Holley Q1 2025 Earnings Report

Holley EPS Results

• Actual EPS: $0.02
• Consensus EPS: $0.05
• Beat/Miss: Missed by -$0.03
• One Year Ago EPS: N/A

Holley Revenue Results

• Actual Revenue: $153.04 million
• Expected Revenue: $148.52 million
• Beat/Miss: Beat by +$4.52 million
• YoY Revenue Growth: N/A

Holley Announcement Details

• Quarter: Q1 2025
• Date: 5/14/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 7, 2025
• Conference Call Time: 8:30AM ET

Holley (NYSE:HLLY) operates as designer, manufacturer, and marketer of automotive aftermarket products for car and truck enthusiasts in the United States, Canada, Europe, and China. Its products span various automotive platforms and sells across multiple channels. The company's performance automotive products include carburetors, fuel pumps, fuel injection systems, nitrous oxide injection systems, superchargers, exhaust headers, mufflers, distributors, ignition components, engine tuners, automotive performance plumbing products; and exhaust products, as well as shifters, converters, transmission kits, transmissions, tuners, and automotive software. It also offers brakes and brake systems, vehicle restoration parts, helmets, head and neck restraints, seat belts, fire suits, and electronic control and monitoring systems. The company sells its products under the Holley, Holley EFI, MSD, Simpson, Powerteq, Accel, and Flowmaster through DTC, E-tailer, warehouse distributor, traditional retailer, and jobber/ installer channels. Holley Inc. was founded in 1903 and is headquartered in Bowling Green, Kentucky.

Holley Q1 2025 Earnings Call Transcript

Key Takeaways

• Holley delivered a 3.3% core revenue increase in Q1 to $153 million, with gross margin expanding to 41.9%, marking its first core business growth in five quarters.
• Direct-to-consumer sales rose over 10%, led by more than 50% growth on third-party marketplaces like Amazon and eBay, while B2B revenue grew over 2.5% with strengthened distributor partnerships and market share gains.
• New product launches and strategic pricing initiatives drove $8.1 million of incremental revenue, including Sniper EFI Hyper Spark bundles, NOS Octane Booster, expanded performance packages and the HANS 4 head and neck restraint.
• To mitigate evolving tariff headwinds, Holley launched a comprehensive plan—spend optimization, bonded-warehouse logistics, supplier negotiations and an 8.75% price increase effective June 9—to protect margins.
• Operational excellence efforts yielded ~200 bps of labor and overhead savings, a 2% lift in top‐SKU in-stock rates, a $3.4 million inventory reduction and a 16% drop in past-due orders, though Q1 free cash flow was negative $10.8 million due to timing shifts.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the conference call to discuss Holley's First Quarter twenty twenty five Earnings Results. At this time, all participants are in listen only mode. Later, we'll conduct a question and answer session and instructions for asking questions will be provided at that time. We ask that participants please limit themselves to one question and one related follow-up during the Q and A period. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Holli.

[Operator]

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 Rosmus with Investor Relations. Please go ahead.

[Anthony Rozmus, Managing Director at Solebury Strategic Communications]

Good morning, and welcome to Holley's first quarter twenty twenty five earnings conference call. On the call with me today are President and Chief Executive Officer, Matt Stephenson 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 first quarter and discuss guidance for the full year 2025.

[Anthony Rozmus, Managing Director at Solebury Strategic Communications]

At the conclusion of our prepared remarks, we will open the line up for questions. With that, I'll turn the call over to our CEO, Matt Stephenson.

[Matthew Stevenson, President, CEO & Director at Holley]

Thank you, Anthony, and good morning, everyone. As we review the first quarter results for 2025, I'm excited to share the early achievements from the transformation we embarked on over eighteen months ago. We have seen significant progress in our business and your support has been greatly appreciated as we navigated dynamic macroeconomic and consumer environment. Despite the challenges, we have made considerable strides and I'm eager to present that to you today. We will present compelling evidence demonstrating how the focus areas of our strategic plan and the initiatives within them are driving growth across our business.

[Matthew Stevenson, President, CEO & Director at Holley]

For the first time in five quarters, we have experienced growth in our core business across both direct to consumer and business to business channels. As a reminder, core business excludes divested businesses and discontinued products from our SKU rationalization efforts last year. Our comprehensive omnichannel approach is crucial to driving our growth. We are dedicated to meeting our customers wherever they prefer to do business, whether through e retailers, distributors, wholesalers, third party marketplaces, installers, national retailers and our own e commerce platform. Now despite a challenging macroeconomic environment, we are successfully gaining market share from our competitors.

[Matthew Stevenson, President, CEO & Director at Holley]

We have accomplished this by creating captivating consumer experiences through our events and expert merchandising, leveraging best in class digital capabilities, implementing a new third party marketplace strategy and introducing great new products across our divisions. Additionally, we have strengthened our partnerships with B2B customers who are adopting more of our product line due to enhanced support, better data quality and our robust marketing calendar. While focusing on growth, we are also committed to improving operations by eliminating non value added costs and enhancing our operational KPIs across the business. These efforts enable us to reinvest in the business while maintaining margins despite decreased market demand. Before we delve into the specific highlights for Q1 of twenty twenty five, I would like to address the current macroeconomic environment and its impact on our business.

[Matthew Stevenson, President, CEO & Director at Holley]

Tariffs have become a significant topic across our economy and Holly is no exception. Although the majority of our production costs are based in The United States, we are still affected by these tariffs. The fluid nature of the situation with weekly changes in policies from the administration, coupled with the hard work our teams are doing to mitigate the impact, make it challenging to model the exact effects of tariffs on our business at this time. We anticipate gaining better clarity on the permanence of these policies and the results of our initiatives when we report our second quarter results in early August. During this call, we will outline how we are addressing the dynamic situation of tariffs and safeguarding the health of our business.

[Matthew Stevenson, President, CEO & Director at Holley]

It is important to note that the guidance Jesse will present later in the call does not reflect any impact from the tariffs on our business nor does it consider any macroeconomic impact the overall tariff situation may have on the domestic economy and consumer discretionary spending for the remainder of the year. It is simply too early to tell. And we are reporting based on what we are currently observing in our business. Regarding demand in the first quarter, our results were driven by capturing market share through our growth initiatives. As of today, we are seeing no material pre buy from our customers in the second quarter.

[Matthew Stevenson, President, CEO & Director at Holley]

We are closely monitoring behavior and demand from both our D2C and B2B channels. But so far, we have not observed any significant changes one way or the other. Now let's turn to slide five, which includes some highlights for the first quarter of twenty twenty five. Despite the challenging market conditions, we have achieved meaningful revenue growth of 3.3% in our core business across all divisions. We also improved our gross margins through enhanced labor and overhead efficiencies along with a reduction in warranty costs.

[Matthew Stevenson, President, CEO & Director at Holley]

These operational efficiencies have played a crucial role in our financial performance, allowing us to reinvest in growth while maintaining or even increasing margins. This growth across our business was felt in 25 brands in both our direct to consumer business channels. This broad based growth highlights the impact of our strategic initiatives and the power of our brands. In the B2B channel, we have strengthened relationships with our partners resulting in over 2.5 growth. Additionally, we are gaining market share based on our calculations of out the door sales and the commentary from our B2B partners.

[Matthew Stevenson, President, CEO & Director at Holley]

This growth is a direct result of our increased sales support and commitment to our partners. Our direct to consumer channel has also seen significant growth with more than a 10% increase. Notably, third party platforms such as Amazon and eBay experienced growth of over 50%. Third party marketplaces are a key growth channel within our direct to consumer strategy and we are meeting customers where they want to be met with our enhanced third party marketplace approach. Product innovation is the driving force behind our consumer enthusiast platform and Q1 saw significant contributions from numerous new products across our portfolio, plus our strategic price initiatives crafted to hit the elasticity sweet spot for both our consumers and distribution partners are aiding in propelling growth and maximizing total profitability across the channels.

[Matthew Stevenson, President, CEO & Director at Holley]

New products combined with these strategic pricing efforts resulted in revenue contribution of $8,100,000 for the quarter. To mitigate the impacts of tariffs, we are implementing proactive cost reductions and strategic sourcing initiatives. I'll go into these details in an upcoming slide. Now let's turn to slide six, which features some more quantitative highlights from the first quarter of twenty twenty five. We achieved net sales of $153,000,000 representing a 3.3% increase in the core business compared to the prior year.

[Matthew Stevenson, President, CEO & Director at Holley]

This growth underscores the effectiveness of our robust strategic initiatives and the hard work our teams are delivering across our business. Our gross margins also saw significant improvement rising year over year to 41.9%. While there are various factors contributing to the sizable increase, which Jesse will elaborate on later in the call, it is important to note that approximately 200 basis points of this improvement are directly attributable to our continuous improvement efforts to enhance labor and overhead efficiency as well as reduce warranty costs. Despite these positive developments, our free cash flow for the quarter was negative $10,800,000 a decrease of $28,600,000 compared to the prior year. As we noted in previous calls, changes in our accounts payable process extended the timing of some payables into Q1 of last year.

[Matthew Stevenson, President, CEO & Director at Holley]

Additionally, slow demand trends in January and February driven by weather conditions shifted a significant portion of demand into March. This shift elevated our receivables for the quarter with subsequently converted to cash in this current quarter. Our adjusted EBITDA margin improved to 17.8%, an increase of four sixty basis points from the prior year. However, this figure can be somewhat confusing due to the one time effects of the SKU rationalization implemented in the first quarter of last year. When factoring in the decline in overall Q1 revenue year over year, which includes the impact of divested businesses and these discontinued product lines, our EBITDA margins are actually down by approximately 100 basis points due to the lower volume.

[Matthew Stevenson, President, CEO & Director at Holley]

In Q1, we continued to innovate and expand our product offerings across various divisions. Just a few of the notable launches in our portfolio include the Sniper two EFI Hyper Spark bundles and the NOS Octane Booster from our domestic muscle vertical. In the modern truck and off road division, we continue to broaden our offerings of performance packages. Under the Dinan brand in the Euro segment, we introduced inline tuning modules for the BMW S58 engine found in many popular BMW M cars. Lastly, in the Safety division, we launched the next version of the leading head and neck restraint in racing, the Hans four.

[Matthew Stevenson, President, CEO & Director at Holley]

This is just a minor selection of the great new products launched in the quarter. These products are well received and expected to drive further revenue growth. In a few slides, we will touch on some of the new products coming this quarter. Our commitment to operational excellence is evident in several key metrics. We achieved a 2% year over year increase in the in stock rates of our top 2,500 products, ensuring better availability for our customers.

[Matthew Stevenson, President, CEO & Director at Holley]

Additionally, we improved operational efficiency by over $1,000,000 year over year and reduced past dues by 16% compared to the previous year. Moreover, we made significant progress in reducing inventory levels, achieving a reduction of over $3,000,000 since year end '20 '20 '4. This reduction aligns with our strategic goal of optimizing inventory management and improving cash flow. The continuous refinement of our marketing calendar led to a successful outcome in the first quarter. During the IRS sale held in the period, our e commerce growth rate increased by 27% year over year.

[Matthew Stevenson, President, CEO & Director at Holley]

Plus our strategic communications and PR efforts generated nearly 600,000,000 earned media impressions from over 1,300 media clips. And we continue to reach a large population of enthusiasts with 8,000,000 followers across our various social media platforms, a number that has increased since the previous year. These achievements demonstrate our marketing effectiveness and the ability to enhance our engagement with enthusiasts. In summary, our first quarter results reflect our focus on strategic initiatives and the collective effort of our teams to drive growth and operational excellence. Slide seven provides a comprehensive overview of the meaningful growth in our core business achieved across our divisions.

[Matthew Stevenson, President, CEO & Director at Holley]

In the domestic muscle vertical, the division experienced a 3% year over year growth with the three power brands listed here averaging an impressive 11% growth. The modern truck and off road division saw an overall growth of 2% with some power brands achieving remarkable year over year growth rates as high as 27%. Our Euro and import division recorded the highest growth at 17%, driven by renewed focus, product innovation and an emphasis on comprehensive platform packages. The Safety and Racing division also experienced 3% growth with the power brands listed contributing significantly more such as Stilo, which saw an 8% year over year increase in the quarter. These results demonstrate that by strategically focusing our resources on the power brands within our four division structure, we are driving growth and gaining market share even in a generally softer market year over year.

[Matthew Stevenson, President, CEO & Director at Holley]

On slide eight, you'll find a reminder of the eight areas of our strategic framework that we discussed during our last earnings call. At the core of this framework are our steering principles. The first principle is fueling our teammates, which aligns with our goal of making Holly a designated great place to work. We aim to create an engaging workplace where employees have a voice, opportunities for growth and an environment they are excited to come to every day. The second principle is supercharging our customer relationships, whether it's with our consumer enthusiasts or B2B partners.

[Matthew Stevenson, President, CEO & Director at Holley]

This principle encompasses three key areas of our strategic framework: designing and implementing the premier consumer journey in our space being a trailblazing trusted partner for our B2B customers by discovering new and exciting ways to drive mutual growth and launching innovative new products that are the envy of their categories. All this is achieved while actively managing and merchandising our entire portfolio with clear differentiation. The final principle, accelerating profitable growth includes expanding into new global and adjacent markets, transformational M and A and funding our growth through operational improvements. These efforts along with the others mentioned culminate in our ultimate goal of delivering superior financial results. Now on slide nine, I'm pleased to share the highlights and achievements for the first quarter as reflected in our strategic initiative tracker.

[Matthew Stevenson, President, CEO & Director at Holley]

Let's begin with our trailblazing trusted partner pillar, which encompasses our B2B sales initiatives. We have continued to see significant growth through our targeted efforts with national retailers. Our partnership with R and R for additional B2B sales support has yielded impressive results, particularly in data adoption and increasing our presence among the top 50 accounts. Additionally, we have launched the Holly Pros initiative, which provides a strategic approach to engaging with smaller accounts. These efforts have collectively contributed to an additional $2,500,000 in revenue.

[Matthew Stevenson, President, CEO & Director at Holley]

Moving on to the premier consumer journey pillar, which focuses on the direct to consumer. Our e commerce growth has been strong, exceeding 10% year over year. This growth has included focused efforts on third party platforms, particularly Amazon where we saw an increase of over 15%. These initiatives have resulted in an additional $3,300,000 of revenue for the quarter. Furthermore, we restructured Holly events to enhance customer experiences, which will not only drive future revenue increases, but will also boost media value during our upcoming event season.

[Matthew Stevenson, President, CEO & Director at Holley]

In product innovation and portfolio management, we launched several new products across our divisions and are gaining momentum in our performance packages. These innovative products and solutions contributed approximately $4,000,000 in revenue for the quarter. Additionally, our portfolio management efforts including strategic pricing changes generated an additional $4,000,000 Our global expansion and new market initiatives are also progressing well. We are on track with the early stages of our Mexico market expansion, which includes on the ground activation events and promotions. To date, we have signed up 15 distributors in this market.

[Matthew Stevenson, President, CEO & Director at Holley]

In the car dealer channel, a relatively new market for us, we've increased engagement with BMW dealers with now 22 participating in the program. These combined efforts have generated $300,000 of revenue. As they continue to develop, we anticipate greater contributions in the future. Under the Fund the Growth pillar, we completed and implemented projects related to purchasing savings amounting to $2,100,000 Additionally, we achieved approximately $1,000,000 in operational improvements during the quarter and are on track to reach $6,000,000 for the fiscal year. These initiatives have collectively contributed $3,100,000 in cost reductions for Q1.

[Matthew Stevenson, President, CEO & Director at Holley]

Lastly, our commitment to being a great place to work is yielding positive results. We saw a 3% increase in our great place to work survey scores, reflecting our ongoing efforts to gain an engaging and supportive work environment. In summary, our strategic initiatives have driven $15,000,000 in revenue across key areas, achieved $3,100,000 in cost reductions and improved our Great Place to Work scores by 3%. In addition to advancing our strategic initiatives, the team has been dedicating a significant amount of their time to mitigating the impact of the excessive tariffs announced since our last meeting. The changes in the tariff policies since we last met in March have been meaningful for our business, but the team is proactively addressing the challenge and making substantial progress.

[Matthew Stevenson, President, CEO & Director at Holley]

If we turn to Slide 10, you can see that we are first and foremost proactively managing our businesses cost structure. We have implemented comprehensive plans across the company to manage costs and help offset the tariff headwinds we are facing. Our approach is multifaceted, focusing on spend optimization, operational improvements along with tariff mitigation and strategic pricing actions. First, let's discuss our spend optimization efforts. We have taken decisive steps to eliminate discretionary spending.

[Matthew Stevenson, President, CEO & Director at Holley]

This includes reducing expenses such as travel, off-site meetings and other nonessential items. By prioritizing key projects that are aligned with our major growth initiatives within our strategic priorities, we are effectively reducing planned expenditures in both operational and capital expenditures. Additionally, we are optimizing our spending on professional services by transitioning to lower cost vendors and renegotiating agreements in areas such as legal, benefits, marketing and auditing. Transitioning to operational improvement, we have accelerated our efforts to enhance operational efficiency. This includes reducing warranty spend and returns as well as improving first time yield and minimizing waste.

[Matthew Stevenson, President, CEO & Director at Holley]

We have also evaluated and accelerated site consolidation, putting new sites on hold to optimize our existing infrastructure. Furthermore, we have frozen headcount and we will proactively adjust our workforce management to match new volume reality should they occur. Also, we will reduce overtime and tightly manage frontline operations. A key aspect of our operational improvement strategy is to reduce existing and inbound inventory by minimizing order quantities and enhancing demand planning through our improved sales inventory and operational planning processes. Next, let's address our tariff mitigation related pricing strategies on slide 11.

[Matthew Stevenson, President, CEO & Director at Holley]

We are overseeing these efforts through a swiftly established comprehensive project management office. Now to tackle the various aspects of tariff mitigation, we have developed five major work streams governance, products, logistics and supply chain, regulatory and classifications and pricing and margin protection. Our approach is multifaceted, involving daily meetings to ensure we stay on track. Each work stream is specifically designed to tackle unique challenges and opportunities, ensuring a coordinated and effective response. Workstream governance has been established to oversee the entire process.

[Matthew Stevenson, President, CEO & Director at Holley]

We have set up a steering committee and brought in outside PMO supporting contractors to assist with daily and weekly reporting. A burndown charge has been established to track progress and ensure accountability. Product work streams have been a critical component of our strategy. We conducted an ideation workshop involving 11 product teams with dedicated team leaders. This workshop focused on prioritization and developing consistent action playbook, which includes supplier negotiations, relocations, resourcing, footprint analysis and make versus buy decisions.

[Matthew Stevenson, President, CEO & Director at Holley]

Additionally, we have verified product classifications to ensure compliance and optimize tariff coding. Logistics and supply chain efforts have been focused on optimizing tariff volatility. We secured a bonded warehouse in Memphis to manage inbound containers and inventories from high tariff countries. Key rationalization and inventory analysis have been components of this work stream, helping us streamline our logistics and reduce costs. The regulatory and classifications work stream has evolved utilizing third party expertise, such as various custom brokers and trade advisory services along with legal experts to assist us in navigating this complex situation.

[Matthew Stevenson, President, CEO & Director at Holley]

We have identified exemptions for lobbying, particularly non auto parts and are actively engaging with organizations such as CEMA, MEMA and local governments to advocate for favorable tariff classifications. Pricing and margin protection has been another crucial area of focus for us. We announced a comprehensive pricing action on April 11 with an 8.75% increase to be implemented on June 9, allowing for a sixty day notice to the market. Additionally, are looking at implementing category specific actions where needed with plans to roll those out potentially by Q4. In summary, our strategic measures to mitigate tariff impacts are thorough and well coordinated.

[Matthew Stevenson, President, CEO & Director at Holley]

By establishing dedicated work streams, conducting workshops, securing logistics solutions, engaging with regulatory experts and implementing strategic pricing actions, we are addressing the challenges posed by tariffs. We plan to update you during our August call when we have better clarity on the permanence of the tariffs and the effects of our mitigation efforts. Now, before I turn it over to Jesse, let's turn to Slide 12 to highlight just a few of the exciting product innovations occurring in the second quarter of twenty twenty five across our four divisions. In the domestic muscle vertical, we are pleased to announce the latest addition to our chemical product line, the new Holley fuel system and carburetor cleaner. Expanding our chemical offerings is a strategic priority as these products represent a significant growth opportunity within the national retailer channel.

[Matthew Stevenson, President, CEO & Director at Holley]

Following the successful launch of our Bluetooth capability on our entry level Sniper fuel injection line, we are excited to extend this feature to our Terminator X fuel injection series. This enhancement will allow users to control functionality and access display features directly from their phones, providing a seamless and convenient experience. In the realm of modern trucks and off road vehicles, we continue to broaden our package availability. A key differentiator for Holley Performance Brands is the breadth and depth of our product line, touching more parts of the vehicle than any other performance aftermarket company. This unique capability enables us to design components that work seamlessly together, meeting consumer demand for integrated and easily accessible products.

[Matthew Stevenson, President, CEO & Director at Holley]

Our new packages will also cater to the UTV market, including a range of products such as shocks, brakes, exhaust system and tuning capabilities from various brands within our portfolio. In our Euro division, actively expanding our range of performance packages for BMW vehicles under the Dyna brand. Additionally, we are finalizing the at home flash tuning product for Dyna and look forward to discussing this in upcoming quarters. For the APR brand, which focuses on Audi, VW and Porsche performance, we are preparing packages for key high volume models. We are developing these offerings with exhaust solutions such as those developed for the Audi S4 and S5.

[Matthew Stevenson, President, CEO & Director at Holley]

In our Safety and Racing division, our commitment extends beyond ensuring safety with cutting edge technology. We also prioritize style for both riders and drivers. For our motorcycle line for Simpson, we are introducing a wider range of colors for our popular Outlaw Bandit helmet responding to consumer demand. On the automotive side of Simpson, we are expanding our seat line to be FIA certified with more colors appealing to a broader range of global markets. Additionally, we are launching new product lines within our Airspeed Racewear collection, designed to keep drivers safe while looking great.

[Matthew Stevenson, President, CEO & Director at Holley]

This is just a fraction of the great new products arriving across the Holly Performance Brands portfolio in Q2. At this point, I would like to hand over the presentation to Jesse, who will offer a more detailed financial analysis and comparisons of our Q1 twenty twenty five results.

[Matthew Stevenson, President, CEO & Director at Holley]

Jesse?

[Jesse Weaver, CFO & Head of Information Technology at Holley]

Thank you, Matt, and good morning, everyone. I'd like to start by providing an overview of our updated financial priorities for 2025 and then discuss our first quarter twenty twenty five financial results. As we navigate a dynamic operating environment, we remain focused on our financial priorities. Free cash flow generation continues to be a top priority for the entire organization and we remain committed to supporting this priority in 2025 to a focus on operating efficiency to drive profitability and working capital optimization.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

In 2025, we are continuing to work towards restoring historical profitability through elimination of inefficiencies in operations, which have already saved $1,000,000 in Q1. We anticipate savings of 5,000,000 to $10,000,000 through improved distribution, manufacturing efficiency, return policy compliance and quality enhancements to better the customer experience throughout the year. Our second priority remains to optimize working capital to unlock free cash flow generation and financial flexibility. Given the potential impacts related to tariffs, we are adopting a more proactive approach in managing our portfolio to reduce inventory held in non working inventory such as work in progress and raw materials. Concurrently, we are actively advancing initiatives to better align our product mix with market demand.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

Furthermore, we are enhancing our sales, inventory and operations planning and forecasting processes to create a more agile and demand driven operating model. By improving alignment between production, inventory and market demand, we not only increase accuracy and responsiveness, but also strengthen our ability to anticipate shifts in the market and drive more informed strategic decisions. Additionally, we are optimizing safety stock levels and lead times as part of a broader effort to create a more efficient and resilient supply chain. These measures enable us to systematically reduce slow moving inventory while maintaining the high service levels that our customers expect, thereby positioning us for greater operational excellence and resilience. Collectively, these efforts have resulted in a reduction of inventory of 3,400,000 since the end of the year.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

While this represents a strong start, further work remains to be done as we are targeting an overall reduction of between 10,000,000 and $15,000,000 in inventory by the end of twenty twenty five. On slide 15, we'll walk through our key financial metrics for the first quarter. Net sales for the first quarter were $153,000,000 versus 158.6 in the same period a year ago. The decrease was primarily related to lower sales volume, which was offset partially by improved price realization compared to the prior year period. That said excluding approximately $10,500,000 of divestitures and strategic product rationalization sales from net sales for the first quarter of twenty twenty four, we achieved growth of roughly 3.3% and exceeded our expectations for the quarter.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

As Matt pointed out, this growth came across all divisions and is a byproduct of the execution across all aspects of our strategic framework for '25 as we have improved working relationships with our distribution partners, improved our processes related to new product development and improve our marketing calendar support. Gross profit for the quarter was $64,100,000 compared to 52,100,000.0 in the same period last year. Gross margin for the quarter was 41.9%, an increase of nine ten basis points versus 32.8 in the prior year. This increase was primarily due to inventory charges in 2024, driven by the strategic product rationalization initiative as well as improvement in freight costs. SG and A including R and D expenses for the first quarter was $40,800,000 versus $37,800,000 in the same period from the prior year.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

The increase in SG and A was driven by investments related to supporting Sarbanes Oxley, external sales support and the timing impact of marketing expenses. Net income for the first quarter was $2,800,000 versus a net income of 3,700,000.0 in the first quarter of twenty twenty four. Adjusted net income in the first quarter was $2,600,000 versus a net income of $65,000 in the same period of last year. Adjusted EBITDA for the first quarter was $27,300,000 versus $21,000,000 in the prior year. Q1 twenty twenty four adjusted EBITDA includes the impact of $9,100,000 non cash charge related to a previously announced strategic product rationalization.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

Adjusted EBITDA margin was up four sixty basis points to 17.8% versus 13.2% in the first quarter of twenty twenty four. On slide 16, free cash flow for the quarter was negative $10,800,000 compared to $17,800,000 and positive free cash flow a year ago. In the first quarter of twenty twenty five, significant sales were booked in March resulting in accounts receivable increases of $14,900,000 Although this created a headwind in the first quarter is expected to contribute positively to second quarter free cash flow. It should also be noted that during the first half of twenty twenty four an atypical Q1 AP tailwind provided benefits which have now reversed in the first quarter of twenty twenty five as the accounts payable balance was normalized and AP operations were improved. Therefore generating free cash flow in the second quarter is expected.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

Free cash flow in the first half will be lower compared to the previous year mainly due to non recurring benefits from AP that posed a headwind in the latter half of last year. Slide 17 presents our net leverage at the end of for the first quarter, which was 4.32 times compared to 4.16 times a year earlier. While reporting our covenant leverage ratio, we amended our senior secured revolving credit facility to a covenant light structure that only test the covenant of five times total net leverage when the revolver is strong. At the end of the quarter, there was no outstanding balance on our revolver and we concluded the quarter with $39,000,000 in cash and no expectation of drawing on the revolver in the near term.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

Before we move to our

[Jesse Weaver, CFO & Head of Information Technology at Holley]

guidance, I'd like to provide some context to the broader macroeconomic environment and the health of the consumer from where we sit today. While we are extremely proud of the team's efforts to drive core top line growth in the quarter and the current trends observed in the overall business, the financial health of consumers continues to show signs of strain, most recently reflected in significant drops in sentiment. The University of Michigan Consumer Sentiment Index has declined sharply to its lowest level since November of twenty twenty two. This decline indicates growing consumer concerns regarding persistent inflation, interest rate uncertainty and broader economic viability. Although this sentiment hasn't yet resulted in a broad reduction in spending, it suggests that consumers are becoming more selective and value conscious, particularly in discretionary categories, which could moderate spending in the near term.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

As we all know, the external global trade policy on tariffs remains fluid. As discussions continue potential changes in trade terms introduce an additional layer of uncertainty that we are actively monitoring and addressing proactively. In response to these conditions, we are maintaining a disciplined focus on operational excellence through our strategic framework and a heightened emphasis on cash flow optimization. We believe that the measures outlined today will help us navigate near term challenges while preserving free cash flow. We are confident in our ability to execute our strategic framework supported by the strength of our leadership team and the adaptability of our business as conditions evolve.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

As such, we are maintaining our 25% guidance due to the strong growth in our business during the first quarter. And excluding any potential impacts from tariffs, we continue to expect 2025 revenue of $580,000,000 to $600,000,000 which implies approximately a 2.5 growth at the midpoint over the core business base of roughly $575,000,000 in 2024. As a reminder, we originally forecasted most of the growth in the back half of the year. Any further deterioration in the consumer may have an impact on our outlook as we continue to assess throughout the year. Additionally, we are maintaining our guidance of 25,000,000 adjusted EBITDA of $113,000,000 to $130,000,000 Overall, we are proud of the strong progress we've made to start '25, particularly through the disciplined execution of our strategic initiatives.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

These actions have not only driven robust business growth in the first quarter, but also have outperformed industry growth rates based on the intel we received from our distribution partners. While we remain mindful of the evolving macroeconomic environment and the fluid tariff situation, we are confident the operational discipline and momentum we have built will continue to serve us well as we move through the balance of the year. And this concludes our prepared remarks. We'd like to now open up the line for questions.

[Operator]

Thank you. We'll now be conducting a question and answer session. Session. Our first question is from the line of Christian Carlinho with JPMorgan. Please proceed with your question.

[Christian Carlino, Equity Research Associate at J.P. Morgan]

Hi, good morning. Thanks for taking our question. Your response to the tariff news you laid out in slides is really impressive. So I'm curious how both your sourcing mix and maybe your broader capabilities to respond differs versus peers and spending on the category aside, would you expect share gains to accelerate if the current tariff backdrop persists?

[Matthew Stevenson, President, CEO & Director at Holley]

Good morning, Christian, and thank you for the question. I mean, one of the big differentiators for Holley is the breadth and depth of product that we have across various categories. And so for us, it's really a category by category approach within there based on our competitive dynamic and based on our sourcing strategy. So, Christian, we got to see how it ultimately plays out, but we think Holley is poised to take share just based on the majority of our production costs and our cost of goods sold being in The U. S.

[Matthew Stevenson, President, CEO & Director at Holley]

Versus some of our competitors and other categories that are primarily sourced out of Asia.

[Christian Carlino, Equity Research Associate at J.P. Morgan]

Got it. That's helpful. And it's a good segue to my follow-up, which is basically what's been the feedback to the price increase you announced in early April from the distribution partners? And what are they saying about how this level compares to maybe what peers are requesting? And is this a broad increase across the portfolio and then you maybe sensitize it to products and categories later on?

[Christian Carlino, Equity Research Associate at J.P. Morgan]

Just a bit more color on how you're thinking about that and what the feedback has been? Thanks.

[Matthew Stevenson, President, CEO & Director at Holley]

Yes. Thanks, Christian. Overall, the feedback has been positive relative to our approach. I think our distribution partners appreciated our blending approach across portfolio versus just hitting harder in the impacted products. Now in the marketplace, we have seen price increases well in excess of what we put out into the market.

[Matthew Stevenson, President, CEO & Director at Holley]

I mean, we've seen increases as high as 30% or more on some categories from some competitors. So overall, I think our distribution partners understand the situation and appreciated our approach. And really their skepticism and pushback is on competitors that have had double north of double digit increases.

[Christian Carlino, Equity Research Associate at J.P. Morgan]

Got it. That's really helpful. Best of luck.

[Matthew Stevenson, President, CEO & Director at Holley]

Thank you, Christian.

[Operator]

Our next question is coming from the line of Mike Swartz with Truist Securities. Please proceed with your question.

[Michael Swartz, Director - Equity Research at Truist Securities]

Hey, guys. Good morning. Maybe just elaborate a little more. There was a comment in the press release, I think, Matt, you mentioned it on your prepared remarks, just around maybe some moderation in demand that you've witnessed through the first quarter. I'm just trying to understand what that maybe means on a quantifiable basis out the door sales, maybe what we've seen in the last month or two versus what we saw in the first quarter?

[Michael Swartz, Director - Equity Research at Truist Securities]

Or is this more tied to broader statements around the consumer sentiment, things of that nature?

[Matthew Stevenson, President, CEO & Director at Holley]

Yes, Mike. Good morning. Thank you for the question. In general, March was quite strong. The out the door performance of our products as well as distributors overall business was quite healthy.

[Matthew Stevenson, President, CEO & Director at Holley]

My comment referenced slow sales in January and February, and I believe we commented on last earnings call about just there's a lot of weather, cold weather that extended much further south than typically normal, which caused demand to be somewhat slow in January and February. But March was really good. And my other comment was in the prepared remarks, as we sit here today, we really haven't seen demand trends go either way. I mean, we're generally on the same course that we saw coming out of March and there hasn't been any material pre buy or slowdown from what we're seeing. But still early in the quarter, we got to see how things play out.

[Michael Swartz, Director - Equity Research at Truist Securities]

Okay. That's helpful. And then I guess maybe just a follow-up on the pricing question previously. Maybe just a little more color. I think you said that retailers are approving or maybe the approach you are taking.

[Michael Swartz, Director - Equity Research at Truist Securities]

So what maybe what is that approach? Are you doing anything in terms of surcharges where this is more temporary pricing based on the outcome of everything? Maybe just a little more context around that comment?

[Matthew Stevenson, President, CEO & Director at Holley]

Yes, Mike. Our approach was to blend the impact across our portfolio. And again, a big differentiator for us in the marketplace is the breadth and depth of the product that we cover as well as the majority of our production costs being in The U. S. So we had that ability to do that and take roughly that $8.75 in a blended approach across our portfolio with a few exceptions, not all products got that increase versus some of our competitors who didn't have that luxury and have taken significant price increases double digits or more on specific categories or products because they're sole sourced out of Asia and may only compete in one or two product categories.

[Michael Swartz, Director - Equity Research at Truist Securities]

Okay. Wonderful.

[Michael Swartz, Director - Equity Research at Truist Securities]

Thanks for the comment.

[Matthew Stevenson, President, CEO & Director at Holley]

Yes. Thanks, Mike.

[Operator]

Our next questions are from the line of Bret Jordan with Jefferies. Please proceed with your questions.

[Bret Jordan, Managing Director at Jefferies LLC]

Hey, good morning guys.

[Matthew Stevenson, President, CEO & Director at Holley]

Good morning Bret.

[Bret Jordan, Managing Director at Jefferies LLC]

You talk about the third party platform strategy a bit more? I guess real growth there. Is the margin profile comparable to your core B2C? And I guess is there any channel conflict as you grow those businesses with Amazon or eBay? Do any of your legacy customers see them as a threat?

[Jesse Weaver, CFO & Head of Information Technology at Holley]

Yes. Hey, Brett, it's Jesse. We have seen a lot of strength there. I mean the team has done a great job on the data and then output of the data work is continued improvement on the third party. What we found internally is that is highly incremental.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

In 2023 when I was here, we were seeing changes in the algos, changes in what was happening with data and Amazon dropped off and it wasn't being picked up in the other channels. So that kind of signaled to us that there really is a very limited channel conflict and then that kind of gets to your question on the margin profile. There are different fee structures there. Obviously, sell that at retail, but then you have to pay other fees associated with it. But given the incrementality there, we view it as viable growth channel that we will continue to lean into just along our approach that we want to be where the customers want to shop.

[Bret Jordan, Managing Director at Jefferies LLC]

Okay. Are the selling prices on a same SKU basis the same? Mean are you sort of doing a fixed price model?

[Jesse Weaver, CFO & Head of Information Technology at Holley]

Yes. I mean we comply with MAP on those channels and that's an area that as we continue to enhance our support of the distribution partners that we've monitored even more closely as we do have distribution partners who also sell on those marketplaces.

[Bret Jordan, Managing Director at Jefferies LLC]

Great. Thank you.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

Thanks, Brett.

[Operator]

The next questions are from the line of Philip Lee with William Blair.

[Phillip Blee, Research Analyst at William Blair]

Just

[Phillip Blee, Research Analyst at William Blair]

a quick point of clarification. Your guide does not include the impact of tariffs. So does it exclude the impact of some of those the pricing actions planned for early June and some of the other cost savings and mitigation efforts? Just kind of trying to get a feel for the level of conservatism embedded here.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

Hey, Philip, it's Jesse. Yes. I mean, excludes the impact obviously of tariffs as we've made clear. And there's two potential impacts as it relates to tariffs. One is the obvious one that we've all talked about, read about, know about.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

But then the other one is just like the general impact of the tariffs and the price increases across the economy and what it does to consumer sentiment. And so with our guide there's certainly a bit of understanding that needs to be done as we kind of venture into the back half before I feel like we would feel confident enough to kind of quantify anything for you at this time.

[Phillip Blee, Research Analyst at William Blair]

Okay. Okay. That makes sense. And then you reiterated your guide for low mid single digit growth in the core business. So kind of along with your expectations for price, can you just talk about some of your assumptions and impacts around volume and what kind of elasticity you think that based on historical results or have you seen maybe less of an impact on volume with

[Phillip Blee, Research Analyst at William Blair]

some of

[Phillip Blee, Research Analyst at William Blair]

your previous pricing actions? Thank you.

[Jesse Weaver, CFO & Head of Information Technology at Holley]

Yes. I think at this moment what's implied in that Philip is as we talked about the price increase goes into effect will be later this quarter and without changing the sales piece there is an implication on the volume side that would be offset on the pricing increase. Certainly that would come through at a higher margin. I think as we've all talked about there's this uncertainty around the ultimate tariff impact. So that is the volume to answer your volume question there is a volume sort of offset to that with holding sales flat with that higher price.

[Phillip Blee, Research Analyst at William Blair]

Okay. Makes sense. Thanks guys. Best of luck.

[Matthew Stevenson, President, CEO & Director at Holley]

Thanks, Philip.

[Operator]

Next question is from the line of Joe Feldman with Telsey Advisory Group. Please proceed with your question.

[Joseph Feldman, Senior MD & Assistant Director - Research at Telsey Advisory Group]

Yes. Thanks guys. Just again on the tariff thing, can you clarify how much exposure you do have to China? I know you keep saying there's not a lot of exposure to tariffs and yet there's a lot of work being done to mitigate them. So I'm trying to just reconcile those two comments that a majority of it's U.

[Joseph Feldman, Senior MD & Assistant Director - Research at Telsey Advisory Group]

S.-based, but you still have decent exposure. I mean, it would just help to kind of quantify, I think, for some of us, what that would be.

[Matthew Stevenson, President, CEO & Director at Holley]

Yes. Joe, good morning. I appreciate the question. Yes, a lot has changed as we reported on the last earnings call with the numerous changes in the administration regarding the tariffs in the new ones that have been implemented as well as increased over the last roughly two months. So we spoke prior the tariffs at the current state could be covered just with a pretty moderate price increase.

[Matthew Stevenson, President, CEO & Director at Holley]

Now as those tariffs have escalated, they become meaningful for our business, hence the work that is going into mitigate those as well as the pricing action that we just took. But we remain optimistic, Joe. It's definitely a fluid situation. The team is doing a ton of hard work and is finding opportunity to mitigate these daily as well as we're optimistic in the changes in the administration as these start as the dust starts to settle and things get more permanent on what actually these tariffs will be. So for us to give you any insight really into the exact number right now, it just wouldn't be accurate because it's a fluid situation and the great work the team is doing every day is mitigating those tariffs.

[Matthew Stevenson, President, CEO & Director at Holley]

And we will know more when we come back to you in early August.

[Joseph Feldman, Senior MD & Assistant Director - Research at Telsey Advisory Group]

Thank you. And then maybe an unrelated question is, you mentioned the Holly events changing the structure a bit and trying to generate more revenue from them because of that change. Could you share a little more color on that? I'm just curious how you would change it.

[Matthew Stevenson, President, CEO & Director at Holley]

Yes. Our events are just an amazing opportunity to connect with enthusiasts. And attendance continues to go up. We just had our LS Fest West in Las Vegas. That was attendance was up and our merchandise sales were up and there's just great opportunities there for our enthusiasts to partake in these great events and the culture of high performance brands.

[Matthew Stevenson, President, CEO & Director at Holley]

And for us, we offered more opportunity, whether it's VIP experiences, different merchandising, different events to participate in, as well as looked at the value that we provided in our pricing structure. But overall, just continuing to optimize how we produce and put on our events and not only to enhance the enjoyment of our enthusiasts, find opportunities to grow revenue in the process.

[Joseph Feldman, Senior MD & Assistant Director - Research at Telsey Advisory Group]

Got it. Thank you. Good luck this quarter.

[Matthew Stevenson, President, CEO & Director at Holley]

Thanks, Joe.

[Operator]

Our next question is from the line of Brian McNamara with Canaccord Genuity. Please proceed with your question.

[Brian McNamara, MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets]

Hey, good morning, guys. Thanks for taking the question.

[Matthew Stevenson, President, CEO & Director at Holley]

Hey, good morning, Brian.

[Brian McNamara, MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets]

So first off, I think when you guys reported Q4 of like March 11, sales were quarter to date were flattish and then they ended up pretty nicely. And you guys seem pretty confident that there is no pre buying. I guess how do you know kind of thing because we saw auto sales jump towards the March and things like that. Just curious what gives you confidence there is no pre buying out of all the tariff noise that we saw on the Liberation Day on April 2?

[Matthew Stevenson, President, CEO & Director at Holley]

Yes, Brian. It's the information we get from our B2B partners and of course with our direct consumer platform. Mean, January and February were so soft relative to the patterns that were driven in the weather. And so the feeling from our distribution partners and from what we're seeing in our business is just consumers didn't get a chance to work on their cars. And so when the weather started to break in March, a lot of that demand for people wanting to take on projects and get in their garage was a bit delayed.

[Matthew Stevenson, President, CEO & Director at Holley]

So we really feel that was the driver in March. And as we sit here today, conversations from our distribution partners are more of a wait and see attitude relative to seeing how things will play out. But again, it's still early in the quarter. Our pricing increase goes in on June 9, and we'll see how that plays out for the rest of the quarter here in terms of the demand patterns.

[Brian McNamara, MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets]

Got it.

[Brian McNamara, MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets]

And then I have

[Brian McNamara, MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets]

a pretty technical question on tariffs, at least as they relate to China. So we cover an eclectic group of companies and we learned from another coverage company that the Steel two thirty two tariffs supersede the reciprocal tariff for China. So I'm just curious if there's any nuance as it relates to your tariff exposure to China?

[Matthew Stevenson, President, CEO & Director at Holley]

Yes, Brian. It is a very complex situation. And yes, there's Section two thirty two auto parts or Section two thirty two steel and aluminum. There's reciprocal out of China. There's a number of ones that are in play.

[Matthew Stevenson, President, CEO & Director at Holley]

Now the administration made a change last week that the stacking of steel and aluminum and reciprocal has come off. But we literally have to go product by product and analyze what tariffs are applicable and stay up with the changes. And so this is why we have a host of firms on the outside that are helping us navigate and validate the situation as it changes because it is there's a whole flowchart that you walk through with the various tariffs and exceptions and yesno clauses to determine what is the applicable percentage on our product line.

[Brian McNamara, MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets]

All right. Thanks a lot, Matt. Appreciate it.

[Matthew Stevenson, President, CEO & Director at Holley]

Thanks, Brian.

[Operator]

Thank you. At this time, I'll now turn the floor back to Matt for closing remarks.

[Matthew Stevenson, President, CEO & Director at Holley]

Okay. Thank you, Rob. Slide 20 highlights the compelling investment narrative we see surrounding Holley Performance Brands. This market driven by automotive enthusiasts is more than just a hobby. It's a passion and a way of life for our customers.

[Matthew Stevenson, President, CEO & Director at Holley]

We have a vast addressable market nearing $40,000,000,000 and Holli leads the industry with a collection of storied brands known for their legacy of innovation. Our history is also marked by successful acquisitions and value creation through strategic integrations. Additionally, we have a unique opportunity to create a new digital frontier that will transform how our consumers and our distribution partners engage with our brands, giving us competitive edge and fostering growth. As we're emerging from this transformation, our commitment is to deliver stable organic top line growth of at least 6%, maintain 40% gross margin targets and achieve greater than 20% adjusted EBITDA margin targets. We aim to generate sustainable free cash flow and establish a platform that unlocks value in strategic acquisitions.

[Matthew Stevenson, President, CEO & Director at Holley]

The combination of our automotive enthusiast marketplace and Holley's distinguished brand portfolio presents an exceptional investment opportunity. In closing, I want to express my sincere appreciation to our team members for their dedication to serving our customers daily and to our remarkable consumers who support our brands and to our distribution partners, many of whom have been integral to our success for decades. So with that, I'd like to thank you for your attendance on the call today and have a wonderful rest of the week. Thank you.

[Operator]

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.

Participants

Executives

• Matthew Stevenson, President, CEO & Director
• Jesse Weaver, CFO & Head of Information Technology

Analysts

• Anthony Rozmus, Managing Director at Solebury Strategic Communications
• Christian Carlino, Equity Research Associate at J.P. Morgan
• Michael Swartz, Director - Equity Research at Truist Securities
• Bret Jordan, Managing Director at Jefferies LLC
• Phillip Blee, Research Analyst at William Blair
• Joseph Feldman, Senior MD & Assistant Director - Research at Telsey Advisory Group
• Brian McNamara, MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets