehicle park for many years to come, we are judiciously pursuing a path that prepares us for the future. At this point, I'll hand it over to Jim to review our operations.

Thank you, Eric. I will provide a brief operational update addressing supply chain challenges, our inventory investment to minimize these challenges, and the continued inflationary environment we are facing. On the supply chain front, we continue to face many of the same challenges I have discussed in prior quarterly calls. These include semiconductor chip availability, many different commodity shortages such as plastic resins, silicone, copper, aluminum, and steel. To combat these challenges, we increased inventory levels to minimize the obvious disruptions from out-of-stock raw materials and components. In many cases, lead times for these materials have been pushed out to 360 days or longer. What is more difficult is to assess your suppliers' effectiveness for on-time deliveries. Our purchasing teams work very closely with our suppliers to understand their sourcing and planning strategies to ensure that they can meet our demands. With over 60,000 finished goods SKUs and hundreds of thousands of components, the planning, procuring, producing, and delivering these products is a monumental task. But it is also a real differentiator for suppliers who get it right from weaker suppliers or attempting to source finished goods directly from overseas. SMP's North American footprint with manufacturing in the U.S., Mexico, and Canada offers us real advantages. Product availability, along with a host of other value-added services we provide, makes SMP the premier supplier for engine management and temperature control products in our industry. I also called out inventory investment in my opening comments. Our inventory increased roughly 123 million this past year. Approximately 23 million of this increase was from three acquisitions we consummated in 2021. Another 20 million or so was to replenish inventory levels that were depleted in 2020 due to our very strong demand in the second half of the year. The balance of the increase was strategic. First, we wanted to increase inventory levels to minimize supply chain disruptions in our manufacturing processes. This effort allowed us to maintain higher fill rates to service our customers. However, more importantly, at the beginning of 2021, we strategically made a decision to build incremental inventory levels to be in a better position to win new business. This strategy proved very successful as we achieved many new business wins and put us in a better position to service the strong growth we experienced in 2021. In addition, our customers recognized our efforts, and we won many supplier awards, including 2021 Vendor of the Year. Winning these customer awards and new business wins does not come from inventory investment alone. Our dedicated employees with a combination of hard work and creative ideas brings this all together. I wish to recognize all their efforts and thank them. The remaining item I was going to touch on was the inflationary environment we are all facing. S&P is not immune to these price increases for materials, commodities, labor, and transportation. Wherever possible, our creative teams are resourcing and finding substitute materials to combat these inflationary pressures. Our purchasing efforts, in-house make-first-buy efforts, and continuous improvement cost reduction programs puts us in a better position to remain competitive and drive incremental margins. In closing, 2021 was a very successful year, and it's our dedicated team members that makes it happen. Thank you for your attention. I will now turn the call over to Nathan for his financial commentary. All right. Thank you, Jim.

As Eric noted earlier, we had an outstanding year in which we achieved record sales in each of our divisions in 2021, along with record amounts in gross margin and operating profits. As we go through the numbers, I'll first give some color on sales and margins for each division, then look at the consolidated results, cover some key balance sheet and cash flow metrics, and finally provide a high-level financial outlook for 2022. First, looking at engine management, you can see on this slide that net sales there in Q4 were $245.6 million, up $13.7 million versus the same quarter last year. The increase in the quarter was due to additional sales from businesses acquired during 2021, which totaled $24.3 million in the quarter. Excluding the sales from acquisitions, sales for engine management were down $10.6 million, which mainly reflects a decline from the abnormally high sales levels we experienced in Q4 2020 as the economy rebounded from pandemic lockdowns. For the full year, sales and engine were up 102.3 million and included sales from acquisitions of 54.3 million. Excluding sales from acquired businesses, sales for engine management were up 48 million and reflect the impact of successful customer initiatives, new business wins, and generally robust market demand, which altogether combine to significantly overcome the impact of the loss of a major customer at the beginning of the year. Our fourth quarter gross margin rate for engine management was 27.6%, Down 5.4 points from Q4 last year, with the decline in margin rate during the quarter reflecting three things. One, more normal production volume and therefore lower absorption versus Q4 last year when sales and production both surged. Two, the impact of cost inflation across a variety of inputs. And three, a change in sales mix between the aftermarket and specialized OE channels. For the full year, engine management gross margin dollars finished up $15.4 million on higher sales volume The gross margin rate ended the year at 28.5%, down 1.6 points, as lower margins in the second half of the year offset the higher performance from the first half, which had benefited from a number of things, including a rebuild of our inventories, carryover of favorable manufacturing variances from 2020, and a much lower inflationary environment. While our margin for engine did finish lower, it was within the previously communicated range and right in line with historical levels despite the headwinds faced during the year. Further, when looking at how we finished the year in the engine segment, note that our margin increased 60 basis points from the third quarter as we began to see some of the favorable impact of passing higher prices on to our customers. Turning to temperature control, net sales there in Q4 2021 were up $12.7 million, or 26.6%, and for the full year were up $66.5 million, or 23.6%, with the increases mainly reflecting a very hot summer selling season, and continued high POS numbers at the customer level through the end of the year. Our gross margin rate for temperature control in the quarter was 27.6%, a decrease of 2.4 points from 30% last year. For the full year, it was up 0.6 points to 27.3%. The decrease in margin during the quarter was for reasons similar to what I noted for engine, mainly that Q4 of this year saw more milk production volume, therefore lower absorption versus last year. and two, we saw increased inflation in the cost of materials, labor and freight. Higher margin for the year in temp control was due to the significant increases in sales and leverage of our fixed cost, which overcame the inflationary headwinds faced in the second half of the year. Turning now to our consolidated results, our consolidated net sales reflected the growth we saw in each division, with Q4 2021 finishing up 9.6% versus last year and the full year finishing up 15.1% at $1.3 billion. Given the growth in our consolidated sales, we did report higher gross margin dollars that saw lower margin rates for the quarter and year for the reasons described in each division. Looking at SG&A expenses, while our consolidated SG&A expenses increased by $3.2 million in the quarter and $21.5 million for the full year, we saw our expenses as a percentage of sales declined for both periods. Our expenses in the fourth quarter ended down 0.9 points at 20.7% of sales versus 21.6% in Q4 last year, and for the full year also ended 0.9 points lower, finishing at 19% of net sales. The increases in expense dollars for both the quarter and year resulted mainly from higher selling and distribution costs due to both higher sales levels and inflation in our costs, as well as some additional costs from acquired businesses. As a percentage of sales, SG&A declined in the quarter and year, which reflects improved leverage on higher sales volumes helped by our acquisitions in the specialized OE category, which come with lower overall operating costs. Looking at the bottom line, our consolidated operating income, as shown here on the slide, was 7.9% of net sales versus Q4 2020, down 3.8 points from Q4 2020, before the full year was 10.1% of net sales, up 0.2 points from last year. As for diluted earnings per share, you can see our performance resulted in fourth quarter 2021 earnings of $0.90 per share versus $1.08 last year, and for the full year, diluted earnings per share of $4.45 versus $3.61 last year. The decrease in our operating profit and earnings per share for the quarter was mainly due to lower gross margin percent, partly offset by improved SG&A expense leverage. But as we noted before, Q4 2020 margins were abnormally high as sales and production surged coming out of pandemic lockdowns. And while profit as a percentage of sales and earnings per share declined in the quarter, they remained better than a more normalized fourth quarter of 19, which was not impacted by inflationary headwinds. As for the full year, the increase in operating profit and earnings per share was mainly due to higher sales volumes and improved SG&A expense leverage. Additionally, as you can see on the page, our higher sales and improved expense leverage also led to an increase of $22.7 million in adjusted EBITDA for the full year, ending at $161.8 million and a very strong 12.5% of sales. Turning now to the balance sheet, and many more. When inventories were at historically low levels after being depleted from the sales surge we saw in the second half of 2020. In addition, and as Jim noted, we continue to strategically invest in inventory to make sure our customers remain highly satisfied with their performance and to buffer against supply chain volatility. Turning to cash flows, our cash flow statement reflects cash generated from operations for the year of 2021 of $85.6 million as compared to $96. We used $25.9 million of cash for capital expenditures during the year, up from $17.8 million last year, as we continually find investment opportunities to expand our capabilities and become more efficient in our processes. We also used $125.4 million to fund our acquisitions of the aforementioned Trombetta, Stabile, and Soot Sensor businesses. Our financing activities included $22.2 million of dividends paid and another $26.9 million paid for repurchases of our common stocks. Our financing activities also included $118.3 million of borrowings on our revolving credit facilities, which were used mainly to fund our acquisitions. While borrowings were higher this year, we finished the year with total debt of less than one times EBITDA, even after making record levels of investments and shareholder returns. Finally, I want to talk about our sales and profit expectations for 2022. First, let me note that it's very difficult to forecast what will happen in this current environment where inflation is higher than normal and demand for our parts has significantly outpaced historical trends over the last year. As we've noted, our sales grew 15% in 2021, helped by acquisitions and business wins, but also meaningfully impacted by various strong market conditions, which included consumers spending more heavily on car maintenance as the supply of new cars was constrained, as well as a very hot summer which drove our temp control sales higher. As we don't know if these conditions will continue, we'll look for things to normalize in 2022 and expect full-year sales growth in the low to mid-single digits. Looking at margins and profits, we expect consolidated gross margins will be in the range of 28% to 29% as we see the impact of a mixed shift to higher sales in the specialized OE channel, but also the benefits of pricing that offset cost inflation and a hit in the second half of 2021. While our gross margin rate will be slightly lower than the recent past, Our operating profit is expected to remain in the range of 9 to 10% as we see continued leverage of SG&A expenses in the specialized OE channel and our business as a whole. In short, while we expect the margin profile of the overall business to change slightly, our bottom line results will remain right in line with profit percentage levels achieved over the last several years. Looking specifically at the quarterly cadence across 2022, please remember that in normal years, our sales and profits are earned unevenly throughout the year. Seasonality in the temp control business, and to a lesser extent in engine, means sales and profits are generally higher in Q2 and Q3, while Q1 and Q4 are lower. And while we see seasonality in sales, we incur SG&A costs more evenly throughout the year at a rate of about $64 to $68 million each quarter, leading to variability in profits across the year. As we expect sales demand to normalize this year, we expect our results will return to a more customary seasonal pattern. We would also point out that as results return to this more normal pattern, we're up against a difficult comparison in Q1 2022, as our first quarter of 2021 was favorably impacted by unusually strong sales and production and a low inflation environment. And this year in Q1, we'll be busy continuing to push price increases through to offset inflation. As I wrap up my remarks, I would like to reiterate how very pleased we are with our 2021 performance. Our record earnings led to strong cash flow generation, which supported three growth rate acquisitions, and significantly continue to return to shareholders, all maintaining a strong balance sheet and a low amount of debt. Like my colleagues here, I'd like to thank all of our dedicated employees for their continued effort in helping the company achieve these outstanding results. Thank you all for your attention. I'll call back to Eric to wrap up.

Well, thank you, Nathan. And before opening it up for questions, let me just close by again stating that we're delighted with our quarter and the year and are very proud of how our people performed. The list of our accomplishments in 2021 is in many ways unmatched in our history. Record sales and profits, strong organic growth, aggressive M&A, expansion into new markets, preparation for changing vehicle technologies, and major progress in our ESG and DEI initiatives. The market remained strong and our people remained energized. And while there are surely challenges ahead, needless to say, we are going up against very robust comps. We remain quite confident in our ability, and we are excited about the future. And with that, I will turn it over to the moderator, and we will open it up for questions.

To ask a question today, you will need to dial in using the provided telephone number. To ask a question over the phone, please press star, then 1 on your touch-tone phone. You may remove your question by pressing the pound key. Again, press star 1 to ask a question over the phone. We'll take our first question from Scott Stember with CL King. Your line is now open.

Good morning, guys, and congrats on a strong quarter and a very strong year.

Thank you, Scott.

Thank you. For 2022, the low- to mid-single-digit sales guidance that you put out there, could you just talk about some of the puts and takes in there? I know there's going to be some incremental acquisitions, but what are you looking for for engine management on an organic basis, and what's in there for temperature control?

Thank you for the question, Scott. And you're right, there are a lot of puts and takes, and there's also a lot of uncertainty in there. which is why we believe it's prudent to put forward a fairly conservative set of expectations which are really based on more of a return to the normal organic growth that the industry has historically had out there and as you're well aware, as is everybody else on the call, the past couple years have been pretty unprecedented in some of the dynamics that have unfolded but in the long run we believe that that the basic addressable market out there is largely unchanged and therefore at some point it's going to return to normal and that's why we put it out there. And you're right, we do have some elements of getting full year of some of the acquisitions but also potentially there was some pull forward of a future demand that we experienced last year and so on. So that's where we come out and as, again, you're well aware on the temperature control side, So much depends on the summer, and we're going up against just an unheard of 2021 in terms of the volumes that we saw. And so we'll see what happens as we emerge from the winter, but it's just so difficult to predict, and we're going up against such a difficult comparison.

Got it. In regards to the margins, the 20% to 29% expectation for 2022, Looks like it's going to essentially be in line with what you did this last year. Is it fair to assume to look at by segment for engine management and temperature control and assume things were made relatively static, or is there any other deviation between the two segments that we should be aware of?

Hey, Scott, it's Nathan. No other significant deviation. I think you're right that the margins for the divisions will remain in line with kind of where they've been. Temp control, we continue to say 27% plus, and engine really 28% plus as we integrate these specialized OE businesses.

Got it. And then the last question before I jump back in the queue, could you talk about some of the Now that the specialty OE business is fully, I guess the integration is fully underway, talk about some of the early cross-selling opportunities that you're seeing or just synergies that we can look forward to.

Sure, and it is early days. We're far from complete with the integration. We're really in many ways just beginning to see how we can combine these entities and find the cross-selling opportunities that But what we have seen is that really these were smaller businesses with narrow product portfolios, specific geographies, specific customer lists, and you put them all under our umbrella, you start to see the opportunities of where one entity's customers can become a customer of a different entity's products. And so I'll just give you one example. We had recently, I won't give the specific customer, but one of the acquired companies came with a substantial blue chip account in the construction agricultural arena that we had really heretofore had done no business with. And now all of a sudden we're selling them air conditioning and gas. The previous company didn't have access to air conditioning, obviously, and we didn't know who to talk to at the company. So you start putting these things together, and I think that the opportunities are going to really begin presenting themselves.

Got it. That's great. Thanks a lot. Bye.

Thank you, Scott. We can take our next question from Brett Jordan with Jeffrey. Your line is open.

Hey, good morning, guys.

Good morning, Brett.

Could you talk about, I guess, inventory levels at retail, particularly for temperature control going into what it might be early spring?

Sure. And so as we look at – and we mostly have visibility into the larger players, but I think that they tend to represent the market reasonably well. And as we look at how they ended 2021 versus inventory position at the end of 2020 – We're pleased to see that it's roughly the same, which shows that their purchases roughly equaled their sell-through and that they're entering this year neither overstocked nor understocked, and so it kind of sets this year off from a good starting point. I'll also say that similarly on engine management, we see that that sell-in and sell-through roughly matched in the inventory positions there are, I think, where our customers would like them to be.

Okay. And then on engine management, I think a former customer of yours was noting they were fairly out of, somewhat out of stock in the category. And could you talk about maybe what that's doing to your share, your market share in the engine management category? Is it driving any meaningful shift to your customers in the category?

Let me just speak in general to some of the activities and actions that and many more. have proven to be very successful joint programs with our suppliers. So at the end of the day, the hope is that we are triggering sustainable behavior change at the street level and that that market share gain will be durable. That certainly is what is believed by our trading partners, and so we're just really pleased with our activities along those lines.

Okay, and then one final question. I guess as it relates to near-shore markets, Sourcing, given the fact that you're a bit more North America or Eastern Europe versus a lot of Chinese exposure. Are you seeing any trend that customers might be migrating towards you over the next year or two, given the challenges with the Chinese supply chains? Or is this sort of viewed as such a one-off event that people aren't going to change the long-term behavior?

I think that's a great question, Brett. And what we believe is that our footprint, which has been also kind of demonstrated its benefits through our performance over the last couple years, does have some of our customers taking a hard look at who their future suppliers are, who their partners will be, and who's going to take care of them into the long run. And so we believe that that's a very sticky value proposition. I would also say that we believe that that has assisted us in gaining new business, because if you think about it, it's not just the recent Thank you. Thank you, sir.

Once again, if you would like to ask a question, please press star 1 on your touchtone phone. We'll take our next question from Robert Smith with the Center for Performance Investing. Your line is open.

Thank you. Good morning, and congratulations on a strong year. Thanks for the dividend increase. It's always welcome. Thank you for taking my question. So just in the specialty OE, when you look at your long-term planning function, say five years out, what kind of long-term targets do you have for specialty OE as a part of the business?

Good morning, Robert, and thank you for the question. As we look forward with this business, what we really see is that growth potential is substantial, partly because we're starting from such a low base. with such low market share, but also because it's a highly fragmented market. It's a global market. And you have all the subsegments that we've been speaking of, whether it's lawn and garden versus medium and heavy duty versus power sports and construction and so on, that that really in many ways the opportunities are near endless. That said, and so therefore we're putting significant resources to pursuing it, taking advantage of the pieces that we've already put in place, but also identifying what we need to continue to pursue it aggressively. That said, we are also very much focused on continuing to grow our core aftermarket business And so we really see this as just another leg of the stool. We plan to grow in both, invest in them both, and stay very focused on how they complement each other.

But you have no particular target points? I mean, you have a five-year plan probably internal, so where you see OE as a percentage of the business?

We do not have specific stated targets or ratios of this business versus our aftermarket business. We are opportunistic in nature. We're going to pursue the opportunities that make sense where we have competitive advantage, competencies, opportunities for profitable business gains. What I would also point out is that the – The life cycle or the front end of acquiring new business within this tends to take longer because you're starting from oftentimes before the vehicle is even in production. And so it could be a couple years between getting awarded business and starting to see the fruits in the P&L. So it operates differently now. It behaves a little bit differently, but we're just seeing so many opportunities present themselves, negotiations underway, and we'll just take it from there.

So with so many opportunities, would you say that the cadence might actually increase if you try and look at several acquisitions a year?

Jim can speak to our acquisition strategy, but again, we're opportunistic. We're going to do the ones that make sense.

Right, Jim? Right. And, Robert, I would just say, you know, we're very pleased with our 2021 acquisitions. We're focused on integrating them and amalgamating them into our business. But at the same time, we also have a full team that is analyzing future opportunities that's there. So it's a dual effort that we follow.

Thanks. Just moving on to incremental costs. How do you approach this as attempts to recapture the inflationary cost components?

As we've been stating, inflation was obviously heavy in the second half of last year, and while there's always a bit of a timing offset in being able to pass those on to the customers, we also believe that Our current environment, as opposed to perhaps several years ago, is one in which there is more of an acceptance at the street level to be able to pass on these costs because everybody is just so well aware of them and having similar experiences. I would also always point out that our products, the vast majority of what we sell, are non-discretionary in nature. And so if a car is not operating, it's not a discretionary purchase where they start to say, well, maybe I'll forgo it because the price has gotten too high. That's not to say we have endless pricing opportunities. Of course, it's a very competitive environment, but it's a little bit less price sensitive than a discretionary type of a product category.

Are you looking to recapture fully the –

We're certainly working towards that, and again, it's very difficult to predict what future inflation may look like, but we are staying on top of it and are always in discussions with our customers on how to mutually manage it.

And just finally, your dividend payout ratio, do you have any comments? Do you have a target ratio?

Hi, Robert. It's Nathan. We don't have any particular stated targets. I think we've talked for around roughly 30% level, and we expect to continue to target that at this point.

Might I suggest that you perhaps look at a philosophy or approach to this that you would increase the dividend annually? Maybe bumping it a penny a quarter, four cents a year, and get on track to be a company that increases its dividend annual. It might be an interesting way to look at it and gain greater recognition for the company in the marketplace.

We'll certainly take that under advisement, and we always discuss this with our board. But if you look at our track record over the last 15 or so years, really coming out of the Thank you, Robert.

And once again, if you would like to ask a question, please press star 1 on your touch-tone phone. We'll pause a moment for questions to queue. And it appears we have no further questions at this time.

Okay. Thank you, everyone, for participating in our call today. Contact info is in our press release, and look forward to answering any further questions you may have. Have a great day. Thanks. Thank you, everyone.

Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time.