Holley Inc.

Greetings. Welcome to Holly's second quarter 2022 earnings call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Ross Collins with Investor Relations. Ross, you may now begin.

Thank you, Rob. Good morning, everyone. Thank you for taking the time to join us today. On the call with me today are Tom Tomlinson, Chief Executive Officer, Dominic Bardos, Chief Financial Officer, and Vinny Nimagata, Executive Vice President of Corporate Development and New Ventures of Holley. After their prepared remarks, we will open the call for questions. Now, I will reference the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain certain forward-booking statements including the future operating and financial performance of the company. In many cases, these risks and uncertainties are beyond the company's control. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations of any of its forward-looking statements will prove to be correct and actual results may differ materially. Important risk factors that could cause Actual results differ materially from those reflected in forward-looking statements are included in the company's recent 10Q, S4, and S1 filings with the Securities and Exchange Commission. The information contained in this call is accurate only as of the date discussed. Investors should not assume that statements will remain relevant and operative at a later time. Colliander takes no obligation to update any information discussed in this call in the future. Additionally, we will be discussing certain non-GAAP financial measures A reconciliation of these items to U.S. GAAP are included in today's press release, which is also posted on our investor relations website. At this time, I'd like to turn the call over to Tom Tomlinson, Hawley's Chief Executive Officer. Tom?

Tom Tomlinson, Chief Executive Officer, Hawley's Chief Executive Officer, Hawley's Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, Tom Tomlinson, Chief Executive Officer, I'd like to jump right into providing some color around the shortfall in the quarter, which was driven primarily by supply chain disruptions, reseller destocking, and softer consumer demand in certain categories. Typically, we see the highest overall demand for our products in the second quarter, and we place heavier orders from our suppliers in anticipation of receiving the necessary goods in time to fill this demand. In the second quarter of 2022, our receipt of goods from global suppliers fell well below our expectations, with many of these expected receipts having now shifted to the back half of the year. We believe this was driven by an overall slowdown in our supply chain, which began with COVID-related plant shutdowns and port closures in China, further exacerbated by slower than expected movement of goods throughout the balance of our supply chain. The second major supply chain headwind was related to automotive-grade microchips that are used in many of our most popular electronic products. We have suppliers that have been reliable for many years, and we provide them with long-term forecasts and purchase orders within their quoted lead times. In previous quarters, we have successfully been able to source the chips we needed from these historically reliable suppliers. During periods where demand exceeded the forecasts and purchase orders we provided to these suppliers, we have been able to secure the additional chips needed in the secondary market. In the second quarter of this year, these suppliers progressively began decommitting on previously confirmed purchase order ship dates at a rate that affected our ability to continue regular production of these products. These conditions worsened throughout the quarter. And while we were able to secure some needed chips in the secondary market, it became clear that demand had exceeded supply and we were unable to ultimately secure enough usable chips to satisfy the demand we have for these products. We continue to work diligently to source these microchips, but we now believe that global constraints could continue to be challenging through 2023. As a result of these supply chain disruptions, we navigated our busiest sales period of the year with an inadequate supply of hundreds of our best-selling products. Shifting gears to distribution, it is very clear that there was meaningful reseller destocking in the quarter. Our top resellers reduced their purchases well below their out-the-door sales of our products. Given our policies, and supply chain constraints that have existed over the last few years, we believe reseller inventory levels are currently low and their ability to continue to reduce their inventory is limited. Finally, I would like to discuss electronic tuning, a category where we believe we are seeing some reduction in consumer demand. We were well-stocked in this category throughout the quarter, but saw a decline in demand and have very low pass-through orders. We believe this decline in demand is primarily the result of lower new vehicle production levels, which in turn has resulted in a reduction in used vehicle transactions as well. New vehicle production has also been negatively impacted by the aforementioned microchip shortages. Consumers generally purchase tuning devices when they purchase a new vehicle or a new-to-them used vehicle. The above factors notwithstanding, we continue to believe that overall consumer demand for our products is solid. Our past due orders remain elevated and ended the quarter more than three times the net sales decline from the prior year. We expect to be able to fill most of this demand in future quarters as product becomes available to ship. Our DTC channel is growing and is margin accretive. DTC sales were up 7% despite the significant supply chain challenges. Looking to the balance of 2022, we expect our receipt of goods from global suppliers to accelerate, and the team is committed to managing our other supply chain challenges as effectively as possible. We're also very focused on opportunities to improve our short-term performance while continuing to pursue actions that will drive long-term growth, developing innovative and exciting new products for our enthusiast consumers and engaging with them through digital media and in-person at our events where we've seen double-digit growth. And we're also continuing to execute our M&A strategy. I'll now turn it over to Vinny to discuss recent M&A activity and consumer engagement. Vinny?