Q1 2025 Holley Inc Earnings Call
Joseph Feldman, John Lawrence, John Lawrence, John Lawrence, John Lawrence, John Lawrence,
Speaker Change: Good morning, ladies and gentlemen. Welcome to the conference call to discuss Holly's first quarter 2025 earnings results.
Speaker Change: At this time, all participants are in list only mode. Later, we'll conduct a question and answer session, and instructions for asking questions will be provided at that time.
Speaker Change: Please be advised that reproduction of this call in a whole or in part is not permitted without written authorization of Holly. And as a reminder, this call is being recorded and we made available for future playback.
Speaker Change: I would now like to introduce your host your today's call, Anthony Rozmus, with Investor Relations. Please go ahead.
Anthony Rozmus: Good morning and welcome to Holly's first quarter, 2020-25 Ernest Comfort School. On the call with me today are President and Chief Executive Officer Matt Stevenson and Chief Financial Officer Jesse Weaver.
Anthony Rozmus: This webcast and the presentation materials, including non-GAAP reconciliation, are available on our investor relations website.
Anthony Rozmus: 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 our subject to risk and uncertainties including the ones described in our SEC violence.
Anthony Rozmus: This morning we will review our financial results for the first quarter and discuss guidance for the full year 2025. At the conclusion of our prepared remarks, we will open the line up for questions. With that, I'll turn the call over to our CEO Matt Stevenson.
Matt Stevenson: Thank you, Anthony, and good morning, everyone. As we review the first quarter results for 2025, I'm excited to share the early achievements from the transformation we embarked on over 18 months ago.
Matt Stevenson: We have seen significant progress in our business and your support has been greatly appreciated as we navigated dynamic macroeconomic and consumer environment. Despite the challenges, we have made considerable strides and I'm eager to present that to you today.
Matt Stevenson: We will present compelling evidence demonstrating how the focus areas of our strategic plan and the initiatives within them are driving growth across our business.
Matt Stevenson: For the first time in five quarters, we have experienced growth in our core business across both directed consumer and business to business channels. As a reminder, core business excludes divested businesses and discontinued products from our SKU rationalization efforts last year.
Our comprehensive Omni-Channel approach is crucial to driving our growth.
Matt Stevenson: We are dedicated to meeting our customers wherever they prefer to do business, whether through e-retailers, distributors, wholesalers, third party marketplaces, installers, national retailers in our own e-commerce platform.
Matt Stevenson: Now despite a challenging macroeconomic environment, we are successfully gaining market share from our competitors.
Matt Stevenson: We have accomplished this by creating captivating consumer experiences through our events and expert merchandising, leveraging best-in-class digital capabilities, implementing a new third-party marketplace strategy, and introducing great new products across our divisions.
Matt Stevenson: Additionally, we have strength in our partnerships with B2B customers who are adopting more of our product line due to enhanced support, better data quality in our robust marketing
Matt Stevenson: While focusing on growth, we are also committed to improving operations by eliminating non-value added costs and enhancing our operational KPIs across the business. These efforts enable us to reinvest in the business while maintaining margins despite decreased market demand.
Speaker Change: Before we delve into the specific highlights for Q1 of 2025, I would like to address the current macroeconomic environment and its impact on our business.
Speaker Change: Tara said become a significant topic across our economy, and Holly is no exception.
Speaker Change: Although the majority of our production costs are based in the United States, we are still affected by these tariffs.
Speaker Change: The fluid nature of the situation with weekly changes in policies from the administration coupled with the hard work our teams are doing to mitigate the impact. Make it challenging to model the exact effects of tariffs on our business at this time.
Speaker Change: We anticipate gaining better clarity on the permanence of these policies and the results of our initiatives when we report our second quarter results in early August .
Speaker Change: During this call, we will outline how we are addressing the dynamic situation of tariffs and safeguarding the health of our business.
Speaker Change: It is important to note that the guidance Jesse will present later in the call does not reflect any impact from the tariffs on our business, nor does it consider any macroeconomic impact the overall tariffs situation may have on the domestic economy in consumer discretionary spending for the remainder of the year.
Speaker Change: It is simply too early to tell, and we are reporting based on what we are currently observing in our business.
Speaker Change: Regarding demand in the first quarter, our results are given by capturing market share through our growth initiatives.
Speaker Change: As of today, we are seeing no material pre-by from our customers in the second quarter. We're closely monitoring behavior and demand from both our D to C and B to B channels. But so far, we have not observed any significant changes one way or the other.
Speaker Change: Now, let's turn to Slide 5, which includes some highlights for the first quarter of 2025. Despite the challenging market conditions, we have achieved meaningful revenue growth of 3.3% in our core business across all divisions.
Speaker Change: We also improved our gross margins through enhanced labor and overhead efficiencies, along with reduction in warranty costs.
Speaker Change: These operational efficiencies have played a crucial role in our financial performance, allowing us to reinvest in growth while maintaining or even increasing margins.
Speaker Change: This growth across our business was felt in 25 brands and both are directed consumer and business to business channels. This broad-based growth highlights the impact of our strategic initiatives and the power of our brands.
Speaker Change: In the B2B channel, we have strengthened relationships with our partners, resulting in over 2.5% growth. Additionally, we are gaining market share based on our calculations of out-the-door sales in the commentary from our B2B partners.
Speaker Change: This growth is a direct result of our increased sales support and commitment to our partners.
Our Director Consumer Channel has also seen significant growth.
Speaker Change: with more than a 10% increase. Notably, third-party platforms such as Amazon and eBay experience growth of over 50%.
Speaker Change: Third party marketplaces are a key growth channel within our direct consumer strategy and we are meeting customers where they want to be met with our enhanced third party marketplace approach.
Speaker Change: Product innovation is a driving force behind our consumer enthusiast platform.
Speaker Change: and Q1Sault Significant Contributions from numerous new products across our portfolio.
Speaker Change: Plus, our strategic price initiatives, crafted to hit the last-tensity sweet spot for both our consumers and distribution partners are aiding in propelling growth and maximizing total profitability across the channels.
Speaker Change: New products combined with these strategic pricing efforts resulted in revenue contribution of 8.1 million for the quarter.
Speaker Change: To mitigate the impacts of tariffs, we're implementing proactive cost reductions in strategic sourcing in initiatives. I will go into these details in an upcoming slide.
Speaker Change: Now let's turn to slide six, which features some more quantitative highlights from the first quarter of 2025. We achieved net sales of 153 million, representing a 3.3% increase in the core business compared to the prior year.
Speaker Change: This growth underscores the effectiveness of our robust strategic initiatives and the hard work our teams are delivering across our business.
Speaker Change: Argrous margins also saw significant improvement, rising year of year to 41.9%
Speaker Change: While there are various factors contributing to the size of one increase, which Jesse will elaborate on later in the call, it is important to note that approximately 200 basis points of this improvement are directly attributable to our continuous improvement efforts to enhance labor and overhead efficiency, as well as reduce warranty costs.
www.cdc.gov.au
Speaker Change: As we noted in previous calls, changes in our accounts' pable process extended the timing of some pables in the Q1 of last year.
Speaker Change: Our adjusted EBITDA margin improved to 17.8% and increased to 460 basis points from the prior year.
Speaker Change: However, this figure can be somewhat confusing due to the one-time effects of the skewer rationalization implemented in the first quarter of last year.
Speaker Change: When factoring in the decline in overall Q1 revenue year-over-year, which includes the impact of divested businesses and these discontinued product lines, our EBITDA margins are actually down by approximately 100 basis points due to the lower volume.
Speaker Change: In Q1, we continue to innovate and expand our product offerings across various divisions. Just a few of the notable launches in our portfolio include the Sniper 2 EFI Hyperspark bundles and the NOS Arcane Booster from our Domestic Muscle Vertical.
Speaker Change: In the modern truck and off-road division, we continue to broaden our offerings and performance packages.
Speaker Change: Under the Dynand brand, in the Euro segment, we introduced inline tuning modules for the BMW S58 engine, found in many popular BMW M cars.
Speaker Change: Lastly in the safety division, we launch the next version of the leading head and neck restraint in racing, the Hans Ford.
Speaker Change: This is just a minor selection of the great new products launched in the quarter.
Speaker Change: These products are well received and expected to drive further revenue grew up. In a few slides, we will touch on some of the new products coming this quarter.
Speaker Change: Our commitment to operational excellence is evident in several key metrics. We achieved a 2% year year increase in the in stock rates of our top 2500 products, ensuring better availability for our customers.
Speaker Change: Additionally, we improved operational efficiency by over 1 million euro a year and reduced past dues by 16% compared to the previous year.
Speaker Change: Moreover, we made significant progress in reducing inventory levels, achieving a reduction of over 3 million since year end 2024. This reduction aligns with our strategic goal of optimizing inventory management and improving cash flow.
Speaker Change: It continues refinement of a marketing calendar led to a successful outcome in the first quarter.
Speaker Change: During the IRS sale held in the period, our e-commerce growth rate increased by 27% year of year.
Speaker Change: Plus our strategic communications and PR efforts generated nearly 600 million earned media impressions from over 1300 media clips.
Speaker Change: and we continue to reach a large population of enthusiasts with 8 million followers across our various social media platforms, a number that has increased since the previous year.
Speaker Change: These achievements demonstrate our marketing effectiveness and the ability to enhance our engagement with enthusiasts. In summary, our first court results reflect our focus on strategic initiatives and the collective effort of our teams to drive growth and operational excellence.
Speaker Change: Slide 7 provides a comprehensive overview of the meaningful growth in our core business achieved across our divisions.
Speaker Change: The modern trucking off road divisions saw an overall growth of 2%, with some power brands achieving remarkable year-over-year growth rates at high as 27%.
Speaker Change: Our Euro and Import Division recorded the highest growth at 17%, driven by renewed focus, product innovation, and an emphasis on comprehensive platform packages.
The Safety and Racing Division, also experienced
Speaker Change: 3% growth with a power brand listed contributing significantly more, such as Stilo, which saw an 8% year-over-year increase in the quarter.
Speaker Change: On slide 8, you'll find the reminder of the eight areas of our strategic framework that we discussed during our last earnings call. At the core of this framework, our steering principles, the first principles fueling our teammates, which aligns with our goal of making Holly a designated great place to work.
Speaker Change: We aim to create an engaging workplace where employees have a voice opportunities for growth in an environment they are excited to come to every day.
The second principle is supercharging our customer relationships.
Whether it's with our consumer enthusiasts or B2B partners
This principal encompasses three key areas of our strategic framework.
Speaker Change: Designing and implementing the premier consumer journey in our space, being a trailblazing trusted partner for our B2B customers by discovering new and exciting ways to drive mutual growth, and launching innovative new products that are the envy of their categories.
Speaker Change: All of this is achieved while actively managing and merchandising our entire portfolio with clear differentiation.
Speaker Change: The final principle, accelerating profitable growth includes expanding into new global and adjacent markets, transformational M&A, and funding our growth through operational
Speaker Change: These efforts, along with the others mentioned, culminate in our ultimate goal of delivering superior financial results.
Speaker Change: Now on Slide 9, I am pleased to share the highlights and achievements for the first quarter as reflected in our strategic initiative tracker.
Speaker Change: Let's begin with our trailblazing trusted partner pillar which encompasses our B2B sales
Speaker Change: We have continued to see significant growth through our targeted efforts with national retailers. Our partnership with R&R for additional B2B sales support has yielded impressive results, particularly in data adoption increasing our presence among the top 50 accounts.
Speaker Change: Additionally, we have launched the Holly Pros Initiative, which provides a strategic approach to engaging with smaller accounts.
Speaker Change: These efforts have collectively contributed to an additional two-and-a-half million in revenue.
Speaker Change: Moving on to the premier consumer journey pillar, which focuses on the direct consumer.
R.E. Commerce Growth has been strong.
Speaker Change: Exceeding 10% year-of-year. This growth has included focus efforts on third-party platforms, particularly Amazon, where we saw an increase of over 15%.
Speaker Change: These niches have resulted in an additional 3.3 million in revenue for the quarter.
Speaker Change: Furthermore, we restructured Hollywood events to enhance customer experiences which will not only drive future revenue increases, but will also boost media value during our upcoming event season.
Speaker Change: and Product Innovation and Portfolio Management. We launched several new products across our divisions and are gaining momentum in our performance packages.
Speaker Change: These innovative products and solutions contributed approximately 4 million in revenue for the quarter.
Speaker Change: Additionally of portfolio management efforts, including strategic pricing changes, generated an additional 4 million.
Speaker Change: Art Global Expansion, a new market initiatives are also progressing well.
Speaker Change: We're on track with the early stages of our Mexico market expansion.
Thank you very much.
Speaker Change: which includes on-the-ground activation events and promotions. To date, we have signed up 15 distributors in this market.
Speaker Change: In the Card-Dealer channel, a relatively new market for us, we have increased engagement with BMW dealers, with now 22 participating in the program.
Speaker Change: These combined efforts have generated 300,000 of revenue, as they continue to develop, we anticipate greater contributions in the future.
Speaker Change: Under the Fund of Growth pillar, we completed and implemented projects related to purchasing savings amounting to 2.1 million.
Speaker Change: Additionally, we achieved approximately 1 million in operational improvements during the quarter and are our track to reach 6 million for the fiscal year.
Speaker Change: These initiatives have collectively contributed 3.1 million in cost reductions for Q1.
Speaker Change: Lastly, our commitment to being a great place to work is yielding positive results. We saw a 3% increase in a great place to work survey scores.
Speaker Change: Reflecting our ongoing efforts to create an engaging and supportive work environment
Speaker Change: and Summary, our strategic initiatives have driven 50 million in revenue cross key areas, achieved 3.1 million in cost reductions and improved our great place to work scores by 3%.
In addition to advancing our strategic initiatives [inaudible]
Speaker Change: The team has been dedicating a significant amount of their time to mitigating the impact of the excessive terrorist announcements or last meeting.
Speaker Change: The changes in the terror policies since we last met March have been meaningful for our business, but the team is proactively addressing the challenge in making substantial progress.
Speaker Change: If we turn to slide 10, you can see that we are first and foremost proactively managing our business's cost structure.
Speaker Change: We have implemented comprehensive plans across the company to manage costs and help offset the tariff headwinds we are facing. Our approach is multifaceted, focusing on spend optimization, operational improvements along with tariff mitigation and strategic pricing actions. Our approach is multifaceted. Our approach is multifaceted. Our approach is multifaceted.
First, let's discuss our spin optimization efforts.
Speaker Change: We have taken decisive steps to eliminate discretionary spending. This includes reducing expenses such as travel, off-site meetings and other non-essential items.
Speaker Change: By prioritizing key projects that are aligned with our major growth initiatives within our strategic priorities, we are effectively reducing planned expenditures in both operational and capital expenditures.
Speaker Change: Additionally, we are optimizing our spending on professional services by transitioning to lower cost vendors and renegotiating agreements in areas such as legal benefits marketing and auditing.
Speaker Change: Transitioning to operational improvement, we are accelerated to our efforts to enhance operational efficiency.
Speaker Change: This includes reducing warranty, spanner returns, as well as improving first-time yield and minimizing waste. We have also evaluated and accelerated psych consolidation, putting new sites on hold to optimize our existing infrastructure.
Speaker Change: Furthermore, we have frozen the headcount and we will proactively adjust our workforce management to match new volume reality should they occur.
Also, we will reduce over time and tightly manage front line operations
Speaker Change: A key aspect of our operational improvement strategy is to reduce existing and imbound inventory by minimizing water quantities and enhancing demand planning through our improved sales inventory and operational planning processes.
Speaker Change: Next, let's address our tariff mitigation related pricing strategies on slide 11.
Speaker Change: We are overseeing these efforts through a swiftly established, comprehensive project management office.
Speaker Change: Now to tackle the various aspects of tariff mitigation, we have developed five major work streams.
Speaker Change: Governance, Products, Logistics and Supply Chain, Regulatory and Classifications and Pricing of Margin Protection.
Speaker Change: Our approach is multifaceted, involving daily meetings to ensure we stay on track.
Speaker Change: Each workstream is specifically designed to tackle unique challenges and opportunities, ensuring
Worshroom Governance has been established to oversee the entire process.
Speaker Change: We have set up a steering committee and brought an outside PMO support and contractors to assist with daily and weekly reporting. A bird down charge has been established to track progress and ensure accountability.
Product work streams have been a critical component of our strategy.
Speaker Change: We conducted an ideation workshop involving 11 product teams with dedicated team leaders.
Speaker Change: Additionally, we have verified product classifications to ensure compliance and optimize tariff coating.
Speaker Change: Logistics and supply chain efforts have been focused on optimizing tariff volatility. We secured a bond-aware house in Memphis to manage inbound containers and inventories from high tariff countries.
Speaker Change: Ski rationalization and inventory analysis have been components of this workstream, helping us streamline our logistics and reduce costs.
Speaker Change: The regulatory and classifications workstream has evolved utilizing third-party expertise such as various custom brokers and trade advisory services along with legal experts to assist us in navigating this complex situation.
Speaker Change: Web-identified exemptions for lobbying, particularly non-auto parts, and are actively engaging with organizations such as SEMA, MEMA, and local governments that advocate for favorable tariff classifications.
Speaker Change: Pricing in margin protection has been another crucial area focus for us.
Speaker Change: We announced the comprehensive pricing action on April 11th, with an 8.75% increase to be implemented on June 9th, allowing for 68 notice to the market.
Speaker Change: Additionally, we are looking at implementing category specific actions were needed with plans to roll those out potentially by Q4.
Speaker Change: In summary, our strategic measures to mitigate tariff impacts are thorough and well coordinated.
Speaker Change: By establishing dedicated workstreams, conducting workshops, securing logistics solutions, engaging with regulatory experts, and implementing strategic pricing actions, we are addressing the challenges posed by tariffs.
Speaker Change: We plan to update you during our August call when we have better clarity on the permanence of the tariffs and the effects of our mitigation efforts.
Speaker Change: Now, before I turn it over to Jesse, let's turn to slide 12 to highlight just a few of the exciting product innovations occurring in the second quarter of 2025 across our four divisions.
Speaker Change: In the domestic muscle vertical, we are pleased to announce the latest addition to our chemical product line, the new Holly fuel system and carburetor cleaner.
Expanding our chemical offerings is a strategic priority. [inaudible]
Speaker Change: As these products represent a significant growth opportunity within the National Retailer Channel.
Speaker Change: We are excited to extend this feature to our Terminator X fuel injection series. This enhance will allow users to control functionality and access display features directly from their phones, providing a seamless and convenient experience.
Speaker Change: In the realm of modern trucks and off-road vehicles, we continue to broaden our package availability.
Speaker Change: A key differentiator for holly performance brands is the breadth and depth of our product line, touching more parts of the vehicle than any other performance aftermarket company.
Speaker Change: The ACU unique capability enables us to design components that work seamlessly together, meeting consumer demand for integrated and easily accessible products.
Speaker Change: Our new packages will also cater to the UTV market, including a range of products such as shocks, brakes, exhaust system, and tuning capabilities from various brands within our portfolio.
Speaker Change: In our Euro Division, we are actively expanding our range of performance packages for BMW vehicles under the Dyna brand. Additionally, we are finalizing the at-home flash tuning product for Dyna and look forward to discussing this in upcoming quarters.
Speaker Change: For the APR brand which focuses on Audi VW Porsche performance, we are preparing packages for key high volume models. We are developing these offerings with exhaust solutions such as those developed for the Audi S4 and S5.
Speaker Change: and our Safety and Racing Division, our commitment extends beyond ensuring safety with cutting-edge technology.
We also prioritize style for both riders and drivers [inaudible]
Speaker Change: For our motorcycle line for Simpson, we are introducing a wider range of colors for our popular outlaw banded helmet, responding to consumer demand. On the automotive side of Simpson, we are expanding our seat line to be FIA certified with more colors appealing to a broader range of global markets.
Speaker Change: Additionally, we are launching new product lines within our air-speed race wear collection designed to keep drivers safe while looking great.
Speaker Change: This is just a fraction of the great new products arriving across the Holly Performance Brands portfolio in Q2.
Speaker Change: At this point, I would like to hand over the presentation to Jesse, who will offer a more detailed financial analysis in comparisons of our Q1 2025 results.
Chasey,
Jesse Weaver: Thank you, Matt. Good morning, everyone. I'd like to start by providing an overview of our updated financial priorities for 25 and then discuss our first quarter 25 financial results.
Jesse Weaver: As we navigate a dynamic operating environment, we remain focused on our financial priorities. Free cash load generation continues to be a top priority for the entire organization.
Jesse Weaver: and we remain committed to supporting this priority in 25 to focus on operating efficiency to drive profitability and working capital optimization.
Jesse Weaver: In 25, we are continuing to work towards restoring historical profitability through elimination of inefficiencies and operations, which have already saved $1 million in Q1.
Jesse Weaver: We anticipate savings of five to ten million dollars through improved distribution, manufacturing, efficiency, return policy compliance and quality enhancements to better the customer experience throughout the year.
Jesse Weaver: Our second priority remains to optimize working capital to unlock free cash generation and financial flexibility.
Jesse Weaver: Given the potential impacts related to tariffs, we are adopting a more proactive approach in managing our portfolio to reduce inventory, held in non-working inventory, such as working progress and raw materials. Concurrently, we are actively advancing initiatives to better align our product mix with market demand.
Jesse Weaver: Furthermore, we are enhancing our sales, inventory and operations planning and forecasting processes to create a more agile and demand-driven operating model.
Jesse Weaver: By improving alignment between production, inventory, and market demand, we not only increase accuracy and responsiveness, but also strengthen our ability to anticipate shifts in the market and drop more informed strategic decisions.
Jesse Weaver: Additionally, we are optimizing safety stock levels and lead times as part of a broader effort to create a more efficient and resilient supply chain.
Jesse Weaver: These measures enable us to systematically reduce slow moving inventory while maintaining the high service levels that our customers expect, thereby positioning us for greater operational excellence and resilience.
Jesse Weaver: Collectively, these efforts have resulted in a reduction of inventory of 3.4 million since the end of the year, while this represents a strong start for the work remains to be done as we are targeting an overall reduction of between 10 and 15 million in inventory by the end of 2025.
Jesse Weaver: On slide 15, we'll walk through our key financial metrics for the first quarter.
Jesse Weaver: Net sales for the first quarter were 153 million versus 158.6 in the same period a year ago. The decrease was primarily related to lower sales volume, which was offset partially by improved price realization compared to the prior year period.
Jesse Weaver: That said, excluding approximately ten and a half million of divestitures and strategic product rationalization sales from net sales for the first quarter of 24. We achieved growth of roughly 3.3% and exceeded our expectations for the quarter.
Jesse Weaver: As Matt pointed out, this growth came across all divisions into the byproduct of the execution across all aspects of our strategic framework for 25.
Jesse Weaver: as we have improved working relationships with our distribution partners, improved our processes related to new product development, and improve our marketing calendar support.
Jesse Weaver: Gross Profit for the quarter was 64.1 million compared to 52.1 in the same period last year.
Jesse Weaver: Gross Margin for the Quarter was 41.9%, an increase of 910 basis points versus 32.8% in the prior year. This increase was primarily due to inventory charges in 2024, driven by the Strategic Product Rationalization Initiative, as well as improvement in freight costs.
Jesse Weaver: S.GNA, including R&D expenses for the first quarter, was $40.8 million versus $37.8 million in the same period from the prior year. The increase in S.GNA was driven by investments related to supporting Arvain Doxley.
External Sales Support, and the timing impact of marketing expenses.
Jesse Weaver: Net income for the first quarter was $2.8 million versus a net income of $3.7 in the first quarter of 2024. Adjusted net income in the first quarter was $2.6 million versus a net income of $65,000 in the same period of last year.
Jesse Weaver: Adjusted either down for the first quarter, it was 27.3 million versus 21 million in the prior year.
Jesse Weaver: Q1 2024, Adjusted Evita, Includes the impact of 9.1 million non-cash charge related to a previously announced strategic product rationalization.
Jesse Weaver: Adjusted to David Dah-Margin was up 460 basis points to 17.8% versus 13.2% in the first quarter of 2024.
on slide 16.
Jesse Weaver: Free cash flow for the quarter was negative 10.8 million compared to 17.8 million, and positive free cash flow a year ago. In the first quarter of 25 significant sales were booked in March, resulting in account receivable increases of 14.9 million.
Jesse Weaver: Although this created a headwind in the first quarter, is expected to contribute positively to second quarter free cash flow.
Jesse Weaver: It should also be noted that during the first half of 24, an atypical Q1 AP tailwind provided benefits, which have now reversed in the first quarter of 25, as the accounts payable balance was normalized and AP operations were improved.
Jesse Weaver: Therefore, generating free cash on the second quarter is expected. Free cash flow in the first half will be lower compared to the previous year, mainly due to non-recurring benefits from AP, that pose the headwind in the latter half of last year.
Jesse Weaver: Slide 17 presents our net leverage at the end of for the first quarter, which was 4.32 times compared to 4.16 times a year earlier.
Jesse Weaver: While reporting our covenant leverage ratio, we amended our senior secured revolving credit facility to a covenant light structure that only test the covenant of five times total net leverage when the revolver is strong.
Jesse Weaver: At the end of the quarter, there was no outstanding balance on our revolver, and we concluded the quarter with $39 million in cash and no expectation of drawing on the revolver in the near term.
Jesse Weaver: Before we move to our guidance, I'd like to provide some context to the broader macroeconomic environment and the health of the consumer from where we sit today.
Jesse Weaver: The Financial Health of Consumers continues to show signs of strain.
most recently reflected in significant drops in sentiment. [inaudible]
Jesse Weaver: The University of Michigan Consumer Sentiment Index has declined sharply to its lowest level since November of 22.
Jesse Weaver: This decline indicates growing consumer concerns regarding persistent inflation, interest rate uncertainty, and broader economic liability. Although this sentiment hasn't yet resulted in a broad reduction in spending, it suggests that consumers are becoming more selective and value-conscious.
Jesse Weaver: particularly in discretionary categories which could moderate spending in the near term.
Jesse Weaver: As we all know, the external global trade policy on tariffs remains fluid.
Jesse Weaver: As discussions continue, potential changes in trade terms introduce an additional layer of uncertainty that we are actively monitoring and addressing proactively. In response to these conditions, we are maintaining a disciplined focus on operational excellence through our strategic framework and heightened emphasis on cash flow optimization.
Jesse Weaver: We believe that the measures outlined today will help us navigate near-term challenges while preserving free cash flow.
Jesse Weaver: We are confident in our ability to execute our strategic framework supported by the strength of our leadership team and the adaptability of our business as conditions evolve.
Jesse Weaver: As such, we were maintaining our 25 guidance due to the strong growth in our business during the first quarter.
Jesse Weaver: And excluding any potential impacts from tariffs, we continue to expect 2025 revenue of $580 million to $600 million, which implies approximately a 2.5% growth at the midpoint over the core business base of roughly $575 million in 2024.
Jesse Weaver: As a reminder, we originally forecasted most of the growth in the back half of the year. Any further deterioration in the consumer may have an impact on our outlook as we continue to assess throughout the year.
Jesse Weaver: Additionally, we are maintaining our guidance of 25 Adjusted Evita, of 113 million to 130 million. Overall, we are proud of the strong progress we've made to start 25, particularly through the Disciplined Execution of our Strategic Initiatives.
Jesse Weaver: These actions have not only driven robust business growth in the first quarter, but also have outperformed industry growth rates based on the intel we received from our distribution partners.
Jesse Weaver: While we remain mindful of the evolving macroeconomic environment and the fluid tear of situation, we are confident the operational discipline and momentum we have built will continue to service well as we move through the balance of the year.
Jesse Weaver: and this concludes our prepared remarks we'd like to now open up the line for questions.
Jesse Weaver: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad and the confirmation tone indicate your line is in the question queue.
Jesse Weaver: Let me press star two if you'd like to withdraw your question from the queue. For participants using speaker equipment, maybe necessary to pick up your handset before pressing the star keys.
Jesse Weaver: In the interest of time, we ask everyone to please ask one question and one related follow-up. Thank you.
Speaker Change: Our first question is from the line of Christian Carlino with JP Morgan. Please just use your questions.
Good morning. Thanks for taking our question.
Christian Curlino: You're responsive to the therapist, but you know, you laid out in slides is really impressive. So I'm curious how both your sourcing mix and maybe your broader capabilities to respond.
Speaker Change: Differs versus peers, and spending on the category aside, would you expect share meetings to accelerate if the current tariff backdrop persists?
Speaker Change: Good morning, Christian. And thank you for the question. I mean, one of the big differentiators for Holly is the breadth and depth of product that we have across various categories.
and so for us it's...
Speaker Change: It's really a category by a category approach within there based on our competitive dynamic and based on our sourcing strategy.
Speaker Change: So, you know, Christian, we got to see how it ultimately plays out, but we think Holly is poised to take share just based on the majority of our production costs and our cost of goods all being in the US versus some of our competitors and other categories that are primarily sourced out of Asia.
Speaker Change: God, that's helpful. And it's a big segue to my follow-up, which is what's been the feedback to the price increase you announced in early April from the distribution partners? And what are they saying about how this level compares to maybe what peers are requesting? And is this broad increase across the portfolio? And then you may be sensitized to products and categories later on, just a bit more color on how you're thinking about that and what the feedback stands. Thanks.
Speaker Change: Yeah, thanks, Christian. Overall, the feedback has been positive, relative to our approach. I think our distribution partners appreciated our blending approach across portfolio versus just hitting harder.
in the impacted products. Now...
Speaker Change: In the marketplace, we have seen price increases well in excess of what we put out into the market.
Speaker Change: I mean, we see increases as high as 30% or more on some categories from some competitors. So, overall, our distribution partners understand the situation.
Speaker Change: and appreciated our approach. And really there's skepticism and pushback is on competitors that have had double-north of double-digit increases.
That, that's really helpful. That's a lot.
Thank you, Christian.
Speaker Change: Our next question is covered in the line of Mike Swartz with true securities. Please excuse your questions.
Hey guys, good morning.
Speaker Change: They just elaborated a little more. There was a comment in the press release and I think Matt, you mentioned it on your prepared remarks just around maybe some...
Speaker Change: Moderation and demand that you've witnessed through the first court. I'm just trying to understand what that...
Speaker Change: Maybe means on a quantifiable basis, you know, outdoor sales, maybe what we've seen in the last month or two versus what we saw in the first quarter or is this more tied to, you know, broader statements around, you know, the consumer, consumer sentiment, things of that nature. [inaudible]
Thank you.
Speaker Change: Yeah, Mike, good morning. Thank you for the question. No, in general, March was quite strong. The outdoor performance of our products as well as distributors overall, business was quite healthy.
Speaker Change: My comment, re-reference, you know, slow sales in January and February , and I believe we commented on the last earnings call about just there's a lot of weather, cold weather that extended much further south and typically normal.
Speaker Change: which caused, you know, demand to be somewhat slow in January and February . But March was really good and...
Speaker Change: You know, my other comment was in the prepared remarks. You know, as we sit here today, we really haven't seen...
Speaker Change: Demantrends go either way. I mean, we're generally on the same course that we saw coming out of March, and there hasn't been any material pre-bi or slow down from what we're seeing. But still early in the quarter, we gotta see how things play out. [inaudible]
Speaker Change: Okay, that's helpful. And then, I guess maybe just a follow up on the pricing question previously. Maybe just a little more color. I think you said that retailers are approving maybe of the approach you are taking. So what is that approach? Are you doing anything in terms of...
Speaker Change: Sir Charges, where this is more temporary pricing based on the outcome of everything, or maybe just a little more context around that comment.
Yeah, Mike.
Our approach was to the blend. The blend.
Speaker Change: The Impact Across Our Portfolio. And again, a big differentiator for us in the marketplace is the breath and death of the product that we cover as well as the majority of our production costs being in the US. So we had that ability to do that and take roughly that 875 and a blended approach across our portfolio with a few exceptions, not all products got that increased.
Speaker Change: versus some of our competitors who didn't have that luxury and have taken significant price increases, double digits or more on specific categories or products because they're sole sourced out of Asia and may only compete in one or two product categories.
OK, wonderful. Thanks for the comment. Yep, thanks Mike.
Speaker Change: Our next questions are from the line of Bret Jordan, which referees, please see with your questions.
Take a morning, guys.
Good morning, Brett.
Speaker Change: Could you talk about the third party platform strategy a bit more? You know, I guess real growth there is the margin profile comparable to your core B to C. And I guess is there any channel conflict that you grow those those businesses with Amazon or eBay to any of your legacy customers see them as a threat? Yeah.
Speaker Change: Yeah, hey, Bret, it's Jesse. So, you know, that we have seen a lot of strength there. The team has done a great job on the data, and then output of the data. Work is...
continued improvement on the third party.
Speaker Change: What we found internally is that is highly incremental, you know, in 2023 when I was here.
Speaker Change: We were seeing changes in the Algos, changes in what was happening with data and Amazon dropped off and it wasn't being picked up in the other channels. So that kind of signal to us that the really is very limited channel conflict and then that kind of gets to your question on the margin profile.
Speaker Change: There are different fee structures there. Obviously, we sell that at retail, but then you have to pay other fees associated with it. But given the incrementality there, we view it as a viable growth channel that we will continue to lean into, just along our approach that we want to be where the customers want to shop. Thank you very much.
Speaker Change: Okay, are the selling prices on the same skew basis the same as I mean are you sort of doing a fixed price model?
Speaker Change: Yeah, I mean we comply with math on those channels and you know that's an area that you know as we continue to enhance our support of the distribution partners that we've monitored even more closely as we do have distribution partners who also sell on those marketplaces.
Great. Thank you.
Speaker Change: The next questions are from the line of Phillip Blee with William Blair. Please just see your two questions.
Speaker Change: One of guys, thanks for the question. Just a quick point of clarification, your guide does non-clude the impact of tariffs, so does it exclude the impact of some of those, you know, the prepping, I can explain for early June and some of the other cost savings and mitigation efforts just kind of trying to get a feel for the level of conservatism embedded here.
Jesse Weaver: Hey Phillip, it's Jesse. Yes, I mean, it excludes the impacts, obviously with tariffs, as we made clear and...
Jesse Weaver: The price increases across the economy and what it does to consumer sentiment.
Jesse Weaver: And so with our guide there's certainly a bit of understanding that needs to be done as we kind of venture into the back half before I feel like we would feel confident enough to kind of quantify anything for you at this time. Thank you.
Jesse Weaver: Okay, that makes sense. And then you reiterated your guide for low mid-single digit growth in the court business. So along with your expectations for price, can you just talk about some of your assumptions and impacts around volume and what kind of elasticity you think that based on historical results or have you seen maybe less of an impact on volume with some of your previous pricing actions. Thank you.
Thank you.
Yeah, I think at this moment was implied in that.
Jesse Weaver: Phillip is, as we talked about, the price increase goes into effect. We'll be later this quarter, and without changing the sales piece, there is an implication on the volume side that would be offset on the pricing increase.
Jesse Weaver: certainly that would come through at a higher margin but I think as we've all talked about there's this uncertainty around the ultimate tariff impact so that is the volume to answer your volume question there is a volume sort of offset to that with holding sales flap with that higher price.
Okay, make sense. Thanks, guys. That's a lot. Thanks, Phillip.
Jesse Weaver: Next question, different line of Joe Feldman with Chelsea Advisory Group. Please excuse your questions.
Joe Feldman: Can you clarify how much exposure you do have to China? I know you keep saying there's not a lot of exposure to tariffs and yet there's a lot of work being done to mitigate them.
Joe Feldman: You know, some trying to just reconcile those two comments that a majority of it's US-based, but you still have...
Joe Feldman: Decent exposure. I mean, it would just help to kind of quantify, I think, for some of us what that would be.
Yes.
Joe Feldman: regarding the terraces and the new ones that have been implemented as well as increased over the last-
Roughly two months, so. Okay.
Joe Feldman: You know, we spoke prior to the tariffs that the current state could be covered just with a pretty moderate price increase.
Joe Feldman: Now as those terrorists have escalated, they become meaningful for a business hence the work.
that is going into...
Joe Feldman: Mitigate those as well as the pricing action that we just took.
Joe Feldman: But, you know, we remain optimistic. Joe, it's a definitely a fluid situation. The team is doing a ton of hard work.
Joe Feldman: and is fighting opportunity to mitigate these daily, as well as, you know, we're optimistic in the changes in the administration as the dust starts to settle and things get more permanent and what actually these terraces will be. So for us to give you...
Joe Feldman: Any insight really into the exact number right now, it just wouldn't be accurate because it's a fluid situation and the great work the team is doing every day is mitigating those tariffs and we will know more when we come back to you in early August .
Joe Feldman: Thank you. And then maybe an unrelated question is you mentioned the holly events changing the structure a bit and trying to, you know, leverage generate more revenue from them because of that change. Could you share a little more color on that? I just curious how you would change it.
Joe Feldman: Yeah, then just, you know, our events are just an amazing opportunity to connect with enthusiasts and, you know, attendance continues to go up. You know, we just had our...
Joe Feldman: L.I.S. Best West in Las Vegas. That was, you know, attendance was up.
Joe Feldman: and our merchandise sales are up and there's just great opportunities there for our enthusiasts, partake in these great events and the culture of
Joe Feldman: I like performance parents. And for us, we offer more opportunity, whether it's VIP experiences, different merchandising, different events to participate in.
Joe Feldman: as well as looked at the value that we provided in our pricing structure but overall just continuing to optimize how we produce and put on our events.
Joe Feldman: and not only to enhance the enjoyment over enthusiast of a fine opportunity to grow revenue in the process.
Thank you. Good luck to school.
Speaker Change: Our next question is from the line of Brian McNamara with Canacor Genuity. Please excuse your question.
Thank you. Good morning, guys. Thanks for taking the question.
Speaker Change: Big morning, Brian . So, first up. Good morning, guys. So, first off.
Speaker Change: I think when you guys reported Q4, like March 11, sales were corded, they were flattish and then they ended up pretty nicely and you guys seemed pretty confident that there is no-
Speaker Change: Freebying, I guess, I guess how do you know kind of thing because we saw, you know, auto sales jump towards the end of March and things like that.
Speaker Change: Just just curious, we'll give you confidence there's no pre-buying and of all the tire of noise that we saw on the British Liberation Day on April 2nd.
Speaker Change: Yeah, Brian , it's the information we get from our B2B partners and of course with our direct consumer platform, I mean the January in February were so soft.
Relative to the patterns that were driven in the weather
Speaker Change: and so the feeling from our distribution partners and from what we're seeing in our business is just, you know, consumers didn't get a chance to work on our cars. And so when the weather started to break at March, a lot of that demand for people wanting to take on projects and get in their garage was a bit delayed.
Speaker Change: So we really feel that was the driver of March and you know as we sit here today the conversations from our distribution partners are [inaudible]
Speaker Change: You know, more of a waiting to see attitude relative to seeing how things will play out, but again it's still early in the quarter. You know our pricing increase goes in on June 9th and you know we'll see how that plays out for the rest of the quarter here in terms of the demand patterns. We'll see how that plays out for the rest of the quarter.
Speaker Change: And then I have a pretty technical question on tariffs, at least as they relate to China. So we cover an eclectic group of companies and we learned from another coverage company that the Steel 232 tariffs supersede the reciprocal tariff for China. So I'm just curious if there's any nuance.
as it relates to your tariff exposure to China.
Brian , it is a very complex situation.
Speaker Change: and yeah, there's, you know, there's Section 232 auto parts, there's Section 232 steel and aluminum, there's a reciprocal go out of China, there's
Speaker Change: has come off, but we literally have to go products by product.
[inaudible]
Thanks a lot Matt, I appreciate it. Thanks Bryan.
Speaker Change: Thank you. At this time, I'll now turn the floor right to Matt for closing remarks.
Okay, thank you Rob.
Slide 20 highlights to the compelling investment.
Narrative, we see Ronning Hollywood performance brands.
Speaker Change: This market, driven by automotive enthusiasts, is more than just the hobby. It's a passion and a way of life for our customers.
Speaker Change: Weaver, that's the dressable market, nearing $40 billion, and Holly leads the industry with a collection of stored brands known for their legacy of innovation. Thank you.
Speaker Change: Our history is also marked by successful acquisitions and value creation through strategic integrations.
Speaker Change: Additionally, we have a unique opportunity to create a new digital frontier that will transform how our consumers and our distribution partners engage with our brands, giving us competitive veg and fostering growth.
Speaker Change: As we are emerging from this transformation, our commitment to deliver a stable organic top line growth of at least 6% maintain 40% gross margin targets and achieve greater than 20% adjusted to EBITDA margin targets.
Speaker Change: We aim to generate sustainable free cash flow and establish a platform that unlocks value and strategic acquisitions.
Speaker Change: The combination of our automotive enthusiast marketplace and Holly Distinguished brand portfolio presents an exceptional investment opportunity.
Speaker Change: and closing. I want to express my sincere appreciation to our team members.
Speaker Change: for their dedication to serving our customers daily and to our remarkable consumers who support our brands and to our distribution partners, many of whom have been integral to our success for decades.
Speaker Change: So with that, like to thank you for your attendance on the call today and have a wonderful rest of the week. Thank you.
Speaker Change: This will conclude today's conference. Let me disconnect your lines at this time. Thank you for your participation. Have a wonderful day.