Holley Inc. Q3 FY2024 earnings call

• Built an exceptional leadership team and added talent at various levels to drive towards being a multibillion dollar enthusiast platform.
• Direct-to-consumer business has grown significantly due to engaging consumer experiences, effective merchandising, promotion, and best-in-class digital capabilities.
• Actively supporting distribution partners to drive their growth, balancing omnichannel presence including distributors, third-party marketplaces, installers, and own e-commerce platform.
• Maintained financial discipline with debt reduction, credit upgrades, and maintained/revised revenue conversion despite market softness.
• Operationally, achieved a 55% year-over-year reduction in past due, with $2.5 million cost savings in Q3 and $6.7 million year-to-date from cost to serve initiatives.
• Digital modernization and consumer experience efforts have driven outperformance, with brand experience sites boosting direct-to-consumer sales by ~20%.
• LS events like LS Fest East had strong attendance (45,000 enthusiasts) and generated $2 million in media value.
• Launched various new products across consumer verticals, e.g., Sniper 2 EFI bundle, Flowmaster Signature Series, Dinan carbon fiber cold air intake, etc.

Net sales in the third quarter were $134 million, a decrease of 14.4% compared to the same period last year. Adjusted gross margins were 39%, up 170 basis points year-over-year. Adjusted EBITDA in the third quarter was $22.1 million with an adjusted EBITDA margin of 16.5%. Inventory turns improved to 2.2x at the end of the third quarter of 2024 versus 1.9x a year ago. The direct-to-consumer business has seen substantial year-over-year growth, and B2B sales efforts with distribution partners have shown positive results in terms of out-the-door sales uplift.

• Full year 2024 net sales expected in the range of $595 million to $605 million, and adjusted EBITDA expected in the range of $115 million to $120 million.
• Fourth quarter 2024 net sales guidance is $133 million to $143 million, and adjusted EBITDA guidance is $24 million to $29 million.
• Ended the third quarter with a net leverage ratio of 4.25 times, significantly lower than the 5 times covenant and the 4.89 times in Q3 2023.

• Consumer environment impacted by persistent inflation concerns, economic volatility, higher interest rates, and geopolitical uncertainties including the election year, which are weighing on consumer confidence.
• Tariffs and inbound/outbound freight costs as part of the cost to serve initiatives pose potential risks to landed costs.

Q: Christian Carlino asks about direct and indirect exposure to China and tariffs.

A: Matt Stevenson responds that the company has been working on reducing tariffs for over a year as part of the cost to serve initiative and feels in a good direction with the ongoing initiatives.

Q: Mike Swartz asks about pricing initiatives and cost savings.

A: Jesse Weaver states that the company has guided $5 million to $10 million in cost to serve savings at the start of the year and is on track for $7 million to $8 million, with furlough activities expected to contribute around $3 million to $3.5 million for the year.

Q: Joe Altobello asks about distributor inventory normalization and 2025 outlook.

A: Matt Stevenson says a large chunk of distributor inventory slack came out in Q3 and expects inventories to be in line with market demand by year end, with Q1 2025 expected to see organic growth.

Q: Brian McNamara asks about election impact on the business and SEMA presence.

A: Matt Stevenson believes election results should help the business, and the company had a strong presence at SEMA 2024 with great feedback and won several awards.

Q: Phillip Blee asks about Q4 guidance and 2025 growth potential.

A: Matt Stevenson says Q4 guidance is consistent with trends, and the company is well-positioned for growth in 2025 with improved customer intimacy and engagement.

Q: Michael Baker asks about sell-in/sell-out equilibrium and R&R Marketing.

A: Jesse Weaver explains that the company is working towards sell-in and sell-out equilibrium, and partnering with R&R Marketing is expected to drive growth and offset any investment impact.