Holley Inc. (HLLY) August 2026 Conference Transcript

Good morning, everyone. Thank you for attending our 46th annual growth conference. I'm Brian McNamara, one of Canaccord's analysts in the consumer-slash-industrial space. We are delighted to have Holley here and to host CEO Matt Stevenson and CFO Jesse Weaver. Guys, thank you so much for joining us today. So, Matt, to start out, maybe just give us a brief overview of the company and kind of your key initiatives.

Yeah, so Holley Performance Brands focuses on automotive performance aftermarket, almost exclusively on performance. We like to say we make cars and trucks better you know faster louder safer and more fun and exciting based out of nashville kentucky with facilities around the united states as well as a couple facilities in italy and a team in china as well we've been doing a transformation for about three years hollywood public in 21 and jesse and i joined jesse late 22 and myself in mid 23 and a lot of great work the team has done as we've returned to growth in the last five of the last six quarters. So a lot of our work has gone into really transforming the company and preparing it to be the multibillion-dollar platform that we know it could be.

Can you frame up the opportunity when you arrived? You've been there a little over three years. The initiatives that you've since put in place and the kind of progress you've made?

Yeah, I mean, one thing that attracted me to Holley is I'm an enthusiast. I love cars. And what also attracts me is the opportunity for the amazing brands we have in our portfolio. But also what I saw was a great set of brands and products that really did not have the sophistication to scale. And so we've spent a lot of time, I'd say, professionalizing the business across every part, every department, and putting in key processes that make this truly scalable as opposed to just its origins as a previous roll-up. But really a business that can run at a Fortune 1000 level and capitalize on everything that's a part of that.

So the performance automotive aftermarket is a shade under maybe $40 billion market. You're one of the leaders, a little north of $600 million in sales. What areas of the market are growing the fastest and why is it so fragmented? Is there a big consolidation opportunity here?

So definitely one of the key parts, as you alluded to, Brian, of our thesis is inorganic. strategic M&A to round out some of the categories we compete in. It's a highly fragmented industry. It's a large industry, $40 billion. When we take the global safety piece that we participate in, probably another 10 on top of that, so we're roughly about $50 billion. I think the origins of this industry is just a lot of great entrepreneurs finding a niche on a car or truck or motorcycle or what have you and turning that into a great business. The average business in the space we compete in is about 20 million. When you look at large, enthusiast, performance-oriented platforms, there really aren't any. There's been some private equities that have come in and, you know, have 10 brands here, this or that, but nothing at our scale and size, nor equipped to scale at the level we will be capable of or are capable of today.

So you guys rationalized a good chunk of SKUs early on in the turnaround. This year, you've done some further portfolio optimization.

What brands have you or will you divest and why were they why are they or were they not core to your strategy yeah and brian i think maybe i forgot the other half of your question about growth on it we're seeing growth across our portfolio um really you know the market generally speaking has been flat probably low single digits this year and has been in the last couple years this is a market that's traditionally growing about you know mid single digits a little bit of price and a little bit of volume is the best way to think about it and that has shown that trajectory outside the ups and downs post-COVID, but that's generally, if you take kind of 20 to 23 out of the equation, see a nice linear growth curve across that industry. Now, we're outpacing industry growth in many of our segments because of just key things we're doing. Product innovation is absolutely foremost, as we're a consumer products company, driving channel expansion, driving export markets, and driving enhanced strategic relationships with our B2B partners, as well as we do about 22% of our business direct-to-consumer. So we're able to steer our own ship, so to speak, and drive in that growth. So sorry, I forgot that other part. And then on the portfolio optimization? Yeah, on the portfolio optimization, we use a lot of analogies for maybe I use too many. Hollywood is like a house that hadn't been landscaped in like 20 years. You couldn't see outside the outside windows. There is a large percentage of our SKU population, roughly half this whole less than $600 per year. Imagine the inventory, the minimum order quantities, the manufacturing changeovers. It was just not disciplined. So Jesse started on it before I got here, and then we doubled down on it, taking about a half of the portfolio out that's less than 5% of revenue. And so we did that really over 23 and 24. And then tariff landscape changes, freight rates have changed pretty considerably over the last two to three years. There are some businesses on the bubble that we looked at, hey, these are really not core to who we are. performance, they're not scalable, and they're kind of the pain to manage day-to-day and take a disparate amount of time and effort. And so there were five businesses we identified that we brought to the market or in our earnings calls, not this past quarter, but before, that we want to jettison. And we've done four of those five. There's a small one left to go. Redeploy that capital in the higher growth segments and actually make our margins more accretive and also simplify the daily lives of the team just dealing with these businesses.

So you mentioned pretty consistent 6% or kind of mid-single-digit growth for the industry, and it's been kind of, you know, flattish up a little bit, down a little bit the last few years. Like, when's a reasonable time to expect kind of that resumption of that typically reliable growth?

I'd say we're getting close to it. There's just a lot of, I think, you know, we have the Consumer Conference. I'm sure I'm not the first person to say this, but there's a lot of noise in what's going on with consumer health, right? whether that's the K economy or now we're seeing some wage growth in the lower incomes, which is just nice to see in general. I think it's just we've seen a lot of change over the last five or six years. You know, there just doesn't seem to be a normal year anymore, whether a war or a supply shock or a pandemic or what have you. So I think when there's less volatility there, we can see just more consistent growth. But generally speaking, the resiliency of the consumer is felt in our segment. Our consumers are enthusiasts. Like the best thing to compare these two is like people that hunt or golf or fish. It's their lifestyles, their pastime. That's what they do to keep their sanity. And as opposed to a lot of other consumer product stocks that went public in kind of that 20 to 22 era, where you maybe buy that product 5, 10, or 20 years, our people are always spinning. They always got a car or a project. They're doing something. it's just the degree that they'll spend and they saw a huge we saw the industry a huge bump during covid because people aren't traveling you know some people getting checks from stimulus checks and they had more time at home they weren't commuting so you're going to do what you love more which is you know in your garage right so matt you're no stranger to successful turnaround stories um at this very conference two years ago i kind of asked you what the timing was in terms a return to growth you said 18 to 24 months and it looks like you nailed that because you guys have grown five out of the last six quarters why was q1's organic sales declined the aberration and not the story yeah so uh in particular on q1 you know we saw growth in all five quarters and q4 is actually a little too much growth and we were pretty transparent about that when we reported the full year we said there's probably three to four percent of growth here that shouldn't be here probably should be timing in q1 we have distributors as you can imagine they operate generally on competitive margins and so the opportunity a few of them to really lean out and hit their rebate targets and also to the sophistication although we have some really great partners as a whole the industry doesn't manage inventory maybe perhaps some consumer areas do or some segments it's a lot of mom and pops that have grown up pretty fast And so when you have pricing coming in, you have tariffs coming in, they're managing dollars versus inventory terms. There's a lot of things people got caught up in and perhaps not looking at unit velocity as they should. And so there was some inventory in the channel there on a handful of particular customers, mostly 90-plus percent are American performance segment. The channel went in too heavy into Q1. They said, hey, we'll sell it out. Don't worry. And then the end of January and the beginning of February, those weather events, especially in the southeast, we saw our customers on sellouts down like 50%. Like it really gridlocks the country. There's a seasonality push that happens a lot in our industry. People work on their cars in the south all year long, right? In the north, season shorter. And so January and February, a lot of that southeast is buying, working on projects, even working on outside. When they get abnormal weather, they're not buying, right? And so that inventory just took a while to work through the channel We got back to the overall growth with three of the four divisions delivering over double-digit growth American performance was still down a little less than or a little less than three percent But now that channel inventory is normalized and and we're good for the balance of the year on relative to channel inventory So it's really kind of a series of micro events and a little bit of timing But generally speaking, you know, that linear growth trajectory has been pretty consistent.

So a question for each of you, Jesse, you've been in the seat for nearly four years, Matt, about 38 months. What are the biggest areas of improvement you've each seen during your tenure?

I mean, the first thing is just the organization overall. I mean, I would say today the team we have in place looks very different than the team that we started with. And that team is largely responsible for getting the professionalization in the organization that's been necessary to create the platform that, you know, generates the growth that we're seeing today. It also creates the opportunity for us to re-engage in things such as M&A, which we did with the safety business in HRX. And, you know, I think now the team is starting to really get into a rhythm and finding non-value-added costs, getting the, you know, innovation pipeline really robust, continuing to support, you know, turning over every stone to, you know, do the things we have to do with facility consolidations and then just continuing to do the things that, you know, Matt's vision was three years ago. So just seeing that team evolve and the process in place is huge.

In your perspective, Matt? Yeah, it's definitely the team. It's a night and day business from what it was three years ago. I mean, even though, you know, you go back three years ago, the revenues may have been a little larger, But the team that we had at the time was very much a team that came from very small businesses. And the conversations were small business in nature. We've replaced 52 of the top 60 leaders. Holly has a ton of great teams and had a lot of great teams that are car enthusiasts, but not a lot of business functional experts. And so we replaced that top leadership. They've upgraded their teams. and the level of sophistication we're now running at is just, you know, I think I've commented to you a couple times, like, I've put them on, you know, on the same marina as a Fortune 1000 leadership team, right? Those are the kind of operational savvy and cost reductions we're after, growth we're driving, like, in a market that's not doing us many favors, generally speaking, right? So it's just the quality of the conversations and the excitement after you leave a room about a certain topic is just night and day.

You mentioned innovation. I think that's a key, obviously, area of improvement for, like, tell us about the evolution of your innovation strategy, kind of when you arrived and where it sits today.

Yeah, so the innovation strategy before was, like, a bit of the Wild West. So a lot of engineers turned loose, a lot of personal projects of cars people liked, and not so much, it wasn't driven off data and market potential and return, right? So we brought a whole new level of discipline is, hey, I like certain cars, too. But if that's not a project that makes money or that's not the highest return project, we're not going to work on it. So we spent the last three years, really, at first came in, we shut down all R&D for a short period of time just to reprioritize all the projects. Because as you can imagine, we got in this situation where half the portfolio was selling less than $600 because things are not in control. You don't want to repeat that. You've got to kind of shut that bad funnel off. But then you want to get the good funnel going. So we reprioritize the projects, put a discipline, seven-stage phase gate system in from ideation to reflection. And now we have a repeatable process that the teams continue to learn from is what makes a good product introduction, like first-to-market, large TAM, differentiated product, like, you know, all those things that start checking the box. And then we have reflection on how we launch it. What was good? What was bad? Why did this one work? why this one didn't, and with as many products as we're launching every quarter, it's a great learning environment for the team to continue to refine that recipe. So it's changed quite a bit, and that's part of the conversations of the first three years ago conversations on product development compared to what we have today.

So I always say M&A is in your DNA. You made your first acquisition, I think, since late 22 in March with HRX. Jesse, you mentioned that earlier. Tell us how that came about, the opportunity you saw, on kind of what you ideally look for in M&A targets?

Yeah, so, you know, again, our M&A strategy versus five years ago is very different, right? We're looking for high-growth brands, generally speaking, that are entrepreneur-led, strong EBITDA, strong cash flow, that are filling out criteria or category for us we don't already have. And the other thing is we want to catch brands on the upswing, not brands in the maturity cycle, right? So HRX, we have Simpson Racing, which makes great race suits as well as helmets and other apparatus for racing. But it's a very traditional kind of American. I compare it to like a suit, like a business suit, like an American style versus a European style. A lot of the circuits, they don't want heavy American-like suits. Those are more for drag racers and circle tracks and things like that. They want lighter, more breathable. Zippers sometimes go this way versus that way. There's subtle differences. It's a fashion element to it. So HRX was able to supply suits to IndyCar, F2, F3, WRC, a host of circuits, and just tremendous kegger. We didn't have that reputation of race suits. And then we were selling to teams with our Stilo helmets in Italy, the same teams, and we didn't have the race suit. And vice versa, they didn't have the helmet. So there is a natural synergy of go-to-market overlap, our ability to help them from a capital and operational structure to scale, and then just continue to accelerate their growth. So we want to take these great brands that are on the upswing and just put more niches to them, you know, pardon the pun.

So, Jesse, maybe one for you, probably the most underappreciated feature of the business, in my view, is your cash generation. Can you touch on how the company can generate the cash it does on an annual basis, even in the years when the top line growth has been challenged?

That's definitely something you and I see eye to eye on, Ryan, is this company generates, just for those that are new to the story, $40 million to $50 million in free cash flow pretty consistently. How we do it, I mean, the margins in the business, it's performance aftermarket, it's Branded products our consumers tattoo their brands on their bodies like they're willing to pay for the brand and With that, you know, we generate 20% EBITDA and it's relatively capital light I mean CapEx it stepped up over the last year just as we needed to put in some important infrastructure around an ERP system But it generally runs two to three percent overall And the way that we've been able to continue to do to generate this as well as support it through the reduction like the revenue declines as it relates to getting out of businesses that are not profitable is because we've gotten out of businesses that are not profitable and started to put the right leadership team members in place to help manage things like the inventory in a good way. And that's, this is going to be something that I think as the business continues to grow, we've outlined our capital allocation framework, which is to get the leverage out of the business. Right now, we're just into the latest quarter at 374, which is far cry from the 5657, whenever I started. And we prepaid debt. And through that initiative, our intention is to be by the end of this year, sub three and a half, and by the end of next year, sub three. And you can kind of run that math out pretty easily and see how our prepayment of debt will continue to make that possible. So it really is just a high cash generating business. Unlevered free cash flow would be close to 80 to 90 million. So great as far as that goes.

So to your point on deleveraging, I think you guys have prepaid $115 million in debt since September of 23. You expect the end of the year down below, maybe a little bit a shade below three and a half. Like what's the ultimate target, just sub three?

Sub three. Sub three. I mean, one of the things when Matt first joined and we talked a lot about is what's the driver of the disconnect between our value and sort of our closest tradable consumer peers? And it came up time and time again, both empirically and in conversations, that the leverage profile of a consumer discretionary business of this size is driving a huge part of that disconnect. So that's objective number one.

Tell us about your margin structure. Even in the tough years, you've kind of been at that 40-20 range. How do you do it?

Through a lot of continuous optimization of the cost structure, right? I mean, going into that first year, a big part of it was just tackling all of the freight charges that were coming into the business, right? Renegotiation with your existing outbound freight and bound freight suppliers, working through understanding all that we were getting charged millions of dollars for not even having the right dimensions in the system for what we would tell UPS, as an example, we were going to ship for. I mean, really just squeezing out the low-hanging fruit and then keeping a really close eye to where the market is headed, right? Like if volumes seem to be down, are we challenging our teams to make sure that we have the right staffing models in place in distribution and manufacturing? This year, even we've consolidated two facilities already. We've got more that we're continuing to look at, just reducing the size of the footprint. It really is just a never-ending look at what can we do to take out non-value-added cost.

A decent driver of your business is when cars change hands, right? New car sales, used car sales. From my math, we're roughly 6 million units below each of their respective peak years. Tell us how you're navigating that environment, whether it be supply chain issues, stymieing, kind of the new car algorithm, or kind of affordability challenges.

Yeah, I think the biggest thing, Kyle commented a few minutes ago, Brian, is like we control our destiny, right? Through innovations, through new channels, through those partnerships, engaging consumer. And that's a very different mindset than that existed here prior to three years ago. That was more of a company that just rode the waves of the market up or down versus like we control our destiny. I think relative to cars changing hands, you're spot on. When that Saar was 15-ish, I think we're back in the 16s, you kind of feel the wind in your face, right? So cars changing hands, making sure that Saar stays over 16, used cars changing hands. Because there's a dynamic, especially in the modern truck and your own import, where when someone buys a used truck or a new truck or a Euro car, that first six months they're looking at it in the garage saying, hey, I've got to make it my own. I've got to personalize this in some form or fashion. And our customers, typically that's making it faster, louder, you know, doing different things so they know it's their vehicle. So cars changing hands is a good thing for us.

Tell us about the types of vehicles that are modified the most. I think obviously truck is a big opportunity, maybe some other areas there.

Yeah, we have something that we call kind of the, when we look at the TAM, the opportunity index is obviously they make a ton of Ford F-150s. Generally speaking, the moderate on trucks is quite high right now. There's cars like a BMW M3 The fraction of what f-150s are but extremely high moderate right so we look at all that and just say What is that true potential of that but generally speaking, you know in American performance? Those are more project cars that has a really interesting dynamic where people tend to look at the cars with an eye of nostalgia what they grew up with and and so peak spending years of a u.s. consumer is 45 to 55 you walk that back in american performance it's like the mid 80s late 80s to like mid to late 90s right now are fashion right right fox body mustangs 90 camaros oj broncos two-door k blazers like you on and on and on and modern truck and euro those are more late model and those are more that vehicles are daily or they're a sports car or something and they just want to do those types of tunes intakes exhaust kind of things and then And safety and racing, really, sometimes we get the question, well, how does that relate to these other things? Well, that's the pinnacle of the enthusiast, that modded their vehicle. And then they say, I want to take it to the track and see what it does. So then we cover them head to toe in helmets, Hans devices, racing suits, shoes, gloves, hydration systems, extinguisher systems, seats, like everything to keep them safe on the track. So it's a portfolio that works well together.

So your board authorized its initial share repurchase program a few months ago. To me, that's telling the market that the board and yourselves probably think your shares are undervalued. Is that fair?

When we look at it, I mean, the capital allocation priorities, Jesse said, are paying on the debt and also opportunistically getting back to the M&A. And we announced a couple of quarters ago we'd like to do four to five of these HRX-type acquisitions for the end of 27. But when there's such a disconnect between what we feel the value is of the company and the share price, we're also going to be opportunistic on that. And so that's where we did that authorization.

Great. And the last question we're asking all consumer focused companies at the conferences on consumer health. So, like, how is your enthusiast consumers like health today relative to a year ago? How do you see consumer spending shaping up in the back half of the year and at the 27?

Yeah, I mean, it's always the unknown where oil trades and you know a lot of macro factors But generally speaking, you know that the upper end of the K has hung in there Now some more more kind of meat and potatoes middle America towards the bottom of the K It almost feels like there's a I hate to say it but almost feels like there's a there's a little Resilience coming back in there. I mean they generally speak in the whole enthusiast space been resilient But we have noticed in some of those segments not as robust as other parts of the K And so, you know, what we've seen and what we've commented on publicly, you know, from April on is the sellout rates have held in there pretty nicely on the out the doors. So the U.S. consumer just continues that resiliency and hopefully some of the bright spots we're seeing in more some of these middle America savings continue. All right.

I'm going to squeeze one last one in here. I think it's an important one. We attend your LS Fest in Kentucky every September. Tell us how important those events are in terms of brand building and things like that.

Yeah, so it's a big key of our engagement with enthusiasts. We host our own events. We will bring in over 110,000, 20,000 people at our various events around the country. These are unique atmosphere and environment for people to show off the cars they build. And so we'll get 40,000 people in Bowling Green that will do drag racing, drifting, car shows, time attacks. Burnout Wars like if you love cars, it's the second weekend of September and Bowling Green and it's really off the hook And so I can attest to that.

Yeah All right, we'll wrap it up there. Thank you so much. All right