Good day, everyone, and welcome to the Standard Motor Products Second Quarter 2024 Earnings Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please note that today’s call will be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Tony Cristello, Vice President of Investor Relations. Please go ahead.

Thanks, Savannah, and good morning, everyone. Thank you for joining us on Standard Motor Products second quarter 2024 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 Iles, 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. 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 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.

Well, thank you, Tony, and good morning, everyone, and welcome to our second quarter earnings call. It’s good to be with you today. I’d like to start, as I always do, by recognizing all the SMP employees around the world that make us who we are, really could not be more proud of what they were able to accomplish. Overall, we’re quite pleased with our quarter. Sales were up 10%, which is an all-time record for us. And we saw it in each of our three operating segments, those certainly highlighted in Temperature Control, which I’ll get to in a minute. So let me start with Vehicle Control, the largest of our segments. In general, we were pleased after a flattish Q1, the second quarter was up 2.7% over last year, showing some nice sequential momentum quarter-over-quarter, bringing our year-to-date numbers to being up by 1.6%. We’ve benefited from some awarded business not present last year as well as generally favorable trends as vehicle control products are largely nondiscretionary in nature. Moving to Temperature Control. It was a heck of a quarter as we saw a tremendous surge due to extended heat across much of the country. Sales for the quarter were up 28% against last year though it’s always worthwhile to point out that seasonal cadence can change year-to-year. Last year started slow with a soft second quarter, but then the third quarter saw a solid improvement, so we are facing a tougher comparison going forward. And that said, year-to-date, we are up nearly 16% and the heat has continued through July, which bodes well for a solid full year for the segment. I’d like to say how proud I am of our operations people. They were able to keep up with this elevated demand, taking care of our…

All right. Thank you, Eric. As we go through the numbers, I’ll first give some color on the results by segment and at the consolidated level, then cover some key balance sheet and cash flow metrics and finally, provide a brief update on our financial outlook for the full year of 2024. First, looking at our Vehicle Control segment, you can see on the slide that net sales of $188.7 million in Q2 were up 2.7% and for the first six months are now up 1.6%, with the increase driven by solid demand for our products and new business wins. Vehicle Controls adjusted EBITDA of 10.4% for both the second quarter and first six months is down from last year, driven by a lower gross margin rate and higher operating expenses. While this segment’s gross margin dollars were flat to last year due to higher sales, the margin rate was lower as a result of the increases in costs that Eric noted before. SG&A expenses increased mainly due to inflationary increases, which I’ll touch more on later and factoring expenses also increased due to higher sales and timing of cash collections. Turning to Temperature Control. Net sales in the quarter for that segment of $124.5 million were up 28.2% as we saw a very strong start to the summer selling season, and this start helped our sales grow 15.7% for the first six months of the year. Temperature Control’s adjusted EBITDA increased in Q2 to 12.6%, and for the first six months increased to 9.7% as higher sales volumes led to higher gross margin rates and improved leverage of operating expenses for both the quarter and year-to-date periods. Temp Control adjusted EBITDA also benefited from improved performance in our joint ventures in China versus last year. Looking now at Engineered…

Thank you, Nathan. And just in closing, I’d like to spend a minute on how we’re thinking about the future. We obviously recognize that they were in uncertain times impacted by various macroeconomic factors. We’ve always felt that our industries are structurally sound and highly resilient and in the long run, they do very well. As we look at the North American aftermarket, I believe we can feel confident that it can withstand short-term shocks, and we feel very good about our position in the market with key large nondiscretionary product categories and strong customer relationships. Our Engineered Solutions business is obviously in a different stage of its maturity, but we’re delighted with what we’ve seen. It’s doing what we hoped by creating a cohesive business unit with a coherent strategy, we have achieved critical mass to become a real supplier on the global stage. And soon, with Nissens acting as a third leg of our stool and all it can do for us as we integrate it, we’re very bullish about the future. So that concludes our prepared remarks. At this point, we will turn it back to the moderator, and we’ll open it up for your questions.

Thank you. [Operator Instructions] And we will take our first question from Scott Stember with ROTH MKM. Please go ahead.

Good morning guys. Thanks for taking my questions.

Good morning, Scott.

In the Vehicle Control segment, nice rebound from the flattish results for the first quarter. Some of your customers have reported, I guess, sluggish demand overly, I guess, in some of the hard parts areas. And I’m just trying to get a sense of what you guys saw at POS retail and how that’s affecting orders as we stand right now from your customers?

Thank you, Scott. And I think I can agree with what you’re hearing more from them, but is that they’re seeing softness more in front room and DIY type product, but also to a degree more or less by the different distributors in some of the backroom product as well. What we’ve seen over the course of the quarter, is that our POS, their sales out has been roughly flat to perhaps slightly down, but we think that that’s just kind of the normal ebbs and flows in any given period. And so roughly tracks with what they’re purchasing from us.

Okay. So really no change from that low single-digit thought process going forward?

Correct.

All right. And on the rate front, it seems increasingly likely or at least what the market is telling us is that we’ll probably see a couple of rate cuts. Can you maybe just remind us, I guess, net of any potential price givebacks, how that could benefit you and how fast that would happen on the factoring side?

Yes. So Scott, just to put a little bit of a marker on it. If you think about our factoring programs, there’s about $800 million of sales on those programs. Every 25 basis point move is essentially worth about $2 million for us on those programs. So that’s a way to think about increases or cuts as they happen. I would just say that if you think about the rate that we follow for that, it’s a 360-day SOFR rate. And given that, that rate has been baking in some cuts in the back half of the year, all year since we came into the year in January. And so this recent Fed announcement essentially being in line with that doesn’t change our outlook a whole lot at this point.

Got it. That’s all I have for now. I’ll jump back in the queue. Thanks.

Thank you, Scott.

Our next question comes from Bret Jordan with Jefferies. Please go ahead.

Hey, good morning guys.

Good morning, Bret.

Talk about what you’re seeing in inventory at your customers in Temperature Control. We stay hot through August into the fall? Or is there likely another round of ordering or are they reasonably stocked?

Well, our inventory visibility is a little bit delayed. So we really see it more through June and what happened in the last several weeks were not as attuned to. What we saw through the quarter was that, that their shelves stayed pretty flat, which means that we were able to keep up with their demand and keep their shelves where they wanted them. As we think about what their sell-through was in July versus their purchases, we anticipate that, that’s continued to track and the heat is now continuing really throughout much of the country. So we’re pretty pleased with that. And what that tends to show, but time will tell is that prolonged heat tends to have the replenishment orders continuing throughout the season as opposed to in a different cadence to a summer where they may start to taper off their replenishment orders, we’re not anticipating this at this time. But it’s still early days, and we’ll see what happens throughout the balance of the summer.

Okay. And then I guess what’s your outlook on pricing? You talked about inputs – input costs being up, obviously factoring. If you think about how receptive are your primary customers to price increases for the balance of the year, like what do you see as inflation from the price side?

As we’ve always said, we do our best to cover inflation through a combination of pricing and cost reduction. It is a competitive market. I think that the receptivity is challenging. But beyond that, I really can’t get into any specific customer discussions. There’s a lot that goes into it, and we do our best.

Okay. And then I guess one last question. You commented about new business wins in Vehicle Control. Is that bringing business back that might have gone to direct import programs? Or is that business taken from sort of more normal peers like Wells?

I’m not going to get into the specifics of it, Bret. But that – just in general, there’s always certain nominal wins and losses. We tend to win more than we lose. And so that’s really what we see here. But in terms of who we’ve got it from, I can’t get into that.

Thanks.

Thank you.

[Operator Instructions] Our next question will come from Carolina Jolly with Gabelli. Please go ahead.

Hi, thanks for taking my question. Just a quick note on overall inventories. I know Bret asked about Temp Control, but just overall, the inventory in the market, how do you feel about that?

Good morning, Carolina and so on the Vehicle Control side, again, very similar. We’re seeing that inventory is stable month-over-month. So there’s no specific inventory strategy shift for any of our customers. They have what they want to have and are operating accordingly.

Got it. And then also, you’ve discussed leases, some of the pressure from leases. I know you talked about kind of if the interest rate lowers the impact from the factoring, would there be any benefit on that lease expense?

Yes. So Carolina, we renew leases over time just as they come to – so I don’t think lower rates will have any impact on what we’ve already renewed over the last couple of years. But certainly, going forward, that should be some sort of a benefit as we look at the renewals.

Thank you.

Thank you.

And with no further questions, I’d like to turn it back to our presenters for any additional or closing remarks.

Okay. Well, we want to thank everyone for participating in our 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.

And this will conclude today’s conference. Thank you for your participation, and you may now disconnect.