Holley Inc. (HLLY) September 2026 Conference Transcript

Hard lines and broad lines. Very happy to have Holly with us today. With me on stage is going to be Matt Stevenson, CEO, Jesse Weaver, CFO. Matt's going to give a 10-minute overview of Holly, and then we'll run through about 15 minutes of Q&A with Matt and Jesse. So Matt, I'll turn it over to you.

All right. Thank you, Peter. We'll talk a bit about our market. So unlike a lot of consumer products, our customers are enthusiasts when they buy our products. The best kind of comparison, I'd say, is the people that golf, people that fish, people that hunt. This is our customers' pastimes. These are not products they purchase every five to ten years. These are products they purchase as an ongoing basis because it's their hobby. So you can see there when we talk about the enthusiast performance aftermarket, these are people that modify their cars for additional performance. There's roughly about 70 million participants in the market. And when you can see some of the other categories I mentioned, how it dwarfs them in comparison. So we're over a 120-year-old company, originally started with the carburetors on the Model T. And through a series of acquisitions throughout the years, we have over 60 brands in our portfolio, most recently adding a new racing suit provider out of Italy called HRX. So we have four divisions that are set up in our organization, roughly about a $50 billion addressable market. American Performance, where Holley is really one or two in a number of categories we can compete with, is a $5 billion sector. The largest segment in the U.S. is the truck and off-road market. 80% of what consumers purchase are either trucks, SUVs, or CUVs. Your own import is a $14 billion addressable market, and safety and racing is $10 billion. And safety and racing is protection gear for both motorsports and power sports. And those are how we have our four divisions structured internally. And then within our 65 brands, we really prioritize about 20 brands, and you can see those listed under each of the verticals. So our strategic plan centers around making Hollywood a great place to work. Premier Consumer Journey, which is our direct-to-consumer business, Trailblazing Trusted Partner, which is our B2B, Innovation and Product Management, Global Expansion and New Markets, Transformational M&A, Fund the Growth, and, of course, Delivering Results. here's just a flavor of some of the key initiatives in our 26 plan uh that we'll probably talk about a little bit more with peter is such expanding our product line through new innovations uh new markets as well as new channel placements and some of the large national retailers which we announced recently uh focused a lot on growth but at the same time operational excellence we consolidated various manufacturing sites throughout this year and are in the midst of implementing a new ERP and WMS system. One of the other things we've been doing is really taking the opportunity in this mark to optimize our portfolio. What we do is we make the vehicles better. We like to say we make them faster, louder, safer, more fun, and exciting. And there are some brands in our portfolio that really didn't align to the strategy for our organization. So we took that opportunity to divest those brands, and we've divested four out of the five targets so far this year with one more to be done by the remainder of the year. And then are reinvesting those proceeds either into paying down debt or acquiring new businesses that fit in that strategy of aftermarket performance. And where we focus on those is really looking at founder-led businesses. this is a highly fragmented market where the average company is around 20 million in a 50 billion dollar space so we're the largest aftermarket performance platform and so it gives us a great opportunity to invite new businesses into the fold and we're really looking for that connection with the enthusiasts that founder-led businesses have typically even in the recent market cycles they're growing double digits a strong free cash flow and have a great pipeline of innovation behind them. The most recent one, as I mentioned, was HRX. This was a founder-led business focused primarily on direct-to-consumer. So there's a large unlock for us in unlocking the B2B channel for this business around the globe and offering off-the-shelf product. They've been growing at double-digit revenue, have over 20% EBITDA, and strong free cash flow. So these are the types of businesses that we can purchase, generally speaking, at a multiple blow where we trade at, incredibly accretive, and using our either operational back end or our commercial synergies to expand and grow these businesses or optimize their profitability. So just some highlights from the second quarter and recent events. We ended up growing on a reported basis 3.2 percent on a core basis which was exclusive divested businesses nearly five percent we have now grown five out of the last six quarters in a market that has generally been pretty flat the first quarter was the only exception where there was some channel inventory that was a little heavier than normal as well as some weather events that we are down a few percent in q1 this year but 27 brands grew this last quarter. We generated $41 million in free cash flow and continue to drive savings from our operational improvements. You can see there $13.4 million in revenue, but also $8.3 million in cost savings. And one of the things we've done is we're continuing to enhance our connection through our marketing efforts. When Jesse and I joined the company about three and a half years ago, all the marketing was centralized and not in the divisions. And over the last three years, we've made a strategic initiative to put the marketing back within the divisions, to be closer to the enthusiast, to understand the trends and the innovation and unmet needs that drive this business. And so it's really starting to bear fruit in some of our divisions, like Modern Truck, that were up double digits this past quarter. We also initialized a share repurchasing on our capital allocation. First and foremost is the pay down debt, and then second M&A. But there has been such a disconnect from where we feel the valuation of the company is and the share price just based on some of the macro events going on relative to fuel and rates that we remain opportunistic to purchase shares. And so we did some of that this past quarter. We talked about the portfolio rebalancing, and then one of the things is a real testament to the operational efficiency as well as the growth algorithm of this company is we've paid down $115 million of debt proactively since September of 23. When Jesse and I joined, the leverage was nearly six times EBITDA. Now we're down to about $374 million with plans to get under $35 million by the end of the year and three times by the end of 27. And then on the second half, we're pretty excited about some of the great new product innovations, new national retailer placements we have, as well as some of the expansion on export markets that we have initiated. So that sets us up for a strong second half. So we look at the guidance for 26. It's in that 610 to 640 top line with adjusted EBIT of between 127 and 137. And just for reference, in 2025, we were at 124. So that's a little background on the organization, and then we can jump into some Q&A, Peter. Well done, Matt.

That was perfectly at 10 minutes. So I appreciate that. We'll have Jesse join the stage as well. Okay. So I thought I would just be able to recap the most recent quarters you reported, which was Q2. and you reported that growth of 3.2%, but you did see really healthy acceleration in three of your four business segments, which I think were up double-digit. Maybe you can unpack that for us. What's causing that acceleration, and are there things that are sustainable in the business?

Yeah, I mean, in our market, definitely product innovation is a key driver behind that, right? So we saw some nice product innovations by those three divisions as well as that decentralization or what we call internally marketing empowerment that we have embedding more resources from a centralized point of view to a division point of view. It's just the folks are doing better content, faster, connecting more with enthusiasts in the forums and all the places they look for key information. So we're really seeing some nice presentation and enhancement of our brands in the marketplace through that. And then on American Performance, there was still that channel inventory primarily comprised in about really only three customers. So we talked about our Q4 growth rate of core growth was north of 13% in Q4. And we even commented on our full-year call that there was probably 4% to 5% that the distributors kind of reached for to hit their year-end targets that probably should have been in Q1. And then with some weather events that compounded that channel inventory getting out, and that channel inventory is primarily concentrated in American performance. In fact, 90% of it was. So that's why Salsa's great growth in three, but not in American performance. But at this time, that channel inventory has been normalized.

Okay, great. And so it looks like you guys are taking market share in your space. So maybe what are the competitive advantages that you have? What areas of the business do you think resonate most with your core customer?

yeah and of course it depends whether it's the enthusiasts themselves through our direct consumer business or ultimately through their channel strategy where about 80 percent of our business goes b2b on the b2b front i'll start there it's really we're that one-stop shop for a lot of these channels whether national retailers or e-tailers we have the broadest uh and deepest portfolio within the performance aftermarket one of the things we've consciously done over the last years has really enhanced our relationships with our distributors. We've given back a lot of margin to them to make sure they're healthy and profitable in the various categories. We're enhancing our marketing co-op and calendar initiative, partnering with them to help grow out their business. So they've really seen just a level of collaboration that didn't exist 40 years ago. Now on the direct the consumer side again it's it's driven by the innovation and our connection with these enthusiasts and um you know just continue to find products that meet their needs it's it's uh we call them a series of tribes because the car market you have your ford raptor people your bmw m3 people and there's so many tribes we call it or clubs that you really have to know that enthusiast so empowering our teams having the marketing efforts there to really understand what these consumers are looking for and what are the hot vehicles.

Okay, great. So it looks like you've got some nice growth recently, good outlook. I guess just to unpack some of the growth drivers in the business. So obviously maybe we had new product launches, marketing improvements, expanded retail relationships. I think you've got a new larger national player. Maybe expand on some of those key growth drivers for back half and even looking at the 27.

Yeah, I mean, they're all still core to the go-forward strategy, right? Innovation is still key. The national retailers, we feel like we are still well underpenetrated in the major national retailers. I think we're just on the cusp of continued growth. They love bringing in the performance aftermarket customer into their store as opposed to the replacement customer because the performance aftermarket customer spends more. So they feel like there's a lot of growth opportunity in that channel. For us, one of the other things that was in that list of the key initiatives for 26 was export. Over 90% of our revenue is U.S. only. So when you look at the amount of car enthusiasts, yes, vehicles are different, but there are some similarities in markets like Australia, South America, even parts of Europe, where our products, people know our brands because we have the leading brands, and they just have had difficulty getting access to the product. So export is a big driver for us. The national retailers are commented, the innovation, and just continuing to be there where the enthusiast wants to be met in our omni-channel strategy. We're doing roughly about 22% direct-to-consumer, and that is everywhere from third-party marketplaces, our own 16 different websites, track-side sales, store sites, brick-and-mortar. So it's a complex go-to-market where we meet the consumer. Okay. All right.

I was curious, too, as you talked about transforming the business and you've exited some areas, maybe give some examples of areas that you've exited and how the business is different than it was two, three years ago.

Yeah, I think a big one that we just announced the exit was restoration parts. Restoration parts, by the nature of hoods, doors, mirrors, handles, right, you name it, are not performance parts. So these were brands that were purchased prior to us joining the company. They're big. They're heavy. They're not differentiated. They're not core to our performance of who we are. So we took that opportunity to divest those businesses. And also in the last two to three years, we've seen a lot of changes in our cost of various products, heavy steel doors coming from various parts of the globe with tariffs, freight rates, and other things, businesses that may have been in the black forest through our product line of profitability just didn't make sense to carry any longer. So when it's something that's not core or something that's really contributing to the bottom line, it made sense to get it out of the portfolio.

Okay.

All right.

We'll pivot over to Jesse. I did want to ask a little bit about the free cash flow profile. The slide showed $41 million of annual free cash flow. Just quick math. It's about a 13% free cash flow. It's really attractive. So how do you feel about the sustainability of the free cash flow, and then what are your capital allocation priorities with that amount of cash?

Yeah, I think that's probably one of the most underrated portions of our business model is it is a cash-generating machine. High-margin business, very, I would say, resilient consumer base, even in the challenging times that we've had, and capital light when it comes to CapEx overall. all. So whenever I first joined, obviously this was 22 December, what I saw was a business that had these factors, but yet didn't produce cash that particular year. But the issue there was a one-time supply chain challenge that once we resolved it the next year and then executed on a lot of things that Matt's talked about, skew rationalization, tightening up some inefficiencies in the operating model, that year I want to say we did over $80 million in free cash flow. So Typically, though, the business does $40 to $50, and this is on a levered basis. So if you just put the interest expense back, you and I were just talking, Peter, about how at the current stock price, we could theoretically dividend out at a 20% to 30% dividend, and it's a very sustainable rate. So when we see the stock price like this, we just scratch our heads because it's not that much higher than it was, while it's 10 times better than it was. Yeah. And you do have a share repurchase authorization? We do. And from a capital allocation perspective, the number one thing we hear from investors whenever we talk about any disconnects in our valuation versus peers is leverage. So first and foremost, we want to pay down the debt. Definitely want to continue to drive organic growth, as Matt pointed out. For the five quarters, we've been positive. Obviously, markets aren't that forgiving. I think one mishap that sort of have to end the penalty box for a minute. But then the next thing is acquisitions. I mean, I think Matt laid it out very well. We've got a clear path on what makes sense for us. That acquisition has been doing phenomenal. And then the last thing would be share repurchases. When we see the stock price get to levels that, you know, we've already allocated capital to accomplish priorities on debt, don't have anything in the pipeline that's going to need cash near term, then we'll buy back stock. And we did $2 million of our $25 million authorization just in that Q2 time frame.

And on the deleverage that you've talked about, it was a goal to get down to three times debt to EBITDA by the end of next year. Is that a combination of continued debt pay down and EBITDA growth?

And, you know, as Matt pointed out, we've prepaid $115 million in debt. And, you know, last year we did an acquisition actually last year that, you know, had we not done that, we could have done more. But that also, that acquisition of a perpetual license for a brand called Cataclean has done very well for us. So just, you know, as we look out into the future, just running the simple math alone, 40 to 50 million in free cash flow next year with modest growth in EBITDA, we're south of Philly. Yep. Okay.

How should we think about M&A within the model? Is that something that you're making a couple of acquisitions a year, like do one big one every couple of years? What's the philosophical approach to M&A?

You want to take that for me? I mean, so as Matt laid it out, one of the things that we found is the median revenue of businesses in this industry is $10 million. So it set the stage for the case of a highly fragmented industry that could benefit from a roll-up. Right. And what we really like are business like HRX, where the founder has taken the business to a point, sees opportunity to tack it to Holly and get some chips off the table, but continue to be heavily invested and remain incentivized to grow that. And so as we go after these, you know, let's just say $10 to $15 million or $5 to $10 million businesses, I could see us doing, you know, what we've laid out here is 10 to 20 over the next 24 months, you know, a few of those in the next, obviously, 6 to 12 months. and those will continue to be funded through free cash flow as well as, like we said, a lot of these founders want to be incentivized on the growth and we obviously want to incentivize them to do it through growth. But I wouldn't expect us to really get too much in the way with a meaningful $100, $200 million acquisition because there's not a ton of those out there.

Okay, all right. And you do have a very attractive EBITDA margin profile right around 20%. So what are some of the puts and takes around margin opportunities, margin headwinds as we think about this year and going forward?

Yeah, I mean, I think anyone in manufacturing that sources, you know, overseas, certainly the tariffs have been a challenge for us. I mean, one of Matt's big initiatives, obviously, last year, whenever Liberation Day occurred in April, was we put meaningful amounts of focus on, And we had Tiger teams addressing various parts of the supply chain to rapidly mitigate those costs. And to the extent we couldn't, obviously we had to take some price on that. But in addition, one of the things that has been done over the last three years is a meaningful transformation of the leadership and capability of multiple functions. One of those is purchasing supply chain. Another is in operations. and as we continue to put in more really foundational operational processes and management, I think there's tons of opportunity there, which this year we call out in our materials that team has already generated $5 million in just the operation side, another five-plus that's targeted for the balance of the year through the supply chain. So tons of opportunity when it comes to the efficiency gains.

Okay, great. So we've got time for one more question. We'll wrap it up, Matt. What should investors be excited about looking in the back half and out to 2027? The growth, I guess the guidance will say it calls for some acceleration. Unpack that a little bit and kind of what gets you excited as you look forward to the next 18 months?

Yeah, I think the biggest thing to look at us over the last few years is our track record. Like we've laid out deliberate steps and we've met or exceeded those steps the last three years along the way. So I think, you know, the track record we've built up with our key investors, and then, you know, really we've gone from, I'd say, a lot of fixing the business to really focused on innovation and growth. And that's been, you know, more exciting for the team, frankly. And we still have plenty of operational excellence to continue to put in place. You know, we do manufacture the bulk of our product here domestically, you know, so there's a lot of complexity in terms of manufacturing as well as Jesse said, sourcing. But for us, being able to really turn that corner to focus more on innovation, M&A, channel expansion, global expansion has been really exciting for the team and offers, you know, really a consistent outlook for that mid-single digits of growth that we target. not to mention the highly creative M&A profile that this industry and our platform offers. Okay. All right. That's great.

Well, thank you very much. We'll wrap it up there, but certainly sounds like a very exciting company with a lot of growth ahead. So, appreciate you participating in our conference today.

Yeah. Thanks for having us, Peter.