Holley (US:HLLY)2022-11-15 20:28Financial Data and Key Metrics Changes - Holley reported net sales of $154.8 million in Q3 2022, a 3.1% decrease from $159.7 million in Q3 2021 [29] - Gross profit decreased by $16.8 million or 25.8% to $48.4 million, with gross margin dropping to 31.3% from 40.8% year-over-year [33] - Adjusted EBITDA decreased to $16.4 million in Q3 2022, down from $35.5 million in Q3 2021, primarily due to supply chain challenges and increased costs [38] Business Line Data and Key Metrics Changes - Direct-to-consumer (DTC) sales increased by 11% year-over-year, despite supply chain challenges [17][18] - Noncomparable sales from acquisitions contributed $7.7 million or 4.8% of year-over-year growth, while comparable sales decreased by $12.6 million or 7.9% [30] Market Data and Key Metrics Changes - Past due orders remained elevated at $30.6 million at the end of the quarter, although excess past due orders were reduced by $11.1 million during Q3 [16] - Channel inventory decreased by $8.4 million in the quarter, but stronger shipments in September allowed for some rebuilding of inventory [14] Company Strategy and Development Direction - The company is focused on improving supply chain conditions and operational efficiencies to convert demand into sales [19] - Holley aims to restore gross margins to historical levels and is pursuing strategies to drive higher productivity and lower costs [70] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing risks in the supply chain, particularly regarding the availability of microchips, despite some improvements [50] - The company remains confident in its underlying profitability and cash flow generation potential, believing it is well-positioned for long-term growth [22][75] Other Important Information - The company appointed Brian Applegate as Interim Chief Operating Officer to focus on supply chain, manufacturing, and engineering improvements [20][21] - Holley completed five strategic acquisitions over the past 12 months, enhancing its product range and operational efficiencies [25] Q&A Session Summary Question: Follow-up on September trends and supply chain issues - Management noted improvements in supply chain but highlighted ongoing risks, particularly with microchip availability [50][51] Question: Warranty costs and future expectations - Management indicated that warranty costs were impacted by a backlog of claims and provisions have been made for future warranty expenses [55] Question: Inventory levels and reseller destocking - Management confirmed improvements in channel inventory as shipping capabilities increased in September [56][57] Question: Industry insights and promotional activity - Management reported that competitors are also facing supply chain issues, but Holley's performance remains strong relative to peers [59][60] Question: Gross margin expectations for Q4 - Management expects similar gross margin compression in Q4 due to ongoing inflationary pressures and higher freight costs [68] Question: Long-term gross margin restoration - Management expressed intent to restore margins to historical levels, emphasizing ongoing integration efforts from recent acquisitions [70]