Standard Motor Products, Inc. Aktie

Hello, and welcome, everyone, joining today's Standard Motor Products First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Tony Cristello, Vice President of Investor Relations. Please go ahead.

Okay. Thanks, Aaron, and good morning, everyone. Thank you for joining us on Standard Motor Products First Quarter 2026 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 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. I'll now turn the call over to Eric Sills, our CEO.

Well, thank you, Tony, and good morning, everyone, and welcome to our first quarter earnings call. Overall, we are quite pleased with our performance with all of our segments off to a solid start. Our top line grew by over 9%, reflecting a continuation of the demand trends we have been enjoying for the last several quarters. I'll walk through each operating segment, providing highlights and discuss how we are positioned for the future.

Vehicle Control had a terrific quarter with sales up more than 11%. A large portion of this was attributable to certain customers expanding their assortment with pipeline orders. And while this is somewhat of a onetime event, we tend to see an ongoing lift by having better in-market inventory.

Beyond that, we continue to see general strength of the business as demonstrated by customer POS in the mid-single digits where it has been for the last many quarters. This reflects the nondiscretionary nature of our products and the brand equity we have with the professional repair shops. Lastly, for vehicle control, if you recall, the last 2 quarters saw a steep decline in the wire set subcategory, which we explained was related to customers rightsizing their shelves for this mature product. As expected, this has now returned to its normal single-digit secular decline.

Turning to Temperature Control. Here, too, we had a solid quarter, up slightly from last year's extremely strong first quarter where sales were up 24%. As is typical in this segment, the beginning of the year is marked largely by preseason orders, which can break across the first and second quarters. Last year was heavily in Q1, while this year is more spread out. And as we enter the second quarter, we have preseason orders left to ship.

Further, we have been pleased to see that POS was up substantially, though this is in the lower sales. And importantly, this segment is always impacted by the strength of the selling season, but we're certainly off to a good start. Lastly, both of our North American aftermarket segments saw a nominal lift from tariff pass-through pricing, which took effect in the second half of last year.

Next, I'll speak about Nissens Automotive, our European aftermarket business. Sales were up more than 12%, though much of this was driven by stronger currency translation than a year ago. In local currency, sales were up 2.7% going against a tough comparison. Last year, we had an unusually robust first half due to customer order patterns, while this year has returned to a more normal cadence. We continue to enjoy solid performance in Europe, partly due to the nondiscretionary nature of our products, but also attributable to Nissens' brand recognition helping us gain penetration.

Nissens has now been part of the SMP family for a bit over a year, and we are delighted with its performance, both in and of itself and as a complement to our other businesses and the synergies it creates. Our preliminary focus was on savings, which we expect to roll in over the course of this year. We're also focused on cross-selling, expanding our offering on both sides of the ocean.

Toward the end of last year, we launched 2 new categories in Europe, ignition coils and air conditioning hoses. These are important categories for us here in the U.S., both of which leverage our manufacturing capabilities. And while it is still early, we are starting to gain some shelf space. We continue to work towards ongoing portfolio expansion opportunities, leveraging each other's strengths.

Lastly, I'll speak to our non-aftermarket segment, Engineered Solutions. We enjoyed strong first quarter sales, up more than 12% over last year when the business was rather soft. As we've discussed, this business will be subject to more volatility than the aftermarket as it will rise and fall with demand for new vehicles and equipment and the sales rebound that began in mid-2025 has continued with strength at certain customers within our commercial vehicle and powersports end markets.

Finally, let me speak briefly about the current tariff landscape and its impact on our business. Most of the significant changes happened in 2025, and this year has been more stable. That said, there have been changes related to the elimination of the reciprocal tariffs, the addition of new Section 122 tariffs and changes to the steel and aluminum derivatives tariffs.

When combined, these essentially offset each other, and we continue to operate a successful pass-through playbook to accommodate any impact. So when you put all these moving pieces together, we're very pleased with our performance thus far 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.

Good morning, everyone. Thank you, Eric. As we go through the numbers, I'll first give some color on the results for the quarter by segment and the consolidated level, and then I'll cover some balance sheet and cash flow metrics and finish with an update on our financial outlook for the full year of 2026.

First, looking at our Vehicle Control segment. You can see on the slide that net sales of $213.8 million in Q1, were up 11.2% as we saw a significant amount of orders to broaden our customers' product assortments come through during the quarter as well as the impact of slightly higher pricing from pass-through of tariffs. Vehicle Controls adjusted EBITDA of 11.4% in the quarter was just slightly lower than last year as higher sales volume and better operating expenses as a percent of net sales was offset by some gross margin rate compression from passing through tariffs at cost.

Turning to Temperature Control. Net sales in the quarter for that segment of $89.5 million were up 0.7% for the reasons Eric noted before. Temperature Control's adjusted EBITDA increased in Q1 to 13.4% as good sales volumes led to a higher gross margin rate and operating expenses improved as well. Looking next at Nissens, sales grew by $8.2 million or 12.4%, mostly reflecting the impact of currency conversion, but also continued sales growth in local currency, even though we were up against a difficult comparison, where last year had very robust orders in the first half.

Adjusted EBITDA for Nissens of 12.5% of net sales in Q1 was lower than last year, mainly as a result of some currency transaction losses, which occurred in the quarter versus small gains in the prior year. The currency losses stem from sourcing activities in China, where the currency strengthened sharply in Q1, but is returning to a more stable level. Also keep in mind that Nissens business is seasonal given their offering of temp control products, and so the first quarter profit is generally lower than other quarters.

Sales for our Engineered Solutions segment in the quarter were up 12.6%, and we were pleased to see growth across most markets. Our adjusted EBITDA for Engineered Solutions in the quarter of 6.9% was down from last year as gross margin was lower due to inflationary headwinds and amortization of manufacturing variances from late last year as well as some mix, partly offset by improved operating expense leverage on higher sales.

To wrap up our results discussion and put it all together across the 4 segments for Q1, consolidated sales increased 9.1%, while adjusted EBITDA was 9.9% of net sales and almost $2 million better than last year. Further, non-GAAP diluted earnings per share were $0.82 in the quarter.

Turning now to cash flows. Cash used in operations for the quarter of $41.9 million was $18.3 million better than last year as we were well prepared with inventory coming into the year to meet higher sales levels in Q1. Investing activities showed capital expenditures of $6.7 million, which is lower than last year as capital spending related to our new DC is mostly completed.

Financing activities showed payments of $7.3 million of dividends as well as $44 million in borrowings on our credit agreement. Our net debt stood at $599.4 million, flat with Q1 last year. We finished the quarter with a leverage ratio of 3x EBITDA given seasonality in our business and believe we are on track to get to our target of 2x EBITDA by the end of 2026.

Before I finish, I want to give an update on our sales and profit expectations for the full year of 2026, which is really unchanged from before. Before I do, let me note that our outlook does not take into account ongoing changes in U.S. tariffs on imported goods. We follow changes closely, but things change continuously. Whatever the impact is on our business, we will continue to offset our cost of the dollar-for-dollar pass-through in pricing.

For 2026 full year, we expect sales growth to be in the low to mid-single-digit percentage range, driven by continued momentum in North America and Europe and more stable market conditions in our Engineered Solutions segment. Our outlook for adjusted EBITDA margin is a range of 11% to 12% of net sales and reflects margin benefits to sales growth, but also some continued margin compression from passing through tariffs to costs.

In connection with our adjusted EBITDA outlook, we continue to expect interest expense on outstanding debt to be about $30 million for the full year. Our income tax rate to be 27.5% to 28% and depreciation and amortization expense to increase to $45 million to $50 million as we'll have a full year of depreciation on distribution center investments and also continue to invest generally in our business.

To wrap up, we're very pleased with how our year has started with strong sales growth and good profitability. We thank all of our associates across the company for helping us turn in these results. Thank you for your time. I'll now turn the call back to Eric for some final comments.

Thanks, Nathan. In closing, let me just spend a moment discussing how we're viewing things for the balance of the year and beyond. Even in the face of a challenging environment, we've enjoyed several consecutive quarters of solid performance and believe that this momentum will continue. We are operating in strong and stable markets and believe we are outperforming due to a combination of structural advantages, customer relationships and execution.

We've made great strides in diversifying our business with new product categories, geographies and end markets, all with the focus of seeking complementary benefits. We're certainly in the midst of complicated times. It remains unknown what impact the conflict in the Middle East will have, either on costs or potentially on supply chain disruption as well as an ever-changing tariff landscape, but we have a strong track record of navigating these challenges with robust and resilient supply chains and a favorable manufacturing footprint.

Within our legacy business, the North American aftermarket, we believe we excel. The industry itself continues to demonstrate its stability and resilience in the face of turbulent times. And within it, we believe we tend to outperform with a business model that targets repair professionals with quality products and brands they trust.

Nissens is a fantastic new leg to our stool and is exceeding our expectations. They are a great company in their own right. And as part of SMP, they provide great business diversity while being similar enough to generate meaningful synergies, both to the top and bottom line. Our Engineered Solutions business continues its rebound and is a strong complement to our core business, and so we remain very bullish about the future. That concludes our prepared remarks. At this point, we will turn it back to the moderator and then open it up for questions.

[Operator Instructions] And we can take our first question from Scott Stember with ROTH Capital.

Speaking to Vehicle Control, you talked about some outsized sell-in, I guess, to a couple or 2 or 3 customers in the quarter to broaden their -- I guess, their portfolio of SKUs. Do you think that this is more something related to just industry-wide? Or how much of this is because of the innovation and new products that Standard has come out with in the last 6 to 12 months?

It's much -- it's a good question, Scott. And this is really just a typical process that we go through with our customers to take a look at their inventory position and as has been a trend over these last few years, making sure that they have the smartest inventory forward deployed. So this didn't have to do necessarily with new products or innovation. This was just saying where do we see opportunities.

It's very much of a collaborative event that we have with customers, where do we see opportunities to strengthen your position to help you gain share at the consumer or at the independent repair shop. So this quarter was heavier than we've seen, and that's why we've called it out, but this is just the ongoing line review process that we have.

Got it. And then next on Nissens. Could you talk about what the sell or what POS was in the quarter?

It's also a great question. And we have a little bit less visibility to POS in the European market as we do here in the U.S. because it is so much more of a fragmented marketplace. But what we see there is general ongoing trends that match pretty closely with our sell-in. So there's -- it's pretty normalized there, in the low to mid-single digits.

And then as far as the synergies, I know the first year was focused more on the cost. But this year, you talked about some of the wins that you've had cross-pollination. Are any of those synergies in your guidance in a meaningful way? Or should we look at that as more upside?

Referring to the growth side, and Nathan can speak to the cost reduction side. But on the growth side, these -- when you launch a new product, you don't expect substantial near-term gains. So I wouldn't consider it accommodated in the overall top line. It's really more getting ourselves positioned for future years and additional line expansion. But on the cost side, and I don't know, Steve or Nathan, you can answer.

Yes. So Scott, on the cost side, we gave the range of $8 million to $12 million of cost reductions and really put a time frame on that of achieving it by the end of this year into 2026 from a run rate perspective. So like we said before, we think we're still pretty well on track. To the extent some of those roll through the P&L this year, they are in our guidance, but we'll see a good benefit of that going into 2027 as well as we achieve the run rate later this year.

And just one last one, if I could sneak it in on Temperature Control. It sounds like POS is stronger than expected. Do you think that this is -- I know that March was one of the warmest Marchs on record. So do you think it's a combination of weather? Or is it share gains given your favorable positioning on tariffs or where you get your product from?

I think it's both just on good market demand, but I absolutely also believe that it's market share gain and whether it has to do with -- and there's a number of factors there. It's the success we're having with our brands. It's the success our customers are having in the marketplace, gaining additional share. So I believe it's a combination of the two. That said, again, Scott, I want to reemphasize that I wouldn't speak to 2026 by how the market did in March. It's just too soon to tell.

[Operator Instructions] And there are no additional questions at this time. I'd like to turn the program back over to Tony Cristello for any closing remarks.

Okay. We want to thank everyone for participating in our conference call today. We understand there is 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 brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, everyone, and welcome to the Standard Motor Products Fourth Quarter 2025 Earnings Call. [Operator Instructions] 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, Cloie, and good morning, everyone, and thank you for joining us on Standard Motor Products Fourth 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 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.

I'll now turn the call over to Eric Sills, our CEO.

Thank you, Tony, and good morning, everyone, and welcome to our fourth quarter earnings call. Overall, we are quite pleased with our results. The strong performance we have been experiencing continued into the fourth quarter, putting a cap on a solid year and with good momentum heading into 2026. Our top line grew by over 12% in the quarter and over 22% for the year, and while much of this was from our Nissens acquisition consummated in late 2024, excluding Nissens, we are up about 4% for both the quarter and the year. The strong sales performance when combined with various internal initiatives generated favorable bottom line numbers, both in terms of earnings growth and EBITDA margin expansion. .

All of our segments performed well. Let me go through them starting with the North American after. Vehicle Control sales were up 3.3% against a very strong quarter the previous year with several contributing factors. First, our products are nondiscretionary and largely DIFM, and so in general, the categories outperformed in uncertain economic times. On top of that, we believe our customers are successful with our well-regarded brands and this is evidenced by their strong sell-through as their POS was up in mid-single digits throughout the year.

As you look at the subcategories, you will note that the wire sets subcategory saw a 27% drop off in the quarter, bringing the entire segment down 2%, representing less than 10% of vehicle control, wire sets are a category and secular decline. As such, certain customers chose to reset their shelves in the second half, rightsizing their inventories for this mature category. It's important to note that their wire sets EOS for this period was only down in the mid-single digits, which is more reflective of ongoing demand.

Lastly, our sales in the segment benefited in the back half of the year as we began to pass through our tariffs at [indiscernible].

Turning to Temperature Control. Robust sales continued, up nearly 6% over a very difficult comp, though the fourth quarter is the smallest in this heat-related business. In a seasonal category like this, the cadence across orders can vary year-to-year. So the key measure is full year sales. And for the full year, the segment was up more than 12%. So what's driving this? As we described on the last call, the air conditioning season seems to be elongating starting earlier and ending later. Customers are recognizing this and getting their inventory in place ahead of the season to be able to take advantage of early demand and we also believe a key driver is the success of our AC KIT program. And air-conditioning repair done right consists of the replacement of several system components. Over the last several years, we have seen increased adoption of our kits, where we have all you need to do the repair included in a packed kit. Not only does this increase the ticket as more of the related parts get included technicians love its simplicity, and it tends to end with a happier end customer as the repairs are more successful. And then lastly, here too, we saw a modest lift due to tariff pricing.

Next, I'll speak about our newest segment, Nissens Automotive, which has been a part of SMP since November of 2024. We have now completed our first full calendar year of ownership, and we are delighted with its performance. both in and of itself and as a complement to our other businesses and the synergies accretive. Sales remained strong, contributing $64 million in the quarter and $305 million in the year posting full year mid-single-digit increases from 2024 in local currency.

While there are reports from others with business in Europe of a general softening of the market, Nissen continues to excel. We attribute this to 3 primary dynamics. First, we participate in many of the same nondiscretionary categories as in the U.S., which tend to remain stable in difficult economic times. Second, we enjoy strong sales in Eastern and Southern Europe, which have been outperforming other parts of the continent. But most importantly, we are gaining share through a combination of new category placement, increased share of wallet with existing customers and enhanced pull-through by the workshops who seek the highly respected Nissen's brand.

We are also deeply engaged in seeing synergies. Our preliminary focus was on savings. seeking best cost on sourced products, in-sourcing as appropriate, leveraging our increased purchasing power on freight and logistics and so on. We are also focused on cross-selling, adding coverage in new categories on both sides of the ocean. And while these initiatives can take time to show in the numbers, they represent exciting opportunities.

Lastly, I'll speak to our non-aftermarket segment, Engineered Solutions. As we have discussed, this business will be subject to more volatility than the aftermarket as it will rise and fall with demand for new vehicles and equipment across our different end markets. Halfway through 2024, business started to drop off, leading to several consecutive quarters of sluggish demand. Happily this trend reversed mid-2025, and we have experienced sequential improvement. Q4 was up about 6% over the previous year, and although the full year was down slightly, the momentum is stable. And while we can expect the segment to be more cyclical than the aftermarket we see it as a strong complement to our core business. It operates out of the same plants producing the same product types. It enhances our quality capabilities and access to new technologies, It provides an OE pedigree to leverage in the aftermarket, and it provides a healthy contribution to our bottom line.

Finally, let me speak briefly about the current tariff landscape and its impact on our business. Over the past several months, we have entered a more stable environment. In the fourth quarter, our tariff-related costs were essentially offset by pricing. Obviously, there have been recent announcements, both by the Supreme Court and the White House that will have an impact. We're digesting the rules as certain tariffs are eliminated and new ones take effect but we have developed processes and methodologies with our customers that allow for this flexing and we plan to continue to operate from the successful playbook. Further, we believe that our diverse global footprint will continue to provide us with a competitive advantage. The new rules allow continued exemption for U.S. MCA compliant goods, which is a significant part of our offering.

It's worth reiterating that as most of our products are nondiscretionary and as product decisions are typically made by professional repair facilities, they are relatively priced in elastic at the end consumer as our sell-through confirms. So 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. I'll then cover some key cash flow metrics and finish with an update on our financial outlook for the full year of 2026. First, looking at our Vehicle Control segment, you can see on the slide that net sales of $193.7 million in Q4 were 3.3% while being up against a difficult comparison from a year ago when the segment grew 4.9%. While we continue to see a decline in sales of wire, as Eric noted, we were pleased to see the engine and electrical and safety categories grow a combined 6.3% versus Q4 last year.

Vehicle Controls adjusted EBITDA in the fourth quarter was even with last year at 11.1%. Adjusted EBITDA margin was flat as higher sales volume was offset by some gross margin rate compression from passing through tariffs at cost as well as some higher distribution expenses as we transition into our new warehouse.

Turning to Temperature Control. Net sales in the quarter for that segment of $61.5 million were up 5.9% for the reasons Eric said. Temperature Controls adjusted EBITDA increased in Q4 to 13% due to higher sales volumes that led to a higher gross margin rate as well as improved operating expenses as a percent of sales for the quarter. While adjusted EBITDA was very good in the fourth quarter, it's a low point in the year for sales volume, and so would also highlight full year adjusted EBITDA came in at 15.7% for this segment.

Next, let me touch on Nissen. This fourth quarter was the first time we have year-over-year results as we acquired the business on November 1, 2024. Nissen sales grew by $28.4 million or 79% mostly reflecting an additional month of business in 2025 versus 2024, but also continued strength in the segment. Adjusted EBITDA for Nissens increased to 10.1% of net sales in Q4, again, partly reflecting an additional month of results in 2025. Keep in mind the Nissens business is seasonal, given their offering of temp control products, -- and so the fourth quarter profit is generally lower than other quarters and the full year adjusted EBITDA margin of 15.9% was in line with expectations.

As this was our first full year of ownership of Nissens, this was the first year we needed to assess the internal control environment of this formerly private business according to Sarbanes-Oxley requirements. As noted in our 10-K filed earlier today, we disclosed that we identified a material weakness in internal controls over financial reporting at our Nissen segment related to its general information technology controls. As we're expeditiously taking action for media controls by both adding a technical solution and enhancing other compensating controls, it's very important to note this weakness did not result in errors in our financial statements. as we do a thorough review of all our numbers and received a clean opinion with PMG.

Turning to Engineered Solutions. Sales in that segment in the quarter were up 6.3% and we were pleased to see growth return to the segment as we lap market softness that began in the second half of last year. Adjusted EBITDA for Engineered Solutions in the quarter was of 9.6% was up from last year as higher sales led to better gross margin and operating expense leverage. While we did incur some onetime costs related to winding down certain customer programs in the quarter, and these were adjusted for non-GAAP reporting, we were pleased to see both the top and bottom line increase in this segment.

To wrap up our results discussion and put it all together across the 4 segments for Q4, let me just say we had a great quarter and year. Consolidated sales increased 12.2% and adjusted EBITDA increased to 9.7% of net sales in the quarter. Further, non-GAAP diluted earnings per share were up 19.1% as a result of higher sales and strength of operating performance. For the full year of 2025, our sales increased 22.4% over last year and 4% excluding Nissens, helped by strong sales in both our North America and aftermarket segments. Our adjusted EBITDA was up 160 basis points, and our non-GAAP diluted earnings per share increased 26.8%. We were pleased to see our top line coming right in line with our expectations while our bottom line came in above the range previously provided.

Turning now to cash flows. Cash generated from operations for the full year of $57.4 million, was down $19.3 million from last year. Our cash flow was lower in 2025, mainly due to an increase in inventory during Q4 as our business continues to grow, and we prepared for the upcoming selling season. Note that part of the increase in inventory is also due to higher tariff costs incurred during the year.

Investing activities show capital expenditures of $38.7 million, which includes $10.4 million of investment related to our new distribution center. CapEx is slightly lower than last year's capital spending related to the DC is nearing completion. Financing activities show payments of $27.3 million of dividends as well as $27.7 million in borrowings on our credit agreement. Note that we repaid $51.4 million on our credit agreement from Q2 through Q4 and with that, our net debt stood at $546.7 million. We finished the quarter with a leverage ratio of 2.7x EBITDA and believe we are on track to get to our target of 2x by the end of 2026.

before I finish, I want to give an update on our sales and profit expectations for the full year of 2026. Before I do, let me note that our 2026 outlook does not take into account recent changes in U.S. tariffs on imported goods. We follow changes closely, but things change continuously, creating uncertainty in the market. Whatever the impact is on our business, we will continue to offset our cost with the dollar for dollar pass-through and pricing. We expect sales growth in 2026 to be in the low to mid-single-digit percentage range, driven by continued momentum in North America and Europe and more stable market conditions in our Engineered Solutions segment.

Our outlook for adjusted EBITDA margin in a range of 11% to 12% of net sales and reflects margin benefits of sales growth, but also some continued margin compression from passing through tariffs at costs. In connection with our adjusted EBITDA outlook, we expect interest expense on outstanding debt to be about $30 million for the full year, our income tax rate to be 27.5% to 28% and depreciation and amortization to increase to $45 million to $50 million as we'll have a full year of depreciation on distribution center investments and also continue to invest generally in our business.

Regarding operating expenses. Keep in mind, these expenses are incurred more ratably across the year, but do have some variability with sales and as such, will fluctuate seasonality in the business. We anticipate total operating expenses, inclusive of factoring will be approximately $106 million to $114 million each quarter in 2026.

Finally, as noted, there is a seasonal aspect to our business with regard to temp control products we sell in North America and Europe. Our preseason can span across Q1 and Q2 with some variability between quarters. And given we saw a large amount of growth in Q1 last year in these products, we will be going up against a difficult comparison in Q1 2026. So it's important to look at the first half of the year in total regarding cadence of sales.

To wrap up, we're very pleased with our sales and earnings growth in 2025 and that we can share expectations for further growth in 2026. We continue to execute on many initiatives, including integration of Nissens and expect to realize increasing benefits from that in 2026.

Thank you for your time. I'll 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 in 2026 and beyond. Even in the face of a challenging economic environment, we have enjoyed several consecutive quarters of strong performance and believe that this momentum will continue. We operate in strong and stable markets and are outperforming due to a combination of structural advantages, customer relationships and execution. We've made great strides in diversifying our business with new product categories, geographies and end markets, all with the focus on seeking complementary attributes.

Within our legacy business, the North American aftermarket, we believe we excel. The industry itself continues to demonstrate its stability and resilience in the face of turbulent times. Within it, we are in great nondiscretionary product categories that are less impacted by consumer sentiment. We target the repair professionals with quality products and brands they trust, and these are the folks making the purchasing decisions, creating pull-through to our channel partners, and we nurture our customer relationships with a program they value and with the execution they rely on.

Our recent geographic expansion with the acquisition of Nissens is exceeding our expectations. They continue to impress us as terrific operators with strong relationships with their customers. 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 we are impressed with their team, with their capabilities and our ability to identify opportunities.

Our Engineered Solutions business is on the rebound and while it can be volatile, it is a strong complement to our core business and generate favorable returns. We continue to gain traction with blue-chip customers around the world leveraging the breadth of our offering and our capabilities. And as we become known doors are opening bots. And while we continue to see supply chain complexity, we feel that we can navigate it better than most. And so we remain very bullish about the future.

And that concludes our prepared remarks. With that, we will open it up for your questions.

[Operator Instructions] Our first question comes from Scott Stember with ROTH Capital.

Congrats on the very impressive results.

Thank you, Scott.

Eric, in vehicle control in the release that says that your sell-through or POS was essentially in line with what, I guess, you had seen through the first 3 quarters. Does that assume that you were up low to mid-single digits at sell-through or POS?

Yes, that's correct. And if I was unclear on that. I apologize. Yes. The POS was pretty consistent really all year long for the big players, which was in the mid-single digits.

Okay. And very strong growth in the business outside of wire. And maybe just talk about some of that I know you guys have been much more focused on increasing your portfolio of products earlier in their life cycle and with more complexity in electronics. Maybe just talk about behind the scenes, how that's coming about.

Yes. Great question. And that's one of the reasons why we do break the subcategories out the way that we do. We have carved out the wire business to show that it does perform differently just where it is in its life cycle to the other areas where we do continue to see growth. Our vehicle control offering is extremely broad, expands many, many categories, whether it's addressing conventional engines or safety-related products or other electrical products around the vehicle. And what we're seeing is a proliferation of not only SKU opportunities but also replacement rates on some of the newer technologies. So it's an evolving category. It's a growing category. In the aftermarket, nothing moves very quickly, as you know. But what we are seeing is that there continues to be really nice opportunities for growth across both conventional technologies and some of the newer ones.

Got it. And then one more before and I'll jump back in the queue on the synergies that you talked about, obviously, lots of synergies, cross-selling, new customers, introducing to each other and I guess, cross-pollination of products. Can you talk about how we're doing and what innings we are in some of these initiatives?

Sure. And I started by asking about the growth opportunities, let me respond to that. What we did over the course of 2025 was to look first at where we saw gaps in the common product categories. So for example, we both sell air conditioning compressors. So where did we find opportunities for us to expand their North American coverage with what we already had and some opportunities where they had some SKUs that made sense for us to add. But the bigger area that we're excited about is identifying entire categories that one was in and the other wasn't. And so we added several of these in 2025. And for the Nissens offering, some in Nissens Europe and some in Nissens North America, really capitalizing on product strength that S&P brought to the table. So with -- for example, within Europe, we launched in December a line of ignition coils to expand their engine efficiency category, ignition coils is a great category here. It's one we are very basic as a manufacturer, and we manufacture them all in Poland, which is a great selling point in Europe for Europe. We expanded some of their air conditioning subcategories that they were not in on both sides of the ocean.

So really 2025 was a year of putting the programs in place. Now it's about getting out there in the market, getting traction and getting some shelf placement with the distributors. So it takes a little while for us to see the value that it brings, but we're excited about the potential. This is really one of the things we came into this acquisition thinking that while we have a lot of common categories to seek synergies. We also have these complementary categories to add and seek growth.

On the cost side of things, and this is the area we've been talking about really all year long, as we've looked at commonizing vendors, beefing up those vendors and figuring out where there are cost type synergies, we came into this saying that we would have a run rate of $8 million to $12 million in savings by the end of 2026. I believe we're very comfortable with that. We believe we're ahead of that. Important to note, this doesn't all hit the Nissens P&L. This gets spread across the entire enterprise because as we see in the savings can -- we each benefit the other and what we bring to the table.

Got it. If I could just squeeze one -- last one in about the timing of the remediation of the internal control issue in Europe.

Yes. And Scott, so like I said, we're working on it right now. with both the technical solution and compensating controls. I believe we're making very good progress, and we'll update you as soon as we can on that front. .

[Operator Instructions] We'll take our next question from Bret Jordan with Jefferies.

You talked about a tough comp in temperature control in the first quarter, but could you maybe give us some color as to where retail inventory in temperature crude oil product stands year-over-year going into what might be the cooling season?

Yes. What we've seen coming into the year is that their inventories are up slightly, but they're really up tracking with how much their sales are up. So I wouldn't say that they're in a different position than previous years in terms of readiness for the season. We are seeing ongoing good preseason order requirements across the customer base. as Nathan pointed out, this can hit in the first quarter and in the second quarter, a lot depends on when we ship it usually ends up being right at that crossover point. Last year, we did a lot of them in the first quarter. That's why you saw last year's Q1 was really very strong. We think it's going to be more normalized this year, and that's why it's important to look at the full year. The preseason should be good this year.

Great. And then on Nissens a couple of the large parts distributors in Europe are talking about private label programs that they're emphasizing. Can you be a private label supplier being this into those and pick up share if they gain share with private label?

Certainly. And we do a little bit of private label there today. We really have been emphasizing our brands. And the majority of our sales there, about 80% or so of our sales in Europe are under the Nissens brand. We have 2 other brands. We have an entry-level brand called AVA and one that's more dedicated to commercial vehicles called highway -- and so each China has its positioning within the space, depending on customer needs, but we do see private labeling as something that is a successful partnership when it works well for both partners. And so if we see opportunities there, we will certainly capitalize on.

Great. And then obviously, you get visibility on tariff outcomes here. Is there any opportunity for tariff rebate collection? Or are you guys just not as exposed to some of that Asian import product?

Well, I think that it's still very unclear. If you're asking about refunds from the [indiscernible] tariffs, I think it's still very unclear how that's going to play out. We're in the same boat as everybody else. If there's an opportunity to recover it, we will certainly avail ourselves of that. But I think that we're -- everything I'm hearing is that we're a long way from figuring out how that's going to get resolved. .

[Operator Instructions] Thank you. At this time, there are no further questions in queue. I would now like to hand it back to the presenters for any additional or closing remarks.

Okay. We want to thank everyone for participating in our conference 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. .

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, everyone, and welcome to the Standard Motor Products Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, 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.

Thank you, Nicky. Good morning, everyone, and thank you for joining us on Standard Motor Products third 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 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.

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. Overall, we are quite pleased with our results as the strong momentum from the first half has largely continued. From a top-line perspective, we posted growth of nearly 25%. And while the majority of this growth was from the addition of our newly acquired Nissens business, the legacy business was up nearly 4%.

Due to the strength of our first 3 quarters, we have decided to increase our top line expectations as well as to tighten our EBITDA guidance to the upper end of our previous range, and Nathan will provide the details.

I'll now review each business separately, starting with the North American aftermarket, which is comprised of 2 operating segments, Vehicle Control and Temperature Control. Vehicle Control sales were down 1.6% against a difficult comparison as last year's third quarter increased 5%.

Looking closer, 2 of the 3 product lines were essentially flat, while all of the back slide was in our wire set business, which is a product category in secular decline. Generally speaking, there will always be some volatility quarter-to-quarter based on customer order patterns, timing of pipelines and so on.

And so we believe a key metric is customer POS as it reflects true market demand for our products. POS for vehicle control continued the positive trend that has shown all year and was up mid-single digits in the quarter for our large accounts. This reflects the nondiscretionary and heavily DIFM nature of our categories and the brand acceptance by the professional shops making the purchasing decisions.

Turning to our Temperature Control division. Robust sales continued up nearly 15% over last year. Year-to-date, the segment is now up more than 13% against 1 of the hottest on record. The air conditioning season seems to be elongating starting earlier and ending later. This year, several of our customers anticipated this and got their preseason orders on their shelves ahead of the season and this began their replenishment cycle sooner and they never lost a beat.

I do also believe that our customers are gaining share as they do well with our recognized brands. And generally speaking, across both of our aftermarket segments, we continue to enjoy strong partnerships with our customers and strong brand penetration with the professional installers.

Next, I'll speak about our newest aftermarket segment, Nissens Automotive, which has been a part of SMP since last November. Sales remained strong in the quarter, contributing nearly $85 million in revenue as they continue to outperform in their markets. We believe their ongoing success is based on many of the same reasons, why we do well here.

First, they share many of the same nondiscretionary categories, which tend to remain stable in difficult economic times, but moreover, their strong brand recognition, well-received go-to-market strategy and consistent execution has allowed them to grow market share and expand into new categories.

On the integration front, we continue to work together in developing meaningful synergies. We began our efforts focused on cost savings and are on track to achieve our previously stated targets and we are now seeking growth opportunities through cross-selling our complementary categories on both sides of the ocean. And while we are just getting started, we see a lot of potential.

Next, I'll address our non-aftermarket segment, Engineered Solutions. After a few quarters of sagging sales, demand has flattened out, and we ended our quarter down a modest 0.3%. We have always known and discussed that this business has grown to more cyclicality than the aftermarket and while we can expect some volatility period to period, we believe that the longer-term trends are favorable as we continue to see a robust pipeline of new business opportunities, and we believe that it provides a nice complement to our aftermarket business, with valuable synergies.

Lastly, let me speak briefly about the current tariff landscape. And while difficult to fully project, we believe that we have entered a more stable environment. In the third quarter, our tariff-related expenses were largely offset by pricing and go forward, we expect this to continue. 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.

As previously stated, about half of what we sell in the U.S. is produced in North America and is largely tariff free. The balance is roughly split between China and lower tariffed regions such as Europe. We, therefore, believe our exposure is less than many with tariff inflation in the quarter in the low single digits.

It's worth reiterating that as most of our products are nondiscretionary and as product decisions are typically made by professional repair facilities, they are relatively priced inelastic at the end consumer as our sell-through confirms. So 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.

Let me hand this over to Nathan, who will provide the details.

All right. Thank you, Eric. 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 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 $197.7 million in Q3 were down 1.6%, while being up against a difficult comparison from a year ago, when the segment grew 5.2%. That said, the decline was driven by wire products, which remain in secular decline, and we were pleased to see the engine category, in particular, hold up well against 7.3% growth last year.

While the quarter showed a decline in sales, it's important to note that our sales were up 2.9% for the first 9 months in this segment. Vehicle Controls adjusted EBITDA in the third quarter was lower than last year at 10.3%. Adjusted EBITDA was driven by lower sales volumes and gross margin rate compression from passing through tariffs at cost as well as some higher distribution expenses as we transition into our new warehouse.

While there was some timing that impacted sales and expenses in the quarter, it's important to note that adjusted EBITDA for the first 9 months is 10.9%, and right in line with last year, when allowing for the rate compression impact of tariffs.

Turning to Temperature Control. Net sales in the quarter for that segment of $144.7 million were up 14.8% for the reasons Eric noted before. Temperature Controls adjusted EBITDA increased in Q3 to 19.7% 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 third full quarter of ownership, Nissens added $84.5 million of net sales and $14.2 million of adjusted EBITDA. The business is performing well and again, was in line with our earlier estimate of mid-teens EBITDA percent coming in at 16.8% for the quarter. Nissens continues to grow its sales across Europe and has also benefited from some favorable currency translation movements.

Sales for our Engineered Solutions segment in the quarter were down 0.3%, but we were pleased to see declines level off as we lap market softness that began in Q3 of last year. Adjusted EBITDA for Engineered Solutions in the quarter of 10.2% was down from last year, but continues to be in a steady and consistent range. This was the result of lower sales volume, unfavorable mix and some impact from tariff costs that lowered the gross margin rate.

To summarize and put it all together across the 4 segments for Q3, consolidated sales increased 24.9% and adjusted EBITDA increased to 12.4% of net sales and non-GAAP diluted earnings per share were up 6.3%, with all metrics being helped by our acquisition of Nissens, among the other things I already noted.

For the first 9 months, our sales have increased 25.5% over last year and 4% excluding Nissens, helped by strong sales in both our North America and aftermarket segments. After 3 strong quarters of performance, our adjusted EBITDA is up 170 basis points, and our non-GAAP diluted earnings per share increased 27.8%.

Turning now to cash flows. Cash generated from operations for the first 9 months of $85.7 million was up $7.5 million from last year. As always, the third quarter is when we generate much of our cash given the seasonality in the business, and it was nice to see higher earnings and good working capital management resulted in an increase despite paying higher cash cost per payers.

Investing activities show capital expenditures of $29.3 million, which includes $9.6 million of investment related to our new distribution center. CapEx was slightly lower than last year as capital spending related to the new DC is nearing completion. Financing activities show payments of $20.4 million of dividends as well as a repayment of debt.

Now we repaid $47 million on our credit agreement during the third quarter. And with that, our net debt stood at $502.3 million. We finished the quarter with a leverage ratio of 2.6x adjusted EBITDA and are on track to get to our target of 2x by the end of 2026. Before I finish, I want to give an update on our sales and profit expectations for the full year of 2025.

As we noted in our release this morning, our updated outlook includes higher tariff costs and offsetting impacts as they stand today. We are raising our sales guidance for the full year to be an increase over last year in the low to mid-20% range, which is above our prior range of low 20% increases. We're also pleased to update our outlook for the adjusted EBITDA margin and tighten it to be in a range of 10.5% to 11% of net sales.

Note this guidance updates. This updated guidance reflects the robust sales performance we've seen for the first 9 months of the year and higher overall margins. To wrap-up, we're very pleased with our sales and earnings growth in the first 9 months of 2025 allowing us to raise our outlook for the full year. We continue to execute on many initiatives, including the integration of Nissens and expect to realize increasing benefits from that initiative in 2026.

Thank you for your time. I'll turn the call back to Eric for some final comments.

Well, thank you, Nathan. And in closing, let me just spend a moment discussing how we're dealing fix. Even in the face of a challenging economic environment, we have enjoyed several consecutive quarters of strong performance. The largest part of our business, the North American aftermarket continues to demonstrate this resilience. It's a highly stable market with solid foundations, the addressable market expands with a growing and aging car park.

Within this attractive space, nondiscretionary product lines tend to do better as motorist are unable to defer repairs, and that's even more pronounced in DIFM categories like ours, and our value proposition continues to resonate. We provide full-line coverage of professional grade products and brands that technicians trust and our relationship with our trading partners is strong.

Our recent geographic expansion with the acquisition of Nissens is exceeding our expectation. 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 impressed we are with their team, with their capabilities and with our ability to identify opportunities. And so we remain very bullish about the future.

And that concludes our prepared remarks. With this, we'll turn it over to the moderator and open it up for questions.

[Operator Instructions] We'll take our first question from Scott Stember with ROTH Capital.

Some of your customers have been giving the indication that they're seeing some elasticity issues mainly in the DIY side of the business, I guess, just given the inflation and tariffs and so forth. It doesn't sound at least that you're seeing that at this point? Just wanted to confirm that.

Yes, that's a fair statement, Scott. And as I said in the prepared remarks, we're seeing our sell-through at these customers continuing in a positive range and within Vehicle Control, we are in the mid-single digits in the quarter and Temperature Control was even higher than that. So to your point, where I think we're seeing the impact of tougher economic times is in the product categories that consumers have the ability to defer or forgo altogether.

And our categories for the most part, are not like that, the break fix, the car is down and the repairs required. So it's a fair statement if that is what we're seeing.

Got it. And then moving over to Europe, Nissens sounds like pro forma they had very nice growth in the quarter. It also has been some commentary about some weakness in Europe from some competitors and customers. Just trying to get a sense of the European market and also how well Nissens did in the quarter?

And very similar story over there, which is that its product category by product category and ours being similar to here being nondiscretionary are outperforming in general. And we very much believe that we have been able to gain share over there through a combination of executing on existing product categories, but also to -- as they continue to expand into newer ones and getting penetration in some of the newer categories.

I do think it is perhaps worth pointing out to a degree some differences in regions within Europe, where we tend to have more of our volume focused. I mean, we're paying Europe for sure, but we do have some more of our volume more towards the east and southeast of the continent, where demand has really continued to be quite robust.

Got it. And then last question before I jump back in the queue. The OpEx numbers were a little higher. And I think that the mentioned sounds as if the transition over to Shawnee in Kansas, might have had a little bit to do with that. Just trying to get a sense of what we should be looking at for in SG&A or an OpEx number going forward for the next few quarters?

Yes. Yes. Thanks, Scott. So I think there are 2 ways. 1, looking at the consolidated operating expenses. This is really the kind of the last full quarter, where we're going to have Nissens coming in with really no comparison against last year. So Nissens business added about $24 million of OpEx. And so just as you think about modeling, need to include their expenses going forward.

And then there were some higher expenses in the Vehicle Control segment. I think as you pointed out, some of that, as I mentioned, was just due to transition and timing of transition to the new warehouse in Shawnee, Kansas. Just note that on a 9-month basis, the operating expenditures are a little bit more in line. So that kind of points out the timing aspect of some of those moves.

[Operator Instructions] We will move next with Bret Jordan with Jefferies.

On that growth in Temperature Control, is that market share gain where customers are opting for your North American product over what they might have been buying previously?

We see a bunch of different tailwinds really combining because certainly, having this sort of a sales lift over 2024, which was such a strong year from a temperature standpoint, it was a very -- it was less hot this summer than last summer, we're led to believe that there are several things going on.

1 is, and as I mentioned in the prepared remarks, the season started earlier. It's ending later. And so it's just we're seeing sales penetration lasting that many more months than it used to. But we very much do believe that we're gaining share. And it's partly because we think our customers have been able to maintain in-stocks because of our ability to keep them at that level.

And our brands continue to be well received and requested within the repair base and so we do believe and we see this in some of the industry data that we have been able to gain share.

Okay. And then 1 more question around this elasticity or inelasticity in the segment. Did you see any shift in POS cadence as the quarter progressed? I mean some of your large customers have called out the end of the third quarter being weaker for them. Did you see that in your POS? Or is your category relatively more immune?

Within Temp Control, it was -- no, there's a little bit of movement. I'm just looking at it now, Bret. There's a little bit of movement month-to-month, but nothing substantially whiplashing things around Vehicle Control is actually pretty stable. Temp Control, which is going to have a little bit of a weather-related impact. August was the strongest, but really throughout the entire quarter, it was in the mid to upper single. So nothing dramatic across the quarter.

[Operator Instructions] We do have a follow-up from Scott Stember with ROTH Capital.

Back to Nissens questions about the synergies or cross pollination or top line opportunities. Maybe just give us an update on some of the bigger ones like with NAPA being able to translate some business over there for Nissens? And then are there any other synergies or sales opportunities that have popped up that you didn't realize previously.

Well, first, I will speak to what the opportunity is related to product line expansion. As we've been saying, while we both play in a lot of the same product categories. We do have some that 1 is stronger than the other or perhaps that 1 doesn't have at all and the other does. So those are the areas that we're looking at now is how do we expand each other's product offerings.

Sometimes it's as simple as filling holes. We have compressors that they don't have. They have compressors that we don't have. But the more exciting area is to say here's an entire subcategory that we think we can accelerate the other company launching. That's what we've been working on towards the second half of this year is preparing more specifically in Europe, a couple of product categories to get launched over there.

And so, it will take a little while before you start to see any revenue impact because there's a lot of work that goes into the launch and then it's about getting any customer traction. But we do see some very nice potential similarly here in the U.S., they are in some thermal categories that we think we should be able to do well in, and we're in the process now of building some of those lines out.

In terms of customer penetration, I'm not going to go into any specifics on the cross-selling to each other's customers. But we do enjoy some ability to do that, where we do have customers to introduce each other to and that's really both sides of the ocean. So we feel good about that. We see some of the global distributors interested in having global suppliers, and now we can fulfill that objective of theirs. So again, early days on any of these things, Scott, but we do see that there's some nice potential.

Thank you. And this will conclude our Q&A session. I will now turn the call back to Tony Cristello for 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'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. We hope you have a great day. Thank you.

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.

Good day, everyone, and welcome to the Standard Motor Products Second Quarter 2025 Earnings Call. [Operator Instructions] 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. So 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%. Now 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 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 this. 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 a 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 1 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 prepare 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 suggest they are doing quite well with our program.

Next, I'll speak about our newest aftermarket segment, Nissens Automotive, which has been part of S&P since last November. Sales remained strong in the quarter, adding $90 million in revenue. They continue to outperform in their markets enjoy mid- to high single-digit growth. There are several contributing factors to this outperformance. First, it's a nondiscretionary and largely weather-dependent offering, they are enjoying some of the same market tailwinds as here in the U.S. Additionally, the 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 is in Vehicle Control here.

And 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 in-sourcing 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 seeing that opportunities about. 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've 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. All right. 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 of 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 be into 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 were 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 in 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, the net sales of $201.7 million in Q2 were up 6.9% and the increase driven by steady demand for our portfolio of products.

Vehicle Controls 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 at 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 -- 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 4 segments for the second quarter, consolidated sales increased 26.7% and adjusted EBITDA increased 190 basis points, 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. Tacking 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 means, 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 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.

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's a highly stable market with solid foundations as the addressable market expands through a growing and aging car park. Within the subtractive 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, finding 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, with 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.

[Operator Instructions] Our first question comes from Brett Jordan with Jefferies.

This is Patrick Buckley on for Brett. Still some moving pieces of 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 get into the specific numbers, but our pricing plans for the second half, most of which are now in place, are really there to cover the tariffs. So it will be -- as we've been talking about, our tariff exposure due to our footprint is only on a portion of our sales, and we're looking to track with what those tariff numbers are, again, at our cost. So you can expect it to be relatively nominal certainly on -- as you look at spreading it across the entire offering.

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

Sure. So what we've seen is, I think, 2 segments separately, Vehicle Control in the quarter was up low to mid-single digits, which roughly tracks for where it's been for the year. And so we're seeing a positive sell-through. It's slightly less than the sell-in. And what that's reflective of -- is something we've been talking about the last several quarters is it's not about trying to buy ahead of price increases or any change in stocking strategy. It's more as our customers are expanding their footprint both by adding locations and by deepening our assortments in existing locations. We are seeing that just kind of ongoing evolution of increased inventory. So it's not a stepwise change. It's not a reaction to get ahead of things. It's just their ongoing evolution to a broader assortment.

You're seeing similar things in temp control, Temp Control has a little bit more quarter-to-quarter volatility, as you well know. So in the second quarter of last year, POS was up mid-teens. So it was a tough comp. Here, we're slightly up over that in the quarter, but year-to-date, it's still kind of tracking similar to what we're seeing in vehicle, which is low singles and kind of smooth across the period.

Our next question comes from Scott Stember of 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 impact? And also, if you could give any segment breakdown on where you see the price increases so far. Or what is impacting more than others going forward?

Yes. It's Nathan. I guess with regard to timing, maybe just to piggyback off what Eric mentioned, we did see some costs come through in the second quarter. That's just basically as we started to see some higher cost inventory turn through that had those higher tariffs on it, start to come through the P&L. And we took a little bit of time to work through both mitigating actions on the cost side as well as with our customers to get pricing through. So we did have some higher costs in the second quarter.

But now going forward, I think that we should be mostly fully offset for the most part in the second half of the year. With regard to segments, we really don't get into kind of profit expectations by segment or pricing and cost. And so just would note that we continue to manage it. We had good numbers in the second quarter to show 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?

So in terms of how it's meeting our lining up with our expectations, I would say, that it is exceeding our expectations in just about every regard, both in terms of its performance as well as how we see moving forward into the future as a combined entity with what they bring and what we bring. So you're hearing a certain amount from perhaps some of the publicly traded players about how the European aftermarket is right now, we are outperforming it, and there's a handful of reasons for that.

One is that you have to really look at a product type by product type. And so while the home market is going to have its dynamics within what we do, similar to what we always talk about here in North America, where it's nondiscretionary. They have a big temperature control element. So it's weather-dependent, the categories will tend to outperform the overall portfolio of these distributors. But beyond that, there's no doubt about it that Nissens is gaining share. And it's doing that both by getting better penetration within existing categories. But they've also had an excellent track record over the last several years, starting well before they were part of S&P of adding new categories, getting into new categories, which frankly is a difficult thing to do to get -- to leverage your brand into something different.

And they've been able to do that, pushing into what we call Vehicle Control categories. It's still a relatively small portion of what they do, but it's been all upside for them as they have been able to get some good placements. So that's what they've been able to do thus far. Now as you think through the integration, we see from specific to that, the ability to accelerate that because of all the different pieces that we bring that can help fast track their launch of new category product types. And so nothing specific to report. We're in the -- 2025 is really more the preparation year. We did want to get that quick win out there with the new SKUs added that I spoke about, but this is really the year as we position ourselves going forward to how do we expand product portfolios on both sides of the ocean. So a long answer, but it was a good question because it's a really critical part of our future, and it's absolutely exceeding expectations.

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

Just circling back to missions 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 strengths are in any of the 3 categories more than others.

Yes. What we're seeing in terms of -- and just going to give it to you in more general terms and maybe Nathan can give a little more flavor. But what we're seeing is that they are tracking up mid- to high-single digits over previous years. And what we are seeing is an evolving shift away -- or not away from, but in strengthening of their newer categories as a percentage of their business. So you go back 5 or 6 years, they had nothing in what they call engine efficiency and now it's, I believe, north of 15% may be pushing 20%. So it is -- all of their 3 subcategories are growing, but the engine efficiency 1 is growing faster because it's adding new product types.

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

Sure. All other is a combination of things like lawn and garden, hydraulics and stationary equipment and -- but the biggest thing in there, all other is powersports. So things like snowmobile, side-by-side, ATVs and so on.

And how much is that of the -- of the all other?

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

Okay. That's been a good growth area?

It has a lot of potential. It's -- as you're seeing with some of the other subcategories, seeing some softness this year, as you would expect in -- especially in something like power sports, which is purely discretionary type of purchase and a high-value purchase. But the long-term trends within the subcategories under all other absolutely has some nice legs.

And just finally, is 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.

[Operator Instructions] Our next question comes from Carolina Jolly with Gabelli.

Just to start, as we look into 2026 -- complete and we Edwardian of finalized, should we expect better margin and more efficiency at the, I guess, 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, not 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 will 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.

Great. And then just out of curiosity. If we look at the third quarter tariffs versus what you experienced in the second quarter and what you were looking at in the second quarter. Are you seeing -- given kind of what's come out at this point, have you -- will your tariff costs actually come down a little?

Based on what's been announced and implemented so far, no, I mean, there was like some temporary spikes in announcements, for example, in China for a couple of weeks went very high and then came back down to the 30% reciprocals that they're currently at. That spike is long since absorbed. So now it's more about any changes that will occur going forward as you're seeing -- and 1 of the things we've been saying, just to reiterate and make sure it's clear is what we have passed through to this point or tariffs that have taken effect thus far.

So a lot of the announcements from last week could have yet to take effect in some of the things that are still being negotiated. Those are into the future. We'll continue to execute that playbook. Most of them show things going up slightly, but we're just going to -- we're going to operate as we've been stating and rise and fall with what happens.

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.