Good day, everyone, and welcome to today’s Standard Motor Products Second Quarter Earnings Release. At this time, all participants are in a listen-only mode. Later you have the opportunity to ask question, during the question-and-answer session [Operator Instructions] Please note, this call may be recorded. I’ll be standing by if you should need to any assistance. It is now my pleasure to turn the conference over to the Executive Chairman of Standard Motor Products, Mr. Larry Sills,

Good morning, everyone. And welcome you to our Second Quarter Conference Call, and we appreciate you’re taking the time to attend. Here from the company is Eric Sills, President and CEO; Jim Burke, Executive Vice President and Chief Financial Officer; and myself, Larry Sills Our agenda will be: first, Jim will review the quarter and six months results, then Eric will go into some more details on some of our key initiatives, and then finally we’ll open for questions. So with that, let me turn it over to Jim and let’s go.

Okay. Thank you, Larry. As a preliminary note, I would like to point out that some of the material we will 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. In the second quarter, we experienced solid sales growth, very good temperature control margin expansion, but also a decline in Engine Management gross margin primarily related to our various plant moves. Reviewing the P&L, consolidated net sales in Q2 ‘17 were $312.7, up $23.8 or 8.2%. And for the first half ’17 were $595.1 million, up $67.2 million or 12.7%. Excluding the general cable incremental sales from our acquisition, at the end of May 2016 our Q2 ‘17 sales increase was $8.8 million or 3%, and for the first half sales increased $28.8 or 5.5%. Engine Management net sales in Q3 ‘17 were up $24.5 or 12.3% and the first half of ’17 up $55.1 or $14.5%, again excluding incremental GC wire sales, Q2 ‘17 net sales were up $9.5 million or 4.8% and first half net sales up $16.7 or 4.4%. These increases are slightly above our long range forecast of low single digits and higher than our customers POS sales. Eric we'll discuss this further. Temperature Control net sales in Q1 and Q2 as we previously stated reflect…

Thanks, Jim. And good morning, everyone. Jim's covered the numbers, but I thought I’d provide some additional color. Sales continued a favourable pay, which I’ll get to in a minute, but the headline is that the earnings are down for the quarter, although we remain ahead for the year. Step back in the quarter was all the Engine Management division and was caused almost entirely by cost associated with integrating the General Cable wire acquisition, as well as our other plant moves is currently under way. We referred to these onetime costs in previous earnings calls and they are all intentional and geared towards making us a stronger and more profitable company in the future. But in the near term they are having a financial impact. Let me go through them one by one. The biggest is in the integration of the General Cable ignition wire business. To remind you, we acquired this business in May of 2016 and we're very pleased with it so far. Sales have been solid. We've retained all of the accounts and we’ve greatly improved the fill rates across the board, which frankly were not in particularly good shape when we acquired the business. This business was roughly the same size as our legacy wire business, and essentially a mirror image of it [ph] with similar products, plants and other functions and by combining the two, we were able to generate terrific synergies by eliminating all the duplicate functions and by gaining economies of scale. Last year, we consolidated distribution in certain back office functions all of which are working quite well. But the heavy lifting of the consolidation really didn't begin until this year, as we set out to combine the two manufacturing operations by relocating all of their production from Nogales, Mexico to…

[Operator Instructions] We’ll take our first question from Bret Jordan of Jefferies. Your line is open.

Hi. Good morning, guys.

Morning, Bret.

Good morning.

I was looking at Temperature Control in the prior year, obviously a very strong gross margin and a tough comparison. I guess, is there a way to - how much of that margin could you still see in this quarter as given improving operating efficiency or if we have a tough Q3 comparison are we likely to see a really big turn down in gross margins year-on-year as well?

Yes, Bret. This is Jim Burke. Now it wouldn't be that faster reaction. We think we've lowered the overall cost structure over and again with production volumes drives the margin. It would be more gradual that would be in there, and again, the impact of how we have to react to inventory level. So it would not be a dramatic impact in Q3.

Okay. And I guess as you mentioned and I would say that the current quarter it sounds as if July year-over-year is down in the POS data?

Well, we don't see the POS yet for July. So we're not - we can only speculate how our customers are doing with their sell-through, but we are seeing a softening of their demand to us.

Okay. And then one last question on Engine Management, you mentioned that most of the margin impact was one-time costs related to its integration. But you mentioned some other obviously even shifting some assets and production in Engine Management. How much was General Cable versus other on the margin impact?

Yes, Bret. We don't break out the individual ones in there, but up scaling it, General Cable is a sizable portion of it, that's at least 50% of the impact. But we don't break out the individual pieces.

And you kind of talked about in the prepared remarks, but I guess what’s the - how many more quarters do you think we see the one-time charges for, like at what point have we fully consolidated the General Cable incremental overhead?

Yes, what we stated there was nine to 12 months, again, some of it flows through the balance sheet and then to the P&L that's in there. So fully, fully exhausted by June of next year, Q2 of next year. But again, we're hoping that we would see gradual improvement as we move forward.

Okay, great. Thank you.

All right.

All right. Thank you, Bret.

[Operator Instructions] We'll move next to Scott Stember of CL King.

Good morning, guys.

Good morning, Scott.

Could you talk about the sequential improvement in Engine Management sell-through you saw and maybe just talk about broader - broadly speaking what you’d see going on there in the market. And you know, you talked about getting back to that low single digit growth rate. Just talk about you know, what you're seeing in your business and the industry as well?

Sure, absolutely. The first quarter of 2017 our major customers reported their POS down a few points and that I think tracks with not just our categories, but overall what they're seeing due to the mild winter and perhaps some other variables as well. We did see that sequential improvement month-over-month, quarter-over-quarter to where second quarter essentially was flat to the previous year. So that's where we see the trends are positive. And so we hope that that trend will continue. In terms of how that is - how that reflects and what they purchase from us, accounts tend to order from us much lumpier than they sell as they look to flex their inventory and refresh their planograms, and manage their own cash flow et cetera. So in any given month or any given quarter you could see some peaks and valleys. But the overall trend as we continue to say, we expect it to be in the low single digits. We are seeing some nice more recent traction in our new product categories, in our later model applications, which is very good, it's showing that these newer vehicles are starting to hit some of that replacement cycle. So we're seeing a little bit of a mix shift to the newer stuff.

And just following up on that, I don't know if you could get this granular, but you know, during the quarter if you look at the POS, did you notice an acceleration as the quarter - the quarter finished out? And then maybe just talk about some of those new products that you just referred to that on the late model cars that are starting to add some business for you guys?

Different customers have different experience month-to-month throughout the quarter. But I would say that the overall trend was slightly up. It's really coming out of the very beginning of the year which was when the year hit its low. Newer categories, we've been talking about some of these on the recent calls, diesel continues to be a very strong growth category for us into the 30% or so percent year-over-year growth trajectory and its combination of broadening the category with more parts, getting more customer adoption. I think just generally what's happening within diesel space is that the repairs are moving into the general repair base, as opposed to in the diesel specialist base, and so the overall general aftermarket industry is benefiting from that and as are we. The other categories that we've been investing in lately and are seeing nice adoption and its variable valve timing products, adoption [ph] of emissions products, and on brake system sensors. We're just seeing a lot of these categories really starting to move in the right direction. Which you know, to be frank we need them to because we see other older categories dropping off. For example Ignition Wire business, as we've stated is going to decline just due to lifecycle in that 5% or so percent per year range. So we need these newer technologies to replace that line. So it's not all incremental growth, some of it is replacing lines in decline.

Okay, great. And just a couple of last questions, just real quick. You said that at least referring to General Cable that it sounds that the worst is behind and that it sounds as if things do get better from here. Maybe just talk about the degree of recovery. I know that you said that by the first quarter we should be in a much better place. But maybe just talk about how much you've seen already in these costs and how quick you would expect them to come back. And then Jim just on the SG&A, maybe just give some comments about where that could be on a quarterly basis go forward? Thanks.

So I am going to try to answer the question a little bit more qualitatively, what one of the real gating issues for General Cable was that we did not have enough space in our Reynosa plant. We needed to expand the building by about 75000 feet, just by – it was a 100,000 per building, so we're growing about 75%. And until we are able to do that we were operating, especially inefficiently with some additional temporary swing space that we are renting down there and just a little bit of the additional hoot [ph] you have to jump through when you don't have the space. We are able to - that building expansion is now essentially complete and coming into August we'll be able to start utilizing the expanded space. So that was really I think in many ways an inflection point of this move and allows us to accelerate and take advantage of some of that. And I think you had a question about SG&A which you maybe you could repeat it for Jim?

Yes. The question was just on whether there was anything that comes out of the number going forward or maybe just some you know, high level commentary about where the number could be over the next few quarters?

Again, not in absolute dollars. This ties in between the $7 million to $10 million that we said is a combination of margin improvement and SG&A and you know, part of it relates back to the General Cable integration that we still have costs related to SG&A, while we're working always on cost reduction efforts and in distribution and all areas, we will have cost that will be eliminated once we complete the full integration of GC.

Good enough. Thanks for taking my questions.

All right. Thank you, Scott.

All right. Thank you, Scott.

[Operator Instructions] We'll take our next question from Robert Smith of Center for Performance Investing. Your line is open.

Hi. Thanks for taking my call. Good morning.

Hello, Rob.

Hi.

Hi, Robert.

So after these plant moves and consolidation from point of view company-wide, what is the facilities utilization look like now?

Okay. That's a good question. We are - we really within all of our plants we don't have any substantial capacity constraints, as always individual production lines that you know, you start to get close to capacity, but they're all very scalable. So there's no way I would say you know, we're running 24/7 and if something doesn't give, we're going to have trouble. So we have plenty of unutilized capacity. We're in good shape.

Okay. Do you guys have raw materials price index, internally I mean, that you can contrast and see what’s happening to raw material prices like steel and copper?

All right. Rob, this is Jim Burke. Yes, well, again to point while no single commodity is a dominant factor in our cost of goods sold. We experienced obviously all the same commodity changes, we see copper going up, sure an asset. From an index standpoint, one of the other benefits, we add like 300,000 new SKUs per year that we have to buy from Tier 1 suppliers, make available to our customers and our engineering teams are always working on bringing those in-house to manufacturer, overseas to Asia, along with component sourcing. So we struggle to along to absorb the commodity increases, but more offset it by re-sourcing product to low cost Asian sources where we can with components and even finish good parts.

All right. And how about the ability to offset those increases in your own price increase - price increase?

Right. And there's a number of variables that go in there and you know, we evaluate the commodity cost changes, exchange rate changes that's in their labor and medical inflation cost, all of those variables go in and it's a competitive environment. So we price where we can, in certain categories we have more opportunity and we're competitive in other areas.

All right. And next question, what does the acquisition landscape look like and what might be an opportune size that wouldn’t be willing to reach for?

All right. We're always looking at additional opportunities, but we have a particular and specific profile that we're looking for, for what makes a good candidate for us. And so we're going to stick within that profile and to remind you of what that is. We will buy one of two types of businesses, either it would be bolt-on acquisition, essentially a direct competitor, similar to the General Cable deal, where you're able to merge the two operations and get all the strategy we’re talking about. And the other is acquiring supplier of ours to help us be a more basic manufacturer and get that additional you know, you know, eliminate a step and we’ll be able to take that margin. Plus typically those get us into something slightly new. So for example that would have been the diesel acquisition or the tire pressure sensor purchase that we did in Taiwan a couple of years ago. So we're going to continue to look at those two types of deals as they both very much complement our core business, strengthen our core business, but perhaps get us into something a little bit different. In terms of the pipeline that's out there. We do believe there are still opportunities. We have a team that's constantly focused on identifying them. You know, we're looking at our balance sheet. We have the wherewithal to do them. You had asked about size. We don't necessarily have a particular size because it's more about fit and the opportunity. If you look at the history over the last 10 deals they're all in that $20 million to $60 million dollar range and that's kind of our sweet spot.

Thank you. And yes, I think that – do you have anything to say about the news that’s been popping about electric cars and automobile production where we're all headed in timeframes. I know it's kind of long in term so to speak, but any view [ph] of where this is going?

Well, certainly there's been a great deal of chatter out there about you know, technology shifts and especially with electrification, electric vehicles. But with all of the projections suggest is that it's going to be a very slow evolution within the US in particular, perhaps it will go a little more rapidly in Europe or China, but in America they're still predicting most predictions are 2025, it's still only 5% new vehicle sales. And since we are really looking at 260 million cars out there and not the new car production, the impact that it will have on the aftermarket will be even longer than that. Now that being said, we do – we are not pooh-poohing this, we recognize the technology change is real and we're staying up on it and identifying where our opportunities exist in the newer technologies.

With a trend [ph] kind of changing its viewpoint here with interest rates, do you have any thoughts about taking on some longer term debt?

Yes, Robert. Again, Jim Burke. You know, at this point no, know where the luxury is now versus many years ago we're generating well over $100 million in to be able to service our capital expenditures and that even within the range of a profile of acquisitions in $40 million to $60 million range we can quickly absorb those also. We don't - I don't see anything on the horizon that would be significant that we would go after, but we would always evaluate that if there was a sizable acquisition that we did.

Sure. I understand. Thanks so much. Good luck.

All right. Thank you.

All right. Thank you, Robert.

[Operator Instructions] And it appears that we have no further questions at this time.

Okay. We would like to thank everyone for joining our conference call this morning. And we'll be speaking to you again for Q3. Thank you.

Thank you.

This does conclude today's Standard Motor Products second quarter earnings release conference call. You may now disconnect your lines. And everyone have a great day.