Hello, everyone. And thank you for joining us today for Holley First Quarter 2022 Earnings Conference Call. As a reminder, all phone participants are in a listen-only mode, but later you will have the opportunity to ask questions. A reminder also, today's meeting is being recorded. And now, for opening remarks and introductions, I am pleased to turn the floor over to investor relations for Holley, Mr. Ross Collins.

Thank you, Jim. Good morning, everyone. Thank you for taking the time to join us today. On the call with me today are Tom Tomlinson, Chief Executive Officer; Dominic Bardos, Chief Financial Officer, and Vinny Nimmagadda, Executive Vice President of Corporate Development and New Ventures at Holley. After their prepared remarks, we will open the call for questions. Now, I will reference the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including future operating and financial performance of the company. In many cases, these risks and uncertainties are beyond the company's control. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct, and actual results may differ materially from expectations. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in the company's recent 10-Q, S-4, and S-1 filings with the Securities and Exchange Commission. The information contained in this call is accurate only as of the date discussed. Investors should not assume that statements will remain relevant and operative at a later time. Holley undertakes no obligation to update any information discussed in this call in the future. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to US GAAP are included in today's press release, which is also posted on our Investor Relations website. At this time, I'd like to turn the call over to Tom Tomlinson, Holley's Chief Executive Officer. Tom?

Thanks, Ross. Good morning, everyone. And thank you for joining us today. Holley delivered strong first quarter results, driven by continued strength in consumer demand. Our net sales grew by 25% in the first quarter with a healthy balance of organic and acquired growth. Sales, excluding the impact of acquisitions, which we refer to as organic sales, increased by $21.6 million, contributing 13.5% of year-over-year growth, whereas sales associated with acquisitions contributed $18.1 million or 11.3% of year-over-year net sales growth. While supply chain challenges continue to limit our ability to fully satisfy consumer demand, our team performed well, enabling us to capture very nice growth in the quarter despite the challenges. Pricing actions taking taken in 2021 allowed us to overcome higher freight and product costs and deliver a slightly higher gross margin. Looking to the balance of 2022, supply chain and inflationary headwinds are very much at the top of our minds, and we remain committed to actively managing these challenges, while simultaneously maintaining our focus on developing innovative and exciting new products for our enthusiast consumers. I'll now turn it over to Vinny to discuss Holley's recent M&A activity. Vinny?

Thank you, Tom. And good morning to everyone on the call. As we have discussed on previous calls, M&A remains a pivotal piece of our growth strategy. Our dedicated M&A team continues to manage a robust pipeline of acquisition opportunities, frequently engaging with potential targets in our industry. We are focused on attractive companies that will allow Holley to expand share in current product categories, enter new product categories, increase our DTC scale, and ultimately, drive shareholder value. During the first quarter, sales associated with our nine recent acquisitions contributed $18.1 million or 11.3% of year-over-year growth, further highlighting the strength of our platform and the synergies we are able to capture. Not only are these acquisitions accretive to the business, but they will also provide a more complete enthusiast journey and ultimately foster customer loyalty. As it relates to recent acquisitions, we are well on track to integrate these businesses, realize cost saving synergies, and drive growth. We are also actively exploring opportunities to further accelerate the execution of our integration efforts in order to maximize value creation in the year. With that overview, I'd now like to hand the call over to Dominic who will discuss our financial results in greater detail. Dominic?

Thank you, Vinny. And good morning, everyone. Holley delivered net sales of $200.1 million in the first quarter, an increase of $39.7 million, or 24.8% from the first quarter of 2021. As Tom mentioned earlier, organic sales provided $21.6 million, or 13.5%, of year-over-year growth. This organic growth was driven by improved price realization, which contributed $13.6 million, or 63%, of the total organic growth in the quarter. The improvement in pricing represented 8.5% year-over-year organic growth by itself. The remaining $8 million of organic growth came from higher unit sales volume, largely driven by strong consumer demand in our electronic fuel injection and safety product categories. Non- comparable sales from acquisitions provide the remaining $18.1 million of year-over-year sales growth. Gross margin increased to 41.3% from 41.0% in the first quarter of 2021. The improvement in gross margin reflects higher price realization that more than offset the significant freight expense increases in the first quarter. You may recall that freight costs rose sharply mid-year in 2021. And while some moderation in shipping rates has occurred since the peak in the fourth quarter, freight costs still remained elevated in the first quarter and were significantly higher than the first quarter of 2021. We will not lap the significant freight cost increases until the third quarter of this year. Pricing gains also offset less impactful increases in component costs and product mix. Total selling, general and administrative expenses increased 43% in the first quarter. The large increase in SG&A is a continuation of increased costs related to equity compensation, public company expenses, acquisitions and investments for growth. Non-cash equity compensation was $3 million higher in the first quarter of 2021 and represented 150 basis points of deleverage in the quarter. Recent acquisitions accounted for $1.9 million of the increase in SG&A.…

Absolutely, Dominic. As a reminder, we'd ask that you please limit yourself to one question with one related follow-up as needed. Jim, please open the line for questions from our participants.

[Operator Instructions]. We'll hear first from Anna Glaessgen at Jefferies.

Appreciate all the color on the pricing impacts and how that helps growth and offset some of the cost headwinds you guys were seeing. Could you help us a little bit more in terms of the magnitude of the headwind from freight? And as we think about the year, are you assuming this eases as we get to the back half as we lap some of the higher costs. Just the shape of that headwind and what's assumed in the guide would be super helpful.

This is Dominic. A couple of things. We haven't really disclosed the exact deleverage of freight. We've just referred to the overall magnitude of increases from containers coming from international shipping and some of the airfreight that we saw. We did see rates start to moderate and come back down from peak container costs, which were north of $20,000 a container in Q4 back down closer to the $10,000 to $12,000 per container that we recently saw. The key for us is that we haven't lapped those freight expenses yet. Q2 is still going to be higher freight costs, and then we start lapping it again. So, we haven't really disclosed exactly what the point deleverage is. But it is significant. And pricing is expected to keep managing that.

As we think about the go-forward pricing opportunity, given you have such a high vitality index, introducing a lot of products year-over-year, is it safe to assume that new introductions could continue to offer an uplift to the overall ASPs?

I'll let Tom jump in on that one. There's a couple of things about it. In some of our major, super popular product lines, supply chain is a burden. It is a headwind in terms of getting some of the component increases. Our electronic fuel injection is an extremely popular line right now. And some of our new product development in that space is being slowed because of the headwinds that we have in supply chain. But new product development is the core of our organic growth driving. We have over 200 individuals now in our R&D and development areas, including our engineers. So, we believe that new product development will continue. We are going to continue to make those investments. Even if it's short term, there are some pressures because that is our long-term health.

Also, I would add that we're not reliant on – we're not totally relying on new product introductions to get price. So, we've got very strong brands and a history of being able to take price. And we've also been disciplined over the years about doing price increases. So, we have additional ability to take price. And as Dominic said very eloquently, we're continuing to focus on our development efforts, our innovation efforts and constantly bringing new products to market.

Next, we'll hear from Joe Altobello at Raymond James.

Just a quick couple questions for me. I guess, first, is there any correlation in terms of fuel prices, gas prices, with the industry in terms of demand?

Our consumers are enthusiasts. And they will make sacrifices to continue to pursue this automotive lifestyle. But at the end of the day, it obviously affects the amount of discretionary income they have left at the end of the week or the pay cycle. And so, it is something that we're watching very closely and even where a racer is going to have an event, obviously diesel fuel, for example, being very high affects them as well. So, I think really to sum it up, it is something that we're watching. It can have an impact. But compared to other consumers, this is an activity that people love to engage in. Very much part of their lifestyle. And so, our consumers also tend to be more affluent than the broader population, which gives them a little more flexibility as well in bad economic times.

Just maybe on supply chain. It sounds like, if anything, it might have gotten worse over the past few weeks. How has it impacted the M&A pipeline? I'm guessing that a lot of you were – smaller competitors are seeing even more issues on that front. So, has that actually expanded the potential opportunity on the M&A side for you?

I think at the moment, we really haven't seen that pipeline change dramatically. But with our strong financial position and depending on the severity and the duration of kind of the economic conditions we're seeing, it could very well create an opportunity for us.

Our next question today comes from Mike Swartz at Truist Securities.

Maybe just a follow-up on Joe's first question just relating to the correlation between maybe fuel prices and demand. Is there any historical evidence of maybe looking the other way with a lot of your products actually improving fuel efficiency? Does higher fuel costs play into maybe the interest level on some of these products?

I really think, for our consumers, improving fuel efficiency is a kind of a nice secondary or tertiary benefit. They're really more focused on performance.

I think on the prior call, you had mentioned you expect a return to more normal seasonality in 2022, which would imply a larger rate of growth in the back half of the year, but you just had a very nice top line print in the first quarter. You maintained guidance. So, are we supposed to be thinking about that maybe a little differently now?

Our normal seasonality is a – higher percentage of our sales occur in the first half of the year.

There's still a lot of year ahead of us. Mike, we have three quarters to go. So, we just don't believe that it's appropriate to change the guidance because we have enough confidence in our ability to hit that range that we just don't want to make any adjustments to that at this time.

Ryan Sundby at William Blair, your line is open.

I guess I'll follow up with another one on consumer demand here. Just wondering if you saw any changes in demand as you went through the quarter or even here more recently. And then, any color there if you've seen any changes between your D2C channels upgrading for pullback from your retail partners?

I will say that direct-to-consumer has continued to be very strong and we do have the ability for some of our resellers also to look at their out-the-door sales. And so, for the quarter, which is the visibility we have, direct-to-consumer has remained strong. And one of the things that we have seen historically is that our resellers, particularly the ones that carry inventory, do have the ability to pull back and reduce their inventory when they become concerned about the economy. And so, we did see a little bit of that in the in the quarter.

Really, I think we saw that time with the Russian invasion of Ukraine, which happened at the very end of February. And for us, that was the month of March.

I think last call you talked about contribution in 2021 from acquisitions to be a little more than $30 million, with acquired growth adding $18 million here in Q1. Just wondering if you could talk about maybe where the acquired businesses that have outperformed. And then, if you've got maybe an update on what you think what your contribution could be.

Just as a clarifying point, the contribution of the $30 million was just four of the acquisitions that we made at the very tail end of the year. There are nine acquisitions that are contributing to the non-comparable growth number, the $18 million. And that includes, for the first quarter, AEM, which was a nice acquisition, if you recall, we made in April of last year. So, all nine combined will drive the contribution from M&A north of the $30 million that we originally discussed.

Our next question today comes from Joe Feldman at Telsey Advisory Group.

Wanted to ask about inventory and just kind of how you feel about your inventory position today and your ability to meet demand. Are there any areas where you wish you had a little bit more or a little bit less in some cases?

Given the consumer demand, in the context of the current supply chain challenges, we don't have enough inventory of a lot of our most important products.

I assume you're working hard to improve that situation. I guess, when do you think that would be in a better spot?

Well, that's the crystal ball. And it depends on who you listen to. So, we're certainly hopeful to see it improve, but we have not seen it improve yet.

If I could ask one more. I don't recall you guys mention the D2C business specifically this morning. I was just curious how it performed in the quarter and if you could maybe remind us what percentage of sales it is today.

We haven't released individual quarterly D2C because there is some fluctuation in that. But D2C did outpace our organic growth and continued to do that, just as we saw through 2021. So, in 2021, I believe we landed around 17%, Tom. I'm trying to do it off the top my head there. I think it was about 17% of our sales in 2021, 16%, 17%.

Yeah. Yeah, I think that's pretty close, 16% or 17%. And by the way, that's a percent of sales number, not the growth number.

John Lawrence with Benchmark, your line is open, sir.

Congrats, guys. Could you talk a little bit about the integration plan? Obviously, I guess we're rolling up about a year on AEM. And sort of talk about how that integration plan and has the supply chain affected that plan at all as you try to integrate these nine companies?

Supply chain really hasn't had an impact on the integrations. I guess, John, that's the most direct answer to your question. If there's more color there, I'm happy to respond to it.

So, we're going to start with AEM. You've had a year and now some of these other ones. Can you just talk – so it'll be a rolling process as you continue to make acquisitions. I'm just trying to get a sense of where we are, say, for AEM. And is it closer to being eighth or ninth inning of the ball game? Or is it still sixth or seventh inning, just to get a roadmap of where those stand in terms of activity?

We have made progressive moves at AEM. Our primary focus right now is wrapping up the Simpson integration, which is the largest acquisition that we've done relatively recently, although it's worth saying that we didn't start integrating that for a year, until a year after the acquisition date because of the earn-out. I think we've pretty thoroughly discussed that. And so, that actually is the priority. We plan to have that done in the second quarter. We would also expect to have AEM finished in the third quarter.

[Operator Instructions]. We'll hear from Christian Carlino at J.P. Morgan.

Just wondering, either this year or in the past, have you noticed any correlation to weather, realizing it would likely just result in a shift of spend into 2Q rather than destruction of demand. But you see that impact seasonal auto parts and home improvements. So, I'm wondering if you guys see that.

I would say, historically, we have seen a little bit of that. And it really manifests itself in the form of a delay in the start of the season. So, people do get out, they race more, they drive their cars, these lifestyle cars, special interest cars more in the warmer weather. But generally, we've felt it's been a delay in the season and maybe a little bit of a delay in the spending. But it seems to even out during the course of the year.

I guess, can you just give us an update on some of the organic investments? The ways to think about is that you're prioritizing the marketing and building the enthusiast side, and you can pick up engineers through M&A. I guess how do you guys think about that, in general, [indiscernible]?

We actually look at the vehicle platforms, product categories that consumers are most interested in. And we maintain an idea bank of products, and then we prioritize them in the context of our strategic plan and assign those projects to our engineers to drive the largest opportunities there from a revenue and profitability standpoint. We do pick up engineering talent when we acquire businesses. That's one of the things we're always looking for in diligence. And then, one of the things, over time, is just – we put a lot of effort into accelerating the pace of their new product development. And other investments that we are looking at and have discussed is really to take our digital platform to the next level. And there is ongoing – significant ongoing effort around that.

Congrats on a great quarter.

Ladies and gentlemen, we thank you for joining us for this Holley first quarter 2022 earnings conference call. This does conclude today's meeting and we thank you all once again. You may now disconnect your lines. And we hope that you enjoy the rest of your day.