Holley Inc. Q4 FY2024 earnings call

• Transformation Efforts: Assembled a strong leadership team, with digital and consumer experience teams driving growth. Supported distribution partners, adopting an omni-channel approach to meet consumers where they shop.
• Operational Improvements: Achieved debt reduction, credit upgrades, and a covenant-light credit agreement. Realized $7.8 million in cost to serve savings in 2024, reduced past dues, and improved in-stock rates.
• Product Launches: Launched key products in Q4 2024, including engine swaps and safety portfolio offerings. In Q1 2025, innovations include a Euro division tuning module, Safety division HANS Device 4th gen, Domestic Muscle HyperSpark bundle, and NOS Octane Booster.
• B2B Sales: National retailer channel grew 12% driven by SKU expansion and strategic partnerships. Enhanced B2B support covers nearly 80% of B2B volume, with safety sales group forging new partnerships.
• Digital Modernization: Activated HubSpot CRM, implemented an annual marketing calendar, and bolstered trade show events to drive organic growth.
• Product Management: Implemented a phase gate system driving a 75% increase in new product revenue per SKU, launched 88 products, and rationalized 12,000 underperforming SKUs.
• Pricing Initiatives: Automated competitive pricing feeds for Top 500 SKUs, adjusted retail pricing for 1,500 high volume SKUs, and implemented a precision pricing model.

Net sales for the fourth quarter of 2024 were $140.1 million, a decrease of roughly 10% year-over-year. Full-year 2024 net sales totaled $602.2 million, down from $659.7 million the prior year. Gross margin for the fourth quarter of 2024 was 45.6%, an increase of 690 basis points year-over-year. Full-year 2024 gross margin was 39.6%, expanding by 80 basis points. Adjusted EBITDA for the fourth quarter of 2024 was $29.1 million, up from $28.5 million in the prior year. Full-year 2024 adjusted EBITDA was $110.5 million. The direct-to-consumer business experienced an 8% year-over-year growth in the fourth quarter and surpassed $100 million in sales in 2024.

• 2025 revenue is expected to be between $580 million and $600 million, with midpoint growth of 2.5% over the core business. - Adjusted EBITDA for 2025 is projected to be between $113 million and $130 million. - Capital expenditures will be towards the top end of historical ranges for ERP and WMS improvements. - Guidance assumes the consumer environment does not worsen; further deterioration could impact the outlook. - Tariff situation is monitored, but current guidance does not factor in unmitigated tariff impacts.

• Consumer Spending: Uncertainty due to high household necessities prices and policy changes affecting consumer spending. - Tariffs: Fluid tariff situation with moderate exposure; current guidance does not account for unmitigated tariff impacts.

Q: Could you talk about the Mexico opportunity and just what excites you about that market in general? Like how big is the market and how does the car park differ from the U.S.? I think it's an older car park so does that play well into your assortment? And just any other color there on the distribution relationship with AutoZone.

A: Mexico is a market of ~$3 billion to $5 billion for the enthusiast market, with an older car park suitable for products like carburetors and fuel injection lines. Working with AutoZone in the US and Mexico to expand presence.

Q: But I guess could you sort of peel back the gross margin performance in the fourth quarter? Like how much of it is onetime if at all? And how should we think about the cadence over '25 just given you had some pretty wide variance in '24? Obviously part of that is the strategic product rationalization.

A: Q4 gross margin boost from cost to serve, purchasing price variance, and D2C; 2025 margin expected to be more balanced throughout the year.

Q: First question on the guidance. You mentioned that consumer confidence took a little bit of a dip here in Q1. I'm just curious does your guidance for the year assume that gets better or are you assuming that we kind of remain at these levels for the balance of the year?

A: Guidance assumes things don't get worse; better consumer confidence would push towards the top end of growth range, with growth back half loaded.

Q: And maybe second question, it sounds like inventories in the channel are much healthier than they were a year ago. I guess first, would you assume sell-in and sell-through are sort of in alignment this year? And second, how would you assess the health of your distributors at this point?

A: Working closely with distribution partners to align sell-in and sell-through; key distributors are making investments and partnering well, with B2B expected to show strength.

Q: So how should we think about Q1 sales? I know, Jesse, you just mentioned flat H1 and kind of mid-single H2. But reading between the lines in your prepared remarks, it sounds like you're expecting Q1 to be down, but a little more color there would be helpful.

A: Trending flat for Q1 on core business, plus or minus 1%-2% with weeks left, and growth initiatives pushing forward.

Q: Could you talk a little bit about the Cataclean acquisition? And I guess you're doing the Octane Boost with NOS. So is that sort of a category that you're getting further into on additives and sort of the economic profile of that business? And obviously buying a UK based additive company, does that expand the opportunities over there?

A: Chemicals are a growth opportunity; NOS Octane Booster is proprietary, while Cataclean partnership extends relationship and expands chemical portfolio in markets like the UK.

Q: Could you provide maybe a bit more color on your core customer? Any detail on regional concentrations or spread by income demographic and maybe how these key cohorts have trended in the first quarter to date amidst some of this noise compared to any bump that you saw in the fourth quarter?

A: Consumers are modestly higher income; consumer confidence hesitancy baked into guidance, with initiatives expected to gain share despite challenges.

Q: And you spoke a bit about the strength in new product demand over the past year. Can you maybe quantify how much of a lift did that have to the total top line in 2024 and then how we should think about that level or impact of newness going into 2025?

A: New product revenue per SKU up 75%, with continued modest improvement in new product impact, though B2B relationships remain key for near-term growth