Holley Inc. (HLLY) Earnings Call Transcript & Summary

So hello, everyone. I'm Alex Perry from BofA Global Research. I'm very pleased to have Jesse Weaver, CFO of Holley, with us here today; as well as Vinny...

Nimmagadda.

Nimmagadda, EVP of Corporate Development and New Ventures. So Holley is a designer, marketer and manufacturer of high-performance automotive aftermarket products, serving 15 million automotive enthusiasts. I'm going to lead off with some questions and open it up to Q&A. But first, I just wanted to turn it over to Jesse for maybe some brief comments and an overview of the business.

Sure. So thanks again for the invite. We just finished our full-year call about a week ago. And for those of you who aren't familiar with Holly, Holley's business has been around since 1903. And obviously, it's evolved a bit since then. I think the stat is we're one of the -- 1 of 4 companies -- let me get this right, Vinny, that we're on the original Model T?

Correct.

That are still around. So there's a long history here of longevity and innovation along the way. I would say, in its current form, Holley has been in the aftermarket performance parts business for probably well over a decade, focused really on serving the enthusiast customer that is really looking to make the most out of their vehicle. I mean it's capitalizing on the personalization of our culture and gives people a chance to, frankly, for a relatively affordable price, do something that they really love and enjoy. I mean, I think Vinny can tell you a bit of his story as an enthusiast, and I think Vinny could probably build on this a bit, too.

Yes. I mean, I think for a lot of folks, it's fans generations, but cars are part of the culture and a big part of your identity. They can be fashion accessories to many. They can be part of racing passion or hobby on the weekend. They can be a part of a community just going out to car events. So we, through a number of brands and a number of our products, end up touching on a number of enthusiast flavors and areas of interest.

Great. That's really helpful. So just first, I wanted to ask about the end market a bit. Sort of what is the project -- what is sort of the projected growth you see longer term your end market? And would you expect Holley to grow in line or above end market growth? And then maybe just help us think about what your current penetration is, and where that could ultimately go?

Sure. So it's a great question. We spend a lot of time looking at third-party data from SEMA, which is a Specialty Equipment Marketers Association. Think of it like NPD a little bit for our industry. And when you look at that, over the long term, kind of 20-year CAGR, it's about 6.5% as an industry. It grew during the last -- the global financial crisis. And what we see is that, that consistent mid-single-digit growth is very common in our industry. It's driven by more vehicles on the road, more consumers out there, more enthusiast modifying. And that's -- there's a lot of kind of secular tailwinds driving the industry, and that's what we believe to continue as well as what SEMA's ending up projecting. When we look at the categories that we're in, we believe that there is an opportunity to take tremendous share. It's a north of a $40 billion industry. And if you think about where Holley is today, we're at low single-digit penetration rates. And so we see opportunities in the future in the long run to continue to be an acquirer of choice to have some growth through M&A and some growth organically at the most macro level.

And just to build on that a little bit, in a category like this where personalization matters, brands matter, we own over 70 brands, and we're #1 or 2 in our top categories. And we really think that Holley, the umbrella as a business and all of the adjacencies between the different brands and how these parts work together, give us real advantage and opportunity to continue to grow organically and through consolidation.

Perfect. And then can you just remind us what vehicle group you're most indexed to? Is it still the sort of pre-1990 American manufacturers with the Ford Mustang? And then I guess like one of the pushbacks maybe you get sometimes is like, do you see your total car park increasing? Or is it a stagnant car park that people are just servicing more often because more automotive enthusiasts are sort of entering the base?

Right. So we do spend a bit 50-50 between classic vehicles, which you define to be any vehicle over the age -- in the mid-'90s as an age group, basically over 25 years old we've kind of define as a classic vehicle. That's about 50%. And the other 50% really skews towards later model and modern vehicles. And it is something where there's a bit of a balance and diversity in there. And when we continue to grow in safety markets, and so we are vehicle agnostic. We also have helmets and safety products that go beyond just automotive. They get us into power sports and motorcycles and other segments. So we're continuing to build that out. But the rough balance on the vehicle side is about 50-50.

Perfect. And then I think longer term, you see this as a 40% gross margin business, 20% EBITDA margin business, with sort of mid- to high single-digit revenue growth. Sort of where are we in terms of achieving that? Is that -- I think the guidance this year probably implies something a bit under that. But is that something that we could look for in 2024 or the outer years?

So we haven't given guidance beyond 2023, obviously, yet. But what I will say, it is a very focused organization when I say the Board and the management team to get back there. You don't have to go too far in history to see a point at which we were 40% gross margin and 20% EBITDA. Obviously, '21 had quite a few tailwinds when it comes to the leverage of our business model through. I think what we're seeing is a combination of things. I wouldn't say that the stimulus was anything that anyone could deny played a big role in that. But even if you go back to 2019, which in our investor materials, we gave some detail on what the quarters look like then, and at that point, prior to a lot of the acquisitions, even we were seeing 40% gross margin and 20% EBITDA. So there's a lot of -- there are many acquisitions. I think we've done at least 15 or 16 since 2019. And in that time, the team has done a really good job of doing everything they can to extract the synergies from those business opportunities, get to probably the most efficient platform possible. And in that, it takes a lot of effort to kind of bring the operating model back to where it needs to be. And when we look at 2023, this really is the year of tightening the screws and getting ourselves in place for the next wave of growth. And through that, I would say, in the not-too-distant future, we will see ourselves back to 40% and 20%.

And then I wanted to ask as a follow-up to that. How do you think about Holley as a COVID beneficiary, both in terms of maybe the stimulus money that was flowing through the market as well as just an increase in the amount of time that people had to service their vehicles? Like are you seeing sort of mean reversion there? What are your sort of consumer insights telling you about just in terms of time allocation that consumers are spending to this?

I'm going to let Vinny kind of speak a little bit to the consumer data that's available and kind of what that tells us, and then I'll speak to some of the work that I did whenever I started back in December.

Yes. So from the SEMA perspective and the macro industry, they did see a pull forward on demand in several categories. And I think that's the -- part of it is, to Jesse's point, just -- or Alex, to your point, the time spent at home as one factor where folks are reengaging in more DIY hobbies and reengaging with some of their passions. So that's an element. But I think from a consumer standpoint, it also demonstrates the, like, closeness to the core and how folks do really view this as a passion purchase. It's part of their enthusiast lifestyle. And so yes, there was a benefit from COVID. I think when you quantify it, just the raw stimulus check dollars that what we believe was a mid-single-digit number, which we had in some of the -- in the 2021 materials as well, but the more recent kind of materials touch on the demand normalization.

Yes. So whatever I was joining, I was looking quite a bit at this concept of what is the demand that we're seeing now because we have seen, as a business, a lot of supply chain congestion and not the least of which are the semiconductors that we've talked about a few times on some of our key products. And we provided some materials in the appendix of our investor deck this past quarter, where we looked at what were the businesses that we owned back in 2019, focusing on orders. And orders is a new metric that we're starting to kind of speak to a bit because the difference, just for those in the audience, the orders are what are coming in, and they're agnostic of our ability to actually ship. So the shipment is whatever hits the revenue line. And what you'll see is a bit of a decoupling, right, as everything was COVID-kicked off and supply chain started to congest, where orders were continuing to come in, shipments weren't able to go out, past due started to kind of go through the roof. And so we focused on the orders, just to say if this is the best indicator of demand at this time on the business that we owned in 2019, how does the shape of that change over time. And in the appendix, what we show is you do see a pretty distinct climb. And if you kind of dug deeper, we've got a quarterly view that we've looked at internally. It correlates a bit to the stimulus checks that came in '20 and '21, and then you see it start to kind of bleed out, if you will, over the course of last year. And so it's really hard to unscramble the egg on something like this whenever you think about how much of this is pull forward versus incremental. I think intuitively, it makes sense whenever people have a lot of time. I think there's a lot of people that had said, "I've got the money, I don't have the time." And during the COVID period, they found that time and they were able to engage in a hobby that they weren't able to get into before. And then there's people that -- I know a lot of people who picked up the guitar as an example. And now they're continuous consumers, and they'll probably pass that on to -- a few of those have passed it on to their children. So I think net-net, I believe, just instinctively that this is something that we will benefit from, long term. And -- but to say how much of it is pull forward versus incremental, it's a bit tough. And as we go into next year, we're estimating, if this trend kind of continues, to kind of flatten out, which we're estimating that it will, it will be about a 4%, 4.5% headwind on the year.

That makes sense. And then I wanted to ask a little bit about your core customer demographic. What does your sort of consumer insight data tell you about the wealth of your consumer, the age range? And I think it would just be helpful for those in the audience.

Absolutely. So we did include some of the materials in our Go Public documents in 2021. But when you look at the data, we do skew more affluent, we do skew to a younger demographic as enthusiasts. And so we tend to be better than the average from a household income perspective, and that's something that does show the -- these are enthusiasts that really prioritize and make this a part of their lifestyle. And so yes, I think that's probably the best way to put it.

Perfect. And then I wanted to ask about Holley's organic growth rate, maybe pre-COVID, pre-2019. Was this sort of growing in line? Was the business growing in line with that sort of 6.5% CAGR that you spoke to? And then, maybe talk about how you see the demand for Holley products in maybe a more recessionary environment, where there is pressure on big ticket.

Yes, so this is a question we get a decent amount. I don't think that we have disclosed it publicly completely. But from our internal data, we can say that we've been able to meet or exceed that long-term SEMA growth trends during that time. And one of the things that we look at is a vitality index. And also, just a big part of our business is R&D and the ability to produce new products that continue to take off and scale and replace sort of the older generations of products, and those have continued to stay strong. And whenever we look back, I think the best sort of indicator of the past recession we have is the '08, '09 time frame. And in our Go Public materials, there is a slide in there that kind of shows that this industry did grow in the 3% range, roughly, during that time frame. And I think it goes to some of what Vinny was talking about, in that our demographic is high household income. And I guess, depending upon the segment of the economy, that is impacted by whatever the recession may be, which your guess is as good as mine as to what the next one will look like. These consumers tend to be a bit more resilient. And their enthusiast, passionate affinity for these brands in this business and this hobby puts it at the top of their discretionary spending list. So I don't think that anyone would probably put too much money on what the economy is going to look like in the back half of this year. But we do feel that regardless of the outcome, we should continue to see at least strong spending from our consumer.

Jesse, maybe just to add on to that, you mentioned like the product innovation and the vitality. I think it's really important to know when we survey our consumers, it is the #1 purchase driver, is new products. And I think that's helpful. When you look back in 2010, we had that in the Go Public materials. This is a company that's about $87 million in revenue, largely carburetors, hasn't been a carburetor in a car since the late '80s, but that was the business at the time. And through new product innovation and driving that vitality index, they've grown into electronic fuel injection organically. They continue to grow into new categories. And that's when you look at pre-COVID, I think we had, in the 2021 materials, we showed 2020 at about north of $600 million in revenue. You can see the number of product categories that we're in and diversifying, a lot of which has been through organic innovation and a lot of the acquired brands and driving new products in those categories to drive that at or above market growth rates that Jesse mentioned at 6.5%.

And I just want to build on that innovation point for 1 second because one of the thesis points behind Holley long term is this combination of organic growth and M&A. And I'll let Vinny kind of lay out the landscape a bit on the M&A side because he spent quite a bit of time there over the last few years. But given that a lot of the purchase intent or drivers of this business are in R&D, one thing to keep in mind is R&D is expensive. And a lot of times what you'll see is that in this large fragmented industry, you have a lot of suppliers out there or brands that are 1 item. And their innovation sort of pipeline or their innovation ability or capital to put towards the next thing is a bit limited. And so sometimes, you will see us identify an opportunity that may be a smaller acquisition because I think the average business size in this industry is, what, $5 million to $10 million.

Correct.

And the opportunity for Holley is to step in and say, "Hey, you see this category, you've got the smarts, you've got the team, but you need $250,000 for tooling," right? And there's not a lot of small business owners out there that are making that trade-off and doing the analytics and saying, "That's a place I want to put my next dollar," versus in our business with our supply chain and all of the tools we have as a Holley business, we're able to unlock that value.

And then I wanted to ask about how sensitive Holley is to some maybe the more macro drivers out there, both from an interest rate environment as well as from maybe what's going on with new vehicle availability. How much does that impact Holley at all?

So I'll take the new interest rate environment and then let Vinny take the new vehicle availability. So no deposits at SVB Bank. So we don't need that question. No telling how many e-mails over the weekend I received on that topic this past weekend. So that's out of the question. But when it comes to interest rate, I mean, we are a business that has at least 5x leverage, as the public documents would show. And a big part of this business is M&A. And I think that when you look over the past few years, given all the M&A that we did, we used the full sort of extent of our credit facility to kind of get us to where we are today. And for the foreseeable future here in 2023, specifically, the M&A sort of pipeline may still exist, but our focus is tightening the screws as I've mentioned. So getting to the interest component of that, we have about $650 million of debt. It is a base rate plus 350 basis points or so, depending on revolver or term loan rate. And so whenever we see -- saw interest rates climbing, one of the first things that kind of came across my desk, when we looked at late Q4, was putting an interest rate collar in place just to derisk the interest exposure that we have. So we do have some details on that in our Investor Relations materials. But in short, we have a capital base rate at 5%. So any SOFR rates that exceed 5% were capped, and we'll get sort of an offset from the hedge there, and then we're able to participate in rates going below 5% down to 2.8%. So it didn't cost us anything for this particular hedge. And we felt just given everything that we're reading in the news that, that was probably the right move, and that will extend through 2026. And we're hedged on $500 million of the $650 million. So we feel good about the interest rate sort of capping. Now we did provide interest guidance in our guidance this year. And so it is going to be a bit more than it was last year. Guidance this year is going to be in to $60 million to $65 million range. But given the free cash flow that we plan to generate this year and the focus on kind of a pause on M&A at the moment and the focus on generating free cash flow, we don't see that as an issue. And then the last thing is just in this market, one of the things that we recognized is that we really needed to make sure that we got ourselves the flexibility to focus on the operations in the near term. So we've got a really good credit agreement, amendment that's in place to make sure that we have the flexibility through Q2 of 2024, just to make sure that we have the runway we need to manage through this near term.

And to touch on new vehicle trends and where we're at, I think maybe, one, it's probably important to take a step back for folks that are new and getting to know us that we are 100% focused on the aftermarket. So we are not an OEM supplier. We don't sell to the OEMs. And that's part of where Holley grew up but not where the focus has been in the last 20-plus years, and really driving -- or sorry, the last 13 years really is that change towards the aftermarket and the enthusiast focus. But as it relates to new vehicle trends and sales, it does end up having an impact in certain product categories, where we skew towards more modern vehicles. So that would be our tuning devices as an example, which we touched on last year as well as categories like exhaust, where oftentimes, it's one of the first modifications that a consumer will do to a new vehicle, is change their exhaust for something that got a little bit more of a performance sound or a little bit more personalized as a note. And those are areas that do see headwinds when new vehicle sales are lighter. That also has trickle-on effects to second and third owners of vehicles because as those new vehicles sell, owners will often change hands to sell their used vehicle into the market, and that ends up driving trends in the used car and used truck market that we have seen some headwinds on within specific categories. When you look at the SEMA data, they'll comment that more than 80% of sales in those modern categories happen within the first 18 months of a vehicle changing hands. So we do find that when a vehicle changes hands, it drives a purchase occasion for consumers to start to modify and that vehicle to get personalized and. That's where you have some of these impacts trickle into the business more on the modern side. So I think that also comments back to the stability and the secular tailwind that's in some of the classic market, where these vehicles end up being a cherished possession to their owners.

One of the things, just to hold on that, I found interesting is, I've been learning this business is people who modify their vehicles, this is going back to the enthusiast part, what they do, this is -- what -- a part of their identity, so to speak. And oftentimes, they'll purchase from another enthusiast who's done a lot of tunes and a lot of modifications and additions to the car. And I am not necessarily the classic wrench-turning enthusiast. I've always been a big fan of cars and come from a family that's always appreciated different vehicles, different vintages and things. But I was never expecting that someone would purchase a car that had been tuned and sort of brought to what someone else would have considered perfection to find that a lot of times, they'll take a car that's already been tuned and they'll just do it all over again because it's really about making it their own. Sometimes they may not trust the previous guy's mechanical skills.

Beauty is in the eye of the beholder. They want to make it their own.

That's right. So we'll sell the same product to the same vehicle multiple times.

And just a follow-up on that. Is there a line of sight into at least the categories that you're exposed in? If vehicle turnover does drive purchase occasion, is there a line of sight into that improving this year? Or what are you hearing from the OEMs that maybe you are most exposed to?

I think it's -- we are seeing positive trends with pickup trucks and availabilities. You're starting to see dealer inventory come back for vehicles, and there's just more vehicles on lots. So used car pricing definitely had some impacts last year, and you saw prices increasing on a lot of used vehicles. We're now starting to see some of that normalize. And so there are -- it does seem like there's more vehicles changing hands this year. I think most folks are continuing to forecast that [ SAAR ] is kind of where it was last year and which has been pretty consistent for several years now in terms of where [ SAAR ] has been.

Yes. That's really helpful. And then I just wanted to come back to this year and maybe the guidance. So I think top line guidance at the midpoint implies sort of a 5.6% decline in res. COVID demand normalization, I think you said it was like a 4.5% headwind. So I guess the remainder would be sort of reseller destocking and supply chip availability. So maybe just talk about the components of the guide.

There's a lot of components in the soup, and we really try to just distill it down to a couple because when we do the full waterfall, I mean there's -- you've got pricing, you've got M&A overlap. You've got -- one of the big things is just last year when you look at the overall demand, the demand that we got in the year is different than the shipments that we were able to get out because we were able to what we call burn down past due. So that is a bit of a headwind that's in there, too. But the two big things that would, I would say, distill down the key drivers to the midpoint here would be the normalization of demand and supply chain availability of these microchips. And in our guidance, we've assumed that the trends that we've seen in supply of the microchip availability of the past 6 months continue and do not see any improvement. That -- some could argue that's a conservative way of looking at it. But what we're facing with the supply on this microchip is pretty unique to us, and that's a question we commonly get, which is when you read the headlines, auto grade -- automotive-grade microchips seem to be coming in much more plentiful supply. And I think the nuance here is that about mid-single digits of our sales are on a product line that is relatively high margin, high price point, but it's built on a chipset that was in much greater supply 10 years ago. But over the course of time and the next generation of chips and as others are using that product in less quantity, the supply has shrunk accordingly. And now in this environment where line time on any chip manufacturer is at a premium, this particular chip isn't necessarily the first to go out. And so there's several avenues and paths that we're taking on that, but that's also a part of the top line. And I think it's important to kind of build on this point a little bit because it's an area of focus for the team and certainly one that we talk about quite a bit with investors, and we talk about it with our Board and as a leadership team. What are we doing about it, right? We're not going to necessarily buy or develop our own microchips. So we'll put that one off the table, but there are things that we can do near term and long term. I think the most obvious near-term answer has been and will continue to be just being available and open to spot market buys, which, unfortunately, that is not what I would consider the most dependable source of supply. It kind of comes and goes literally over a few hours in a day, and you have to be ready to effectively hit go on that purchase. So what we've done there is we've set parameters in place and given our supply chain team, here's the parameters at which you can just go to the market and buy and you're approved. It's almost like a preapproved open-to-buy. The other thing is Michelle, our interim CEO, is having active conversations with our supplier and distributor, problem-solving what can we do to at least get more dependability in the supply because part of this challenge, at least last year when it comes to giving guidance, was we would be committed a certain number of chips. And then the day that chips showed up, it was 30% of what the commitment was. So that makes it a lot more difficult, as you would imagine, for managing operations. And then the more 2024 answer, but it's a focus at this moment, is what we're doing to just redesign the product itself. I mean there are newer improved chips today. It's just unfortunately, while I love to sometimes oversimplify technology, you can't just unplug it and plug it in. And they hate it when I say that, but it feels that way sometimes. And so with that, the team is working very diligently to find a path to get us back on a different chipset. But I think probably the bigger learning in all this, and you see this whenever things like the tide of COVID rolls out and a few of the sort of unknown, unknowns, when it comes to risk of what emerge, are just making sure that we are taking stock of these different product categories and getting ahead of these things a little bit so that we don't repeat what we're going through right now.

Yes. And this is for the main product is the Holley EFI, right? That's -- you're having the chip constraints with?

It's a subcategory within that.

And is the -- was it a single supplier in terms of that you were relying upon for maybe older generation chips that they sort of deprioritized as there were general chip availability headwinds?

That is exactly right. It's a supplier that -- it's the only supplier that makes this particular chip. I think that in that industry, over the last decade, there's probably been consolidation, and there were more suppliers at some point. And then when something like COVID happens and the chip availability just couldn't keep up, as you would imagine, it doesn't necessarily make the line.

Yes. That's really helpful. And then I wanted to ask about the $15 million in gross margin benefit that you said you're going to see this year from negotiating a new logistics provider. What exactly was done there? Is this just a new contract that was much more favorable than your older contract? When is the contract effective, something I've been asked about a lot.

Yes. So I would say that this is kind of to my analogy before of when the tide goes out, you see opportunities. I think if you go back 2021 and in 2022, it was just about the team was really doing everything they could to get supplied to get it fast and to keep up. And then as the year kind of went on, you start to kind of look around and say, well, there's probably some more efficient ways for us to do this. And a lot of the sort of management of the freight and the logistics piece was done in-house, which we've got a lot of great people in that team, and they have a lot of things that they're working on. But this is one of those areas where it's a well-worn path to use third-party logistics providers that bring with that a lot more visibility and tools, negotiating power, access to different modes of transportation. And the coordination of all of that is just a really big challenge. And so recognizing that at the end of Q4 -- at the end of 2022, the team went to work on figuring out who would be the right sort of partner in all of this and what are the opportunities to unlock there. And so we got that contract signed about the middle of Q1 in terms of -- actually the first or second month of Q1, and we expect to realize that $15 million in this year. Some of those savings actually will trickle into SG&A, too. Not to get into the details of the accounting piece of this, but any of our outbound freight to our customers actually falls into SG&A, which is about 1/3 or so, maybe a bit less. But -- so we're really excited about that. I think you'll probably see benefits just from the cost of shipping containers across the industry. I mean part of our costs, obviously, freight. And I think we were looking at shipping container costs in the $10,000 to $13,000 range in early to mid-2022, and you've seen that come all the way down to $4,000 to $6,000.

In the benefit of the shipping container costs coming down very significantly, will that start to flow through the P&L in maybe the back half of the year as you -- the freight costs were capitalized and so you have to like work through the inventory? Is that the right way of thinking about it?

Yes. It is an area, when it comes to the accounting for these things versus where the cash flow is actually kind of coming in, that presents a little bit of a challenge from a forecasting perspective. I feel really confident on the year. And when it comes to the actual quarters, how this will flow through, I think you can expect that to follow just the volumes on the revenue guide as to where the freight is going to flow through. You'll see some offset with that within probably between quarters a little bit. But from a cash flow perspective, I feel good that it's happening in the year.

Yes. And then, sorry, just to clarify your last point, so you moved from an in-house logistics model to a third-party contract, and that resulted in roughly $15 million of savings. Is that right?

The total number is a bit more. It's just that we haven't broken out the piece that is in SG&A.

Got you. But you were doing it in-house and now you're doing it third party?

That's right.

Got it. Okay. Yes, that makes sense. And then in terms of the balance of the $15 million SG&A savings that you're seeing, maybe help us there, how much of that was the reduction in force that you guys implemented? Synergy capture from the integration efforts. I think there -- I was a little confused, I think maybe you quoted $10 million of annualized savings over the next 18 months from the synergy capture by $3.5 million this year. So maybe just help us there as well.

That is just a bit of a timing difference. So about $3 million to $3.5 million will be realized in the year. But by the end of the year, we get to sort of the run rate of $10 million of what had been done over 2022 and into '23. Of the remaining $15 million, I don't think we've broken out the SG&A piece, but maybe to just put some broad numbers against it, I mean, think of it as almost 1/3, 1/3, 1/3. Obviously, it's like 1/5 on the $3 million to $3.5 million, but you can split the remainder of that between the reduction in force and the freight piece.

Got you. So 1/3 reduction in force, 1/3 freight and 1/3 synergy capture?

Well, I guess it's 1/5 synergy capture, and then the remaining 4/5 would be cut in half.

Got you. And then what is enabling the synergy capture from the integration? I guess maybe a broader question. When you -- Holley has been very acquisitive in the past. Like what are the things that allow you to realize pretty significant synergy capture? Is it bringing their logistics contracts onto yours? Or maybe some overlapping personnel? Where do you see the most synergy capture?

Yes. I think the thesis really has been around, one, we touched on earlier in the average SEMA business, that $5 million to $10 million business operator. They're investing in a lot of overhead and functions. They have an accounting function. They have an HR function. They have a number of different kind of support and administrative costs. They have a cost of launching a website of having their own potentially third-party distribution. And so these are all areas that when we look at any acquisition, we kind of look on a case-by-case basis and say, where could there be duplicative overhead costs? At the end of the day, Holley is focused on the consumer. It's those enthusiast consumers. And so many of these products are going on the same vehicles. We spend a lot of time with Sean and the marketing team generating end-consumer demand and marketing at the consumer level. And so we'll find opportunities potentially to look at marketing dollars that are being spent in the channel, but not necessarily making it to the consumer and the kind of effect in those types of effects. And those are things that we look at and say, "Well, what's actually needed to drive this brand?" And we -- those are the savings that we typically look at from a cost savings perspective. Also, size and scale also help on the negotiation side, with vendors are looking at outsourcing or potentially in-sourcing certain components. And so that's definitely something that gets taken into account. We do also look at investing in areas from the R&D side, and so that's also a part of what we see on the integration side is sometimes we are adding cost to invest in new product development that we can drive longer-term growth in a business.

Yes. I think we've put in the press release or somewhere -- actually, I think it's in the investor materials, and we've consolidated 160,000 square feet of locations through those acquisitions. And that is a big part of this business in getting the appropriate synergies, is making sure the manufacturing is being done in the right place, either internal or external. And then, if it is being done internally and you've got additional space in one facility, you can then move those capabilities to that facility and then drop the overhead of the other.

Perfect. And then I think we have time for one more question. So I wanted to ask about how do you think about Holley's participation in the electric vehicle market? Is this something that you see as -- what are you doing now? What do you envision in the future? Is this a headwind for you guys or potentially a tailwind?

We're charged up about it. And I think that's something that this is all -- the aftermarket always finds a way. Holley has grown and shown. And our focus on new product innovation is ultimately what drives growth. And so we see this really no differently than when the industry shifted from carburetor to electronic fuel injection. This is another method of propulsion. We have products and categories. If you see some of our areas under our AEM EV brand that are really focused on simplifying for consumers and builders, the ability to convert a car from internal combustion to EV, that's one that I know. I work closely with a lot of our engineering team and very excited about that opportunity. The sheer torque and power of a Tesla, a large drive unit or a sport drive in some of these things and having that be in a classic car or a different example is kind of a new era for hot rodding. We're also very excited about personalizing a lot of these electric vehicles and having owners feel like that is their own and different from their neighbors or different from somebody in their local community. So that's something that, as the novelty of EVs continues to wane, as more of them come on the road, we're going to find a greater opportunity to personalize them.

Perfect. Well, that is all the time we have. I really want to thank Jesse and Vinny for a great discussion. So thanks again.

Thank you, Alex. Appreciate it.

Thank you.