Holley Inc.

Good morning, ladies and gentlemen, and welcome to the conference call to discuss Holly's second quarter 2024 earnings results. 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 the reproduction of this call in whole or in part is not permitted without written authorization of Holly. And 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, Anthony Rasmus with Investor Relations. Please go ahead.

Good morning, and welcome to Holly's second quarter 2024 earnings conference call. On the call with me today are President and Chief Executive Officer Matt Stevenson and Chief Financial Officer Jesse Weaver. This webcast and the presentation of materials, including non-GAAP reconciliations, are available on our Investor Relations website. Our discussion today includes forward-looking statements that are based on our best view of the world and our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings. This morning, we will review our financial results for the second quarter and share our guidance for the third quarter and full year 2024. At the conclusion of the prepared remarks, we will open the call up for questions. With that, I'll turn the call over to our CEO, Matt Stevenson.

Thank you, Anthony. I extend a warm welcome to everyone joining us on the call. Today, I'm eager to convey the advancements we've made in activating Holly's growth engines. Your steadfast support and interest are crucial as we navigate our transformation journey, even amidst a market that often conceals our significant progress. We've also made considerable strides in streamlining operations, cutting non-value-added costs, and improving inventory management, all which are key to strengthening our cash flow and ensuring predictable financial performance. As we have stated in the past, A pivotal aspect of our transformation is our dedication to elevating and enhancing the organizational capabilities at Holley. Central to this endeavor has been recruiting top-tier talent to spearhead various functions. Our approach of strategically hiring the right individuals has consistently led to measurable performance improvements in their respective areas. We are pleased to announce that the final leadership appointments have been made to complete an exceptionally dynamic team poised to drive highly toward our ambition of becoming a multibillion-dollar enterprise. Further details on the enhancements in our key transformation areas, as well as insights into the innovative products emerging from our leading brands, will be discussed later in the call. However, let's touch on some of the key highlights for the second quarter of 2024 on slide five. The overall performance aftermarket continues to be soft. driven by the slowdown in consumer spending attributed to the persistently high price of goods, services, and housing, plus the higher for longer interest rates, all culminating to a reduction in growth of real disposable income. Plus, economic uncertainty, combined with an election year and a cooling labor market, is contributing to restrained spending habits. In a market that's showing signs of slowing, we remain confident in our ability to gain market share. anchored by the pillars of our ongoing transformation. Our roadmap to increasing share is built on the strength of our esteemed brands, bolstering our digital capabilities, refining our promotional strategies, launching innovative new products, and optimizing our pricing. We've already seen promising growth, specifically in our direct-to-consumer channel, which has experienced significant sales growth year over year. driven by the progress in these essential facets of our transformation. We aim to mirror this success with our distribution partners by fostering stronger collaboration. Working closely with distributors is key to expanding our market presence, and by enhancing their involvement in our promotions and product launches, we strive to achieve comparable growth in all our channels. Through operational improvements and the implementation of various cost reduction programs, we have maintained margins, and provided healthy free cash flow even as industry sales volume has declined. Our multiple cost reduction programs alone have yielded more than 6 million year to date. We have reduced inventory levels by 44 million year over year and improved terms from 1.9 times to 2.2 times, a testament to the hard work and sacrifice of our teammates. We ended the quarter in a strong liquidity position. with over $53 million in cash after proactively paying down another $10 million in debt. Our operational improvements and solid financial performance have not gone unnoticed. In June, S&P upgraded our credit rating, reaffirming our company's financial well-being and stability. This collective progress, coupled with significant advancements in pivotal aspects of our transformation, has been instrumental in igniting our growth engine. and propelling our organization forward with momentum. Let's turn to slide six, which features the quantitative highlights for the second quarter. Net sales decreased 3.3%. This is a significant improvement compared to the nearly 8% sales decline in the first quarter. Despite the modest dip in sales, our adjusted gross margins are up 170 basis points year over year at 41%. And adjusted EBITDA margins are up 50 basis points versus the prior year at 22.1%. Free cash flow remained robust for the quarter at $24.4 million. And year-to-date, we are $10 million better than prior year. Last quarter, we initiated the launch of 30 key products, spanning our brand portfolio and our four principal consumer verticals. I will delve into more detail regarding some of these notable innovations later in the presentation. We continue to elevate our efforts to engage with enthusiasts and promote our fantastic products. Our famed LS events continue to gain recognition, and our LS Fest West, held at the end of April in Las Vegas, was named one of the 10 best auto races in the country by USA Today. At LS Fest West, we hosted over 30,000 enthusiasts from nearly all 50 states for a thrilling lineup of events, including a sold-out grand champion competition and the largest off-road race participation in the fest's history. We also hosted LS Fest Texas in Maine. Between the two events, we directly engaged with nearly 50,000 enthusiasts in just two months. These types of events, coupled with our focused public relations campaigns, generated over 1.7 billion media impressions for the quarter. As we touched on last quarter, we have improved the precision of our promotional planning and execution to focus on periods of heightened consumer spending. In collaboration with our distributors, we have engaged in highly synchronized promotions that have significantly elevated our overall sales. Notably, our Memorial Day promotion resulted in year-over-year sales increase that exceeded 100% through our direct-to-consumer channel. The results of our operational improvements can be seen in many of our key performance indicators. Through our dedicated cost-to-serve continuous improvement program, we have realized savings of $4.2 million thus far in 2024. Furthermore, by refining our forecasting and demand planning processes, we have achieved a 2% increase in the in-stock rates of our top 2,500 products alongside a .3 times improvement in inventory turns year over year. On slide seven, to the left, we outline our organization's three fundamental steering principles. These tenets form the bedrock that directs our concentration on our four primary areas, which are illustrated to the right. The first one is our pledge to our team members to ensure Holly is synonymous with an outstanding work environment. The second area is the refinement of our operations, which aims not only to eliminate non-value-added costs, but also to enhance product availability and drive inventory levels that are in sync with market demand. Furthermore, it is imperative that our operations offer enthusiast consumers and distribution partners a premier omni-channel customer experience in our industry. The third area is the optimization of our acquisitions. Holley has acquired several distinguished brands and businesses in recent years, each possessing unique characteristics. Nurturing these unique traits is vital for their success in their respective categories. Lastly is our unwavering focus on prioritizing all our customers, encompassing both our value consumer base and our devoted distribution partners. We are actively working to expand and enhance our sales channels, aiming to connect with and serve a broader spectrum of enthusiasts. Slide 8 highlights the areas of our transformation that catalyze growth, which we have discussed during prior calls. These areas include the development of a high performing team, the modernization of our digital strategy, and the optimization of our customer experience marketing initiatives. They also include the enhancement of our B2B sales capabilities, the pursuit of best in class product management and innovation, and the implementation of strategic pricing. Nearly a year ago, we embarked on the challenging journey of creating and instituting a high-performance leadership team. I'm delighted to announce that we have completed this mission. The final pieces of the puzzle were the appointments of a seasoned head of operations and supply chain with an extensive background in automotive and a head of pricing with vast experience in the automotive aftermarket. We are indeed fortunate to have incredible leaders now in these crucial roles. Alex Buccelli is the newly appointed head of operations in the supply chain. He brings a wealth of experience from Genie, the industrial equipment manufacturer, coupled with an impressive 17-year stint at PACCAR. Alex has a proven track record of leveraging Fortune 500 experience to improve operations, elevate quality, reduce costs, and improve product availability. Victor Aguilera is the new leader of Holley's pricing team. Victor joins us from Mann and Hummel, where he played a key role in shaping their pricing strategies for the automotive aftermarket. He is skilled at optimizing pricing structures to drive growth and profitability, particularly with a complex product range that includes a vast array of SKUs. At the heart of any successful digital strategy lies the quality of data. It's not an area which Holly has traditionally excelled, and historical data quality issues have hindered the adoption of and expansion of our product lines with our distribution partners, particularly in the national retailer channel. However, we have made a concerted effort across the company to enhance our data quality, and we are making significant progress on this initiative. A major milestone in this project is set for the end of the third quarter, where we are targeting a step function change in our data quality, and we'll introduce a cloud-hosted solution that will feed both our digital properties and those of our distribution partners, ensuring seamless integration. We are propelling growth by launching new digital platforms that offer an enhanced consumer experience. A prime example is our newly unveiled Stilo website. Stilo is a premium brand within our portfolio and is renowned for delivering the utmost style and safety in automotive racing helmets. The introduction of this fresh digital platform has led to a remarkable surge in direct-to-consumer sales for the brand, which were up over 150% for the quarter year-over-year. As previously mentioned, we are improving our execution of key quarterly promotions and increasing distributor engagement. We're also directing our marketing efforts to bolster the efficiency of our B2B sales team during major product launches to improve distributor adoption. Concurrently, we're enhancing our B2B expertise through targeted training and initiatives aimed at augmenting the team skill set. The strategic enhancement of talent is enabling us to tailor partnerships with key distributors. representing a substantial advancement in strengthening our relationships. We are not only enhancing engagement with our distribution partners through promotions, we are also collaborating with key distributors on launching new products via our Jump Start program. This initiative boosts awareness and accelerates the adoption of new product offerings. Beyond the strides we've made in the B2B channel, we are also discovering new customers and Mark is eager to partner with us and represent the Holley performance brand's portfolio. This expansion is a testament to our appeal and the potential for even greater market penetration. As we continue to broaden our customer base and explore new opportunities, we are also enhancing our product development and pricing capabilities to drive profitable growth. Through the first half of 2024, our new product revenue is up over 25% compared to 2023. This is a direct result of the product management innovation processes we have implemented. We now have coordinated launch groups that work closely with our distribution partners to plan and drive mutual engagement and adoption of our new products. We are also improving the volume of consumer insights to drive the right innovations and line extensions. Now, pricing strategy is crucial to any consumer-oriented business. blending analytical rigor with market intuition. With the appointment of our new head of pricing, we are leveraging enhanced data and insights to fuel growth. We are revising and reinforcing essential policies, including our minimum advertised price and dropship program. Furthermore, we are undertaking initiatives to position our products strategically, ensuring they reflect their total value while optimizing overall profitability. Slide 9 serves as a strategic map illustrating the alignment of our growth initiatives with our principal consumer segments, domestic muscle, modern truck and off-road, euro and import, and safety and racing. While the Holley name is a dominant force in the domestic muscle arena, our product portfolio has been significantly enriched with outstanding brands and product lines, many of which were integrated through recent acquisitions. These strategic acquisitions have both strengthened our foundation and positioned us for substantial growth in markets not traditionally dominated by the Holley brand. On slide 10, I am thrilled to present a suite of product advances that underscore our commitment to innovation and market expansion. In domestic muscle, we begin with a pair of classic brakes, a seamless integration for early GM, Ford, and Mopar modelers. which enabled the modernization of brakes while maintaining the classic aesthetic of the original 13-inch wheel. Next to bearer, Eratos V Plus rotors represent a leap forward for domestic muscle platforms, offering upgraded two-piece rotors and enhanced cooling, reduced weight, and elevated appearance. Also, the Holley EFI Terminator X2 marks the evolution of a class-leading EFI system, boosting enhanced features and improved customer interface and setting a new standard for the industry. For the modern truck segment, the Flowmaster F-150 expansion extends our exhaust solutions to the F-150 hybrid and other premium F-150 trims, further solidifying our presence in this growing market. Next up, the Arizona Desert shocks, Mesa shocks, deliver unparalleled ride handling and performance, leveraging race-proven US-made technology and a bolt-on 2.5-inch shock for popular truck applications. And enhancing braking power for modern trucks, the Behr Big Claw Brakes offers a straightforward installation using OE calipers with the relocation bracket to accommodate larger rotors. Our important EV brand, AM, now has an EV vehicle controller unit that integrates EV systems and unifies the tuning experience with features ready for motorsports and conversions, all through a modern customizable interface. Expanding into the tuning realm in the Euro segment, DynaConnect provides BMW drivers with an OBD2 tuning solution that allows for convenient at-home tuning without the need for a dealership visit. Our Volkswagen chassis solutions bring brake kits and coilover suspension systems to popular Volkswagen Audi platform, ensuring comprehensive support with APR components. We are extremely excited about the growth prospects of our safety and racing vertical with the amazing brands of products that we have in our portfolio. As an example, in helmet innovation, the Simpson Devil Ray helmets are the next evolution of Simpson's trusted motorsports helmets, while the Simpson Adventure motorcycle helmets breaks new ground for us, the first dedicated helmets for the adventure segment, tapping into this $4 billion plus motorcycle safety space. Now, the Hans IV introduces a revised design as a global leader in frontal head and neck restraints, enhancing driver comfort without compromising safety. Together, these products reflect our dedication to quality and performance, as well as our strategy to diversify and lead in key market segments. Now, I would like to turn the presentation over to Jesse. who will discuss our Q2 results in more detail and our revised outlook and guidance for the remainder of 2024.