Executive Summary / Key Takeaways

• Holley Inc. is demonstrating tangible results from its strategic transformation, achieving 3.3% core business revenue growth in Q1 2025 despite a challenging macroeconomic backdrop and overall revenue decline.
• Significant operational improvements and cost savings initiatives are driving substantial gross margin expansion and contributing to underlying profitability, offsetting volume pressures.
• Strategic focus on an omni-channel approach, B2B partnership enhancement, and product innovation is enabling market share gains against competitors.
• The company is proactively addressing macroeconomic risks, including tariffs, through comprehensive mitigation strategies encompassing cost reductions, sourcing optimization, and strategic pricing.
• Holley maintains its 2025 guidance, anticipating continued core business growth weighted towards the second half of the year, while focusing on free cash flow generation and debt reduction.

Holley's Transformation Ignites Core Growth and Operational Strength

Holley Inc. is a leading designer, marketer, and manufacturer of high-performance automotive aftermarket products, serving a passionate base of car and truck enthusiasts primarily in the United States, Canada, and Europe. Operating through a portfolio of storied brands like Holley, Flowmaster, Simpson, and Dinan, the company's products are engineered to enhance vehicle performance, safety, and drivability across street, off-road, recreational, and competitive applications. The market for performance automotive parts is substantial, estimated to be worth tens of billions of dollars, driven by a dedicated community for whom vehicle modification is a core lifestyle pursuit.

Within this landscape, Holley competes with a range of players, from large, diversified automotive suppliers like BorgWarner (BWA) and LKQ Corporation (LKQ) to more focused aftermarket parts providers such as Dorman Products (DORM) and Standard Motor Products (SMP). While larger competitors may possess greater scale and broader market reach, particularly in OEM supply or standard replacement parts, Holley differentiates itself through its deep connection with the enthusiast community, its portfolio of highly recognized performance brands, and its specialized technological expertise.

A key competitive advantage for Holley lies in its proprietary technology, particularly within electronic fuel injection (EFI) systems, ignition components, and performance tuning. Innovations like the Sniper and Terminator X EFI series offer tangible benefits such as improved fuel efficiency, increased horsepower and torque, and enhanced drivability compared to traditional carbureted systems or less sophisticated electronic alternatives offered by some competitors. Recent product developments, such as the Flowmaster Signature Series exhaust systems, have demonstrated power gains of up to 21 horsepower and 26 foot-pounds of torque on certain applications. The company's R&D efforts, guided by a structured phase gate system, are focused on delivering quantifiable performance improvements and user benefits, such as the Bluetooth connectivity on the Terminator X EFI for easier tuning via mobile devices, or the enhanced field of view (34% increase) in Stilo helmets. This focus on performance-driven innovation not only strengthens brand loyalty among enthusiasts but also supports strategic pricing initiatives and drives new product revenue, which was a significant $8.1 million contributor in Q1 2025 and saw a 133% improvement in revenue per new product launch year-over-year in 2024. This technological edge, coupled with a strategic emphasis on developing comprehensive performance packages that integrate components across different product lines, positions Holley uniquely against competitors who may specialize in narrower product categories or offer more commoditized solutions.

Over the past 18 months, Holley has embarked on a strategic transformation aimed at igniting its growth engine and improving financial predictability. This initiative has involved building a high-performing leadership team, enhancing organizational capabilities across digital, sales, and operations, and refining its strategic focus areas. The company is actively pursuing an omni-channel strategy to meet customers wherever they prefer to shop, strengthening relationships with traditional B2B partners while simultaneously accelerating growth in its direct-to-consumer channels, including its own e-commerce platform and third-party marketplaces like Amazon and eBay.

This transformation is beginning to yield tangible results, even amidst a challenging macroeconomic environment characterized by persistent inflation, higher interest rates, and cautious consumer spending. In the first quarter of 2025, while total net sales saw a modest 3.5% decrease year-over-year to $153.0 million, the company's core business, excluding the impact of divested businesses and strategic product rationalization from the prior year, achieved a notable 3.3% year-over-year growth. This core growth was broad-based, observed across all four of Holley's primary division categories (Domestic Muscle, Euro Import, Truck Off-Road, Safety Racing) and in 25 individual brands. The B2B channel saw over 2.5% growth in Q1 2025, supported by enhanced sales efforts and improved data quality, leading to reported market share gains based on out-the-door sales data from partners. The direct-to-consumer channel demonstrated even stronger momentum, growing over 10% year-over-year, with third-party marketplace sales surging over 50%.

Operational improvements have been a critical component of the transformation, focused on eliminating non-value-added costs and optimizing working capital. These efforts are having a significant positive impact on profitability. In Q1 2025, gross profit margin expanded dramatically to 41.9%, up from 32.8% in the prior year period. While a portion of this increase was attributable to the non-recurrence of inventory charges related to the 2024 product rationalization initiative, approximately 200 basis points of the improvement stemmed directly from ongoing continuous improvement efforts in labor and overhead efficiency and reduced warranty costs. For the full year 2024, cost of service savings alone totaled $7.8 million. These operational efficiencies, coupled with strategic pricing adjustments, are helping to mitigate the impact of lower overall sales volume on margins.

Despite the strong operational execution and core growth, the macroeconomic backdrop presents ongoing challenges. Consumer sentiment has softened, and spending on discretionary goods, particularly higher-priced items, remains pressured by inflation and economic uncertainty. Furthermore, new tariffs imposed since early 2025, particularly on imports from China, introduce additional complexity to sourcing and costs. While Holley's production costs are primarily US-based, the fluid nature of tariff policies requires significant proactive effort. The company has established a comprehensive project management office dedicated to tariff mitigation, implementing strategies including cost reductions, strategic sourcing, securing bonded warehouses, engaging third-party experts for navigation and advocacy, and implementing strategic pricing actions, such as the 8.75% price increase announced in April 2025.

Financially, Holley is focused on generating free cash flow and strengthening its balance sheet. While Q1 2025 free cash flow was negative $10.8 million, primarily due to timing shifts in accounts receivable and accounts payable compared to the prior year, the company expects positive free cash flow in Q2 2025 and is targeting a $10 million to $15 million reduction in inventory by the end of 2025. For the full year 2024, the company generated $42 million in free cash flow.

Holley has also proactively reduced its debt, prepaying $75 million in principal on its term loan since September 2023 and successfully exiting its amended covenant relief period. As of March 30, 2025, the company had $39.1 million in cash and $97.4 million available on its revolving credit facility, with a net leverage ratio of 4.32x.

The company has also hedged a significant portion of its variable-rate debt exposure through interest rate collars.

Looking ahead, Holley is maintaining its 2025 guidance, projecting revenue between $580 million and $600 million and Adjusted EBITDA between $113 million and $130 million. This guidance implies approximately 2.5% core business growth at the midpoint over the 2024 base, with growth expected to be weighted towards the second half of the year. The outlook assumes a stabilization of the macroeconomic environment and continued market share gains driven by the company's strategic initiatives. However, management acknowledges that any further deterioration in consumer spending or unmitigated impacts from tariffs could affect results. The company is also investing approximately $7 million in 2025 in areas like SOX compliance and incentive compensation, which are expected to be offset by ongoing operational savings and the non-recurrence of prior-year charges.

Conclusion

Holley's Q1 2025 results provide compelling evidence that its strategic transformation is gaining traction, driving core business growth and significant operational efficiencies despite a challenging external environment. The company's focus on leveraging its differentiated technology, enhancing its omni-channel capabilities, and strengthening B2B partnerships is enabling it to gain market share in a soft market. While macroeconomic headwinds and the fluid tariff situation present ongoing risks, Holley is proactively implementing mitigation strategies. The maintenance of the 2025 guidance, anticipating continued core growth and profitability improvements, underscores management's confidence in the strategy's ability to deliver results. Investors should monitor the pace of macroeconomic recovery, the effectiveness of tariff mitigation efforts, and the continued execution of Holley's strategic initiatives as key indicators of its ability to sustain momentum and unlock long-term value.