Q2 2025 Holley Inc Earnings Call

Anthony Rozmus: Good morning, ladies and gentlemen, and welcome to the conference call to discuss Holley's second quarter 2025 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. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Holley. And 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 Rozmus with Investor Relations. Please go ahead.

Good morning, ladies and gentlemen and welcome to the conference call to discuss how these second quarter 2025 earnings results. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and an instructions for asking questions will be provided at that time. We ask that participants limit themselves to 1 question and 1 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 of Holly. And as a reminder, this call is being recorded and will be made available for future playbacks. I would now, like to introduce your host. For today's call, Anthony Ross, with investor relations. Please go ahead.

Jesse Weaver: Good morning, and welcome to Holley's second quarter 2025 earnings conference call. On the call with me today are President and Chief Executive Officer Matthew Stevenson and Chief Financial Officer Jesse Weaver. This webcast and 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 the ones described in our SEC filings. This morning, we'll review our financial results for the second quarter 2025 and discuss guidance for full year 2025. At the conclusion of the prepared remarks, we'll open the line up for questions. With that, I'll turn the call over to our CEO, Matthew Stevenson.

Matthew Stevenson: Thank you, Anthony, and good morning, everyone. As we look back on our second quarter of 2025, I am happy to report that the momentum we began building more than 24 months ago continues to grow. It's been a highly productive quarter, one that not only reflects strong operational discipline but also the impact of staying focused on our strategic priorities. Thank you, as always, for your continued support as we navigate a constantly evolving consumer and macroeconomic environment. For the second straight quarter, our core business delivered solid growth. Just as a quick reminder, when we say core business, we're referring to results that exclude the businesses we divested and the product lines we phased out as part of last year's strategic rationalization efforts. This quarter, our team made strong progress across the board, with core growth showing up in every division of the company.

Good morning and welcome to Holly second quarter 2025 earnings conference. Call on the call with me today, our president, and chief executive officer, Matthew Stevenson, and Chief Financial Officer. Jesse Weaver this webcast and 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 our subject to risk and uncertainty, including the ones described in our SEC filings this morning, we will review our financial results for the second quarter of 2025 and discuss guidance for full year 2025 at the conclusion of the prepared, remarks, we'll open the line up for questions with that. I'll turn the call over to our CEO. Matthew Stevenson,

Thank you, Anthony and good morning, everyone.

As we look back on our second quarter of 2025, I am happy to report that at the moment and we began building more than 24 months ago continues to grow.

It's been a highly productive quarter.

Strong operational discipline, but also the impact of staying focused on our strategic priorities.

Thank you, as always, for your continued support, as we navigate a constantly evolving consumer and macroeconomic environment.

For the second straight quarter, our Core Business delivered, solid growth.

Just as a quick reminder, when we say Core Business, we're referring to results that exclude the businesses. We divested in the product lines we phased out as part of last year's strategic rationalization efforts,

Matthew Stevenson: What's especially encouraging is that we're again seeing this momentum in both our direct-to-consumer and business-to-business channels. That speaks to the strength and balance of our omnichannel strategy. As we emphasized many times before, our omnichannel approach is a cornerstone of our growth strategy as the leading consumer enthusiast platform and automotive performance aftermarket. We're committed to meeting customers wherever they choose to do business, whether it's through retailers, distributors, wholesalers, third-party marketplaces, installers, national retailers, or our own e-commerce platform. Our second quarter performance reflects the foundation we have built over the last two years in key areas like go-to-market execution, product innovation, digital capability, and operational excellence, all of which are now driving the progress we're making under our three-year strategic plan. With that foundation firmly in place, we're focused on keeping up the momentum and building on the progress we've already made.

This quarter, our team made strong progress across the board, with core growth, showing up in every division of the company. What's a specialty occurring is that we're again seeing this momentum in both our direct to Consumer and business to business channels, that speaks to the strength and balance of our Omni channel strategy.

As we emphasized many times before, our Omni Channel approach is a Cornerstone of our growth strategy as a leading consumer Enthusiast platform and automotive performance, aftermarket, we're committed to meeting customers wherever they choose to do business. Whether it's through retailers, Distributors, wholesalers third-party marketplaces installers National retailers or our own e-commerce platform.

Our second quarter performance, reflects the foundation. We had built over the last 2 years. In key areas like go to market execution product Innovation, digital capability, and operational excellence all of which are now driving the progress. We're making under our 3 year, strategic plan,

Matthew Stevenson: Before we get into the specifics of Q2 performance, I want to revisit something we discussed last quarter, and that's tariffs. I'm proud to say that the tariff mitigation plan we introduced in Q1 is working, thanks to the incredible effort and execution from teams across the company. This wasn't luck. It was a result of careful planning, strong cross-functional teamwork, and consistent hard work. From the initiatives we developed to lower our tariff exposure across the supply chain to the pricing strategies we rolled out this past spring, all of it has come together to form a smart, resilient response. Because of these efforts, we're currently not forecasting any meaningful impact to free cash flow or margins this year or next. This is a great example of how strong leadership, operational focus, and a culture of accountability can overcome major challenges and deliver real results.

With that foundation firmly in place, we're focused on keeping up the momentum and building on the progress we've already made.

Before we get into the specific of Q2 performance, I want to revisit something. We discussed last quarter and that's tariffs.

I'm proud to say that. The Tariff mitigation plan. We introduced in q1 is working.

Thanks to the incredible effort and execution from teams across the company.

This wasn't luck.

It was a result of careful planning, strong cross functional teamwork and consistent hard work.

From the initiatives, we developed to lower our tariff exposure across the supply chain to this pricing strategies. We rolled out this past spring.

All of it has come together to form a smart, resilient response.

Because of these efforts, we're currently not forecasting, any meaningful impact to free cash flow or margins this year or next.

Matthew Stevenson: Now, let's turn to slide five, which includes our highlights for the second quarter of 2025. We continued to build momentum in Q2, delivering a solid 3.9% revenue growth in our core business across all divisions. This performance reflects the consistent execution of our strategy and the resilience of our operating model. Most notably, we achieved free cash flow of 35.7 million, marking the highest quarterly free cash flow generated in our history. This is a clear testament to both our disciplined capital management and the strong cash-generating power of the business. We continued to execute against our strategic framework, which drove approximately 27 million in revenue from key initiatives this quarter. This includes focused workstreams across our commercial and operational pillars that are accelerating profitable growth. Our growth remained broad-based, with expansion across more than 20 of our brands in both the direct-to-consumer and business-to-business channels.

This is a great example of how strong leadership operational focus and a culture of accountability can overcome major challenges and deliver Real Results.

Now, let's turn to slide 5, which includes our highlights for the second quarter of 2025.

We continue to build momentum in Q2, delivering a solid 3.9% Revenue growth in our Core Business, across all divisions.

This performance reflects consistent, execution of our strategy, and the resilience of our operating model.

Most notably we achieve free cash flow of 35.7 million marking the highest quarterly free cash flow generated in our history.

This is a clear Testament to both our disciplined Capital Management and the strong cash generating power of the business.

We continue to execute against our strategic framework, which drove approximately 27 million in revenue from Key initiatives. This quarter, this includes focused work streams across our commercial and operational pillars that are accelerating profitable growth.

Matthew Stevenson: In the B2B channel, we further strengthened our relationships with key partners, driving approximately 6.5% growth in the channel. This growth stems from increased sales support, deeper integration with our partners, and a relentless focus on customer satisfaction. In direct-to-consumer, we saw an increase of 8.6% overall, with especially strong performance on third-party marketplaces like Amazon and eBay, which grew over 28%. These platforms continue to be a major growth lever for us as we meet customers where they prefer to shop. Product innovation remains the cornerstone of our performance. Combined with strategic pricing initiatives, our efforts contributed 10.8 million in incremental revenue this quarter. We continue to calibrate pricing to match customer value perception while ensuring competitiveness and profitability across all channels. Lastly, as I mentioned, we made significant strides in our supply chain initiatives, which are forecasted to effectively offset tariff-related pressures and help preserve margin stability.

Our growth remained broad-based with the expansion across more than 20 of Our Brands in both the direct to Consumer and business to business channels in the B2B Channel. We further strengthened our relationships with key Partners driving approximately 6 and a half percent growth in the channel.

This growth stems from increased sales, support deeper integration with our partners and a Relentless focus on customer satisfaction.

and directed consumer, we saw an increase of 8.6% overall with a specially strong performance on third-party Market places, like Amazon and eBay, which grew over 28%

These platforms continue to be a major growth lever for us as we meet customers where they prefer to shop.

Product Innovation remains a Cornerstone of our performance combined with strategic pricing initiatives. Our efforts contributed 10.8 million in incremental Revenue this quarter,

We continue to calibrate pricing to match customer value perception, while ensuring competitiveness and profitability across all channels.

Matthew Stevenson: These efforts underscore our proactive approach to tackling issues head-on and getting in front of them before they impact the business. Let's turn to slide six, which features some more quantitative highlights from the second quarter of 2025. We achieved net sales of 166.7 million, reflecting a 3.9% increase in the core business compared to the prior year. This solid growth continues to validate the strength of our strategic execution and the dedication of our teams across all divisions. Our gross margins were 41.7%, up 26 basis points year over year, demonstrating continued stability and positive momentum even in the face of external cost pressures. The improvement is partially due to strategic product and pricing actions, as well as operational initiatives, including supply chain efficiency. Free cash flow, as I mentioned, reached 35.7 million, an increase of 11.3 million versus the prior year.

Effectively offset, tariff, related pressures and help preserve margin stability.

These efforts underscore our proactive approach to tackling issues, head-on, and getting in front of them before they impact the business.

Let's turn to slide 6, which features some more quantitative highlights from the second quarter of 2025.

We achieved net sales of 166.7 million, reflecting a 3.9% increase in the core business compared to the prior year.

This solid growth continues to validate the strength of our strategic execution in the dedication of our teams across all divisions.

Our gross margins were 41.7% of 26 basis points. Year-over-year demonstrating continued, stability, and positive, momentum. Even in the face of external cost pressures,

The Improvement is partially due to strategic product and pricing actions as well as operational initiatives. Including supply chain efficiency.

Matthew Stevenson: This strong cash generation highlights the underlying strength of the business, aided by disciplined capital allocation and working capital management. Adjusted EBITDA margin came in at 21.9%, down 74 basis points year over year. This decline reflects the normalization following prior year skewed rationalizations and divestitures, but it remains well within expectations given the shift in product mix and ongoing investments in innovation and growth. Regarding new product activity in Q2, we introduced several launches across our portfolio, and I'd like to highlight just a few standout examples. We launched a Terminator X Bluetooth module, enabling wireless engine tuning via a smartphone. It's quickly gaining traction with strong early demand, enhancing our EFI platform and driving mobile integrated growth. We also expanded our Arizona Desert Shocks Mesa 2.5 line by adding new applications to meet growing demand in the off-road market.

Free cash flow. As I mentioned reached 35.7 million an increase of 11.3 million versus the prior year.

This strong cash generation highlights the underlying strength of the business, aided by disciplined capital allocation and working capital management.

Adjusted even to margin came in at 21.9% down, 74 basis. Points year-over-year. This decline reflects the normalization following prior year, skew rationalizations and devasena.

Regarding new product activity. In Q2, we introduced several launches across our portfolio and I'd like to highlight just a few Stand Out examples.

We launched a Terminator X Bluetooth, module. Enabling Wireless Engine Tuning via a smartphone.

It's Quickly. Gaining traction, with strong, early demand, enhancing our EFI platform and driving mobile integrated growth.

Matthew Stevenson: These premium shocks deliver exceptional performance and durability, positioning ADX for continued growth with enthusiasts seeking race-proven technology for everyday builds. In our Euro segment, our APR brand introduced new high-performance exhaust systems for the Audi S4 and S5 platforms. These upgrades deliver improved sound, reduced back pressure, and weight savings, broadening our appeal in the premium European space. Additionally, we released new colorways for the Simpson Outlaw Bandit 3.0 motorcycle helmet, building on the popularity of this iconic model. The refreshed designs inject energy into a top-performing product and further strengthen our position in motorcycle safety. Together, these launches highlight a small example of our continued focus on innovation, consumer engagement, and expanding our leadership across key enthusiast categories. On the operational metrics, we also delivered significant progress in the quarter.

We also expanded our Arizona desert shocks Mesa 2.5 line by adding new applications, to meet growing demand in the off-road Market.

These premium shocks deliver exceptional performance and durability. Positioning ads for continued growth with enthusiasts, seeking race-proven technology for everyday builds.

In our Euro segment. Our APR brand introduced new high-performance exhaust systems for the Audi S4 and S5 platforms.

These upgrades deliver improved sound reduce back, pressure and weight savings broadening RPO and the premium European space.

Additionally, we release new colorways for the Simpson Outlaw Bandit 3.0 motorcycle helmet building on this popularity of this iconic model.

The refresh designs inject energy into a top performing product and further strength strength in our position in motorcycle, safety.

Together. These launches highlight a small example of our continued, focus on Innovation, consumer engagement, and expanding our leadership, across key Enthusiast categories,

Matthew Stevenson: We achieved a 2.2% year-over-year increase in the in-stock rates for our top 2,500 products, a million-dollar improvement in operational efficiency, and a 17% year-over-year reduction in past dues. Additionally, we reduced inventory by approximately 9 million since the beginning of the year, contributing meaningfully to improved cash flow and working capital efficiency. On the marketing front, our focused promotional efforts continue to drive results. We recorded an 8.6% year-over-year increase in D2C sales, bolstered by third-party platform growth of more than 28%. Our earned media impressions reached 463 million from 657 media clips, and our social media following grew 2% over the previous year, reflecting deeper engagement with our enthusiast customer base. In summary, our second quarter performance demonstrates continued execution of our strategic priorities, driving growth, operational excellence, and shareholder value creation across every part of the organization.

On the operational metrics. We also delivered significant progress in the quarter.

We achieved a 2.2% year-over-year, increase in the, in stock rates, for our top 25500 products, a million-dollar Improvement in operational, efficiency and a 17% year-over-year reduction in past dues.

Additionally, we've reduced inventory by approximately 9 million since the beginning of the year, contributing meaningfully to improved cash flow and working capital efficiency.

On on the marketing front, our Focus promotional efforts continue to drive results.

We recorded 8.6% year-over-year. Increase in D Toc sales bolstered by third-party platform growth of more than 28%.

Our earned media Impressions. Reached 463 million from 657, media clips and our social media following grew 2% over the previous year reflecting deeper engagement with our Enthusiast, customer base.

In summary our second quarter performance, demonstrates continued execution of our strategic priorities, driving growth, operational excellence. And shareholder value creation across every part of the organization.

Matthew Stevenson: Let's take a closer look at some of the standout core business growth we saw across our divisions in Q2, shown on slide seven. In the domestic muscle vertical, we delivered 6% year-over-year growth, driven by sustained consumer demand and the enduring strength of our brands. Many brands within this division posted high single-digit growth in our core product categories, highlighting solid performance across the board. Our modern truck and off-road division led the way with an impressive 17% growth. This was fueled by standout results from several of our priority brands, including at least five of our power brands that recorded double-digit growth in their core businesses. The Euro and import division experienced strong momentum as well, up 4%. Now, the Euro brands are dynamic in APR within this, were up 20% combined.

Let's take a closer look at some of the standout Core Business growth. We saw across our divisions in Q2 shown on slide 7.

In the domestic muscle vertical. We delivered 6% year-over-year growth.

Driven by sustaining consumer demand in the enduring strength of our brands.

Our modern truck and off-road division led the way with an impressive 17% growth.

This was fueled by standout results from several of our priority Brands, including at least 5 of our power brands that recorded double digit growth in their core businesses.

The Euro and import Division and experience strong momentum as well, a 4%?

Matthew Stevenson: However, this growth was offset by year-over-year revenue timing shifts in our import division, which moderated overall performance in this vertical. The safety and racing division reported 1% growth, but that figure doesn't fully reflect what's happening under the surface. Our Simpson and RaceCoup brands posted a combined 15% growth. Plus, the division is currently navigating a regulatory transition known as the SNEL cycle, which happens every five years and impacts automotive motorsports helmets. Distributors are limiting orders until the next certification, SA 2025 helmets, become available to enthusiasts in October. As a result, we anticipate a significant rebound and growth in the second half of the year. Overall, these results affirm the strength and the resilience of our core business. Our strategic focus on investing in power brands, streamlining accountability, and aligning resources is driving measurable success.

Now, the Euro brands are dying in an APR. With within this, we're up 20% combined.

However, this growth was offset by year-over-year revenue of timing shifts in our import division, which moderated overall performance in this vertical.

The safety and racing division reported 1% growth.

But that figure doesn't fully reflect. What's happening under the surface.

Our Simpson race. Quit Brands posted a combined, 15% growth.

Plus, the division is currently navigating a regulatory transition known as the snail cycle.

Which happens every 5 years and impacts Automotive, Motorsports helmets.

Distributors are limiting orders until the next certification essay 2025 helmets, become available to enthusiasts in on October.

As a result, we anticipate a significant rebound and growth in the second half of the year.

Matthew Stevenson: Despite a challenging market environment, our commitment to brand leadership and disciplined execution continues to deliver sustainable core growth across our major divisions. On slide eight, we revisit the eight areas that form the foundation of our strategic framework, which we have reviewed in prior calls. At the center of this framework lie our steering principles. The first of these principles is fueling our teammates, which supports our ambition to establish Holley as a recognized, great place to work. Our focus remains on fostering a workplace where team members feel empowered, have meaningful opportunities for advancement, and look forward to being part of a dynamic and inclusive environment. Our second principle is supercharging our customer relationships, whether that's with our passionate consumers or our trusted B2B collaborators.

Overall, these results affirm the strength and the resilience of our Core Business. Our strategic focus on investing in power Brands, streamlining, accountability, and aligning resources is driving measurable success.

Despite a challenging Market environment, our commitment to Brand leadership and discipline execution, continues to deliver sustainable core growth across our major divisions.

On slide 8.

We revisit the 8 areas that form the foundation of our strategic framework which we have reviewed in Prior calls.

At the center of this framework Lis steering principles.

The first of these principles is fueling our teammates which supports our ambition to establish Holly as a recognized. Great place to work.

Our Focus remains on fostering a workplace where team members, feel empowered, have meaningful opportunities for advancement and look forward to being part of a dynamic and inclusive environment.

Matthew Stevenson: This principle touches three vital components of the framework: building and delivering the premier consumer journey in our industry, becoming a trailblazing trusted partner to our B2B customers by finding innovative paths for shared growth, and bringing to market innovative new products that set the benchmark in their categories. We support these priorities by deliberately managing and merchandising our entire portfolio with clear differentiation. The third and final principle, accelerating profitable growth, focuses on strategic expansion into new global and adjacent markets, pursuing transformational M&A, and enabling reinvestment through continuous operational improvements. Together with the other initiatives, these actions drive us toward our overarching aim: delivering superior financial results. Now on to slide nine. I'm pleased to share the highlights and the achievements for the second quarter as captured in our updated strategic initiative tracker.

Our second principle is supercharging, our customer relationships, whether that's with our passionate consumers, or our trusted B2B collaborators

This principle touches 3 vital components of the framework.

Building and delivering the premier consumer journey in our industry. Becoming a trailblazing trusted partner to our B2B customers by finding Innovative past for shared growth.

And bringing to Market Innovative new products that sent the Benchmark in their categories.

We support these priorities by deliberately managing and Merchandising our entire portfolio with clear differentiation.

The third and final principle accelerating profitable growth focuses on strategic expansion into new global and adjacent markets, pursuing transformational M&A, and enabling reinvestment through continuous.

Operational improvements.

Together with the other initiatives, these actions drive us toward our overarching, aim delivering Superior Financial results.

Matthew Stevenson: Under our trailblazing trusted partner pillar, encompassing our B2B efforts, we've seen another quarter of strong performance. Revenue from our top 50-plus accounts accelerated significantly, contributing 8.3 million in the growth. Our Holly Pro Small Customer initiative also continued to gain momentum, adding 1.8 million in revenue, thanks to our focused sales team, proactive outreach, and deepened customer relationships. In total, these B2B sales initiatives contributed 13.2 million in incremental revenue in Q2. Turning to our premier consumer journey pillar, our e-commerce strategy remains a key driver of growth. Year to date, e-commerce revenue is up approximately 4 million. Our efforts on third-party platforms, especially the Amazon, have been particularly successful, with over 50% growth in Amazon sales and over 40% growth across all three key platforms in the first half. These efforts alone added 2.2 million in incremental revenue during the second quarter.

Now, on to slide 9, I'm pleased to share the highlights in the achievements for the second quarter as captured in our updated strategic initiative tracker.

Under our trailblazing trusted partner pillar encompassing. Our B2B efforts we've seen another quarter of strong performance.

Revenue from our top 50 Plus accounts accelerated significantly contributing 8.3 million in the growth. Our Holley Pro small customer initiative. Also continued to gain momentum, adding 1.8 million in Revenue. Thanks to our Focus sales team, proactive, Outreach and deepen, customer relationships in total.

these B2B sales initiatives, contributed 13.2 million in incremental Revenue in Q2,

Turning to our Premiere consumer Journey pillar our e-commerce. Strategy remains a key driver of growth.

Year to date, e-commerce. Revenue is up approximately 4 million.

Our efforts on third-party platforms, especially Amazon, have been particularly successful with over 50% growth. In Amazon sales, we've seen over 40% growth across all third-party platforms in the first half.

These efforts loan added 2.2 million in incremental Revenue during the second quarter.

Matthew Stevenson: Innovation continues to be a cornerstone of our growth. We launched new products across all four divisions, delivering approximately 8 million in revenue. At the same time, our portfolio management strategies, including strategic pricing and optimization of our active portfolio, generated an additional 3 million in B2B sales. In total, this pillar added 11 million to our top line in Q2. Our international expansion efforts remain on track. The progress in Mexico has validated our product-market fit and our go-to-market strategy, setting a solid foundation for future growth. Additionally, we expanded our reach in the car dealer channel with six more BMW dealers joining the dynamic program, bringing the total to 28 participating dealers. These combined initiatives, while still early in their adoption, generated 1.1 million in revenue for the quarter. We continue to make strong progress under our fund-to-growth pillar.

Management. Strategies, including strategic pricing and optimization of our active portfolio generating additional 3 million in B2B sales.

In total, this pillar added 11 million to our Top Line in Q2.

Our International expansion efforts remain on track. Their progress in, Mexico is validated our product Market fit, and our go to market strategy, setting a solid foundation for future growth.

Additionally, we expanded our reach in the car dealer channel with six more BMW dealers joining the dining program, bringing the total to 28 participating dealers.

These combined initiatives while still early in their adoption, generated 1.1 million in revenue for the quarter.

Matthew Stevenson: In Q2 alone, we completed and implemented over 2.5 million in purchase savings projects and achieved more than a million dollars in operational improvements. Together, these efforts resulted in 3.5 million in cost savings for the quarter. We're also proud of the ongoing progress we're making in strengthening our culture and employee engagement. As reported last quarter, we saw a 3% increase in our Great Place to Work Pulse survey scores, an encouraging sign of our efforts taking root. Looking ahead, we're excited to build on this momentum with our annual employee survey scheduled for later this fall. Additionally, through continued operational efficiencies, we remain on track to achieve our year-end target for revenue per employee. All told, we generated 27 million in revenue from key strategic initiatives and achieved 3.5 million in cost savings.

We continue to make strong progress under our fund. The growth pillar in Q2 alone, we completed and implemented over 2 and a half million of purchase savings projects and achieve more than a million dollars in operational improvements.

Together, these efforts resulted in a 3.5 million in cost savings for the quarter.

We're also proud of the ongoing progress we're making and strengthening our culture and employee engagement.

As reported last quarter, we saw 3% increase in our great place to work pulse, survey scores and encouraging sign of our efforts taking route.

Looking ahead. We're excited to build on this momentum with our annual employee surveys. Scheduled for later this fall.

Additionally through continued operational efficiencies, we remain on track to achieve our year-end Target for Revenue per employee.

All told we generated 27 million in revenue from Key strategic conditions and Achieve 3 and a half million in cost savings.

Matthew Stevenson: In addition to advancing our strategic initiatives, we have continued to prioritize actions to mitigate the impacts of tariffs introduced since our last meeting. As we promised during our last earnings call, we would come back to you during this August call and provide greater clarity to the impact of tariffs to our business, both in 2025 and 2026. Today, we are going to do that. Let's walk through some more detail first on slide 10. During last quarter's call, we outlined our detailed, comprehensive plan to tackle tariffs, an effort we had already been driving through a swiftly established cross-functional project management office. To address the various aspects of tariff mitigation, we organized the work into five major workstreams: governance, products, logistics, and supply chain, regulatory and classifications, and pricing and margin protection.

In addition, to advancing our strategic in issues, we have continued to prioritize actions to mitigate the impacts of tariffs introduced since our last meeting.

As we promised during our, our last earnings call that we would come back to you during this August call and provide greater Clarity to the impact of tariffs to our business.

Both in 2025 and 2026.

Today, we are going to do that.

Let's walk through some more detail, first on slide 10.

During last quarter's call, we outlined our detailed comprehensive plan to tackle tariffs.

and after we had already been driving through a swiftly established cross-functional project management office,

Matthew Stevenson: Our approach was multifaceted, supported by daily meetings to maintain momentum, track progress, and ensure alignment across teams. Each workstream was intentionally structured to address a distinct set of challenges and opportunities, enabling a coordinated and effective response. As we highlighted, the product workstream was a particularly critical component of our overall strategy. It kicked off approximately 120 days ago with an ideation workshop involving 11 product teams, each led by dedicated team leaders. The workshop focused on identifying and prioritizing high-impact initiatives and building a consistent, executable playbook. That playbook included supplier negotiations, relocations, resourcing decisions, footprint analysis, and make versus buy evaluations. In addition, we verified product classifications to ensure compliance and to optimize how our products are coded. The collective focus, coordination, and tenacity across all teams have led to meaningful results, which I'll walk through next on slide 11.

To address the various aspects of the Tariff mitigation. We organized a work into 5, major work streams, governance products Logistics and supply chain Regulatory, and classifications, and pricing, and margin protection.

Our approach was multifaceted supported by daily meetings, to maintain momentum, track progress, and ensure alignment across teams.

Each work stream was intentionally structured to address the distinct set of challenges and opportunities, enabling a coordinated and effective response.

As we highlighted, the product work stream was a particularly critical component of our overall strategy.

It kicked off approximately 120 days ago, with an ideation Workshop involving 11 product teams.

Each led by dedicated team leaders.

The workshop focused on identifying and prioritizing high impact in issues and building a consistent executable Playbook.

That Playbook included supplier. Negotiations relocations.

Resourcing decisions.

Footprint analysis and make versus buy evaluations.

In addition.

We verified product classifications to ensure compliance.

And to optimize how our products are coded.

Matthew Stevenson: Through a combination of strategic negotiations with existing suppliers, targeted relocations, sourcing from new partners in lower-cost regions, and selective insourcing, we've executed on over $15 million in tariff mitigation opportunities through 2026. While disciplined execution will continue to be essential, we're confident in our strategy, our team's capabilities, and our ability to successfully navigate this evolving landscape. In short, our response to the tariff environment has been both proactive and comprehensive. We launched dedicated workstreams, facilitated cross-functional workshops, secured optimized logistics solutions, brought in leading regulatory experts, and executed targeted pricing actions, all aimed at minimizing the financial impacts of tariffs on our business. That said, we all understand that the tariff landscape remains highly fluid. However, based on the progress of our current mitigation efforts and pricing strategies, we are not projecting any adverse impact to free cash flow or margins in 2025 or 2026.

The collective Focus coordination and tenacity across all teams have led to meaningful results which I'll walk through next on slide 11.

Through a combination of strategic negotiations with existing suppliers, targeted, relocation sourcing from new partners and lower cost regions and selective insourcing.

We've executed on over 15 million dollars in tariff, mitigation opportunities through 2026.

While disciplined execution, will continue to be essential.

we're confident in our strategy, our team's capabilities,

And our ability to successfully navigate this evolving landscape.

In short, our response to the tariff environment has been both proactive and comprehensive. We launched dedicated work streams, facilitated cross-functional workshops, optimized logistics solutions, brought in leading regulatory experts, and executed targeted pricing actions, all aimed at minimizing the financial impact of tariffs on our business.

Gate remains highly fluid.

However, baits on the progress of our current mitigation efforts and pricing strategies. We are not projecting any adverse impact to free cash flow or margins in 2025 or 2026.

Matthew Stevenson: With that, I'll now turn things over to Jesse, who will walk us through a detailed financial analysis and year-over-year comparison of our Q2 2025 performance, followed by a deeper look into the projected impact of our tariff mitigation strategy. Jesse.

With that.

I'll now turn things over to Jesse who will walk us through a detailed financial analysis in year-over-year. Comparison.

Of our Q2 2025 performance. Followed by a deeper, look into the projected impact of our terrific mitigation strategy.

Jesse.

Jesse Weaver: Thank you, Matt, and good morning, everyone. I'd like to start by providing an update on our progress against our financial priorities, then discuss our second quarter 25 results, our updated view on the tariff impacts to free cash flow, and our refinements to our guidance. Moving to slide 13, we remain focused on our financial priorities, which are restoring historical profitability and optimizing working capital. Our keen focus on these financial priorities has allowed us to generate our strongest quarterly free cash flow results in the history of Holley, achieving approximately 35.7 million in Q2. We relentlessly work towards restoring historical profitability and make progress towards our full-year operational efficiency targets again in the second quarter. We saved roughly an additional million dollars in the second quarter, primarily driven by a reduction in freight costs, which brought our year-to-date cost savings in 25 to just over 2 million.

Thank you, Matt, and good morning everyone. I'd like to start by providing an update on our progress against our financial priorities, then discuss our second quarter of 25 results. Our updated view on the Tariff impacts, the free cash flow and our refinements to our guidance.

Moving to slide 13. We remain focused on our financial priorities, which are restoring historical profitability and optimizing working capital.

Our Keen focus on these Financial priorities is allowed us to generate our strongest quarterly free cash flow results in the history of Holi achieving approximately 35.7 million in Q2.

Jesse Weaver: And as a reminder, we anticipate savings of 5 to 10 million through improved manufacturing efficiency, warranty and return policy compliance, and quality improvements to better the customer experience in 25. In Q2, we made strong progress optimizing working capital by proactively managing inventory, by continuing to make improvements in our sign-up processes to build a more agile, demand-driven model. These efforts are aligning production with market needs, optimizing safety stock and lead times, and cutting slow-moving inventory, all while maintaining high service levels and boosting operational efficiencies. Through these efforts, we've been able to reduce inventory by more than $9 million year to date and are on track to achieve our year-end reduction target of 10 to 15 million. On slide 14, we'll walk through our key financial metrics for the second quarter.

We relentlessly worked towards restoring historical profitability and make progress towards our full year. Operational efficiency targets again in the second quarter, we saved roughly an additional million dollars in the second quarter. Primarily driven by a reduction in freight costs, which brought our year to today cost Savings in 25 to just over 2 million.

And as a reminder, we anticipate Savings of 5 to 10 million through improved manufacturing, efficiency warranty and return policy compliance and quality improvements to better the customer experience in 25.

In Q2 we made strong progress, optimizing working capital by proactively managing inventory, by continuing to make improvements in our Scout processes to build a more agile demand-driven model. These efforts are aligning production with Market needs optimizing Safety stock, and lead time and cutting slow moving inventory. All while maintaining High service levels and boosting operational efficiencies,

Through these efforts, we've been able to reduce inventory by more than 9 million dollars year to date and are on track to achieve our year-end reduction Target of 10 to 15 million.

Jesse Weaver: Net sales for the second quarter were 166.7 million versus 169.5 million in the same period a year ago. The decrease was primarily related to lower sales volume, partially offset by improved price realization. Excluding approximately $9 million of divestiture and strategic product rationalization sales from net sales for the second quarter of '24, we achieved growth of roughly 3.9%, exceeding our expectations for the quarter. Core business growth once again came across all divisions and is a byproduct of the execution across all aspects of our strategic framework for '25. Gross profit was 69.6 million in the quarter compared to 70.3 million in the same period last year. Gross margin for the quarter was 41.7%, an increase of 26 basis points versus 41.5% in the prior year. This increase was primarily due to significant clearance activity in the prior year and not repeated in 2025.

On slide 14, we'll walk through our key financial metrics for the second quarter.

Net sales for the second quarter were 166.7 million versus 169.5 million in the same period a year ago.

The decrease was primarily related to lower sales, volume, partially offset by improved price realization.

Excluding approximately 9 million of deveste and strategic product rationalization sales from net sales for the second quarter of 24. We achieved growth of roughly 3.9%. Its seeding our expectations for the quarter.

Core Business growth. Once again, came across all divisions and is a byproduct of the execution across all aspects of our strategic framework for 25.

Gross profit was 69.6 million in the quarter compared to 70.3 million in the same period last year, gross margin for the quarter was 41.7%. An increase of 26 basis points versus 41.5% in the prior year.

Jesse Weaver: SG&A, including R&D expenses for the second quarter, was 38 million versus 38.9 million in the same period for the prior year. Overall, salaries increased for the company in the second quarter of '25 compared to the second quarter of '24. The increase is due to the furlough that occurred in '24 that was offset by a decrease of transformational consulting fees. Net income for the second quarter was 10.9 million versus net income of 17.1 million in the second quarter of '24. Adjusted net income in the second quarter was 10.6 million versus adjusted net income of 12.6 million in the same period of last year. Adjusted EBITDA for the quarter was 36.4 million compared to 38.3 million in the prior year, primarily due to higher growth among distribution partners coupled with increased rebates and the absence of the furlough impact seen in 2024.

This increase was primarily due to significant clearance activity in the prior year and not repeated in 2025.

SG&A, including R&D expenses for the second quarter, was $38 million versus $38.9 million in the same period for the prior year.

Overall, salaries increase for the company in the second quarter of 25 compared to the second quarter of 24.

The increase is due to the Furlow that occurred in 24 that was offset by a decrease of transformational Consulting fees.

Net income for the second quarter was $10.9 million, compared to net income of $17.1 million in the second quarter of last year. Adjusted net income for the second quarter was $10.6 million, versus adjusted net income of $12.6 million in the same period of last year.

Jesse Weaver: Adjusted EBITDA margin was 21.9% versus 22.6 in the second quarter of '24. On slide 15, you can see this quarter we delivered record quarterly free cash flow of 35.7 million compared to 24.4 million in free cash flow for the same quarter a year ago. This performance was driven by continued improvements in operational efficiency and successful optimization of working capital across the business. While we're proud of the strong free cash flow performance this quarter, we're also very mindful of the headwinds ahead, particularly the potential impact of recently implemented tariffs. With that in mind, let's turn to page 16, where we've outlined the expected minimal net impact of tariffs on our free cash flow. As Matt had mentioned earlier, our team has been relentlessly focused on mitigating the impact of tariffs through a comprehensive set of strategies.

Adjusted. Evida for the quarter was 36.4 million compared to 38.3 million in the prior year. Primarily due to the higher growth among distribution Partners, coupled with increased rebates and the absence of the Furlow impact seen in 2024 adjusted Eva margin was 21.9% versus 20.

6, and the second quarter of 24.

On slide 15, you can see that this quarter we delivered record quarterly free cash flow of $35.7 million, compared to $24.4 million in free cash flow for the same quarter a year ago.

This performance was driven by continued improvements in operational, efficiency, and successful optimization of working capital across the business. Well, we're proud of the strong free cash flow performance. This quarter. We're also very mindful of the headwinds ahead, particularly the potential impact of recently implemented tariffs.

Jesse Weaver: And as you can see on 16, we have actions in motion that are expected to offset more than 15 million in additional tariff-related costs between 2025 and 2026. Despite ongoing inflationary pressures and a continually evolving tariff landscape, we remain proactive and disciplined in managing our operations. We project that the combination of our tariff mitigation initiatives and strategic pricing actions position us to fully offset tariff-related headwinds in 2025. Looking further ahead into '26, we expect net pricing gains and mitigation efforts to not only absorb anticipated tariff costs but also support our ability to maintain strong free cash flow generation even in an environment of potentially lower volume. On slide 17, we reduced our covenant net leverage at the end of the second quarter to 4.22 times versus 4.32 times a quarter ago, which remains well under the five times covenant when the revolver is drawn.

This Matt had mentioned earlier, our team has been relentlessly focused on mitigating the impact of tariffs through a comprehensive set of strategies.

And as you can see on 16, we have actions in motion that are expected to offset more than 15 million in additional tariff related costs between 2025 and 2026.

Despite ongoing inflationary pressures and a continually evolving tariff landscape. We remain proactive in disciplined in managing our operations.

We projected the combination of our tariff mitigation initiatives and strategic pricing actions position us to fully offset tariff, related headwinds in 2025.

Looking further ahead into 26, we expect net pricing gains and mitigation efforts to not only absorb anticipated tariff costs, but also support our ability to maintain strong, free cash flow generation even in an environment of potentially lower volume.

On. Slide 17. We reduced our covenant, net, leverage at the end of the second quarter to 4.22 times versus 4.32 times a quarter ago, which remains well under the 5 times Covenant.

Jesse Weaver: At the end of the quarter, there was no outstanding balance on our revolver, and we concluded the quarter with 63.8 million in cash and no expectation of drawing on the revolver in the near term. This brings our total net debt to just under 500 million for the quarter. As a team, we are pleased with our execution in the first half of the year. We've built on the success of Q1 with core business growth again in the second quarter. As we move into the second half of the year, we are keeping a close eye on a mixed economic landscape. However, we have more clarity on expected tariffs for '25, though broader trade conditions remain fluid. Therefore, with sales trending flat to start Q3 and mixed macro signals, we're taking a measured approach to our guidance.

when the revolver is drawn,

At the end of the quarter, there is no outstanding balance on our revolver. And we continue concluded the quarter with 63.8 million in cash and no expectation of drawing. All the revolver in the near term.

This brings our total, net debt to just under 500 million for the quarter.

As a team, we are pleased with our execution in the first half of the year. We've built on the success of q1 with Core Business growth. Again in the second quarter, as we move into the second half of the year, we are keeping a close eye on a mixed economic landscape.

Jesse Weaver: Our updated full year '25 guidance reflects both the known effects of tariffs and consumer trends. We are tightening our 2025 revenue range to 580 million to 595 million, which implies approximately a 2.2% growth at the midpoint over the core business base of roughly 575 million in 2024. Additionally, we have tightened our range for our 2025 adjusted EBITDA guidance to 116 million to 127 million, from 113 million to 130 million. Our first half results were stronger than originally expected and a direct result of the team's execution upon our strategic framework. While we continue to operate in an uncertain macro environment, we delivered two consecutive quarters of core business growth. We continue to build on this momentum and have better visibility on the impacts of known tariffs today, which are captured in our 2025 guidance.

However, we have more clarity on the expected tariffs for 25, though. Broader trade conditions, remain fluid, therefore, with sales training flat to start Q3 and mix macro signals. We're taking a measured approach to our guidance, our updated full year, 25 guidelines, the known effects of tariffs and consumer trends

We are tightening our 2025 Revenue range to 580 million to 595 million, which implies approximately a 2.2% growth at the midpoint Over The Core Business, base of roughly 575 million in 2024.

Additionally, we have tightened our range for our 2025 adjusted ebit. Dog guidance to 116 million to 127 million from 113 million to 130 million.

Jesse Weaver: While we remain mindful of the evolving environment and the fluid tariff situation, we are confident that the operational discipline and momentum we have built will continue to serve us well as we move through the balance of the year. This concludes our prepared remarks. We would now like to open the line up for questions.

Our first half results for stronger than originally expected and a direct result of the team's execution Upon Our strategic. Framework while we continue to operate in an uncertain macro environment, we delivered 2 consecutive quarters of Core Business growth. We continue to build on this momentum and have better. Visibility on the impacts of known tariffs today which are captured in our 2025 guidance.

While we remain mindful of the evolving environment and the fluid tariff situation. We are confident that the operational discipline and momentum, we have built for continue to serve us. Well, as we move through the balance of the Year, this concludes our prepared remarks, we would now like to open the lineup for questions.

Q&A Moderator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Your first question comes from Brian McNamara with HannaCorps Genuity. Please go ahead.

Press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

Your first question comes from Brian mcnamera with canaccord genuity. Please go ahead.

David Brown: Hey, good morning, guys. Congrats on the strong progress and thanks for taking the questions. first on pricing. how have your partners and enthusiasts overall responded to the price increases you put in and kind of the the the change in tact in terms of approaching your your resellers with with the 60-day notice? And and with that, how would you characterize current sentiment in the marketplace? Has it improved with a little more certainty on tariffs? Any other color there would be helpful.

Hey, good morning, guys. Congrats on the strong progress and thanks for taking the questions, uh, first on pricing. Um, how have your partners and enthusiasts overall responded, to the price increases, you put in and the kind of the the the change intact in terms of approaching your your resellers with, with the 60-day notice and, and with that, how would you characterize current sentiment in the marketplace? As it as it improved with a little more certainty on tariffs or any other color? There would be helpful.

Matthew Stevenson: Sure. Good morning, Brian, and thanks for the question. You know, when we look at just kind of that sentiment in June and just the overall out-the-door sales, they were strong in the marketplace. Now, we notified to our distributors in April that price increases would take effect roughly in middle of June. And then July is historically one of the softest months of the year. But generally speaking, the feedback was, you know, the pricing was in line or lower than competitors in the relative categories. Of course, just given how many categories we're present in, present in that that wide range of competitive dynamics exist. But overall, you know, our pricing was definitely in line with the competition.

Matthew Stevenson: And you know, we just got to see in terms of just that overall elasticity of industry demand, pricing, and discretionary spending, how that plays out once we get past you know, the slower summer months and into more of the the higher months of the year.

Demand pricing and discretionary spending how that plays out, once we get past, uh, you know, the slower summer months in into uh, more of the the higher months of the year.

Q&A Moderator: Next question, Christian Carlina with JP Morgan. Please go ahead.

Next question, Christian Carino with JP Morgan. Please go ahead.

Analyst: Hi, good morning. Thanks for taking our questions. follow-up on the the prior question. You know, similar to how you're moving some sourcing to vendors in lower-cost countries, what are your conversations like with the resellers? Like, are you winning share or shelf space because you're taking less price than the industry? in addition to the, you know, channel expansion and product innovation work you've been doing.

Hi, good morning, thanks for taking our questions. Um, follow up on the the prior question, you know, similar to how you're moving some sourcing to vendors and lower cost countries. Uh, what are your conversations like with the resellers? Like are you winning share or shelf space because you're taking less priced than the industry? Um, in addition to the, you know, Channel expansion and product Innovation, work you've been doing.

Matthew Stevenson: Hey, Christian, it's Jesse. It's a good question. I think, you know, all the indicators that we've got as we, you know, work much more closely with our distribution partners is that, you know, we are continuing to take share in the market. you know, when we look at sort of our out-the-door growth relative to what, the overall business is doing in these distribution partners, we continue to, you know, outperform there. And that continued all the way up through our most recent data, which is June. So I think to Matt's earlier point, the pricing we put in was in line, if not better, and that is certainly helping us kind of continue to remain and gain momentum here.

Hey, Christian, it's Jesse, it's a good question. I think, you know, all the indicators that we've got is we, you know, work much more closely with our distribution Partners is that, uh, you know, we are continuing to take share in the market. Uh, you know, when we look at sort of our out, the door growth relative to what uh the overall business is doing in these distribution Partners, we continue to, you know, outperform their and that continued all the way up through our most recent data which is June. So I think to Matt's earlier point the pricing we put in was in line if not better and that is certainly helping us kind of continue to remain and and gain momentum here.

Analyst: Got it. That's helpful. And just given the full impact of the tariff cost increases, you know, should start to flow through in the second half. How are you thinking about gross margins for the year and maybe cadence over the back half? you know, understanding it's hard to predict consumer behavior and elasticities right now, but are you anticipating maybe higher prices overall, but key seasonal periods being more intense promotionally to maybe offset the impact to consumers' wallet? And just how you're thinking about that.

That is it, that's helpful. And just given the full impact of of the Tariff cost increases. You know, we should start to flow through in the in the second half. How, how are you thinking about gross margins of the year and maybe Cadence over the back half? Um, you know, understanding it's hard to predict to predict consumer behavior in in elasticities right now. But are you anticipating maybe higher prices overall, but key seasonal periods, being more intense promotion. Um, so maybe offset the impact to the consumer's wallet, which is how you're thinking about that.

Matthew Stevenson: We're not planning to do anything incremental from a promotional period. I mean, we've got a pretty strong, you know, partnership with our distribution partners on marketing calendar support in the back half. So no intended changes there. we do anticipate, you know, to your question on gross margins, to continue to maintain, if not increase, gross margins in the back half, just relative to the pricing that we had taken, obviously. But, you know, I think our guidance in the back half kind of captures, you know, the squeeze on what you would expect in terms of margins there.

Analyst: Got it. Thank you very much.

We're we're not playing to do anything incremental from a promotional period? I mean we've got a pretty strong you know partnership with our distribution Partners on uh marketing calendar support in the back half so no intended changes there. Um, we do anticipate, you know, to your question on Gross margins to continue to maintain if not increase, gross margins in the back half just relative to the pricing that we had taken obviously. But uh you know, I think our guidance in the back half kind of captures, you know, the squeeze on what you would expect in terms of margins there.

Matthew Stevenson: Thanks, Christian.

Got it. Thank you very much.

Q&A Moderator: Next question, Joseph Altabella with Raymond James. Please go ahead.

Thanks Christian. Next question. Joseph Alto. Bella with Raymond James. Please.

David Brown: Hey, good morning. This is Martin on for Joe. my first quick question here is regarding sort of inventory. You know, you've reduced so far by $9 million. So I was wondering if we can get an update on sell-through slash the sell-in.

Go ahead.

Hey, good morning. This is Martin on for Joe. Uh, my first question is here is regarding sort of inventory. You know. You you reduced so far by 9 million. So I wonder if we can get an update on sell through slash the sellin.

Matthew Stevenson: Yes, this is Jesse. I think, you know, we don't report out on the exact numbers we get from our distribution partners, but you know, we're seeing really good numbers and results from them on the sell-out. And that's kind of what we look at to understand just generally what the end user demand is. And I think that that's a testament to, you know, our relative pricing, our continued enhancement in our partnerships with them, and just making sure that we're partnering with them to make sure their inventory levels are in a good spot. So I feel like the end distribution partner indicators are continuing to be really strong for us, particularly relative to what the rest of their business is doing.

Yes, this is Jesse. I think, you know, we don't report out on the exact numbers we get from our distribution Partners. But, you know, we're seeing really good numbers and results from them on the sellout. And that's kind of what we look at to understand just generally what the end user demand is. And I think that that's a testament to, you know, our relative pricing, our continued enhancement and our Partnerships with them. And just making sure that we're partnering with them, to make sure they're inventory levels are in a good spot. So, I feel like the, the end distribution partner, uh, indicators are, are continuing to be really strong for us particularly relative to what the rest of their business is doing

David Brown: Right. And I just want to touch really quickly on this, you know, free cash flow net impact bridge. It's very helpful, by the way. but you mentioned 2025 net pricing slash volume is going to be about $3 million tailwind. Earlier in the preamble, you had mentioned that about $10.8 million in revenue was contributed from product innovation and strategic pricing. I also believe the PR said that product innovation was about 8 million, which implies that strategic pricing was about 2.8. Even though that's pretty close to that $3 million number, does that sort of imply that there's going to be lower volumes in the back half of the year, or what should be the read-through through that?

great. And I just want to touch really quickly on this, you know, uh, free cash flow. Net impact bridge is very helpful by the way, uh, but you mentioned 2025 and that pricing slash volume is going to be about 3 million dollars Tailwind.

Earlier in the Preamble, you had mentioned that about $10.8 million in revenue was contributed from product innovation and strategic pricing. I also believe the PR for that product innovation was about $8 million, which implies that strategic pricing was about $2.8 million. Even that, that's pretty close to that $3 million number.

The sort of implied that there's going to be lower volumes in the back half of the year or what should be the rate through through that.

Matthew Stevenson: So I think those are two different metrics, to be clear. The strategic pricing was an action that was taken earlier in the year to, you know, realign our channel margins with our distribution partners on some key product lines. So those aren't necessarily, related. As it relates to your question on the back half, I think, you know, generally, we feel like our visibility is much better than it was, you know, three months ago on the back half of the year. And we're just, you know, from a volumes perspective, you know, as you can imply in the guidance, just taking a pretty conservative view relative to the back half, just given everything we're seeing in the economic indicators just generally around the consumer.

Matthew Stevenson: but, you know, what we are seeing now, we feel like demand's holding up and, the back half, from what we can tell, is, you know, headed in the right direction to hit this guidance.

Um, but you know what? We are seeing now, we feel like demands holding up and, uh, the back half from what we can tell, uh, is, you know, headed in the right direction to hit this guidance.

David Brown: Great. Thank you. Very helpful and good luck.

Matthew Stevenson: Thank you.

Go ahead. Thank you. Very helpful, and good luck.

Thank you.

Q&A Moderator: Next question, Philip Lee with William Blair. Please proceed.

Next question. Phillip Lee with William Blair please proceed.

David Brown: Morning, Matt, Jesse. Thanks for the question. the product innovation growth is an interesting metric here. So just curious around the level of new products that you've launched year to date and then maybe how that would compare to plans for next year or just steady state going forward, assuming we're past a lot of the tariff-related trade disruptions.

Morning, Matt, Jesse. Thanks for the question. Uh, the product Innovation growth is, is an interesting metric here, so just curious around the level of new products that you've launched year to date. And then maybe how that would compare to plans for next year or just steady state going forward. Assuming we're past a lot of the tariffs related trade disruptions

Matthew Stevenson: Yeah, good morning, Philip. This is Matt. Thanks for the question. I, Philip, we're really focused on quality versus quantity. I mean, we, of course, want to continue to drive, the right innovations and, of course, increase the volume of those. When you think back to our strategic product rationalization that occurred, where we, you know, took out basically about 45% of the portfolio, there was a lot of work being done for, innovations that really weren't moving the needle. So now we put in a very robust, phase gate system with seven gates to make sure we're bringing those right innovations to markets that are really going to drive the top line, forward and to, to underline this organic growth trajectory. So again, it's not about, you know, quantity, but for us, we want to continue to drive, more revenue through innovation.

It forwarded into to underline this organic growth trajectory. So again it's not about uh you know quantity but for us we want to continue to drive uh more Revenue through innovation.

David Brown: Okay. Makes sense. Great. And then now that you have some comfort around tariff mitigation, core business seems to be moving in the right direction. How are you thinking about free cash flow and capital allocation in the second half of the year and maybe going forward? And then just timeline around reaching leverage around three times. Thank you, guys.

Okay, makes sense, great. And then now that you have some comfort around tariff, mitigation Core Business seems to be moving in the right direction. How are you thinking about free, cash flow and capital allocation in the second half of the year and maybe going forward and then just timeline around reaching leverage around 3 times. Thank you guys.

Matthew Stevenson: Yeah, great question, Philip. And we obviously don't guide on free cash flow. I think, as we've talked about historically, you know, just given this guide, you can back into a free cash flow profile that would be about $40 to $50 million at the current interest rates. you know, I think we're on track to be in that range with, you know, better free cash flow in the back half this year versus last year. And just as a reminder, this time last year in Q3, Q4, we had some headwinds, to the tune of $6 to $8 million in each quarter from AP process changes. So we should continue to see positive free cash flow in the back half.

Matthew Stevenson: and just in terms of, you know, capital allocation, you know, we continue to, you know, maintain a pretty robust pipeline on M&A, but we are very conscientious on any transactions we look at as to sort of the net leverage profile on the back end. But, you know, in the absence of having a really good, you know, target in mind, you know, we're going to continue to look at, you know, prepayment of debt like we've done historically. and this year, obviously, you know, with that cash flow, we've talked about, you know, around 23.8 million of it is used for the perpetual license on CATA Clean, which, you know, we look back and say has really been a really good deal and growth driver for us.

I great question, Philip and we obviously don't guide on free cash flow. I think is we've talked about historically you know, just given this guy you can back into a free cash flow profile, that would be about 40 to 50 million dollars at the current interest rates. Uh, you know, I think we're on track to be in that range with, you know, better free cash flow in the back half this year versus last year. And just as a reminder this time last year, in Q3 Q4, we had some headwinds, uh, to the tune of 6 to 8 million dollars in each quarter from AP process changes. So we we should continue to see positive free cash flow in the back half. Um, and just in terms of, you know, Capital allocation, you know, we continue to, you know, maintain a pretty robust Pipeline on m&a. But we are very conscientious on any transactions. We look at as to sort of the net leverage profile in the back end. But you know, in the absence of having a really good, you know,

Target in mind, you know, we're going to continue to look at, you know, prepayment of debt like we've done historically. Um, and this year, obviously, you know, with that cash flow, we've talked about, you know, around 23.8 million of it is used for the Perpetual license on cataclean which you know, we look back and say it's a really been a really good deal in growth driver for us.

David Brown: Excellent. Thank you. Best of luck.

Matthew Stevenson: Thanks, Philip.

Excellent, thank you. Best of luck.

Q&A Moderator: Next question, Brett Jordan with Jeffries. Please go ahead.

Thanks Philip.

Analyst: Hey, good morning, guys. This is Patrick. Luck me out for Brett. Thanks for taking our questions.

Next question. Brett Jordan with Jeffrey's please. Go ahead.

Matthew Stevenson: Hey, good morning, Patrick.

Hey, good morning guys. This is Patrick Buck me off for Brett. Thanks for taking our questions.

Analyst: On the new market growth, could you talk a bit about the trajectory of growth and moving forward in Mexico and potential size there and maybe how that strategy differs from the growth strategy in the US? And I guess a quick follow-up there would be, is this the primary market expansion for the foreseeable future, or are you guys seeing any other markets that you have identified for potential growth?

I'm a new market growth. Could you talk a bit about the trajectory of growth and moving forward in Mexico and and potential size there? And and maybe how that strategy differs from the growth strategy in the US? And I guess a quick follow-up. There would be uh is this the primary Market expansion for the foreseeable future? Or are you guys seeing any other markets that that you have identified for a potential growth?

Matthew Stevenson: Yeah, Patrick, thanks for the question. this is Matt. I mean, Mexico is just a natural market, of course, for us, just the adjacency to the and proximity to the US and the amount of enthusiasts that are down there. And that was something that just was just not focused in years past. And how we look at the potential of Mexico, we would see that long-term, to be about 5% of the US market, is where we would see that. And it's going to take some time to get there, right? It's really an all-new market entrance for us. It's everything from setting up distributors, setting up the proper product, distribution, working with the national retailer footprint there. So it's all going to take some time.

Yeah, Patrick thanks for the question. Uh, this is Matt. Yeah, I mean, Mexico is just a natural market. Of course for us to see Jason C to the in proximity to the US in the amount of enthusiasts that are down there and that was something that just was just not in focused in in years past and and how we look at the potential of Mexico. We would see that long term, uh, to be about 5% of the US market, uh, is where we would see that, and it's going to take some time to get there, right? It's, it's a really, an all new market entrance for us. It's

Matthew Stevenson: But in terms of other markets, you know, this is just a great market that we're, spending the majority of our time on right now, again, for those reasons. But there's a lot of enthusiasts around the globe, and we can continue to evaluate where it may make sense to plant a flag, so to speak, in a larger presence.

Everything from setting up Distributors setting up the proper product in, uh, distribution working with the national retailer footprint, there it. So it's all going to take some time. But in terms of other markets, you know, this is just a great Market that we're uh, spending the majority of our time on right now. Again, for those reasons, but we have, there's a lot of enthusiasts around the globe and we can continue to evaluate, where it may make sense to, to plan a flag. So to speak in a larger presence.

Analyst: Great. Very helpful. That's all for us. Thanks, guys.

Very helpful. That's all for us. Thanks, guys.

Matthew Stevenson: Thanks, Patrick.Next

Thanks Patrick.

INCOM Conferencing System: question, Mike Baker with DA Davidson. Please go ahead.

Next question, like Baker with da Davidson. Please go ahead.

Conference Center Specialist: Hey, thanks, guys. Can I ask you, Jesse, you said flat sales so far in the third quarter. What's the base? In other words, is that including or excluding you know some of the one-timers from a year ago?

Uh, hey, thanks guys. Uh, can I ask you? Uh, Jesse, you said flat sales. Uh, so far in the third quarter uh what's the base? In other words, is that including or excluding? Uh, you know, some of the 1 time was from a year ago

David Brown: Hey, Michael. You know, we didn't, we're trying not to speak specifically to the third quarter thus far, but I think what you implied from the script is kind of in line. You know, and those trends we are seeing versus you know prior year, as well as you know for the back half are embedded in our guidance. And your question around how does that compare to last year, I mean, I think to Matt's earlier comments, I mean, this is seasonally one of our lowest volume periods, and you know demand is holding up you know relative to the prior year. And that's just on a gross basis. I think as we get into the back half, you're not, there's only about $3 million in each quarter related to divested businesses, and we're largely past the meaningful ski rationalization that happened in the first half.

Hey, Michael. I, you know, we didn't. We're, we're trying not to speak specifically to the third quarter, uh, thus far, but I think what you're implied from the the script is kind of in line, um, you know, and and those Trends we are seeing versus, you know, prior year, as well as, uh, you know, for the back half or embedded in our guidance and your question around, how does that compare to last year? I mean, I think to Matt's earlier comments. I mean, this is a seasonally 1 of our lowest volume periods. And, you know, demand is is holding up, you know, relative to the prior year. And that's just on a a growth basis. I think as we get into the back half, you're not uh there's only about 3 million dollars. In each quarter related to domestic businesses and we're largely passed the the meaningful SKU rationalization that happened in the first half.

Conference Center Specialist: Okay. Okay. Thanks for that. And then I also wanted to ask just a little bit more detail on unit versus price in terms of your, you know, if we use a 3.9% sales growth in the second quarter, is there a way to break out, you know, how much of that was price versus unit?

Okay. Okay. Uh, thanks for that. Uh, and then I also wanted to ask just a little bit more, uh, detail on unit versus price in terms of your, you know, if we use a 3.9% sales growth in the second quarter, is there a way to break out, you know, how much of that was price versus unit?

David Brown: Yeah, I think we put in the Q that, you know, actually volumes were pretty strong in the second quarter with, you know, a portion of it coming from price and unit growth. I mean, year to date, unit growth has been, you know, positive, with some pricing, obviously, to kind of get you over the 3% on the core business. So, you know, we've been really, really pleased with how units have really picked up this year, year to date. But as we mentioned, you know, we're taking a bit of a conservative approach given what we're seeing in the economic indicators, and just the magnitude of the pricing across the market and in the economy on units for the back half. but there's certainly some some room for that to to go north of what we're putting in our guidance.

Conference Center Specialist: So in other words, you raise prices, you're not necessarily seeing unit degradation, but you are assuming that to be conservative in the back half.

Yeah, I think we put in the queue that a you know, actually volumes were pretty strong in the second quarter with you know a portion of it coming from price and unit growth. I mean year to date unit growth has been you know positive uh with some pricing. Obviously to kind of get you over the 3% on the core business. So you know, we've been really, really pleased with how units have really picked up this year year to date. But as we've mentioned, you know, we're taking a bit of a conservative approach given what we're seeing in the economic indicators, um, and just the magnitude of the pricing across the market and in the economy on units for the back half. Uh, but there's certainly some, some room for that to to go north of what we're putting in our guidance.

So in other words, you you've raised prices, you're not necessarily seeing unit degradation, but you are assuming that to be conservative in the back half.

David Brown: We're taking a conservative approach to it. But you know, again, you know, this is a business that you don't get a lot of visibility, but you know, from what we can tell in our testing and trend evaluation and discussions with distribution partners, we feel like this is a good guide.

We're we're taking a a conservative approach to it but you know again you know, this is a a business that you don't get a lot of visibility but you know, from what we can tell and our testing and Trend evaluation and discussions with distribution Partners. We feel like this is a good guide.

Conference Center Specialist: Okay. Understood. Thank you.

Okay, uh, understood. Thank you.

Operator: Next question, Joe Feldman with Chelsea Advisory Group. Please go ahead.

Next question, Joe Feldman with healthy Advisory Group. Please go ahead.

Anthony Rozmus: Yeah, thanks, guys, for taking the questions. I wanted to ask about just your view of the consumer at this point. I know you said summer is always a soft period and you pass through price increases now, so it's a little hard to tell. But I mean, with the customer has been buying, at least in the second quarter, are you seeing people stepping up? Are they adjusting their spend? It sounds like unit sales are up, so I assume that's a good thing. People are kind of back at the projects. But just how do you view the consumer right now?

Yeah. Thanks guys for taking the questions. Um, wanted to ask about. Um, just your your view of the consumer at this point. I know you said, summer is always a soft period and you pass through price increases now. So it's a little hard to tell. But I mean with the customer has been buying at least in the second quarter. Are you seeing people stepping up are they adjusting their spend? Um, it sounds like you unit sales are up. So I I I assume that's a good thing. People are kind of back at the projects but just how do you view the consumer right now?

Jesse Weaver: Hey, good morning, Joe. It's Matt. Thanks for the question. I mean, as I commented, Joel, that, you know, the out-the-door sell out in June was really good. And so generally speaking, you know, to Jesse's points of what we saw on units for the first half of the year, you know, there's a couple of components. I mean, overall, you know, the market's hanging in there, but more importantly, we're taking share, right? And so now that you have that price increase that goes through in June, July typically is that softer, one of the softest months, just due to a lot of back-to-school, summer to vacations, and things that go on. So, you know, right now we haven't seen anything meaningful one way or the other, but you know, we'll get more color here as the third quarter plays out.

Hey, good morning Joe. It's Matt. Thanks for the question. I mean as as

Um, and so generally speaking, you know, to Jesse's points where we saw on on units, for the first half of the year, you know, there's a couple components, I mean, the overall, you know the the Market's hanging in there but more importantly we're taking share, right? And so now that you have that price increase that goes through in June July typically is that that softer 1 of the softest months

Jesse Weaver: But as of right now, you know, nothing meaningful one way or the other from what we've been seeing.

Uh just due to a lot of Back to School summer vacations and things that go on. So, you know, right now we haven't seen anything meaningful 1 way or the other but you know it'll we'll get more color here is the third quarter uh uh plays out but but as of right now, you know, nothing meaningful, 1 way or the other from what we've been seeing

Anthony Rozmus: Got it. Thanks. And then maybe just a follow-up for Jesse. With regard to the guidance, I know you're not giving too many specifics, but like, are there any puts and takes we should think about in the second half? Like, is there anything, you know, unique about maybe third quarter versus fourth quarter this year, or should we, you know, are we safe to use kind of the last year kind of flow to get us to the numbers for the full year?

Got it. Thanks and maybe just a follow up for Jesse with regard to the the guidance. I know you're not giving too many specifics, but like are there any puts and takes? We should think about in the second half. Like, is there anything?

David Brown: Yeah, I would say just as a reminder, in the back half, usually Q3 is slightly lower than Q4, just with our, you know, end-of-year holidays is a really big, you know, sales cycle for us. When you think about, you know, we're not going to give necessarily the quarterly guidance on the top line, but you know, it's usually around like a 48% in the third quarter, 49% in the third quarter, with slightly more, obviously, in the fourth. And then, you know, we've talked about sort of our operational initiatives and the pricing, and a lot of that stuff is kind of helping bolster margin on a year-over-year basis as we go into the back half.

You know, unique about maybe third quarter versus fourth quarter this year, or should we, you know, are we safe to use kind of the last year, kind of flow to get us to to the numbers, uh, for the full year.

it's on the top line but you know, it's usually around like a 48 uh, percent in the third quarter, 49% in the third quarter, with slightly more, obviously in the fourth

And then, you know, we've talked about sort of our operational initiatives and the pricing and a lot of that stuff is kind of helping bolster margin on a year-over-year basis, as we go into the back half.

Anthony Rozmus: Got it. Okay. Thank you. Thanks, Joel.

Conference Center Specialist: Thanks, Joel.

Got it. Okay, thank you.

Anthony Rozmus: Good luck with the quarter.

David Brown: Thank you.

Thank you. Good luck with the corner.

Thank you.

Operator: Next question, Brian McNamara with Canaccords Annuity. Please go ahead.

Next question. Brian mcnamera with canaccord genuity please

Conference Center Specialist: Hey, guys, thanks for the follow-up here. So great job on the tariff mitigation. Looking at slide 11, it looks like 8.5 million out of the 15 million in tariff mitigation is relocation with existing suppliers and sourcing with new suppliers in lower-cost countries. I was wondering if we could get a little color there specifically on how your exposures to, you know, China and maybe some of the higher-cost countries are changing, and then what kind of lower-cost countries you're kind of shifting to. China sourcing exposure is a consistent question we get from investors. Thanks.

Jesse Weaver: Yeah, Brian, I'd say, you know, our overall, strategy had a number of facets to it, as you could see in the prepared material. But overall, you know, we want to be in countries that have a more stable long-term relationship with the United States. And that's where we've been focusing on either relocating with our current suppliers or finding new suppliers in lower-cost countries. So that's just been the main focus and, you know, mitigating that exposure in China.

Hey guys, thanks for the follow up here. So great job on the Tariff mitigation. Um looking at slide 11. Looks like 8 and a half million out of the 15 million in tariff. Mitigation is relocation with existing suppliers and sourcing with new suppliers and lower cost country. I was wondering if we could get a little color there specifically on how your your exposures to you know China maybe some of the higher cost countries is changing. Um and then what kind of lower cost countries your your your kind of Shifting to a China. Sourcing exposure is a consistent question. We get from investors. Thanks.

Yeah, Brian, I'd say, you know, our overall, uh, strategy had a number of facets to it as you as you could see in the prepare prepared, uh, material. But overall, you know, we want to be in countries that have more stable long-term relationship with the United States and that's where we've been focusing on either relocating with our, Uh, current suppliers or finding, uh, new suppliers and lower.

Cost countries. So that's just been the main focus. And, you know, mitigating that exposure in China

Conference Center Specialist: And then at risk of beating a dead horse on the H2 guide, maybe I'll try it a different way. So a pulse for a big deceleration in organic sales, I think it's up less than 1% despite your lapping much easier comps. And I know July is typically a slow month, so, and you mentioned it's flat. I guess why wouldn't all the heavy lifting you've done internally kind of help achieve a little bit better H2 growth, or is it just simply a conservatism on your part?

David Brown: Yeah, I think, Brian, you know, again, we all had been saying the back half is, you know, the biggest question mark, just given what we were all seeing in April with the consumer and the tariffs and the pricing flowing through. And so we were really just, you know, taking like to your point, a bit of a conservative view on what the units are going to do. I mean, I think we've all read the headlines of the pricing across the economy starting to actually flow through and what's going on with just employment. And we're, you know, we're in the thick of all of that right now. And, you know, if you give us a couple more months, obviously we'll be in a much better position. And we're just not in the position where we feel like it's prudent to lean out until we know more.

And then at risk of beating a dead horse on the the H2 guide. Um, maybe I'll try a different way, uh, so it calls for a big deceleration in organic sales. I think it's a plus 1%, despite despite your lapping, much easier comps. And I know July is typically a slow month, so and you mentioned it's flat. Um, I guess why wouldn't all the heavy lifting you've done? Internally kind of help achieve a little bit better, H2 growth, or is it just simply, uh, uh, conservative its conservatism on your part.

Yeah I think I think. Brian, you know, there again we all have been saying the back half is, you know, the biggest question mark, just given the what we were all seeing in April with the consumer and the tariffs and the pricing flowing through. And so we were really just, you know taking like to your your point a bit of a conservative view on what the units are going to do. I mean, uh, I think we've all read the headlines of the pricing across the economy, starting to actually flow through and what's going on with, um, just employment. And we're, you know, we're we're in the thick of all of that right now. And, you know, if you give us a couple more months, obviously, we'll be in a much better position. And we're just not in the position where we feel like it's prudent to lean out until we know more.

Conference Center Specialist: Fair enough. Thanks, guys. Appreciate it.

Jesse Weaver: Thanks, Brian.

Operator: I would like to turn the floor over to Matthew Stevenson for closing remarks.

Fair enough. Thanks guys. Appreciate it. Thanks, thanks, Brian.

I would like to turn the floor over to Matthew Stevenson for closing remarks.

Matthew Stevenson: All right. Thank you, Stacey. Slide 20 underscores the compelling advancement thesis behind Holley Performance Brands. At the heart of this story is a passionate and deeply engaged automotive enthusiast community. For our customers, this is far more than a pastime. It's a lifestyle rooted in performance, personalization, and pride. With an addressable market exceeding $40 billion, Holley is uniquely positioned as the industry leader, powered by a portfolio of iconic brands recognized for decades of innovation and excellence. Our growth story is grounded in a proven track record of successful acquisitions and disciplined integration. We consistently create value by expanding our reach, enhancing capabilities, and unlocking synergies across the platform. Looking ahead, we see a transformative opportunity to redefine how both consumers and distribution partners interact with their brands. Through expanded digital capabilities and omnichannel engagement, we're building a new frontier that strengthens loyalty, accelerates conversion, and expands access.

All right. Thank you. Stacy slide. 20 underscore

At the heart of this story is a passionate and deeply engaged Automotive Enthusiast Community for our customers.

This is far more than a Pastime. It's a lifestyle rooted in performance, personalization, and pride.

Was an addressable Market exceeding. 40 billion Holly is uniquely positioned as the industry leader, powered by a portfolio of iconic Brands recognized for decades of innovation and excellence.

Our growth story is grounded in a proven track record of successful Acquisitions and disciplined integration.

We consistently create a value by expanding our reach, enhancing capabilities and unlocking synergies across the platform.

Looking ahead. We see a transformative opportunity to redefine how both kusto consumers and distributor distribution Partners, interact with their brands.

Matthew Stevenson: Now, as we emerge from our multi-year transformation and return to growth in our core business, our financial ambitions are clear. We remain focused on delivering sustainable organic growth, maintaining gross margins of 40%, and achieving adjusted EBITDA margins greater than 20%. At the same time, we are committed to generating strong, consistent free cash flow and to building a disciplined M&A platform that unlocks long-term value. Together, our powerful enthusiast ecosystem and Holley's trusted best-in-class brand portfolio represent a rare and differentiated investment opportunity. In closing, I want to thank our dedicated team members for their tireless efforts to commit to excellence, our loyal consumers who bring our brands to life, and our valued distribution partners, many of whom have been with us for decades. Your partnership and passion continue to drive Holley forward.

Through expanded digital capabilities, and Omni Channel engagement. We're building, a new frontier of the strengthens loyalty accelerates conversion and expands access.

Now, as we emerge from our multi-year transformation and return to growth in our Core Business, our financial ambitions are clear.

We remain focused on delivering sustainable, organic growth. Maintaining gross margins of 40% in achieving adjusted ebit of margins, greater than 20%.

At the same time we are committed to generating strong consistent free cash flow into building a disciplined m&a platform that unlocks long-term value.

Together our powerful Enthusiast ecosystem and Holly trusted bestselling class brand portfolio, represent a rare and differentiated investment opportunity.

many of whom have been with us for decades, your partnership and passion continued to drive Hali Ford

Matthew Stevenson: I want to thank you for your attendance on our call today and wish you all a great morning. Thank you.

I want to thank you for your attendance, on our call today and wish you all a great morning. Thank you.

Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

This concludes today's teleconference. You may disconnect your life at this time and thank you for your participation.