Holley Inc.

Good morning, ladies and gentlemen, and welcome to the conference call to discuss Holly's fourth quarter and full year 2024 earnings results. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions for asking questions will be provided at that time. We ask that participants limit themselves to one question and one related follow-up question during the Q&A period. Please be advised that reproduction of this call 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, Anthony Rasmus with Investor Relations. Please go ahead.

Good morning and welcome to Holly's fourth quarter and full year 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 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 fourth quarter and full year 2024 and share our guidance for the full year 2025. 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, and good morning, everyone. As we look back on the fourth quarter and present the final results for 2024, I'm excited to share the significant strides we've made in Holley's transformation. Your unwavering support has been crucial as we've navigated a challenging consumer environment. Yet despite these hurdles, we achieved remarkable milestones and I'm eager to highlight our success. Today we'll continue to provide concrete evidence of our transformation, even in a market environment that often obscures the extraordinary work happening within our company. We have assembled an exceptional leadership team and infused talent at various levels, creating a powerhouse organization poised to propel us toward becoming a billion dollar enthusiast platform. Over the past year, we have consistently demonstrated that placing the right leaders in key positions has driven significant progress within our business. A prime example was the stellar performance of our digital and consumer experience teams. where our direct-to-consumer business experienced substantial year-over-year growth. This success was fueled by our ability to capture market share from other manufacturers through creating captivating consumer experiences, expertly merchandising and promoting our products, and leveraging best-in-class digital capabilities. We've also dedicated an immense energy to supporting our loyal distribution partners with a goal of driving their growth alongside ours in seizing market share by being the ultimate partner. Balancing channels is paramount. We aim to meet consumers where they prefer to shop in this omnichannel environment. This includes our distributors, third-party marketplaces, installers, national retailers, and our own e-commerce platform. Each of these channels presents abundant opportunities for growth and further synergies. Throughout the year, we have demonstrated our commitment to building fundamental growth capabilities while maintaining rigorous financial discipline and making meaningful operational improvements. These efforts have included debt reduction, credit upgrades, a covenant-like credit agreement, and management of our interest rate exposure. We have also achieved significant operational improvements by eliminating non-value-added costs, reducing past dues, and improving in-stock rates. These improvements have enabled us to reinvest in the business while maintaining margins despite decreased market demand. Before we get into the specific highlights for Q4 and the full year 2024 on slide five, I want to touch on what we are seeing regarding overall demand trends in our space. We remain cautious about consumer spending. During our last call, we noted significant optimism surrounding the election results in the new administration. However, as new policies were discussed post-election and eventually introduced in 2025, we have observed consumers holding back due to uncertainty, confusion, and most importantly, the continued high prices of household necessities. These high prices continue to plague middle-income consumers and make up a large part of our target demographic. Generally, our market has reverted to the sentiment of summer of 2024, following a brief period of optimism in the late fall. We are hopeful this is a temporary situation and that the market will improve once the new policies from Washington are fully understood and assimilated by consumers and businesses. The trends we have seen early this year in 2025 have also been marked by colder weather that extended well into the Deep South. When it's that cold and normally temperate places at that time of year, people work on their project cars a lot less. We are taking all this into consideration regarding our guidance for 2025, which Jesse will share later in the call. Now turning to slide five, which includes some highlights for the fourth quarter and full year 2024. Now despite the challenging market, we continue to make substantial strides in our transformation, resulting in increased out-the-door share. This progress highlights the strength of our brands among consumers the effectiveness of our marketing initiatives to continue to support distribution partners, and our enhanced direct-to-consumer marketing capabilities, combined, of course, with the elements of our transformation to drive growth. Extensive modifications, enhancements, and new capabilities to optimize our consumer journey have strengthened our brands and consumer engagement. These efforts have not only resulted in year-over-year direct-to-consumer growth of 8%, but have also driven progress across all our channels. This is evident with the growth of a significant portion of our portfolio of brands. We have seen year-over-year growth in 17 of our brands across all channels, with strong performance in both the direct consumer and business-to-business segments, where we grew 32 and 16 brands, respectively. The growth of a significant number of brands in the B2B channel is also a direct result of our increased sales support, which now covers nearly 80% of our B2B volume, ensuring comprehensive coverage for all our major B2B accounts. This enhanced support is a testament to our commitment to our partners. Another example of our renewed strategic partnerships is the 12% growth in the national retailer channel, driven by acute skew expansion and adoption at the customer level. This growth underscores the strength of our collaborations and our ability to meet evolving demands of our retail partners. Operational improvements have also been a key focus area, resulting in past year reductions every quarter in 2024. Most recently, we achieved a 22% year-over-year reduction, reflecting commitment to operational efficiency and excellence. We realized cost-to-serve savings of $7.8 million in 2024, which has supported our gross margin expansion year-over-year. These savings are a direct result of our continuous efforts to optimize our operations and reduce costs. Another highlight we wanted to mention is our successful expansion into Mexico through the launch of our direct-to-distributor relationships. This expansion represents a significant milestone in our growth strategy and opens up new opportunities for us in the important Mexican market. Let's turn to slide six. which features some of the quantitative highlights from the fourth quarter and full year of 2024. Net sales decreased roughly 10% to $140.1 million for Q4. Despite these declines in sales, our margins improved significantly, up 690 basis points year over year to 45.6%, showcasing our efforts around continuous improvement in our operations. That flowed through to our EBITDA margins, which were 20.8% for the quarter, up 250 basis points year over year. Free cash flow for the quarter was 1.8 million, a decrease of 28.1 compared to the prior year. However, this result was driven by a combination of factors, including lower volume, but the major contributor was a significant reduction of inventory levels in 2023 from the highly inflated levels of 22. which generated significant improvement in free cash flow during the fourth quarter of 2023. On the product side, we launched several key products spanning our brand portfolio and divisions in the fourth quarter. Some highlights included expanding our solution selling approach around engine swaps and new offerings from our safety portfolio. We also discussed later in the call some of the exciting products that are already launching in Q1 of this year. As I mentioned previously, the continuous improvement of our operations is reflected in multiple key performance indicators for the full year. Our cost-to-serve savings, which included improvements in our inbound and outbound logistics, generated $7.8 million in savings for 2024. By continuing to refine our forecasting and demand planning processes, we achieved a 1.5% increase in the in-stock rates of our top 2,500 products. reduced past dues by 22.3% year-over-year, and improved inventory returns by 0.1 times. Plus, we were making incredible strides in engaging with more consumers and promoting our fantastic products. In 2024, we hit a major milestone in our direct-to-consumer business, surpassing $100 million in sales on our e-commerce platform. This achievement is a testament to our relentless efforts and the passion and trust enthusiasts have in our brands. Now, before our transformation, public relations wasn't a focus, but last year alone, we generated 23 press releases that garnered an outstanding 2,904 articles about our company, our brands, and our products. This resulted in an impressive 3.1 billion media impressions, showcasing the widespread recognition and interest in our offerings. Our stellar enthusiast events, combined with our extensive presence on social media platforms, generated nearly $10 million in media value in 2024. These efforts have proven to be a highly cost-effective and authentic way to reach enthusiasts and spread the word about our amazing portfolio of brands and products. We're excited about the momentum we've built, and we look forward to continuing this journey of growth and engagement with our enthusiast communities. Slide seven is one we've been sharing with you in previous calls to highlight the great progress occurring in the transformation around key growth levers. First, let's touch on the work we did in 2024 to develop a high-performing team. We are a completely different organization than we were a year ago. The enhanced professionalism, experience, processes, and accountability we operate with now are on par with a Fortune 1000 company. We've added over 40 new leaders, completed the hiring of all critical level one and level two positions, and established a four-division structure with centers of excellence. We've excelled at bringing in new talent and seamlessly integrating them with the high performers already on the Holley team. Additionally, we are committed to creating a great place to work environment for our employees, which includes enhancing the look and feel of our facilities. As part of this, we opened new offices in Bowling Green, Nashville, Tucson, and in Italy. Next, let's talk about digital modernization and consumer experience optimization. We've seen an impressive 8% year-over-year increase in our direct consumer sales. We've successfully launched a product master data warehouse and activated our HubSpot CRM platform, both critical elements for driving organic growth through improved product adoption by our B2B partners and enhanced cross-marketing abilities to our consumers. Additionally, we've rolled out an annual marketing calendar targeting key buying periods and continue to bolster our Holly enthusiasts and trade show events. Moving on to B2B sales capabilities, we reorganized our sales organization and partnered with R&R to strengthen our distributor relationships, resulting in the growth of many brands in the B2B channel. Sales with national retailers surged by 12%, driven by renewed strategic partnerships and SKU expansions. Additionally, our enhanced safety sales group traveled over 80 events and forged new partnerships in 2024, including those with NASCAR, IndyCar, and AMR Safety. In the area of product management innovation, we've implemented a phase gate system that has driven a remarkable 75% increase in new product revenue per SKU. We launched over 88 products in the year, with six achieving run rates of over $1 million in first year sales. Additionally, we streamlined our product portfolio by removing another 12,000 underperforming SKUs. Lastly, our strategic pricing initiatives have been robust. We developed a framework to automate monthly competitive pricing fees for our top 500 SKUs and built in-house capabilities to monitor additional SKUs. We've begun the process of adjusting retail pricing to maximize elasticity for approximately 1,500 high-volume SKUs and effectively implemented a precision pricing model in July. Plus, we've partnered with a third party to expand map-skew monitoring and strengthen policy enforcement. In 2024, we made dramatic progress across all key areas to unlock transformative growth for Holly. Now, going forward, on slide eight, you can see a new framework we will be providing that tracks our progress against eight critical areas of our three-year plan developed late last year. Our steering principles are at the foundation of this framework. The first of these principles is fueling our teammates, which naturally leads to the goal of making Holly a designated great place to work. By creating an engagement workplace where employees have a voice, opportunities for growth, and work environment they're excited to come to every day. The second steering principle is supercharging our customer relationships, whether it's with our B2B partners or consumer enthusiasts. This includes the following three areas of the strategic framework. First, designing and implementing the premier consumer journey in our space. Second, being a trailblazing trusted partner for our B2B customers by delivering new and exciting ways to drive mutual growth. And third, launching innovative new products for all our customers that are the envy of their categories. All of this is done while actively managing and merchandising our entire portfolio with clear differentiation. The final steering principle, accelerating profitable growth, encompasses strategic areas such as expanding into new global and adjacent markets, transformational M&A, and funding our growth through improvements in our operations. All these efforts, along with the others I mentioned, culminate in our ultimate goal of delivering superior financial results. We will report back in future quarters on our progress in these key areas. Until then, slide nine provides a sneak peek at some of the exciting product innovations occurring in the first quarter of 2025 across our four divisions. This includes our solutions-focused approach with new modern truck and off-road performance packages. What sets us apart in the market is our ability to address more aspects of the vehicle than any other performance-focused company. These packages give us a unique opportunity to present customers with solutions designed to work together across many product categories. Customers want simplicity. Whether they wish to purchase the whole package now or have a roadmap for future upgrades, we are launching these solutions across our portfolio. In our Euro division, we are launching an all-new proprietary inline tuning module. Certain enthusiasts prefer a plug-and-play tuning solution over reprogramming their ECU for added performance. Our new select solution for the popular S58 engine, which powers BMW M2, M3, and M4 is already hit with enthusiasts. In our safety division, we also offer what many consider to be the gold standard in head and neck restraints, the HANS device, which helps reduce life-threatening injuries. We recently introduced the fourth generation of this product, which is significantly more comfortable for racers to wear. In domestic muscle, we continue our solutions approach by expanding our bundled product offerings around our Sniper II product line with the HyperSpark bundle. This now includes the fuel injection system, display, distributor, ignition coil box, Bluetooth module, and other necessary hardware. Additionally, we're excited about expanding our chemical line, starting with an octane booster for racing applications under our legendary NOS brand. The initial feedback from national retailers has been outstanding on this product. We look forward to providing you continued updates on our strategic framework during future earnings calls. Now, I'd like to hand the presentation over to Jesse, who has a lot of topics to cover during this morning's call, including details on our fourth quarter and full year 2024 results and our outlook for 2025. Jesse?