Holley Inc.

Good morning, ladies and gentlemen, and welcome to the conference call to discuss the results from Holly's first quarter of 2023. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions for asking questions will be provided at that time. We ask that participants limit themselves to one question and one related follow-up during the Q&A period. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Holly. As a reminder, this call is being recorded and will be made available for future playback. I would now like to introduce your host for today's call, Mr. Ross Collins, Managing Director of Alpha IR.

Please go ahead. Thank you, operator. Good morning, everyone. Thank you for taking the time to join us today. On the call with me today are Matt Rubell, Executive Chairman, Michelle Gleckler, Interim President and Chief Executive Officer, Jesse Weaver, Chief Financial Officer, and Vinny Nimagada, Executive Vice President of Corporate Development and New Ventures. 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-looking statements that are subject to significant risks and uncertainties 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 these forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct, and actual results may differ materially from expectations. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in the company's recent 10-K, S-4, and S-1 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. Holly undertakes 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 Michelle Kleckler, Holly's Interim President and Chief Executive Officer. Michelle?

Thanks, Ross. Good morning and thank you for joining. As we begin today, we would like to thank and celebrate our Hawley shops and team members across the company for their commitment to delivering against our strategic pillars and priorities. We had visited most all of our shops this quarter and appreciate their achievements. When we last spoke, we shared our strategic pillars and priorities for 2023. The board and leadership team of Hawley remain laser focused on executing these initiatives. Early traction drove solid first quarter results with both sequential top line and bottom line growth. Quarter over quarter, our gross profit and adjusted EBITDA increased by 43% and 125% respectively. Holley remains steadfast in its vision to inspire and enable enthusiasts in their automotive adventures by bringing innovation, discovery, and fun to motor life. Our team of enthusiasts supports the journeys of our enthusiast customers by focusing on five key pillars of our strategy. Those are, one, prioritizing key categories and platforms, two, product innovation, three, mergers and acquisitions, four, our customer-focused channel strategy, and five, engaging and inspiring the enthusiast. I'd like to update you on the progress we've made on each of these pillars. First, on key categories and platforms, we completed our SKU rationalization program, vastly reducing complexity in our facilities and simplifying the customers' purchase decisions, all with minimal impact on revenue. Our team made substantial progress in the quarter, working down the inventory of those rationalized SKUs and I've personally walked our 400,000 square foot distribution center several times in this past quarter, and I have seen the difference firsthand. We continue to make progress on our past due orders in the non-electronic segments of our business. During the quarter, company-wide past due orders decreased slightly by 600,000. By segment, mechanical, exhaust, accessories, and safety all declined in the 17 to 28% range. However, most of that improvement was offset by an increase in electronics of 26%. As we discussed in last quarter's call, automotive grade microchip availability continues to be a challenge as it relates to building and shipping our Holley EFI products. However, our team was able to leverage our supply network during the quarter and secured chips to make and ship more Terminator and Dominator EFI products within the Holley EFI product line, albeit at less profitable levels given higher prices paid to secure those chips. We did, however, take targeted pricing actions to help offset the impact of the higher chip acquisition costs on the spot market. While we are encouraged by our improved shipping rates on these products, New orders in our electronics category continue to outpace our ability to supply, as indicated by the increased level of past dues. These higher levels of past dues are reflected in our current financial guidance. With that said, our supply chain management efforts are paying off, and we now have line of sight on future chip deliveries, which reduce downside risk to our revenue guidance. Product redesign efforts to access a wider available supply of chips continue, And we expect to provide an update on this later this year regarding potential 2024 impacts. Optimizing our operations is critical, but our team is also committed to driving innovation that delights our enthusiasts. Historically, Holley has excelled in anticipating the future needs of its customers, which is at the heart of our innovation pillar. Later this year, we will be launching Holley Sniper 2.0 an extension of one of our most popular electronic fuel injection platforms. In addition, we are encouraged by the aftermarket tuning technologies created by our R&D team, which recently launched a collaboration with Dodge to utilize Holley aftermarket tuning technologies to enhance vehicle performance for owners while maintaining factory warranty coverage with installation handled by dealers. These are historic milestones for both Holly and the industry to better serve our growing base of enthusiasts. With our third pillar, M&A, we continue to accelerate synergy capture from recent acquisitions and remain on track to capture $3 to $3.5 million of cost synergies in 2023. As a reminder, the near-term focus of our M&A effort is to accelerate value capture from recent transactions. We are on schedule in adding acquired brands to our holly.com site, our ERP system, and our distribution center. We continue to make strong progress on our fourth pillar this quarter, delivering strong direct-to-consumer growth. DTC sales were up 6% year-over-year, and DTC sales growth continues to outpace overall company-wide sales. As expected, we also began to see our resellers build inventory ahead of the racing season. A return to normal seasonal stocking cycles is a key indicator that we are on a path to demand normalization in the post-COVID era. Progress on our fifth pillar, engaging and inspiring the enthusiasts, will be more evident as we enter the heart of our event season. We are currently planning seven Holley events this year, and we are working on something big for our electric vehicle event, Holley High Voltage. This year, we are taking the high voltage experience to Tesla Takeover, one of the largest Tesla EV gatherings in the United States, which will enable Holley to reach new EV enthusiasts and expose many production EV owners to exciting EV conversions and testing the performance of their vehicles in a motorsports environment. This event will take place in July in San Luis Obispo, California. As always, Holley High Voltage will bring an incredible display of leading edge and unique EV conversions and a fun motorsports experience that enables our enthusiasts to test the limits of their EV vehicles. We recently hosted Holley LS Fest West in Las Vegas. which saw great turnout in late April above what we experienced last year. We continue to offer interactive opportunities for our multi-generational enthusiast customers, and we will meet them when and where they choose to engage. Underpinning these five strategic pillars is a strong foundation of talent, as well as our commitment to operational excellence. We have the right team in place We are equipped with the right strategy, and we will continue to be a leader in this attractive auto enthusiast market. As part of our commitment to operational excellence, we continue our efforts to right-size our operational structure and reduce costs, delivering solid progress in the first quarter. Key contributions were a reduction in force, reduced logistics cost, and savings from location consolidation. We estimate that we drove $9 million in total savings year over year in the first quarter and are on track to achieve 30 million of year over year savings during 2023. Looking at the balance of 2023, we remain focused and our leadership team is committed to driving the change that Holly needs. This includes streamlining operations, capturing synergies, and improving both supply chain and working capital management. We will drive innovation and focus on serving the needs of our enthusiast customer base. While we continue to expect demand normalization throughout the year, we see additional opportunities to reduce inventories and work down our past due orders and electrical categories through both the proactive acquisition of chips on the spot market and chip board redesigns. Overall, we remain encouraged by Holley's business outlook and we continue to believe the performance aftermarket will organically grow at 6% to 7% per year as COVID demand normalizes. Furthermore, we made solid progress on profitability this quarter, and we still expect to achieve our targeted levels of profitability, including 40% gross margin and greater than 20% EBITDA margin in the near future. We are driving fundamental improvement in our business that will continue to add value, and we will inspire our large and loyal base of enthusiasts with innovative new products across our strong roster of brands. We are making meaningful progress toward exiting 2023 as a much stronger company, and we look forward to updating you on future calls. With that, I'll now pass the call to Jesse to provide an overview of our financial results. Jesse?