Q3 2024 Standard Motor Products Inc Earnings Call

Good day, everyone and welcome to the standard motor products third quarter 2024 earnings call. At this time all participants are in a listen only mode. Later, you will have an opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing the star.

Operator: Good day, everyone, and welcome to the Standard Motor Products 3rd Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note, today's call will be recorded and I will be standing by should you need any assistance.

One on your telephone keypad, you may withdraw yourself from the queue by pressing star. Two. 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 Christova, Vice President of Investor Relations. Please go ahead.

Anthony Cristello: It is now my pleasure to turn the conference over to Tony Cristello, Vice President of Investor Relations. Please go ahead.

Anthony Cristello: Thank you, Brittany, and good morning, everyone, and thank you for joining us on Standard Motor Products' third quarter 2024 earnings conference call.

Tony Christova: Thank you Brittany and good morning, everyone and thank you for joining us on standard motor products third quarter 2024 earnings Conference call with me today are Larry cells, Chairman Emeritus, Eric sales, Chairman and Chief Executive Officer, Jim Burke, Chief operating Officer, and Nathan Iles Chief.

Anthony Cristello: 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.

Financial Officer.

Tony Christova: 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.

Anthony Cristello: 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.

Tony Christova: 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.

Speaker Change: You should also read our filings with the security 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.

Anthony Cristello: 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.

Eric Sills: I'll now turn the call over to Eric Sills, our CEO. Well, thank you, Tony, and good morning, everyone, and welcome to our third quarter earnings call. I'd like to start by thanking all of our employees around the world and recognizing them for the outstanding efforts in driving our company forward. They continue to do a fantastic job. Overall, we were very pleased with the quarter, posting a 3.3% increase over last year's record-setting quarter, putting us up almost 6% year-to-date. And this included revenue gains in all three operating segments, which I will discuss in greater detail. We are also pleased with the ongoing rebound of our profitability.

Eric Sills: Well, thank you Tony and good morning, everyone and welcome to our third quarter earnings call.

Eric Sills: I'd like to start by thanking all of our employees around the world and recognizing them for the outstanding efforts in driving our company forward. They continue to do a fantastic job for us.

Eric Sills: Overall, we are very pleased with the quarter posting a 3.3% increase over last year's record setting quarter, putting us up almost 6% year to date and this included revenue gains in all three operating segments, which I will discuss in greater detail.

We're also pleased with the ongoing rebound of our profitability.

Eric Sills: Adjusted diluted EPS was up over 15% from last year's third quarter, and we are now nicely ahead on a year-to-date basis. While we continue to face elevated costs across a host of inputs, we were able to overcome some of it through our various cost reduction initiatives.

Eric Sills: Adjusted diluted EPS was up over 15% from last year's third quarter and we are now nicely ahead on a year to date basis.

Eric Sills: While we continue to face elevated costs across a host of inputs, we were able to overcome some of that through our various cost reduction initiatives.

Let me discuss the segments starting with vehicle control.

Eric Sills: Let me discuss the segment starting with vehicle control. Sales were up 5% in the quarter against a relatively easy comparison and up 3% on a year-to-date basis. Our customers continue to invest in our lines as they enhance their assortments, expand their footprint, and recognize the benefits of strong stocking positions in this largely non-discretionary category. Turning to temperature control, we are pleased to see continued strong demand in the quarter. I think it's always helpful to remind people of the sales cadence of this highly seasonal category as it can vary substantially year to year. 2023 had a slow start, but then in the third quarter it got quite hot across the country and we had a record-setting period.

Eric Sills: Sales were up 5% in the quarter against a relatively easy comparison and up 3% on a year to date basis, our customers continue to invest in our lines as they enhance their assortments expand their footprint and recognize the benefits of strong stocking positions in this largely non discretionary category.

Eric Sills: Turning to temperature control, we are pleased to see continued strong demand in the quarter.

Eric Sills: I think it's always helpful to remind people of the sales cadence of this highly seasonal category as it can vary substantially year to year.

Eric Sills: 2023 had a slow start but then in the third quarter. It got quite hot across the country and we had a record setting period.

Eric Sills: This year, it got hot earlier, and we were up 16% at the half. We knew the third quarter comp would be difficult, so we were quite pleased to see sales remain robust, allowing us to beat last year's strong numbers by nearly 2%. And year-to-date, we are up now nearly 10%.

Eric Sills: This year it got hot earlier, and we are up 16% at the half we knew the third quarter comp would be difficult. So we are quite pleased to see sales remain robust, allowing us to beat last year's strong numbers by nearly 2% and year to date, we are up now nearly 10%.

As we head into the last few months of the year, it's worth reminding people that the fourth quarter is the lowest sales quarter and thus can be the most volatile.

Eric Sills: As we head into the last few months of the year, it's worth reminding people that the fourth quarter is the lowest sales quarter and thus can be the most volatile.

Next I'll address engineered solutions, our non aftermarket segment selling products to vehicle and equipment manufacturers across multiple end markets.

Eric Sills: Next, I'll address Engineered Solutions, our non-aftermarket segment selling products to vehicle and equipment manufacturers across multiple end markets. We continue to do well here, up nearly 1% in the quarter against a tough comparison, as last year's third quarter was up more than 8% over 2022. Here we do see some challenging market dynamics. The majority of our sales in this segment are geared towards new vehicle production and therefore are at the mercy of our customers' production schedules. Certain of these customers and end markets are beginning to show a slowdown, creating a headwind for us. We have always said that our success in this segment will be on achieving new contracts as we get known by these various global customers as a capable and committed supplier, and we are pleased that we have been more than able to offset the production slowdowns with the ramp-up of some new business wins.

Eric Sills: We continue to do well here up nearly 1% in the quarter against a tough comparison as last year's third quarter was up more than 8% over 2022.

Eric Sills: Here, we do see some challenging market dynamics. The majority of our sales in this segment are geared towards new vehicle production and therefore are at the mercy of our customers production schedules.

Eric Sills: Certain of these customers and end markets are beginning to show a slowdown creating a headwind for us.

Eric Sills: We have always said that our success in this segment will be on achieving new contracts as we get known by these various global customers as a capable and committed supplier and we are pleased that we have been more than able to offset the production slowdowns with the ramp up of some new business wins. However, we do expect some market softness to continue and facing another tough.

Eric Sills: However, we do expect some market softness to continue and face another tough comp in the fourth quarter.

Comp in the fourth quarter.

Eric Sills: Lastly, I want to spend a moment on a major acquisition announced in July.

Eric Sills: Lastly, I want to spend a moment on a major acquisition announced in July. To remind you, we reached a definitive agreement to acquire Europe-based Nissan's automotive pending regulatory approval. We have now achieved this approval, and as such, we expect to complete the transaction soon. Let me provide you with a thumbnail sketch of the company and our plans.

Eric Sills: To remind you we reached a definitive agreement to acquire Europe base to Nissan automotive pending regulatory approval.

Eric Sills: We have now achieved disapproval and as such we expect to complete the transaction soon.

Eric Sills: Let me provide you with a thumbnail sketch of the company and our plans if you wish to take deeper. Please review the materials and transcript from our Investor call on July 10th.

Eric Sills: If you wish to dig deeper, please review the materials and transcript from our investor call on July 10th. Headquartered in Denmark, Nissens is a leading aftermarket supplier of both thermal management and engine efficiency products, with annual sales of approximately $260 million and EBITDA in the mid-teens. Both sides are eager to get started working on the synergies, which we believe will fall in three main buckets. First is growth. We have overlapping product categories, though with differing weights and strengths. We believe we can expand each other's portfolios and grow sales in our respective markets. Second is cost reduction.

Eric Sills: Headquartered in Denmark, and this is as a leading aftermarket supplier of both thermal management and engine efficiency products with annual sales of approximately $260 million and EBITDA in the mid teens.

Eric Sills: Both sides are eager to get started working on the synergies, which we believe will fall in three main buckets.

Eric Sills: First is growth, we have overlapping product categories, though with differing weights and strengths. We believe we can expand each other's portfolios and grow sales in our respective markets.

Eric Sills: Second is cost reduction while there are many areas for cost savings across all functional areas for both listens and S&P. We believe this biggest areas for savings is likely product costs as we leverage our purchases with third party suppliers and in source production where Apple.

Eric Sills: While there are many areas for cost savings across all functional areas for both Nissans and SMP, we believe the biggest areas for savings is likely product cost as we leverage our purchases with third-party suppliers and in-source production where applicable. The third area for synergies is in helping each other become better companies and thus better suppliers to our customers. We can seek best practices across common functions. We can combine resources to tackle new technologies and pursue many other benefits through collaboration. We've been extremely impressed with the talent of the Nissan's team, with the energy and excitement that they have demonstrated, and truly believe we have matching cultures.

Eric Sills: The third area for synergies isn't helping each other become better companies and thus better suppliers to our customers. We can see best practices across common functions. We can combine the resources to tackle new technologies and pursuing many other benefits through collaboration.

Eric Sills: We've been extremely impressed with the talent of the misses team with the energy and excitement that they have demonstrated and truly believe we have matching cultures. So again, we are very eager to get started and we'll keep you posted on our progress.

Eric Sills: So again, we are very eager to get started, and we'll keep you posted on our progress.

Nathan Iles: With that, I will turn it over to Nathan to dive into the numbers. All right. Thank you, Eric.

Speaker Change: With that I will turn it over to Nathan to dive into the numbers.

Nathan Iles: Alright, Thank you Eric and good morning, everyone. As we go through the numbers I'll first give some colors our results by segment.

Nathan Iles: Good morning, everyone. As we go through the numbers, I'll first give some color on the adults by segment into 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 $200.9 million in Q3 were up 5.2%, and for the first nine months are now up 2.8%, with the increase driven by solid demand for our products and new business wins. Vehicle controls adjusted EBITDA of 13.2% for the third quarter is up from last year, driven by a higher gross margin rate and better leverage of operating expenses.

Holliday's 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 the net sales of $200 9 million in Q3 were up five 2% and for the first nine months are now up to 8% with the increase driven by solid demand for our products and new business wins.

Vehicle controls adjusted EBITDA of 13, 2% for the third quarter is up from last year, driven by a higher gross margin rate and better leverage of operating expenses. The gross margin rate was helped by higher sales and favorable cost absorption and operating expense leverage also benefited from the higher sales volume.

Nathan Iles: The gross margin rate was helped by higher sales and favorable cost absorption, and operating expense leverage also benefited from the higher sales volume. Vehicle controls adjusted EBITDA of 11.4% for the first nine months is down from last year, mainly as a result of higher operating and factory expenses. SG&A expenses increased, mainly due to inflationary increases, which I'll touch more on later, and factory expenses increased due to higher sales and timing of cash collection. Turning to temperature control, net sales in the quarter for that segment of $126 million were up 1.9 percent, and for the year so far, sales are now up 9.9 percent, as we had another year of favorable weather patterns that started early in the season and continued into the third quarter, helping the segment turn in higher sales against a difficult comparison.

Vehicle controls adjusted EBITDA of 11, 4% for the first nine months is down from last year, mainly as a result of higher operating factory expenses.

Nathan Iles: SG&A expenses increased mainly due to inflationary increases, which I'll touch more on later and factory expenses increased due to higher sales and timing of cash collections.

Nathan Iles: Turning to temperature control net sales in the quarter for that segment of $126 million were up one 9% and for the year. So far sales are now up nine 9% as we had another year of favorable weather patterns that started early in the season and continued into the third quarter, helping the segment turned in higher sales against the difficult comparison.

Nathan Iles: Temperature controls adjusted EBITDA increased in Q3 to 14, 7% and for the first nine months increased to 11, 7% as higher sales volumes led to higher gross margin rates and improved operating expenses as a percent of sales for both the quarter and year to date periods.

Nathan Iles: Temperature controls adjusted EBITDA increased in Q3 to 14.7 percent and for the first nine months increased to 11.7 percent as higher sales volumes led to higher gross margin rates and improved operating expenses as a percent of sales for both the quarter and year-to-date period. Looking at engineered solutions, sales in that segment in the quarter were up 0.8% and for the first nine months were up 3.8%. We were pleased to see our sales continue to increase in this segment, as new business wins with both existing and new customers support growth here, despite some slowing of production in certain end markets.

Nathan Iles: Looking at engineered solutions sales in that segment in the quarter were up 8% and for the first nine months were up three 8%.

We were pleased to see our sales continue to increase in this segment as new business wins with both existing and new customer support growth here. Despite some slowing of production in certain end markets.

Nathan Iles: Adjusted EBITDA for engineering solutions in the quarter of 11.9 percent was down from last year, but was up against a difficult comparison in the third quarter last year, where the gross margin rate benefited from favorable customer mix. While gross margin was lower due to a more normal sales mix, it also continued to see cost pressures and was partly offset by operating expenses that were lower as a percentage of sales. Engineered solutions adjusted EBITDA for the first nine months is down from last year, mainly due to lower gross margin as a result of cost pressures and partly offset by good control over operating expenses.

Nathan Iles: Adjusted EBITDA for engineered solutions in the quarter of 11, 9% was down from last year, but was up against a difficult comparison in the third quarter last year, where the gross margin rate benefited from favorable customer mix, while gross margin was lower due to a more normal sales mix. It also continue to see cost pressures. It was partly offset by operating expenses.

Nathan Iles: Were lower as a percentage of sales.

Nathan Iles: Engineered solutions adjusted EBITDA for the first nine months is down from last year, mainly due to lower gross margin as a result of cost pressures and partly offset by good control over operating expenses.

Nathan Iles: Turning to our consolidated numbers the change in our net sales and gross margin for the quarter and first nine months versus last year was the result of the changes in our segments I just highlighted.

Nathan Iles: Turning to our consolidated numbers, the change in our net sales and gross margin for the quarter in the first nine months versus last year was the result of the changes in our segments I just highlighted. Regarding Consolidated SG&A excluding factoring, which is shown separately on the page. Expenses were up for both the quarter and first nine months. As a percentage of net sales, SG&A was flat with last year at 16.9% in the quarter, given strong sales volume, but was up a little to 17.9% for the first nine months. Startup costs related to our new distribution center were $1.1 million in the quarter and $3.5 million year-to-date.

Regarding consolidated SG&A excluding.

Nathan Iles: Excluding factoring which is shown separately on the page expenses were up for both the quarter and first nine months.

Nathan Iles: As a percentage of net sales SG&A was flat with last year at 16, 9% in the quarter given strong sales volume was up a little to 17, 9% for the first nine months.

Nathan Iles: Startup costs related to our new distribution center for $1 1 million in the quarter and $3 5 million year to date and without these costs SG&A would have been 16, 6% in Q3 and for the first nine months would have been 17, 6% and flat with last year.

Nathan Iles: And without these costs, SG&A would have been 16.6% in Q3. And for the first nine months, would have been 17.6% and flat with last year. I noted earlier in the year that increases in SG&A costs were driven by general inflation, but also elevated distribution expenses across a number of inputs, and that we would be looking at ways to reduce costs going forward. To that point, we continue to execute the retirement program we announced at the beginning of the quarter, and we were pleased to see that benefit our expenses. As a reminder, we anticipate the savings of about $10 million from this program will be realized over time, phasing in starting in the second half of this year, running through December 2025.

Nathan Iles: I noted earlier in the year the increases in SG&A costs were driven by general inflation, but also elevated distribution expenses across a number of inputs and that we would be looking at ways to reduce costs going forward.

Nathan Iles: To that point, we continue to execute the retirement program, we announced at the beginning of the quarter and we were pleased to see that benefit our expenses.

As a reminder, we anticipate the savings of about $10 million from this program will be realized over time phasing in starting in the second half of this year running through December 2025.

Nathan Iles: We incurred a charge of $3 million related to this program in Q3 and $5.6 million year to date. We expect to incur an additional smaller charge of $1.3 million in the remainder of the year as people retire. We'll also continue to review other levers to pull to reduce costs overall. On our consolidated bottom line, we were pleased to see a combination of sales growth, margin improvement, and operating expense leverage help us achieve a 15% increase in non-GAAP diluted earnings per share in the quarter, and also put earnings ahead of last year for the first nine months.

Nathan Iles: We incurred a charge of $3 million related to this program in Q3, and $5 6 million year to date.

Nathan Iles: We expect to incur an additional smaller charge of $1 3 million in the remainder of the year as people retire.

Nathan Iles: We will also continue to review other levers to pull to reduce costs overall.

Nathan Iles: On a consolidated bottom line, we were pleased to see a combination of sales growth margin improvement and operating expense leverage helped us achieve a 15% increase in non-GAAP diluted earnings per share in the quarter and also put earnings ahead of last year for the first nine months.

Nathan Iles: Turning now to the balance sheet accounts receivable were $217 1 million at the end of the quarter higher than last year due to higher sales.

Nathan Iles: Turning now to the balance sheet, accounts receivable were $217.1 million at the end of the quarter, higher than last year due to higher sales. Inventory levels finished Q3 at 503 million, up versus September last year, mainly due to levels needed to satisfy higher sales volumes. Our cash flow statement reflects cash generated in operations for the first nine months of $78.2 million as compared to cash generated of $132.9 million last year. Cash generated in operations last year was aided by a reduction in inventory balances that did not recur this year after bringing inventory back down to normal levels.

Nathan Iles: Inventory levels finished Q3 at $503 million up versus September last year, mainly due to levels needed to satisfy higher sales volumes.

Nathan Iles: Our cash flow statement reflects cash generated in operations for the first nine months of $78 2 million as compared to cash generated of $132 $9 million last year cash.

Nathan Iles: Cash generated in operations last year was aided by a reduction in inventory balances that did not recur this year after bringing inventory back down to normal levels.

Nathan Iles: Invest investing activities show capital expenditures, increasing this year to $34 1 million, which includes $16 5 million of investment related to our new distribution center.

Nathan Iles: Investing activities show capital expenditures increasing this year to $34.1 million, which includes $16.5 million of investment related to our new distribution center. Financing activities show payment of $19 million of dividends and $10.4 million of share repurchases in the first nine months. as well as repayments of debt of $13.4 million. Regarding share repurchases, while we have $19.6 million of authorization remaining from our board, we have paused repurchases in anticipation of closing on the acquisition of Nissan soon. Our net debt of $116.5 million at the end of Q3 was lower than last year, and we finished the quarter with a leverage ratio of 0.9 times.

Nathan Iles: Financing activities show payment of $19 million of dividends and $10 4 million of share repurchases in the first nine months as.

Nathan Iles: As well as repayments of debt of $13 4 million regarding share.

Nathan Iles: Repurchases, while we had $19 6 million of authorization remaining from our board we have paused repurchases in anticipation of closing on the acquisition of Nissin suite.

Nathan Iles: Our net debt of $116 5 million at the end of Q3 was lower than last year, and we finished the quarter with a leverage ratio of <unk> nine times.

Nathan Iles: As we noted in July, we do expect our leverage ratio to increase to three to three and a half times on a pro forma basis once the acquisition of business has closed, and we'll then use cash flows to work our debt balances down to lower levels. And speaking of closing the NISM's acquisition, we were extremely pleased to enter into a new five-year, $750 million credit facility during the quarter. The new facility gives us the ability to complete the acquisition and allows for continued flexibility to grow our business. I'd like to thank our team and banking partners for helping us get this new facility in place in the quarter.

Nathan Iles: As we noted in July we do expect our leverage ratio to increase to three to three and a half times on a pro forma basis. Once the acquisition of NUCYNTA is closed and we'll then use cash flows to work our debt balances down to lower levels.

Nathan Iles: Speaking of closing the <unk> acquisition, we were extremely pleased to enter into a new five year $750 million credit facility during the quarter.

The new facility gives us the ability to complete the acquisition and allows for continued flexibility to grow our business I'd like to thank our team and banking partners for helping us get this new facility in place in the quarter.

Nathan Iles: Before I finish I want to give an update on our sales and profit expectations for the full year of 2024, which are unchanged from our previous outlook.

Nathan Iles: Before I finish, I want to give an update on our sales and profit expectations for the full year of 2024, which are unchanged from our previous outlook. Regarding our top-line sales, we expect to see low- to mid-single-digit percentage growth in sales for the full year. We also continue to expect adjusted EBITDA to be in a range of 9 to 9.5%. This estimate includes cost pressures, which continue to be a headwind for vehicle control and engineering solutions segments, and factory expenses of $48 to $50 million as sales are expected to be higher than last year. We also have some costs related to our new distribution center in Shawnee, Kansas, which in total will be $7 to $8 million in 2024.

Nathan Iles: Regarding our top line sales, we expect to see low to mid single digit percentage growth in sales for the full year.

Nathan Iles: We also continue to expect adjusted EBITDA to be in a range of nine to nine 5%.

Nathan Iles: This estimate includes cost pressures, which continues to be a headwind for vehicle control and engineered solutions segments and factory expenses of $48 million to $50 million as sales are expected to be higher than last year.

Nathan Iles: We also have some costs related to our new distribution center in Shawnee, Kansas, which in total will be $7 million to $8 million in 2024.

Nathan Iles: As a reminder, we incurred about $2 million of costs for this warehouse last year, which means we have incremental costs in 2024 of $5 to $6 million, of which we estimate $3 to $5 million of startup related. In connection with our adjusted EBITDA outlook, we expect our interest expense on outstanding debt to be about $10 million for the full year, and our income tax rate to be 25%. Regarding operating expenses, please keep in mind these expenses are incurred more relatively across the year but do have some variability with sales and as such will fluctuate with seasonality in the business.

Nathan Iles: As a reminder, we incurred about 2 million of costs for this warehouse last year, which means we have incremental cost in 2024 of $5 million to $6 million.

Nathan Iles: Of which we estimate $3 million to $5 million of startup related.

Nathan Iles: In connection with our adjusted EBITDA outlook, we expect our interest expense on outstanding debt to be about $10 million for the full year and our income tax rate to be 25%.

Nathan Iles: Regarding operating expenses. Please keep in mind. These expenses are incurred more ratably across the year, but do you have some variability with sales and as such will fluctuate with seasonality in the business. Given this dynamic expenses in Q4 will be lower than Q3, and we anticipate anticipate total operating expenses for the year inclusive of factory will be in the range of 314.

Nathan Iles: Given this dynamic, expenses in Q4 will be lower than Q3, and we anticipate total operating expenses for the year, inclusive of factoring, will be in the range of $314 million to $318 million. Finally, please note that our 2024 Outlook does not include any impact from the Nissan's acquisition, as exact timing of closing is not yet known. We are eager to get Nissan's on board and begin working through the many opportunities to grow and improve our businesses together. As we do, we'll plan to present the Nissan's business as a new segment for S&P, and we'll share more information on our Outlook for 2025 on our next quarterly call.

Nathan Iles: To $318 million.

Nathan Iles: Finally, please note that our 2024 outlook does not include any impact from the <unk> acquisition is exact timing of closing is not yet known.

Nathan Iles: We are eager to get in essence onboard and begin working through the many opportunities grow and improve our businesses together as we do we will plan to present, the Nissan business as a new segment for S&P and we'll share more information on our outlook for 2025 on our next quarterly call.

Nathan Iles: To wrap up, we were very pleased with our sales growth in both the quarter and first nine months of the year, as well as our earnings, which are now ahead of last year. I want to thank everyone at S&P for helping us achieve these results.

Nathan Iles: To wrap up we're very pleased with our sales growth in both the quarter and first nine months.

Nathan Iles: As well as our earnings which are now ahead of last year.

Eric Sills: I think everyone at S&P for helping us achieve these results. Thank you for your attention and I'll turn the call back to Eric for some final comments alright. Thank you Nathan so to close let me just spend a moment on how we're thinking about the future.

Nathan Iles: Thank you for your attention.

Eric Sills: I'll turn the call back to Eric for some final comments. All right, thank you, Nathan. So to close, let me just spend a moment on how we're thinking about the future. There's obviously a great deal of external factors at play right now that can impact things in ways that are difficult to predict, yet the markets that we are in have always demonstrated their resilience. The North American aftermarket has proven time and again that it does well both in good times and in bad, and during difficult economic times while discretionary products can come under pressure, our products are largely non-discretionary repair items that consumers must purchase to keep their vehicles operating safely.

Eric Sills: There's obviously a great deal of external factors at play right now that it can impact things in ways that are difficult to predict yet the markets that we are and have always demonstrated their resilience.

Eric Sills: The North American aftermarket has proven time and again that it does well both in good times and in bad and during difficult economic times, while discretionary products can come under pressure our products are largely non discretionary repair items that consumers consumers must correct just to keep their vehicles operating safely.

Eric Sills: We recognize that certain engineered solutions end markets can demonstrate some volatility yeah. We have demonstrated that our strength here isn't gaining market share in this enormous global market.

Eric Sills: We recognize that certain engineered solutions and markets can demonstrate some volatility, yet we have demonstrated that our strength here is in gaining market share in this enormous global market where our new business awards can absorb temporary downturns. And as we have repeatedly said, while we can expect some lumpiness along the way, we believe the long-term trends to be very favorable. And lastly, we believe that Nissan's is truly a game changer for us for all the reasons described earlier. So again, while anything can happen quarter to quarter, the future is certainly bright.

Eric Sills: New business awards can absorb temporary downturn.

Eric Sills: And as we've repeatedly said, while we can expect some lumpiness along the way we believe the long term trends can be very favorable.

Eric Sills: And lastly, we believe that in essence is truly a game changer for us for all the reasons described earlier, so again, while anything can happen quarter to quarter the future certainly bright.

Eric Sills: So that concludes our prepared remarks.

Eric Sills: So that concludes our prepared remarks at this point well turn it over to the moderator and we'll open it up for your questions.

Operator: At this point, we'll turn it over to the moderator, and we'll open it up for your questions. Thank you.

Speaker Change: Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star to once again that is star. One if you would like to ask a question and we will take our first question from Scott Berg with rock N. K M. Your line is now open.

Operator: At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one if you would like to ask a question.

Scott Stember: And we will take our first question from Scott Stember with Roth MKM. Your line is now open. Good morning, guys, and thanks for taking my question. Thanks for joining us. That. Within Vehicle Control, two of your bigger customers had been reporting sluggish DIFM or professional business. Still up, but just sluggish, and you guys put up a really good number.

Scott Berg: Good morning, guys and thanks for taking my questions.

Speaker Change: Good morning, Scott.

Within vehicle control two of your bigger customers had been reporting.

Speaker Change: Sure.

Speaker Change: M will professional business still up but just sluggish and you guys put up a really good number I'm just trying to get a sense of what your what you guys are seeing what the P. O S was for the quarter and vehicle control and just in general how youre viewing the outlook. There you know heading into the end of the year and into next year.

Eric Sills: Just trying to get a sense of what you guys are seeing, what the POS was for the quarter in Vehicle Control, and just in general, how you're viewing the outlook there heading into the end of the year and into next year. Sure. So, yes, some of the publicly traded customers have been speaking about what their market has looked like, and they are tending to say that DIFM, non-discretionary product, is outperforming, and those are obviously the categories that we're in. They're seeing more pressure on front room product and retail and DIY. The POS that we've seen through the quarter has been pretty consistent with what we've seen for the year, which has been relatively flattish.

Speaker Change: Sure So oh.

Speaker Change: Yeah Sarah.

Speaker Change: Some of that.

Speaker Change: Traded our customers have been speaking about what their market has looked like them and they are attending to say that D. I S. M. Non discretionary product is outperforming and those are obviously the categories that we're at and we're seeing more pressure on front room product in retail and DIY.

The Pos that we have seen through the quarter has been pretty consistent with what we've seen for the year, which has been a relatively flattish. So as we look at at our sales exceeding that or they're at their purchases from us exceeding that what that really reflects is the.

Eric Sills: So, as we look at our sales exceeding that, or their purchases from us exceeding that, what that really reflects is this kind of slow evolutionary expansion of their footprint, of their assortment, as they look to have the best inventory forward deployed. So, it's not necessarily a stocking change that they're doing. It's just this evolutionary building out new stores and putting more inventory into each individual store. So, that's that small delta between their sell-through and their purchases from us. Got it.

Speaker Change: Just kind of slow evolutionary expansion of their footprint of their assortment as they look to have the best inventory forward deployed so it's not necessarily a stocking change.

Speaker Change: That theyre doing says, it's evolutionary building out new stores.

Speaker Change: And and putting more inventory into each individual store. So that's that small delta between their their sell through in their purchases from us.

Speaker Change: Got it and temperature control if my memory serves me correct we had.

Eric Sills: And temperature control, if my memory serves me correct, we had a longer than expected summer, which went into some of the fall months, then you had Strong demand and inventories. I think we're in really good shape heading into the offseason. How are we looking this year, inventories and temperature control? So this year, we've actually come out of the, I assume you're referring to customer inventory or our inventory? Customer inventory. Sorry, you broke up the customer, okay. Yeah, so what we see is actually last year, what happened was because the season started out slow and then they basically did their entire season's worth of sales in the third quarter.

Speaker Change: Longer than expected summer, which went into some of the fall months and then you had some strong demand.

Speaker Change: And inventories I think we're in really good shape heading into the off season, how are we looking at this year inventories in temperature control.

Speaker Change: Yeah. So this year, we've actually come out of the I assume you're referring to customer inventory or our inventory customer inventory.

Speaker Change: Sorry.

Speaker Change: I'm, sorry, you broke up a customer okay. Yes. So what we see is actually last year. What happened was because it's the season started out slow and then they basically did their entire season's worth of sales in the third quarter. They came out of last year healthy, but a little bit light.

Eric Sills: They came out of last year healthy, but a little bit light. This year, as that had been the trend coming into the quarter, both them and us were able to maintain that throughout the period. And so they ended, so sell-in basically matched sell-through and they came out in a pretty good position. Got it.

Speaker Change: This year.

Speaker Change: As that had been there.

Speaker Change: Trend coming into the quarter.

Speaker Change: Both them and us we're able to maintain that throughout the period and so they ended up selling basically match sell through in the end and they came out in a pretty good position.

Speaker Change: Got it and then lastly.

Eric Sills: And then lastly, on engineer solutions, the commercial vehicle had a really strong quarter and it looks like some of the other areas were a little flattish to down. Maybe just talk about commercial vehicle and then your comments about things. It sounds like incrementally softening potentially in the fourth quarter. Well, first, in terms of the different end markets, and as you look at our quarterly results across those four subsegments that we report in, There's a fair amount of movement among them. And so I would say that this quarter is just kind of more of the same as there's always going to be a little bit of lumpiness across these different end markets.

Speaker Change: In engineered solutions.

Commercial vehicle had a really strong quarter and it looks like some of the other areas, where a little flattish to down maybe just talk about commercial vehicle and then your comments about things it sounds like incrementally softening potentially in the fourth quarter.

Speaker Change: Yeah, well first in terms of the different end markets and as you look at our quarterly results across those those four sub segments that we report in.

Speaker Change: There's a fair amount of movement among them and so I would say that this quarter is just kind of more of the same as theres always going to be a little bit of lumpiness across these different end markets.

Eric Sills: But the area where you are seeing probably a little bit more softness is in construction agricultural equipment and you know who some of the big players are and what they're reporting. So that's what you're seeing across the different subsegments. I wouldn't spend too much time worrying about what happens in any given quarter across them. Overall, what we're seeing is that Their production schedules are continuing to be a little bit softer than historic, and that can create a headwind for us. And we're navigating through that. And as we've said, the long term, it tends to take care of itself.

Speaker Change: And but the area, where you are seeing probably a little bit more softness is in is in construction and agricultural equipment and you know who some of the big players are and what they're reporting.

Speaker Change: So so that that's what you're seeing across the different sub segments I wouldn't spend too much time worrying about what happens in any given quarter across them.

Speaker Change: Overall, what we're seeing is that Ah is.

Is that.

Speaker Change: Their production schedules are continuing to be a little bit softer than historic.

Speaker Change: And that can create a headwind for us and we're navigating through that and as we've said the long term.

It tends to take care of itself, we're going up against a very strong comp of last year's fourth quarter.

Eric Sills: We're going up against a very strong comp of last year's fourth quarter.

Speaker Change: Got it if I could just squeeze one more in here looking out to 'twenty five and how you guys are not providing any guidance, but just a lot of moving pieces and even not including Nissan and the mix that we have the interest rates are coming down a bit which should help on the factoring side.

Scott Stember: Got it, if I could just squeeze one more in here. Looking at the 25, I know you guys are not providing any guidance, but just a lot of moving pieces and even not including Nissans in the mix. So we have the interest rates are coming down a bit, which should help on the factoring side. And you should have some carryover costs for the new. So just trying to get a sense of things we should maybe be thinking about for next year from a modeling perspective. Yes, Scott, to your point, we're not providing any guidance on 25 at this point.

Speaker Change: And you should have some carryover costs from the new.

Speaker Change: D C. So just trying to get a sense of things, we should maybe be thinking about.

Speaker Change: For next year from a modeling perspective.

Speaker Change: Yes. This is Scott to your point, we are not providing any guidance on 25 at this point I think in terms of items Youre looking at those are the right things to focus on.

Scott Stember: I think in terms of items you're looking at, those are the right things to focus on. I would just point out on interest rates, we continue to follow that like everyone does. And while rates, I think, started to come down a bit, in the middle of the third quarter, they went back up as expectations changed. So, we're still watching that 360-day rate to see what will happen in the 12 to 15 months. All right, that's all for me. Thank you. And once again, that is star and one. If you would like to ask a question, we'll pause for just a moment to allow questions to queue.

Speaker Change: I would just point out on interest rates, we continue to follow that like everyone does and while rates I think started to come down a bit in the middle of the third quarter. They went back up as expectations change. So we're still watching that 360 day rates to see what will happen.

Speaker Change: 12 to 15 months.

Speaker Change: Got it.

Speaker Change: Alright, Thats all for me. Thank you.

Speaker Change: Thank you.

Speaker Change: And once again that is star and one if you would like to ask a question, we'll pause for just a moment to allow questions to queue.

Speaker Change: And it appears we have no further questions at this time I'll turn the program back over to Tony Crystal over any additional Oh I apologize, we do have the right.

Operator: And it appears we have no further questions at this time.

Operator: I'll turn the program back over to Tony Cristello for any additional. Oh, I apologize.

Carolina Jolly: We do have a question from Carolina Jolly with Gambelli. Your line is now. Hi, thank you for taking my question. I just wanted to talk, I know that there's been some conversations around some softening in Europe. Have you been able to work with a Nissan's team as a deal's closing to just to best work with that team and in that market?

Question from Carolina, Jolly with Gabelli. Your line is now open.

Carolina, Jolly: Alright, Thank you for taking my question.

Carolina, Jolly: Just wanted to talk I know that theres been some conversations around some softening in Europe.

Carolina, Jolly: Have you been able to work with our nathans team.

The deals clothing to just.

Carolina, Jolly: Me too.

To best work with that team and in that market.

Speaker Change: Well good morning Carolina.

Eric Sills: Good morning, Carolina. So let me start with the caveat that we haven't closed this deal yet, and so anything I can share with you is really going to be more directional than specific. But I think it's important to note, in general, and you see it here with everything we know about the North American aftermarket, that they're going to talk in generalities across a whole host of different product categories and across all the different countries in the region. is similar to S&P's business in that it is largely non-discretionary, but it is a little bit over-indexed towards temperature-related product, and in Europe there, too, they had a very strong summer, which has favorable impact on their potential business.

Speaker Change: So.

Speaker Change: Let me start with the caveat that we Havent closed this deal yet and so any anything I can share with you is really going to be more directional than specific.

Speaker Change: But I think it's important to note and general and you see it here with that with everything we know about the north American aftermarket that theyre going to talk in generalities across a whole host of different product categories and across all the different countries in the region.

Speaker Change: And in essence.

Speaker Change: Is similar to that.

Speaker Change: S M P's business and that is largely non discretionary but it is a little bit over indexed towards temperature related product and in Europe. There are two they had a very strong summer.

Speaker Change: Which has favorable impact on their potential business. So.

Eric Sills: So, again, as you said, we're going to start sharing a lot more information with them once they are truly part of S&P, which we hope is soon, and so more to come on that.

Speaker Change: Again, as we said we're going to start sharing a lot more information with them. Once they are truly part of S&P, which we hope as soon.

Speaker Change: And so more to come on that.

Okay. Thanks for that information.

Operator: Thanks for that information. And we have no further questions on the queue at this time.

Speaker Change: And we have no further questions on the queue. At this time I will turn the program back over to Tony Cristiano for any additional or closing remarks.

Anthony Cristello: I will turn the program back over to Tony Cristello for any additional or closing remarks. Okay, thank you. I want to thank everyone for participating in our call today. I understand there's a lot of information to be 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.

Tony Cristiano: Okay. Thank you I want to thank everyone for participating in our call today I understand there is a lot of information to present, it 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 Web site and I hope everyone has a great day. Thank you.

Operator: and I hope everyone has a great day. Thank you.

Speaker Change: Thank you. This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful day.

Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day.

Tony Cristiano: Okay.

Tony Cristiano: Yes.

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