Holley Inc.

Good morning, ladies and gentlemen, and welcome to the conference call to discuss Holly's second quarter 2026 earnings results. At this time, all participants are in 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. 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 of 2026 earnings conference call. on the call with me today are President and Chief Executive Officer Matthew 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 off our best view of the world and of our businesses as we see them today and are subject to risk and uncertainties including the ones described in our SEC filings. This morning, we will review our financial results for the second quarter of 2026. At the end, at the conclusion of the prepared remarks, we will open up the line for questions. With that, I'll turn the call over to our CEO, Matthew Stevenson.

Matthew Stevenson Thank you, Anthony, and good morning to everyone joining us today. Before we get into our second quarter results, I'd like to build on the context we provided last quarter. As we discussed on our previous call, the first quarter was impacted by two temporary headwinds. elevated distributor inventories, and a slower start to the spring settling season due to unfavorable weather. We also noted at the time that those headwinds were already beginning to wane, evidenced by a strong year-over-year growth in April and that we expected the general momentum to carry through the rest of the quarter. I am pleased to say that's what happened, and it carried throughout the second quarter as well, resulting in a return to net sales growth. In fact, three of our four divisions delivered double digit core sales growth year over year. That's the meaningful acceleration from where we began the year and reflects both the underlying strength and breadth of our portfolio, as well as the discipline execution of our strategic priorities. We also made significant progress on our portfolio rebalancing initiative during the quarter, completing the divestiture of our non-core restoration brands, While the transaction resulted in a gap net loss for the quarter, it further simplifies our operation and allows us to focus our resources and capital on the areas of the business with the greatest long-term growth potential. Excluding this one-time impact, the underlying profitability of the business improves substantially, with adjusted net income up year over year. at the same time we generated strong free cash flow, reduced leverage to its lowest level in four years, and returned capital to shareholders through share repurchases. We believe this combination of returning to growth, improving profitability, strengthening our balance sheet, and executing our strategic initiatives positions us well as we move into the second half of the year. With that, Let's turn to slide five to review the key highlights from the quarter, as well as important developments that occurred after quarter end. Net sales increased 3.2% to $172 million. Core business net sales, which excludes the impact of our portfolio rebalancing initiatives and divestitures, grew 4.9%, with three of our four divisions delivering double-digit core growth. We also saw core growth across 27 brands, and both are direct-to-consumer and B2B channels, highlighting the strength and breadth of the portfolio. We generated strong free cash flow during the quarter and remain on track to end the year with leverage below 3.5 times. Our strategic initiatives contributed $13.4 million in revenue while delivering $8.3 million in cost savings through purchasing, tariffs, and operational improvements. We also completed a transformation of our marketing organization over the past 120 days. We significantly reduced our reliance on outside agencies, hired more than 20 marketing professionals, and embedded those resources directly within our operating divisions. This brings our teams closer to the enthusiasts, enables faster responses to market trends, and strengthens brand activation. While still early, were already seeing meaningful improvements in consumer engagement, marketing effectiveness, and direct-to-consumer sales. Given where our shares have been trading, we also opportunistically repurchased approximately 2 million of common stock during the quarter. Although our repurchase window is limited due to the blackout period at the end of Q2, this action reflects our confidence in the long-term value creation opportunity we see in the holiday. We also continue to execute on the portfolio rebalancing initiative we introduced last quarter. During the quarter, we completed the divestiture of our non-core restoration brands, including Brothers Trucks and Scott Drake. We now have just one remaining business to divest from the five businesses identified in the program, and we continue to have strong interest in that from multiple potential buyers. Following the close of the quarter, we made additional progress in our highest capital allocation priority, reducing leverage. by making another $15 million voluntary debt repayment. This brings our total voluntary debt reduction to $115 million since September of 2023. Looking ahead, we believe we are well positioned for the second half of the year, supported by new national retailer placements, an accelerating pipeline of product launches, and continued execution of our strategic initiatives. I'll discuss those opportunities in more detail later in my remarks. Slide 6 provides additional detail on our second quarter financial results, along with several of the key commercial and operational highlights from the quarter. Net sales were $172 million. Gross margin was 41%, down 72 basis points from the prior year, while adjusted EBITDA was 19.6%, down 223 basis points year over year. The decline primarily reflects the impact of tariffs compared to the second quarter of last year. Pre-cash flow increased versus the prior year. The improvement reflects continued operational discipline, strong work in capital management, and the benefits of refunds related to IEPA tariffs. While our gap results reflect the net loss for the quarter due to that divestiture of our non-core restoration brands, adjusted net income increased to $24 million, more than double the 10.6 reported in the prior year period. Even when adjusting for IEPA tariff refunds, we believe adjusted income more accurately reflects the underlying operating performance and earning power of the business. Product innovation remained a key driver of our commercial momentum during the quarter. across our American Performance Division, we continued expanding our highly successful engine swap portfolio with new applications for the GM, LS, and LT platforms while also extending the CataClean product family into the growing diesel performance market. Then our safety and racing division, Simpson introduced new retro-inspired Bandit motorcycle helmets that build on one of the industry's most iconic models while appealing to both on and off-road enthusiasts. In our modern truck and off-road division, we launched a new range RA-0110 module for full-size General Motors trucks and SUVs, giving customers enhanced control over cylinder deactivation, auto start-stop functionality, and throttle response. Operational execution also remained a key focus. During the quarter, we generated $5 million of purchasing and tariff-related savings and an additional $3.3 million from operational improvement initiatives, delivering a total of 8.3 million in savings. These results reflect a continuous improvement culture we have established across the organization and our ongoing focus on improving our cost structure while investing for future growth. Finally, the examples at the bottom of slide six highlight the impact of our newly embedded divisional marketing teams. By placing marketing resources directly within each business, we've moved closer to our enthusiast communities. and significantly increase the speed, relevance and authenticity of our brand engagement. Our teams are creating content that resonates with consumers where they spend their time, across enthusiast forums, social media, events and grassroots communities. And we're also seeing encouraging improvement in engagement and direct to consumer performance. Slide seven highlights the performance of our four operating divisions. Three of the four divisions delivered double-digit core growth during the quarter, reflecting the strength of our innovation pipeline, discipline execution, and early benefits of our enhanced brand activation strategy. Beginning with American Performance, net sales declined 2.1% in the quarter. But as we discussed previously, the business continued to work through elevated channel inventory levels, which we believe have now normalized. In addition, we also intentionally moved out product categories from our Q2 marketing calendar into the second half of the year, creating more challenging year-over-year comparisons. Despite those temporary factors, the business improved significantly on a sequential basis, with the decline narrowing from 9.7% in the first quarter to 2.1% in the second. With channel inventories now normalized, key product placements at national retailers, and increasing marketing activity, We expect American performance to continue improving through the balance of the year. Modern Truck and Off-Road delivered another outstanding quarter with net sales increasing 15.7%, accelerating from 3.8% growth in the first quarter. The division continues to benefit from strong consumer demand and a highly successful cadence of new product introductions that are gaining meaningful traction across both retail and enthusiast channels. Your own import grew 13.1% at a significant acceleration from 1% growth in the first quarter. Earlier supply constraints have been resolved, allowing us to meet consumer demand and capitalize on the continued strength of the European enthusiast vehicle market. The division continues to benefit from a passionate and resilient enthusiast community supported by strong demand across our core brands. Stacey and Racing continue to be a standout performer with net sales increasing 13.8% year-over-year, building on the 10.2% growth delivered in the first quarter. Growth was driven by a strong cadence of new product introductions, continued innovation across our Stilo and Simpson brands, and sustained demand associated with the Snell 2025 helmet certification cycle. We also continue to see strong momentum in the motorcycle safety market where recent product launches are expanding our reach and reinforcing the strength of our portfolio. Overall, these results demonstrate the strength and balance of our portfolio. Three of our four divisions delivered double-digit growth, while largest business continued to improve sequentially as temporary headwinds decided. More importantly, we believe the underlying drivers of our performance are becoming increasingly durable. We believe that our divisional operating model combined with greater decision-making authority dedicated marketing resources, and a robust innovation pipeline is enabling our teams to respond faster to market opportunities, strengthening engagement with enthusiasts, and positioning each division for sustainable long-term growth. Slide 8 outlines our long-term strategic framework, which many of you have seen before. While the framework itself hasn't changed, our execution against it continues to accelerate. It remains the blueprint for how we allocate capital, prioritize investments, and operate the business every day. The framework is built around eight strategic pillars, beginning with making Holley a great place to work, strengthening the premier consumer journey, becoming a trailblazing trusted partner, driving product innovation and portfolio management, expanding into global markets, pursuing transformational M&A, funding the growth, and ultimately delivering results for our shareholders. The value of the framework is it creates alignment across the organization and ensures every initiative supports a broader strategic objective. As you already heard throughout this morning's remarks, our teams have remained highly focused on execution and that discipline is translating into measurable progress across the business. As a reminder, slide nine highlights the key focus areas for 2026 that are embedded in the eight pillars of our strategic plan. We are making progress across each of these priorities, and you'll see that reflected in the detailed initiative tracker on the next slide, which brings us to slide 10. The strategic initiative tracker gives you a clearer view of our second quarter performance across each pillar of the framework. Trailblazing trusted partner contributed $1.5 million in revenue. Our mid-sized B2B accounts remain balanced and healthy, with a broad number of customers now contributing over $1 million each in the first half. And our national retailer channel continued to grow, supported by planogram wins, expanded SKU distribution, and stronger online traffic conversion. Premier consumer journey contributed $1.1 million in revenue. Our direct-to-consumer channel showed real strength, with a modern truck and off-road posting approximately 17% year-over-year growth in June alone. and third-party marketplaces in Q2 grew by more than 25% year-over-year, led by strength across all our divisions. Product innovation contributed approximately $4.5 million in revenue, once again led by strong performances in safety and racing in modern truck and off-road. Global expansion in new markets contributed $1.6 million in revenue, and our international strategy generated approximately $760,000 of incremental revenue in the quarter through distributor growth and global expansion. We also saw growth through our OE dealer channel and bailment programs with new customer wins, new dealers coming on board. Transformational M&A contributed $4.7 million in revenue, reflecting HRX revenue contribution in the quarter. HRX continues to perform well and is now a meaningful contributor to both growth and earnings. And as discussed earlier, Fund the Growth delivered $8.3 million in savings, $5 million from purchasing and tariff-related actions, and $3.3 million from operational improvements. Altogether, our strategic initiatives contributed $13.4 million in revenue and $8.3 million in cost savings this quarter. Disciplined execution across every pillar of the framework. Slide 11 revisits our portfolio rebalancing initiative, which we introduced last quarter and remains an important driver of long-term value creation strategy. The framework begins with actively evaluating our portfolio and divesting brands of businesses that no longer meet our growth, profitability, and strategic criteria. These businesses often require disproportionate time and capital relative to the value they create. By monetizing these assets, we generate capital that can be redeployed into higher return opportunities while sharpening our strategic focus. Those actions naturally lead to facility and complexity reduction, which we believe simplify the organization, improve our cost structure, and enhance free cash flow generation. We then plan to redeploy both the capital resources into higher growth opportunities through disciplined internal investment and targeted bolt-on acquisitions. Our acquisition of HRX is an excellent example of the type of business we are looking to add, one with attractive growth prospects, strong margins, solid cash flow generation, and that complements our existing portfolio. Over time, we believe this disciplined approach of monetizing non-core assets, simplifying the business, and reinvesting in higher return opportunities will strengthen earnings, improve cash generation, accelerate debt reduction, and create greater long-term shareholder value. That divestiture of our non-core restoration brands, including Brothers Trucks and Scott Drake, completed during the second quarter is continued progress of the strategy in action. Now let's turn to slide 12, where I'll provide an update on the progress we made to date on a portfolio rebalancing initiative, as well as other activities to lower our overall cost base. Through our portfolio rebalancing initiative, we made meaningful progress simplifying the business. Year to date, we have divested four brands, eliminated two facilities, reduced our warehouse footprint by approximately 95,000 square feet, lowered our workforce by approximately 5% through divesters, and removed roughly 7,000 low-margin SKUs, or about 16% of the portfolio. These actions are reducing complexity, improving our cost structure, generating capital, and allowing us to focus resources on our highest return growth opportunities. In addition to these portfolio actions, we are continuing to take decisive steps to optimize our cost structure across both our operating divisions and shared services. As our operational distribution efficiency improves, we are aligning our manufacturing footprint and organizational structure along with our cost base with the current needs of the business. During the second quarter alone, we completed two manufacturing site consolidations, reduced our employee and contractor base by more than 115 positions, lowered non-value-added SG&A spending, and strategically reduced production and distribution activity during seasonal demand slowdowns. These actions are creating a leaner, more efficient operating model while preserving our ability to support future growth. On an annualized basis, we expect these two work streams to deliver more than $12 million of one-time net cash, 150 to 200 basis points of even a margin expansion, an additional 3 to 5 million of analyzed benefit, 0.2 to 0.3 turns of deleverage acceleration, and roughly a 5% improvement in inventory turns. Taken together, we believe these actions position us with a simpler, more focused portfolio, stronger growth potential, higher margins, improved free cash flow, and a faster path to deleveraging. Now slide 13 summarizes why we remain constructive on the second half of 2026. While we continue to operate in a dynamic macroeconomic environment, we believe the business is entering the back half year with improving momentum. Three of our four operating divisions delivered double-digit core growth during the second quarter, while American performance improved significantly on a sequential basis. Just as importantly, we believe the elevated channel inventories that impacted our largest business over the past several quarters have now normalized, providing a much stronger foundation as we move through the balance of the year. Against that backdrop, there are five additional factors that support our outlook for the second half. First, our portfolio rebalancing and operational improvement initiatives have created a simpler, more focused organization. By exiting non-court businesses, reducing complexity, and aligning our cost structures with the needs of the business, we've strengthened our operating foundation with creating additional capacity to invest in our highest return growth opportunities. Second, we've secured approximately 12 million of new national retailer placements scheduled to launch during the third quarter, expanding distribution and increasing visibility for our brands with consumers. Third, we have a strong pipeline of new product introductions planned across multiple divisions during the second half year. Innovation remains one of our core competitive advantages, and we believe these launches will provide additional opportunities to drive growth. Fourth, we've completed the transformation of our marketing organization with dedicated marketing teams now embedded within each division. We're already seeing stronger brand activation, deeper engagement with our enthusiast communities, and better alignment between are marketing investments and growth priorities. Finally, HRX continues to perform well and is expected to make another meaningful contribution to both growth and earnings through the remainder of the year. Taken together, these factors provide a solid foundation for the second half while recognizing that we continue to operate in a dynamic market environment. Before I turn the call over to Jesse, I'd like to thank our more than 1300 team members around the world. Their dedication, resilience, and commitment to executing our strategy have been instrumental in the progress we've made this year. While there's still work ahead, I'm proud of what the team has accomplished and appreciative of everything they continue to do for our customers, our brands, and our shareholders. With that, I'll turn the call over to Jesse to walk through our financial results in more details and provide an additional perspective on our outlook for the balance of 2026.