홀리(HLLY) 2026년 3분기 실적 발표 콘퍼런스 콜: 핵심 성장 가속화, 마진 확대

핵심 요약

• 홀리(Holley Inc., NYSE: HLLY)는 2026년 3분기 순매출이 전년 동기 대비 2.3% 증가한 1억 4,160만 달러를 기록했다고 발표했다. 철수 브랜드를 제외한 핵심 순매출은 약 6.7% 증가해 2분기(4.9%)보다 성장세가 가속화됐다.
• 조정 EBITDA는 8.6% 증가한 2,940만 달러를 기록했으며, 조정 EBITDA 마진은 120bp 확대된 20.8%를 나타냈다. 매출총이익률은 73bp 상승한 44.0%를 기록했다.
• 아메리칸 퍼포먼스(American Performance) 부문은 1, 2분기 감소세를 딛고 핵심 매출이 9.0% 증가하며 성장세로 돌아섰다. 모던 트럭 및 오프로드(Modern Truck and Off-Road)는 8.2% 성장한 반면, 유로 및 임포트(Euro and Import)는 12.2% 감소했다.
• 잉여현금흐름은 약 60% 개선된 880만 달러를 기록했다. 홀리는 해당 분기 동안 2,500만 달러의 부채를 상환해 레버리지 비율을 3.5배로 낮췄으며, 이는 연말 목표치를 한 분기 앞당겨 달성한 것이다.
• 경영진은 신중한 소비 심리와 제품 출시 시기를 이유로 연간 가이던스를 순매출 6억 1,000만~6억 2,500만 달러, 조정 EBITDA 1억 2,700만~1억 3,200만 달러로 좁혔다.
• 홀리는 분기 종료 후 식스스 엘리먼트(SXTH Element)를 인수하고 아모티브(Amotiv)와의 전략적 협력을 발표하는 한편, 부채 감축을 자본 배분의 최우선 순위로 유지했다.

주요 재무 실적

홀리는 약 5,000만 달러의 현금과 약 1억 4,700만 달러의 총 유동성으로 분기를 마감했다. 회사는 2023년 9월 이후 총 1억 2,500만 달러의 부채를 감축했다.

사업 및 운영 실적

아메리칸 퍼포먼스(American Performance)가 주요 성장 동력이었다. 핵심 매출은 1분기 9.7% 감소, 2분기 2.1% 감소세를 뒤집고 9.0% 증가했다. 경영진은 이러한 회복세의 원인으로 유통 채널 재고 정상화, 전국 대형 유통업체 입점 확대, 계절적 수요에 맞춘 마케팅 일정 등을 꼽았다. 홀리(Holley), MSD, 캐타클린(Cataclean)이 주요 기여 브랜드였다.

모던 트럭 및 오프로드(Modern Truck and Off-Road) 매출은 2분기 15.7% 성장에 이어 8.2% 증가했다. 레인지(Range), 베어(Baer), 플로우마스터(Flowmaster)가 해당 부문의 성장을 견인했으며, 소비자 직접 판매(DTC) 전자상거래 매출은 전년 동기 대비 약 65% 증가했다.

안전 및 레이싱(Safety and Racing) 부문은 HRX, 레이스큅(RaceQuip), 심슨(Simpson), 한스(HANS)에 힘입어 2.5% 성장했다. 스넬(Snell) 2025 헬멧 인증 주기의 수혜를 입었던 상반기에 비해서는 성장세가 둔화됐다. 일부 심슨 모터스포츠 제품의 출시 지연으로 예상 공급 시기가 4분기로 밀렸다.

유로 및 임포트(Euro and Import) 부문은 12.2% 감소했다. 경영진은 마케팅 활동이 3분기에서 4분기로 이동한 점과 주요 제품의 재고 부족을 원인으로 지목했다. 다만 4분기에 진입하면서 재고 입고율이 이미 대폭 개선됐다고 회사는 밝혔다.

홀리의 전략적 이니셔티브는 2분기 대비 40% 가까이 증가한 1,860만 달러의 분기 매출을 창출했다. 전국 유통 파트너십이 660만 달러, 제품 혁신이 약 640만 달러, DTC 및 마켓플레이스 이니셔티브가 340만 달러를 각각 기여했다.

구매, 관세 절감 및 운영 프로젝트를 통해 분기당 610만 달러의 비용 절감을 달성했다. 첫 9개월 동안 운영 효율화에 따른 절감액은 약 830만 달러에 달해 회사의 연간 목표치인 500만~700만 달러를 이미 초과 달성했다. 재고 관련 이니셔티브는 포트폴리오 리밸런싱 효과를 제외하고도 재고를 약 1,000만 달러 줄였다.

포트폴리오 단순화 작업에는 복원 및 기타 비핵심 사업 철수, 2개 시설 폐쇄, 약 7,000개의 저마진 SKU 정리가 포함됐다. 경영진은 이러한 포트폴리오 및 비용 조치를 통해 1,200만 달러 이상의 일회성 순현금이 창출되고 연간 EBITDA 마진이 150~200bp 확대될 것으로 기대하고 있다.

분기 종료 후 홀리는 보유 현금을 활용해 식스스 엘리먼트(SXTH Element)를 인수했다. 토요타 차량 중심의 고성능 부품 업체인 이 회사는 모던 트럭 및 오프로드 부문에 편입될 예정이다. 경영진은 이번 인수가 홀리의 부채 감축 기조를 바꾸지 않는다고 밝혔다.

홀리는 아모티브(Amotiv)와의 협력도 발표했다. 초기 제품은 라이코(Ryko)가 설계한 플로우마스터 고성능 오일 필터(Flowmaster High Performance Oil Filters)다. 양사는 2027년부터 북미 지역에서 아모티브의 DBA 및 X-클러치(X-Clutch) 브랜드 유통을 확대하고, 호주와 뉴질랜드에서는 엄선된 홀리 제품을 유통하는 한편 일부 운영 협력도 확대할 것으로 기대하고 있다.

경영진 가이던스

홀리는 매출 및 조정 EBITDA 가이던스의 하단은 유지한 채 상단을 낮춤으로써 2026년 연간 전망치를 좁혔다.

경영진은 2분기 말 단행한 가격 조치 효과가 본격 반영되고 운영 비용 절감 및 저마진 브랜드 철수에 따른 런레이트(run-rate) 효과가 확대됨에 따라 4분기 마진이 3분기보다 개선될 것으로 전망했다. 회사의 장기 레버리지 목표는 약 3배 수준을 유지하고 있다.

리스크 및 주시 사항

경영진은 유가 상승과 중동 분쟁 관련 불확실성이 소비 심리를 위축시키는 요인이라고 지목했다. 회사는 연말까지 소비자가 더욱 신중한 태도를 보일 것으로 예상하고 사업 계획을 수립하고 있다.

관세, 운송비 및 일부 제품 출시 지연 또한 전망치 축소에 영향을 미쳤다. 경영진은 연간 마진 가이던스에 관세와 운송비 영향이 이미 반영돼 있다고 밝혔다.

유로 및 임포트 부문의 재고 가용성은 여전히 운영상의 핵심 과제로 남아 있다. 경영진은 4분기에 진입하며 상당한 개선이 있었다고 보고했으나, 해당 부문은 연말 쇼핑 시즌에 앞서 재고 수준을 정상화해야 한다.

애널리스트 Q&A 주요 내용

추가적인 비용 절감과 관련해 제시 위버(Jesse Weaver) 최고재무책임자(CFO)는 홀리가 연간 운영 효율성을 지속적으로 발굴할 것으로 기대한다고 말했다. 다만 향후 절감 효과는 이미 확보한 대규모 포트폴리오 리밸런싱 혜택의 반복이라기보다는 인플레이션 압력을 상쇄하는 수단으로 보는 것이 타당하다고 덧붙였다.

유로 및 임포트 부문과 관련해 매튜 스티븐슨(Matthew Stevenson) 최고경영자(CEO)는 지난 두 개 분기의 강력한 수요가 재입고 전망치에 충분히 반영되지 못해 제품 공급 차질로 이어졌다고 설명했다. 현재 해당 부문은 재고를 재확충하고 있으며, 3분기에서 연기된 마케팅 활동은 4분기에 진행될 예정이다.

실적 발표 컨퍼런스콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good morning, ladies and gentlemen, and welcome to the conference call to discuss Holley's third quarter 2026 earnings results. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Holley. And as a reminder, this call is being recorded and will be made available for future playback. I would now like to introduce your host for today's call, [ Sloane Boland ] with Investor Relations.

Please go ahead.

Unknown Speaker

Good morning and welcome to Holley's third quarter 2026 earnings conference call. With me today are President and Chief Executive Officer, Matthew Stevenson, and Chief Financial Officer, Jesse Weaver. This webcast and the presentation materials, including non-GAAP reconciliations, are available on our Investor Relations website.

Our discussion today includes forward-looking statements that are based on our best view of the world and of our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings. This morning, we will review our financial results for the third quarter of 2026. At the conclusion of the prepared remarks, we will open the call up for questions. With that, I'll turn over the call to our CEO, Matthew Stevenson.

Matthew Stevenson

Thank you, [ Sloan ], and good morning, everyone. On our second quarter results call, we outlined our expectation that the business would build momentum in the second half of the year, along with 5 specific drivers we believe would support that view. This morning, I'd like to report back against those commitments. In short, the third quarter largely played out as we anticipated. I'll also speak to the areas where we see opportunity for further improvement and the steps we are taking to address them.

Three themes define the third quarter. First, our growth broadened. Our core business grew for the sixth time in the last 7 quarters, and that growth accelerated from the second quarter. Most notably, American Performance, our largest division, returned to growth after working through elevated channel inventory earlier in the year. Second, profitability improved. After a period in which tariffs weighed on our margins, both gross margin and adjusted EBITDA margin expanded year over year, reflecting the simplification and cost savings work we've done across the business. Third, we've strengthened both our balance sheet and our platform. We brought leverage down to our year-end target a full quarter early, and we took 2 important steps intended to extend Holley's reach: the acquisition of SXTH Element and a new strategic collaboration with Amotiv. I'll walk through each of these themes, and I'll close out with how we're approaching the fourth quarter in light of the current consumer environment. Let's turn to Slide 5.

Slide 5 puts numbers behind those themes. Net sales increased 2.3% to $141.6 million. Core net sales, which exclude the brands we've exited through portfolio rebalancing, grew approximately 6.7%, up from 4.9% in the second quarter. 27 brands delivered growth across our D2C and B2B channels, matching the breadth we saw last quarter, which tells us this growth isn't riding on 1 or 2 product lines. On profitability, adjusted EBITDA margin expanded 120 basis points to 20.8%, above our long-term target of more than 20%. On a GAAP basis, we reported net income of $7.8 million compared to a net loss in the prior period. We generated $8.8 million of free cash flow, a roughly 60% improvement over the third quarter of last year. On the balance sheet, we went beyond the $15 million voluntary debt prepayment we announced on our last call and repaid an additional $10 million during the quarter. That brings our total debt reduction since September 2023 to $125 million. Our leverage ratio fell to 3.5x, the lowest level since 2022, putting us at our year-end target of 3.5x, a full quarter ahead of schedule.

Reducing debt remains our top capital allocation priority, and the progress we've made gives us more flexibility as we evaluate the opportunities in front of us. On strategic progress, our long-term strategic initiatives generated $18.6 million in revenue, up from the $13.4 million in the second quarter, and delivered $6.1 million in cost savings. I'll break those down on Slide 10, and I'll cover SXTH Element and Amotiv in more detail in my remarks.

Slide 6 takes a closer look at the quarter's results and the commercial work behind them. Gross margin reached 44%, up 73 basis points from last year. Together with the adjusted EBITDA margin expansion I mentioned, that improvement reflects the benefit of exiting lower-margin businesses, the sourcing and cost actions we've taken over the past several quarters, and disciplined spending with SG&A down year over year. Both measures are now above our long-term targets of approximately 40% gross margin and more than 20% adjusted EBITDA margin.

New products continue to reach the market in every division. In American Performance, we introduced new Holley EFI intake manifold kits for small- and big-block Chevys, small-block Fords, and LS and LT engines, making it simpler for enthusiasts to complete a fuel injection upgrade with components engineered to work together. In Euro and Import, Dinan launches M-Hunter performance packages for BMW, built around a simple idea: a daily driver that's also a track weapon. In Safety and Racing, HRX expanded its line of driver gear with new gloves, shoes, and race suits. And in Modern Truck and Off-Road, Range launched its full-time V8 module with throttle control, building on the momentum of the Range products we discussed last quarter.

On the operational side, we delivered $3.8 million in savings from completed and implemented purchasing and tariff reduction projects, and another $2.3 million from operational improvements, for a total of $6.1 million in the quarter. The bottom of the slide shows what our division-led marketing model looks like in practice. Last quarter, I told you we had embedded marketing teams directly inside each division. The recent Edge CTS4 launch in Modern Truck and Off-Road shows what that structure makes possible. Instead of a single launch-day announcement, the team ran a campaign that built over several weeks: pre-launch teasers to create anticipation, pre-order activity to capture early demand, a reveal at a major trade show, launch-day activities, and influencer content that multiplied our reach well beyond our own channels. That's the speed and coordination we were after when we structured marketing. We're now taking that playbook across our brands.

Slide 7 shows our performance by division. 3 of our 4 divisions delivered core growth in the quarter. I'll start with American Performance because it's the story of the quarter. Core sales grew 9%, following the declines of 9.7% in the first quarter and 2.1% in the second, a swing of nearly 19 points since the start of the year. All year, we've explained that this business was working through elevated channel inventory and that we had deliberately moved key programs into the second half. Both played out as we expected. We believe that channel inventories have normalized. We expanded our national retailer placement, and our marketing calendar was aligned with products enthusiasts buy in late summer and fall. Holley, MSD, and Cataclean were all key contributors.

Modern Truck and Off-Road grew 8.2% on top of 15.7% growth in the second quarter. Range, Baer, and Flowmaster led the way, and the division's direct-to-consumer e-commerce business grew approximately 65% year-over-year. Safety and Racing grew 2.5% with contributions from HRX, RaceQuip, Simpson, and HANS. Growth moderated from the double-digit pace we saw in the first half, which benefited from strong demand tied to the Snell 2025 helmet certification cycle. Growth in the quarter was also affected by the timing of certain new Snell 2025 products in our Simpson Motorsport line, which were delayed and are now expected to be available in the fourth quarter. This remains one of our most innovative divisions in our portfolio and a leader in motorsport safety.

Euro and Import declined 12.2%, and I want to be direct about why. 2 factors drove the decline, and both were within our control. First, changes to our marketing calendar moved certain marketing activities out of the third quarter. Second, in-stock rates on key products were lower than they should have been, which kept us from fully meeting demand. Neither reflects a change in our view of the health of the European enthusiast market or the strength of brands like APR and Dinan. The team is focused on restoring in-stock levels and has adjusted the marketing calendar for the fourth quarter.

Taken together, these results show something we've been working toward for some time. Our largest business is growing again, and the growth is coming from more than 1 part of the portfolio. That is a healthier balance than we had at the start of the year.

Slide 8 is our long-term strategic framework. You've seen this before, so I'll keep this brief. Our 8 pillars—Great Place to Work, Premier Consumer Journey, Trailblazing Trusted Partner, Product Innovation and Portfolio Management, Global Expansion into New Markets, Transformational M&A, Fund the Growth, and Deliver Results—continue to guide what we prioritize, where we invest, and how we measure ourselves. What I'd point out this quarter is the breadth of this framework is also a source of resilience, with initiatives underway across all 8 pillars. We have many levers available to us, which we believe gives us the flexibility to navigate a range of macroeconomic factors while continuing to move this business forward.

Slide 9 shows select examples of the 2026 initiatives that sit underneath those pillars. They range from Amazon and third-party marketplaces, B2B partnerships, and national retailers to powersports, OEM, bailment, and chemical expansion, along with purchasing, manufacturing, ERP, and warehouse management that helps fund it all. Our initial targets for the year were more than 4% net sales growth and more than $15 million in cost savings from these top-priority initiatives. Through the first 3 quarters, we have already exceeded our $15 million cost savings target.

The next slide shows how each pillar performed in the third quarter. The Strategic Initiative Tracker shows where the $18.6 million of initiative revenue came from this quarter. Trailblazing Trusted Partner was the largest contributor at $6.6 million, up from $1.5 million last quarter. The growth was led by our national retailer channel, where expanded placement at a large national retailer was central to our third quarter performance. This is the program we highlighted on our last call and has shipped as planned.

Product innovation contributed approximately $6.4 million, making the third consecutive quarter of growth in innovation revenue, again led by Safety and Racing and Modern Truck and Off-Road. Premier Consumer Journey contributed $3.4 million. Our D2C e-commerce channel benefited from the strong Modern Truck and Off-Road performance I mentioned earlier, and third-party marketplaces grew roughly 8%, supported by strength across multiple divisions and increased paid media investment. Transformational M&A contributed $2.4 million, reflecting HRX's contribution in the quarter. Global Expansion into New Markets was essentially flat at -$200,000. Canada and Australia continued to perform well, but that was offset by regional softness in some other international markets. Powersports also declined slightly, which we attribute to the timing of shipments rather than underlying demand. And Fund the Growth delivered $6.1 million in purchasing, tariff, and operational savings I covered on Slide 6. Revenue from these initiatives grew nearly 40% from the second quarter. Just as important, the tracker does what it's designed to do: it shows you and us where we're winning and where there's more work to do.

Slide 11 revisits the portfolio rebalancing cycle we introduced earlier this year. It has 4 steps. First, rationalize brands with low or no growth, minimal EBITDA contribution, or weak strategic fit. Second, release the costs and capital tied up in them through facility consolidation, inventory reduction, and SG&A optimization. Third, reinvest that capital with discipline. Fourth, compound the value by scaling EBITDA, generating free cash flow, and paying down net debt. Then we repeat the cycle. We spent much of the year on the first 2 steps, including the exit of our restoration brands, and now you're seeing the benefit in our margins and cash flow. Of the 5 businesses originally identified in the program, only 1 remains. It's a smaller business and is currently under a letter of intent, which we expect to close by the end of the year.

This quarter, I want to spend a moment on the third step, disciplined reinvestment, because that is where more of our focus is now turning. Our target acquisition profile looks a lot like HRX: roughly $5 million to $10 million in revenue, $1 million to $2 million in EBITDA, and double-digit revenue growth. These are bolt-on businesses with passionate customers and strong product positions that we believe can plug into our platform, including our engineering, distribution, retail relationships, and marketing, and grow faster as part of Holley than they could on their own. As we announced a few quarters ago, our intent is to complete 5 to 10 acquisitions that fit this profile over a 24-month period, and that work is underway. We intend to continue pursuing these acquisitions in a way that is consistent with our commitment to continued deleveraging. SXTH Element is the latest example of that strategy in action. So let's turn to Slide 12.

SXTH Element was founded in 2014 and is based in Spartanburg, South Carolina. The company designs performance parts for Toyota trucks and SUVs focused on forced induction and airflow, along with off-road exhaust and recovery products. It's an engineering-led business. Products are designed in-house using CAD and 3D scanning and are road- and dyno-tested before they go to market, and customers have noticed. SXTH carries a 4.8 out of 5 rating across more than 2,700 reviews.

2 things make SXTH especially attractive to us. The first is the platforms. SXTH focuses on Toyota's newest generation of trucks and SUVs, which are among the most in-demand vehicles in the market. The Tacoma and Tundra together sold more than 420,000 units in the U.S. in 2025. And the sales of the redesigned 4Runner and Land Cruiser are surging. These are young vehicles with long ownership runways ahead of them, and they're owned by exactly the kind of enthusiasts who modify what they drive. The second is the business model. Roughly 90% of SXTH sales are direct-to-consumer. Its core products, including cold-air intakes, front-mount intercoolers, charge pipe kits, turbo inlets, and catch cans, carry average selling prices of roughly $250 to $580. And many of them fit across the 2024 and newer Tacoma, the 2025 and newer 4Runner, and Land Cruiser. So engineering investment can serve several platforms.

But most importantly, there is an amazing team leading SXTH that positions us to grow this business around a strong nucleus of leadership, innovation, and passion for customer service. SXTH will join our Modern Truck and Off-Road division. We believe Holley's scale, retail relationships, and marketing capabilities can help the brand reach many more Toyota owners, while SXTH strengthens our portfolio and platforms where we have historically been underrepresented.

Slide 13 covers the strategic collaboration with Amotiv that we recently announced. Amotiv is a publicly traded company listed on the Australian Securities Exchange and owns more than 50 aftermarket brands, including Ryko, DBA, and X-Clutch. It has more than 1,900 team members in over 40 locations around the world organized into 3 divisions: 4-wheel drive accessories and trailering, lighting and technology, power and electrical, and powertrain and undercar. Its roots go back more than 85 years to making chemicals and filters.

This is a collaboration between 2 enthusiast-focused companies with complementary strengths and geographical footprints, and it has 4 elements. The first is already underway: Flowmaster High Performance Oil Filters, engineered by Ryko. This will take one of our most recognized brands into a new category, filtration, backed by the engineering of a company that has been making filters for decades. It's a good example of extending a powerful brand into an adjacent repeat-purchase category. Beginning in 2027, we expect to build on that in 3 ways: bringing Amotiv's DBA brakes and X-Clutch brands to new customers through Holley's North American channels, having Amotiv lead sales and distribution of select Holley products in Australia and New Zealand, and collaborating operationally across select warehousing, distribution, technical support, and supply chain opportunities.

For Holley, we believe that this collaboration advances our Global Expansion into New Markets pillar in a capital-efficient way. Australia and New Zealand have deep enthusiast cultures and are already among our stronger international markets. We believe that partnering with a company that has an established presence there will allow us to expand our reach without having to build that infrastructure ourselves.

Slide 14 brings us back to where I started. On our last call, we gave you 5 reasons we were confident in the second half. Here's how they played out in the third quarter. Simplifying operations: delivered, and it's visible in this quarter's margin expansion. Favorable retail placement: delivered; our largest national retailer program shipped in the third quarter as planned. Brand marketing: delivered; our division-led marketing model is now in place and contributing to our direct-to-consumer results. HRX: delivered; HRX continues to contribute to both growth and earnings. Product innovation is the 1 area we marked with a caution. Innovation continues to contribute meaningfully, as you saw on the tracker. That said, we have experienced some minor delays in a few product launches, which shifts the timing of a portion of the innovation contribution we had expected in the second half.

Looking ahead, strong execution continues in the fourth quarter. At the same time, tariffs, freight rates, minor product launch delays, and evolving macroeconomic conditions led us to keep our outlook measured. None of these factors changes our view of the long-term opportunity. With the third quarter complete and greater visibility into the remainder of the year, we have tightened our full-year net sales and adjusted EBITDA guidance ranges while remaining mindful of a more cautious consumer. Jesse will walk through the details.

Before I hand it over to him, I want to thank our team members around the world. The progress you heard about this morning is a direct result of their focus and execution in an opaque consumer environment. I'm grateful for their work and proud of what they've accomplished. With that, I'll turn the call over to Jesse to review our financial results and outlook in more detail. Jesse?

Jesse Weaver

Thank you, Matt. And good morning, everyone. Matt described 3 things this quarter: broader growth, better profitability, and a stronger balance sheet. I'll show you how each of those came through in the numbers and why, together, they give us confidence in how we finish the year.

Let's start on Slide 16. At the beginning of '26, we set 3 financial priorities: drive profitability through operational efficiency, optimize working capital, and delever the balance sheet. With a quarter still to go, we are at or ahead of our targets on all 3.

First, profitability. Our operational efficiency program has delivered approximately $8.3 million of savings through the first 9 months, including $2.3 million in the third quarter, the same operational savings Matt mentioned on Slide 6. Last quarter, we said we expected to finish the year at or above the top end of our $5 million to $7 million target. We have already passed it. These savings come from leaner staffing models, manufacturing and distribution efficiencies, facility consolidation, and cost actions across our network. They are a big part of why our margins expanded this quarter. We continue to look for more savings opportunities.

Second, working capital. Excluding the effect of portfolio rebalancing, our inventory initiatives have reduced inventory by approximately $10 million this year. That puts us within our full-year target range of $10 million to $15 million.

Third, the balance sheet. We ended the quarter at a leverage ratio of 3.5x, reaching our year-end target a full quarter early.

What these 3 results have in common is that they come from actions within our control. None of this progress has depended on a strong consumer, and it's in an environment like this where it matters.

Now turning to Slide 17 and our third quarter results. Net sales were $141.6 million, up 2.3% from $138.4 million a year ago. 3 things drove that change: price added approximately $5 million, HRX added approximately $2.4 million, and lower volume took away approximately $4.2 million, primarily from the brands we exited through portfolio rebalancing. Volume in our core business grew. Excluding these exits, core net sales grew approximately $6.2 million, accelerating from 4.9% in the second quarter.

Gross profit grew 4% to $62.3 million. Gross margin was 44%, up 73 basis points from 43.2% a year ago. 2 things drove that improvement: higher productivity across our operations and the exit of lower-margin businesses. We delivered it while absorbing inflation in our input costs.

SG&A, including R&D, decreased 4.6% to $36.4 million, $1.7 million lower than last year. As a percentage of net sales, it fell to 25.7% from 27.6%. We did that even as net sales grew and HRX added to our SG&A cost base. Lower salaries and wages, consulting fees, and legal fees drove the decrease, partially offset by higher freight and administrative costs associated with HRX.

Put together, operating income grew 23.3% to $19.6 million. Below the operating line, interest expense declined 14.6% to $9.6 million, primarily because of our interest rate collar and lower debt balances.

Net income was $7.8 million, or $0.06 per diluted share, compared with a loss of $800,000, or a loss of $0.01 per diluted share, last year. Adjusted net income more than doubled to $7.7 million, or $0.06 per diluted share, from $3.3 million, or $0.03 per diluted share, last year. Adjusted EBITDA grew 8.6% to $29.4 million, and adjusted EBITDA margin expanded 120 basis points to 20.8%. Free cash flow was $8.8 million, up from $5.5 million a year ago, driven by higher earnings and disciplined working capital management.

Turning to Slide 18, the portfolio and cost actions on this slide are the same ones we walked through last quarter. What is new is that you can now see them in our results. On the portfolio side, exiting our restoration brands and other non-core businesses allowed us to reduce our footprint by 2 facilities, clear approximately 95,000 square feet of warehouse space, and remove approximately 7,000 low-margin SKUs, or about 16% of the portfolio. It also reduced our workforce by more than On operating costs, we consolidated 2 manufacturing sites, reduced more than 115 team member and contractor positions through productivity improvements, trimmed non-value-added SG&A, and took production and distribution days out of seasonally slower periods. Together, we expect these 2 workstreams to generate more than $12 million of one-time net cash, and on an annualized basis, we also expect them to deliver 150 to 200 basis points of EBITDA expansion, an additional $3 million to $5 million of annualized benefit, 0.2 to 0.3 turns of deleverage acceleration, and roughly 5% improvement in inventory turns. You can see the results in the third quarter: a simpler, more focused portfolio with higher margins, better free cash flow, and a faster path to deleveraging.

Returning to capital allocation on Slide 19, our framework has 3 parts: disciplined acquisitions, reducing leverage, and returning capital to shareholders, all supported by continued investment in our core business. As Matt said, reducing debt remains our top priority, and the third quarter shows that. We reduced debt by $25 million in the quarter, including the $15 million we announced on our last call, plus an additional $10 million. That brings our total debt reduction since September of '23 to $125 million. After quarter end, we closed the acquisition of SXTH Element. We funded it with cash on hand, and it does not change our deleveraging trajectory. We believe that SXTH fits the model we proved with HRX, and our M&A pipeline is growing. We will continue to hold every opportunity to our original return thresholds, and we will pace our activity so that we keep reducing leverage. We did not repurchase shares in the third quarter. That was a sequencing decision, not a view on valuation. We chose to reduce debt first and to fund acquisitions like SXTH. We continue to believe our share price does not reflect the value of the business or the progress we are making.

Slide 20 shows the progress on leverage. Our total leverage ratio has come down from a high of 5.67x at the beginning of '23 to 3.91x a year ago, to 3.74x last quarter, and to 3.5x at the end of the third quarter. That is our lowest level in 4 years. Looking ahead, we continue to expect to end the year with leverage below 3.5x, including the impact of the SXTH acquisition. We remain focused on our long-term target of approximately 3x. We ended the quarter with approximately $50 million of cash and total liquidity of approximately $147 million.

We are now turning to our full-year outlook on Slide 21. We have tightened our net sales and adjusted EBITDA ranges by adjusting the top end and keeping the bottom end unchanged. We now expect net sales of $610 million to $625 million with core business growth of approximately 2% to 5% and adjusted EBITDA of $127 million to $132 million. We expect our interest expense outlook to be between $40 million and $44 million. Capital expenditures of $15 million to $20 million and D&A of $24 million to $26 million are unchanged.

As Matt said, execution remains strong heading into the fourth quarter, but higher fuel prices and broader uncertainty tied to the conflict in the Middle East continue to weigh on consumer sentiment, and we think it is prudent to plan for a more cautious consumer through year-end. That, together with the timing of the few product launches Matt described—this is why we adjusted the top end of our net sales and adjusted EBITDA ranges. The margin profile of the business has not changed. At the midpoint, our outlook implies a full-year adjusted EBITDA margin of approximately 21%. That is essentially unchanged from our prior guidance, above our long-term target of more than 20%, and it already reflects tariffs and freight. Our outlook does imply a step-up in fourth quarter margin from the third quarter, so let me be specific about what drives it. First, the pricing actions we took late in the second quarter to offset cost increases flow through more fully in the fourth quarter than they did in the third. Second, more of the run-rate benefit of our operational savings and the exit of lower-margin brands lands in the fourth quarter.

To sum it up, the third quarter shows our work coming through in the numbers. Core growth improved, margins expanded, free cash flow got stronger, and leverage reached its lowest level in 4 years. We expect to exit '26 as a more streamlined business with higher margins, a stronger balance sheet, and the flexibility to invest in growth, both organically and through disciplined acquisitions, while we continue to reduce debt.

And with that, Operator, I'd like to open up the line for questions.

Operator

[Operator Instructions] Our first question comes from the line of Joe Feldman with Telsey Advisory Group. Please proceed with your question.

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Joseph Feldman

Yes, hey, good morning, guys. I wanted to drill down on the cost savings a bit. You guys continue to do a really good job there, obviously coming out ahead. And I think, Jesse, you alluded to maybe getting higher and seeing more opportunity. I'm wondering if there's a lot more opportunity there or not. Just, you know, we've done the heavy lift at this point.

Jesse Weaver

Good question, Joe. Appreciate it. I would say that the team on the operations side has done a great job, obviously, of setting targets every year to find savings to offset inflation. Obviously, this year they've been able to exceed that a bit. I think it's the combination of those initiatives plus the work that we did with the portfolio rebalancing that you're really starting to see the combined efforts of those and really drive the margin in this quarter. The work that the ops team's doing, we kind of put that target out annually, would be something they go after every single year. So there'll be more there, but think of it as more to offset inflationary pressure.

Joseph Feldman

Got it. That's very helpful. Thanks. And then, Matt, I want to follow up on the Euro and Import side of the business. You mentioned a couple of drivers that should turn the business around. I mean, have you seen that improvement in early fourth quarter so far? Are there other actions you can take? Curious if you could share a little more color on that and how to drive that part of the business.

Matthew Stevenson

Yes, Joe, and really got back to the 2 specific drivers I mentioned in my prepared remarks. In-stock rates, the team just took their eye off the ball on that, and we've been working hard to recover that. If you recall, in the previous 2 quarters, demand was quite robust for Euro, and ultimately the replenishment rates in the forward forecasting didn't take into account as much the previous 2 quarters and how robust that demand was and just got caught up with us.

Also, there were some changes in the marketing calendar. The team moved out into Q4 from Q3. So the combination of those 2 things impacted the quarter. So the team's working really hard to improve the in-stock rates. We've seen already material improvements going into the fourth quarter. And you know for us a big calendar event kicks off here the middle of November, holidays, and then runs through the end of the year. And we're doing everything we can to get the in-stock rates not only in Europe, but in all the divisions in the best possible position to make sure we, you know, secure as much demand as possible.

Joseph Feldman

That's great. Thanks for that. And good luck with this quarter, guys.

Matthew Stevenson

Thanks, Joe.

Operator

[Operator Instructions] And we have reached the end of the question and answer session. And I'll turn the call back over to Matthew Stevenson for closing remarks.

Matthew Stevenson

Okay, thank you, [ Shmaley ]. Slide 23 summarizes the investment case we see for Holley Performance Brands. Our market is driven by automotive enthusiasts, and for our customers, this is far more than a hobby. It's a passion and a way of life. That passion supports the U.S. market of approximately $40 billion with decades of uninterrupted growth, and Holley leads it with a portfolio of iconic brands known for their legacy of innovation.

We have also built a proven acquisition platform. HRX has shown how well-chosen bolt-ons can contribute to growth and earnings. SXTH Element is our latest addition, and we continue to make progress toward our goal of 5 to 10 acquisitions that fit our target profile. At the same time, our digital and direct-to-consumer capabilities, together with an omnichannel distribution network that now includes expanded national retail placement and new international partnerships like Amotiv, continue to transform how enthusiasts and distribution partners engage with our brand.

Our long-term financial framework remains unchanged: mid-single-digit organic top-line growth, a gross margin target of approximately 40%, an adjusted EBITDA margin target of more than 20%, sustainable free cash flow, and strategic acquisitions that build on our platform. This quarter, we operated above both our margin targets, generated free cash flow, and continue to reduce debt, which we believe demonstrates the earning power of a simpler, more focused Holley. We believe the combination of a passionate, enthusiast marketplace, Holley's portfolio of leading brands, a flexible operating model, and an experienced team with a track record of execution presents a compelling long-term investment opportunity.

In closing, I want to express my sincere appreciation to our team members for their dedication to serving our customers every day, to enthusiasts who support our brands, and to our distribution partners, many of whom have been integral to our success for decades. I want to thank you for joining the call today and have a great rest of the morning.

Operator

This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.

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