Standard Motor Products, Inc.

Good day, everyone, and welcome to today's Standard Motor Products fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Also, today's call is being recorded, and I will be standing by if anyone should need any assistance. Now, at this time, I will turn things over to Mr. Tony Cristello, Vice President, Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone, and we appreciate you joining us for our Standard Motor Products fourth quarter 2023 earnings conference call. With me today are Larry Sills, Chairman Emeritus, 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 provide update on our Shawnee DC, and Nathan will discuss our financial results and our annual guidance. Eric will then provide some concluding remarks and we'll 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 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, everyone, and welcome to our fourth quarter earnings call. I'd like to open by thanking all of the S&P employees globally whose tireless commitment to S&P makes us who we are. The fourth quarter cap was a fairly challenging year for S&P. As noted in our release, we saw some different trajectories for our aftermarket business versus our engineered solutions business with nuances throughout. So let me get into it by segment, starting with vehicle control. Entering the fourth quarter roughly flat to 2022's record year, vehicle control demand softened as the fourth quarter progressed and we finished the year down 1.7%. As previously discussed, we were impacted throughout the year by two largely non-recurring events. First off, we continue to see the impact of the previously announced customer bankruptcy, and to a lesser extent, we saw less pipeline activity from some of our larger customers throughout the year. But beyond that, we saw a general softness in the market in the fourth quarter, as evidenced by our customer POS results, which declined as the quarter progressed. That said, we believe this is largely a temporary in nature, as marketplace dynamics remain strong, and we have seen a modest resurgence as 2024 gets underway. Next, I'll discuss our temperature control business. As you know, since the majority of the business is tied to air conditioning, it's subjected to more weather-related influences than the other parts of our business. Not only is it seasonal in nature, the timing of weather patterns throughout the year can impact the market. It is important context to note that 2022 was an outsized year. It got hot early and set records all summer long, beating 2021 sales by over 8%, making for a difficult comparison. 2023 behaved quite differently. We had a slow start to the selling season and were well behind on sales entering the third quarter. It finally did get hot in much of the country, and we were able to make up a fair amount of lost ground in the third quarter, yet it was too little too late, and we finished the year down 3.8%. The fourth quarter itself was very light, but we cautioned people not to read too much into it. The fourth quarter is always our lowest period by a lot, with customers making certain stocking decisions that can have big influence on a small quarter. And lastly, I would note that while it's still early, it appears that our preseason orders for 2024 are consistent with past years. So that sums up the aftermarket. Meanwhile, we're very pleased with our engineered solutions segment. Our business focused on global non-aftermarket sales into various end markets. We posted strong sales both in the quarter and for the full year, up 6.7% and 4.7% respectively, with progress being made on multiple fronts. After several years of growing this business through both acquisitions and organic product development, we chose to split it out into its own segment at the beginning of 2023. Not only has this provided better clarity to various stakeholders, we also believe it has helped demonstrate to the customers in this space that we are genuinely committed with a tailored strategy, a broad product portfolio, and dedicated resources And this is truly opening doors. We're seeing gains with existing customers as well as new ones. And while it often takes time between a business being awarded and when the sales actually begin, the pipeline is robust globally, and we're very excited about where it's headed. Turning to profitability, all year long, we have been facing stubbornly high inflation across a host of cost inputs. And furthermore, our customer factoring expenses continue to present a headwind of $14 million as compared to 2022. I'm proud of the progress we made both with cost reduction initiatives and pricing actions, allowing us to retain our gross margins on a full year basis. But the headline is that soft sales caused deleveraging of our fixed costs, which in turn hurt our bottom line. And Nathan will provide more details during his remarks. But first, let me turn it over to Jim, who will bring you up to date on our exciting new distribution center.