- Earnings call transcript Q3 2022

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Operator

Good afternoon, and welcome to the Holley Third Quarter 2022 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to our host, Ross Collins with Investor Relations. Thank you.

You may begin.

Ross Collins

Diego. you, Thank everyone. Good morning, for taking join you time the today. us Thank to

and are with Trussell, President Finance Development Officer; and call prepared of the After we'll Vice Tom Nimmagadda, Vice Chief Executive Vinny me of New Steve On questions. Corporate Officer; open today Tomlinson, the President for Financial Executive and President their Ventures. Interim remarks, Chief call

certain the Securities This future will of reference uncertainties, safe statements contain Litigation call are cases, many Act I under and Private company. risks harbor the subject Now the operating are and beyond XXXX. Reform of may risks performance to uncertainties forward-looking that company's provisions the In these and significant financial the including control.

reflected they that in risk are expectations results such this Investors in no statements is and of statements and differ to forward-looking materially recent forward-looking Although may XX-Q, statements in from with assurance call only obligation undertakes and its later filings that the Securities this correct accurate materially will discussed Exchange believes in can Important should in actual update operative discussed. not company's are relevant or Commission. no assume information the prove from the reflected Holley reasonable, remain contained SX factors the date and as The future. any a time. the any of results in the will SX actual call that information at included those to could differ expectations cause forward-looking the statements give be its to company expectations.

like discussing release, Relations turn Executive U.S. are of the Chief over also on which be Tom included this would certain in to call to Investor financial non-GAAP Additionally, reconciliation to press Holley's measures. GAAP At I our Tom? these Tomlinson, is Officer. posted time, today's website. items we A will

Tom Tomlinson

today. and for Thanks, joining everyone, Ross. Good us thanks afternoon,

slide investor.holley.com. IR a available Quarter Supplemental referring call our we'll XXXX deck the As part deck today, Earnings website, titled Information. be to on of is download This Third for

As by July, we we and as short during overcome earnings release improved After our we in further afternoon, in this improvement our the sequential fell August supply we're quarter, challenges. encouraged in September decreasing saw sales press of began stated while chain-related to expectations. the

Although product year-over-year, shipment sales steadily September. sales run progressively on and and above within ease. quarter in constraints prior QX of from ship and in then more July August the Increased produce for us year began September chain quarter receipts in These were components and X. to were on are highlighted our down to suppliers rates as X. the improving Slide Supply illustrated global peaked Slide allowed in improved rates

to of suppliers also which visibility provided the us more also resume popular shipments. Our began during allowed shipments build automotive-grade electronic ship improved quarter, to These products. our and of to certain microchips progressively suppliers have future

chips, initially developed discussed a the restoring we now a As them them those to process market on microchips of in us automotive-grade them. to that quantity full quarter, We've enabling validated large upon begin were unusable and last production. and reprogram to functionality consuming acquired receiving spot

quarter. lower While inefficiencies, especially improving and manufacturing was in and challenges that on components increasing the leverage focused production supply operating shipments. impacted of we're negative remain availability negatively in Profitability drove by earlier chain, the volumes

work partially a warranty taken their Pricing backlog inventory. and saw well as connection also of headwinds. costs through in cost continuing pressures up offset were inbound costs freight on resellers way higher inflationary escalation cost Warranty automotive-grade microchips. from as and both returns as midyear actions caught input scarcity-related We are higher higher other with costs these overhead to

August. elevated are to set historical partially shipments below year. inventory, has offsetting Underlying a although yet despite in consumers able resellers Past July occurred resulting we in quarter, $X.X changes stronger leverage the and although and forth challenges. by the due monthly increased have headwinds. progressively placed to in decreased August saw have operating positive, supply shipping still we due rebuilding represent demand the Past turn channel by against to in on These aforementioned inventory result resellers. orders by X. million to as orders decreases throughout sales improving that channel levels and demand September that inventory the Channel chain our solid Slide in orders remained of been cost September, remained begin convert us not As earnings, sales allowed

our improving As million our due $XX.X of $XX.X stressed in products end shown to August excess are consumers the conditions remained past At the were chain pressures. dues allowed at reduce quarter, to when us with September supply million. X, time to and excess due eliminating for continue the on past seen and a in looking by the by we've elevated quarter. We're We're past orders as orders steadily solid Slide demand forward inflationary sales improve. rates run excess pleased

up and accelerate owned Holley enthusiast Our events. were saw our sales we XX% at direct-to-consumer to engagement continue

demand of on decisions. sales X, sales provide visibility DTC are left our with DTC into and popular insight chain Slide that were by highlighted not behavior us out consumer stock up underlying sales supply of reseller As because on us influenced products. into despite year-over-year challenges consumer many DTC purchasing

Growing performance priority growth our driven is strategy continues team. remains what channel be and do, social the expansions to our in core strong sales DTC media innovation, engagement, brand DTC Our event content for to and by a and marketing, we integrations. DTC new

better quarter, to is conditions lot further as to we the chain as believe we see lower other reduce we've continue numerous levels, to inventory positioned to our and operational execute do costs opportunities operationally. the There more more our a and of work to demand supply we improvements. for now improvements seen into the improve sales realized we're and convert continue we within With

Chief pleased cost to businesses lower do, make to Interim team, aftermarket of quantity Operating acquired Our to XXXX productivity performance integrating industry on Holley much continuing the appointment we're we're operating Applegate wealth a improvement pursuing a structure so performance. and known team our strategies drive is of has in to announce synergies. further drive advised who aggressively order drive to and we're excited He's veteran as work our with Brian in M&A progress since Officer. and higher partner our Brian near-term is Brian, operating to experience. to a to with With

on largest and that believe realize M&A allow near-term the will confident benefits areas in to efforts Vinny position COO, profitability improvement and As be leader will as consumer runway Vinny? manufacturing to turn in engineering. flow accelerate We it underlying and our these interim recent us industry for of more business initiatives quickly. I'll engagement. profitable growth and long-term these an highest cash discuss he the Brian's with our focused over chain, in potential and supply we improvements of priorities opportunities ample our remain now activity is to generation Holley's firmly unchanged. help and

Vinny Nimmagadda

not Tom, you, the call. we afternoon quarter, the Thank an on did good progressing and are third to complete integrations. on Though during acquisition everyone we

maximize prior past value acquisitions on said our calls, to Holley from synergies continue to enables have year. driving creation we within the As

strength annualized growth. will balance of these our improve As long-term basis, we enhance on support an sheet savings we further position our and realize in liquidity

have our strategic past As completed X the a XX expanded and were range of we acquisitions months, reminder, that highly wide over products.

quarter, During onto internal reducing system, several costs operational of integrated efficiencies. our our we and companies the further ERP acquired increasing overall

RaceQuip's the to direct-to-consumer engagement. in on our that highlighted existing now I June Just safety closed report end, Holley very proud would to resellers and event our in now I'm offered platform. to integration existing and To our consumer shift late performance and a provide as in are an have team's early digital offering products owned just safety RaceQuip example, through in seamlessly the like completing to we time, productive success for alongside first season to events by consumer positive completed our we holley.com sold September.

hosted as our of Ford of Green, in Holley total, from Holley's Festival. Annual event LS our MoParty as the its and Intergalactic event quarter, East up XXth XXXX XX% is the well In Holley Fest hometown attendance Bowling Kentucky, During connection events emotional and prior year's consumers about bank make bolster community, new products. more learn Holley's idea to team our opportunity further popularity The enthusiast our the growth events. our for an in our with company-owned allows

make marketing In Bowling to Green addition, Last, a impact our engage, our local customers. in a support and as we continue content our community. positive to leverage inspire hosted events in continuing enthusiast to way are

Steve? our season, experienced views. the to social event who I'd will in our XX% call social results Holley a third that fall million our financial video greater experienced platforms hand increase Steve, in detail. like discuss now X.X overview, XXXX media quarter engagement to With over During and

Steve Trussell

with million compared decrease growth. Holley quarter, good acquisitions or the $XX.X X.X% million sales X.X% to in and decreased net the $XXX.X quarter, X.X% million associated in Noncomparable Vinny, year-over-year by $X.X contributed the you, Thank offsetting XXXX. acquisitions. of remaining year The impact comparable afternoon, from everyone. prior sales third of the or from delivered million the third $XXX.X quarter of sales a

compared impact. as to third sales gross as illustrate associated XXX a and basis quarter. XX.X% the recent XX.X% believe from saw expenses the by costs, outbound reflecting sales decrease of of acquisitions. sales recent XXXX. of quarter stated personnel to lost profit, quarter basis and disrupted for include the the elevated increased $XX.X third increase supply point Total costs. were quarter XXX and expense in an Of reflecting the weakness our higher XXXX The warrants lower XXXX sales, is a a points of grew core we million Partially for in for third compared which discussed quarter, decrease to July Gross level and debt in $XX.X expense effective On in expenses shipping higher disclose the of impacted volume. and remaining administrative to third had worst to related XXXX. inflationary of the with million third progressed, basis was sales year-over-year. of progressed. cost third that XX.X% The XXXX EBITDA meaningful August from decreased quarter SG&A of a and in the how increase million sales a in don't was basis, net selling, Adjusted the companies decrease gross in we warranty of million from implementation liabilities XXXX. important quarter The million pressures down and monthly third pressures sales September driven We margin quarter. million quarter from these rate. and came shipping by profit margin company's improved adjusted and Tom pacing the a Gross As offsetting came or quarter by noncash seeing results, improve. but with by XX.X% $XX.X operational to third third that quarter by million, from million X.X% handling attributable to August, in for income administrative favorably in of initiatives. $X.X The income EBITDA of the $X.X July cost-saving in inefficiencies, XX% the million to We to XXX quarter $X.X and reason the a sales warranty interest due trends and discussed, $X $XX.X have higher saw increased million We $XX.X income the domestic for performance shipping the during late of quarter costs general quarter million was million the to the decreased of recorded $X of we increase the expenses when driven quarter headwinds loss third past, million as the $XX.X of lower higher the we in versus in issues turnaround shipments chain the an of were challenges Net in the for $XX.X earn-out was Interest it XXXX third of were points million net leverage XXXX. from performance $XX.X $X.X we in of to shares. the improvements XXXX. began see have or was net we decrease in inflationary early typically for the main headwinds although increases

Turning to our sheet. balance

inventory during from quarter cost inventory the of $XX XXXX. seen have in increase higher items increase XXXX end in We costs. a the is by significant million inflation the freight of the largest increased of of The factor to end the Inventory and XXXX. this in from third higher

product the stock and chain for we holding we yet In addition, safety supply additional components as more unreliable, cannot became ship. are

capital the financial goal and generation. on focused cash of management working improving healthy are performance We towards

quarter have in have We undrawn ample the our ended the liquidity $XX.X revolver. million capacity maintained full as with we of cash and

leverage our level of hold to ratio outlook. Additionally, that expect profile deck. covenants X our our the found the restrictive apply where current fully be A summary remains below investor of Slide true we and liquidity on through can

our outlook for XXXX. to Moving

adjusted our our guidance, we saw for you to sales now updating and As $XXX between in press in $XXX release, million million. EBITDA $XXX the net are calls of annual million and range which $XXX million

$XX reduced between million and reflect million remarks. range environment call ratio That to concludes our also our are we depreciation guidance the We adjusted the million to expense challenging amortization which $XX million interest Ross, over consideration. are and in spending maintaining of the questions. to and takes the be $XX This I'll now and address million, leverage $XX to in $XX our we prepared your to million includes while CapEx $XX to our expectations so ahead guidance, into respectively. turn months And can

Ross Collins

Steve. Absolutely,

open you reminder, our a question needed. from as yourself related please one with questions As ask one follow-up please line limit participants. for to Diego, we the

Operator

question Our Raymond Joe with James. first Instructions] comes [Operator Altobello from

Joe Altobello

at wanted sales trends to at up little did decline it fourth bit guidance sales in looked a commentary quarter. from And in looks look a further I question, regarding month. I the your in like guidance like the first September. your guess on improve QX. assumes I It the follow worsens It least and

next you that going throughout to and we could you those continue Or you I supply are So October how continue on do get I'm think chain looked? see to guess, saw November of curious, them first year? half side better improvement? see issues the Did continued XXXX? And

Tom Tomlinson

we So the around of chain, improvements, around there made standpoint improvements be from to question while the saw the I chain. on would chain, risks supply continue supply say that supply

is is availability to is electronic of areas One we and types the those still about uses -- just have mention in in used distributors of specific the talking that of fact of one line receipts our our we that those when when microchips, seen of improve, we would have scarcity. talk talk while that about the there we're of I specific risk the microchips. manufacturers And the largest microchips microchip improved, product there is those that chips. And

The we or second or largest category did second seeing category risk product we than in is the chips less there still chips are product quarter. where we in of and line and constrained year third the receive that remainder is the

category large this a And so our sales. obviously, impact has on overall

we we're so guidance as risks as at our forward. going And looking well the the as opportunities set

Joe Altobello

Okay.

at just it conservative doesn't outlook So getting it but you're more to point? this like anything lay to clear, out November, be and seeing in sounds sound you're just trying October like a worse

Steve Trussell

Yes.

Tom Tomlinson

Yes. We think that's fair.

Operator

from with Sundby William question comes Our Blair. next Ryan

Ryan Sundby

costs. happen the that onetime had more kind that a to should wanted a on you forward? bit ask expect Was Or moving quarter? warranty hit little of this continue -- we to I

Tom Tomlinson

was there the or a believe came we're our And we backlog a quarter. returns warranty lot at warranty of So that in resellers. of sitting in, those claims

come to effort remainder additional ensure We to have throughout in. the that that that in warranty was provided make increase an the for any for our of year warranty provision would

Ryan Sundby

levels to slides talk it. did improve that in sticking see Got all September. I we Okay. the And Could for reseller see refill How more that in you in is progression comfortable destocking, place on provided should in And Or the a that you thanks about then here. we with inventory cut QX? more to guess the now? you today? are kind taking start expect up them? little sit of bit where

Tom Tomlinson

-- And don't inventory have When channel increases decreases visibility largest channel able you when track our inventories so basically, inventories, we to channel resellers. the go but saw and with primarily due when inventory. -- environment, ship driven you in specifically in improvement perfect down to as and see to ability past this in in by of there was our ship we terms orders. inability September, is an to immediate excess And the channel August, in July our improve that our we're

certainly more standpoint, inventory supply we're operation a So hard us get we from a that continued more channel we throughput that position. believe improvement and standpoint, And chain drive the product. manufacturing to to working can from improve so allow ship point, this at will

Operator

Christian comes Carlino Our JPMorgan. with from next question

Christian Carlino

'XX, show. to had guiding not you're know recently trade well industry you've a I as the few as but So events

hearing an the broadly? of industry could you're at level give in peers So speak on promotionality to learnings saying? us any I your your of for you guess, you industry? are update or more going And softness least on could the the some What peers or

Tom Tomlinson

supply things competitors here struggling mean, the seeing that one our at I that they resellers. our we indicated chain they're good competitor many among So us are that have to to is performance And with And would I is they've issues. -- of our and discussions be our our -- us indicated that us from also think about the top talk performance have that of the our of competitors. with the that

So is we see that to demand solid. continue

our them. have And when DTC on grow. backdrop the buy And just so consumers our against again, to most sales stock that that's in stock, popular being of you continue most many saw them out You of don't of items. don't

performance. shipping just I being there's improving has year-over-year-over-year. take that we're optimism missed to advantage represents lot think grown by of a of opportunity so And to that I our able industry a there. historically mean forward And looking this in

Christian Carlino

like But guess, the is all measures, just Got cost-cutting margin to return margin? you. Or self-help EBITDA from trend the haven't deleverage. of have there some of most yet, guess, other you the do then that visibility but have decline are sales of prior back get to of really to? to fixed you And areas you cost That's to I mid-XX%s helpful I on implemented color.

Tom Tomlinson

Applegate COO. we We to Brian have as opportunities, with onboard our visibility interim help extra have now some and coming

that gives So to us after bandwidth go more these.

is various And we get higher drive operations. that then our the enhance so with associated And you will we've that as to further leverage that we improve obviously, talked reduce we as and allow to the will sales very as the profitability. And going -- our then be costs focus us sales. higher much about,

Christian Carlino

Got you.

of business, benefit rightsizing leverage and you're cutting the operations you're into meat other the the the So as of your on well? not you'll from this side

Tom Tomlinson

fixed correct. work And more number things synergies. And our the that an That's of recent to costs the one that a and to in just improve about terms see of think we effort from within do there is out a that's company to come cost those integrations There's of standpoint. ongoing acquisitions. position will capturing have and

Operator

Alex question next Our Bank comes Perry from of America. with

Alex Perry

your of think trends Just to see July in X, destocking you shipments point-of-sale you sort Or into? said point-of-sale that also didn't trends retailers maybe improve in just the at point-of-sale But visibility trends led and sort on September. rebuilding up to it sequential given sell have the does inventory? the you you that I retail which the quarter? imply that strong change reseller did Slide first of continued in help August about think in I recovering can us shows the think due and before

Tom Tomlinson

of inability that the the below ship our is they we been out-the-door products visibility have we, could were and to been otherwise if around the sell-through, sales we So because what shipping. have have our

improved, have and rates resellers start increases year-over-year in increases, have -- we As out-the-door we've shipping their shipping sales. seen now report seen sell-through, seen the to we our

Alex Perry

then gross And my on question was helpful. margin. really follow-up That's

gross level for we be would in at sort how compression here think trying So similar XQ about expect of Should we takes quarter? here? gross I as saw puts margins? third the we margins model to should mean, of a out What the XQ and looking

Tom Tomlinson

Yes.

continued type fourth us pressures inflationary continue the freight hit factors You on quarter component going costs, in of to the some that see higher are similar compression third should quarter our expect costs. in the as to

Operator

question from next comes with Telsey Advisory Group. Feldman [Operator Joe Instructions] Our

JoeFeldman

I we back too. there mean, the Or see that a few forward? margin of 'XX new is Or any going pressure follow that you quarters want kind reason percent going to shouldn't for about this actually question last to get up as have? of I you next to the on Should think historical are normally level well? we into gross

Tom Tomlinson

It's our intent restore margins historical levels. to to

and I we So I committed do, that very happen. of see that. lot mean, is that, work But to an there's to making do the opportunity to think, team to do a

JoeFeldman

inflation point an been And just I then it I'm Got price at but was how to driving you regard in Okay. on Has on side, the called thinking, the I it. wondering much sales? much just cost on at inflation, with baked impact of out retail? know this is that

Tom Tomlinson

So X significant years. it or X has pretty terms last of in been the over

mid-June adjusted we have last in We and We particular, price -- increase year that in adjustments once a typically, year, about our the we was And midyear. frame about did did increase mid-single-digits. year this time make X.

So able were also that stressed. consumers get price. our to we are mindful We're

So careful hard. pull that to that we've been lever lever too push or not

Operator

remarks. further no turn questions back floor to for closing are Tomlinson at you. time. this Thank the Tom I'll There

Tom Tomlinson

solid the of enthusiast throughout our consumers. Demand resilience Thank you, remained quarter, the demonstrating has Diego.

As improvement drove in levels, sales higher saw our sequential and supply chain in quarter, pressures eased we which production earnings. during turn the

aftermarket. automotive of believe are focused in the to everyone. profitability joining an call. for near-term for the long-term these We concludes in as we structure. now in you is flow our potential in the today. and Holley capitalize driving improvement firmly committed business. on on Thank We demand us, and industry leader, positioned and opportunities remain the remarks areas pursuit the to intently further confident generation cost streamline to our cash we'll coming aggressive This favorable trends fully of Goodbye, our the performance And end months underlying

Operator

Have evening. may parties now disconnect. All you. great Thank a

Holley (HLLY) 15 Nov 222022 Q3 Earnings call transcript