Standard Motor Products, Inc.

Good day, everyone, and welcome to the Standard Motor Products second quarter 2023 earnings call and 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 escape. After the presentation, we will open the floor for questions. You may register to ask a question over the phone by dialing star and one on your touchtone keypad. 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 Cristello, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone, and thank you for joining us on Standard Motor Products' second quarter 2023 earnings conference call. I'm Tony Cristello, Vice President of Investor Relations, and with me today are Larry Sills, Eric Sills, President and CEO, Jim Burke, Chief Operating Officer, and Nathan Isles, Chief Financial Officer. On our call today, Eric will give an overview of our performance in the quarter, Jim will comment on our new distribution and supply chain efforts, and Nathan will then discuss our financial results with an update on our annual guidance. Eric will provide some concluding remarks and open up the call 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.

Well, thank you, Tony, and good morning, everyone, and welcome to our second quarter earnings call. Overall, our revenues were down slightly in the quarter while we remain essentially flat year-to-date. Importantly, there were certain short-term factors influencing sales softness in the quarter, which we believe will be overcome in time. First, the quarter was unseasonably cool and wet, especially as compared to 2022, and this had an adverse effect on our air conditioning business. And second, one of our largest aftermarket customers declared bankruptcy in January, and we essentially sold them nothing throughout the entire first half. This business has now been sold at auction to other existing accounts, and we expect a rebound as they replenish their depleted shelves. I'll address these issues further in discussing the impacted segments. So let me review each division separately as each has slightly different dynamics. To remind you, we entered the year realigning our reporting segments, carving out our non-aftermarket business into its own segment called Engineered Solutions, leaving the other two solely reflective of the aftermarket. I'll first speak to the aftermarket, starting with Vehicle Controls, which as a reminder was previously called engine management. We renamed it vehicle control entering this year to better reflect the breadth of categories within the offering, especially as it relates to powertrain neutral products. Vehicle control was down 1.1% in the quarter, though remains up 1.5% year-to-date. As noted in our release, the sales drop related to the customer bankruptcy was 2.2%, and so excluding that, we would have been up, and thankfully this is now in our rearview mirror. Furthermore, we're seeing an overall favorability in our large customer sell-through, and we believe this reflects ongoing health in the marketplace. Turning to temperature control, sales were down 8.1% in the quarter, bringing first-half results 5.2% lower than 2022. As you're well aware, this is a highly weather-dependent seasonal business. 2022 is an exceptionally strong early season, and the second quarter was up 6.4% over 2021, making for difficult comparisons. By contrast, 2023 saw an unseasonably cool and wet start to the season. That said, weather trends changed dramatically entering July, which has now been declared the hottest single month on record, with customer POS up double digits over last year, and the heat continues. Next, I'll speak to our engineered solution segment, our non-aftermarket business focused on selling to manufacturers of vehicles and equipment across various end markets globally. Sales and engineered solutions were up 6.2% in the quarter, reflecting a combination of generally strong demands from key accounts, the impact of a smaller acquisition late last year, and the benefit of new business wins. We're very pleased with how this business is going. After several years working towards achieving critical mass, we believe we are now well positioned to take advantage of the combined strengths of the different pieces that we have assembled and and are now achieving the cross-selling opportunities we have anticipated. Turning to profitability, there are a lot of moving pieces, and Nathan will get into the details in a few minutes. But from a high level, we are pleased to have been able to retain our margins, though the sales shortfall in temperature control drops to the bottom line in terms of earnings. Inflation persists, with costs remaining elevated across materials, labor, rent, and so on. and we are now dealing with a relatively new issue of the weakening U.S. dollar in countries where we have manufacturing, most notably Mexico. And the single biggest cost increase continues to come from interest rates, impacting both our customer factoring programs and our borrowings. But through a combination of initiatives, we have largely been able to cover these cost increases, and I'm very proud of all of our people's efforts in this regard. So with that, let me turn it over to Jim Burke, who will bring you up to speed on what's going on in our operations.