Good day, everyone, and welcome to today's Standard Motor Products Second Quarter Earnings Call. [Operator Instructions]. It is now my pleasure to turn today's program over to Larry Sills, Chairman..

Good morning, everyone, and welcome to Standard Motor Products' Second Quarter Earnings Call. My name is Larry Sills, Chairman of the Board. With me this morning, we have Eric Sills, President and CEO; Jim Burke, Chief Operating Officer; and Nathan Iles, Chief Financial Officer.

What we'll be doing this morning is Eric will review highlights of the first quarter. Jim will talk a little more about operations. Nathan will take a deeper dive into the numbers, and then we'll open it to questions. So with that, I will turn it over to Nathan for the forward-looking statement..

Okay. Thank you, Larry, and good morning, everyone. 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..

Okay. Thank you, Nathan, and good morning, everybody. Welcome to our second quarter call. Overall, we're very pleased with our performance in the quarter. We set records for sales and profits.

We were able to consummate a major acquisition with terrific strategic value, and we were able to accomplish this while continuing to navigate the complexities of the ongoing pandemic, including the related supply chain challenges.

We would not have been able to have done this without the tireless efforts of our skilled and dedicated employees who we are just so proud of. We cannot thank them enough. We achieved sales of over $340 million in the quarter, up 38% from the prior year with both divisions having all-time highs. Comparisons to 2020 are not particularly relevant.

As you are well aware, that was the trough of the downturn for us. However, when comparing to a more normalized 2019, we are favorable by 12%. I believe that this has been somewhat aided by a shift back towards the DIFM business, a trend we expect will continue.

Coming out of the pandemic, DIY sorted as people had a certain amount of disposable money to spend and chose to upgrade their vehicles. We felt that this was not necessarily a durable long-term trend, what was required was for vehicles to get back on the road. We're now seeing that.

Vehicle miles traveled are nearing normal levels and deferred repairs are occurring. And while this is good for the whole industry, we believe it is especially so for us as our product categories are more technical in nature and therefore, lend themselves to professional installation.

Let me now go into a review of our 2 product segments, beginning with Engine Management. Our top line sales remained quite strong, up 35% versus last year, but also up 7% over 2019. As discussed on previous calls, we entered 2021 with the loss of a major account. Therefore, we are pleased to have been able to post positive numbers despite this.

As noted in the release, there were several contributors. First, we implemented programs with all of our customers to pursue market share gains at the street level. Early indications are that these were very successful.

Second, we have been aggressively pursuing new business wins with our existing customers, and we are very pleased with our results as our new business awards recover over 1/3 of the lost business on an annualized basis. Some of this rolled in during the second quarter, while much of it is yet to begin.

Third, we've been busy on the M&A front, and I'll speak more on this in a minute. And lastly, the general market conditions have been favorable. Customer POS is well into the double digits over both 2020 and 2019 and was consistently strong month-over-month. Turning to Temperature Control.

I think it is helpful to remind people that this is a highly seasonal and weather-dependent business. The first quarter is always light, it's almost entirely preseason and can swing year-to-year depending on the timing of these orders. The second quarter tends to have 2 parts. April and May tend to be a continuation of preseason.

And then in June, the summer heat begins and the channel starts selling through and reordering. This year, things shifted forward a bit. We began seeing very strong POS early on in the year, which suggested that the purchases intended to load shelves were selling through, and this trend has continued. We saw early heat in many parts of the country.

And when combined with the return of miles driven and the associated vehicle maintenance, we enjoyed a record-setting quarter for sales, up nearly 50% from last year and up over 25% compared to 2019. Customer sell-through has remained very high with elevated summer heat in much of the country, we believe we are in for a good third quarter.

However, similar to Engine Management, here too, we are facing difficult third quarter comparisons to 2020, which was up 25% from '19 and was far and away the biggest third quarter we had ever had in Temperature Control. Overall, gross margins dipped slightly from the first quarter.

Jim will go into more depth on the drivers when he discusses our operations, but at a high level, margins were aided by strong absorption in our plants due to elevated production levels as we sought to rebuild our inventory. However, offsetting this, we are also experiencing inflationary headwinds across many of our cost inputs.

Our operating expenses were elevated due to a combination of distribution expenses related to higher sales as well as the cost increases in freight and labor. However, we were able to achieve very good leverage on our costs due to our strong sales performance, and Nathan will dig a little deeper on this later on the call.

All of these elements combined for record profits as we posted earnings per share of $1.26, which is more than 140% greater than 2020 and nearly 40% greater than 2019. However, looking forward, it is important to point out that the cadence of the last 18 months was very unusual, making the future difficult to predict.

From a top line perspective, although we entered the third quarter with indications of strong customer sell-through, it's hard to predict how long that can last. The past 12 months have seen outsized market expansion, which likely includes a certain amount of pent-up demand, and at some point, it will not be a sustainable rate of growth.

From a gross margin standpoint, we anticipate certain pressures as the nonrecurring benefits of favorable absorption fade and elevated supply chain costs persist, though we do believe that the market is amenable to a pass-through of inflation.

Additionally, we will begin to see a slight mix shift to our OE business, which I'll discuss in a bit, and that segment has a different margin profile from the aftermarket. Lower gross margins, but also lower operating expenses, so it ends up comparable at the bottom line.

When you put all these together and acknowledging the difficulties in forecasting these unusual times, we believe 2019 may provide a better benchmark for second half performance. I would like to now spend a couple of minutes discussing our progress towards expanding our original equipment business.

For the last several years, we have been growing our penetration in the OE space. And while we do have a certain amount of passenger car OE, our efforts have been more in niche areas, specifically heavy-duty and commercial vehicles, where product life cycles tend to be longer, technology tends to be more stable and price pressures tend to be less.

This year, we have made 2 acquisitions in this arena, both previously announced. On our first quarter call, we discussed the acquisition of a high-tech emission sensor product line from Stoneridge Inc., which we are in the process of integrating into existing SMP locations. Then at the end of May, we made a larger acquisition.

We acquired Trombetta, a worldwide leader in mechanical and electronic power switching and power management devices, generating about $60 million in annual sales. Trombetta is headquartered in Milwaukee, Wisconsin, is run by a strong and seasoned management team and employs approximately 350 associates globally in 4 locations.

We wish to publicly welcome all of the Trombetta employees to the SMP family. They sell to a broad group of blue chip OE customers across multiple commercial vehicle channels, including construction, agricultural, medium and heavy truck, lawn and garden and power sports.

From a product standpoint, they offer an expansive portfolio of both well-established electromechanical parts as well as a growing assortment of sophisticated electronics devices.

The majority of their offering is considered powertrain neutral, meaning that their parts either service other systems on the vehicle where are equally suited to conventional or electric powertrains.

And we believe this is extremely beneficial as they are well positioned to capitalize on the eventual shift to electric vehicles, and we believe we will be able to leverage this in our aftermarket business. From an operations standpoint, Trombetta brings a highly complementary manufacturing footprint to SMP.

There are 2 plants in Wisconsin, including a high-tech electronics facility. There is a low-cost plant in Tijuana, Mexico, and there is majority ownership in a joint venture in Wuxi, China, geared towards pursuing the fast-growing industrial market there.

While oftentimes, the synergies of an acquisition come from the cost savings of closing plants and eliminating duplicate costs, that is not the strategy here.

With Trombetta, the synergies come from the combination of their strengths and ours, cross-selling opportunities through combined product portfolios and customer lists and collaboration between our engineering groups and advanced technologies. We're in the early stages, but we are delighted with the potential.

We believe that this acquisition takes us to the next level in this OE space. When combined with previous activities, including organic business wins such as our compressed natural gas injection program and other acquisitions, such as the Pollak deal in 2019, we have grown this business to an annual run rate of around $250 million.

We now have the critical mass to be a significant supplier and are excited to see where we can take it. And to reiterate, we believe that this channel is highly complementary to our core aftermarket business from the product and technology standpoint as well as from an engineering and production.

At this point, I'll hand it over to Jim to review our operations..

Thank you, Eric. I would also like to reiterate what Eric stated that we are very pleased with our year-to-date performance, considering the challenges facing manufacturers.

Supply chain difficulties have been significant, and our supply chain and manufacturing teams continue to battle a host of challenges such as material source supply, including semiconductor chips, resins, which continue on allocation limitations, extended lead times, which add to challenges of forecasting demand and managing inventory levels and transportation of goods only adds to the difficulties once your vendors can provide the components.

Container and vessel management has become a critical path to managing the manufacturing process. Fortunately, we believe our global footprint and being a basic manufacturer has helped us with these challenges. Our low-cost operation in Mexico and domestic manufacturing facilities in North America ease the challenges of sourcing strictly from Asia.

Our low-cost operation in Poland is also easier to schedule containers and vessels as compared to China. And in addition, this reduces any negative tariff impacts out of China. Availability of labor has also been a struggle at times but not to the same magnitude of material supply.

With the significant increases in customer demand, the primary challenge has been to secure distribution personnel to get the product out. We have managed this labor shortage with the help of our dedicated distribution teams working 6 or 7 days per week and daily over time.

We also have adjusted wages for existing and new hires as we compete for a limited labor pool. Despite these challenges, our internal teams are focused on meeting our customer demand for availability and timely deliveries. We have received many accolades from our customers for higher fill rates than other vendors in the industry.

On the inflation front, the low supply and demand tends to set pricing. We are not immune to these pressures and are incurring increases in materials for chips, resins and commodities across the board.

Transportation for international impact on containers and vessels as well as domestic transportation cost increases and labor supply for wage adjustments and over time. We do our best to offset some of these increases with make-first-buy efforts and low-cost vendor sourcing. However, we are also passing on price increases to our customers.

Availability of product and better fill rates than other vendors help support the need and acceptance for these price increases. In closing, I want to thank all the SMP team members who remain driven to meet our shared goal for customer satisfaction. Thank you for your attention. I will turn the call over to Nathan for a financial summary..

All right. Thank you,. Now turning to the numbers. I'll walk through the numbers for the second quarter and first 6 months, also cover some key balance sheet and cash flow metrics. Looking first at the P&L.

Consolidated net sales in Q2 '21 were $342.1 million, up 94.8% versus last year, and our consolidated net sales for the first 6 months of 2021 were $618.6 million, up $116.4 million or 23.2%. Looking at it by segment. Engine Management net sales in Q2 were $233.2 million, up $60.1 million versus the same quarter last year.

And for the first 6 months, were up $71 million to $445.2 million. These large increases of 34.7% and 19% for the quarter and first 6 months, respectively, largely reflect the softness we experienced in Q2 last year in the midst of the pandemic.

Given the volatile results in 2020, it's better to compare our results through 2019, where Engine is up 7% for the quarter and up 3.2% for the first 6 months despite the loss of a large customer. These increases are a result of the successful customer initiatives, new business wins and generally robust demand highlighted before.

Additionally, the acquired Trombetta and soot sensor businesses provided approximately $9 million of revenue in the second quarter of 2021. Temperature Control net sales in Q2 '21 were $106.5 million, up 47.1% versus the second quarter last year and were up 36.4% to $168.9 million for the first 6 months.

And like we said for the Engine segment, it's better to compare our 2021 results to 2019. And on that basis, Temp Control sales were up 10.2% for the first 6 months, with the increases mainly reflecting an earlier-than-usual start to the summer selling season, as Eric alluded to before.

Our consolidated gross margin in Q2 '21 was 29% versus 26% last year, up 3 points. And for the first 6 months, it was 29.6% versus 26.8% last year, up 2.8 points with increases for both the quarter and year-to-date periods coming from both of our segments. Looking at the segments.

Second quarter gross margin for Engine Management was 28.9%, up 2.2 points from Q2 last year. And for Temperature Control, was 26.9%, an increase of 4.1 points from 22.8% last year.

The higher margins in both segments were mainly the result of the higher sales volumes we experienced and favorable plant absorption from building our inventory back to sufficient levels. And were partly offset by higher costs and labor raw materials and exportation as was expected, given the inflation occurring across the spending categories.

For the first 6 months, Engine Management gross margin was up 2.3 points to 29.8%, while Temp Control was up 3.3 points to 26.4%. The increases in our first half margins were also due to higher sales and higher fixed cost absorption given elevated production levels and were again partly offset by inflationary cost pressures.

Moving now to SG&A expenses. Our consolidated SG&A expenses in Q2 increased by $14 million to $62.3 million, ending at 18.2% of sales versus 19.5% in Q2 last year. For the first 6 months, SG&A spending was $116.8 million, up $12.6 million, but ending lower at 18.9% of net sales versus 20.7% last year.

Expenses increased for both the quarter and first half, mainly due to higher selling and distribution costs due to both higher sales levels and inflation and costs. The improvement as a percentage of sales mainly reflects improved expense leverage due to our higher sales volumes and continued focus on cost control around discretionary spending.

Our consolidated operating income before restructuring, integration and acquisition expenses and other income net in Q2 was $37.7 million or 11% of net sales, up 4.5 points from Q2 last year. And for the first 6 months was 10.8% of net sales, up 4.7 points from the first 6 months last year.

As we note on our GAAP to non-GAAP reconciliation of operating income, our performance resulted in second quarter 2021 diluted earnings per share of $1.26 versus $0.52 last year. And for the first 6 months, diluted earnings per share of $2.23 versus $0.95 last year.

The increase in our operating profit for both the quarter and first half was mainly due to higher sales volumes, higher gross margin percent and improved SG&A expense leverage. Turning now to the balance sheet. Accounts receivable at the end of the quarter were $211.8 million, up $48.8 million from June 2020 and up $13.7 million from December 2020.

The increase over June last year was due to the increase in sales during the quarter, while the smaller increase from December reflects both higher sales and management of our supply chain factoring arrangements. Inventory levels finished the quarter at $404.9 million, up $51.6 million from June last year and up $59.4 million from December 2020.

The increased inventory levels reflect higher sales levels and the need to carry higher balances to support our customers. And as a reminder, our inventories were depleted during 2020 due to strong sales in the last half of the year, and we expected to build our inventories back this year. Looking now at cash flows.

Our cash flow statement reflects cash generated from operations in the first 6 months of 2021, $23.2 million as compared to cash used of $0.9 million last year. The $24.1 million improvement was mainly driven by an increase in our operating income. And while we saw some large swings in working capital balances, the changes were largely offsetting.

The changes in working capital in the first 6 months were mainly driven by sales performance during the period. Inventory balances finished higher as we replenished ourselves and made sure we had sufficient inventory to serve our customers, but cash used for inventory was partly offset by an increase in accounts payable.

Additionally, we use significantly less cash and funding accounts receivable versus last year due to both timing of collections and management of our factoring programs, but this was partly offset by cash used to pay customer rebates that were earned and accrued last year. Looking at investments.

We used $11.7 million of cash for capital expenditures during the first 6 months, up from $9 million last year. We also used $109.3 million to fund our acquisitions of the aforementioned Trombetta and soot sensor businesses.

Financing activities included $11.1 million of dividends paid and another $11.1 million paid for repurchases of our common stock.

Financing activities also included $127.3 million of borrowings on our revolving credit facilities, which were used mainly to fund our acquisitions, but also for investments in capital and returns to shareholders through dividends and share buybacks.

And while after making significant acquisitions in the first 6 months, we still finished the quarter with total debt of less than 1x EBITDA given our strong operating performance and ended Q2 with total outstanding borrowings of $137 million and had more than sufficient remaining available capacity under our revolving credit facility of $112 million.

In summary, we are very pleased with our operating results for the first half of the year.

These results led to strong cash flow generation, which supported 2 great acquisitions in the Trombetta and soot sensor businesses as well as continued returns to shareholders and helped us finish the second quarter with low levels of debt and a substantial amount of liquidity.

We thank all of our dedicated employees for their efforts in achieving these results in what continues to be a unique and challenging time. I'll now turn the call back over to Eric to wrap up..

Well, thank you, Nathan. And before opening it up for questions, let me just close by again stating that we're delighted with our quarter and with the year-to-date, and we're very proud of how our people performed. Our financial performance has been strong both in sales and profits.

We've been active in M&A, closing 2 very strategic deals and have done so while navigating the complexities of the ongoing pandemic, keeping our people safe, managing through supply chain challenges. And I absolutely feel we are a stronger organization for it.

We're pleased with the overall state of the industry and of our standing within it, and we are very excited about the future. And with that, I will turn it back to the moderator and open it up for questions..

[Operator Instructions]. We will take our first question from Bret Jordan from Jefferies..

You commented about getting awards for your fill rates, but could you talk about maybe where you are in stocks versus target? Are you within a few percentage points of where you'd like to be or supply chain problems, any impact on sales?.

Yes. Bret, this is Jim Burke. From historical levels, we're down a few points. It's been a struggle, but hearing from customers that is significantly better than maybe other manufacturers that are out there. But we're only a few points shy. We continue to strive and improving each month and quarter-over-quarter.

So we're in reasonably good shape that's there. And I wouldn't say that there is any loss of -- significant loss of sales volume that's there. We're scrambling. The teams are doing very good. We're very proud of what we've been able to achieve over this last 1.5 years..

Okay. And then you commented that you picked up, I guess, over 1/3 of that Engine Management volume that had gone. But the cadence on that comment, you said you picked up some in the second quarter, but maybe more coming in the second half.

Could you talk about maybe the magnitude of what's coming in the second half versus what we've already got?.

Sure, Bret, this is Eric. And you're right. Some of it did roll in doing during the second quarter. These wins, it was really several singles and doubles. So they all phase in over time. But approximately a half of it came in over the second quarter and the balance over the rest of the year in phases..

Okay. Great. And then one last question on the comparison to second quarter of '19.

The Engine Management being up 7%, did that include the acquired revenues? Or is that an organic number versus '19?.

Yes. Bret, this is Nathan. That included the acquired revenue, approximately $9 million in the quarter..

Okay. Great. Actually, one final if I can. I guess this is more of a big picture. But given the fact that your supply chain is more North America, obviously, Mexico and then some Eastern Europe.

Are you potentially going to gain share as people try will sort of maybe step back from an Asian supply chain, just given the disruption in the shipping costs that we've seen? Or is it a sort of transitory to the point people aren't really going to change their supply model as much?.

That's certainly very difficult to predict, Bret. We certainly have a lot of discussions with customers over supply chain stability. And we tend to get high marks for the fact that we are not as beholden to the Far East as some. And -- but it's difficult to say how much that potentially parlays into new business opportunities.

We're very pleased that we do have that footprint because I think it helps us certainly at the table, but it's difficult to say what that will actually convert to..

We will take our next question from Scott Stember of CL King..

You guys gave a lot of good detail about your success rate in getting new business to offset the loss of business that you referred to.

As the quarter ended, if you put all the buckets or all of the 4 initiatives in place to offset, how close were you to achieving all those lost sales? And if not, when do we expect that to happen? In the back half of the year or early next year?.

Well, I think you can break out a few of the pieces information we've given you in terms of the size of the acquisitions and what they generate. And as Nathan just mentioned, we got $9 million in the quarter, but run rates of $75 million. And then as it relates to new business wins, we've roughly sized it and told you when you could expect it.

The other two pieces are a little harder to separate out, which is just general market strength and how much of that is the whole market growing versus the success of initiatives that we've had with our channel partners to help them grow their share downstream.

We do believe that both were contributors but how much was general market strength versus some of the programs that we put in place. It's a little difficult to separate them out. But we do believe both of them have some legs. So we're hopeful that, that will continue..

Got it. And just going to the back half of the year, I guess, starting in the third quarter, you talked about very difficult comparisons.

But what you're seeing at POS, are you still running up north of what you did a year ago, notably in Engine Management?.

Coming out of the second quarter, yes, it has continued to be strong. And we don't -- our numbers are pretty good through June. What's happened in July is a little more directional, but we do continue to see that strength. But as we have to continue to emphasize, it's really so hard to determine how long this kind of dynamic can last.

It's obviously so unprecedented for our industry..

Got it. And then last question on the gross margins. You usually give us an update on where you see things coming in at the end of the year. And Jim, you talked about some puts and takes.

Where could we expect gross margins in both pieces of the business to trend in the back half of the year and for the full year?.

Yes. Scott, this is Nathan. Like Eric said before, it's really hard to predict kind of where we're headed at this point. We think 2019 second half is a good benchmark. But just given where sales have been over the last 18 months, fairly unpredictable and unprecedented recently, as Eric just said.

We have some inflation pressures that while we will certainly work to offset with cost savings and price pass-throughs, we think those will persist. And we also have the 2 acquisitions we're working through and looking for those to settle down and to see how they're going to impact the business.

So we produced 2019 as the guide at this point for the back half..

So are you saying we could match that what we saw in the back half of 2019?.

Yes. I would just say that directionally speaking, the back half is the right benchmark and whether it's the exact number or not, that's....

Okay. And if I could just sneak one more in, just on Trombetta. I know you, Eric, talked about how just the general OE businesses, I guess, operating margin neutral, but there's some moving pieces in there.

Is Trombetta -- does that fit into that narrative as well?.

In terms of overall bottom line? Yes, very much so..

We will take our next question from Robert Smith from the Center for Performance Investing..

First, congratulations on the robust quarter.

I was just wondering if your OE target, if you -- on a long-term planning function, say, 3, 5 years out, what are you targeting? And acquisition-wise, are you more looking at strategic or opportunistic?.

It's a great question, Robert. And we don't have a specific target of a balance of business between OE and aftermarket. We are pleased with the fact that we have gotten it to where it's got a good critical mass. Arguably several years ago, it did not. And so it was really more of a hobby business and difficult to get anybody's attention with it.

And so now with a run rate of $250 million, it's 20% of our business, it's meaningful. Do we think that, that 80-20 is a good ongoing ratio? Do we plan to continue to build it? I think that goes to your second question, which is, yes, we're opportunistic. We don't have a goal that we're chasing.

We look at things that make sense that we think that we have either good internal competencies to pursue and to pursue profitably. Or good acquisition opportunities that lend themselves to where we're trying to take this business. So at that point, it does -- it becomes more opportunistic.

But I also think that we now have momentum on our side, which tends to open doors. And so we'll see where that takes us..

What is your take on the China flap-over technology? What do you hear in country?.

I'm sorry, could you repeat the question, Robert?.

What's your take on the China flap-over technology? And what do you hear in country?.

China, technology....

Flap. The controversy of China's move on certain areas of technology..

Chinese technology. Well, we look at it within our scope of business.

And so as we look at what we've been accomplishing in the China market, which has been entirely through our joint -- or almost entirely through our joint ventures, which we had the three on the air conditioning side and then the Trombetta came with a very nice complementary piece there as well.

We believe that the technologies that we are pursuing over there are ones that have good market potential, not necessarily high-tech categories that the China market is going to try to protect or control, at least that's what I'm hearing. So we think that where we are in that space is all upside, and we're excited on where it could potentially go..

How will you characterize the current competitive environment? And any particular more recent developments?.

Here in the North American aftermarket, it continues to be a very competitive market, and we have to be out there fighting every day for our space.

We do believe that our long-standing go-to-market strategy of being a full line, full service provider of professional grade products continues to be very well received, continues to be very sticky with our customers. Again, we need to perform at a high level so that they genuinely drive the value out of that approach.

But we think that as long as we do that, the competitive landscape is certainly there, but we think we'll win more than we lose..

And any particular recent changes saying within the last 18 months, what's been happening with the pandemic, I mean, affecting competitors?.

Nothing that we can really tell. It's a fragmented industry with a lot of players. You go back many years, and it was us against other full-line suppliers. Now it's a bunch of niche players on specific product categories or quality grades or what have you.

And so as it gets fragmented like that, the landscape changes slowly because there are so many small pieces to it. So no, I wouldn't say that we've seen anything dramatic since the pandemic..

Okay.

And lastly, can you just restate the dividend policy for me again?.

Yes. Robert, it's Nathan. So as always, we'd like to provide a dividend to our shareholders, and we continue to do that. In recent years, we've increased it slowly and steadily. We have continuing discussions with our Board around what we should do and when we should raise it again, and we'll continue to have those discussions as we go forward.

But we do value the dividend as our sort of basic return to shareholder method..

You stated before a certain percentage payout, haven't you?.

Yes. Yes. And we have. And I think the target that we talked about before was roughly 1/3 of earnings. And obviously, we have that in mind, and we'll keep that in front of us..

We will take our next question from Daniel Imbro, Stephens Company -- Stephens Inc..

Congrats on the quarter. This is Andrew on for Daniel. I've got 1 quick question. I'm just kind of curious if you could help me kind of quantify what the inflationary impacts you're seeing today and kind of what you're assuming in the back half? Are you expecting more? And will that kind of -- yes, just let me start there..

Yes. So as far as what we're seeing, I guess, through today, from a numbers perspective, it's low to mid-single-digit inflation percentages. Kind of depends on the category as far as exactly what we're seeing, but that's the range that we're seeing.

And of course, kind of stay away from a forecast because it's hard to tell where things are headed, just given the fast pace of the environment at this point..

Okay. Yes, how much do you think of that will be more structural going forward versus transitory? And I know, again, that's tough to forecast, but if you can kind of give me any sense of what you're seeing today..

I think I'll stay away from answering that one. I think most of the world is having the debate on transitory versus structural at this point. But again, we're looking to pass through prices and offset with cost savings, and that's how we're addressing it at this point..

[Operator Instructions]. We will take our next call from Carolina Jolly from Gabelli..

So the -- I wanted to touch -- and your -- a lot of your answers have touched on this, but I was hoping if there's anything quantitative we can add to this. But -- It looks like when you -- it looks as if when you did lose that one customer that there was an idea that they might go direct.

Can you kind of quantify or just talk about how you're able to provide a better service to the distributors by -- through your model? And if any of your competition that is going direct is kind of losing share at this point by doing that in this current environment?.

It's difficult to say what our competitors are doing with it, but we will reiterate our model of having more than just a partner box at a price, but all the different services.

And a lot of that does include having in-country distribution which, especially in this current environment of supply chain disruption has proven to be such an important part of what we offer that we're able to get product on our customers' shelves very quickly as opposed to needing to bring it in direct if a customer were to try to do that.

And deal with the kind of shipping delays that everybody is seeing, trying to get product across the ocean. So we believe -- we've always believed that our model has been very well received. I think in today's environment of supply chain disruption, it's even more so.

So I don't want to comment on how others are doing with their strategy, but we think we're doing well with ours..

Okay. Great. And then just one more question. Previously, and I don't know if you touched on the call, there was just a mix difference in response to the current environment where you were seeing some, what would potentially look like more do-it-yourself end market demand and demand from the 12-plus older vehicles.

Is -- are you still seeing that type of mix difference? Or can you update us on that?.

Yes. I think what we're seeing -- and it's important to note that we only have directional insights into the end user. We do get some data from some of our larger trading customers as to who their end user is, whether it's a do-it-yourselfer or the professional installers.

What we did see last year was a bit of a shift towards DIY, and we've now largely seen that shift back. Where you see it more is not so much who is buying a particular part. I think you see it a little bit more in a mix shift of the types of parts.

So for example, what we saw last year, when there was heavy DIY and that's what all the big publicly traded distributors were talking about. We saw outsized demand for ignition wires, which is a highly DIY category and supposed to be a category in secular decline, and it was through the roof.

That has now started to normalize a bit, and I think that that's a good insight into more of a return to a DIFM market. which in the long run, as I said in my prepared remarks, it's a very favorable trend for us because that is ultimately the market that we do best in. And I think it's ultimately the market the industry is going to grow in.

So we're starting to see it move back in that direction..

Okay. Great. And then last question.

Would it be fair to say that right now, you're meeting the demand of your customers and the distributors, but there might be additional demand on that when they need to stock -- look to come -- revert to their normal stocking levels?.

Well, what we're seeing is that their inventories, again, this is directional, we don't have everybody's inventory, but that we are able to see. Their inventories have actually been pretty stable over the quarter, and we're seeing that also in that their POS is roughly matching their purchases. So they've been pretty stable in their inventory levels.

And so we don't necessarily expect a surge in stocking up nor do we see any destocking. We kind of think it's where it's supposed to be right now..

[Operator Instructions]. It appears we have no further questions at time. I will now turn the program back over to our presenters for any additional or closing remarks..

I think we have no further remarks. Thank you very much for attending..

Thank you..

Thank you..

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