Good day, everyone, and welcome to the Standard Motor Products Second Quarter 2025 Earnings Call. 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 Cristello, Vice President of Investor Relations. Please go ahead.

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 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. 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 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.

Thank you, Tony, and good morning, everyone, and welcome to our second quarter earnings call. Overall, we are 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%. And while the majority of this growth was from the addition of our newly acquired Nissens 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 Nissens. We're also pleased by our profit gains. Adjusted EBITDA increased $20 million, up 190 basis points to 12%. Here, too, Nissens 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 20s percent 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 2 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 nondiscretionary 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, Nissens Automotive, which has been part of SMP 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 nondiscretionary 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 Nissens is a strong company in its own right, we believe that meaningful synergies exist through integration, which is well underway. For savings 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 have 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 Nissens North American customer base and are actively building out programs for 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 have 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 are 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 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 nondiscretionary 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 that 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 Control's 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 factoring 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 with customers. Temperature Control's 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 a percent of sales for the quarter. Next, I'll touch on Nissens. In our second full quarter of ownership, Nissens 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. Nissens 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 6 months, our sales have increased 25.8% now over last year and 4.1% excluding Nissens, helped by strong sales in both our North American aftermarket segments. Tack 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 6 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 showed 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 Nissens acquisition. We finished Q2 with a leverage ratio of 3.2x EBITDA, but accounting for a full 12 months of EBITDA from Nissens, 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 the 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 Nissens and pass-through of 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. I'll now 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. Even in the face of a challenging economic environment, we have enjoyed several consecutive quarters of strengthening performance. The largest part of our business, the North American aftermarket continues to demonstrate its resilience. It is a highly stable market with solid foundations, as the addressable market expands through a growing and aging car park. Within this attractive space, nondiscretionary products tend to do better, as motorists are unable to defer repairs, and our value proposition continues to resonate. Our full-line coverage of professional-grade products and brands technicians trust and a relationship with our trading partners is strong. We've added 2 new legs to our business, providing a combination of diversification and opportunities for synergies. Our recent geographic expansion with the acquisition of Nissens is exceeding our expectations. 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 I'm impressed with their team, their capabilities and our ability to identify opportunities. And so we remain very bullish about the future. And so that concludes our prepared remarks. We'll now turn it over to the moderator and open it up for questions.

Our first question comes from Bret Jordan with Jefferies.

This is Patrick Buckley on for Bret. Still some moving pieces with tariffs, but could you talk a bit more about pricing trends in the second half and maybe a range of same SKU inflation assumptions within the guide?

We're not going to discuss specific numbers, but our pricing plans for the second half are primarily designed to address the tariffs. Our tariff exposure is limited to a portion of our sales, and we are monitoring those tariff costs. Therefore, you can expect the impact to be relatively small, especially when distributed across our entire offering.

Got it. That's helpful. And then within the U.S. aftermarket, could you talk a bit more on POS compared to sell-in? And I guess, any signs of inventory builds to get ahead of price increases there?

Sure. I'll address the two segments individually. Vehicle Control experienced low to mid-single digit growth this quarter, aligning with its performance throughout the year, indicating positive sell-through that is slightly lower than sell-in. This trend reflects a broader strategy by our customers as they expand their presence by opening new locations and enhancing their product variety at existing ones. We observe a steady increase in inventory as part of this ongoing development, rather than a sudden shift or reaction to anticipated changes. A similar trend is present in Temp Control, although it shows more volatility from quarter to quarter. Last year in the second quarter, point of sale was up significantly, which makes this year's comparison a challenge, yet we’ve seen a slight increase this quarter. Overall, the year-to-date performance for Temp Control mirrors that of Vehicle Control, remaining in the low single digits and consistent over time.

Our next question comes from Scott Stember with ROTH Capital Partners.

This is Jack on for Scott. Just regarding tariffs, you talked a little bit about it in your prepared remarks. But can you talk about the timing of the impacts? And also, if you could give any segment breakdown on where you see the price increases so far? Or what is impacted more than others going forward?

Yes, it's Nathan. To touch on the timing aspect that Eric mentioned, we experienced some costs impacting the second quarter. This was primarily related to higher-cost inventory that had been affected by increased tariffs, which began to reflect in our profit and loss statements. We took some time to implement cost mitigation strategies and worked with our customers to adjust pricing. As a result, we encountered higher costs in the second quarter. However, moving forward, we expect these costs to be largely offset in the second half of the year. Regarding segments, we typically avoid discussing specific profit expectations by segment or details on pricing and costs, but I can confirm we are actively managing these aspects, and our second quarter results reflect that.

Okay. Great. And then just a few on Nissens. How did the Nissens business perform compared to your expectations this quarter? How is the whole European aftermarket holding up? And what sort of synergies between products have you gone through so far?

In terms of meeting our expectations, I would say it is exceeding them in nearly every way, both in performance and in our outlook as we integrate our operations. There is some commentary from publicly traded companies regarding the current state of the European aftermarket, but we are outperforming that sector for several reasons. One reason is that it’s essential to evaluate product performance on a case-by-case basis. While the overall market has various dynamics, similar to our situation in North America, where demand is largely non-discretionary and influenced by temperature control, certain categories tend to do better than the distributors’ overall portfolios. Additionally, Nissens is gaining market share, not only by improving its position in existing product categories but also by successfully expanding into new categories over the past several years, which began well before they became part of SMP. They have successfully branched into vehicle control categories, although this is still a relatively small part of their business, it has been positive for them as they secure better placements. Looking forward, we believe that integration will enhance their ability to accelerate this process, thanks to the various resources we offer that can facilitate new product launches. While we don't have specific updates to share at the moment, 2025 will serve primarily as a preparation year. We aimed to achieve quick wins with the introduction of new SKUs, and this year is focused on positioning ourselves to expand product portfolios on both sides of the ocean. It’s an important aspect of our future, and it is indeed exceeding our expectations.

Our next question comes from Robert Smith with the Center for Performance Investing.

Just circling back to Nissens for a moment. Is there any color you can give me on the actual numbers in comparison with the prior year in the various segments, the strength in any of the 3 categories more than others?

Yes. In general terms, we are observing mid- to high-single digit growth compared to previous years. There is a notable increase in the newer categories as a portion of their overall business. Looking back five or six years, they had minimal presence in engine efficiency, which now accounts for over 15%, possibly nearing 20%. All three subcategories are expanding, with engine efficiency experiencing the fastest growth due to the introduction of new product types.

Okay. In the Engineered Solutions category, you have a breakout of them. And you have category all other. Can you give me some idea as to what's in all other?

Sure. The category "all other" includes various items like lawn and garden equipment, hydraulics, and stationary equipment, with powersports being the largest segment. This encompasses products such as snowmobiles, side-by-sides, ATVs, and similar vehicles.

And how much is that of the all other?

Yes. We don't go more granular than that, Robert.

Okay. That's been a good growth area though?

It has a lot of potential. As you've noticed in some of the other subcategories, there has been some softness this year, which is expected, particularly in areas like powersports that are purely discretionary and high-value purchases. However, the long-term trends in all other subcategories definitely show promise.

And just finally, with the expectation of lower interest rates, are you going to have an opportunity to refinance that at some point?

Robert, it's Nathan. Yes, we'll keep abreast of changes in interest rates. I would point out, we did the refinancing last year in connection with the Nissens acquisition. We were able to lock in some attractive rates through interest rate swaps at that point. So we do have some fixed debt at lower good rates, but we'll continue to watch it. And if it makes sense, we'll do something.

Our next question comes from Carolina Jolly with Gabelli.

As we look towards 2026 and with Shawnee complete and Edwardsville almost finalized, can we anticipate improved margins and greater efficiency at the EBIT level?

Carolina, it's Nathan. So we do expect to get better efficiencies certainly coming out of the automation as well as some freight savings that we would expect just from being in the middle of the country versus on the East Coast for existing Vehicle Control distribution. That said, we did going back a couple of years, note that we would be sort of net higher in cost just because we're going to have some extra lease expense where we are now leasing a building versus owning one, and then we'll have higher depreciation on a lot of that automation equipment. So I think we're still holding with our outlook that we'll be $3 million to $4 million sort of net higher in cost off that baseline from 2023. And then there will be some savings offsets from that number as we go forward.

Great. Out of curiosity, when comparing the tariffs from the third quarter to those from the second quarter and your expectations from the same period, are you seeing any decrease in your tariff costs based on the current information?

Based on what has been announced and implemented so far, no. There were temporary spikes in announcements, like when China experienced a significant increase for a couple of weeks before returning to the 30% reciprocal level they are at now. That spike has long been absorbed. Currently, we're focused on any upcoming changes, and just to reiterate, what has been implemented so far are the tariffs that are in effect. Many of the announcements from last week have not yet taken effect, and some aspects are still under negotiation, so those will be for the future. We will continue to follow our established strategy. Most projections indicate a slight increase, but we will continue to operate as we have been, adjusting according to developments.

It appears we have no further questions at this time. I'll turn the program back to the speakers for any additional or closing remarks.

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

This concludes today's program. Thank you for your participation. You may disconnect at any time.