Holley's Q3 2025: Contradictions Emerge on Pricing Strategy, Inventory Management, Consumer Spending, and Market Growth

Date of Call: November 7, 2025

Financials Results

• Revenue: $138.4M, up 3.2% YOY vs $134.0M; core business +6.4%
• Gross Margin: 43.2%, up 422 bps YOY (39.0% prior year)
• Operating Margin: Adjusted EBITDA margin 19.6%, up 309 bps YOY (16.5% prior year)

Guidance:

• 2025 revenue guidance raised to $590M–$605M (midpoint implies ~3.8% core growth)
• Adjusted EBITDA guidance $120M–$127M (bottom end raised from $116M)
• Maintain gross margin above 40% and target adjusted EBITDA margin ~20%
• Continued focus on free cash flow generation and debt reduction (leverage <4x)

Business Commentary:

* Strong Financial Performance: - Holley's core business growth was 6.4% in Q3, marking the third consecutive quarter of year-over-year growth. - - The growth was driven by increased volume and a modest 1% pricing tailwind, reflecting strong execution and a resilient consumer enthusiast base.

• Inventory and Operational Improvements:
• Inventory levels increased due to operational changes aimed at enhancing long-term visibility and control, including bringing consignment inventory and bonded warehouse operations in-house.

• Efficiency improved by $3 million, and past due orders decreased by 20.7%, indicating stronger operational leadership and better in-stock rates.

• Gross Margin Expansion:

• Holley achieved a 43.2% gross margin, up more than 400 basis points from the previous year.

• This increase was attributed to pricing discipline and operational improvements, including reduced excess inventory write-downs and improved quality.

• Share Gains in Key Channels:

• The B2B channel reported a 7.3% growth, driven by strong collaboration with key partners through data integration and enhanced sales tools.
• Direct-to-consumer sales increased by 4.2% year-over-year, supported by effective promotional execution and digital performance.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management called it an "excellent quarter" with continued "positive momentum," reporting 43.2% gross margin (+422 bps), adjusted EBITDA margin 19.6% (+309 bps), positive free cash flow of $5.5M in Q3 and net debt/EBITDA at 3.9x; company also raised full‑year revenue and EBITDA guidance.

Q&A:

• Question from Christian Carlino (JPMorgan Chase & Co, Research Division): You had talked about taking high single-digit pricing, but price realization was only around 3% in the quarter. So could you talk about why that delta exists? What was same SKU inflation? And then is it simply a function of channel mix and more B2B sales versus D2C or is there some trade down or favoring smaller projects over larger ones?
  Response: Jesse: The delta is due to mix (higher B2B with lower ASPs), contractual pricing that phases in later periods, and other contractual items; not meaningful trade‑down observed.

• Question from Christian Carlino (JPMorgan Chase & Co, Research Division): You're not tracking to above your gross margin and EBITDA margin targets for the year. So how should we think about the structural margin profile of the business? Is there anything unsustainable in the base right now? As sales growth returns, is there room to expand margins further or will you generally look to reinvest upside back into the business?
  Response: Jesse: No structural change; pricing and operational improvements are durable but not all upside will immediately flow to profits—company remains committed to >20% adjusted EBITDA but expects additional margin acceleration as operations cleanly improve.

• Question from Phillip Blee (William Blair & Company L.L.C., Research Division): The midpoint of your guidance implies a fairly big step down in organic sales growth in the fourth quarter. So is that more just a function of conservatism in the current environment or is that driven by something more specific that you've seen quarter-to-date that warrants a bit more caution here?
  Response: Jesse: It's a mix of conservatism due to a murky macro environment and lapping a marketing/calendar event the company chose not to repeat this year, which reduces the top line.

• Question from Phillip Blee (William Blair & Company L.L.C., Research Division): Given what you know about who your average customer is, do you think tax changes or bigger refund seasons could have a meaningful impact on underlying demand?
  Response: Matt: Consumers are resilient; If consumers receive more discretionary income or tax refunds, that historically boosts demand, which could help over the next 6 months.

• Question from Joseph Altobello (Raymond James & Associates, Inc., Research Division): As we start to think about 2026, where are your priorities for next year?
  Response: Matt: Focus on executing the 3‑year plan—strategic growth initiatives and continued operational improvements per the roadmap.

• Question from Joseph Altobello (Raymond James & Associates, Inc., Research Division): You mentioned inventories were a little heavier than expected. Can you explain what drove that?
  Response: Jesse: Inventory increased due to bringing consignment into our system for visibility (~$2–3M) and exiting a bonded warehouse, which shifted expected receipts into Q3 (timing effect).

• Question from Brian McNamara (Canaccord Genuity Corp., Research Division): How has this year played out relative to your internal expectations given sequential improvement each quarter?
  Response: Matt: Performance is largely as planned—team executing the strategic initiative tracker and delivering against the plan.

• Question from Brian McNamara (Canaccord Genuity Corp., Research Division): Do you have the building blocks in place for this growth to be sustainable going forward?
  Response: Matt: Yes—enhanced D2C capabilities, stronger distributor relationships and foundational operational work underpin sustainable long‑term growth.

• Question from Brian McNamara (Canaccord Genuity Corp., Research Division): How does SEMA this year compare to prior years?
  Response: Matt: SEMA energy was higher, booth and customer engagement were strong, and execution has improved year‑over‑year with focused verticals and targeted meetings.

• Question from Bret Jordan (Jefferies LLC, Research Division): Could you talk about B2B white space and how you see the run rate across big parts retailers, traditional mechanical channels and other B2B opportunities?
  Response: Matt: Significant runway remains across e‑tailers, wholesalers, national retailers, export markets (e.g., Mexico) and OEM aftermarket programs—multiple channels to expand B2B.

• Question from Bret Jordan (Jefferies LLC, Research Division): Were Q3 events (including LS Fest East) neutral or a headwind to earnings given lower attendance at LS Fest?
  Response: Matt: Events are positive to earnings; LS Fest attendance was weather‑impacted but profitability was in line with expectations.

• Question from Joseph Feldman (Telsey Advisory Group LLC): What would have to happen to reach the high‑end versus the low‑end of guidance?
  Response: Jesse: A strong holiday merchandising calendar with high B2B partner sell‑through would push us to the high end; downside risks include partner conservatism and potential destocking.

• Question from Joseph Feldman (Telsey Advisory Group LLC): Can you share more color on product data adoption with B2B partners and how they're using the data?
  Response: Matt: We've improved product data quality (photos, specs, features, compatibility), grade and update it continuously—partners use this to better merchandise online, improving conversion and sales.

• Question from Michael Baker (D.A. Davidson & Co., Research Division): Any metrics or color on overall market spending—are your gains share driven or is the market recovering?
  Response: Jesse: Real‑time industry data is limited, but distribution partners report stronger out‑the‑door sales this year and Holley is taking share; guidance assumes these trends continue.

• Question from Michael Baker (D.A. Davidson & Co., Research Division): When you say trends continue, are you referring to share gains or industry trends amid recent consumer spending shifts?
  Response: Matt: Industry was soft in Q1 then picked up; partners report consistent out‑the‑door demand and Holley continued taking share—no current signs of a broad slowdown.

• Question from Michael Albanese (The Benchmark Company, LLC, Research Division): How much of your share gains reflect competitive positioning improvements from tariff/supply‑chain mitigation versus category dynamics?
  Response: Matt: It's category‑specific; share gains stem from improved execution—better product data, stronger partner collaboration and overall competitiveness rather than a single macro factor.

Contradiction Point 1

Price Realization and Pricing Strategy

It highlights inconsistencies in the company's pricing strategy and the realization of price increases, which directly impacts revenue and profitability.

Why was price realization only ~3% compared to the expected high single-digit pricing in the quarter? What was same SKU inflation? Was this due to channel mix (B2B vs. D2C) or trade-down to smaller projects? - Christian Carlino (JPMorgan Chase & Co, Research Division)

2025Q3: It's a combination of strong growth on B2B, which impacts pricing, some contractual delays in pricing flow, and some trade prices not playing in yet. Regarding trade down, we're not seeing much of it, but it's just those contract pricing and trade pricing dynamics. - Jesse Weaver(CFO & Head of Information Technology)

How have partners reacted to price hikes, and what is market sentiment? - Brian McNamara (Canaccord Genuity)

2025Q2: Our pricing was in line with competitors, and feedback was positive. The market sentiment in June was strong. July is historically softer, but overall, pricing was well-received. - Matthew Stevenson(CEO)

Contradiction Point 2

Inventory Management and Sales Expectations

It involves differing perspectives on inventory levels and the factors influencing them, which could impact sales and operational efficiency.

Why were inventories higher than expected? - Joseph Altobello (Raymond James & Associates, Inc., Research Division)

2025Q3: A decision to service customers better by moving consignment inventory in-house and getting out of the bonded warehouse contributed to the inventory increase. - Jesse Weaver(CFO & Head of Information Technology)

What was the base for Q3's flat sales, and how does it compare to last year? - Michael Baker (D.A. Davidson & Co., Research Division)

2025Q2: We're seeing demand holding up relative to last year, with seasonally low volume in July. We're past major SKU rationalizations, impacting comparables. - Jesse Weaver(CFO)

Contradiction Point 3

Consumer Spending and Market Share

It highlights differing views on consumer spending trends and Holley's market share, which are crucial for understanding the company's growth potential and competitive positioning.

What's the current consumer spending environment? - Michael Baker (D.A. Davidson & Co., Research Division)

2025Q3: Out-the-door sales have been strong, with Holley maintaining market share gains. - Jesse Weaver(CFO & Head of Information Technology)

Can you explain the demand moderation in Q1 and its link to broader consumer trends? - Mike Swartz (Truist Securities)

2025Q1: Currently, demand patterns have not shifted significantly since March, with no material prebuy or slowdown observed. - Matt Stevenson (President and Chief Executive Officer)

Contradiction Point 4

Market Size and Growth Opportunities

It involves differing perspectives on market size and growth opportunities, which can influence strategic decision-making and investor expectations.

What are your priorities for next year? - Joseph Altobello (Raymond James & Associates, Inc., Research Division)

2025Q3: Mexico is a market with significant interest in Holley products, and we're now communicating directly with key distributors. The market has an older car park, beneficial for Domestic Muscle products like carburetors and fuel injection lines. There's also a demand for modern truck and off-road products, given modifications in SUVs and trucks. - Matthew Stevenson(President, CEO & Director)

What is the potential of the Mexico market in terms of size, vehicle fleet differences from the U.S., and how the older vehicle fleet affects your product offerings? What is the current distribution arrangement with AutoZone? - Christian Carlino (JPMorgan)

2024Q4: We're now in the process of engaging with distributors in the market. Obviously, we've got a great head start having that footprint with love. As we do that, we'll make sure that we're bringing all the innovation we have, whether it's from our new products or our portfolio of products and get it to market. - Matt Stevenson(President and CEO)