Matthew Stevenson
Analyst · Telsey Advisory Group. Please proceed with your question
Thank you, Sloan, and good morning, everyone. On our second quarter results call, we outlined our expectation that the business would build momentum in the second half of the year, along with five specific drivers we believe would support that view. This morning, I'd like to report back against those commitments. In short, the third quarter largely played out as we anticipated. I'll also speak to the areas where we see opportunity for further improvement and the steps we are taking to address them. Three themes define the third quarter. First, our growth broadened. Our core business grew for the sixth time in the last seven quarters, and that growth accelerated from the second quarter. Most notably, American Performance, our largest division, returned to growth after working through elevated channel inventory earlier in the year. Second, profitability improved. After a period in which tariffs weighed on our margins, both gross margin and adjusted EBITDA margin expanded year-over-year, reflecting the simplification and cost savings work we've done across the business. Third, we've strengthened both our balance sheet and our platform. We brought leverage down to our year-end target a full quarter early, and we took two important steps intended to extend Holley's reach, the acquisition of SXTH Element and a new strategic collaboration with Amotiv. I'll walk through each of these themes, and I'll close out with how we're approaching the fourth quarter in light of the current consumer environment. Let's turn to slide five. Slide five puts numbers behind those themes. Net sales increased 2.3% to $141.6 million. Core net sales, which exclude the brands we've exited through portfolio rebalancing, grew approximately 6.7%, up from 4.9% in the second quarter. 27 brands delivered growth across our D2C and B2B channels, matching the breadth we saw last quarter, which tells us this growth isn't riding on one or two product lines. On profitability, adjusted EBITDA margin expanded 120 basis points to 20.8%, above our long-term target of more than 20%. On a GAAP basis, we reported net income of $7.8 million compared to a net loss in the prior period, and we generated $8.8 million of free cash flow, a roughly 60% improvement over the third quarter of last year. On the balance sheet, we went beyond the $15 million voluntary debt prepayment we announced on our last call and repaid an additional $10 million during the quarter. That brings our total debt reduction since September 2023 to $125 million. Our leverage ratio fell to 3.5 times, the lowest level since 2022, putting us at our year-end target of 3.5 times, a full quarter ahead of schedule. Reducing debt remains our top capital allocation priority, and the progress we've made gives us more flexibility as we evaluate the opportunities in front of us. On strategic progress, our long-term strategic initiatives generated $18.6 million in revenue, up from the $13.4 million in the second quarter, and delivered $6.1 million in cost savings. I'll break those down on slide 10, and I'll cover the SXTH Element and Amotiv in more detail in my remarks. Slide six takes a closer look at the quarter's results and the commercial work behind them. Gross margin reached 44%, up 73 basis points from last year. Together with the adjusted EBITDA margin expansion I mentioned, that improvement reflects the benefit of exiting lower-margin businesses, the sourcing and cost actions we've taken over the past several quarters, and disciplined spending with SG&A down year-over-year. Both measures are now above our long-term targets of approximately 40% gross margin and more than 20% adjusted EBITDA margin. New products continue to reach the market in every division. In American Performance, we introduced new Holley EFI intake manifold kits for small and big block Chevys, small block Fords, and LS and LT engines, making it simpler for enthusiasts to complete a fuel injection upgrade with components engineered to work together. In Euro & Import, Dinan launched its M-Hunter performance packages for BMW, built around a simple idea, a daily driver that's also a track weapon. In Safety & Racing, HRX expanded its line of driver gear with new gloves, shoes, and race suits. And in Modern Truck & Off-Road, Range launched its full-time V8 module with throttle control, building on the momentum of the Range products we discussed last quarter. On the operational side, we delivered $3.8 million in savings from completed and implemented purchasing and tariff reduction projects, and another $2.3 million from operational improvements, for a total of $6.1 million in the quarter. The bottom of the slide shows what our division-led marketing model looks like in practice. Last quarter, I told you we had embedded marketing teams directly inside each division. The recent Edge CTS4 launch in Modern Truck & Off-Road shows what that structure makes possible. Instead of a single launch day announcement, the team ran a campaign that built over several weeks. Pre-launch teasers to create anticipation, pre-order activity to capture early demand, a reveal at a major trade show, launch day activities, and influencer content that multiplied our reach well beyond our own channels. That is the speed and coordination we were after when we restructured marketing. We are now taking that playbook across our brands. Slide seven shows our performance by division. Three of our four divisions delivered core growth in the quarter. I will start with American Performance because it is the story of the quarter. Core sales grew 9%, following the declines of 9.7% in the first quarter and 2.1% in the second, a swing of nearly 19 points since the start of the year. All year, we have explained that this business was working through elevated channel inventory and that we had deliberately moved key programs into the second half. Both played out as we expected. We believe that channel inventories have normalized. We expanded our national retailer placement, and our marketing calendar was aligned with products enthusiasts buy in late summer and fall. Holley, MSD, and CataClean were all key contributors. Modern Truck & Off-Road grew 8.2% on top of 15.7% growth in the second quarter. Range, Baer, and Flowmaster led the way, and the division's direct-to-consumer e-commerce business grew approximately 65% year-over-year. Safety & Racing grew 2.5%, with contributions from HRX, RaceQuip, Simpson, and HANS. Growth moderated from the double-digit pace we saw in the first half, which benefited from strong demand tied to the Snell SA2025 helmet certification cycle. Growth in the quarter was also affected by the timing of certain new Snell 25 products in our Simpson Racing line, which were delayed and are now expected to be available in the fourth quarter. This remains one of our most innovative divisions in our portfolio and a leader in motorsport safety. Euro & Import declined 12.2%, and I want to be direct about why. Two factors drove the decline, and both were within our control. First, changes to our marketing calendar moved certain marketing activities out of the third quarter. Second, in-stock rates on key products were lower than they should have been, which kept us from fully meeting demand. Neither reflects a change in our view of the health of the European enthusiast market or the strength of brands like APR and Dinan. The team is focused on restoring in-stock levels and has adjusted the marketing calendar for the fourth quarter. Taken together, these results show something we have been working toward for some time. Our largest business is growing again, and the growth is coming from more than one part of the portfolio. That is a healthier balance than we had at the start of the year. Slide eight is our long-term strategic framework. You have seen this before, so I will keep this brief. Our eight pillars, great place to work, premier consumer journey, trailblazing trusted partner, product innovation and portfolio management, global expansion into new markets, transformational M&A, fund the growth, and deliver results, continue to guide what we prioritize, where we invest, and how we measure ourselves. What I would point out this quarter is the breadth of this framework is also a source of resilience. With initiatives underway across all eight pillars, we have many levers available to us, which we believe gives us the flexibility to navigate a range of macroeconomic factors while continuing to move this business forward. Slide nine shows select examples of the 2026 initiatives that sit underneath those pillars. They range from Amazon and third-party marketplaces, B2B partnerships and national retailers, to powersports, OEM bailment and chemical expansion, along with purchasing, manufacturing, ERP, and warehouse management that helps work fund it all. Our initial targets for the year were more than 4% net sales growth and more than $15 million in cost savings from these top priority initiatives. Through the first three quarters, we have already exceeded our $15 million cost savings target. The next slide shows how each pillar performed in the third quarter. The strategic initiative tracker shows where the $18.6 million of initiative revenue came from this quarter. Trailblazing trusted partner was the largest contributor at $6.6 million, up from $1.5 million last quarter. That growth was led by our national retailer channel, where expanded placement at a large national retailer was central to our third quarter performance. This is the program we highlighted on our last call and has shipped as planned. Product innovation contributed approximately $6.4 million, making the third consecutive quarter growth in innovation revenue, again, led by Safety & Racing and Modern Truck & Off-Road. Premier consumer journey contributed $3.4 million. Our D2C e-commerce channel benefited from the strong Modern Truck & Off-Road performance I mentioned earlier, and third-party marketplaces grew roughly 8%, supported by strength across multiple divisions and increased paid media investment. Transformational M&A contributed $2.4 million, reflecting HRX's contribution in the quarter. Global expansion in new markets was essentially flat at negative $200,000. Canada and Australia continued to perform well, but that was offset by regional softness in some other international markets. Powersports also declined slightly, which we attribute to the timing of shipments rather than underlying demand. Fund the growth delivered $6.1 million in purchasing, tariff, and operational savings I covered on slide six. Revenue from these initiatives grew nearly 40% from the second quarter. Just as important, the tracker does what it is designed to do. It shows you and us where we are winning and where there is more work to do. Slide 11 revisits the portfolio rebalancing cycle we introduced earlier this year. It has four steps. First, rationalize brands with low or no growth, minimal EBITDA contribution, or a weak strategic fit. Second, release the cost and capital tied up in them through facility consolidation, inventory reduction, and SG&A optimization. Third, reinvest that capital with discipline. Fourth, compound the value by scaling EBITDA, generating free cash flow, and paying down debt. Then we repeat the cycle. We spent much of the year on the first two steps, including the exit of our restoration brands, and now you are seeing the benefit in our margins and cash flow. Of the five businesses originally identified in the program, only one remains. It is a smaller business, and it is currently under a letter of intent, which we expect to close by the end of the year. This quarter, I want to spend a moment on the third step, disciplined reinvestment, because that is where more of our focus is now turning. Our target acquisition profile looks a lot like HRX, roughly $5 million-$10 million in revenue, $1 million-$2 million in EBITDA, and double-digit revenue growth. These are bolt-on businesses with passionate customers and strong product positions that we believe can plug into our platform, including our engineering, distribution, retail relationships, and marketing, and grow faster as part of Holley than they could on their own. As we announced a few quarters ago, our intent is to complete five to 10 acquisitions that fit this profile over a 24-month period, and that work is underway. We intend to continue pursuing these acquisitions in a way that is consistent with our commitment to continued deleveraging. SXTH Element is the latest example of that strategy in action. Let’s turn to slide 12. SXTH Element was founded in 2014 and is based in Spartanburg, South Carolina. The company designs performance parts for Toyota trucks and SUVs, focused on forced induction and airflow, along with off-road exhaust and recovery products. It is an engineering-led business. Products are designed in-house using CAD and 3D scanning and are road and dyno tested before they go to market, and customers have noticed. SXTH carries a 4.8 out of five rating across more than 2,700 reviews. Two things make SXTH especially attractive to us. The first is the platforms. SXTH focuses on Toyota’s newest generation of trucks and SUVs, which are among the most demand vehicles in the market. The Tacoma and Tundra together sold more than 420,000 units in the U.S. in 2025, and the sales of the redesigned 4Runner and Land Cruiser are surging. These are young vehicles with long ownership runways ahead of them, and they are owned by exactly the kind of enthusiasts who modify what they drive. The second is the business model. Roughly 90% of SXTH sales are direct to consumer. Its core products, including cold air intakes, front mount intercoolers, charge pipe kits, turbo inlets, and catch cans, carry average selling prices of roughly $250-$580. Many of them fit across the 2024 newer Tacoma, the 2025 newer 4Runner and Land Cruiser, so engineering investment can serve several platforms. Most importantly, there is an amazing team leading SXTH that positions us to grow this business around a strong nucleus of leadership, innovation, and passion for customer service. SXTH will join our Modern Truck & Off-Road division. We believe Holley’s scale, retail relationships, and marketing capabilities can help the brand reach many more Toyota owners, while SXTH strengthens our portfolio and platforms where we have historically been underrepresented. Slide 13 covers the strategic collaboration with Amotiv that we recently announced. Amotiv is a publicly traded company listed on the Australian Securities Exchange and owns more than 50 aftermarket brands, including Ryco, DBA, and XClutch. It has more than 1,900 team members in over 40 locations around the world, organized into three divisions: four-wheel drive accessories and trailering, lighting, power and electrical, and powertrain and undercar. Its roots go back more than 85 years to making chemicals and filters. This is a collaboration between two enthusiast-focused companies with complementary strengths and geographical footprints, and it has four elements. The first is already underway, Flowmaster high-performance oil filters engineered by Ryco. This will take one of our most recognized brands into a new category, filtration, backed by the engineering of a company that has been making filters for decades. It is a good example of extending a powerful brand into an adjacent repeat purchase category. Beginning in 2027, we expect to build on that in three ways: bringing Amotiv's DBA Brakes and XClutch brands to new customers through Holley's North American channels, having Amotiv lead sales and distribution of select Holley products in Australia and New Zealand, and collaborating operationally across select warehousing, distribution, technical support, and supply chain opportunities. For Holley, we believe that this collaboration advances our global expansion pillar in a capital-efficient way. Australia and New Zealand have deep enthusiast cultures and are already among our stronger international markets. We believe that partnering with a company that has an established presence there will allow us to expand our reach without having to build that infrastructure ourselves. Slide 14 brings us back to where I started. On our last call, we gave you five reasons we were confident in the second half. Here's how they played out in the third quarter. Simplifying operations, delivered, and it's visible in this quarter's margin expansion. Favorable retail placement, delivered. Our largest national retailer program shipped in the third quarter as planned. Brand marketing, delivered. Our division-led marketing model is now in place and contributing to our direct to consumer results. HRX, delivered. HRX continues to contribute to both growth and earnings. Product innovation is the one area we marked with a caution. Innovation continues to contribute meaningfully, as you saw on the tracker. That said, we have experienced some minor delays in a few product launches, which shifts the timing of a portion of the innovation contribution we had expected in the second half. Looking ahead, strong execution continues in the fourth quarter. At the same time, tariffs, freight rates, minor product launch delays, and evolving macroeconomic condition led us to keep our outlook measured. None of these factors changes our view of the long-term opportunity. With the third quarter complete and greater visibility into the remainder of the year, we have tightened our full-year net sales and adjusted EBITDA guidance ranges while remaining mindful of a more cautious consumer. Jesse will walk through the details. Before I hand it over to him, I want to thank our team members around the world. The progress you heard about this morning is a direct result of their focus and execution in an opaque consumer environment. I'm grateful for their work and proud of what they've accomplished. With that, I'll turn the call over to Jesse to review our financial results and outlook in more detail. Jesse?
