Good day, ladies and gentlemen and welcome to the Standard Motor Products Third Quarter Earnings Release. [Operator Instructions] Please be advised today's program may be recorded. It is now my pleasure to turn the program over to Executive Chairman, Larry Sills. You may begin, sir.

Good morning, everyone, and welcome to Standard Motor Products Third Quarter Conference Call and we appreciate you are 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, Executive Chairman. Our agenda for today, Jim is going to review the numbers; then Eric will go into some detail on a few of the highlights; and then we'll open it for questions. So with that, let us begin and I turn it over to Mr. Burke.

Thank you, Larry. Before we begin, 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. All right. To begin, overall, there were two primary drivers impacting our results in the third quarter. First, the decline in the Temperature Control sales and second, the Engine Management gross margin reduction. I will address each in more detail when reviewing the segment results. Our consolidated net sales in Q3 '17 were 281.1 million, down 19.7 million or 6.6% and for the nine months were 876.2 million, up 47.5 million or 5.7%. Excluding the General Cable incremental sales from our acquisition at the end of May 2016, our nine-month sales increased 9.1 million or 1.1%. Engine Management net sales in Q3 '17 were 196.8 million, down 4 million or 2%. And for the 9 months were 631.4 million, up 51.1 million or 8.8%. Again, excluding the incremental General Cable wire sales, our nine-month sales were up 12.7 million or 2.2%. Temperature Control net sales in Q3 '17 were 81.2 million, down 15.7 million or 16.2%. And for the nine months were 238.8 million, down 2.2 million or 0.9%. 2017 quarterly Temperature Control sales were volatile. Q1 sales…

Thank you, Jim, and good morning, everybody. This was a challenging quarter, but for specific and short term reasons. And once we get past these temporary issues, we are confident that we'll be a stronger company than ever. Each of the two divisions contributed to the shortfall differently, so it's easiest to explain by reviewing them separately. Jim has already explained it in the numbers, but I'll provide some additional color. Temperature Control sales, for self-explanatory reasons, are weather dependent and can vary up or down year-to-year. 2016 saw record heat, so coming into 2017, we knew that the comps would be difficult. For the first half of 2017, our customers placed above average preseason orders as they prepared for what we all hoped would be another hot summer and were up 9% in purchases in the first half over the previous year, but the summer didn't materialize. Our customers' sales out for Q3 were down approximately 10%, but their purchases from us were down 16%, reflecting their sell-down of the preseason build. The combined result is that we are now down about 1% for the year. However, our customers’ year-to-date sales are down about 5%, so we expect the potential for a soft Q4 as they continue to work their inventory down further. I should note that when I refer to customer POS, it's an approximation based on a sizable portion of our customers, but not the entire customer base. Meanwhile, we're very pleased with our improvement in profitability within the Temperature Control business and this is the result of the benefits of some recent activities. We are nearly complete with the move of production from Grapevine, Texas to Reynosa, Mexico, although there is still some to be gained, as we transfer the last of production lines by the…

[Operator Instructions] And we'll take our first question from Bret Jordan with Jefferies. Your line is open.

It's David Kelley on for Bret this morning. Just a quick couple questions here and, I guess, if we see a continued reduction in inventory levels heading into year end, are we facing some opportunity, looking primarily to 2018, where maybe we have revenue growth that's kind of upside to your longer-term outlook on expectations here, particularly if we see an industry rebound that we've all been kind of waiting for, for a couple years now?

Are you referring, David, to inventory in the field, I assume, customer inventory?

Yes, customer level inventory.

You got to look at the two divisions separately and I think you're probably referring to Temperature Control, where we've discussed the likelihood that the customers continue to settle down what they have rented and purchased more from us. A lot depends, you know, it's a highly seasonal and weather dependent business. So coming into next year, it depends on what their inventories are like going into it and how optimistic they are really for the 2018 season as to what they do in the first half of next year. But then again, it's going to depend on whether it does get hot. We think that their inventory should be well in line with what they would want by the end of the year. So the cycle starts over.

And I guess just shifting gears to kind of the margin discussion here. It sounds like some of the facilities have been completed, but ramping here, and now that we have others still ongoing. Is 2019 the year that we're looking for, for kind of the new and improved long-term margin trajectory? And I guess maybe if you could update us on your thoughts on longer-term margins as well, that would be great?

Okay, David. This is Jim Burke. Yes, so we're targeting mid-2018 to have all the moves complete. But again, some of that will be flowing through inventory for the savings that we have. And we say on a run rate basis in 2018, we get the savings we've talked about 16 million to 18 million. So the full impact is 2019. Again, moving back to where the margins are. We project that we'll bring Engine Management margins back 31%, 32%. Temperature Control margins, we're waiting to complete a full year, but we've said now with the savings that we'll be 25%, 26% there and looking to build on those. So the company has really expanded our engineering efforts and cost-reduction initiatives. And as you said, 2019 will be the full year of savings, but our day-to-day blocking and tackling is for incremental improvements moving forward.

And then one more from me and then I’ll pass it along here. Just a quick one on the OE business you referenced. Anyway you could kind of A, size that up for us and, B, give us an idea of maybe the growth opportunity for you in OE?

Our overall OE business sits at right around 11%. If you go back a few years, it was more around 8%. So that's been what that change has been. What we have really tried to do over the past few years as we pursue this business is to be more selective in what we chase. We're not chasing every opportunity; we're only chasing those where we think we have a compelling story and a competitive advantage. So the areas that we've been focusing on is this injector program that I've spoken to, which I'd be happy to elaborate on if you wish. As well as activities out of our Poland plant, which is very well suited to the OE business because it's got a great combination of a low cost structure and high technical capability. So we're working on several different programs, and we probably have more cooking than we ever had in the past. But it's important to note that with OE business, the overall life cycle is much shorter than it is with the aftermarket business. You really have to continually be replenishing it because it falls off the back much quicker.

[Operator Instructions] We'll now go to Matthew Paige with Gabelli. Your line is open.

Thanks for all that color on the segment movements. That was really helpful. I just wanted to pick up on where you just left off with the injector program and maybe you could speak to how big that market is? And what benefits your technology provides?

Sure. In terms of sizing it, we're not discussing the overall size. We think that that’s just for competitive reasons we'd rather not disclose how big the overall business is. But it could end up being reasonably sizable, well into the, you know, north of $10 million or so. But in terms of what the better mousetrap really is, is we've developed an injector that, first of all, is much more durable than the incumbents and this is going on very - on heavy-duty vehicles where the life cycle expectancy is critical, but it also has better flow, it flows more fuel than the competitors. And therefore, they are able to use fewer injectors in the system, so as such to get the same amount of overall fuel delivery. So as such it's really being very well received in Asia. So we're going on a lot of new truck production there. And as long as China continues to emphasize CNG over the traditional diesel engines over there, we think we have a great program ahead of us.

And then, maybe to take a step back, you also provided some more color in terms of the asbestos liability. Could you provide maybe some of the puts and takes in the changing of the estimate? And what would drive it to either end of the range that you provided?

Yes, its Jim Burke again, Matthew. Just to refresh everybody's memory there, this program has been in place, we've been responsible for it back since, I think, it's 2003. The projections are out to the year 2060. Again the range that we had in there was 35 million to 54 million that’s there. No single number in the range have we identified, so that's why we picked the low end of the range. But what I'll say is, over the 15-plus years that we've been having it, it's been very steady. The costs that we've been incurring there, we’ve had a couple of years where the actuarial report was trending down. This year, it was just a minor adjustment up that we brought it back up to $35 million. So I would say no significant changes over this year or the past number of years. And we think that this is winding down, again, we exited the business, it was a brake business back in 1998. So again we're almost over 20 years or coming up on 20 years out of this business.

And then lastly for me, you noted one with the CNG injector, but are there any other new technologies that you're looking at either organically or perhaps in the acquisition pipeline?

Organically, we're always evolving our product offering to see what the new vehicles have. And so - and that's been something we've been doing for the last 100 years as new technologies come out, and we think it's something that we can play in, we start to move in that direction. So we are seeing more opportunities as it relates to new means of getting more fuel economy or better emissions controls out of existing combustion engines. So whether it's cylinder deactivation, start-stop systems, turbo charging, et cetera, those things that are getting more out of those engines versus - as well as getting somewhat into traction control, stability control, collision avoidance-type systems, as the world potentially moves in the direction of autonomous vehicles. So we're always keeping an eye on these technologies and adding them where we think we can play. In terms of whether we think there are acquisition-opportunities into newer technologies, that is always something that we look for as we look at - as we seek candidates, as we seek targets are those that can help take us into the future. So yes, I'd say that we are always looking for that.

[Operator Instructions] We'll now go to Christopher Van Horn with FBR Capital Markets. Your line is open.

This is Dan Drawbaugh on the line for Chris, thanks for taking our questions. I wanted to start on the aftermarket demand environment, which seems to be a little bit mixed just from the industry level. But I was curious to know if within your product portfolio, are there any particular lines or categories that may be seeing sort of outsized growth or particular demand from any customers?

We always have products in various stages of the life cycle. So we have things that are dropping off the back, while others are moving up as they start to hit their replacement cycles. So the obvious one that we have talked about falling off the back is wire and cable, which is in decline by, call it, 5% a year. But we are seeing that replaced with newer technologies, whether it's getting into variable valve timing, ignition coils is always a growth category as a tried-and-true technology that the car manufacturers continue to embrace. So we got just an engine management alone over 45,000 part numbers, and they're at all different stages of life cycle. And so you're seeing every possible demand curve with them.

And then turning to the efficiency opportunity here $16 million to $18 million once you're at the run rate. Can you kind of put that in more of a stepwise framework as we move through 2018, how do we get to those synergy levels? Is it more of a step function once you complete the moves or are there steady gains along the way?

We think, and we said this at the end of the second quarter and matched the Engine Management margin in Q3, again, at [indiscernible] obviously nothing is certain that's in there. We think we're at the low point there that from this point we'll have incremental savings, but there is a significant savings when we do shut the doors and exit the final facility that's there. So we'll have steps savings moving forward through mid-2018. I don't have it quantified to where we can break it down exactly by quarter there. From this point, you'll see savings moving through and then at the end of - the mid-2018, you'll see the full savings starting to materialize on a run-rate basis.

[Operator Instructions] At this time we have no additional phone questions.

Okay. Thank you very much. That concludes our third quarter presentation and thank you all for attending.