Holley Inc. Q1 FY2026 earnings call

• Context for Q1: Q1 began with temporary headwinds like elevated distributor inventories and severe winter weather delaying inventory normalization. From Week 8, with improved weather and normalized channel dynamics, purchasing patterns improved. • Key business performance: Adjusted EBITDA was $27.3 million, flat year-over-year. Net income increased, margins expanded, free cash flow improved. Delivered $6.5 million in cost savings. • Product introductions: Introduced engine swap solution packages and Holley performance car care line. • Operational progress: Maintained ~92% in-stock rate on top 2,500 SKUs, delivered $3.8 million in purchasing and tariff savings and $2.7 million in operational improvements. • Portfolio rebalancing: Closed HRX, advancing portfolio rebalancing initiative to generate over $15 million in proceeds for reinvestment. • Strategic framework: Built around eight pillars including making Holly a great place to work, premier consumer journey, etc. • Initiative progress: Solid progress in new products, national retail accounts, international markets, cost savings, etc.

American performance declined 9.7% in the quarter. Trucking off-road was up 3.8%. Euro in import was up 1%. Safety and racing grew 10.2%. Adjusted EBITDA remained essentially flat year-over-year at $27.3 million. Net income increased, margins expanded, and free cash flow improved. Three of the four divisions grew, and 12 brands performed positively across B2B and D2C.

• Core business revenue range unchanged. • Full year net sales guidance updated to 610 to 640 million, reflecting $15 million revenue reduction tied to portfolio optimization. • Adjusted EBITDA guidance unchanged at 127 to 137 million. • Q2 starting on positive note with mid-single-digit growth in April, supported by normalizing inventory at distribution partners. • Expect steady progress toward year-end target of below 3.5 times net leverage.

Q: Hey, good morning, guys. Thanks for taking our questions. Apologies if I missed this in the repair remarks, but what was the gap in Q1 sell-in versus out-the-door sales, and what was the actual Q1 core sales growth?

A: Brian, we didn't talk about the core because in this particular quarter, you know, all the sales were core. We weren't rolling over anything in Q1. So what you're seeing reported in the down 3.7 is all core. I would say versus out-the-door sales, you know, out-the-door sales were very strong within the quarter for our distribution partners. And, you know, we, you know, probably in the plus 4% range. And I think that kind of gets to some of the remarks Matt and I had on the call, which is between the combination of weather, which we're estimating was probably accounts for three, and then the inventory kind of coming into the quarter a little strong or heavier than we would have liked. That gets you to another four. That kind of bridges the gap there.

Q: Yeah, Brian. Thanks, Matt. Yeah, we constantly look at the portfolio just to see where business is taking a disproportionate amount of resources compared to the contribution they offer. And there were some things on the bubble and just the changing environment relative to freight rates, tariffs, you know, we monitored that closely. And these businesses do not fall in the bucket of performance nor offer that true competitive differentiation and scalability that we look for in the market. So, you know, we've been looking at these. There was nothing, you know, previously that really stood out. But I'd say over the last six months, these businesses came more into focus. as well as the growth opportunities on the other end to reinvest those proceeds into these higher growth businesses.

Q: Hi. Good morning. Thanks for taking our question. You know, you had talked about the, you know, difficult channel inventory position and the storms pressuring some of the orders from the distribution partners when you reported in early March. So I guess could you talk through more, you know, I guess what drove the mis- Versus your expectations, did you expect a more healthy ramp of orders into March that didn't materialize? Maybe due to the headline shock of gas prices and consumer sentiment, just any further color on that.

A: Yeah, thanks for the question, Christian. Yeah, you know, as Jesse just mentioned on Brian's question there, you know, I think it was the Q&A on the last call, we talked about, hey, we think about 2% to 3%. of the growth in Q4, you know, normally would have fell into Q1 due to more working days and some of our distribution partners leaning out to hit their rebate targets. That ended up being from what we surmise here, probably north of 4%. And although, as Jesse just commented, you know, the outdoors were healthy, those weeks really impacted the sellout rates in late January and early February at some of our key partners based on the weather. You got to remember, there's a bit of a seasonality effect in our business. You know, people start working on their cars a lot more earlier in the South that really had unprecedented weather conditions. And we saw that, you know, by state in our D2C business as well. And of course, impacted our D2C business in those weeks.

Q: Yeah, so on Arizona Desert Shocks, I mean, great brand, great team, but effectively what we found is the scalability of that business where they concentrated on really high-end racing shocks, was just something that was not scalable. And so when we looked at that business and the great team down there, it just made sense to return that business back to its former owner. But that is a segment that the core more of OE replacement plus that you see in Fox and King and Bilstein and other things, it is a nice growing segment. We were just at the very upper end of that and missing the meat of what that market truly is. Now, when you take a look at HRX, I mean, you saw it in the numbers here, and you saw it in the fourth quarter of 25. Our safety business is growing really nicely. And when you look at our portfolio, one of the things that was really an extension of it here was getting into more European kind of fit design racing suits that really are the preferred cut and look of racers around the world. We have, of course, racing suits with Simpson. And those are more of the Americana, NHRA, NASCAR-type suits. And HRX filled an opportunity for us for FIA suits in that aesthetic around the world. So we're very excited about the business. It's growing really nicely. Got a great team over there. We're happy to have part of the family.

Q: Hey, guys. This is Olivia Witte on for Philip. First, I wanted to ask, could you talk about your exposure to rising transportation costs as well as changes in tariff policy? Do you have any concerns there? And are you embedding any price increases into your guide to help offset?

A: Yeah, good morning, Olivia. Thanks for the question here. Yeah, just based on what's going on, kind of the macro environment, we're seeing some increases relative to freight and some other PPV coming through on resins and other components driven by some of the increases in oil prices. We'll be looking to take a moderate price increase. We're still finalizing the exact number somewhere around the mid-June timeframe and give our distributors ample notice in advance. When we look at the tariff landscape, of course, there's been a lot of puts and takes over time on there. Some of the IEPAs were reduced, of course, but that really was the minority of our tariff costs on the annual basis. You know, those got reduced, other tariffs came in, ended up being somewhat of a wash overall when you looked at our overall tariff exposure on the annual run rate.

Q: Yeah, I mean, ultimately, the out the door is the true testament. You know, our consumers preferring our brands and buying our products. And, you know, as Jesse commented there a few minutes ago, you know, the out the door is generally speaking we're pretty healthy when you take out the weather effect. So, you know, as we continue to maintain share in our key categories, we're seeing growth. and other categories. So overall, we think that momentum we've built over the last, you know, 12 to 18 months is continuing. And just we had this temporary effect of the weather that, as you just commented, you know, we're seeing in a lot of consumer businesses in the first quarter.

Q: hey good morning this is martin on for joe i want to really quickly touch on the weather impact you've uh quantified around three million dollars wondering if you view that as completely lost or could we see some recovery of it sort of in the second quarter A: i think ultimately martin you know we got to see how the quarter continues to play out you know as we sit here uh you know early may april was over 6% growth. So it was a nice recovery going into the month of April. And we're seeing those demand trends stay consistent into May. So ultimately, we've got to see if that demand washed out of the quarter completely or is recoverable here as we go through the remainder of the year.

Q: Yeah, this is Jesse. Good question. On the guidance, adjustment that's purely the net impact of the portfolio optimization so that includes both the businesses that we've identified that we need to you know find new homes for offset by what we're getting picking up in HRX and then on the question around retailers can you restate that one Yeah, just have你 had any concern from retailers about consumer confidence? You know, I think you've said at least ordering patterns have normalized, but are you hearing anything about consumer confidence concerns?

A: Yeah, I think, you know, our large customers and partners, you know, they read the headlines and those like, you know, Michigan Consumer Confidence Index and such, but at the same time, you know, they're reporting to us that sellouts, generally speaking, are good. And The enthusiast customer base, this is a passion for them. This isn't something they do every five to 10 years, or like some of these other consumer durables. This is their thing. This is what they go and do in the evenings and the weekends. This is what they do with family and friends. They work on car modifications, or they go race on the track, or they go road motorcycles, parts of our business. We're cautiously optimistic, of course, with the extended conflict in the Middle East. You know, we've got to see how that plays out because right now,你 know, our large partners aren't reporting outside of the weather impact any negative impact so far.

Q: Thanks, guys, for taking the questions. With regard to the portfolio rebalancing, did any of that happen already in the first quarter? Did that impact any sales in the first quarter? And how should it impact, you know, I guess each of the next few quarters? Is it rateable? Is it all at once in the second quarter? How should we think about it?

A: Joe, that's a great question. So for Q1, no impact really in Q1. I would say for Q2, three, and four, to kind of foot to the 15 million on the top and bottom end of the guidance that was adjusted specifically for this activity, you probably see about one million in Q2 and about seven in Q3 and seven in Q4. The one caveat to that is obviously this is current estimate of timing of when these transactions would take place, but right now, that's our current pacing. And we'll obviously update as we go forward throughout this year on an apples-to-apples comparison, which as you can see in our guide, that hasn't changed at this point. The range is still the 2% to 7% on the core business, which would exclude the impacts of those pieces.

Q: Yeah, the CapEx guidance would not account for any bolt-on acquisition activity as it currently is laid out. I would say, you know, to Matt's earlier comments, these are businesses that we feel like have sustained long-term, you know, double-digit growth trajectory, and they're in the relatively small range. I mean, we're talking $5 to $10 million with huge upside and things that we feel very confident we could fund with free cash flow. So they're not in the guide at the moment, but as they come along, we will absolutely be funding those with free cash flow.

Q: Hey, good morning, guys. Hey, Brett. What was the contribution year over year in same skew price?

A: Pricing was in the mid-single digits, Brett, from a price realization, similar to kind of how we were pacing more and more throughout the end of last year, so mid-single digits.

Q: You know, the ones when we're talking about the SKU rationalization, Brett, there are only about five, relatively speaking, in that bucket. But when we talk about our lifestyle and power brands, It's roughly about 20 that we really concentrated across our four divisions and through our organization. And你 saw a nice growth in some of the brands. In my prepared comments, I commented Euro was a bit behind just for some product availability because Q4 demand was quite strong. So that limited some of the growth. You saw a nice growth in safety and growth in truck and off-road. And the decline there in American performance was really just a concentration of inventory at some key partners that primarily focus on American performance. So that's where you saw the differences across those four divisions.

Q: I'd say I'd look at it right in a broader context. International opportunity for our organization, we believe, is quite extensive. You know, we're under-penetrated in Asia Pacific, Europe, South America, Mexico, and a number of these areas that we're developing strategies for or executing on, like we are in Mexico and Latin America. So we,你 know, we include HRX in our lifestyle and power brands, and they'll be part of this larger global expansion effort that we will coordinate.

Q: Okay, great. Thanks. I guess just to follow up on a previous question, because it seems like your sales guidance is just in line with the portfolio rebalancing, both the positive addition and subtraction. Doesn't that necessarily mean that you expect the lost sales to from the first quarter to come back? Am I misinterpreting that? I know that was already asked, but I just wanted a clarification on that.

A: Yeah, no, it's a good clarification, Mike. I mean,我 think that is exactly what that would imply. I mean, we're seeing pretty strong in April, and what that would imply for the balance of the year is, you know, six to seven on each of the subsequent quarters. It may not phase out exactly that way, but based on what we're seeing in April, we still feel like, you know, there's a lot of year left and reason to believe. I mean... Some of the things that we've spoken to in the past were pretty significant new product development that's rolling out in Q3 and Q4. I mean, I think this, we hadn't spoken as much until this quarter about the new car care line, but we've seen really positive feedback from consumers as we started to introduce that at LS Fest West. And that's just a really big TAM, something that we always knew could be big, but we feel really good about. In addition to that, you've got our CTS4, which is one of our top products. We also have... the continued growth in the Snell cycle, growth in safety, and new products coming out within the EFI product line. So that is what's implied.

Q: Yeah, Mike, I'll take the back half of that question, and I'll defer to Jesse for the first half. Now, we're seeing a nice recovery across the portfolio here as we get into April and into May. Like I commented, a lot of that concentration of that inventory is in American performance, you know, in Q1, and we're seeing that turn around as that inventory is normalized in the weather and continuing to see, you know, nice growth across the board in all four divisions. Yeah, and Mike, to answer你的 question, after all the changes with the portfolio rebalancing, just on the first half, second half, it probably is going to be a bit more of the closer to 50 to 51 in the first half versus the 51,你 know, point guide that we gave before. So a little bit less in the first half as a result of these.