Standard Motor Products, Inc.

Thank you and good morning everyone and thank you for joining us on Standard Motor Products second quarter 2025 earnings conference call. With me today are Larry Sills, Chairman Emeritus, Eric Sills, Chairman and Chief Executive Officer, 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 and Nathan will then discuss our financial results. Eric will then provide some concluding remarks and open the 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 they will prove correct. You should also read our filings in the Security 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 second quarter earnings call. Overall, we were quite pleased with our results as the strong momentum from the first quarter has continued. From a top-line perspective, we posted growth of nearly 27%. Now, while the majority of this growth was from the addition of our newly acquired Nissans business, the legacy business was up 3.5%, and that is against very challenging comps as last year's second quarter was quite strong. Year-to-date, we are now up about 26%, or about 4%, excluding Nissans. We're also pleased by our profit gains. Adjusted EBITDA increased $20 million, up 190 basis points to 12%. Here too, Nissen's provided much of the lift, though other segments also contributed to the growth. Due to the strength of our first half, we have decided to increase our top line expectations to the low 20% growth range, up from our previous guide of mid-teens growth. I'll now review each business separately, starting with the North American aftermarket. This is comprised of two operating segments, vehicle control and temperature control, both of which had very strong quarters. Vehicle control sales were up nearly 7% in the quarter and are now up 5.3% year-to-date. Our customers continue to invest in our products as they expand their footprint, recognizing the critical need for in-market product availability, and their strong sell-through demonstrates the ongoing demand for our largely non-discretionary offering. Furthermore, we believe that the brand recognition we enjoy with professional technicians leads them to choose our products over others. Turning to our temperature control division, sales increased 5.5% over last year, which is impressive as last year's Q2 was up 28% over the prior year. Year-to-date, the segment is now up 12.3% over last year, and last year had been one of the hottest on record. We believe there are a few things at play here. First is the impact of the timing of preseason orders. This year they came in early, as was reflected in our strong first quarter, and often that just leads to timing differences across quarters, but we believe this year that early in stock better prepared our customers for the start of the season and they never missed a beat. Here, too, we contend that our strong market position has created momentum for our brands and our customer sell-through suggests they are doing quite well with our program. Next, I'll speak about our newest aftermarket segment, Nissans Automotive, which has been part of S&P since last November. Sales remained strong in the quarter, adding $90 million in revenue. They continue to outperform in their markets, enjoying mid- to high-single-digit growth. There are several contributing factors to this outperformance. First, as a non-discretionary and largely weather-dependent offering, they are enjoying some of the same market tailwinds as here in the U.S. Additionally, their strong brand profile and well-received go-to-market strategy has allowed them to grow market share in their existing categories and to gain traction in newly launched categories, specifically in what they call engine efficiency and what would fall within vehicle control here. Now, while Nissans is a strong company in its own right, we believe that meaningful synergies exist through integration, which is well underway. For saving synergies, we have been heavily focused on product cost. As we have significant product overlap, we are combining our sourcing efforts to identify best suppliers, leveraging our combined spend, and insourcing as appropriate. We've also now begun taking advantage of our complementary product portfolios to pursue growth opportunities. For example, this quarter we announced the introduction of over 800 new SKUs to the Nissan's North American customer base and are actively building out programs from Europe. We're really just getting started and see that opportunities abound. Lastly, I'll address our non-aftermarket segment, engineered solutions. Sales declined 8.3% in the quarter, which reflects the ongoing trend of a slowdown in certain end markets. It's worth noting that this softness began in the second half of last year, so the comps going forward will be easier. We've always known and discussed that as opposed to the aftermarket, it is prone to more cyclicality. And while we can expect some volatility period to period, We believe that the longer-term trends are favorable and we believe it provides a nice complement to our aftermarket business with valuable synergies. Turning to our operations, we are proud to announce in the quarter the official opening of our new 575,000 square foot state-of-the-art distribution center in Shawnee, Kansas. We plan to fully ramp up over the balance of the year by transferring all activities from the nearby Edwardsville facility as well as by shifting portions of our volume from our other major DCs. We will emerge with a much better balance of activities across our network with expanded capacity, redundancy for risk mitigation, and the ability to better serve our customers. It's been a heavy lift, and I thank all who were involved in this major undertaking. Lastly, let me speak to the current tariff landscape. And while it is changing by the minute, we are hopeful that we are nearing a more stabilized environment. While we are still awaiting certain trade agreements to be finalized, we believe that our diverse global footprint will continue to provide us with a competitive advantage. Over half our sales in the U.S. are from products produced in North America, which are largely tariff free. For products from other regions, we have been implementing our plans as previously described. It begins with mitigating costs by working with our upstream suppliers on cost sharing and by relocating production from China to lower tariff areas. However, much of our cost recovery comes from passing through the impact through to our customers at our cost. Again, due to our North American footprint, we believe that the amount we need to pass through is likely less than the competition. It's important to note that there is a timing delay between when costs are incurred and new pricing takes effect. Due to this, we did incur costs in Q2 associated with previously implemented tariffs with minimal offsetting pricing, but beginning in Q3, these will begin to roughly offset. We recognize that the landscape remains fluid. As it evolves, we will continue to implement our playbook, adjusting prices up or down as needed. It is worth reiterating that as most of our products are non-discretionary, and as product decisions are typically made by professional repair facilities, They are fairly price inelastic at the end consumer. When you put all these moving pieces together, we are very pleased with the quarter's financial results and with our ability to execute on our initiatives during complex times. So let me hand this over to Nathan who will provide the details.

All right. Thank you, Eric. And good morning, everyone. As we go through the numbers, I'll first give some color on the results for the quarter by segment and then look at the consolidated results for both the quarter and year so far. I'll then cover some key cash flow metrics and the balance sheet, and finish with an update on our financial outlook for the full year of 2025. First, looking at our vehicle control segment, you can see on the slide the net sales of 201.7 million in Q2 were up 6.9%, with the increase driven by steady demand for our portfolio of products. Vehicle controls adjusted EBITDA in the second quarter increased to 10.7%, up 30 basis points from last year. The increase in adjusted EBITDA was driven by better leverage of operating expenses on higher sales and lower factory expenses as a result of lower interest rates in the quarter. These items more than offset a lower gross margin rate that was pressured by the increased cost of tariffs in the quarter, the dynamics of which Eric noted earlier. Turning to temperature control, net sales in the quarter for that segment of $131.4 million were up 5.5%. The second quarter benefited from a strong start to the season, with weather being hot across most of the country, and we continue to see strong sell-through at customers. Temperature controls adjusted EBITDA increased in Q2 to 16.1% due to higher sales volumes that led to a higher gross margin rate, which more than offset pressure from tariff costs, as well as improved operating expenses as percent of sales for the quarter. Next, I'll touch on NISNs. In our second full quarter of ownership, Nissen's added 90.5 million of net sales and 16.3 million of adjusted EBITDA. The business is performing well and again exceeded our estimate of mid-teens EBITDA percent, coming in at 18% for the quarter. Nissen's continues to grow its sales across Europe and has also benefited from some favorable currency translation movements. Looking now at engineered solutions, sales in that segment in the quarter were down 8.3%, but this was expected as we noted last quarter that sales continued to be soft across most end markets. Adjusted EBITDA for engineered solutions in the quarter of 10% was down from last year. This was the result of lower sales volume, unfavorable mix, and some impact from tariff costs that lowered the gross margin rate, but we continue to point out that EBITDA continues to be healthy at 10% for this quarter, despite volume headwinds. To summarize and put it all together across the four segments for the second quarter, consolidated sales increased 26.7%, and adjusted EBITDA increased 190 basis points to 12% of net sales, and non-GAAP diluted earnings per share were up 31.6%. For the first six months, our sales have increased 25.8% now over last year and 4.1% excluding NISNs, helped by strong sales in both our North American aftermarket segments. Packing on a strong second quarter to a strong first quarter resulted in a year-to-date increase in adjusted EBITDA of 250 basis points and an increase in non-GAAP diluted earnings per share of 47.9%. Turning now to cash flows, cash used in operations for the first six months of $5.9 million was down from cash used of $10.1 million last year. While we always use cash during the first half of the year due to seasonal working capital needs, the higher earnings allow for slightly lower usage this year, and we were pleased to turn in better performance despite paying higher cash costs for tariffs. Our investing activities show capital expenditures of $19.3 million, which includes $7 million of investment related to our new distribution center. CapEx is slightly lower than last year, as capital spending related to the new DC is nearing completion. Financing activities show payments of $13.6 million of dividends, as well as borrowings for the year so far of $45.9 million, which were used mainly to fund our working capital and CapEx needs. Note we repaid $33.2 million on our revolver during the second quarter and expect further repayments during the second half of the year. Our net debt of $577.8 million at the end of the second quarter was higher than last year after we made borrowings for the NISN's acquisition. We finished Q2 with a leverage ratio of 3.2 times EBITDA, but accounting for a full 12 months of EBITDA from NISN's, leverage would have been lower. Before I finish, I want to give an update on our sales and profit expectations for the full year of 2025, particularly now that we have much better visibility into the impact of tariffs and mitigating actions. As we noted in our release this morning, our updated outlook includes higher tariff costs and offsetting impacts. We are raising our sales guidance for the full year to be an increase over last year in the low 20% range. We're also pleased to reaffirm our adjusted EBITDA margin will be in a range of 10 to 11% of net sales, even after absorbing impact of higher tariff costs and the margin compression which occurs from passing through price at our cost level. Note this updated guidance reflects the robust sales performance we've seen so far, including a full year of NISNs, and pass through a pricing to cover tariffs, and will result in higher earnings per share from higher sales. To wrap up, we are very pleased with our sales and earnings growth for the year so far. With earnings up across most segments and improvements in debt leverage as anticipated, the strong performance helped us overcome the impact of additional tariff costs on the business. While the trade situation around tariffs will undoubtedly continue to evolve, we have again proven our ability to manage through the change and grow our business. Thank you for your time, and I'll turn the call back to Eric for some final comments.