Holley Inc. 2026 Q2 Earnings Call

Please go ahead. Good morning, welcome to Holley's second quarter 2026 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 the presentation materials, including non-GAAP reconciliations, are available on our investor relations website. Our discussion today includes forward-looking statements that are based off our best view of the world and of 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 2026. At the conclusion of the prepared remarks, we'll open up the line for questions. With that, I'll turn the call over to our CEO, Matthew Stevenson.

Thank you, Anthony, good morning to everyone joining us today. Before we get into our second quarter results, I'd like to build on the context we provided last quarter. As we discussed on our previous call, the first quarter was impacted by two temporary headwinds: elevated distributor inventories and a slower start to the spring selling season due to unfavorable weather. We also noted at the time that those headwinds were already beginning to wane, evidenced by a strong year-over-year growth in April, and that we expected the general momentum to carry through the rest of the quarter. I am pleased to say that's what happened, and it carried throughout the second quarter as well, resulting in a return to net sales growth. In fact, three of our four divisions delivered double-digit core sales growth year-over-year.

That's the meaningful acceleration from where we began the year and reflects both the underlying strength and the breadth of our portfolio, as well as the disciplined execution of our strategic priorities. We also made significant progress on our portfolio rebalancing initiative during the quarter, completing the divestiture of our non-core Restoration brands. While the transaction resulted in a GAAP net loss for the quarter, it further simplifies our operation and allows us to focus our resources and capital on the areas of the business with the greatest long-term growth potential. Excluding this one-time impact, the underlying profitability of the business improved substantially with adjusted net income up year-over-year. At the same time, we generated strong free cash flow, reduced leverage to its lowest level in four years, and returned capital to shareholders through share repurchases.

We believe this combination of returning to growth, improving profitability, strengthening our balance sheet, and executing our strategic initiatives positions us well as we move into the second half of the year. Let's turn to slide five to review the key highlights from the quarter, as well as important developments that occurred after quarter end. Net sales increased 3.2% to $172 million. Core business net sales, which excludes the impact of our portfolio rebalancing initiatives and divestitures, grew 4.9%, with three of our four divisions delivering double-digit core growth. We also saw core growth across 27 brands in both our direct-to-consumer and B2B channels, highlighting the strength and breadth of the portfolio. We generated strong free cash flow during the quarter and remain on track to end the year with leverage below 3.5 times.

Our strategic initiatives contributed $13.4 million in revenue while delivering $8.3 million in cost savings through purchasing, tariffs, and operational improvements. We also completed a transformation of our marketing organization over the past 120 days. We significantly reduced our reliance on outside agencies, hired more than 20 marketing professionals, and embedded those resources directly within our operating divisions. This brings our teams closer to the enthusiasts, enables faster responses to market trends, and strengthens brand activation. While still early, we're already seeing meaningful improvements in consumer engagement, marketing effectiveness, and direct-to-consumer sales. Given where our shares have been trading, we also opportunistically repurchased approximately $2 million of common stock during the quarter. Although our repurchase window was limited due to the blackout period at the end of Q2, this action reflects our confidence in the long-term value creation opportunity we see in Holley.

We also continue to execute on the portfolio rebalancing initiative we introduced last quarter. During the quarter, we completed the divestiture of our non-core Restoration brands, including Brothers Trucks and Scott Drake. We now have just one remaining business to divest from the five businesses identified in the program, and we continue to have strong interest in that from multiple potential buyers. Following the close of the quarter, we made additional progress in our highest capital allocation priority, reducing leverage, by making another $15 million voluntary debt repayment. This brings our total voluntary debt reduction to $115 million since September of 2023. Looking ahead, we believe we are well positioned for the second half of the year, supported by new national retailer placements, an accelerating pipeline of product launches, and continued execution of our strategic initiatives. I'll discuss those opportunities in more detail later in my remarks.

Slide six provides additional detail on our second quarter financial results, along with several of the key commercial and operational highlights from the quarter. Net sales were $172 million. Gross margin was 41%, down 72 basis points from the prior year, while adjusted EBITDA was 19.6%, down 223 basis points year-over-year. The decline primarily reflects the impacts of tariffs compared to the second quarter of last year. Free cash flow increased versus the prior year. The improvement reflects continued operational discipline, strong working capital management, and the benefits of refunds related to IEEPA tariffs. While our GAAP results reflect a net loss for the quarter due to that divestiture of our non-core Restoration brands, adjusted net income increased to $24 million, more than double the $10.6 million reported in the prior year period.

Even when adjusting for IEEPA tariff refunds, we believe adjusted net income more accurately reflects the underlying operating performance and earning power of the business. Product innovation remained a key driver of our commercial momentum during the quarter. Across our American Performance division, we continued expanding our highly successful engine swap portfolio with new applications for the GM LS and LT platforms, while also extending the Cataclean product family into the growing diesel performance market. Our Safety & Racing division, Simpson, introduced new retro-inspired Bandit motorcycle helmets that build on one of the industry's most iconic models, while appealing to both on and off-road enthusiasts. In our Modern Truck & Off-Road division, we launched a new Range RA0110 module for full-size General Motors trucks and SUVs, giving customers enhanced control over cylinder deactivation, auto start/stop functionality, and throttle response. Operational execution also remained a key focus.

During the quarter, we generated $5 million of purchasing and tariff related savings and an additional $3.3 million from operational improvement initiatives, delivering a total of $8.3 million in savings. These results reflect a continuous improvement culture we have established across the organization and our ongoing focus on improving our cost structure while investing for future growth. Finally, the examples at the bottom of slide six highlight the impact of our newly embedded divisional marketing teams. By placing marketing resources directly within each business, we've moved closer to our enthusiast communities and significantly increased the speed, relevance, and authenticity of our brand engagement. Our teams are creating content that resonates with consumers where they spend their time, across enthusiast forums, social media, events, and grassroots communities. We're also seeing encouraging improvement in engagement and direct-to-consumer performance. Slide seven highlights the performance of our four operating divisions.

Three of the four divisions delivered double-digit core growth during the quarter, reflecting the strength of our innovation pipeline, disciplined execution, and early benefits of our enhanced brand activation strategy. Beginning with American Performance, net sales declined 2.1% in the quarter. As we discussed previously, the business continued to work through elevated channel inventory levels, which we believe have now normalized. In addition, we also intentionally moved our product categories from our Q2 marketing calendar into the second half of the year, creating more challenging year-over-year comparisons. Despite those temporary factors, the business improved significantly on a sequential basis, with the decline narrowing from 9.7% in the first quarter to 2.1% in the second. With channel inventories now normalized, key product placements at national retailers, and increasing marketing activity, we expect American Performance to continue improving through the balance of the year.

Modern Truck & Off-Road delivered another outstanding quarter, with net sales increasing 15.7%, accelerating from 3.8% growth in the first quarter. The division continues to benefit from strong consumer demand and a highly successful cadence of new product introductions that are gaining meaningful traction across both retail and enthusiast channels. Euro & Import grew 13.1%, a significant acceleration from 1% growth in the first quarter. Earlier supply constraints have been resolved, allowing us to meet consumer demand and capitalize on the continued strength of the European enthusiast vehicle market. The division continues to benefit from a passionate and resilient enthusiast community, supported by strong demand across our core brands. Safety & Racing continued to be a standout performer, with net sales increasing 13.8% year-over-year, building on the 10.2% growth delivered in the first quarter.

Growth was driven by a strong cadence of new product introductions, continued innovation across our Stilo and Simpson brands, and sustained demand associated with the Snell SA2025 helmet certification cycle. We also continue to see strong momentum in the motorcycle safety market, where recent product launches are expanding our reach and reinforcing the strength of our portfolio. Overall, these results demonstrate the strength and balance of our portfolio. 3 of our 4 divisions delivered double-digit growth, while our largest business continued to improve sequentially as temporary headwinds subsided. More importantly, we believe the underlying drivers of our performance are becoming increasingly durable. We believe that our divisional operating model, combined with greater decision-making authority, dedicated marketing resources, and a robust innovation pipeline, is enabling our teams to respond faster to market opportunities. Strengthening engagement with enthusiasts and positioning each division for sustainable long-term growth.