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?

Thank you, Tom, and good morning to everyone on the call. As Tom mentioned in prior calls, we believe acquisitions are a key strategic pillar to drive growth at Holley. During the second quarter, we completed the acquisition of Racequip, a well-known brand in the safety equipment market. This acquisition is a great example of how Holley is consistently looking to strategically gain market share and enter new product categories. Although relatively small in size, this acquisition helps us expand into a broader base of entry-level enthusiast consumers with products priced right for the value proposition that we deliver. Our pipeline remains focused and we are committed to building out our M&A capabilities. As a part of our acquisition philosophy, we are focused on attractive companies that will allow Holley to expand share in current markets, enter new product categories, increase our DTC scale, and ultimately drive shareholder value. Should the elevated economic uncertainties lead to additional attractive opportunities coming to market, our team stands ready to capitalize, as well as engage with business owners seeking Holly as a disciplined steward for their business. Now, I'll say a few words regarding our consumer engagement, specifically experiential events. Holley proudly hosted its inaugural LS Fest Texas event during the quarter. Holley LS Fest events as a brand truly are a destination for enthusiasts, and these events will continue to be a key pillar of our consumer engagement strategy. To add some specific color, in its first year, LS Fest Texas achieved attendance greater than our LS Fest East event had achieved in its sixth year. Not only do these events help us learn more about our customers, each event serves as an opportunity to understand and learn more about the products that are resonating with the broader enthusiast community. This will be particularly helpful as we begin to innovate and enter new product categories and markets, such as electric vehicles. Holley held its second Holley High Voltage event this past quarter, enabling us to engage deeper with the EV enthusiast community. Lastly, as we discussed in the first quarter's call, we met our second quarter milestone for the Simpson integration and are meaningfully accelerating the integration of more recent acquisitions to realize value within the year. Through our acquisitions and integrations, we remain committed to returning long-term value to our shareholders. With that overview, I'd now like to hand the call over to Dominic, who will discuss our second quarter financial results in greater detail. Dominic?

Thank you, Vinnie. Good morning, everyone. Holley delivered net sales of $179.4 million in the second quarter, a decrease from $193 million, or a 7.1% decrease from the second quarter of 2021. While we typically don't disclose monthly pacing of results, we believe it's helpful color to illustrate how sales trends changed throughout the quarter. You may recall that we finished our first quarter with net sales that were 25% higher than Q1 of 2021. When we finished April, our year-to-date net sales growth was 15%, still on par with the higher end of our annual guidance. At the end of May, our year-to-date net sales growth had fallen to 11% over the prior year, but still within the range of annual guidance. But by the time we finished the quarter in June, our year-to-net sales growth compared to 2021 had fallen to 7.4% as reported this morning. The declining sales performance, particularly in our five-week month of June, directly correlates to the factors Tom discussed earlier. Gross profit for the second quarter of 2022 decreased $5.9 million, or 7.3%, to $75.3 million when compared to $81.2 million for the second quarter of 2021. The decrease in gross profit was driven by the decrease in sales. Gross margin for the second quarter of 2022 was 42% compared to a gross margin of 42.1% for the second quarter of 2021. Total selling, general, and administrative expenses increased 38.5% in the second quarter. The large increase in SG&A is a continuation of the increased costs related to equity compensation, public company expenses, acquisitions, and investments for growth. Incremental SG&A from recent acquisitions were responsible for $1.4 million of the increase in the quarter. Additional cost drivers include an increase in non-cash expense directly related to equity awards, increased administrative and sales personnel costs reflecting company and additional requirements of becoming a public company, and an increase in outbound shipping costs related to domestic supply chain pressures. Interest expense decreased by 20% in the second quarter of 2021 to $9 million. Interest expense positively benefited from the $100 million pay down on our second lien note in July of 2021 and the credit facility refinancing we completed last November. We recorded net income of $40.6 million in the second quarter of 2022. Net income for the second quarter of 2022 was favorably impacted by a $27.4 million non-cash decrease in liabilities for warrants and earn-out shares. On an adjusted basis, net income was $13.2 million versus $23.1 million in the second quarter of 2021. Adjusted EBITDA decreased at $37.2 million in the second quarter, down from $54.1 million in the second quarter of 2021. Moving to our outlook for 2022. As we stated in our pre-announcement and earnings press release this morning, we have lowered our guidance that we originally established at the beginning of the fiscal year. Our updated guidance now calls for annual net sales in the range of $700 to $725 million and adjusted EBITDA between $135 million and $145 million. We also adjusted our interest expense expectations to be in the range of $33 to $35 million, while we are maintaining our CapEx and depreciation and amortization guidance, which are between $14 to $16 million and $24 to $26 million, respectively. This guidance includes reduced spending to reflect the challenging environment in the months ahead and the accelerated integrations that Vinny mentioned. Now I would like to take a moment to address the announcement of my resignation at the end of September. First, I would like to thank Tom, my leadership teammates, and the Holley Board of Directors for the opportunity to serve and be a part of this exciting chapter of Holley's corporate life. Second, I would like to emphasize that my decision to leave is purely for personal and family reasons. I think Holley is a fantastic company with an extremely bright future that will drive long-term shareholder value for years to come. In the meantime, I will do everything I can to ensure a smooth transition during the next two months. That concludes our prepared remarks. Ross, we can now open up the call for questions.

Absolutely, Dominic. As a reminder, we ask that you please limit yourself to one question with one related follow-up as needed. Rob, please open the line for questions from our participants.

Thank you. To ask a question today, you may press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you, and our first question comes from the line of Joe Altabella with Raymond James. Pleased to see you with your questions.

Thanks. Hey, guys. Good morning. I guess first question, just to kind of get it out of the way, What are you guys seeing in July and August so far in terms of shipments, demand, et cetera?

Joe, let me handle that one. When we did our guidance, we had a few weeks into July. We took that into consideration, but we're not prepared to make any other comments about Q3. Okay. Understood.

In terms of demand, you mentioned on the tuning side, you're seeing a lack of new and used auto availability. as being a big driver of that. Is any of that related to broader macro concerns as well, or is it really just the availability issue?

Well, I mean, from our perspective, with new vehicle production being down, consumers are just buying fewer new vehicles. And the trickle-down effect, then, is that there's a smaller inventory of used vehicles being passed to next owners. And again, as we talked about in the prepared remarks, consumers generally purchase tuning devices when they purchase a brand new vehicle or a new to them used vehicle. So based on the visibility we have today, we think that that's the primary driver of what we're seeing there on the tuning side.

Okay. And just lastly for me, In terms of the reseller destocking, are they trying to conserve cash because of a concern about the macro backdrop? What's driving that destocking activity?

Yeah, we have historically seen this when there is bad economic news. I would have to say that we have shaped our policies around this over the years. to minimize the impact on the business, to minimize their inventory. When I look back to prior periods, I think those strategies, those policies are working well. While the impact was still significant to us in the quarter, it was much lower than we've seen historically. Okay. Got it. Thank you, guys.

Thanks, Joe. You're welcome. Thanks. Our next question is from the line of Ryan Sundby with William Blair. Please receive your question.

Hey, guys. Thanks for the questions there. It sounds like there are maybe four separate things that drove the shortfall relative to expectations, the broader supply chain issues, the availability of key inputs, the stocking and the stocking demand. Can you maybe talk about just a little more about how much each of those had relative to your expectations?

Well, you know, Ryan, this is Dominic. I think one of the things that we try to do when we go through this is give the relative magnitude by the order in which we're presenting things. We're not prepared to give precise information in terms of the dollar magnitude of the miss, but we know that, as Tom mentioned in his prepared remarks, When we started the quarter and where we ended the quarter, we had hundreds of our most popular products out of stock. So we were running out of stock of our most popular things through the quarter, and that's why I shared the prepared remarks, the pacing. So supply chain, we believe, was the most significant impact, and as we kind of went through the prepared remarks, it's in that descending order of magnitude.

Okay, that's helpful.

I would also just refer back to you know, one of the comments in the prepared remarks, when you look at our past due orders, you know, as Dominic just mentioned, and I talked about, you know, they are, they have remained elevated, and at the end of the quarter, these past due orders were more than three times the net sales decline from the prior year. Just, to me, that kind of is somewhat responsive in a bit of a quantified way to your question.

Yeah, that's very helpful. Also wondering, is the right way to think about underlying demand, maybe the 7% growth for D2C? Does that help us kind of look through the reseller destocking? And then on the reseller destocking, can you talk a little bit more about how that looks across the different channels in terms of ETL, in terms of brick and mortar? Are you seeing any differences there in Maybe the timing of that, did that get worse really towards the end of the quarter or was it kind of a grown concern all quarter?

The channels do have some different dynamics, but they also tend to carry different inventory levels. And we only have visibility to destocking in our top resellers. Now that does represent more than, including our DTC, that represents more than half of our overall sales. So it is a pretty meaningful look at destocking. Interestingly, you know, kind of the traditional retailers had done some destocking last year in this quarter. And so their destocking was probably the lowest And, you know, I'm going purely by memory here, but as I recall, you know, our top channels, which would be e-tailers, including our DTC, and then, well, we can exclude DTC for this part of the discussion because we're talking about channel inventory. But so e-tailers and warehouse distributors was where we saw the largest destocking in the quarter.

Yeah, and as Tom mentioned, they do carry the widest breadth of our inventory, so that makes the most sense that they're the ones that would have the highest level of destocking.

Thanks, Chris.

Thanks, Ryan. Our next question comes from the line of Joe Feldman with Healthy Advisory. Please proceed with your question.

Yeah, hey, good morning, guys. So question about the microchip. issue and i know it's a global issue it's it's clearly beyond you guys but i i guess the concern is how do you guys plan to meet demand if you have this kind of pressure in the environment like does that mean we have to kind of see a permanent reduction in sales for the next year and a half or i guess how should we think about that impacting you guys

I mean, I guess the first thing I would say, you know, if there was a year and a half reduction, it wouldn't be permanent. And we have, you know, we're blessed with a, you know, very broad portfolio, and we have other products that, you know, we can focus on in the meantime and promote. But having said that, the team is working diligently And to secure these microchips, if there is a silver lining here, we do have now open dialogue with some of these top chip manufacturers. Historically, we've acquired these chips entirely through their resellers, through their distributors. And we'll probably still continue to acquire them through their distributors. That's the way they do business. But I think that this dialogue is good because it's just not a demand number on a page. It's a face and it's people that are asking for, that desperately need these products. we feel like those efforts had allowed us to make some progress. We've got some, call it short-term ship dates, but we're just very cautious because it's too soon to declare any sort of victory. We're very cautious because what happened to us in the quarter is that you know, confirmed POs were decommitted. And what that means is, you know, these were POs that we had placed months in advance. We expected the shipments. All of our schedules were built around those shipments. And decommitting, as a practical matter, means they're pushing out receipt dates. So, I think we have to look at all these expected receipts that we have today as tentative But it is hopeful, and we've actually been able to get some dates as a result of this dialogue directly with the chip manufacturers and really as a result of the team's just tremendous efforts in this area.

Got it. That's really helpful. Thank you, Tom. And just as, I guess, a reminder maybe for me, I hope maybe for everybody, but like how many or what percent of your products actually have chips in them that are you know, really require these devices? If you can share that.

You know, that's not something, let me see if I can give you a qualitative answer to that. It's, so we have products in our electronic fuel injection product line that use automotive grade microchips you know the overall that is a large category but not all of the products in that category use those microchips however you know when you can't sell the main unit you don't get the benefit of all the drag-along sales

One other thing, if I may add, Tom, is we've talked about this in recent quarters, that that category has been driving outpaced growth for us. It's really been driving significant growth with a super popular line of things, and many of those popular products are what we were without in Q2. That's right. We ran out of.

Got it. No, that's good. And it's helpful to hear that it sounds like the demand is not the issue at all from what you're suggesting. It's really just a ability to have the product. So, okay. That's right.

Thanks, John.

Thanks, Joe. The next question is from the line of Anna Glassingen with Jefferies. Please just hear a few questions.

Hey, good morning. Thanks for taking my question. I want to go back to kind of the commentary around retail or destocking. Totally understand the commentary that they're positioning for, you know, some of the macro that we're seeing. Did you see, you know, I know it's hard to get color kind of across the board here, but would you say it's more of an indiscriminate cutting across the board as we're just broadly trying to right-size inventory? Are they being a little bit more selective? And would you expect them to kind of tailor these orders going forward based on sell-through?

So we look at it as fear-based or maybe an emotional reaction to the bad economic news. And the last time we saw this was in 2020, right after all the COVID lockdowns occurred. And what we saw on our DTC side, DTC charged right on through with high rates of growth. And resellers pulled back dramatically. And the conditions were such at that time that they had to come right back in within a month or two and start raising their orders. So, I mean, I'm not suggesting that that's going to happen this time. The economic conditions, I think, are much different. But we do think that there's far more demand there than is visible in our numbers. You know, hence my comment that we believe the demand for our products is solid. And we've got some categories that are up, some categories that are down. We wanted to kind of talk about both sides of that to be fair and balanced. But, you know, another thing I would point, I mean, we talked about DTC up 7%. So far this year, our consumers, consumer events are well into the double digit up category or range. And, you know, so we do think demand for our products remain solid.

Great. That's really helpful. And just one follow-up, going back to the performance by category, you know, totally understand that sharing is impacted by new vehicle availability. As you think about, you know, prior downturns, would you say that that tuning is more exposed or macro-sensitive as it has a higher relationship with new vehicle sales? Is that typically the first one to go?

That category does correlate more than most of our other categories to vehicle sales. And again, we have this broad portfolio. And we are about 50-50 modern vehicles and classic vehicles. It's actually a little bit slightly skewed towards classic vehicles. And so that's just a great part of the business that we've built. And so even though this is a category that shows up as having lower demand at this point in time. It is a category that historically has had very, very high demand, and it's also one of our highest margin categories.

Great, thanks.

Thanks, John. Our next question is from the line of Alex Perry with Bank of America. Pleased to see you with your questions.

Hi, thanks for taking my questions. Just first, I wanted to ask sort of what was the big change in the supply availability versus sort of when you gave an update in May? Was this mostly the microchip availability, or was there something else that sort of developed as you moved through the quarter? And then the decommitted confirmed POs, are you looking for alternative suppliers as a way to mitigate this? Are you just thinking that this was an isolated issue and should improve?

Thanks. So the change that really the issues that we talked about from a supply standpoint, the supply chain slowed down for the reasons we discussed and we did not receive the goods we expected to receive in the court. There was a dramatic shortfall from what we expected to receive and you know those goods are pushed out into the second half of the year those receipts are for those goods are pushed out to the second half of the year and that should allow us to see some progress on our past due orders and you know see the benefits associated with that in terms of the uh the the stock sorry the decommitting we turned to the secondary market, which is something that we've historically done, and that market had tightened up so dramatically that it was not nearly as successful, and we weren't able to acquire the quantities of chips this quarter as we have historically. And our view of that market is, that going to another distributor is not gonna be particularly helpful because these chips just aren't out there right now. I guess we have to have some faith in our economic system and over time this will be corrected, but it doesn't appear to be a quick fix. We're just hoping, as we talked about earlier, that the effort that we've put into the dialogues with the chip manufacturers results in allocations and allows us to begin to resume production of these products.

That makes a lot of sense. Then I just wanted to ask, follow up a little bit on how much of the demand versus supply It seems like the slower demand is in electric tuning due to the vehicle availability, but also those are the ones that require chips. So is it, you're seeing slower demand, maybe give us another way to sort of characterize the demand you're seeing. Is there anything in terms of color you can give us in terms of end market demand, whether it's like your retailers sort of POS data, Just trying to frame up how much is demand versus supply.

Thanks. DTC is up 7%. Our consumer events so far this year are well into up double digits. Our backlog Sorry, I wanna talk specifically about our past dues. So these are orders that were due that we haven't been able to fill yet. That remains elevated and is increasing. And we need to see the container receipts for the goods that we ordered and expected to receive. But from our perspective, again, the demand is there. Look, these supply chain issues are frustrating to all of us, and the team is just working diligently to do everything humanly possible to see those goods arrive. In some cases, they will be inputs into our manufacturing processes, so there will be time required to manufacture the products we sell to our consumers. In other cases, you know, this would be a product that we've designed that we source complete, and that goes on the shelf and is ready to ship to consumers upon arrival, consumers and resellers upon arrival.

Perfect. That's really helpful. That's a lot going forward. Thank you.

Thanks. Our next question is from the line of John Lawrence with Benchmark. Please proceed with your questions.

Yeah, thanks. Good morning, guys. Good morning. Hey, Tom, would you just talk about, I believe in the first quarter, and I don't know if you can give a little deeper dive here. I guess two things. Number one, I believe the electronic category was about 80 million out of 200 million in the first quarter. Is that about right?

Yeah. I don't recall disclosing category-specific breakdowns.

And secondly, is there any way to break down that $80 million of how much of that total electronic product really has to do with the chip? Is it most of it, or is it 60%? And that follows with that sort of outline of how much of the electronic product is affected by demand, or just how much is affected by just not being able to get that chip.

Well, I mean, from a qualitative standpoint, the impact on the tuning business from the potential demand issues we discussed is smaller than the impact of the microchips.

Right. Thanks. And I would assume that, and of that comp decline, I assume it's all one business now. I assume this is part of the AEM product acquisition you made about a year ago, and that would be in the comp as well? No, that's not correct. That's not correct. Okay.

Yeah, so one of the things I think we should probably clarify, John, is that Automotive-grade chips that are engineered to withstand higher temperatures and the rigors of being in and under hood, those impact products like our fuel injection system that has to have an ignition system. Those things that need to have chips under the hood are automotive-grade. Many of our tuning products need semiconductor chips, but they're not the same quality because they're actually in the car itself and they're used to monitor or they can be used to tune. So there are differences in the chips of electronic products that we have. As an example, our fuel injection systems, we've been hampered with that supply. If you go to our website, you can see that estimated ship dates have been out there for weeks, and we can't ship some of our Sniper EFIs, our popular products, until September 30th.

We just don't have those products right now. Okay, sorry.

I was just trying to get that breakdown. And the last question for me, Tom, as we look at the business and look in the second half, What are the things that have to go right as far as getting these receipts? What are the things that we'd be monitoring to make sure as this solves itself over the next few months?

We are monitoring basically the inflow of containers with these products. That's an important element. Obviously, we're monitoring when they leave the port, and then obviously we see that again when a receiving report is entered into the system. The other thing that's really important, and I think that we've baked into our forecast and guidance what our expectation is in terms of being able to deliver on some of the fuel injection products that Dominic mentioned a moment ago. Those are the things that are pretty critical. Frankly, if we do better than expected, it gives us some upside. If we don't do as well as expected, it gives us some downsides. So, I mean, on balance, we tried to peg it where we thought we'd be.

Great. Thanks so much, Dominic. Appreciate all the help. Thank you, sir.

Good. You got it, John. Thanks, John.

Thank you. Our final question is from the line of Christian Carlino with J.P. Morgan. Please proceed with your question.

Hi. Good morning. Thanks for taking my question. Just wondering, have you taken price recently, either due to planned price increases or from the supply environment? And just how are you thinking about pricing versus volume in the back end?

So, we have historically, you know, for the last several years done a mid-year price increase as our regular annual price increase. We did do that this year. We accelerated it maybe by a couple weeks. And it was a little larger than we would have done typically, you know, given the pressures, inflationary pressures on our costs that we've seen.

And was pricing more of a, did pricing grow more than it did in the first quarter or less given the compares?

You know, pricing contributed 7.3% in the quarter. It was a little bit less than Q1 because the pricing change that Tom just mentioned was at the end of the quarter in June. So it was a little bit less in the quarter, but it was a positive contribution to the sales.

Got it. That's really helpful. And then I guess from a capital allocation standpoint, you have some inventory on the balance sheet. You expect the resellers to excel or I guess pick up their orders in the back half. but you're at almost five times total leverage. So is the plan from here to, you know, see how much you need for inventory or is there, would you deliver the balance sheet or, you know, could you make an acquisition to sort of supplement the weaker organic trends? Generally how you're thinking about planning a business going forward.

Sure. So let me just correct on the leverage. We're not at five times. Our net debt is probably around 610, $615 million with, $30 million cash on the balance sheet with our long-term debt. And so with our guidance, it's not near the five yet. Right now, at the end of the quarter, it was below four times. So from a leverage standpoint, yes, we're certainly going to look at everything going forward from a capital allocation standpoint. We are keeping an eye on cash. That's obviously very important to us and as it should be to all investors. It doesn't take us out of the M&A market. There are other ways that we can look at being creative, and we're certainly going to look at creative opportunities for long-term growth. I just want to remind folks that, yes, this is a setback. We are focused on the long term for driving shareholder value, and M&A is a part of that. As Vinny mentioned in his prepared remarks, our pipeline is very focused on things that fit our strategic bill of health, and we will find the right ways to do that. But clearly, we're going to be very careful. We're going to be very mindful of leverage ratios. We have a desired sweet spot. As I've said before, it's below four times.

And then I would just add that, you know, we just all need to keep in mind here that our comp, the second quarter of 2021 here, was a 54% up quarter. And, you know, so it's a difficult comp that we're up against. And in the back part of the year, you know, the comps are not as difficult.

Got it. That makes sense. Thanks for all the talk.

Thank you. At this time, this concludes our question and answer session, and that will also conclude today's call. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.

Thanks, everybody.

Thank you.