Standard Motor Products, Inc.

Everyone, and welcome to the Standard Motor Products fourth quarter 2022 earnings call webcast. To enter full screen mode, hover over the slide and click the full screen icon in the center of the viewer. To exit full screen mode, press the escape. Later, we will open the phone lines for questions and answer sessions. You may register to ask a question by pressing the star and one key on your telephone keypad at any time. You may remove yourself from the question queue by pressing star and two. If you require technical assistance during today's event, you can reference the help link at the top of your 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 Tony Crispello, Vice President of Investor Relations. Please go ahead.

Thank you, Corliss. Good morning, everyone, and thank you for joining us on Standard Motor Products' fourth quarter 2022 earnings conference call. I'm Tony Cristello, Vice President of Investor Relations, and with me today are Larry Sills, Chairman of the Board, Eric Sills, President and CEO, Jim Burke, Chief Operating Officer, and Nathan Isles, Chief Financial Officer. In conjunction with our reported financial results, we published a separate press release earlier this morning announcing the creation of a new segment, Engineered Solutions, and the renaming of our existing segments. In addition to the press release, we posted a supplementary slide presentation to the IR website providing more information on these changes. On our call today, Eric will provide an overview of our performance in the quarter, and Nathan will then discuss our financial results. Eric will then give an overview in greater detail on our newly cast segments and the underlying strategy before some concluding remarks and opening call-up for Q&A. 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.

Thank you, Tony, and good morning, and welcome to our fourth quarter earnings call. I'd like to begin, as I always do, by recognizing all of the S&P employees globally. These last few years have been a wild ride, and our people have helped us navigate it all, outperforming many of our peers and emerging a stronger company for it. So thank you, everybody. As Tony mentioned, first we'll review the business with some insights into the future, but I'm also very excited to discuss the resegmentation of our business, which I'll cover later on the call. Overall, we are pleased with our top-line performance. For the full year, we were up 5.6% over 2021, with both divisions showing gains. Our sales in the fourth quarter did fall back slightly, down a half a point, which is best explained by segments, so let's get right into that, starting with engine management. For the full year, engine management sales were up 4%, but were down a bit over 1% in the quarter. This was largely due to going up against a difficult comparison as 2021 was very strong. It was also due in part to some customer ordering patterns, which can flex slightly quarter to quarter. However, as you look at customers' POS, their sell-through throughout the quarter continued to be strong, which excluding our wire business, showed nice gains over the prior year. Not only does this demonstrate the ongoing health of the marketplace and the continued success of our programs with our customers, but also tends to be a leading indicator of future orders to us. Temperature control continued to be strong, surpassing last year's sales by 5.2% in the quarter. It's important to note that Q4 is a light quarter for this seasonal category, yet it did reflect the ongoing robust pace as we ended up nearly 10% for the full year. Included in these overall numbers is our performance in our non-aftermarket business, what we are now calling engineered solutions, which I will explain in greater detail after Nathan reviews the numbers. Our sales for the year showed strong gains over the previous year. We saw the benefit from acquisitions, though partially offsetting this, was the temporary reduction of business with a specific account as they adjusted their build schedules. We remain very excited about this new channel. It's highly complementary to our aftermarket business, and you'll be hearing a lot more about it. Moving to profit, margins have continued to present a challenge. I'll touch on it, and Nathan will delve deeper. Along with the rest of the world, all year long we experienced elevated costs across many inputs. The industry has been largely receptive to passing it through, though there is always a lag in timing. Meanwhile, as we've been discussing, the rapid increase in interest rates, which affects our customer factoring programs, is creating a significant headwind. And while we are working diligently to adjust for it, both through cost reduction and pricing initiatives, it is impacting our bottom line, as Nathan will speak to. Here again, it's important to note that 2021 was the anomaly. As we have been explaining throughout 2021, we are enjoying many non-recurring benefits of emerging from the COVID lockdowns. So as you look at our non-GAAP operating profit, at 8.2%, they were in line with pre-pandemic levels, and that is in the face of surging inflation and interest rates. So let me talk for a bit about what we've been seeing in the market and how we are thinking about the future. I'll start with our aftermarket business, which makes up about 80% of our total revenues. The basic overall backdrop continues to show favorable trends. The vehicle fleet is aging. New vehicle availability, while improving, continues to be tight and is causing motorists to repair and maintain the vehicles they have. Gas prices have normalized, and miles driven remains high. There is obviously a lot of concern about the potential of an economic downturn, but the aftermarket tends to outperform in those times as people continue to need their vehicles to go about their lives. And our categories tend to do even better as they are non-discretionary in nature. The customer's vehicle is not operating properly and the repair is required. Additionally, our go-to-market strategy continues to resonate with our customers. 2022 set a high watermark for customer awards, reflecting their recognition of the value we provide and the positive POS results suggest ongoing demand strength. So while there will always be challenges, the marketplace and our position within it are very strong. Meanwhile, our engineered solutions business has remained robust, and we are very excited about where we're headed with this strategy. After several years in the making, we have built this into a sizable global business selling into diverse end markets. We believe that we have now reached a critical mass to be a meaningful supplier to a broad array of blue-chip customers and believe that the various pieces we have put together are really opening doors. So, again, you'll hear more about this after Nathan reviews the numbers. Nathan?