Good day, everyone, and welcome to today's Standard Motor Products Fourth Quarter Earnings Release. At this time all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, this call may be recorded. And it is now my pleasure to turn the call over to Larry Sills. Please go ahead.

Good morning, everyone. And welcome to Standard Motor Products fourth quarter conference call, and we thank you for attending. Here for the company, Eric Sills, President and CEO; Jim Burke, Chief Operating Officer; Nathan Iles, Chief Financial Officer; and myself, Larry Sills, Executive Chairman. Agenda for today, Nathan will begin by reviewing our 2019 results, then Jim Burke will emphasize a few of the highlights of 2019, and some early thoughts about 2020, Eric will then go into some of our key operational strategic issues and then we'll open it for questions. So with that, let’s go to Nathan.

Thank you, Larry. As a preliminary note, I would like to point out that some of the material we will be discussing today may include forward-looking statements regarding our business and expected financial results. When we use words like anticipate, believe, estimate or expect, these are generally forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable they are based on information currently available to us and certain assumptions made by us, and we cannot assure you that they will prove correct. You should also read our filings with the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward-looking statements. Now we'll turn to the financial results for the company. Looking at the P&L, consolidated net sales in Q4 2019 were $241.3 million down $5.7 million or 2.3% versus Q4 last year. As discussed throughout the year, we acquired the Pollak business from Stoneridge on April 1st of 2019. Incremental sales from the Pollak acquisition were $8.1 million in Q4 and $28.2 million for the full year. Our consolidated net sales in Q4 excluding the Pollak acquisition were $233.2 million down $13.9 million or 5.6%, but for the full year 2019 finished higher at $1.12 billion, an increase of $17.6 million or 1.6%. By segment, Engine Management net sales in Q4, excluding Pollak and Wire and Cable sales were $159.1 million, down $6.5 million or 3.9%, but coming in line with their customers POS sales, as noted in our last call. However for the full year 2019 sales were $677.8 million, finishing up $29.6 million or 4.6% over last year. Wire and Cable net sales in Q4 were $34.7 million, down $2.7 million or 7.2%, and for the full year were…

Okay. Thank you, Nathan. 2019, was in the record books reflecting new highs for sales and earnings. As we look back at 2019 sales volumes were very strong in the first half of the year for both Engine Management and Temperature Control. It is best to analyze each segment separately. Engine Management sales excluding wire and cable and the Pollak acquisition over the first three quarters of 2019 exceeded our customer's POS sales. During that period, customers were broadening their assortment and deploying inventory closer to demand to better serve the installer base. Many times this is reflected in large pipeline orders. The sales growth in the first three quarters of 2019 were sequentially 9.3%, 5.3% and 7.8%. As we pointed out on our earlier calls, we expect that our sales to fall back in line with customer POS trends. In Q4, our sales were down 3.9% with full year growth of 4.6%, which was still above our customer POS for the year. In the first quarter 2020, we expect this downward trend to continue, as we are up against large pipeline orders in Q1 ’19, a comp of 9.3% in the first quarter last year and public customer disclosures pointing to soft demand due to mild weather conditions. Again, long term, we expect Engine Management, excluding wire and cable and acquisitions to mirror our customer's POS in the low single digits. Temperature Control sales were very strong in Q1 and Q2 of 2019, reflecting large pre-season orders following the very hot 2018 summer season. Temps sales were up better than 14% in Q1 and 5% in Q2. This trend reversed in the second half as we finished 2019 essentially flat to 2018 levels. Going into 2020, our customers inventories were at more normal levels and we do not anticipate…

Well, thank you Jim and good morning everybody. I'd like to open by thanking all of the folks here at Standard Motor Products for helping to deliver a record breaking year, setting new highs for both sales and profits. It's a terrific achievement and I congratulate you all. Nathan and Jim reviewed the numbers and what's behind them, so I'll just hit on a few topics and then open it up the questions. First, let me address where we stand with the Corona virus situation. Although the majority of our product comes from North America and Poland, we do have a significant manufacturing and supply base in China. And for a difficult situation, the timing was fortunate. As we always do, we built inventory ahead of the Chinese New Year shutdown, and as such our inventory position is in good shape. Furthermore, winter is our slowest season for our Temp Control Division which has higher exposure to China than Engine Management does. As you're aware, we have three joint ventures in China all in the Temperature Control side. We're pleased to say that all of them are now reopened and are coming back up to full speed and we don't expect any disruption. Regarding third party suppliers, we've been in constant communication with them and they are all coming back online. We therefore feel reasonably confident from what we know at this time that we won't have any near-term disruption. But that being said, there remains a great deal of uncertainty as China continues to address this situation. So it is very difficult to predict longer term implications. I'd like to - next like to give you an update on where we are with our two 2019 acquisitions, starting with Pollak acquired in April. To remind you, Pollak is a…

Certainly. [Operator Instructions] And our first question comes from Daniel Imbro from Stephens Inc. Please go ahead.

Hey. This is Andrew on for Daniel. Congrats on the quarter, guys. My first question here is and I have a follow up after that is with Pollak integrated, how are you thinking about going forward in terms of product line expansion you mentioned in the release?

Appreciate the question Andrew and you need to look at the two segments separately. I'll start with the aftermarket, which is the smaller piece of it, as mentioned it's about 25%. They had a relatively limited product offering going into the - into the aftermarket channel of heavy duty, which is very different by the way from what we typically think of as the aftermarket. It's not the O'Reillys and NAPAs of the world, but it's a channel that sits adjacent to it, those traditional guys also are participating in heavy duty. But this is a market that sits alongside it. And we already have within our legacy portfolio a lot of products that are suitable that we can add to the Pollak brand and go after that market. But we're also going to be applying some additional product management resources to see what it is that that channel needs and then build out our portfolio accordingly. So really just - into to integrate the business, get all the production moved, we're now pretty close with that and we'll turn our attention to growing the business. On the OE side of it, several of the customers that came with the acquisition were existing customers for us, others were new to us. We've already been in discussions with many of them about what's next. To be honest Stoneridge, by their own admission had really stopped investing in this business and so there really had not been very much new product development going on. There are a lot of opportunities and so we're actively in discussions. So while it's still early days and again the first job is to integrate what we've got and make sure that all customers are taken care of, we're pretty much ready to go to that next chapter and start growing the business. So we're excited about the potential.

All right, thanks. That's very helpful. And then my follow up here is, there seem some success with the warehouse automation, do you see any potential for similar upgrades and some of your engine management DCs or elsewhere?

Yes, good morning. It’s Jim Burke. The enhancements that we put in for - for the Lewisville, Texas facility, this is a common system that we have. We're upgrading in Virginia also. But the automation mirrors what we have in Lewisville. This was one of the - it was more a manual operation in Lewisville, Texas, whereas our other facilities already had enhancements put in. So I would not - I would not anticipate a significant change in our other distribution facilities.

All right, great. Thanks for answering my question, guys.

All right. Thank you, Andrew.

[Operator Instructions] Our next question comes from Scott Stember from C.L. King. Please go ahead.

Good morning. Thanks for taking my questions, guys.

Good morning, Scott.

Eric, you talked about or was Jim talking about I guess, how POS it sounds, as if we're still running in the low singles. Can you talk about how it performed in the fourth quarter? I guess you know, in the context of the comments that your customers are making about softer end demand. Have you seen any actual pullback, particularly on the Engine Management side as of late or even in the fourth quarter?

It was - it was a soft quarter, but it was still positive as we always see. This is representative of the overall market. We don't get POS information from our entire customer base, but it is certainly reflective we believe. It remains positive, but it was very low single digits, coming into 2020 where we're continuing to see that cadence.

Okay, got it.

And as you mentioned wire and cable, temperature control, wire and cable continues on it's -- on it's minus 7 or so and Temp Control, really fourth quarter is largely irrelevant.

And moving over to Pollak, I know you're - obviously we would expect that probably to mirror what the industry is doing as well. But some of these product extensions and the growth in the aftermarket, what kind of growth rates would you be forecasting for Pollak I guess within a year - a full year one of ownership?

We're really - at this point what we inherited which was largely steady state, no growth. In fact, there were a couple, and I believe, as I have stated, a couple of the OE contracts that were coming to a close. So really at this point until we start to refresh the offering we're not projecting any near-term growth.

Got it. And on the tariff front, have you seen any changes with your exposure there? Or is it expected to be a steady state going forward at least for 2020?

Scott, this is Nathan. Yes, it's really a steady state at this point. There are some exclusion requests had been filed, but they're very, very small and as we've noted before any refund would go back to the customer.

Okay. Got it. All right, that's all I have for now. Thank you.

Thank you.

And our next question comes from Bret Jordan from Jefferies. Please go ahead.

Hey, good morning. This is Ethan Huntley on for Brett. Thanks for taking my questions. First one here just on the Engine Management margins, 29.6% for the year. I know you've sort of guided 30 plus percent. Following two consecutive quarters of sort of 30 plus percent Engine Management, I guess, sort of what are the changes we see something in the 31 range or maybe even a bit higher moving into ‘20 and ’21 here?

This is Jim Burke. Point out again that we step back in the first quarter always, that's there and we look to build on the margins going forward. We always look to be with all the variables to be moving 0.5 point per year or thereabouts that's in there. So while I always have high hopes for moving up beyond the 30 to 31 and beyond that let me - let me get over the 30 hurdle for the first year and then I'll work on the others.

Fair. And then just again sort of the mild winter, I'm just trying to sort of gauge the impact you're seeing in other segment here, either in Temperature Control or Engine Management?

On Temperature Control, we do have some portion of the line that is heating related and that has been somewhat soft, but that's a very small portion of our Temperature Control business. It's really more of a summer related category and so we're all hopeful that we're going to have a nice hot summer. As it relates to Engine Management, we're not as temperature impacted, as say, batteries or wiper blades or some of the true winter type product categories, but it does have an impact and we have seen that on customer reported POS on our lines and therefore, reflected in what they're purchasing from us. So we are seeing some softness, it's not dramatic softness, but we are seeing a little bit of softness.

Okay, great. And that's all I got. Thanks for taking my questions.

Thank you, Ethan.

And our next question comes from Robert Smith from Center for Performance and Investing. Please go ahead.

Good morning. Thanks for taking my question. Can you give me a feel for what you're thinking as of the joint venture in electric vehicles in China? Do you see this as a jumping over a point to broaden that product line through the joint venture or are you looking for additional joint ventures to penetrate that market? Thanks.

Good morning, Robert and great question. And the answer really is both. So let's start with what we see for CYJ. As mentioned, it's very small and very new. They have the technology to pursue the electric vehicle market there as well as to have the products suitable for EVs elsewhere in the world. What they really didn't have was the horsepower and that's where we come in with our resources and our stability and so on we think the combination becomes very strong. Then you combine that with our other two Temperature Control JVs in the region, we're really starting to build out a portfolio product to take care of Temperature Control categories in China. Beyond that, we continue to look for appropriate strategic investments in the region, as we have demonstrated really forever in terms of our acquisition strategy, we're very careful in what we select. That needs to fit our objectives and our strategy. But what we are seeing is that there are certainly other opportunities there. And we're always investigating. We see the Chinese OE car market, especially in the HVAC area to be a very nice opportunity for us and we're continuing to build it out.

Thanks very much. Good luck.

Thank you, sir.

And it does appear that there are no further questions over the phone at this time.

All right. This concludes our fourth quarter conference call. Thank you very much for attending.

Thank you. Bye-bye.

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