Standard Motor Products, Inc.

everyone and welcome to the Standard Motor Products fourth quarter 2025 earnings 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 the star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing the star 2 or 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 Christello, Vice President of Investor Relations. Please go ahead.

Thank you, Chloe, and good morning, everyone, and thank you for joining us on Standard Motor Products' fourth 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 that they will prove correct. You should also read our filings with the Security and Exchange Commission for 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. Excuse me, and good morning, everyone. Welcome to our fourth quarter earnings call. Overall, we are quite pleased with our results.

Excuse me.

The strong performance we have been experiencing continued into the fourth quarter, putting a cap on a solid year and with good momentum heading into 2026. Our top line grew by over 12% in the quarter and over 22% for the year, and while much of this was from our NISN's acquisition consummated in late 2024, excluding NISN's, we are up about 4% for both the quarter and the year. The strong sales performance when combined with various internal initiatives generated favorable bottom line numbers, both in terms of earnings growth and EBITDA margin expansion. All of our segments performed well. Let me go through them, starting with the North American Aftab. Vehicle control sales were up 3.3% against a very strong quarter the previous year, with several contributing factors. First, our products are nondiscretionary and largely DIFM, and so, in general, the categories outperform in uncertain economic times. On top of that, we believe our customers are successful with our well-regarded brands, and this is evidenced by their strong sell-through as their POS was up in mid-single digits throughout the year. As you look at the subcategories, you will note that the wire sets subcategory saw a 27% drop-off in the quarter, bringing the entire segment down 2%. Representing less than 10% of vehicle control, wire sets are a category in secular decline. As such, certain customers chose to reset their shelves in the second half, right-sizing their inventories for this mature category. It's important to note that their wire set POS for this period was only down in the mid-single digits, which is more reflective of ongoing demand. Lastly, our sales in the segment benefited in the back half of the year as we began to pass through our tariffs at cost. Turning to temperature control, Robust sales continued, up nearly 6% over a very difficult comp, though the fourth quarter is the smallest in this heat-related business. In a seasonal category like this, the cadence across quarters can vary year to year, so the key measure is full-year sales, and for the full year, the segment was up more than 12%. So what's driving this? As we described on last call, the air conditioning season seems to be elongating, starting earlier and ending later. Customers are recognizing this and getting their inventory in place ahead of the season to be able to take advantage of early demand. And we also believe a key driver is the success of our AC kit program. An air conditioning repair done right consists of the replacement of several system components. Over the last several years, we have seen increased adoption of our kits where we have all you need to do the repair included in a prepacked kit. Not only does this increase the ticket, as more of the related parts get included. Technicians love its simplicity, and it tends to end with a happier end customer as the repairs are more successful. And then lastly, here, too, we saw a modest lift due to tariff pricing. Next, I'll speak about our newest segment, Nissan's Automotive, which has been a part of SMP since November of 2024. We have now completed our first full calendar year of ownership, and we are delighted with its performance. both in and of itself and as a complement to our other businesses and the synergies it creates. Sales remain strong, contributing $64 million in the quarter and $305 million in the year, posting full-year mid-single-digit increases from 2024 in local currency. While there are reports from others with business in Europe of a general softening of the market, Nissin's continues to excel. We attribute this to three primary dynamics. First, we participate in many of the same non-discretionary categories as in the U.S., which tend to remain stable in difficult economic times. Second, we enjoy strong sales in Eastern and Southern Europe, which have been outperforming other parts of the continent. But most importantly, we are gaining share through a combination of new category placements, increased share of wallet with existing customers, and enhanced pull-through by the workshops who seek the highly respected Missing's brand. We are also deeply engaged in SQL synergies. Our preliminary focus was on savings, seeking best cost on sourced products, insourcing as appropriate, leveraging our increased purchasing power on freight and logistics, and so on. We are also focused on cross-selling, adding coverage in new categories on both sides of the ocean. And while these initiatives can take time to show in the numbers, they represent exciting opportunities. Lastly, I'll speak to our non-aftermarket segment, engineered solutions. As we have discussed, this business will be subject to more volatility than the aftermarket, as it will rise and fall with demand for new vehicles and equipment across our different end markets. Halfway through 2024, business started to drop off, leading to several consecutive quarters of sluggish demand. Happily, this trend reversed mid-2025, and we have experienced sequential improvement. Duke 4 was up about 6% over the previous year, and although the full year was down slightly, the momentum is failing. And while we can expect the segment to be more cyclical than the aftermarket, we see it as a strong complement to our core business. It operates out of the same plants producing the same product types. It enhances our quality capabilities and access to new technologies. It provides an OE pedigree to leverage in the aftermarket, and it provides a healthy contribution to our bottom line. Finally, let me speak briefly about the current tariff landscape and its impact on our business. Over the past several months, we have entered a more stable environment. In the fourth quarter, our tariff-related costs were essentially offset by pricing. Obviously, there have been recent announcements both by the Supreme Court and the White House that will have an impact. We're digesting the rules as certain tariffs are eliminated and new ones take effect. but we have developed processes and methodologies with our customers that allow for this flexing, and we plan to continue to operate from a successful playbook. Further, we believe that our diverse global footprint will continue to provide us with a competitive advantage. The new rules allow continued exemption for USMCA-compliant goods, which is a significant part of our offer. It's worth reiterating that as most of our products are non-discretionary and as product decisions are typically made by professional repair facilities, they are relatively priced inelastic at the end consumer as our sell-through confirms. So, 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. 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. I'll then cover some key cash flow metrics and finish with an update on our financial outlook for the full year of 2026. First, looking at our vehicle control segment, you can see on this slide that net sales of $193.7 million in Q4 were up 3.3%, while being up against a difficult comparison from a year ago when the segment grew 4.9%. While we continue to see a decline in sales of wire, as Eric noted, we were pleased to see the engine and electrical and safety categories grow a combined 6.3% versus Q4 last year. Vehicle controls adjusted EBITDA in the fourth quarter was even with last year 11.1%. Adjusted EBITDA margin was flat as higher sales volume was offset by some gross margin rate compression from passing through tariffs at cost, as well as some higher distribution expenses as we transition into our new warehouse. Turning to temperature control, net sales in the quarter for that segment of $61.5 million were up 5.9% for the reasons Eric said. Temperature controls adjusted EBITDA increased in Q4 to 13% due to higher sales volumes that led to a higher gross margin rate, as well as improved operating expenses as a percent of sales for the quarter. While adjusted EBITDA was very good in the fourth quarter, it's a low point in the year for sales volume, and so would also highlight full-year adjusted EBITDA came in at 15.7% for this segment. Next, let me touch on NISNs. This fourth quarter was the first time we have year-over-year results as we acquired the business on November 1st, 2024. NISN sales grew by 28.4 million, or 79%, mostly reflecting an additional month of business in 2025 versus 2024, but also continued strength in the segment. Adjusted EBITDA for NISNs increased to 10.1% of net sales in Q4, again, partly reflecting an additional month of results in 2025. Keep in mind the Nissan's business is seasonal given their offering of temp control products. And so, the fourth quarter profit is generally lower than other quarters, and the full year adjusted EBITDA margin of 15.9% was in line with expectations. As this was our first full year of ownership of Nissans, this was the first year we needed to assess the internal control environment of this formerly private business according to Sarbanes-Oxley requirements. As noted in our 10-K file earlier today, we disclosed that we identified a material weakness in internal controls over financial reporting at our NISN segment related to its general information technology controls. As we're expeditiously taking action to remediate controls by both adding a technical solution and enhancing other compensating controls, it's very important to note this weakness did not result in errors in our financial statements as we do a thorough review of all our numbers and receive a clean opinion from KPMG. Turning to engineered solutions, sales in that segment in the quarter were up 6.3%, and we were pleased to see growth return to the segment as we lap market softness that began in the second half of last year. Adjusted EBITDA for engineered solutions in the quarter of 9.6% was up from last year as higher sales led to better gross margin and operating expense leverage. While we did incur some one-time costs related to winding down certain customer programs in the quarter, and these were adjusted for non-GAAP reporting, we were pleased to see both the top and bottom line increase in the segment. To wrap up our results discussion and put it all together across the four segments for Q4, let me just say we had a great quarter and year. Consolidated sales increased 12.2% and adjusted EBITDA increased to 9.7% of net sales in the quarter. Further, non-GAAP diluted earnings per share were up 19.1% as a result of higher sales and strength of operating performance. For the full year of 2025, our sales increased 22.4% over last year and 4% excluding NISNs. helped by strong sales in both our North American aftermarket segments. Our adjusted EBITDA was up 160 basis points, and our non-GAAP diluted earnings per share increased 26.8%. We were pleased to see our top line come in right in line with prior expectations, while our bottom line came in above the range previously provided. Turning now to cash flows, cash generated from operations for the full year of $57.4 million was down $19.3 million from last year. Our cash flow is lower in 2025, mainly due to an increase in inventory during Q4, as our business continues to grow and we've prepared for the upcoming selling season. Note that part of the increase in inventory is also due to higher tariff costs incurred during the year. Our investing activities show capital expenditures of $38.7 million, which includes $10.4 million of investment related to our new distribution center. CapEx is slightly lower than last year, as capital spending related to the DC is nearing completion. Financing activities show payments of $27.3 million of dividends, as well as $27.7 million in borrowings on our credit agreement. Note that we repaid $51.4 million on our credit agreement from Q2 through Q4, and with that, our net debt stood at $546.7 million. We finished the quarter with a leverage ratio of 2.7 times EBITDA and believe we are on track to get to our target of two times by the end of 2026. Before I finish, I want to give an update on our sales and profit expectations for the full year of 2026. Before I do, let me note that our 2026 outlook does not take into account recent changes in U.S. tariffs on imported goods. We follow changes closely, but things change continuously, creating uncertainty in the market. Whatever the impact is on our business, we will continue to offset our costs with a dollar-for-dollar pass-through in pricing. We expect sales growth in 2026 to be in the low to mid-single-digit percentage range driven by continued momentum in North America and Europe and more stable market conditions in our engineered solution segment. Our outlook for adjusted EBITDA margin is a range of 11% to 12% of net sales and reflects margin benefits of sales growth, but also some continued margin compression from passing through tariff set costs. In connection with our adjusted EBITDA outlook, we expect interest expense on outstanding debt to be about $30 million for the full year, our income tax rate to be 27.5% to 28%, and depreciation amortization to increase to $45 to $50 million, as we'll have a full year of depreciation on distribution center investments and also continue to invest generally in our business. Regarding operating expenses, keep in mind these expenses are incurred more radically across the year, but do have some variability with sales, and as such will fluctuate seasonality in the business. We anticipate total operating expenses, inclusive of factoring, will be approximately $106 to $114 million each quarter in 2026. Finally, as noted, there is a seasonal aspect to our business with regard to temp control products we sell in North America and Europe. Our preseason can span across Q1 and Q2 with some variability between quarters. And given we saw a large amount of growth in Q1 last year in these products, we will be going up against difficult comparison in Q1 2026. So it's important to look at the first half of the year in total regarding cadence of sales. To wrap up, we're very pleased with our sales and earnings growth in 2025, and that we can share expectations for further growth in 2026. We continue to execute on many initiatives, including integration of Nissans, and expect to realize increasing benefits from that in 2026. Thank you for your time. I'll turn the call back to Eric for some final comments.

Well, thank you, Nathan. In closing, let me just spend a moment discussing how we're viewing things in 2026 and beyond. Even in the face of a challenging economic environment, We have enjoyed several consecutive quarters of strong performance and believe that this momentum will continue. We operate in strong and stable markets and are outperforming due to a combination of structural advantages, customer relationships, and execution. We've made great strides in diversifying our business with new product categories, geographies, and end markets, all with the focus on seeking complementary attributes. Within our legacy business, the North American aftermarket, we believe we excel. The industry itself continues to demonstrate its stability and resilience in the face of turbulent times. Within it, we are in great non-discretionary product categories that are less impacted by consumer sentiment. We target the repair professionals with quality products and brands they trust, and these are the folks making the purchasing decisions, creating pull-through to our channel partners. And we nurture our customer relationships with a program they value and with the execution they rely on. Our recent geographic expansion with the acquisition of Nissans is exceeding our expectations. They continue to impress us as terrific operators with strong relationships with their customers. They enjoy many of the same benefits I just described for us here, both in terms of market dynamics and their place in it. And the more we work together, the more we are impressed with their team, with their capabilities, and our ability to identify opportunities. Our engineered solutions business is on the rebound, and while it can be volatile, it is a strong complement to our core business and generates favorable returns. We continue to gain traction with blue chip customers around the world, leveraging the breadth of our offering and our capabilities, and as we become known, doors are opening for us. And while we continue to see supply chain complexity, we feel that we can navigate it better than most, and so we remain very bullish about the future. And that concludes our prepared remarks. With that, we will open it up for your questions.

Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star 1 to ask a question. Thank you. Our first question comes from Scott Stember with Roth Capital. Your line is open.

Thank you, gentlemen, and congrats on the very impressive results.

Thank you, Scott.

Eric, in vehicle control, in the release, it says that your Delta or POS was essentially in line with what I guess you had seen through the first three quarters. Does that assume that you were up low to mid-single digits at sell-through or POS?

Yeah, that's correct. And if I was unclear on that, I apologize. Yeah, the POS was pretty consistent, really, all year long for the big players, which was in the mid-single digits.

Okay. And very strong growth in the business outside of wire. And maybe just talk about some of that. I know you guys have been much more focused on increasing your portfolio of products earlier in their lifecycle and, you know, with more complexity in electronics. Maybe just talk about behind the scenes how that's, you know, coming about.

Yeah, great question. That's one of the reasons why we do break the subcategories out the way that we do. We have carved out the wire business to show that it does perform differently just where it is in its lifecycle to the other areas where we do continue to see growth. Our vehicle control offering is extremely broad. It spans many, many categories, whether it's addressing conventional engines or safety-related products or other electrical products around the vehicle. And what we're seeing is a proliferation of not only skew opportunities, but also replacement rates on some of the newer technologies. So it's an evolving category. It's a growing category. In the aftermarket, nothing moves very quickly, as you know. But what we are seeing is that there continues to be really nice opportunities for growth across both conventional technologies and some of the newer ones.

Got it. And then one more before and I'll jump back in the queue on the synergies that you talked about. Obviously, lots of synergies, cross-selling new customers, introducing to each other and I guess cross-pollination of products. Can you talk about how we're doing and what things we are in some of these initiatives?

Sure. And since you started by asking about the growth opportunities, let me respond to that. What we did over the course of 2025 was to look first at where we saw gaps in common product categories. So, for example, we both sell air conditioning compressors. So, where did we find opportunities for us to expand their North American coverage with what we already had and some opportunities where they had some some SKUs that made sense for us to add. But the bigger area that we're excited about is identifying entire categories that one was in and the other wasn't. And so, we added several of these in 2025 for the NISN's offering, some in NISN's Europe and some in NISN's North America. really capitalizing on product strength that S&P brought to the table. So, for example, within Europe, we launched in December a line of ignition coils to expand their engine efficiency category. Ignition coils is a great category here. It's one we are very basic as a manufacturer of, and we manufacture them all in Poland, which is a great selling point in Europe for Europe. We expanded some of their air conditioning subcategories that they were not in on both sides of the ocean. So really 2025 was a year of putting the programs in place. Now it's about getting out there in the market, getting traction, getting some shelf placement with the distributors. So it takes a little while for us to see the value that it brings, but we're excited about the potential. This is really one of the things we came into this acquisition thinking that while we have a lot of common categories to seek synergies. We also have these complementary categories to add and seek growth. On the cost side of things, and this is the area we've been talking about really all year long, as we've looked at commonizing vendors, beefing up those vendors, and figuring out where there are cost-type synergies, we came This saying that we would have a run rate of $8 to $12 million in savings by the end of 2026. I believe we're very comfortable with that. We believe we're ahead of that. Important to note, this doesn't all hit the missions P&L. This gets spread across the entire enterprise because, as we've seen, the savings can – we each benefit the other in what we bring to the table.

Scott, if I could just squeeze one last one in about the timing of the remediation of the internal control issue in Europe.

Yep, and Scott, so like I said, we're working on it right now with both the technical solution and compensating controls. I believe we're making very good progress, and we'll update you as soon as we can on that front.

Okay, fair enough. Thank you. Thank you, Scott.

Once again, if you would like to ask a question, please press star and 1 on your keypad now. We'll take our next question from Brett Jordan with Jefferies. Your line is open.

Hey, good morning, guys.

Good morning, Brett.

You talked about a tough comp in temperature control the first quarter, but could you maybe give us some color as to where retail inventory in temperature control products stands year over year going into what might be the cooling season?

What we've seen coming into the year is that their inventories are up slightly, but they're really up tracking with how much their sales are up. So I wouldn't say that they're in a different position than previous years in terms of readiness for the season. We are seeing ongoing good preseason order requirements across the customer base, as Nathan pointed out. This can hit in the first quarter. It can hit in the second quarter. A lot depends on what we ship. It usually ends up being right at that crossover point. Last year, we did a lot of them in that first quarter. That's why you saw last year's Q1 was really very strong. We think it's going to be more normalized this year, and that's why it's important to look at the full year. The preseason should be good this year.

Great. And then on Nissans, a couple of the large parts distributors in Europe are talking about private label programs that they're emphasizing. Can you be a private label supplier, be a Nissans into those and pick up share if they gain share with private label?

Certainly. And we do a little bit of private label there today. We really have been emphasizing our brands. And the majority of our sales there, about 80% or so of our sales in Europe are under the Nissans brand. We have two other brands. We have an entry-level brand called AVA and one that's more dedicated to commercial vehicles called Highway. And so each kind of has its positioning within the space depending on customer needs. But we do see private labeling as something that is a successful partnership when it works well for both partners. And so if we see opportunities there, we will certainly capitalize on them.

Great. And then obviously you guys said visibility on tariff outcomes here. Is there any opportunity for tariff rebate collection or are you guys just not as exposed to some of that Asian import product?

I think that it's still very unclear. If you're asking about refunds from the IEPA tariffs, I think it's still very unclear how that's going to play out. We're in the same boat as everybody else. If there's an opportunity to recover it, we will certainly avail ourselves of that. But I think that everything I'm hearing is that we're a long way from figuring out how that's going to get resolved.

Yeah, I think so. All right. Thank you.

Thank you, sir.

And once more for your questions, that is star and one on your keypad. We'll pause just another moment. Thank you. At this time, there are no further questions in queue. I would now like to hand it back to the presenters for any additional or closing remarks.

Okay. We want to thank everyone for participating in our conference call today. We understand there was a lot of information presented, and we'll be happy to answer any follow-up questions you may have. Our contact information is available on our press release or Investor Relations website. Hope you have a great day. Thank you.

This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.