Q1 2024 Holley Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the conference call to discuss Holly's first quarter 2024 earnings results. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions for asking questions will be provided at that.

Time.

We ask that participants limit themselves to one question and one related follow up during the Q&A period.

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Is permit is not permitted without written authorization of Holly.

As a reminder, this call is being recorded and will be made available for future playback.

Operator: will be provided at that time. We ask that participants limit themselves to one question and one related follow-up during the Q&A period. Please be advised that reproduction of this call, in whole or in part, is not permitted without written authorization from Holley. 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 Rasmus with Investor Relations. Please go ahead.

I'd now like to introduce your host for today's call Anthony Rasmussen with Investor Relations. Please go ahead.

Anthony Rasmussen: Good morning, and welcome to Holly's first quarter 2024 earnings conference call on the call with me today are President and Chief Executive Officer, Matt Stevenson, and Chief Financial Officer, Jeff Weaver.

Anthony Rasmus: Good morning, and welcome to Holley's first quarter 2024 earnings conference call. On the call with me today are President and Chief Executive Officer Matt Stevenson and Chief Financial Officer Jesse Weaver.

Anthony Rasmus: 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 ones described in our SEC filing. This morning, we will review our financial results for the first quarter and share our guidance for the second quarter and full year 2024. At the conclusion of the prepared remarks, we will open the call to questions. With that, I'll turn the call over to CEO Matt Stevenson.

Anthony Rasmussen: This webcast and the presentation materials, including non-GAAP reconciliations are available on our investor website.

Anthony Rasmussen: Our discussion today includes forward looking statements 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 ones described in our SEC filings.

Anthony Rasmussen: This morning, we will review our financial results for the first quarter and share our guidance for the second quarter and full year 2024 at the conclusion of the prepared remarks, we will open the call up for questions with that I'll turn the call over to CEO, Matt Stevenson.

Matthew J. Stevenson: Thank you Anthony and good morning to everyone on the call.

Matthew J. Stevenson: Thank you, Anthony, and good morning to everyone on the call. We appreciate you taking the time to join us.

Matthew J. Stevenson: We appreciate you taking the time to join us.

Matthew J. Stevenson: It's our pleasure to share the latest on Holly's transformation and the exciting developments we have in store.

Matthew J. Stevenson: It's our pleasure to share the latest on Holley's transformation and the exciting developments we have in store. As I approach the one-year mark with Holley, I'm proud of the many improvements we've made. Even as the market finds its new normal, it's important to recognize the significant progress happening behind the scenes at our company. We're elevating the level of professionalism and enhancing the capabilities within our organization. Our efforts have yielded substantial improvements in a remarkably short time frame.

Matthew J. Stevenson: As I approach, the one year, Mark with Holly I'm proud of the many improvements we've made.

Matthew J. Stevenson: Even as the market finds us more new normal it's important to recognize the significant progress happening behind the scenes at our company.

Matthew J. Stevenson: We're elevating the level of professionalism and enhancing the capabilities within our organization.

Matthew J. Stevenson: Our efforts have yielded substantial improvements in a remarkably short timeframe.

Matthew J. Stevenson: We've also been diligent in eliminating non-value-added costs, which has meaningfully impacted our bottom line. At the same time, we're building a robust growth engine to secure Holly's future success and leverage the strength of her brand. To achieve this, we've welcomed top talent with expertise from premier companies who share our enthusiasm for the automotive performance aftermarket and have the vision and know-how to take Holley to the next level. During our call today, we'll also discuss the key developments in our transformation, show you some of the recently launched innovative new products and give you a sneak peek at the ones to come later in the year.

Matthew J. Stevenson: We've also been diligent and eliminating non value added costs, which has meaningfully impacted our bottom line.

Matthew J. Stevenson: At the same time, we're building a robust growth engine to secure holly's future success and to leverage the strength of our brands.

Matthew J. Stevenson: To achieve this we welcome top talent with expertise from Premier companies, who share our enthusiasm for the automotive performance aftermarket and had the vision and know how to take Holly to the next level.

Matthew J. Stevenson: During our call today, we'll also discuss the key developments in our transformation.

Matthew J. Stevenson: Show you some of the recently launched innovative new products and give you a sneak peek at the ones to come later in the year.

Matthew J. Stevenson: Let's move on to slide five which shows some of the key highlights for the quarter <unk>.

Matthew J. Stevenson: Let's move on to slide 5, which shows some of the key highlights for the quarter. Despite a year-over-year decline in sales, we've maintained robust margins, showcasing our team's skill in managing costs while still investing in growth areas. Our strong free cash flow has allowed us to reduce our debt by an additional $15 million, totaling $65 million since September, reaffirming our dedication to lowering leverage.

Matthew J. Stevenson: Despite a year over year decline in sales, we've maintained robust margins showcasing our team's skill in managing costs, while still investing in growth areas.

Matthew J. Stevenson: Our strong free cash flow has allowed us to reduce our debt by an additional 15 million totaling $65 million since September.

Matthew J. Stevenson: Reaffirming our dedication to lowering leverage.

Matthew J. Stevenson: We've also observed notable even with contributions from our cost to serve program.

Matthew J. Stevenson: We've also observed notable EBITDA contributions from our Cost of Serve program, which is an internal continuous improvement program launched last fall. This program's success directly results from the extensive collaboration happening across various functions within our organization. Additionally, the quarter saw a reduction in past dues and continued improvement in inventory management, underscoring our advancements in forecasting, inventory planning, and other operational improvements.

Matthew J. Stevenson: This is an internal continuous improvement program launched last fall.

Matthew J. Stevenson: This program's success directly results from the extensive collaboration happening across various functions within our organization.

Matthew J. Stevenson: Additionally, the quarter saw reduction in past dues and continued improvement in inventory management underscoring our advancements in forecasting inventory planning and other operational improvements.

Matthew J. Stevenson: As I mentioned, we significantly strengthened our leadership team with new members who will be instrumental in driving the development of our organic growth engine. Now, let's turn to slide six and delve into the quantitative highlights for the first quarter. Net sales decreased 7.9%.

Matthew J. Stevenson: As I mentioned, we significantly strengthened our leadership team with new members, who will be instrumental in driving the development of our organic growth engine.

Matthew J. Stevenson: Let's turn to slide six and delve into the quantitative highlights for the first quarter.

Matthew J. Stevenson: This was due to elevated inventory levels at the end of 2023 due to modest holiday demand and a weakening consumer environment, which Jesse will discuss in more detail in his remarks. Despite the dip in sales, we generally maintained our adjusted gross margins with a slight decrease of 40 basis points from the prior year, ending the quarter at 38.9%. Our adjusted EBITDA followed suit at 19.3%. Pre-cash flow continues to remain strong as we instill greater discipline in our operations.

Matthew J. Stevenson: Net sales decreased seven 9%. This was due to elevated inventory levels at the end of 2023 due to the modest holiday demand and a weakening consumer environment, which Jesse will discuss in more detail in his remarks.

Matthew J. Stevenson: Despite the dip in sales, we generally maintained our adjusted gross margins with a slight decrease of 40 basis points from the prior year ending the quarter at 38, 9% our adjusted EBITDA followed suit at 19, 3%.

Matthew J. Stevenson: Free cash flow continues to remain strong as we instill greater discipline in our operations.

Matthew J. Stevenson: We also launched several impressive products this quarter. We've kept our focus on growth areas, specifically in the modern truck and off-road segment. The midsize truck market is on fire, with the latest models offering the performance and price points that full-size trucks did a decade ago.

Matthew J. Stevenson: We also launched several impressive products this quarter.

Matthew J. Stevenson: We've kept our focus on growth areas, specifically in the modern truck and off road segments. The midsize truck market is on fire with the latest models offering that performance and price points at full size trucks did a decade ago.

Matthew J. Stevenson: We're seizing this opportunity by rolling out a comprehensive performance exhaust lineup within our Flowmaster brand for mid-sized trucks, starting with the Chevy Colorado. The Ford Bronco has been a success, and as more hit the road, owners are getting bolder with their modifications. We're meeting this demand with advanced suspension and chassis components from our ADS brand. Furthermore, the off-road trend extends beyond trucks and SUVs to UTVs, and we responded by introducing a new line of robust safety seats for these vehicles through our Simpson brand.

Matthew J. Stevenson: We're seizing this opportunity by rolling out a comprehensive performance exhaust lineup within our flow Master brand for midsized trucks, starting with the Chevy Colorado.

Matthew J. Stevenson: The Ford Bronco has been a success and is more hit the road owners are getting bolder with her modifications were meeting this demand with advanced suspension and chassis components from our <unk> brand.

Matthew J. Stevenson: Furthermore, the off road trend extends beyond trucks, and Suvs <unk> Tvs and we responded by introducing a new line of robust safety seats for these vehicles through our Simpson brand.

Matthew J. Stevenson: Later in the call we will delve in the additional exciting products, we're preparing for the market.

Matthew J. Stevenson: Later in the call, we'll delve into additional exciting products we're preparing for the market. We're also allocating resources to elevate brand recognition for our company and the distinguished brands in our portfolio. Last quarter, our public relations efforts resulted in over 786 million media impressions, highlighting the impact of our communication strategy. The significant rebranding from Holley Performance Products to Holley Performance Brands was a key milestone, better representing the wide-ranging and in-depth offerings of our portfolio. This strategic move has resonated positively in the market. We also recently inaugurated our event season with LS Fest West in Las Vegas.

Matthew J. Stevenson: We're also allocating resources to elevate brand recognition for our company and the distinguished brands in our portfolio last quarter. Our public relations efforts resulted in over 786 million media impressions, highlighting the impact of our communication strategies.

Matthew J. Stevenson: The significant rebranding from holiday performance products to Holly performance brands was a key milestone that are representing the wide ranging and then depth offerings of our portfolio.

Matthew J. Stevenson: This strategic move has resonated positively in the market.

Matthew J. Stevenson: We also recently inaugurated our event season with <unk> West in Las Vegas.

Matthew J. Stevenson: Throughout the year, we aim to engage with over 500,000 enthusiasts through various events, fostering grassroots connections with our enthusiast community. Our operational focus continues, particularly through a comprehensive cost-to-serve program. This initiative has already yielded over $3 million in savings for the quarter, primarily by optimizing our freight policy.

Matthew J. Stevenson: Out the year, we aim to engage with over 500000 enthusiasts through various events fostering grassroots connections with our enthusiast community.

Matthew J. Stevenson: Our operational focus continues particularly through a comprehensive cost to serve program.

Matthew J. Stevenson: This initiative has already yielded over $3 million in savings for the quarter, primarily by optimizing our freight policies. We also improved our in stock rate for the top 25, 2500 skus by 5%.

Matthew J. Stevenson: We also improved our in-stock rate for the top 2,500 SKUs by 5%, and we have strategically removed approximately 12,000 slow-moving or low-revenue SKUs from our portfolio. These actions help relieve a strain on our resources and streamline our business operation. On the left of slide seven, we present the three core steering principles that guide our company. These principles are the foundation that drives our focus on the four main areas depicted on the right.

Matthew J. Stevenson: And have strategically removed approximately 12000 slow moving our low revenue skus from our portfolio. These actions help relieve a strain on our resources and streamline our business operations.

Matthew J. Stevenson: On the left of slide seven we present, the three core steering principles that guide our company. These principles are the foundation, which drive our focus on the four main areas depicted on the right.

Matthew J. Stevenson: The first area emphasizes our commitment to our team, ensuring Holley is an exceptional workplace. The second area is dedicated to refining our operations, not only to eliminate non-value-added activities that inflate costs but also to improve product availability and drive appropriate inventory levels that align with market demand. Furthermore, it is imperative that our operations offer enthusiasts, consumers, and distribution partners the premier omni-channel customer experience in our industry. The third critical area is optimizing acquisitions. Holley has integrated several remarkable brands and businesses in recent years. Each with its own unique attributes, fostering these distinctions is essential to ensuring their success in their respective categories.

Matthew J. Stevenson: The first area emphasizes our commitment to our team and touring Holly is an exceptional workplace the.

Matthew J. Stevenson: The second area is dedicated to refining our operations not only to eliminate non value added activities that inflate costs, but also to improve product availability and drive appropriate inventory levels that are aligned with market demand.

Matthew J. Stevenson: Furthermore, it is imperative that our operations offer enthusiast consumers and distribution partners the premier Omnichannel customer experience in our industry.

Matthew J. Stevenson: The third critical area is optimizing acquisitions, all is integrated several remarkable brands or businesses in recent years.

Matthew J. Stevenson: Each with its own unique attribute fostering these distinctions is essential to ensuring their success in their respective categories.

Matthew J. Stevenson: Lastly, our focus on steadfast, we prioritizing our customers encompassing both our value consumer base as well as our devoted distribution partners, we're exploring avenues to expand and enhance our sales channels aiming to connect with and serve a broader spectrum of enthusiasts.

Matthew J. Stevenson: Lastly, our focus on steadfastly prioritizing our customers, encompassing both our value consumer base as well as our devoted distribution partners. We're exploring avenues to expand and enhance our sales channels, aiming to connect with and serve a broader spectrum of enthusiasts. In this call, we'll share our latest achievements on the path toward our transformation goals. Since our last earnings call just two months ago, we have made significant strides, particularly in cultivating a high-performance team.

Matthew J. Stevenson: In this call we'll share our latest achievements on the path towards our transformation goals.

Matthew J. Stevenson: Our last earnings call just two months ago, we have made significant strides, particularly in cultivating a high performing team.

Matthew J. Stevenson: Slide eight which we've previously discussed illustrates our transformative journey and the four building blocks that are instrumental in making this transformation a reality.

Matthew J. Stevenson: Slide 8, which we previously discussed, illustrates our transformative journey and the four building blocks that are instrumental in making this transformation a reality. Initially, we established the core elements of accountability and empowerment, such as enhanced communication and functional KPIs. We implemented a daily rhythm of reporting and reviewing results and harmonized major project and program reviews. We also outlined the fundamental expectations of our leaders.

Matthew J. Stevenson: Initially, we established support elements of accountability and empowerment, such as enhanced communication and functional kpis.

Matthew J. Stevenson: We implemented a daily rhythm of reporting of reviewing results and harmonized major project and program reviews.

Matthew J. Stevenson: We also outlined the fundamental expectations of our leaders.

Matthew J. Stevenson: Subsequently, we refine the organization's focus by segmenting, the market and prioritizing opportunities with the highest growth potential.

Matthew J. Stevenson: Subsequently, we refine the organization's focus by segmenting the market and prioritizing opportunities with the highest growth potential. We introduce more discipline into our operations and leverage various data points to pinpoint straightforward wins and concentrate on key opportunities. Specific projects and programs were initiated to capitalize on these areas. We also began collaborating with our distributors to expand our mutual business and introduce an initial wave of new talent to facilitate change. Now, we are currently at the crux of the transformation.

Matthew J. Stevenson: We introduced more discipline into our operations and leverage various data points, the pinpoint straightforward wins and concentrate on key opportunities.

Matthew J. Stevenson: Specific projects and programs were initiated capitalize on these areas. We also began collaborating with our distributors to expand our mutual business and introduce an initial wave of new talent to facilitate change.

Matthew J. Stevenson: Now we are currently at the crux of the transformation as discussed in the previous quarter, we executed a restructuring event that position allows us to elevate our organization district.

Matthew J. Stevenson: As discussed in the previous quarter, we executed a restructuring event that positioned us to elevate our organization. This restructuring created a platform to recruit key expertise and vital leadership roles, essential for driving our transformation and unlocking elements of our growth strategy. Today's call will showcase the significant progress we've made in this domain, including the introduction of exceptional leadership talent. Growth remains a focal point of our endeavors, and shortly, we'll discuss progress, and four key growth elements. But first, let's examine the remarkable progress we've made on a foundation component for driving growth, a high-performing team. So let's turn to slide nine.

Matthew J. Stevenson: This restructuring created a bandwidth to recruit key expertise and vital leadership roles essential for driving our transformation and unlocking elements of our growth strategy.

Matthew J. Stevenson: Today's call will showcase that significant progress we've made in this domain, including the introduction of exceptional leadership talent.

Matthew J. Stevenson: Growth remains a focal point of our endeavors and shortly we'll discuss <unk>.

Matthew J. Stevenson: Advancements in four key growth elements.

Matthew J. Stevenson: But first let's examine the remarkable progress we've made on our foundation component for driving growth a high performing team.

Matthew J. Stevenson: So, let's turn to slide nine.

Matthew J. Stevenson: We are experiencing an exciting period and the aspect that excites me. The most is the leadership team. We are assembling we have cultivated a dynamic executive team renowned for their expertise and fostering growth and implementing best practices. These individuals are known not only skilled in their respective functions for all.

Matthew J. Stevenson: We are experiencing an exciting period, and the aspect that excites me the most is the leadership team we are assembling. We have cultivated a dynamic executive team renowned for their expertise in fostering growth and implementing best practices. These individuals are not only skilled in their respective functions but are also hardcore enthusiasts.

Matthew J. Stevenson: So hardcore enthusiasts their passion for our daily endeavors is infectious and the bigger they are infused into our organization is truly remarkable.

Matthew J. Stevenson: Their passion for our daily endeavors is infectious, and the vigor they have infused into our organization is truly remarkable. Allow me to highlight Jordan Musser, a former professional race car driver who intimately understands the perspective of our customers. Following his racing career, Jordan excels in the electronics and lighting sectors, scaling businesses as an entrepreneurial leader within global organizations. He will spearhead our safety division, encompassing the brands Simpsons, Steele, Hans, and Racequip, as well as our electronics segment, which includes fuel injection, ignition, and tuning. Chet Baker is our newly appointed head of sales, overseeing all of Holley's B2B sales, which includes our distribution partners, national retailers, OEM, and international markets.

Matthew J. Stevenson: Allow me to highlight Jordan Musser, a former professional race car driver, who intimately understands the perspective of our customers.

Matthew J. Stevenson: Following his racing career, Jordan excels in electronics, and lighting sectors scaling businesses as the entrepreneurial leader within global organizations.

Matthew J. Stevenson: He will spearhead our safety division encompassing the brand's Simpsons deal Hans <unk> quip as well as our electronics segment, which includes fuel injection emission and tuning.

Matthew J. Stevenson: Chet Baker's our newly appointed head of sales overseeing all Holly's BTB sales, which includes our distribution partners national retailers OEM and international markets Chad's background features experienced an executive sales roles with prominent companies like Ocean spray and Abbott a hands on leader.

Matthew J. Stevenson: Chet's background includes experience in executive sales roles with prominent companies like Ocean Spray and Abbott. A hands-on leader, Chet has also immersed himself in the startup space in recent years. Coming from a family of hardcore automotive enthusiasts, Chet has a lifelong connection with cars.

Matthew J. Stevenson: <unk> has also immersed himself in the startup space in recent years coming.

Matthew J. Stevenson: Coming from a family of hardcore automotive enthusiasts chat has a lifelong connection with cars he.

Matthew J. Stevenson: He is well acquainted with our brands and products, and his passion for our industry is so deep that he describes his new role as his dream job. Now, digital engagement is a critical component of our organic growth strategy, encompassing not only direct-to-consumer platforms and third-party marketplaces but also the enhancement of data and content quality for our valued distribution partners. We required a leader with profound digital transformation background, and we were fortunate to secure Charlie Taylor to spearhead our digital initiatives.

Matthew J. Stevenson: He is well acquainted with our brands and products and his passion for our industry is so deep that he described his new role as his dream job.

Matthew J. Stevenson: Now digital engagement is a critical component of our organic growth strategy encompassing not only direct to consumer platforms or third party marketplaces, but all of the also the enhancement of data and content quality for our valued distribution partners.

Matthew J. Stevenson: We required a leader with a profound digital transformation background and we're fortunate to secure Charlie tailored to spearhead our digital initiatives Charlie brings a wealth of experience from his tenure at Volkswagen, where he led their digital efforts and from publicists, where accelerated digital engagement for numerous clients.

Matthew J. Stevenson: Charlie brings a wealth of experience from his tenure at Volkswagen, where he led their digital efforts, and from Publicis, where he accelerated digital engagement for numerous clients. A long-time tuner and installer of parts from our APR brand, Charlie is yet another valuable addition to our team.

Matthew J. Stevenson: A longtime tuner and installer of parts from our APR brand Charlie as yet another valuable addition to our team.

Matthew J. Stevenson: Innovation remains at the heart of our growth and our continued leadership in the industry will Robbins joins us from Bridgestone worries ahead of consumer product strategy Wills extensive experiencing and harnessing consumer insights and market data to drive innovation.

Matthew J. Stevenson: Innovation remains at the heart of our growth and our continued leadership in the industry. Will Robbins joins us from Bridgestone, where he's the head of consumer product strategy. Will's extensive experience in harnessing consumer insights and market data to drive innovation positions us perfectly to lead our product strategy across our entire portfolio. His team will collaborate closely with business unit leaders to introduce platform solutions to the market. Will's background in world-class product strategy is complemented by his personal passion for modifying and racing cars on the weekend, making him a seasoned user of our products. We have assembled a formidable leadership team, poised to unlock growth through their vast experience in serving leadership.

Matthew J. Stevenson: Physicians in perfectly to lead our product strategy across our entire portfolio.

Matthew J. Stevenson: His team will collaborate closely with business unit leaders to introduce platform solutions to the market.

Matthew J. Stevenson: Well as background a world class product strategy is complemented by his personal passion for modifying and racing cars on the weekends, making him a seasoned user of our products.

Matthew J. Stevenson: We've assembled a formidable leadership team poised to unlock growth through the vast experience and service leadership approach.

Matthew J. Stevenson: Their expertise is matched only by their enthusiasm for our industry, ensuring that our company remains at the forefront of innovation and customer engagement. The keys to unlocking growth that we highlighted in our previous call are detailed on slide 10. These keys include product innovation, promotional excellence, strategic pricing, and targeted M&A. Let's examine the progress we've made in each of these areas.

Matthew J. Stevenson: Their expertise is matched only by their enthusiasm for our industry, ensuring that our company remains at the forefront of innovation and customer engagement.

Matthew J. Stevenson: The key to unlocking growth that we highlighted in our previous call are detailed on slide 10.

Matthew J. Stevenson: These keys include product innovation promotional excellence strategic pricing and targeted M&A.

Matthew J. Stevenson: Let's examine the progress we've made in each of these areas.

Matthew J. Stevenson: In terms of product innovation, we have conducted a thorough market segmentation to identify growth verticals and categories. We're now focusing on developing consumer insights by category Pinpointing key product features and benefits and identifying unmet needs.

Matthew J. Stevenson: In terms of product innovation, we have conducted a thorough market segmentation to identify growth verticals and categories. We are now focusing on developing consumer insights by category, pinpointing key product features and benefits, and identifying unmet needs. Rationalizing SKUs is paramount as it removes non-value-added items that distract from driving innovation. Significant strides have been made in SKU rationalization, not only through one-time initiatives but also by developing a detailed process for the ongoing pruning of our portfolio. This will minimize the need for extensive rationalization exercises in the future.

Matthew J. Stevenson: Rationalizing Skus is paramount as it removes non value added items that distract from driving innovation.

Matthew J. Stevenson: Significant strides have been made and SKU rationalization, not only through onetime initiatives, but also by developing a detailed process for the ongoing pruning of our portfolio.

Matthew J. Stevenson: This will minimize the need for extensive rationalization exercises in the future.

Matthew J. Stevenson: It is important to ensure that our innovation has received the necessary support and acceleration within our organization.

Matthew J. Stevenson: It is important to ensure that our innovations receive the necessary support and acceleration within our organization. Aligning resources with a robust development process is essential, and we have successfully implemented a comprehensive phase-gate system that is now in daily practice within our organization. All business units are engaged in this rigorous process, which we will continue to refine over time.

Matthew J. Stevenson: Aligning our resources with the robust development process is essential and we have successfully implemented a comprehensive phase gate system now that is in daily practice within our organization.

Matthew J. Stevenson: All business units are engaged in this rigorous process, which we will continue to refine over time.

Matthew J. Stevenson: To ensure the success of our exceptional products. It is imperative to foster market awareness. This endeavor requires meticulous coordination across our consumer engagement channels encompassing advance websites and social media platforms as well as collaboration with our distribution partners.

Matthew J. Stevenson: To ensure the success of our exceptional products, it is imperative to foster market awareness. This endeavor requires meticulous coordination across our consumer engagement channels, encompassing events, websites, and social media platforms, as well as collaboration with our distribution partners. Presently, we're in the formative stages of an overhaul of our product launch process. This strategic move is directed at hastening the adoption curve of our products, guaranteeing that they swiftly resonate with and captivate our target audience.

Matthew J. Stevenson: Presently we are in the formative stages of an overhaul of our product launch process. This strategic move is directed at hastening the adoption curve of our products guaranteed that they swiftly resonate with and captivate our target audience.

Matthew J. Stevenson: By refining this process, we aim to bolster the speed and efficiency with which our new products are introduced to the market, thus propelling them towards rapid acceptance and success. Regarding promotional excellence, our goal is to be industry leaders in all facets, particularly in the realm of digital marketing. We have made significant strides under the guidance of Philip Dobbs, our head of marketing, who has now been with us for over six months. Our recent advancements include launching a new cloud-based product information management system that ensures a single source of truth for our data.

Matthew J. Stevenson: By refining this process, we aim to bolster the speed and efficiency with which our new products are introduced to the market.

Matthew J. Stevenson: Thus propelling them towards rapid acceptance and success.

Matthew J. Stevenson: Regarding promotional excellence our goal is to be industry leaders in all facets, particularly in the realm of digital marketing.

Matthew J. Stevenson: We've made significant strides under the guidance of Philip Dobbs, our head of marketing, who has now been with us for over six months.

Matthew J. Stevenson: Our recent advancements include launching a new cloud based product information management system that ensures a single source of truth for our data.

Matthew J. Stevenson: This system not only feeds content to our digital platforms but also to our distribution partners, enhancing consistency and accuracy across channels. Additionally, in the quarter, we implemented HubSpot across our business, a leading CRM solution, which will allow us to optimize our customer engagement and outreach efforts.

Matthew J. Stevenson: This system not only feeds content to our digital platforms.

Matthew J. Stevenson: But also our distribution partners enhancing consistency and accuracy across channels.

Matthew J. Stevenson: Additionally, in the quarter, we implemented hub spot across our business, our leading CRM solution, which will allow us to optimize our customer engagement and outreach efforts.

Matthew J. Stevenson: We have also made significant progress in our organic and paid search strategies to increase top of funnel awareness of our products.

Matthew J. Stevenson: We have also made significant progress in organic and paid search strategies to increase top-of-funnel awareness of our products. We recognize the importance of third-party marketplaces in driving promotional excellence and ensure that our products are well represented on these platforms. This is part of a broader strategy to make our products readily available and visible to consumers wherever they shop. Consumer engagement, whether online, at events, or through our customer experience center, remains a core aspect of our business as the leading consumer platform in aftermarket performance.

Matthew J. Stevenson: We recognize the importance of third party marketplaces, and driving promotional excellence and assure that our products are well represented on these platforms.

Matthew J. Stevenson: This is a part of a broader strategy to make our products readily available and visible to consumers wherever they shop.

Matthew J. Stevenson: Consumer engagement, whether online at events or through our customer experience center remains a core aspect of our business is the leading consumer platform and aftermarket performance.

Matthew J. Stevenson: We are committed to making incremental improvements in all these areas to expand our customer reach. Furthermore, we are dedicated to partnering closely with our distributors on key promotions and product launches. We value their partnership and are working to develop even closer relationships to ensure mutual promotional success for our brand. These initiatives are part of an ongoing effort to maintain and enhance our position as a frontrunner in the industry, ensuring that our promotional strategies are as effective and far-reaching as possible. Next, strategic pricing is critical to our organization's growth. It involves setting prices based on our product's value propositions to consumers and the competitive dynamics rather than solely on production costs.

Matthew J. Stevenson: We are committed to making incremental improvements in all these areas to expand our customer reach.

Matthew J. Stevenson: Furthermore, we are dedicated to partnering closely with our distributors on key promotions and product launches we value their partnership and are working to develop even closer relationships to ensure mutual promotional success for our brands.

Matthew J. Stevenson: These initiatives are part of an ongoing effort to maintain and enhance our position as a front runner in the industry, ensuring that our promotional strategies are effective and far reaching as possible.

Matthew J. Stevenson: Next strategic pricing is critical to our organizations growth.

Matthew J. Stevenson: It involves setting prices based on our products value propositions to consumers and the competitive dynamics rather than solely on production costs.

Matthew J. Stevenson: We are enhancing our resources and analytical tools to further develop this capability within the organization. Lastly, progress has also been made in shaping our future M&A strategy, which is guided by our consumer market segmentation and target growth categories where we see gaps in our portfolio. But one of our top near-term priorities is reducing leverage. We know that the M&A cycle can be lengthy.

Matthew J. Stevenson: We are enhancing our resources and analytical tools to further develop this competency within the organization.

Matthew J. Stevenson: Lastly, progress has also been made in shaping our future M&A strategy, which is guided by our consumer market segmentation and targeted growth categories, where we see gaps in our portfolio.

Matthew J. Stevenson: But one of our top near term priorities as reducing leverage.

Matthew J. Stevenson: We know that the M&A cycle can be lengthy.

Matthew J. Stevenson: Therefore, we must ensure we stay active in the market should the right targets become available. Now, as you can see, in the brief span of two months since our last earnings call, there has been notable progress across the company in the pivotal areas that are instrumental in driving growth. Before I hand it over to Jesse, I'd like to spend a few more minutes on product innovation and highlight some of our exceptional products.

Matthew J. Stevenson: Therefore, we must ensure we stay active in the market should the right targets become available.

Matthew J. Stevenson: Now as you can see in a brief span of two months since our last earnings call. There has been notable advancements across the company and the pivotal areas that are instrumental in driving growth.

Matthew J. Stevenson: Before I hand, it over to Jesse I'd like to spend a few more minutes on product innovation and highlight some of our exceptional products.

Jesse: As a reminder, please refer to slide 11, where we are strategically aligned our growth functions, including product strategy product management sales and marketing around our consumer verticals.

Matthew J. Stevenson: As a reminder, please refer to slide 11, where we have strategically aligned our growth functions, including product strategy, product management, sales, and marketing around our consumer verticals. These verticals encompass domestic muscle, modern truck and off-road, your own import, and safety and racing. While Holley boasts a significant presence in the domestic muscle segment, it is also important to note that we have acquired exceptional brands and product lines in recent years. These acquisitions provide robust platforms for expansion in each respective vertical.

Jesse: These verticals encompass domestic muscle modern truck and off road euro and import and safety and racing.

Matthew J. Stevenson: While Holly boasting a significant presence in the domestic muscle segment. It is also important to note that we have acquired exceptional brands and product lines in recent years.

Jesse: These acquisitions provide a robust platform for expansion in each respective vertical.

Matthew J. Stevenson: Slide 12 provides a small glimpse into the some of the innovative products. We have recently launched are slated to release in the upcoming quarters.

Matthew J. Stevenson: Slide 12 provides a small glimpse into some of the innovative products we have recently launched or slated to release in the upcoming quarters, and with Domestic Muscle, we expanded the leading Sniper 2 platform by introducing a new Bluetooth module. This baseline kit offers full control from a user's phone, enhancing convenience and lowering costs.

Matthew J. Stevenson: Domestic muscle we expanded the leading site for two platform by introducing a new Bluetooth module.

Matthew J. Stevenson: This baseline kit offers full control from a user's phone enhancing convenience and lowering costs.

Matthew J. Stevenson: We also launched Behr classic breaks a direct bolt on for early GM Ford and Mopar applications, allowing owners to enjoy modern breaking capabilities, while retaining their original 13 inch wheels.

Matthew J. Stevenson: We also launched Behr Classic Brakes, a direct bolt-on for early GM, Ford, and Mopar applications, allowing owners to enjoy modern braking capabilities while retaining their original 13-inch wheels. Furthermore, the Holley EFI Terminator X2 marks the next generation of Holley's class-leading EFI, boasting enhanced features and an improved customer interface. This evolution of our Terminator line includes a more modern and readily available microchip set. Moving to modern trucking off-road, we introduce the GM Midsize Truck Exhaust by Flowmaster, catering to the growing midsize truck market.

Matthew J. Stevenson: Furthermore, the Holly EFI Terminator X two marks and next generation of Holly's class, leading EFI system, posting enhanced features and an improved customer interface.

Matthew J. Stevenson: This evolution of our Terminator line includes a more modern and readily available micro chipset.

Matthew J. Stevenson: Moving to modern truck and off road, we introduced the GM midsize truck exhaust by flow master catering to the growing mid sized truck market.

Matthew J. Stevenson: Then there is the predator ex tuner, our new Bluetooth or we need to tuning module for trucks that is accompanied by a complimentary phone app for seamless tuning.

Matthew J. Stevenson: Then there's the Predator X-Tuner, our new Bluetooth OBD-II tuning module for trucks that is accompanied by a complimentary phone app for seamless tuning. Additionally, the B.E.A.R. Big Claw Brake Kit offers improved braking performance for modern trucks, featuring a simple installation that utilizes OE calipers with a relocation bracket to accommodate larger rotors.

Matthew J. Stevenson: Additionally, the bare Big club Brachiate offers improved breaking performance for modern trucks, featuring a simple installation that utilizes OE calpers with the relocation bracket to accommodate larger rotors.

Matthew J. Stevenson: And the euro and import sector, we're proud to present APR ultra link and dining connect.

Matthew J. Stevenson: In the Euro and import sector, we're proud to present APR, Ultralink, and Dining Connect. These are OBD-II tuning solutions that enable VW, Audi, Porsche, and BMW drivers the luxury of tuning at home without the need to visit a dealer. Then, under our import brand AEM, we released an EV vehicle control unit that represents a significant leap in integrating EV systems, unifying the tuning and conversion experience with a modern, high-feature, and customizable interface.

Matthew J. Stevenson: These are OLED to tuning solutions that enable VW, Audi Porsche and BMW drivers of luxury of tuning at home without the need to visit a dealer.

Matthew J. Stevenson: Then in our import brand AAM, we released an EV vehicle control unit that represents a significant leap and integrating EV systems unifying the tuning and conversion experience with a modern high feature and customizable interface.

Matthew J. Stevenson: And finally in safety and racing we've unveiled the new Simpson premier printed suits employing nextgen printing technology that enables full customization of premium automotive racing suits.

Matthew J. Stevenson: And finally, in safety and racing, we've unveiled the new Simpson Premier Printed Suits, employing next-gen printing technology that enables full customization of premium automotive racing suits. In addition, we launched off-road Simpsons seats for UTV. Prioritizing comfort, containment, and safety in a convenient package, there are two new Simpson helmet offerings, the Devil Ray, which is the next evolution of one of our workhorse motorsport helmets, and the exciting new Adventure motorcycle helmet series, the brand's first dedicated helmets for the popular on-off-road segment.

Matthew J. Stevenson: In addition, we launched off road Simpson seats for <unk> Tvs.

Matthew J. Stevenson: <unk> comfort containment and safety in a convenient package.

Matthew J. Stevenson: Lastly, there are two new Simpson helmet offerings, the Devil rate, which is the next evolution of one of our workhorse motorsport helmets and the exciting new adventure motorcycle helmet series. The brand's first dedicated helmets for the popular on off road segment.

Matthew J. Stevenson: Now, this is just a small glimpse of products to come from all our great brands in the future. I would now like to turn the presentation over to Jesse, who will discuss our Q1 results in more detail and reiterate our outlook and guidance for 2024.

Matthew J. Stevenson: Now this is just a small glimpse of products to come from all of our great brands in the future.

Matthew J. Stevenson: I would now like to turn the presentation over to Jesse who will discuss our Q1 results in more detail and reiterate our outlook and guidance for 2024.

Jesse: Thank you, Matt and good morning, everyone.

Jesse Weaver: Thank you, Matt, and good morning, everyone. Turning to slide 14. Early last year, we set four main financial goals for the full year: restore historical profitability, improve free cash flow, optimize working capital, and reduce debt. As we ended the year, we advanced in 23 on all four fronts and continue to be focused on achieving these goals in 24. I'd like to start by sharing the progress we made on our financial goals in the first quarter despite a difficult environment.

Jesse Weaver: Turning to slide 14.

Jesse Weaver: Early last year, we set four main financial goals for the full year restore historical profitability improved free cash flow optimize working capital and reduce debt as we ended the year, we advanced in 'twenty three on all four fronts and continue to be focused on achieving these goals in 'twenty four.

Jesse Weaver: I'd like to start by sharing the progress we made on our financial goals in the first quarter, despite a difficult environment.

Jesse Weaver: First, we continue to remain focused on restoring Holley profitability and making progress towards our long-term goal of 40% gross margin and at least 20% EBITDA margin on an annualized basis. As we laid out in our original guidance, efficiency gains from cost-to-serve efforts are expected to deliver at least $5 million within the year, and we were able to successfully capture more than $3.7 million in the first quarter. Our next financial priority is to improve our free cash flow.

Jesse Weaver: First we continue to remain focused on restoring the holly profitability and making progress towards our long term goal of 40% gross margin and at least 20% EBITDA margin on an annualized basis.

Jesse Weaver: As we laid out in our original guidance efficiency gains from cost to serve efforts are expected to deliver at least $5 million within the year and we were able to successfully capture more than $3 7 million in the first quarter. Our next financial priority is to improve our free cash flow. We demonstrated progress on this initiative in the first quarter by delivering approximately.

Jesse Weaver: We demonstrated progress on this initiative in the first quarter by delivering approximately $18 million of free cash flow, a $15 million improvement versus the same period a year ago. Over the last year, we've seen significant improvements in free cash flow through the optimization of inventory. And during the quarter, we continue to support our initiative to optimize working capital with our transformative SKU rationalization of approximately 12,000 finished goods SKUs, representing 23% of our SKUs and only 1% of sales. As a reminder, the objective of the SKU rationalization efforts is to reduce complexity and focus internal development and management resources on high-turn SKUs that will drive long-term growth in growing consumer categories.

Jesse Weaver: $18 million of free cash flow of $15 million improvement versus the same period a year ago.

Jesse Weaver: Over the last year, we've seen significant improvements in free cash flow through the optimization of inventory and during the quarter. We continued to support our initiatives to optimize working capital with our transformative SKU rationalization of approximately 12000 finished goods Skus rep.

Jesse Weaver: Representing 23% of our Skus and only 1% of sales.

Jesse Weaver: As a reminder, the objective of the SKU rationalization efforts is to reduce complexity and focus internal development management resources on high turn Skus that will drive long term growth and growing consumer categories.

Jesse Weaver: And finally, we remain committed to reducing our debt position and deleveraging our balance sheet. We reduced our net leverage ratio once again this quarter to 4.16 times and prepaid an additional $15 million on debt in March. As you can see, we are making excellent progress on both the operational initiatives Matt highlighted earlier, as well as our financial priorities, and our team continues to deliver strong results despite a challenging environment. As you all know, inflation remained elevated in the first quarter.

Jesse Weaver: And finally, we remain committed to reducing our debt position and deleveraging our balance sheet, we reduced our net leverage ratio. Once again this quarter to 416 times and prepaid an additional $15 million on debt in March. So as you can see we are making excellent progress on both the operational initiatives, Matt highlighted earlier as well as our.

Jesse Weaver: <unk> priorities and our team continues to deliver strong results despite a challenging environment.

Jesse Weaver: As you all know inflation remained elevated in the first quarter, we believe higher inflation combined with increasing credit card debt climbing household auto loan balances and declining wage growth led to a pullback in consumer spending on goods in the quarter.

Jesse Weaver: We believe higher inflation combined with increasing credit card debt, climbing household auto loan balances, and declining wage growth led to a pullback in consumer spending on goods in the quarter. So while the economy is expanding, consumers are feeling the pinch and are showing discretion when spending, particularly on goods, as they tend to shop for deals more often in this environment.

Jesse Weaver: While the economy is expanding consumers are feeling the pinch and are showing discretion when spending particularly on goods as they tend to shop deals more often in this environment.

Jesse Weaver: With that backdrop, I'd like to spend a few minutes discussing our financial results. Turning to slide 15, we've highlighted our first quarter 24 results and key financial metrics. Net sales in the first quarter of 24 were $158.6 million compared to $172.2 million in the same period a year ago.

Speaker Change: With that backdrop I'd like to spend a few minutes discussing our financial results.

Jesse Weaver: Turning to slide 15, we've highlighted our first quarter 'twenty four results and key financial metrics.

Jesse Weaver: Net sales in the first quarter of 'twenty, four or $158 6 million compared to $172 2 million in the same period a year ago.

Jesse Weaver: This result is in line with the guidance we provided previously and consistent with our previous expectations as distribution partner inventory levels were elevated coming into the year. During the quarter, we conducted our tax holiday promotion in Q1, which we estimate drove $5 million in net incremental revenue left for D2C. This was the first time Holly conducted a promotion during the tax refund season, which our data indicates is a prime buying opportunity for our consumers.

Jesse Weaver: This result is in line with the guidance, we provided previously and consistent with our previous expectations as distribution partner inventory levels were elevated coming into the year.

Jesse Weaver: During the quarter, we conducted our tax holiday promotion in Q1, which we estimate drove $5 million and net incremental revenue lift for D. C. This was the first time Holly conducted a promotion during the tax refund season.

Jesse Weaver: Which our data indicates as a prime buying opportunity for our consumers.

Jesse Weaver: Similar to the promotion we ran during the holiday season, distribution partners were included in the program, and they supported the sellout of select products. As we continue the growth in our partnership with distribution partners, we expect that their participation in these promotions going forward will be an important contributor to our overall growth equation as we work together to drive consumer demand. Past due orders, which decreased for the 10th consecutive quarter, benefited our sales in the first quarter as they were reduced by $1 million to $8 million.

Jesse Weaver: Similar to the promotion we ran during the holiday season distribution partners were included in the program support on the sellout of select products.

Jesse Weaver: As we continue the growth in our partnership with distribution partners, we expect that the participation in these promotions going forward will be an important contributor to our overall growth equation as we work together to drive consumer demand.

Jesse Weaver: Past due orders, which decrease for the 10th consecutive quarter benefited our sales in the first quarter as they were reduced by $1 million to $8 billion.

Jesse Weaver: This improvement in Q1'24 is in line with the improvements we saw in Q1'23. Gross margin for the quarter was 32.8% compared to 39.3% in the same period a year ago. After adjusting for the transformative product rationalization of 9.7 percent in Q1 of 24, adjusted gross margin for the quarter was 38.9 percent, compared to 39.3 percent in the same period a year ago. Typically, sales declines show much greater compression on our COGS fixed costs.

Jesse Weaver: This improvement in Q1 'twenty four is in line with the improvements we saw in 2003.

Jesse Weaver: Gross margin for the quarter was 32, 8% compared to 39, 3% in the same period a year ago.

Jesse Weaver: After adjusting for the transformative product rationalization of nine 7% in Q1 of 'twenty four adjusted gross margin for the quarter was 38, 9% compared to 39, 3% in the same period a year ago.

Jesse Weaver: Typically sales decline so much greater compression on our Cogs fixed cost.

Jesse Weaver: But through efficiency improvements, primarily in freight, we are able to meaningfully offset de-leveraged pressure and experience only 40 basis points of margin compression on an adjusted basis. SG&A, including R&D expenses, for the first quarter was $37.8 million and slightly elevated versus the $36.7 million from the prior year. The increase was primarily driven by a $700,000 increase in equity compensation costs and a $2 million reserve related to litigation settlements that were partially offset by lower outbound shipping and handling costs.

Jesse Weaver: But through efficiency improvements primarily in freight we are able to meaningfully offset deleverage pressure and experienced only 40 basis points of margin compression on an adjusted basis.

Jesse Weaver: SG&A, including R&D expenses for the first quarter was 37 8 billion and slightly elevated versus the $36 7 million from the prior year.

Jesse Weaver: The increase was primarily driven by a $700000 increase in equity compensation cost and a $2 million reserve related to litigation settlements that were partially offset by lower outbound shipping and handling cost.

Jesse Weaver: Despite our sales headwinds, we delivered strong first quarter adjusted EBITDA of $30.7 million, and the adjusted EBITDA margin held relatively stable at 19.3% versus a year ago. As shown on page 16, we once again delivered strong free cash flow of $17.8 million in the quarter, roughly a $15 million improvement year over year. And as you can see on slide 17, our remarkable cash flow has enabled us to continue reducing our leverage. We announced a prepayment of an additional $15 million of debt at the end of March, which brings our total paydown of $65 million in principal against our first lean-term loan facility since September of 2023. This has allowed Holley to recognize up to an estimated $2.5 million in annualized net interest savings.

Jesse Weaver: Despite ourselves headwinds, we delivered strong first quarter adjusted EBITDA of $30 7 million and adjusted EBITDA margin holding relatively stable at 19, 3% versus a year ago.

Jesse Weaver: As shown on page 16, we once again delivered strong free cash flow of $17 8 million in the quarter, roughly a $15 million improvement year over year.

Jesse Weaver: And then as you can see on slide 17, our remarkable cash flow has enabled us to continue reducing our leverage we.

Jesse Weaver: We announced the prepayment of an additional $15 million of debt at the end of March which brings our total pay down of $65 million in principle against our first lien term loan facility since September of 'twenty. Three this has allowed Holly to recognize up to an estimated $2 5 million in annualized net interest savings.

Jesse Weaver: With these efforts, we ended the quarter with a net leverage ratio of 4.16x, which continues to be meaningfully below the covenant outlined in our amended credit agreement of 5.75x during the quarter and below the original covenant of 5x. The covenant relief period is on track to expire at the end of Q2, and we are confident in our ability to successfully exit the relief period at that time. Now I'd like to turn to slide 18 to discuss our outlook.

Jesse Weaver: With these efforts we ended the quarter with a net leverage ratio of 416 times, which continues to be meaningfully below the covenant outlined in our amended credit agreement of 575 times in the quarter and below the original covenant of five times.

Jesse Weaver: The Covenant relief period is on track to expire at the end of Q2, and we are confident in our ability to successfully exit the relief period at that time.

Jesse Weaver: Now I'd like to turn to slide 18 to discuss our outlook.

Jesse Weaver: For the full year 'twenty four we are reiterating our previously provided outlook, which was net sales in the range of $640 million to $6 80, and adjusted EBITDA in the range of $125 million to 145.

Jesse Weaver: For the full year 24, we are reiterating our previously provided outlook, which was net sales in the range of $640 million to $680 million and adjusted EBITDA in the range of $125 million to $145 million. We expect 24 results to include capital expenditures of $8-12 million, depreciation and amortization between $24-26 million, and interest expense excluding the mark-to-market on the collar in a range of $50-55 million

Jesse Weaver: We expect 24 results to include capital expenditures of $8 million to $12 million depreciation and amortization between 24 and $26 million and interest expense, excluding the mark to market on the collar and a range of $50 million to $55 million as.

Jesse Weaver: As we remain focused on continued improvements in leverage, we are also providing a year-end net leverage target of between 3.5-4 times. I would also like to note the midpoint of our 24 sales and EBITDA ranges assume the exit of unprofitable business lines and the Q1 rationalization of non-performing SKUs, representing approximately 1% of annualized sales. In addition, we continue to drive efficiency in our business and expect to save $5 to $10 million in 2024 above the savings generated in 2023 from improvements in return handling and reduced shipping fees.

Jesse Weaver: As we remain focused on continued improvements in leverage we are also providing a year end net leverage target of between three five to four times I.

Jesse Weaver: I would also like to note that the midpoint of our 24 sales and EBITDA ranges assume the exit of unprofitable business lines in the Q1 rationalization of nonperforming skus, representing approximately 1% of annualized sales in.

Jesse Weaver: In addition, we continue to drive efficiency in our business and expect to save $5 million to $10 million and 24 above the savings generated in 2003 from improvements in return handling and reduced shipping fees.

Jesse Weaver: These factors make us optimistic about improving the adjusted EBITDA margin as shown in the full year guidance. Moving on to our outlook for the second quarter, inventory levels at our distribution partners will remain slightly elevated over the prior year levels. Therefore, we are expecting net sales in the range of $165 million to $175 million and adjusted EBITDA in the range of $34 million to $40 million. We believe that our sales and marketing initiatives, including distribution partner participation and quarterly promotions, along with efforts around clearance and overstock inventory and improvement in our product launch effectiveness, will help drive growth in the second half of the year.

Jesse Weaver: These factors make us optimistic about improving the adjusted EBITDA margin as shown in the full year guidance.

Jesse Weaver: Moving onto our outlook for the second quarter inventory levels at our distribution partners will remain slightly elevated over the prior year levels. Therefore, we are expecting net sales in the range of $165 million to 175, and adjusted EBITDA in the range of 34 to <unk> 40.

Jesse Weaver: We believe that our sales and marketing initiatives, including distribution partner participation in quarterly promotions, along with efforts around clearance and overstock inventory and improvement in our product launch effectiveness will help drive growth in the second half of the year.

Jesse Weaver: As I mentioned in the beginning, we will continue to focus on increasing total profit, free cash flow, and reducing debt as our main financial goals. We are confident in the resilience of this enthusiast-based industry and have made excellent progress on our organizational transformation to incubate our organic growth while simultaneously refining our cost to serve. We remain very bullish on the free cash flow generation of this business and are firmly on track to achieve our long-term gross margin and EBITDA margin targets of at least 40% and 20%, respectively. This concludes our prepared remarks. We would now like to open up the line for questions.

Jesse Weaver: As I mentioned in the beginning we will continue to focus on increasing total profit free cash flow and reducing debt as our main financial goals. We are confident in the resilience of this enthusiast based industry and have made excellent progress on our organizational transformation to incubate our organic growth while simultaneously refining our cost to serve.

Jesse Weaver: We remain very bullish and the free cash flow generation of this business and are firmly on track to achieve our long term gross margin and EBITDA margin targets of at least 40% and 20% respectively.

Jesse Weaver: This concludes our prepared remarks.

Speaker Change: Now like to open up the line for questions.

Speaker Change: Thank you ladies and gentlemen at this time you May Register your desire to ask a question by pressing star one on your telephone keypad.

Operator: Thank you. Ladies and gentlemen, at this time, you may register your desire to ask a question by pressing star 1 on your telephone keypad. Once you have been called upon, please make sure you are not on mute and proceed with your question. Our first question comes from the line of Christian Carlino with J.P. Morgan. Please proceed with your question.

Christian Justin Carlino: Once you have been called upon please make sure you are not on mute and proceed with your question.

Christian Justin Carlino: Our first question comes from the line of Christian <unk>.

Christian Justin Carlino: With J P. Morgan. Please proceed with your question.

Christian Justin Carlino: Hi, good morning. Thanks for taking our question. Could you speak to how trends evolved over the quarter in terms of out-of-the-door sales and quarter-to-date and just to the degree that you saw variability in out-of-the-door sales during February and March around tax refund timing? Thank you.

Christian Justin Carlino: Hi, good morning, Thanks for taking our question.

Christian Justin Carlino: Could you speak to how trends evolved over the quarter in terms of out the door sales.

Christian Justin Carlino: To date.

Christian Justin Carlino: Just to the degree that you saw variability in outdoor sales during February and March around tax refund timing. Thank you.

Christian Justin Carlino: Sure. That's a good question Christian so <unk>.

Jesse Weaver: Sure, that's a good question, Christian. So, you know, out of the door sales throughout the quarter improved. Certainly, January was a really tough month. I think part of that could have been impacted by what was going on with the storms. But we saw some improvement in out of the door sales. I think a bright spot here is, you know, as we drive participation with our partners, you know, one of the areas where we 100% participate in D2C, and we saw even better improvements in trends between January, February, and March, which is extremely encouraging overall.

Jesse Weaver: Out the door sales throughout the quarter improved.

Jesse Weaver: Certainly January was a really tough month I think part of that could have been impacted by what was going on with the storms.

Jesse Weaver: But we saw some improvement in and out the door sales I think a bright spot here is.

Jesse Weaver: We drive participation with our partners one of the areas, where we 100% participates in D C and we saw even better improvement in trends.

Jesse Weaver: Between January February and March which is extremely encouraging overall.

Jesse Weaver: Got it that's helpful and then.

Christian Justin Carlino: Got it. That's helpful.

Christian Justin Carlino: Standing there has been new products, but you've talked to I think over 40000 range in skus that you've rationalized over the past year to year and a half.

Christian Justin Carlino: And then understanding there are new products, but you've talked to, I think, over 40,000 SKUs that you've rationalized over the past year to year and a half. Could you speak to maybe what the actual SKU count is now? I think you implied it's closer to 50,000. And are these primarily legacy categories that are just turning too slowly because there's a limited car park for those types of modifications? Or is it more right sizing some of the categories you've entered through acquisition over the past couple of years? Yeah, I, so just to kind of

Speaker Change: Could you speak to maybe what the actual SKU count is now I think you implied it's closer to 50000.

Christian Justin Carlino: And are these primarily legacy categories that are just turning to slowly because there's a limited car park for those types of modifications or is it more right sizing some of the categories you've entered through acquisition over the past couple of years.

Speaker Change: Yeah, So just to kind of put a finer point on it yes, we're ending at around 40000 Skus.

Jesse Weaver: Yeah, so just to kind of put a finer point on it. Yes, we're ending up with around 40,000 SKUs. And I think the key metric here is that we've reduced around 45% of our total finished goods SKUs, which is an important piece of this. And it's really only impacting about 3% of sales. I think to your question about why and how, you really have to pay attention to the strategy that we

Jesse Weaver: And I think the key metric here is we've reduced around 45% of our total finished goods skus, which is an important piece of this and it's really only impacting about 3% of sales I think to your question on why and how you really have to pay it pay attention to the strategy that we've employed here so organizational.

Jesse Weaver: Organizationally, the focus on large growing segments of the population where we need to drive new product development wasn't as refined as it is today. And so in a world where you're developing a lot of SKUs without a lot of strong presence in markets, you end up with this SKU proliferation where, you know, I think you can do the math on this. You know, on average, these SKUs are doing $600 a year. And as we've tightened that up, we look at the portfolio, and we say, you know, the carrying costs, the working capital, all of the efforts on the distribution and R&D, it just does not make sense, particularly given the strategy.

Jesse Weaver: Organizationally the focus on large growing segments of the population, where we need to drive new product development wasn't as refined as it is today and so in a world where you're developing a lot of skus without a lot of good strong end markets you end up with this SKU proliferation, where I think you can do the math on this.

Jesse Weaver: <unk>. These skus are doing $600 a year.

Jesse Weaver: And as we've tightened that up we look at the portfolio when we say the carrying cost of working capital.

Jesse Weaver: All of the efforts on the distribution and R&D. It just does not make sense, particularly given the strategy.

Jesse Weaver: Thank you. Our next question comes from the line of Brian Mcnamara with Canaccord Genuity. Please proceed with your question.

Brian Christopher McNamara: Thank you. Our next question comes from the line of Brian McNamara with Canada Corp Genuity. Please proceed with your question.

Brian Christopher McNamara: Hey, good morning, guys. Thanks for taking the questions.

Brian Christopher McNamara: Hey, good morning, guys. Thanks for taking the questions. So maybe one for Jesse.

Brian Christopher McNamara: Maybe one for Jesse Q1 orders it looks like you're down about 12% at the midpoint of your Q2 guide implies minus three in sales and then your <unk> guidance implies a nice return to growth.

Brian Christopher McNamara: Those of US maybe a little less familiar with our business can you remind us how long orders typically came to convert to revenues and highest scoring deviation.

Brian Christopher McNamara: Q1 orders look like they're down about 12%. The midpoint of your Q2 guide implies minus three in sales, and then your H2 guidance implies a nice return to growth. For those of us maybe a little less familiar with the business, can you remind us how long orders typically take to convert to revenues and how you square the deviation?

Brian Christopher McNamara: It really depends on the source of the orders obviously D to C comes pretty quickly the distribution partners, it's usually within four weeks of the order coming in.

Jesse Weaver: You know, it really depends on the source of the orders. Obviously, D2C comes pretty quickly. The distribution partners, it's usually within four weeks of the order coming in, and a lot of that also depends on availability, so it's not going to be a perfect one-for-one on the orders, Brian, to the shipments, but we use it as a good leading indicator into kind of how those trends then cascade into the P

Jesse Weaver: And a lot of that also depends on availability. So it is not going to be a perfect. One for one on the orders Brian to the shipments, but we use it as a good leading indicator into kind of how those trends then would cascade into the P&L.

Brian: Great and then on <unk> it looks like it's a little more of the sales a little more H two loaded here in terms of growth resuming I mean, clearly this is a turnaround story.

Brian Christopher McNamara: Great. And then on, I mean, H2 looks like it's a little more H2 loaded here in terms of growth resuming. I mean, clearly this is a turnaround story. What gives you guys, you know, if you could rank order the confidence that that growth will come back in H2 for maybe some investors that are doubting that.

Brian Christopher McNamara: It gives you guys. If you could rank order the confidence that that growth will come back and NH two fronts for maybe some investments that are doubting that.

Matthew J. Stevenson: Hey, good morning Brian, it's Matt. You know, as I hope it came across in the prepared remarks, there's a ton of great activity going on behind the scenes to put in place strong initiatives to drive growth, as well as onboarding, you know, new leaders to really fuel that. And I think where you've seen some of the upgrades in talent into the organization that have been here a little longer, you're already seeing those great strides.

Brian Christopher McNamara: Hey, Good morning, Brian This is Matt.

Matthew J. Stevenson: There is as I hope it came across in the prepared remarks or is this a ton of great activity going on behind the scenes to put in place strong initiatives to drive growth as well as on boarding new leaders to really fuel that and I think where you're seeing some of the.

Matthew J. Stevenson: Upgrades and talent into the organization that have been here a little longer you're already seeing those great strides and just you talked about the trends in D. C. That's under Philip <unk> leadership Who's been here over six months and is really improving our go to market strategy around digital and data and third party et cetera.

Matthew J. Stevenson: And Jesse talked about the trends in DTC, that's under Philip Dobbs' leadership, who's been here over six months and is really improving our go-to-market strategy around digital and data and third-party, etc. So there's a lot of great activity going on, and we're confident that it'll bear fruit later on in the back half of the year.

Matthew J. Stevenson: So there's a lot of great activity going on and we're confident that will bear fruit later on in the back half of the year.

Matthew J. Stevenson: And then I guess finally, maybe I'll put you on the spot here, Matt you've been here for about a little under 11 are out right around 11 months.

Brian Christopher McNamara: And then I guess finally, maybe I'll put you on the spot here, Matt. You've been here for about a little under 11, right around 11 months. What would you say to an investor considering an investment in Holley? Like, why step in here? Obviously, there's a ton of work going on behind the scenes that maybe investors, you know, can't really see, can't get under the hood for a forced pun there. But like, why step in now? Why is the future bright there? Thanks. Yeah, thanks, Brian, and a great question.

Matt: What would you say to an investor considering an investment in Holly here like Wyatt why step in here, obviously, a ton of work going on behind the scenes that maybe investors can't really you can't can't get under the Hood for a forced PON there, but like why stuck and know what why is the future bright there. Thanks.

Matt: Yes, Thanks, Brian.

Matthew J. Stevenson: Yeah, thanks Brian, and a great question. You know, we're all matched in the breadth and depth of our brands and our products and all the consumer verticals we reach and how we're bringing better data professionalism to drive the business forward to where the growth segments are in the market and really put our processes behind it to accelerate that growth, and it's just, it's a different way that it has been done in the past, and we're just, very optimistic as we continue to improve You know, we've seen it through ups and down cycles. And really, we're just getting started, in the early innings of driving this growth.

Speaker Change: Great question.

Matthew J. Stevenson: We are unmatched in the breadth and depth of our brands and our products in all of the consumer verticals, we reach and how we're bringing better data and professionalism to drive the business forward to where the growth segments are in the market and really put in processes behind it to accelerate that growth and it's just it's a different way.

Matthew J. Stevenson: When it's been done in the past and we're just.

Matthew J. Stevenson: Very optimistic as we continue to improve our processes and as we've talked about bring on this talent that is going to yield the fruit we're confident it will so.

Matthew J. Stevenson: Overall, a very resilient market, we've seen it through ups and down cycles and really we're just getting going on the early innings of driving this growth engine.

Speaker Change: Great. Thanks, a lot guys.

Speaker Change: Thanks, Brian.

Matthew J. Stevenson: Thank you. Our next question comes from the line of John Lawrence with the Benchmark Company. Please proceed with your question.

John Russell Lawrence: Thank you. Our next question comes from the line of John Lawrence with the Benchmark Company. Yeah, thanks.

John Russell Lawrence: Yes, thanks, good morning, Josh.

John Russell Lawrence: Yeah, thanks. Good morning, guys. Okay, good morning, John. So, yeah. Good morning, John.

John Russell Lawrence: Hey, good morning, John.

John Russell Lawrence: So.

John Russell Lawrence: Well when you look at the rationalization that can you take another step.

John Russell Lawrence: When you look at the rationalization, can you take another step deeper, Matt? How long ago have some of these products been in inventory, and was, you know, from looking at that rationalization, should it have been done? A long time ago, obviously, with that many SKUs, can you give us sort of a history and what was the criteria? You mentioned $600. What was basically the criteria to make that decision?

Matt: Deeper Matt.

John Russell Lawrence: How long ago. It was some of them have some of these products been in inventory.

John Russell Lawrence: As you know from looking at that rationalization should it have been done.

John Russell Lawrence: A long time ago, obviously would that many skus can you give us sort of a history and what was the criteria.

John Russell Lawrence: You mentioned $600, what was basically the criteria to make that.

Speaker Change: Yes, John I mean, we take it.

Matthew J. Stevenson: Yeah, John, we take a very analytical approach to look at, you know, really, what is driving value into the market, like, where there's clear differentiation in our products, we have to look at it by overall brand, by category, and understand, are there SKUs that are adding value to the portfolio and to the brand? Or are these things just done to be done without really a clear value proposition and direction? And, you know, as Jesse talked about a few minutes ago, there was a lot of, you know, quantity over quality, right?

Matthew J. Stevenson: A very analytical approach to look at.

Matthew J. Stevenson: Really what is driving value into the market like where there's clear differentiation in our products. We've got to look at it by overall brand by category and understand are there skus that are adding value to the portfolio into the brand or these things just done to be done without really a clear.

Matthew J. Stevenson: Value proposition and direction and Jesse.

Matthew J. Stevenson: Jesse you talked about a few minutes ago. There was there was a lot of.

John Russell Lawrence: And so now we have put in place a very developed and diligent phase gate system where we then vet the opportunities based on the market potential, the value proposition, competitive pricing, etc., to make sure that then these things take off in the marketplace. So it's, again, just driving that level of professionalism in the business that wasn't there before. You know, and so, yes, these products should have been rationalized a while ago. And I think we're in a good spot.

John Russell Lawrence: Quantity over quality right and so now we put it in a very.

John Russell Lawrence: Developed and diligent phase gate system, we then vet the opportunities based on the market potential the value proposition and competitive pricing etcetera to make sure that these things take off into the marketplace. So it's it's again just driving that level of professionalism in the business that wasn't there before.

John Russell Lawrence: The team did a great job about a year ago, starting in the rationalization exercise. We thought, you know, that there was one more that was needed. And we feel the portfolio is in good shape now. And it allows us to really concentrate on driving innovation.

John Russell Lawrence: And so yes. These products should have been rationalized, a while ago and I think we're in a good spot the team did a great job of about a year ago, starting in rationalization exercise we thought.

John Russell Lawrence: There was one more that was needed and we feel the portfolio's in good shape now and it allows us really constant concentrated on driving innovation.

Speaker Change: Great and just.

John Russell Lawrence: Great, and just, uh... Last question from me, when you look at the process and you talk about the new products, can you give us just a sense of, you know, behind the scenes? How long is it going to take to make Bluetooth, et cetera?

John Russell Lawrence: Uh huh.

Speaker Change: Last question for me just.

John Russell Lawrence: When you look at the process and you talk about the new products can you give us just a sense of.

John Russell Lawrence: Behind the scenes how long this though to make the Bluetooth et cetera, obviously, just some examples of how quickly the new team.

Matthew J. Stevenson: Obviously, just some examples of how quickly the new team has assembled that data, and gone to market with a new product. And how that process, maybe from a timeline, is a lot different than it was in the past.

Matthew J. Stevenson: As a symbol that data on the market with a new product and how that process maybe timeline.

Matthew J. Stevenson: It's a lot different than it was in the past.

Matthew J. Stevenson: And one of the things, John, this phase gate system is elevating the biggest opportunities to the surface that then we can accelerate by putting in the proper resources. And I think a great example of that is APR Ultralink. I mean, literally, John, this is a product that has been talked about in the organization for years. But really, the market segmentation and the appreciation for the data driving the business opportunities because Juro is a large growth segment.

Matthew J. Stevenson: Yep.

Matthew J. Stevenson: And one of the things Jon This phase gate system is elevating the biggest opportunities to the surface that then we can accelerate by putting in the proper resources and I think a great example of that is that.

Matthew J. Stevenson: APR Ultra link I mean literally John this is a product that was talked about in the organization for years, but really the market segmentation and the appreciation for the data driving the business opportunities because euro is a large growth segment and there is a bias to domestic muscle previously and we made sure we saw.

Matthew J. Stevenson: And there was a bias toward domestic muscle previously. And we made sure we saw a great opportunity to work collaboratively within the business, the functional areas, and the business units, and with the right resources, they'd accelerate their product. So literally, it took it from something that had been in development for years and got it done in months. And you know that those are the things we want to continue to do to highlight the big opportunities and bring them to market faster. Great, thanks, congrats, and good luck.

Matthew J. Stevenson: Opportunity worked collaboratively within the business the functional areas in the business units.

Matthew J. Stevenson: The right resources, they will accelerate that product. So literally took it from something that had been in development for years and got it done in months and.

Matthew J. Stevenson: Those are the things we want to continue to do to highlight the large opportunities and bring them to market faster.

Matthew J. Stevenson: Great. Thanks, Congrats and good luck.

Speaker Change: Thank you Jeff.

Speaker Change: Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad.

Joseph Nicholas Altobello: Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Joe Altobello with Raymond James. Please proceed with your question.

Joseph Nicholas Altobello: Our next question comes from the line of Joe <unk> with Raymond James. Please proceed with your question.

Joseph Nicholas Altobello: Hey, Good morning. This is actually Martin on for Joe I was wondering if you can clarify your stance on M&A versus debt reduction in terms of capital allocation in the near term is the bar is.

Maxi Martin: Hey, good morning. This is Maxi Martin on for Joe.

Maxi Martin: Fairly high for acquisition and is there a price do you think about using stock.

Maxi Martin: Yeah. So good question I would say right now our primary focus when it comes to free cash flow as we've said and we've committed to and consistently delivered on is to pay down debt.

Maxi Martin: I was wondering if you can clarify your stance on M&A versus debt reduction in terms of capital allocation. In the near term, is the bar fairly high for acquisitions? And is there a price you'd think about using stocks?

Jesse Weaver: Yeah, so, good question. I would say right now that our primary focus when it comes to free cash flow, as we've said and we've committed to and consistently delivered on, is... to pay down debt. Now, I think, as Matt said a few times, it doesn't mean we're going to take ourselves out of the market when it comes to looking at M&A activities, but we're certainly very conscious of our leverage commitments and our path to free cash flow.

Jesse Weaver: No I think as Matt said, a few times it doesn't mean, we're going to take ourselves out of the market. When it comes to looking at M&A activities, but.

Jesse Weaver: We're certainly very conscious of our leverage commitments and our path with free cash flow, but I think when it comes to using equity I think in my prior call I know I said that that could be a tool, but definitely not at these price points.

Jesse Weaver: But when it comes to using equity, I think in my prior call, I said that could be a tool, but definitely not at these price points on the stock and certainly something well north of that. It's just kind of saying, hey, we've got, given to our public company, a lot of tools at our disposal, and we will be very conscious of driving shareholder value when it comes to formulating the capital structure on any acquisition.

Jesse Weaver: On the stock and certainly something well north of this it's just kind of saying Hey, we've got given that we're a public company a lot of tools at our disposal.

Jesse Weaver: We will be very conscious of driving shareholder value when it comes to.

Jesse Weaver: Formulating the capital structure on any acquisition.

Jesse Weaver: Okay.

Maxi Martin: Got it. Thank you.

Speaker Change: Got it thank you and just turning to free cash flow conversion for the year, how should we think about that particularly given that you had a relatively high level of interest expense and then you get that nice piece last year for an inventory reduction I think is we're using the nuclear guidance, we get somewhere around 30%.

Maxi Martin: And just turning to free cash flow conversion for the year, how should we think about that, particularly given that you had the relatively high level of interest expense and then you got that nice boost last year from inventory reduction? I think if we're using the mid-career guidance, we get somewhere around 30% of adjusted EBITDA. Is that a good near-term run rate?

Maxi Martin: And EBITDA is that a good near term run rate.

Jesse Weaver: I think just using what you've got there in terms of guidance on the EBITDA side and just assuming, unlike last year, where we got well over $40 million of free cash flow from inventory, there may be some modest improvements in free cash flow from inventory this year, but nothing to the level that we saw last year.

Speaker Change: I think just using what you've got there in terms of guidance on the EBITDA side and just assuming unlike last year, where we got well over $40 million of free cash flow for inventory.

Jesse Weaver: There may be some modest improvements on free cash flow from inventory this year, but nothing to the level that we saw last year.

Speaker Change: Okay, great. Thank you very much.

Maxi Martin: Okay, great. Thank you very much.

Maxi Martin: Okay.

Joseph Isaac Feldman: Thank you. Our next question comes from the line of Joe Feldman with the Healthy Advisory Group. Please proceed with your question.

Maxi Martin: Thank you. Our next question comes from the line of Joe Feldman with Telsey Advisor Group. Please proceed with your question.

Joseph Isaac Feldman: Yes, good morning, guys and thanks for taking my questions can you talk a little bit more about your promotional plans.

Joseph Isaac Feldman: Yeah, good morning, guys, and thanks for taking the questions.

Joseph Isaac Feldman: You have seen from the distributors because if I recall you guys were trying to support the distributors a little bit more and how effective that's been is that working.

Joseph Isaac Feldman: You'd like it thanks.

Joseph Isaac Feldman: Hey, Joe. Thank you for the question regarding our promotional strategy. Our goal is to lift all channels with great products.

Joseph Isaac Feldman: Can you talk a little bit more about your promotional plans? And, you know, what you've seen from the distributors? Because, if I recall, you guys were trying to support the distributors a little bit more, and how effective that has been? Is that working? How would you like it? Thanks.

Joseph Isaac Feldman: Our portfolio and that those are introducing and our distribution partners are a key piece of that in previous years I think we've covered on the last earnings call.

Speaker Change: When Holly.

Joseph Isaac Feldman: Ran a promotion we did include our distribution partners and we felt that was a real Miss as are important part of our go to market strategy. So now going forward, we support them. During this promotional time period and work together and we're continuing to optimize that as we work on future promotions and continue to get more coordinated with <unk>.

Matthew J. Stevenson: Hey, Joe, thank you for the question. Yeah, regarding our promotional strategy, our goal is to boost all channels with the great products in our portfolio and that those are introducing. And our distribution partners, you know, are a key piece of that. And, you know, previously, I think we covered on the last earnings call, when Holly ran a promotion, we didn't include our distribution partners. And we felt that was a real miss as they were an important part of our go-to-market strategy. So now, going forward, we support them. And during this promotional time period, and we're continuing to optimize that as we work on future promotions and continue to get more coordinated with our partners.

Matthew J. Stevenson: Our partners.

Speaker Change: Got it got it thanks, and then just.

Joseph Isaac Feldman: And then just one more question on the leverage, just to be a little clearer. To get to the leverage target that you outlined for us, is that more EBITDA, or will there be more debt paydown this year? I just haven't run through the math yet, but maybe you could share some thoughts on further debt paydown during the year. Thanks.

Joseph Isaac Feldman: One more question on the leverage has to be a little more clear are you guys.

Joseph Isaac Feldman: Well to get to the leverage targets that you outlined for us is that more.

Joseph Isaac Feldman: EBITDA or will there be more debt pay down this year and just haven't ran through the math, yet, but maybe you could share some thoughts on it.

Joseph Isaac Feldman: Further pay down through the year. Thanks.

Speaker Change: Hi, Joe I think to get there I mean, just the cash generation just drives it.

Jesse Weaver: Joe, I think to get there, I mean, just the cash generation just drives it, you know, with the EBITDA hitting the midpoint of the guidance and actually generating cash in the interim to drive down the net leverage gets you there in terms of, you know, buying back debt, you know, we look at that as, you know, we did 15 million in Q1. It's one of those things that I've been very opportunistic about and just kind of balancing our free cash flow forecast in any given quarter, and really just making sure that, you know, from our leverage covenant perspective, we don't get any credit for having cash on the balance sheet over 50 million, so my objective there is just to make sure that we, you know, based on our forecast, make sure that we stay under 50 million in cash on the balance sheet by buying back the debt, but I'm not going to give you a specific number on that, but just note that getting to that leverage target is really just hitting the guidance and generating cash in the process.

Jesse Weaver: The EBITDA hitting the midpoint of the guidance and actually generating cash in the interim to drive down the net leverage gets you there in terms of.

Jesse Weaver: Buying back debt, we look at that as we did $15 million in Q1, it's one of those things that have been very opportunistic about and just kind of balancing our free cash flow forecast in any given quarter and really just making sure that from our leverage covenant perspective, we don't get any credit for having cash on the balance sheet over $50 million. So my objective.

Jesse Weaver: There is just to make sure that we and the.

Jesse Weaver: Based on our forecast to make sure that we stay under $50 million in cash on the balance sheet by buying back the debt, but I'm not going to give you a specific number on that but just note that getting to that leverage target is really just hitting the guidance and generating cash in the process.

Joseph Isaac Feldman: Yeah, that's helpful. Thanks guys. Good luck with this quarter.

Speaker Change: Got it that's helpful. Thanks, guys. Good luck with this quarter.

Speaker Change: Thanks, Joe.

Philip Lee: Thank you, Joe. Thank you. Our next question comes from the line of Philip Lee with William Blair. Please proceed with your question.

Philip Lee: Thank you. Our next question comes from the line of Philip Lee with William Blair. Please proceed with your question.

Philip Lee: Hi, This is sabrina on for Phil Thanks for taking our question.

Sabrina Baxamusa: Hi, this is Sabrina speaking on behalf of Philip. Thanks for taking our question. Could you provide some color on the performance of Sniper 2.0?

Sabrina Baxamusa: Could you provide some color on the performance of sniper Keith pointed out during the first quarter and then any early signs on second quarter performance to date with new products and then also just more broadly.

Matthew J. Stevenson: Thank you for the question. Yeah, Sniper 2 is, you know, of course, a really important product for our business and has performed extremely well in the marketplace. And we just introduced this new Bluetooth connectivity kit for your phone. Previously, when you purchased the Sniper 2, it came with a digital display. So now, with this new Bluetooth module that hooks up to the phone, more price-sensitive customers can get a great Sniper 2 product at a lower entry point.

Sabrina Baxamusa: Thanks for the question, yes of.

Matthew J. Stevenson: Of course, a really important product for our for our business and has resonated extremely well in the marketplace and we just introduced.

Matthew J. Stevenson: This new Bluetooth connectivity kit for your phone so previously.

Matthew J. Stevenson: When you purchase a sniper too it came with a digital displays so now with this.

Matthew J. Stevenson: <unk> Bluetooth module that hooks up to the phone and more price sensitive customers can get a great sniper two product at a lower entry point, so we're very optimistic.

Matthew J. Stevenson: So, you know, we're very optimistic about Sniper 2 performance. It's doing well, and it's, you know, the leader in its space relative to, you know, this premium entry-level EFI conversion. So all things are looking strong for that product. Great, thank you.

Matthew J. Stevenson: The sniper to performance, it's doing well and it's.

Matthew J. Stevenson: The leader in its space relative to.

Matthew J. Stevenson: There's premium entry level EFI conversion so.

Matthew J. Stevenson: All things are.

Matthew J. Stevenson: Looking strong for that product.

Speaker Change: Great. Thank you and then a quick follow up your team has made considerable progress working down past dues.

Speaker Change: Or are you thinking about your plans for catastrophe order fulfillment for the remainder of the year and that incremental margin impact versus last year.

Jesse Weaver: Yes. This is jesse.

Jesse Weaver: Yes, this is Jesse. So I would say, Sabrina, that most of the past due fulfillment improvements happen in the back half. And so we would expect, you know, potentially some improvement here in Q2, but largely we see that happen in the back half. And, you know, I think we're probably getting close to what would be a standard run rate of past dues, which, you know, I would say is in the... The plan is to work as hard as possible to get down to that by the end of the year, but that's kind of where we expect it to level off.

Speaker Change: So I would say sabriya that.

Jesse Weaver: Most of the past do fulfillment improvements happen in the back half until we would expect potentially.

Jesse Weaver: Potentially some improvement here in Q2, but largely we see that happened in the back half and I think we're probably getting close to what would be a standard run rate of past dues, which I would say is in the.

Jesse Weaver: $5 million range business at its current size.

Jesse Weaver: Plan is to work as hard as possible to get down to that by the end of the year.

Jesse Weaver: But that's kind of where we expect it to level off.

Sabrina Baxamusa: Okay, great. Thank you so much.

Speaker Change: Thank you.

Matthew J. Stevenson: Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Stevenson for any final comments.

Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Stevenson for any final questions.

Melissa: Alright, Thank you Melissa.

Matthew J. Stevenson: All right. Thank you, Melissa. Slide 21 underscores the compelling investment narrative surrounding Holley. This market, propelled by automotive enthusiasts, extends beyond a mere pastime. It is a passion, and it is a way of life for our customers. This resilience to economic cycles is notable, given that it is more than just a fleeting trend.

Matthew J. Stevenson: Slide 21 underscores the compelling investment narrative surrounding Holly this market propelled by automotive enthusiasts extends beyond the mere passed on it is a passion and a just a way of life for our customers.

Matthew J. Stevenson: Its resilience to economic cycles is notable given that is more than just a fleeting trend.

Matthew J. Stevenson: We command a vast addressable market, approaching $40 billion, which has demonstrated consistent growth over many years. Holly is at the forefront of the industry, with a collection of storied brands that have a legacy of innovation. Additionally, our history is marked by successful acquisitions and value creation through strategic integration. Plus, we are presented with the unique opportunity to forge a new digital frontier that'll transform how our consumers and distribution partners engage with our brands, providing us with a competitive edge and fostering growth.

Matthew J. Stevenson: We command a vast addressable market in approaching 40 billion, which has demonstrated consistent growth over many years.

Matthew J. Stevenson: Holly is at the forefront of the industry.

Matthew J. Stevenson: With a collection of storied brands that have a legacy of innovation.

Matthew J. Stevenson: Additionally, our history is marked by successful acquisitions and value creation through strategic integrations.

Matthew J. Stevenson: Plus we are presented with a unique opportunity to forge a new digital frontier that will transform how are consumers and distribution partners engage with our brands.

Matthew J. Stevenson: Providing us with a competitive edge and fostering growth.

Matthew J. Stevenson: This leads to a compelling investment case.

Matthew J. Stevenson: This leads to a compelling investment case, with a business committed to delivering stable organic growth of at least 6%, maintaining 40% gross margins, achieving over 20% EBITDA margins, generating sustainable free cash flow, and establishing a platform that facilitates the unlocking of value through strategic acquisitions. The combination of the Lore of the Automotive Enthusiast Marketplace and Holly's Distinguished Brand Portfolio presents an exceptional investment opportunity. In closing, I wish to express my sincere appreciation to our team members for their dedication to serving our customers daily, to our remarkable consumers who support our brands, as well as to our distribution partners, many of whom have been integral to our success for decades. Also, thank you for your attention today and look forward to providing updates on our progress in subsequent quarters. Want to thank you and wish you a great day.

Matthew J. Stevenson: With a business committed to delivering stable organic growth of at least 6%.

Matthew J. Stevenson: Maintaining 40% gross margins.

Matthew J. Stevenson: Achieving over 20% EBIT margins generating sustainable free cash flow and establishing a platform that facilitates the unlocking of value and strategic acquisitions.

Matthew J. Stevenson: The combination of the lower of the automotive enthusiasts marketplace.

Matthew J. Stevenson: <unk> highly distinguished brand portfolio presents an exceptional investment opportunity.

Matthew J. Stevenson: In closing I wish to express my sincere appreciation to our team members for their dedication to serving our customers daily.

Matthew J. Stevenson: So a remarkable consumers who support our brands.

Matthew J. Stevenson: As well as to our distribution partners, many of whom have been integral to our success for decades.

Matthew J. Stevenson: Also thank you for your attention today and look forward to providing updates on our progress in substance subsequent quarters.

Speaker Change: I want to thank you and wish you a great day.

Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.

Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.