Q2 2022 Holley Inc Earnings Call
Greetings and welcome to <unk> second quarter 2022 earnings call at.
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At this time I'll turn the conference over to Ross Collins with Investor Relations Ross you May now begin.
Thank you Rob good morning, everyone. Thank you for taking the time to join US today on the call with me today are Tom Tomlinson, Chief Executive Officer, Domenic, Bartos, Chief Financial Officer.
Many of them have got it executive Vice President of corporate development and new ventures the Holly.
After their prepared remarks, we'll open the call for questions now.
Now I will reference the safe Harbor provisions under the private Securities Litigation Reform Act of 1995. This call may contain certain forward looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company.
In many cases these risks and uncertainties are beyond the company's control.
Although the company believes the expectations reflected in its forward looking statements are reasonable it can get.
No assurance that such expectations or any of its forward looking statements will prove to be correct.
Actual results may differ materially.
Important risk factors that could cause actual results to differ materially from those reflected in forward. Looking statements are included in the company's recent 10-Q4 S. One filings with the Securities and Exchange Commission. The information contained in this call is accurate only as of the date discussed and investors should not us.
Assume that statements will remain relevant operative at a later time.
<unk> undertakes no obligation to update any information discussed in this call and the teacher. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U S. GAAP are included in today's press release, which is also posted on our Investor Relations website. At this time I'd like to turn the call over to Tom Tomlinson, our chief.
Executive Officer Tom.
Thanks, Ross good morning, everyone and thanks for joining us today.
As we stated in our earlier pre announcement and our press release. This morning, our results for the second quarter fell short of expectations.
I'd like to jump right into providing some color around the shortfall in the quarter, which was driven primarily by supply chain disruptions reseller and destocking and softer consumer demand in certain categories tipping.
Typically we see the highest overall demand for our products in the second quarter, and we placed heavier orders from our suppliers in anticipation of receiving the necessary goods and time to fill this demand.
In the second quarter of 2022, our receipt of goods from global suppliers fell well below our expectations with many of these expected receipts, having now shifted to the back half of the year.
We believe this was driven by an overall slowdown in our supply chain, which began with COVID-19 related plant shutdowns in port closures in China further exacerbated by slower than expected movement of goods throughout the balance of our supply chain.
Second major supply chain headwind was related to automotive grade micro chips that are used in many of our most popular electronic products.
We have suppliers that have been reliable for many years and we provide them with long term forecasts and purchase orders within their quoted lead times.
In previous quarters, we have successfully been able to source the chimps, we needed from these historically reliable suppliers.
During periods, where demand exceeded the forecast and purchase orders we provided to these suppliers, we have been able to secure the additional ships needed in the secondary market.
In the second quarter of this year. These suppliers progressively began decommissioning on previously confirmed purchase order ship days at a rate that affected our ability to continue regular production of these products. These conditions worsened throughout the quarter and while we were able to secure some.
Needed chips in the secondary market. It became clear that demand has exceeded supply and we were unable to ultimately secure enough usable chips to satisfy the demand we have for these products. We continue to work diligently to source. These micro chips, but we now believe that the global constraints could come.
<unk> to be challenging through 2023.
As a result of these supply chain disruptions, we navigated our busiest sales period of the year with an inadequate supply of hundreds of our best selling products.
Shifting gears to distribution. It is very clear that there was meaningful reseller to stock destocking in the quarter.
Our top resellers reduce their purchases well below their out the door sales of our products.
Given our policies and supply chain constraints that have existed over the last few years, we believe resell our inventory levels are currently low and their ability to continue to reduce their inventory is limited.
Finally, I would like to discuss electronic tuning a category, where we believe we are seeing some reduction in consumer demand.
We were well stocked in this category throughout the quarter, but saw a decline in demand and have very low past due orders. We believe this decline in demand is primarily the result of lower new vehicle production levels, which in turn has resulted in a reduction in used vehicle transactions as well.
New vehicle production has also been negatively impacted by the aforementioned micro chip shortages consumers.
Consumers generally purchase tuning devices, when they purchase a new vehicle or a new to them used vehicle.
The above factors notwithstanding we continue to believe that overall consumer demand for our products is solid our past due orders remained elevated and ended the quarter more than three times. The net sales decline from the prior year.
We expect to be able to fill most of this demand in future quarters as product becomes available to ship.
Our DTC channel is growing and is margin accretive DTC sales were up 7%. Despite the significant supply chain challenges.
Looking to the balance of 2022, we expect our receipt of goods from global suppliers to accelerate.
And the team is committed to managing our other supply chain challenges as effectively as possible.
We're also very focused on opportunities to improve our short term performance, while continuing to pursue actions that will drive long term growth developing innovative and exciting new products for enthusiasts consumers and engaging with them through digital media and in person at our events, where we've seen double digit growth and.
We're also continuing to execute our M&A strategy.
I'll now turn it over to Vince to discuss recent M&A activity and consumer engagement. Many thanks.
Thank you Tom and good morning to everyone on the call as Tom mentioned.
Fire calls, we believe acquisitions are a key strategic pillar to drive growth at Holly.
During the second quarter, we completed the acquisition of <unk> quip, well known brand in the safety equipment market. This acquisition is a great example of how Holly is consistently looking to strategically gain market share and enter new product categories. Although relatively small in size. This acquisition helps us expand into a broader.
Base of entry level enthusiasts consumers with products priced right for the value proposition that we deliver our pipeline remain focused and we are committed to building out our M&A capabilities.
As a part of our acquisition philosophy, we are focused on attractive companies that will allow holly to expand share and current market enter new product categories increase our DTC scale and ultimately drive shareholder value.
Should the elevated economic uncertainty lead to additional attractive opportunities coming to market. Our team stands ready to capitalize as well as engage with business owners seeking Holly as a disciplined steward for the air business.
Now I'll say, a few words regarding our consumer engagement.
Experiential events.
All he proudly hosted its inaugural L. S that Texas event during the quarter Holly L. S. First events of the brand truly are a destination for enthusiasts and these events will continue to be a key pillar of our consumer engagement strategy to add some specific color in its first year, Alice Texas achieved.
Tendons greater than or less that Easter event had achieved in its sixth year.
Not only do these events help us learn more about our customers. Each event serves as an opportunity to understand and learn more about the products that are resonating with the broader enthusiast community. This will be particularly helpful. As we began to innovate and enter new product categories and market such as electric vehicle.
Holly held its second Holly high voltage event, this past quarter, enabling us to engage deeper with the in the EV enthusiast community.
Lastly, as we discussed in the first quarters call, we met our second quarter milestone for the Sympson integration and are meaningfully accelerating the integration of more recent acquisition to realize value within the year through our acquisitions and integrations, we remain committed to returning long term value to our shareholders.
With that overview I'd now like to hand, the call over to Dominic who will discuss our second quarter financial results in greater detail Dominic.
Hey, good morning, everyone.
Holly delivered net sales of $179 $4 million in the second quarter, a decrease from $193 million or seven 1% decrease from the second quarter of 2021.
While we typically don't disclose monthly pacing of result, we believe it's helpful color to illustrate how sales trends changed throughout the quarter.
You may recall that we finished our first quarter with net sales that were 25% higher than Q1 of 2021.
When we finished April our year to date net sales growth was 15% still on par with the higher end of our annual guidance.
At the end of May our year to date net sales growth had fallen to 11% over the prior year, but still within the range of annual guidance.
But by the time, we finished the quarter in June our year to net sales growth compared to 2021 had fallen to seven 4% as reported this morning.
The declining sales performance, particularly in our five week month of June directly correlates to the factors Tom discussed earlier.
Gross profit for the second quarter of 2022 decreased $5 9 million or seven 3% to $75 $3 million when compared to $81 2 million for the second quarter of 2021.
The decrease in gross profit was down driven by the decrease in sales.
Gross margin for the second quarter of 2022 was 42% compared to a gross margin of 42, 1% for the second quarter of 2021.
Total selling general and administrative expenses increased 38, 5% in the second quarter. The large increase in SG&A as a continuation of increased costs related to equity compensation and public company expenses acquisitions and investments for growth.
Incremental SG&A from recent acquisitions were responsible for $1 $4 million of the increase in the quarter.
Additional cost drivers include an increase in noncash expense.
<unk> related to equity awards increased administrative and sales personnel costs, reflecting company any additional requirements of becoming a public company and an increase in outbound shipping costs related to domestic supply chain pressures.
Interest expense decreased by 20% in the second quarter of 2000 $21 million to $9 million.
Interest expense positively benefited from the $100 million pay down on our second lien notes in July of 2021, and the credit facility refinancing we completed last November .
We recorded net income of $40 $6 million in the second quarter of 2022.
Net income for the second quarter of 2022 was favorably impacted by a $27 $4 million noncash decrease in liabilities for warrants and earn out shares.
On an adjusted basis net income was $13 2 million versus $23 1 million in the second quarter of 2021.
Adjusted EBITDA decreased to $37 $2 million in the second quarter down from $54 1 million in the second quarter of 2021.
Moving to our outlook for 2022, as we stated in our pre announcement and earnings press release. This morning, we have lowered our guidance that we originally established at the beginning of the fiscal year.
Our updated guidance now calls for annual net sales in the range of $700 million to $725 million and adjusted EBITDA between $135 million and $145 million. We also adjust our interest expense expectations to be in the range of 33% to $35 million, while we are maintaining our capex and depreciation and amortization.
<unk> guidance, which we which are between $14 $14 million to $16 million and $24 million to $26 million respectively.
This guidance includes reduced spending to reflect the challenging environment in the months ahead and accelerated integrations that Denny mentioned.
Now I would like to take a moment to address the announcement of my resignation at the end of September 1st I would like to thank Tom My leadership team mates and Holly Board of directors for the opportunity to serve and be a part of this exciting chapter of Holly's corporate life.
Second I would like to emphasize that my decision to leave is purely for personal and family reasons I think colleagues a fantastic company with an extremely bright future that will drive long term shareholder value for years to come in the meantime, I'll do everything I can to ensure a smooth transition during the next two months.
That concludes our prepared remarks, Ross, we can now open up the call for questions.
Yeah.
Absolutely Dominic as a reminder, we ask that you. Please limit yourself to one question with one related follow up as needed Rob. Please open the line for questions from our participants.
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Thank you and our first question comes from the line of Joe <unk> with Raymond James. Please proceed with your questions.
Thanks, Hey, guys good morning.
I guess first question just to kind of get you out of the way.
What are you guys seeing in July and August so far in terms of shipments demand et cetera.
So Joe let me handle that one when we did our guidance we had a few weeks into July we took that into consideration, but we're not prepared to make any other comments about Q3.
Okay understood.
In terms of demand dimensions on the tooling side.
You're seeing a lack of new and used auto availability as being a big driver of that is there any of that related to broader macro concerns as well or is it really just the availability issue.
Well I mean from our perspective with new vehicle production being down consumers are just buying fewer new vehicles and the trickle down.
The trickle down effect, then is that Theres, a smaller inventory of used vehicles being passed next owners.
And.
Again, as we talked about in the prepared remarks consumers generally purchase tuning devices when they purchase a brand new vehicle or a new to them used vehicle.
So based on the visibility we have today, we think that that's the primary driver of what we're seeing there on the tuning side.
Yeah.
Okay, and just lastly for me.
In terms of the resell of Destocking or are they trying to conserve cash because of concerns about the macro backdrop and what what's driving that destocking activity.
Yes, we have historically seen this when there is bad economic news.
It is.
I would have to say that we have shaped our policies around this over the years to minimize the impact and to minimize.
Ah well well to minimize the impact on the business to minimize it to minimize their inventory.
And.
I mean, when I look back to prior periods I mean, I think those strategies those policies are working well and I think while the impact was still significant to us in the quarter. It was much lower than we've seen historically.
Okay got it thank you guys.
Okay. Thanks.
Our next question is from the line of Ryan Sundby with William Blair. Please proceed with your question.
Hey, guys. Thanks for the questions there.
It sounds like there may be four separate things that drove the shortfall relative to expectations, but broader supply chain issues. The availability of key inputs, the destocking and restocking demand.
Maybe talk about just a little more about how.
How much each of those pad wells.
Dave to your own expectations.
Well Ryan this is Dominic I think one of the things that we try to do when we when we go through this to give the relative magnitude by the order in which we are presenting things we're not prepared to give precise information in terms of the dollar magnitude of the Miss.
But we know that as Tom mentioned in his prepared remarks, when we started the quarter and where we ended the quarter. We had hundreds of our most popular products out of stock. So we were running out of stock of our most popular things through the quarter and that's why I shared in the prepared remarks the pacing.
Supply chain, we believe was the most significant impact in us as we kind of went through the prepared remarks, it's in that descending order of magnitude.
Okay. That's helpful.
I would also just.
Refer back to.
One of the comments and repaired prepared remarks, when you look at our past due orders.
Dominic just mentioned and I talked about.
They have remained elevated and at the end of the quarter.
These past due orders were more than three times, the net sales decline from the prior year.
To me, that's kind of it's somewhat lots and a bit of a quantified way to your question.
Yes, that's fair.
Helpful.
So also wondering is the right way to think about underlying demand maybe the 7% growth for <unk> does that help us kind of look through the reseller destocking.
And then on the result salary Destocking can you talk a little bit more about how that looks across the different.
Channel in terms of the <unk> in terms of brick and mortar or are you seeing any differences there and maybe the timing of that did that did that get worse really towards the end of the quarter or was it kind of it.
Turning off quarter.
So we have been the channels.
Do have some different dynamics.
But they also tend to care and different inventory levels.
And.
We only have visibility to destocking in our top resellers now that does represent more than including our GTC that represents more than half of our overall sales. So it is you know.
It is a pretty meaningful look at destocking.
Interestingly.
You know kind of the traditional retailers had.
Done some destocking last year in this quarter and so there they're destocking was probably the lowest.
And.
You know I'm going purely by memory here, but as I recall.
Our top channels, which would be E tailers, including our DTC and then well we can exclude DTC for this part of the discussion because we're talking about channel inventory, but so E tailers and warehouse distributors was where we saw the largest destocking in the quarter.
Yes, and as Tom mentioned, they do carry the widest breadth of our inventory. So so that makes the most sense. If they are the ones that have the highest level of destocking.
Okay. Thanks, guys.
Thanks, Brian .
Our next question comes from the line of Joe Feldman with Telsey Advisory. Please proceed with your question.
Yeah, Hey, good morning, guys.
So Christian.
The micro trip issue and I know, it's a global issue, it's clearly beyond you guys, but I.
I guess the concern is.
How do you guys plan to meet demand. If you have this kind of pressure in the environment like.
Does that mean, we have to kind of see a permanent reduction in sales for the next year and a half or I guess, how should we think about.
That impacting you guys.
Yeah.
I mean, I guess, the first thing I would say.
If there was a year and a half reduction.
It wouldn't be permanent.
And we have.
We are blessed with a very.
Very broad portfolio and we have other products that we can focus on in the meantime, and promote them.
So, but having said that.
The team is working diligently.
And if there is this to secure these micro chips. If there is a silver lining here.
We we do have now open dialogue.
Some of these top chip manufacturers historically.
We acquired these chips entirely through their resellers through their distributors.
And.
Well, we'll probably still continue to acquire them through there.
Through their distributors, that's the way they do business, but.
I think this dialogue is good because it's just not.
Demand number on a page, it's a face and its people.
That or.
Asking for the desperately need these products.
We.
We feel like those efforts had made allowed.
Allowed us to make some progress.
Yeah.
We've got some.
Call. It short term ship ship dates.
We're just very cautious because.
It's too soon to declare any sort of victory were very cautious because.
What happened to us in the quarter is that.
Confirmed pose for D committed and what that means is these <unk> that we had placed months in advance we expected the shipments all of our schedules.
We're built around those shipments and.
And decommissioning.
Practical matter means theyre pushing out.
Receipt dates so.
We have to look at all of these expected receipt that we have today as tentative, but it is hopeful and we've actually been able to get some data as a result of this dialogue directly with the chip manufacturers and really as a result of the team's just tremendous efforts in this area.
Got it got it that's really helpful. Thank you Tom.
And just as I guess a reminder, maybe for me.
Maybe for everybody but.
Like how many or what percent of your products actually have chips in them that that you know.
It really required this.
These devices.
If you can share that.
That's not something that let me see if I can give you a qualitative.
<unk>.
Answer to that.
So we have products.
In our electronic fuel injection.
Product line.
That use automotive grade microchips.
The overall that is a large category, but not all of the products in that category use those microchips.
However, when you can't sell the main unit.
You don't get the benefit of all the drag along sales.
One other thing if I may add Tom as we've talked about this in recent quarters that that category has been driving outpaced growth, it's really been driving significant growth with the super popular line of things and many of those popular products or what we were without in Q2, we ran out of them.
Got it.
That's good and it's helpful to hear that it sounds like the demand is not the issue at all from what you are suggesting it's really just the ability to have the product okay.
That's right.
Yes.
Thanks, Joe.
The next question is from the line of Ana <unk> with Jefferies. Please proceed with your question.
Hey, good morning, Thanks for taking my question.
All right.
I'll go back to kind of the commentary around retailer destocking.
Keith Bachman.
Total form the commentary about Barack Additionally.
So the knockdown at Atlas or did you see any.
If I could add color on the call.
Alright.
Would you say, it's more about indiscriminate cutting across the board.
China right plasma inventory are they being a little bit more selective and what do you expect that kind of payroll.
I think the orders going forward based on telco.
So we look at it as.
Fear based.
Or maybe emotional and emotional reaction to the.
The bad economic news.
And.
The last time, we saw this was in 2020 right. After all the Covid lockdowns occurred.
And what we saw on our DTC side DTC charged right on through with high rates of growth.
And resellers pulled back dramatically and.
The conditions were such at that time that they had to come right back in within a month or two.
And start raising their orders so I mean, I'm not suggesting that that's going to happen. This time, the economic conditions I think are much different.
But we do think that there's far more demand. There then is visible in our numbers.
Hence my comment that we believe the demand for our products is solid and we've got some categories that are up some categories that are down.
We wanted to kind of talk about both sides of that to be fair and balanced but.
Another thing I would point I mean, we talked about DTC up 7%.
Or so far this year, our consumers consumer events are well into the double digit up category.
We're range and.
So we do think demand for our products remains solid.
Great.
Helpful and just one follow up going.
Going back to the performance by category.
Totally understand.
Impacted by them.
New vehicle availability, how do we think about.
Prior downturn, what would you say that that's more and more.
Although these are macro point Dave.
How the higher relationship with new vehicle sales.
Yes.
The first one to go or.
So that category does correlate more than most of our other categories 222 to vehicle sales.
And.
Again, we have this broad portfolio.
<unk>.
We are about 50 50, modern vehicles and classic vehicles, it's actually a little bit.
It's slightly skewed towards classic vehicles and so.
<unk>.
That's just a great part of the business that we've built and so so even though this is a category that shows up is.
Being having lower demand at this point in time. It is a category that historically has had very very high demand and it's also one of our highest margin categories.
Great.
Thanks, Phil.
Our next question is from the line of Alex Perry with Bank of America. Please proceed with your questions.
Hi, Thanks for taking my questions.
Just first I wanted to ask sort of what was the big change in the supply availability versus days.
When when you gave an update in May was this mostly the microchip at Val ability or was there something outset sort of developed as you move through the quarter and then the E committed confirmed <unk> is this are you looking for alternative suppliers as a way to mitigate this or.
Are you just thinking that this was an isolated issue and <unk>.
It should improve.
So.
So the change that.
Really the issues that we talked about from a supply standpoint.
The supply chain slowed down for the reasons, we discussed and we did not receive the goods we expected to receive in the quarter. There was a dramatic shortfall from what we expected to receive.
<unk>.
Those goods are pushed out into the second half of the year those receipts for those goods are pushed out to the second half of the year and that should allow us to see some progress on our past due orders and see the benefits associated with that in terms of the.
The destock sorry, the decommissioning.
We.
We turn to the secondary market, which is something that we've historically done.
And that market has tightened up so dramatically.
But it was not nearly as successful.
We werent able to acquire quantities of chips.
This quarter as we have historically.
And.
Our view of that market is.
Going to another distributor is not going to be particularly helpful. Because these chips just arent out there right now.
And you know I mean, there is.
Yes.
I guess, we have to have some faith in the.
And our economic system and.
Over time this will be corrected.
But it doesn't appear to be a quick fix we're just hoping you know as we talked about earlier.
That the effort that we've put into the dialogues with the chip manufacturers results in allocations and allows us to begin to resume production of these products.
That makes lot of sense.
And then I just wanted to ask a follow up a little bit on sort of how much of that.
What sort of demand versus supply is the it.
It seems like the slower demand as well.
Janine.
Vehicles outbuildings by also those are the one that required.
<unk> is the youre seeing slower demand.
Maybe another way to sort of characterize the demand you're seeing is there anything in terms of color you can give us in terms of.
End market demand, whether its like Youre retaliate is sort of.
Pos data.
Just trying to frame up how much is sort of demand versus supply.
DTC is up 7%.
Double digits.
We are our backlog.
Sorry, I want to talk specifically about our past dues. So these are orders that were due that we haven't been able to failure.
That remains elevated.
Is.
Is increasing.
And.
We need to see the container receipts for the goods that we ordered and expected to receive and but but from our perspective again the demand is there.
I mean look the supply chain issues are frustrating to all of us and the team is just working diligently to.
Do everything.
Really possible to see those goods arrive.
Some cases, they will be inputs into our manufacturing processes.
There will be time required to manufacture the products, we sell to our consumers in other cases.
This would be a product that we've designed.
We source complete and that goes on the shelf and is ready to ship to consumers upon arrival consumers and resellers upon arrival.
Perfect. That's really helpful best of luck going forward.
Thank you.
Our next question is from the line of John Lawrence with Benchmark. Please proceed with your questions.
Yeah. Thanks, good morning, guys.
Good morning, Mark.
Hi, Tom would you just talk a bit about I believe in the first quarter and I don't know if you can.
You have a little deeper dive here.
I guess two things number one I believe the electronic category was about 80 million out of $200 million in the first quarter is that about right.
Okay.
Yeah, John I don't recall disclosing category specific.
Breakdown.
And secondly is there any way to break down that $80 million.
How much of that total electric product electronic product really has to do with the chip is it is it most of it or is it 60% or.
And that follows with that sort of.
Outline of how much of the electronic product.
Thank you bye demand or just how much is effect by just not being able to get that chip.
Well I mean from a qualitative standpoint, the impact on the tuning business from the potential demand issues. We discussed is smaller than the impact of the microchips.
Alright.
I would assume that.
And all of that comp decline I assume it's all one business now Ashwin. This is part of the.
I am product I mean acquisition, you made about a year ago and that would be awesome.
<unk>.
That's not correct.
Yes, so one of the things I think we should probably clarify John is that automotive grade chips that are engineered to withstand higher temperatures and the rigors of being under hood under those.
Those empire products like R. R.
Our fuel injection system that has to have an ignition systems those things that need to have chips under the hood, our automotive grade many of our tuning products need semiconductor chips, but they're not the same quality because they are actually in the card itself and are used to monitor or they can use be used to tune. So there are differences in the shift of ILG.
Trauma products that we have.
As an example, our fuel injection systems.
We've been hampered with that supply if you go to our website you can see that estimated ship dates have been out there for a week.
Sure.
Arthur Covid products, both September 30.
We don't have those.
Okay.
Okay.
I'm, just trying to get that breakdown and the last question for me Tom.
As we looked at the business and looked in the second half.
What are the things that have to go right.
As far as getting these receipts what are the things that would be monitoring to make sure.
As this solves itself over the next few months.
So we are monitoring.
Basically the inflow of containers.
With these products and so that that's an important element.
And.
Obviously, we're monitoring when they leave the port.
And.
And then obviously.
We see that again when there.
When are receiving report has entered into the system.
The other thing.
It's really important and I mean, I think that we've baked into our forecast and guidance what our expectation is in terms of being able to.
Deliver on some of the fuel injection products that Dominic mentioned a moment ago.
Those are the things that are that are pretty critical and.
You know I mean.
Frankly, if if we do better than expected and it gives us some upside.
Sure.
If we don't do as well as expected it gives us some downside so I mean on balance we tried to peg it where we where we thought we'd be.
Alright, thanks, so much dominant I appreciate all the help thank you Sir you guys. Thanks John .
Thank you.
Final question is from the line of Christian <unk> with Jpmorgan. Please proceed with your question.
Hi, good morning, Thanks for taking my question.
Just wondering.
Have you taken price recently either.
Planned price increases.
My environment and just how are you thinking about pricing.
In the back half.
So we have historically.
For the last several years done a midyear price increase as our regular annual price increase we did do that this year and we accelerated it maybe by a couple of weeks.
It was it was probably it was a little larger than we would have done typically given the pressures inflationary pressures on our cost that we've seen.
And with pricing more pricing grow more than it did in the first quarter.
Yes.
Pricing pricing contributed seven 3% in the quarter.
It was a little bit less than Q1, because the pricing change that Tom just mentioned was at the end of the quarter in June .
So it was a little bit less in the quarter, but it was a positive contribution to the sales.
Got it that's really helpful and then I guess.
On capital allocation standpoint.
Yes, you have some inventory on the balance sheet do you expect the resellers.
Alright, I guess pick up their orders in the back half.
But you're at almost five times total leverage so.
The plan from here too.
See how much you need for inventory.
Would you delever the balance sheet or that.
Could you make an acquisition to sort of supplement the weaker organic.
Generally how youre thinking about planning the business going forward.
Sure. So let me just correct on the leverage we are not a five times. Our net debt is probably around 610 $615 million with $30 million cash on the balance sheet with our long term debt and so with our guidance with our guidance, it's not near the five yet right now at the end of the quarter is below four times. So.
From a leverage standpoint, yes, we're certainly going to look at everything going forward from a capital allocation standpoint.
We are keeping an eye on cash that's obviously very important to us and as it should be to all investors. It.
It doesn't take us out of the M&A market. There are other ways that we can look at being creative they were certainly going to look at accretive opportunities for long term growth.
I want to remind folks that this is a setback we are focused on the long term for driving shareholder value and M&A is a part of that as Vince mentioned in his prepared remarks, our pipeline is very focused on things that fit our strategic bill of health and we will find the right ways to do that but clearly we're going to be very careful where it can be.
Mindful of leverage ratios, we have a desired sweet spot as I've said before it's below four times and then I would just add we just all need to keep in mind here that our comp set.
The second quarter of 2021 here.
A 54% up quarter.
So it's a difficult comp we're up against.
In the back part of the year the comps are.
Not as difficult.
Got it that makes sense. Thanks for all the color.
Thank you.
At this time. This concludes our question and answer session and that will also conclude today's call.
For your participation you may now disconnect your lines at this time and have a wonderful day.
Thanks, everybody. Thank you.