美國
證券交易委員會
華盛頓特區20549
表格
| | 根據1934年證券交易法第13或15(d)條款的季度報告。 |
截至2024年6月30日季度結束
或
| | 根據1934年證券交易法第13或15(d)條款的過渡報告 |
過渡期間從____________至____________
委員會文件號碼：
holley inc.
（依憑章程所載的完整登記名稱）
| | |
| (成立地或組織其他管轄區) | （聯邦稅號） |
(總部辦公地址)
(
MNPR’(納斯達克資本市場)
(如自上次報告以來更改的前名、前地址和前財政年度) 不適用
根據法案第12(b)條規定註冊的證券：
| 每種類別的名稱 | 交易 標的 | 每個交易所的名稱 註冊在哪裡的 | ||
| | | |
勾選表示的方式，說明登記人（1）在過去12個月內已經按照1934年證券交易法第13條或第15(d)條的規定提交了所有要求提交的報告（或者對於登記人需要提交這些報告的更短期間），並且（2）在過去90天內已受到這樣的報告要求。
請勾選表示公司在過去12個月（或公司須提交此類文件的較短期間）內是否按照Regulation S-T規則405的規定遞交其應遞交的每個互動數據文件。
請勾選指示登記者是否為大型快速提交人、快速提交人、非快速提交人、較小的報告公司或新興成長型公司。請參閱交易所法規120億2條，了解「大型快速提交人」、「快速提交人」、「較小的報告公司」和「新興成長型公司」的定義。
| 大型加速歸檔人 | ☐ | | ☒ | |||
| 非加速歸檔人 | ☐ | 小型報告公司 | ||||
| 新興成長型企業 | |
如果一家新興成長型公司，請用勾選標記表示該申報人已選擇不使用根據證交所法案13(a)條款提供的任何新的或修訂過的財務會計準則的延長過渡期。
請用核選記號指示是否公司是交易所法案第120億2條定義的空殼公司。是
在2023和2024年6月30日結束的三個和六個月中，有資產減損處理記錄。更新計算公司進行中的研究和開發資產（“IPR&D”）公平價值所使用的關鍵假設可能會改變公司未來短期內回收IPR&D資產的帶值估計。
關於前瞻性陳述的警示性聲明
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are intended to enjoy the protection of the safe harbor for forward-looking statements provided by the Securities Act and Exchange Act, as well as protections afforded by other federal securities laws. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for the Company’s business. Forward-looking statements may be accompanied by words such as “believe,” “estimate,” “expect,” “project,” “forecast,” “may,” “will,” “should,” “seek,” “plan,” “scheduled,” “anticipate,” “intend” or similar expressions. These forward-looking statements are subject to various risks and uncertainties, many of which are outside our control. Therefore, you should not place undue reliance on such statements. Actual results could differ materially due to numerous factors, including but not limited to the Company’s ability to do any of the following:
| • |
執行其業務策略，包括對所提供服務的變現，以及在現有和新業務線中的擴展； |
| • |
預期並管理製造業、供應鏈、物流運營中的干擾和成本上升，以及分配渠道中某些公司產品的短缺； |
| • |
anticipate and manage through supply shortages of key component parts used in our products and the need to shift the mix of products offered in response thereto; |
| • |
回應地緣政治事件的影響，包括軍事衝突（包括烏克蘭衝突、中東衝突、這類衝突的可能擴大和潛在地緣政治後果），以及由災難性事件、恐怖主義等問題和公共衛生危機引起的干擾； |
| • |
與合作夥伴和經銷商保持重要的戰略關係； |
| • |
預期並應對升高的利率水平對資本成本的增加產生的影響，並應對通膨壓力作出回應； |
| • |
通過預期的有機或外部增長措施，或通過實施節約成本措施，來提高未來營運和財務業績； |
| • |
回應與產品和服務開發以及市場接受相關的不確定性; |
| • |
預期並應對消費需求增加的限制和/或產品結構變化； |
| • |
吸引並留住合格的員工和關鍵人才； |
| • |
保護並提升公司的企業聲譽和品牌知名度； |
| • |
對商譽及其他無形資產減值費用的確認; |
| • |
有效應對一般的經濟和業務條件； |
| • |
取得並保護知識產權; |
| • |
收集、儲存、處理和使用個人和付款資訊以及其他消費者數據； |
| • |
遵守隱私和數據保護法律以及與隱私、信息安全和數據保護相關的其他法律義務； |
| • |
管理任何安全漏洞、網絡攻擊或其他網絡安全概念威脅或事故的影響，以及重要信息科技系統的故障； |
| • |
滿足未來的流動性需求並遵守與長期負債相關的限制性條款； |
| • |
透過出售股權或債券等方式獲得額外資本; |
| • |
在經濟上可行的基礎上進行金融運營； |
| • |
維持霍利在紐交所（"NYSE"）上市其普通股（"Common Stock"）和購買普通股的認股權證（"Warrants"）； |
| • |
遵守現有和/或未來適用於我們業務的法律和法規，包括與環保母基、健康和安全或氣候相關披露相關的法律和法規； |
| • |
應對訴訟、投訴、產品責任索賠和/或不利宣發； |
| • |
預期合約義務的重要性和時機； |
| • |
預期對新會計準則的影響和應對措施； |
| • |
保持適當並有效的內部控制； |
| • |
應對美國稅法和法規變化所帶來的影響，包括對推遲課稅資產的影響； |
| • |
預期我們將在2012年《創業新機會法案》（“JOBS Act”）下成為新興成長公司的期間。 |
| • |
預計消費支出模式、消費偏好、本地、區域和國家經濟狀況、犯罪、天氣和人口結構變化等變化的影響；以及 |
| • |
回應在我們於2023年12月31日提交給美國證券交易所委員會（SEC）的年度報告中列出的其他風險和因素，包括“風險因素”標題下的項目。 並/或者在與SEC的任何後續申報中透露的2023年12月31日結束的10-K表格中列明。及/或如在與SEC的任何後續申報中披露的。 |
前瞻性陳述是基於本季度報告第10-Q表格之日期可得資訊以及我們管理層的期望、預測和假設，涉及多項判斷、風險和不確定性，而實際結果、發展和業務決策可能與此類前瞻性陳述所設想的存在重大差異。因此，不應依賴前瞻性陳述作為代表我們意見的依據。我們不承擔更新前瞻性陳述以反映其發布日期後的事件或情況的義務，除非根據適用的證券法例而要求。
HOLLEY INC.
縮短的合併資產負債表
(以千為單位，股份數據除外)
（未經審計）
| 截至日期 | ||||||||
| 2024年9月29日 | 2023年12月31日 | |||||||
| 資產 | ||||||||
| 現金及現金等價物 | $ | $ | ||||||
| 應收帳款，扣除對信用損失的備抵金額為$ 15.1 分别 | ||||||||
| 存貨 | ||||||||
| 預付費用及其他流動資產 | ||||||||
| 待售資產 | ||||||||
| 全部流動資產 | ||||||||
| 不動產、廠房及設備，扣除折舊及攤銷後淨值 | ||||||||
| 商譽 | ||||||||
| 其他無形資產淨值 | ||||||||
| 租賃資產 | ||||||||
| 資產總額 | $ | $ | ||||||
| 負債和股東權益 | ||||||||
| 應付賬款 | $ | $ | ||||||
| 應計利息 | ||||||||
| 應付負債 | ||||||||
| 長期債務的當期償還 | ||||||||
| 流動負債合計 | ||||||||
| 長期負債，除了當期部分淨額 | ||||||||
| 認股權負債 | ||||||||
| 賺取未來支付責任 | ||||||||
| 递延税款 | ||||||||
| 其他非流動負債 | ||||||||
| 總負債 | ||||||||
| 承諾和條件（請參閱附註15 - 承諾和條件） | ||||||||
| 股東權益： | ||||||||
| 優先股，面額$0.01，授權股數為5,000,000股，發行且流通股數為截至2024年6月30日和2023年12月31日之184,668,188股和181,364,180股。 每股面額為 股份已授權 於2024年9月29日和2023年12月31日發行並流通 | ||||||||
| 0.01 每股面額為 股份已授權 和 分別為2024年9月29日和2023年12月31日的發行股份和流通股份 | ||||||||
| 資本公積額額外增資 | ||||||||
| 累積其他全面損失 | ( | ) | ( | ) | ||||
| 保留收益 | ||||||||
| 股東權益總額 | ||||||||
| 負債總額及股東權益合計 | $ | $ | ||||||
附註是未經審核的簡明綜合基本報表的一部分。 附財務報表。
holley inc.
綜合損益簡明合併財務報表
（以千為單位）
（未經審計）
| 截至十三週止 |
截至三十九週止 |
|||||||||||||||
| 2024年9月29日 |
2023年10月1日 |
2024年9月29日 |
2023年10月1日 |
|||||||||||||
| 淨銷售額 |
$ | $ | $ | $ | ||||||||||||
| 營業成本 |
||||||||||||||||
| 毛利潤 |
||||||||||||||||
| 銷售、一般及管理費用 |
||||||||||||||||
| 研究和開發成本 |
||||||||||||||||
| 營業無形資產攤銷 |
||||||||||||||||
| 重組成本 |
||||||||||||||||
| 資產持有待售部分的減損 |
||||||||||||||||
| 其他營業費用 |
( |
) | ||||||||||||||
| 總營業費用 |
||||||||||||||||
| 營收 |
||||||||||||||||
| 公允價值調整權證負債 |
( |
) | ( |
) | ||||||||||||
| 核銷權益的公允價值變動 |
( |
) | ( |
) | ||||||||||||
| 提早償還債務的損失 |
||||||||||||||||
| 利息費用，淨額 |
||||||||||||||||
| 總非營業費用 |
||||||||||||||||
| 稅前收入（虧損） |
( |
) | ||||||||||||||
| 所得稅費用（利益） |
( |
) | ( |
) | ||||||||||||
| 凈利潤（損失） |
$ | ( |
) | $ | $ | $ | ||||||||||
| 綜合收益（虧損）： |
||||||||||||||||
| 外幣兌換調整 |
( |
) | ( |
) | ||||||||||||
| 綜合(損益)收益總額 |
$ | ( |
) | $ | $ | $ | ||||||||||
| 普通股數據： |
||||||||||||||||
| $ |
||||||||||||||||
| $ |
||||||||||||||||
| 基本每股凈利潤（損失） |
$ | ( |
) | $ | $ | $ | ||||||||||
| 每股稀釋凈利潤（損失） |
$ | ( |
) | $ | $ | $ | ||||||||||
附註是未經審核的簡明綜合基本報表的一部分。 附財務報表。
holley inc.
總括股東權益變動表
(以千為單位，股份數據除外)
（未經審計）
| 普通股 |
累計 |
|||||||||||||||||||||||
| 額外的 |
其他 |
|||||||||||||||||||||||
| 資本剩餘 |
綜合 |
保留收益 |
||||||||||||||||||||||
| 股份 |
金額 |
資本 |
虧損 |
累積盈餘 |
總計 |
|||||||||||||||||||
| 2022年12月31日結餘 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| 凈利潤 |
— | |||||||||||||||||||||||
| 股權報酬 |
— | |||||||||||||||||||||||
| 外幣兌換 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 與受限制股票單位實現相關的稅金預扣 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 發行股份以換取受限制股票單位 |
||||||||||||||||||||||||
| 2023年4月2日的餘額 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| 凈利潤 |
— | |||||||||||||||||||||||
| 股權酬勞 |
— | |||||||||||||||||||||||
| 外幣兌換 |
— | |||||||||||||||||||||||
| 與受限制股票單位實現相關的稅金預扣 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 發行股票以換取限制股票單位 |
||||||||||||||||||||||||
| 2023年7月3日結存 |
( |
) | ||||||||||||||||||||||
| 凈利潤 |
— | |||||||||||||||||||||||
| 權益償酬 |
— | |||||||||||||||||||||||
| 外幣兌換 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 與限制股票單位解禁相關的稅項代扣 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 發行股票以換取限制股票單位 |
||||||||||||||||||||||||
| 2023年10月1日結存 |
( |
) | ||||||||||||||||||||||
| 2023年12月31日餘額 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| 凈利潤 |
— | |||||||||||||||||||||||
| 股权补偿 |
— | |||||||||||||||||||||||
| 外幣兌換 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 涉及限制股票单位解禁的税款代扣 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 發行限制股票單位的股份 |
||||||||||||||||||||||||
| 2024年3月31日止結餘 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| 凈利潤 |
— | |||||||||||||||||||||||
| 在股權報酬方面 |
— | |||||||||||||||||||||||
| 外幣兌換 |
— | |||||||||||||||||||||||
| 與限制性股票單位獲得權關聯的稅項扣繳 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 發行股份以換取限制性股票單位 |
||||||||||||||||||||||||
| 2024年6月30日餘額 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| 淨損失 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 在股權報酬方面 |
— | |||||||||||||||||||||||
| 外幣兌換 |
— | |||||||||||||||||||||||
| 與受限制股票單位授予相關的扣稅扣繳 |
— | ( |
) | ( |
) | |||||||||||||||||||
| 受限制股票單位發行股份 |
||||||||||||||||||||||||
| 2024年9月29日結餘 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
HOLLEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| For the thirty-nine weeks ended |
||||||||
| September 29, 2024 |
October 1, 2023 |
|||||||
| OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash from operating activities: |
||||||||
| Depreciation |
||||||||
| Amortization of intangible assets |
||||||||
| Amortization of deferred loan costs |
||||||||
| Amortization of right of use assets |
||||||||
| Write-down of assets held-for-sale |
||||||||
| Fair value adjustments to warrant liability |
( |
) | ||||||
| Fair value adjustments to earn-out liability |
( |
) | ||||||
| Fair value adjustments to interest rate collar |
( |
) | ( |
) | ||||
| Equity compensation |
||||||||
| Change in deferred taxes |
( |
) | ( |
) | ||||
| Loss on early extinguishment of long-term debt |
||||||||
| Gain on disposal of property, plant and equipment |
( |
) | ( |
) | ||||
| Provision for inventory reserves |
||||||||
| Provision for credit losses |
||||||||
| Change in operating assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ||||||
| Inventories |
( |
) | ||||||
| Prepaids and other current assets |
( |
) | ||||||
| Accounts payable |
( |
) | ||||||
| Accrued interest |
( |
) | ||||||
| Accrued and other liabilities |
( |
) | ( |
) | ||||
| Net cash provided by operating activities |
||||||||
| INVESTING ACTIVITIES: |
||||||||
| Capital expenditures |
( |
) | ( |
) | ||||
| Proceeds from the disposal of fixed assets |
||||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| FINANCING ACTIVITIES: |
||||||||
| Principal payments on long-term debt |
( |
) | ( |
) | ||||
| Deferred financing fees |
( |
) | ||||||
| Payments from stock-based award activities |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Effect of foreign currency rate fluctuations on cash |
( |
) | ( |
) | ||||
| Net change in cash and cash equivalents |
||||||||
| Cash and cash equivalents: |
||||||||
| Beginning of period |
||||||||
| End of period |
$ | $ | ||||||
| Supplemental disclosures of cash flow information: |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| Cash paid for income taxes |
||||||||
| Supplemental non-cash investing activity: |
||||||||
| Property and equipment additions included in accounts payable |
$ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 1. | DESCRIPTION OF THE BUSINESS, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Holley Inc., a Delaware corporation headquartered in Bowling Green, Kentucky, conducts operations through its wholly owned subsidiaries. These operating subsidiaries are comprised of Holley Performance Products Inc., Hot Rod Brands, Inc., Simpson Safety Solutions, Inc., B&M Racing and Performance Products, Inc., and Speedshop.com, Inc. When used in these notes, the terms the “Company” or “Holley” mean Holley, Inc. and all entities included in its consolidated financial statements.
The Company designs, manufactures and distributes high-performance automotive products to car and truck enthusiasts primarily in the United States, Canada and Europe. The Company is a leading manufacturer of a diversified line of performance automotive products, including carburetors, fuel pumps, fuel injection systems, nitrous oxide injection systems, superchargers, exhaust headers, mufflers, distributors, ignition components, engine tuners and automotive performance plumbing products. The Company is also a leading manufacturer of exhaust products as well as shifters, converters, transmission kits, transmissions, tuners and automotive software. The Company’s products are designed to enhance street, off-road, recreational and competitive vehicle performance through increased horsepower, torque and drivability. The Company has locations in the United States, Canada, Italy and China.
Emerging Growth Company Status
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company is an emerging growth company, and, as such, has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards.
Risks and Uncertainties
The Company's business and results of operations, financial condition, and liquidity are impacted by broad economic conditions, as well as by geopolitical events, including the conflict in Ukraine, the conflict in the Middle East, and the possible expansion of such conflicts and potential geopolitical consequences. The Company's business is impacted by various economic factors that affect both consumers and the automotive aftermarket industry, including but not limited to inflation, fuel costs, wage rates, supply chain disruptions, hiring, and other economic conditions. In response to inflationary impacts and supply chain disruptions, the Company has attempted to minimize potential adverse impacts on its business with cost savings initiatives, price increases to customers, and increased attention to maintaining appropriate inventory levels in the distribution channel. The Company's profitability has been, and may continue to be, adversely affected by constrained consumer demand, a shift in sales to lower-margin products, and demands on our performance that increase our costs. Should the ongoing macroeconomic conditions not improve, or worsen, or if the Company's attempt to mitigate the impact on its supply chain, operations and costs is not successful, the Company’s business, results of operations and financial condition may be adversely affected.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP" or “GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2023, as filed with the SEC on March 14, 2024, in the Company’s annual report on Form 10-K. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year.
The Company operates on a fiscal year that ends on December 31. The three- and nine-month periods ended September 29, 2024 and October 1, 2023 each included 13 weeks and 39 weeks, respectively.
Principles of Consolidation
These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.
Recent Accounting Pronouncements
Accounting Standards Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to SEC's Disclosure Update and Simplification Initiative. This ASU amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company will monitor the removal of various requirements from the current regulations in order to determine when to adopt the related amendments, but it does not anticipate that the adoption of the new guidance will have a material impact on the Company’s consolidated financial statements and related disclosures. The Company will continue to evaluate the impact of this guidance on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The standard requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating decision-maker ("CODM") and included within the reported measure of a segment’s profit or loss, requires interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually, requires disclosure of the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and contains other disclosure requirements. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect of this new guidance on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires additional disclosures of various income tax components that affect the rate reconciliation based on the applicable taxing jurisdictions, as well as the qualitative and quantitative aspects of those components. The standard also requires information pertaining to taxes paid to be disaggregated for federal, state and foreign taxes, and contains other disclosure requirements. This ASU is effective for fiscal years beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2025, with early adoption permitted. The Company is currently evaluating the effect of this new guidance on its consolidated financial statements and related disclosures.
| 2. |
INVENTORY |
Inventories of the Company consisted of the following:
| As of |
||||||||
| September 29, 2024 |
December 31, 2023 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work-in-process |
||||||||
| Finished goods |
||||||||
| $ | $ | |||||||
During the 39-week period ended September 29, 2024, the Company recognized a strategic product rationalization charge of $
| 3. | PROPERTY, PLANT AND EQUIPMENT, NET |
Property, plant and equipment of the Company consisted of the following:
| As of | ||||||||
| September 29, 2024 | December 31, 2023 | |||||||
| Land | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Machinery and equipment | ||||||||
| Construction in process | ||||||||
| Total property, plant and equipment | ||||||||
| Less: accumulated depreciation | ||||||||
| Property, plant and equipment, net | $ | $ | ||||||
The Company’s long-lived assets by geographic locations are as follows:
| As of | ||||||||
| September 29, 2024 | December 31, 2023 | |||||||
| United States | $ | $ | ||||||
| International | ||||||||
| Total property, plant and equipment, net | $ | $ | ||||||
Assets Held for Sale
Assets held for sale includes the net book value of assets the Company plans to sell during the fourth quarter of 2024. Long-lived assets that meet the held for sale criteria are held for sale and reported at the lower of their carrying value or fair value, less estimated costs to sell.
During the 39-week period ended September 29, 2024, the Company entered into a letter of intent to sell certain assets and liabilities of Detroit Speed Engineering for $
During the 39-week period ended September 29, 2024, the Company entered into an agreement to sell land at Porter Pike for $
As of September 29, 2024, the Company classified Detroit Speed Engineering and the Porter Pike land as held for sale. Assets held for sale at September 29, 2024 consisted of the following:
| As of | ||||
| September 29, 2024 | ||||
| Inventory | $ | |||
| Land | ||||
| Machinery and equipment | ||||
| Intangible assets | ||||
| Assets Held for Sale | $ | |||
| 4. | GOODWILL AND OTHER INTANGIBLE ASSETS |
Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company's business combinations. The Company impaired $
Intangible assets consisted of the following:
| September 29, 2024 | ||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||
| Finite-lived intangible assets: | ||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | |||||||
| Tradenames | ( | ) | ||||||||||
| Technology | ( | ) | ||||||||||
| Total finite-lived intangible assets | $ | $ | ( | ) | $ | |||||||
| Indefinite-lived intangible assets: | ||||||||||||
| Tradenames | $ | — | $ | |||||||||
| December 31, 2023 | ||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||
| Finite-lived intangible assets: | ||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | |||||||
| Tradenames | ( | ) | ||||||||||
| Technology | ( | ) | ||||||||||
| Total finite-lived intangible assets | $ | $ | ( | ) | $ | |||||||
| Indefinite-lived intangible assets: | ||||||||||||
| Tradenames | $ | — | $ | |||||||||
The following outlines the estimated future amortization expense related to intangible assets held as of September 29, 2024:
| 2024 (excluding the thirty-nine weeks ended September 29, 2024) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ |
| 5. |
ACCRUED LIABILITIES |
Accrued liabilities of the Company consisted of the following:
| As of |
||||||||
| September 29, 2024 |
December 31, 2023 |
|||||||
| Accrued freight |
$ | $ | ||||||
| Accrued employee compensation and benefits |
||||||||
| Accrued returns and allowances |
||||||||
| Accrued taxes |
||||||||
| Current portion of operating lease liabilities |
||||||||
| Accrued other |
||||||||
| Total accrued liabilities |
$ | $ | ||||||
| 6. |
DEBT |
Debt of the Company consisted of the following:
| As of |
||||||||
| September 29, 2024 |
December 31, 2023 |
|||||||
| First lien term loan due November 17, 2028 |
$ | $ | ||||||
| Other |
||||||||
| Less unamortized debt issuance costs |
( |
) | ( |
) | ||||
| Less current portion of long-term debt |
( |
) | ( |
) | ||||
| $ | $ | |||||||
On November 18, 2021, the Company entered into a credit facility with a syndicate of lenders and Wells Fargo Bank, N.A., as administrative agent for the lenders, letter of credit issuer and swing line lender (the "Credit Agreement"). The financing consisted of a seven-year first lien term loan, a -year $
The revolving credit facility includes a letter of credit facility in the amount of $
The first lien term loan is to be repaid in quarterly payments of $
As of September 29, 2024, amounts outstanding under the credit facility accrue interest at a rate equal to either the Secured Overnight Financing Rate ("SOFR") or base rate, at the Company's election, plus a specified margin. In the case of revolving credit loans and letter of credit fees, the specified margin is based on the Company's Total Leverage Ratio, as defined in the Credit Agreement. Commitment fees payable under the revolving credit facility are based on the Company's Total Leverage Ratio. On September 29, 2024, the weighted average interest rate on the Company's borrowings under the credit facility was
The Company has entered into an interest rate collar in the notional amount of $
Obligations under the Credit Agreement are secured by substantially all of the Company’s assets, including a secured interest in the Company's headquarters, with a carrying value of $
In February 2023, the Company entered into an amendment to the Credit Agreement which, among other things, increases the Total Leverage Ratio applicable under the Credit Agreement as of the quarter ending April 2, 2023 to initially and provides for modified step-down levels for such covenant thereafter through the fiscal quarter ending June 30, 2024 (the “Covenant Relief Period”). As of June 30, 2024, the required Total Leverage Ratio wasAs a condition to the Covenant Relief Period, the Company also agreed to (i) a minimum liquidity test, (ii) an interest coverage test, (iii) an anti-cash hoarding test at any time revolving loans are outstanding, and (iv) additional reporting obligations. Under the amended Credit Agreement, the revolving credit facility contains a minimum liquidity financial covenant of $
Some of the lenders that are parties to the Credit Agreement, and their respective affiliates, have various relationships with the Company in the ordinary course of business involving the provision of financial services, including cash management, commercial banking, investment banking or other services.
Future maturities of long-term debt and amortization of debt issuance costs as of September 29, 2024 are as follows:
| Debt |
Debt Issuance Costs |
|||||||
| 2024 (excluding the thirty-nine weeks ended September 29, 2024) |
$ | $ | ||||||
| 2025 |
||||||||
| 2026 |
||||||||
| 2027 |
||||||||
| 2028 |
||||||||
| $ | $ | |||||||
| 7. |
COMMON STOCK WARRANTS AND EARN-OUT LIABILITY |
The Company consummated a business combination (the “Business Combination”) pursuant to that certain Agreement and Plan of Merger dated March 11, 2021 (the “Merger Agreement”), by and among Empower Ltd., (“Empower”), Empower Merger Sub I Inc., Empower Merger Sub II LLC, and Holley Intermediate Holdings, Inc. (“Holley Intermediate”) on July 16, 2021, (the “Closing” and such date, the “Closing Date”). Upon the Closing, there were
The Company may redeem the Public Warrants at a price of $
During any period when the Company has failed to maintain an effective registration statement, warrant holders may exercise Warrants on a cashless basis in accordance with Section 3(a)(9) of the Securities Act or another exemption, and the Company will use its commercially reasonable best efforts to register or qualify the shares under applicable blue-sky laws to the extent an exemption is not available.
The Company’s Warrants are accounted for as a liability in accordance with ASC 815-40 and are presented as a warrant liability on the balance sheet. The warrant liability was measured at fair value at inception and on a recurring basis, with changes in fair value recognized as non-operating expense. As of September 29, 2024 and December 31, 2023, a warrant liability with a fair value of $
Additionally, the Sponsor received
| 8. |
DERIVATIVE INSTRUMENTS |
The Company from time to time enters into derivative financial instruments, such as interest rate collar agreements (each, a “Collar”), to manage its exposure to fluctuations in interest rates on the Company’s variable rate debt. On January 4, 2023, the Company entered into a Collar with Wells Fargo Bank, N.A. ("Wells Fargo") with a notional amount of $
As of September 29, 2024, the Company recognized a derivative liability of $
The fair value of the Collar is determined using observable market-based inputs and the impact of credit risk on the derivative’s fair value (the creditworthiness of the Company’s counterparty for assets and the creditworthiness of the Company for liabilities) (a Level 2 measurement, as described in Note 9, "Fair Value Measurements").
| 9. |
FAIR VALUE MEASUREMENTS |
The Company’s financial liabilities subject to fair value measurement on a recurring basis and the level of inputs used for such measurements were as follows:
| Fair Value Measured on September 29, 2024 |
||||||||||||||||
| Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Liabilities: |
||||||||||||||||
| Warrant liability (Public) |
$ | $ | $ | $ | ||||||||||||
| Warrant liability (Private) |
||||||||||||||||
| Earn-out liability |
||||||||||||||||
| Interest rate collar liability |
||||||||||||||||
| Total fair value liabilities |
$ | $ | $ | $ | ||||||||||||
| Fair Value Measured on December 31, 2023 |
||||||||||||||||
| Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Liabilities: |
||||||||||||||||
| Warrant liability (Public) |
$ | $ | $ | $ | ||||||||||||
| Warrant liability (Private) |
||||||||||||||||
| Earn-out liability |
||||||||||||||||
| Interest rate collar liability |
||||||||||||||||
| Total fair value liabilities |
$ | $ | $ | $ | ||||||||||||
As of September 29, 2024, the Company's derivative liabilities for its Private and Public Warrants, earn-out liability, and derivative asset for its Collar are measured at fair value on a recurring basis (see Note 7, “Common Stock Warrants and Earn-Out Liability,” and Note 8, "Derivative Instruments," for more details). The fair values of the Private Warrants and earn-out liability are determined based on significant inputs not observable in the market (Level 3). The valuation of the Level 3 liabilities uses assumptions and estimates the Company believes would be made by a market participant in making the same valuation. The Company assesses these assumptions and estimates on an on-going basis as additional data impacting the assumptions and estimates are obtained. The Company uses a Monte Carlo simulation model to estimate the fair value of its Private Warrants and earn-out liability. The fair value of the Collar, which is included in other noncurrent assets on the condensed consolidated balance sheet, is determined based on models that reflect the contractual terms of the derivative, yield curves, and the credit quality of the counterparties. Inputs are generally observable and do not contain a high level of subjectivity (Level 2). The fair value of the Public Warrants is determined using publicly traded prices (Level 1). Changes in the fair value of the derivative liabilities related to Warrants and the earn-out liability are recognized as non-operating expense in the condensed consolidated statements of comprehensive income. Changes in the fair value of the Collar is recognized as an adjustment to interest expense in the condensed consolidated statements of comprehensive income. Changes in the fair value of the derivative liabilities related to Warrants and the earn-out liability and changes in the fair value of the Collar are recognized in net cash provided by operating activities on the condensed consolidated statements of cash flows.
The fair value of Private Warrants was estimated as of the measurement date using the Monte Carlo simulation model with the following assumptions:
| September 29, 2024 |
December 31, 2023 |
|||||||
| Valuation date price |
$ | $ | ||||||
| Strike price |
$ | $ | ||||||
| Remaining life (in years) |
||||||||
| Expected dividend |
$ | — | $ | — | ||||
| Risk-free interest rate |
% | % | ||||||
| Price threshold |
$ | $ | ||||||
The fair value of the earn-out liability was estimated as of the measurement date using the Monte Carlo simulation model with the following assumptions:
| September 29, 2024 |
December 31, 2023 |
|||||||
| Valuation date price |
$ | $ | ||||||
| Expected term (in years) |
||||||||
| Expected volatility |
% | % | ||||||
| Risk-free interest rate |
% | % | ||||||
| Price hurdle |
$ | $ | ||||||
As of September 29, 2024 and December 31, 2023, the Company has accounts receivable, accounts payable and accrued expenses for which the carrying value approximates fair value due to the short-term nature of these instruments. The carrying value of the Company’s long-term debt approximates fair value as the rates used approximate the market rates currently available to the Company. Fair value measurements used in the impairment reviews of goodwill and intangible assets are Level 3 measurements.
The reconciliation of changes in Level 3 liabilities during the 39-week periods ended September 29, 2024 and October 1, 2023 is as follows:
| Private Warrants |
Earn-Out Liability |
Total |
||||||||||
| Balance at December 31, 2022 |
$ | $ | $ | |||||||||
| Losses included in earnings |
||||||||||||
| Balance at October 1, 2023 |
$ | $ | $ | |||||||||
| Balance at December 31, 2023 |
$ | $ | $ | |||||||||
| Gains included in earnings |
( |
) | ( |
) | ( |
) | ||||||
| Balance at September 29, 2024 |
$ | $ | $ | |||||||||
| 10. |
REVENUE |
The principal activity from which the Company generates its revenue is the manufacturing and distribution of after-market automotive parts for its customers, comprised of resellers and end users. The Company recognizes revenue at a point in time, rather than over time, as the performance obligation is satisfied when customer obtains control of the product upon title transfer and not as the product is manufactured or developed. The amount of revenue recognized is based on the purchase order price and adjusted for revenue allocated to variable consideration (i.e., estimated rebates, co-op advertising, etc.).
The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and handling costs incurred after control of the product is transferred to our customers are treated as fulfillment costs and not a separate performance obligation.
The Company allows customers to return products when certain Company-established criteria are met. These sales returns are recorded as a charge against gross sales in the period in which the related sales are recognized, net of returns to stock. Returned products, which are recorded as inventories, are valued at the lower of cost or net realizable value. The physical condition and marketability of the returned products are the major factors considered in estimating realizable value. The Company also estimates expected sales returns and records the necessary adjustment as a charge against gross sales.
The Company’s payment terms with customers are customary and vary by customer and geography but typically range from 30 to 365 days. The Company elected the practical expedient to disregard the possible existence of a significant financing component related to payment on contracts, as the Company expects that customers will pay for the products within one year. The Company has evaluated the terms of our arrangements and determined that they do not contain significant financing components. Additionally, as all contracts with customers have an expected duration of one year or less, the Company has elected the practical expedient to exclude disclosure of information regarding the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period. The Company provides limited warranties on most of its products against certain manufacturing and other defects. Provisions for estimated expenses related to product warranty are made at the time products are sold. Refer to Note 15, “Commitments and Contingencies” for more information.
The following table summarizes total revenue by product category.
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Electronic systems |
$ | $ | $ | $ | ||||||||||||
| Mechanical systems |
||||||||||||||||
| Exhaust |
||||||||||||||||
| Accessories |
||||||||||||||||
| Safety |
||||||||||||||||
| Net sales |
$ | $ | $ | $ | ||||||||||||
The following table summarizes total revenue based on geographic location from which the product is shipped:
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| United States |
$ | $ | $ | $ | ||||||||||||
| Italy |
||||||||||||||||
| Net sales |
$ | $ | $ | $ | ||||||||||||
| 11. |
INCOME TAXES |
The Company's effective income tax rate is based on expected income, statutory rates and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year's taxable income as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating tax positions.
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Income tax expense (benefit) |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Effective tax rate |
% | % | ( |
)% | % | |||||||||||
For the 13-week period ended September 29, 2024, the Company's effective tax rate of
For the 39-week period ended September 29, 2024, the Company's effective tax rate of -
| 12. |
EARNINGS PER SHARE |
The following table sets forth the calculation of basic and diluted earnings per share:
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Numerator: |
||||||||||||||||
| Net income (loss) |
$ | ( |
) | $ | $ | $ | ||||||||||
| Denominator: |
||||||||||||||||
| Weighted average common shares outstanding - basic |
||||||||||||||||
| Dilutive effect of potential common shares from RSUs |
||||||||||||||||
| Dilutive effect of potential common shares from PSUs |
||||||||||||||||
| Weighted average common shares outstanding - diluted |
||||||||||||||||
| Earnings per share: |
||||||||||||||||
| Basic |
$ | ( |
) | $ | $ | $ | ||||||||||
| Diluted |
$ | ( |
) | $ | $ | $ | ||||||||||
The following outstanding shares of Common Stock equivalents were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive. Warrants to purchase shares of Common Stock having an exercise price greater than the average share market price are excluded from the calculation of diluted earnings per share.
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Anti-dilutive shares excluded from calculation of diluted EPS: |
||||||||||||||||
| Warrants |
||||||||||||||||
| Stock options |
||||||||||||||||
| Restricted stock units |
||||||||||||||||
| Performance stock units |
||||||||||||||||
| Unvested Earn-Out Shares |
||||||||||||||||
| Total anti-dilutive shares |
||||||||||||||||
| 13. |
EQUITY-BASED COMPENSATION PLANS [OPEN] |
In 2021, the Company adopted the 2021 Omnibus Incentive Plan (the “2021 Plan”), under which awards, including stock options, restricted stock units ("RSUs") and performance stock units ("PSUs") may be granted to employees and non-employee directors. The 2021 Plan authorized
Equity-based compensation expense included the following components:
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Restricted stock units |
$ | $ | $ | $ | ||||||||||||
| Performance stock units |
||||||||||||||||
| Stock options |
||||||||||||||||
All equity-based compensation expenses are recorded in selling, general and administrative costs in the condensed consolidated statements of comprehensive income.
Restricted Stock Awards
RSUs and PSUs are collectively referred to as "Restricted Stock Awards". The Compensation Committee has awarded RSUs to select employees and non-employee directors and has awarded PSUs to select employees. The RSUs vest ratably over to years of continued employment. The grant date fair value of a time-based award or a performance-based award without a market condition is equal to the market price of Common Stock on the grant date and is recognized over the requisite service period. The grant date fair value of a performance-based award with a market condition is determined using a Monte Carlo simulation and is recognized over the requisite service period. On September 29, 2024, there was $
The weighted-average grant-date fair value of Restricted Stock Awards granted during the 39-week periods ended September 29, 2024 and October 1, 2023, was $
The following table summarizes Restricted Stock Award for the 39-week period ended September 29, 2024:
| Unvested Restricted Stock Awards |
||||||||
| Weighted Average |
||||||||
| Number of RSAs |
Grant Date Fair Value |
|||||||
| Balance on December 31, 2023 |
$ | |||||||
| Granted |
||||||||
| Vested |
( |
) | ||||||
| Forfeited |
( |
) | ||||||
| Balance on September 29, 2024 |
$ | |||||||
Performance-based Restricted Stock Units
The PSUs granted under the 2021 Plan represent shares of Common Stock that are potentially issuable in the future based on a combination of performance and service requirements. On March 4, 2024, the Company granted
Stock Options
Stock option grants have an exercise price at least equal to the market value of the underlying Common Stock on the date of grant, have -year terms, and vest ratably over years of continued employment. In general, vested options expire if not exercised within 90 days of termination of service. Compensation expense for stock options is recorded based on straight-line amortization of the grant date fair value over the requisite service period. As of September 29, 2024, there was $
The following table summarizes stock option activity for the 39-week period ended September 29, 2024:
| Weighted Average |
||||||||||||
| Weighted |
Remaining |
|||||||||||
| Number of |
Average |
Contractual |
||||||||||
| Stock Options |
Exercise Price |
Term (years) |
||||||||||
| Options outstanding on December 31, 2023 |
$ | |||||||||||
| Forfeited |
( |
) | ||||||||||
| Expired |
( |
) | ||||||||||
| Options outstanding on September 29, 2024 |
$ | |||||||||||
| Options exercisable on September 29, 2024 |
$ | |||||||||||
| 14. |
LEASE COMMITMENTS |
The Company leases retail stores, manufacturing, distribution, engineering, and research and development facilities, office space, equipment, and automobiles under operating lease agreements. Leases have remaining lease terms of to
The following table summarizes operating lease assets and obligations, and provides information associated with the measurement of operating lease obligations.
| As of |
||||||||
| September 29, 2024 |
December 31, 2023 |
|||||||
| Assets: |
||||||||
| Operating right of use assets |
$ | $ | ||||||
| Liabilities: |
||||||||
| Current operating lease liabilities - Accrued liabilities |
$ | $ | ||||||
| Long-term operating lease liabilities |
||||||||
| Total lease liabilities |
$ | $ | ||||||
| Lease term and discount rate |
||||||||
| Weighted average remaining lease term (in years) |
||||||||
| Weighted average discount rate |
% | % | ||||||
The following summarizes the components of operating lease expense and provides supplemental cash flow information for operating leases:
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Components of lease expense: |
||||||||||||||||
| Operating lease expense |
$ | $ | $ | $ | ||||||||||||
| Short-term lease expense |
||||||||||||||||
| Variable lease expense |
||||||||||||||||
| Total lease expense |
$ | $ | $ | $ | ||||||||||||
| Supplemental cash flow information related to leases: |
||||||||||||||||
| Cash paid for amounts included in measurement of operating lease liabilities |
$ | $ | $ | $ | ||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities |
||||||||||||||||
| Decapitalization of right-of-use assets upon lease termination or modification |
||||||||||||||||
The following table summarizes the maturities of the Company's operating lease liabilities as of September 29, 2024:
| 2024 (excluding the thirty-nine weeks ended September 29, 2024) |
$ | |||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| 2028 |
||||
| Thereafter |
||||
| Total lease payments |
||||
| Less imputed interest |
( |
) | ||
| Present value of lease liabilities |
$ |
| 15. |
COMMITMENTS AND CONTINGENCIES |
Litigation
The Company is a party to various lawsuits and claims in the normal course of business, as well as the putative securities class action described below. While the lawsuits and claims against the Company cannot be predicted with certainty, management believes that the ultimate resolution of such matters will not have a material effect on the consolidated financial position or liquidity of the Company; however, in light of the inherent uncertainties involved in such lawsuits and claims, some of which may be beyond the Company’s control, an adverse outcome in one or more of these matters could be material to the Company’s results of operations or cash flows for any particular reporting period. The Company has established loss provision for matters in which losses are probable and can be reasonably estimated. Although management will continue to reassess the estimated liability based on future developments, an objective assessment of such claims may not always be predictive of the outcome and actual results may vary from current estimates.
A putative securities class action was filed on November 6, 2023, against the Company, Tom Tomlinson (the Company’s former Director, President, and Chief Executive Officer), and Dominic Bardos (the Company’s former Chief Financial Officer) in the United States District Court for the Western District of Kentucky (the “Complaint”) and is captioned City of Fort Lauderdale General Employees’ Retirement System v. Holley, Inc., f/k/a Empower LTD., Tom Tomlinson, and Dominic Bardos, Civil Action No. 1:23-cv-148-S.
On February 26, 2024, the court appointed City of Fort Lauderdale General Employees’ Retirement System to serve as lead plaintiff to prosecute claims on behalf of a proposed class of stockholders who purchased or otherwise acquired Holley securities between July 21, 2021 and February 6, 2023. On April 26, 2024, lead plaintiff filed an amended complaint, adding Vinod Nimmagadda (the Company’s Executive Vice President of Corporate Development and New Ventures) as a defendant. Lead plaintiff alleges that statements made regarding the Company’s business, operations, and prospects violated Sections 10(b), Section 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 and seeks class certification, damages, interest, attorneys’ fees, and other relief. The Company filed a motion to dismiss on June 28, 2024.
Due to the early stage of this proceeding, we cannot reasonably estimate the potential range of loss, if any. The Company disputes the allegations and intends to vigorously defend against them.
Product Warranties
The Company generally warrants its products against certain manufacturing and other defects. These product warranties are provided for specific periods of time depending on the nature of the product. The accrued product warranty costs are based primarily on historical experience of actual warranty claims and are recorded at the time of the sale.
The following table provides the changes in the Company's accrual for product warranties, which is classified as a component of accrued liabilities in the condensed consolidated balance sheets.
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Beginning balance |
$ | $ | $ | $ | ||||||||||||
| Accrued for current year warranty claims |
||||||||||||||||
| Settlement of warranty claims |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Ending balance |
$ | $ | $ | $ | ||||||||||||
Employee Savings Plans
The Company has a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code that covers United States-based employees.United States-based eligible employees may contribute up to the current statutory limits under the Internal Revenue Service regulations. Holley matches employee contributions to the 401(k) Plan up to
During the 13-week periods ended September 29, 2024 and October 1, 2023, the Company made matching contributions under the savings plans totaling $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Unless the context requires otherwise, references to “Holley,” “we,” “us,” “our” and “the Company” in this section are to the business and operations of Holley Inc. and its subsidiaries unless the context otherwise indicates. The following discussion and analysis should be read in conjunction with Holley’s condensed consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause Holley’s actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed herein and under the caption, “Cautionary Note Regarding Forward-Looking Statements.”
Overview
We are a leading designer, marketer, and manufacturer of high performance automotive aftermarket products serving car and truck enthusiasts, with sales, processing, and distribution facilities reaching most major markets in the United States, Canada, Europe and China. We design, market, manufacture and distribute a diversified line of performance automotive products including fuel injection systems, tuners, exhaust products, carburetors, safety equipment and various other performance automotive products. Our products are designed to enhance street, off-road, recreational and competitive vehicle performance and safety.
Innovation is at the core of our business and growth strategy. We have a history of developing innovative products, including new products in existing product families, product line expansions, and accessories, as well as products that bring us into new categories. We have thoughtfully expanded our product portfolio over time to adapt to consumer needs.
In addition, we have historically used strategic acquisitions to (i) expand our brand portfolio, (ii) enter new product categories and consumer segments, (iii) increase direct-to-consumer scale and connection, (iv) expand share in current product categories and (v) realize value-enhancing revenue and cost synergies. While we believe our business is positioned for continued organic growth, we intend to continue evaluating opportunities for strategic acquisitions that would complement our current business and expand our addressable target market.
Factors Affecting our Performance
We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed above, under the caption, "Cautionary Note Regarding Forward-Looking Statements," in this Quarterly Report on Form 10-Q, under the caption, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 14, 2024, and in our subsequent filings with the SEC.
Business Environment
Our business and results of operations, financial condition, and liquidity are impacted by broad economic conditions, as well as by geopolitical events, including the conflict in Ukraine, the conflict in the Middle East, and the possible expansion of such conflicts and potential geopolitical consequences. Our business is impacted by various economic factors that affect both consumers and the automotive industry, including by not limited to inflation, fuel costs, wage rates, supply chain disruptions, hiring, and other economic conditions. In response to inflationary impacts and supply chain disruptions, we have attempted to minimize potential adverse impacts on our business with cost savings initiatives, price increases to customers, and increased attention to maintaining appropriate inventory levels in the distribution channel. Our profitability has been, and may continue to be, adversely affected by constrained consumer demand, a shift in sales to lower-margin products, and demands on our performance that increase our costs. Should the ongoing macroeconomic conditions not improve, or worsen, or if our attempt to mitigate the impact on our supply chain, operations and costs is not successful, our business, results of operations and financial condition may be adversely affected.
Key Components of Results of Operations
Net Sales
The principal activity from which we generate sales is the designing, marketing, manufacturing and distribution of performance after-market automotive parts for our end consumers. Sales are displayed net of rebates and sales returns allowances. Sales returns are recorded as a charge against gross sales in the period in which the related sales are recognized.
Cost of Goods Sold
Cost of goods sold consists primarily of the cost of purchased parts and manufactured products, including materials and direct labor costs. In addition, warranty, incoming shipping and handling and inspection and repair costs are also included within costs of goods sold. Reductions in the cost of inventory to its net realizable value are also a component of cost of goods sold.
Selling, General, and Administrative
Selling, general, and administrative costs consist of payroll and related personnel expenses, IT and office services, office rent expense and professional services. In addition, self-insurance, advertising, research and development, outgoing shipping costs, pre-production and start-up costs are also included within selling, general, and administrative.
Restructuring Costs
Restructuring costs include charges attributable to operational restructuring and integration activities, including professional and consulting services; termination related benefits; facilities relocation; and executive transition costs.
Interest Expense
Interest expense consists of interest due on the indebtedness under our credit facilities. Interest is based on SOFR or the base rate, at the Company's election, plus the applicable margin rate. As of September 29, 2024, $564.2 million was outstanding under our Credit Agreement.
Results of Operations
13-Week Period Ended September 29, 2024 Compared With 13-Week Period Ended October 1, 2023
The table below presents Holley’s results of operations for the 13-week periods ended September 29, 2024 and October 1, 2023 (dollars in thousands):
| For the thirteen weeks ended |
||||||||||||||||
| September 29, 2024 |
October 1, 2023 |
Change ($) |
Change (%) |
|||||||||||||
| Net sales |
$ | 134,038 | $ | 156,530 | $ | (22,492 | ) | (14.4 | )% | |||||||
| Cost of goods sold |
81,732 | 98,156 | (16,424 | ) | (16.7 | )% | ||||||||||
| Gross profit |
52,306 | 58,374 | (6,068 | ) | (10.4 | )% | ||||||||||
| Selling, general, and administrative |
30,109 | 28,880 | 1,229 | 4.3 | % | |||||||||||
| Research and development costs |
4,620 | 6,100 | (1,480 | ) | (24.3 | )% | ||||||||||
| Amortization of intangible assets |
3,436 | 3,687 | (251 | ) | (6.8 | )% | ||||||||||
| Restructuring costs |
954 | 415 | 539 | 129.9 | % | |||||||||||
| Write-down of assets held-for-sale |
7,505 | — | 7,505 | 100.0 | % | |||||||||||
| Other operating expense |
119 | (28 | ) | 147 | n/a | |||||||||||
| Operating income |
5,563 | 19,320 | (13,757 | ) | (71.2 | )% | ||||||||||
| Change in fair value of warrant liability |
(1,041 | ) | 2,064 | (3,105 | ) | n/a | ||||||||||
| Change in fair value of earn-out liability |
(634 | ) | 700 | (1,334 | ) | n/a | ||||||||||
| Interest expense |
15,010 | 13,712 | 1,298 | 9.5 | % | |||||||||||
| Income (loss) before income taxes |
(7,772 | ) | 2,844 | (10,616 | ) | (373.3 | )% | |||||||||
| Income tax expense (benefit) |
(1,484 | ) | 2,092 | (3,576 | ) | (170.9 | )% | |||||||||
| Net income (loss) |
(6,288 | ) | 752 | (7,040 | ) | (936.2 | )% | |||||||||
| Foreign currency translation adjustment |
386 | (176 | ) | 562 | (319.3 | )% | ||||||||||
| Total comprehensive income (loss) |
$ | (5,902 | ) | $ | 576 | $ | (6,478 | ) | (1,124.7 | )% | ||||||
Net Sales
Net sales for the 13-week period ended September 29, 2024 decreased $22.5 million, or 14.4%, to $134.0 million, as compared to $156.5 million for the 13-week period ended October 1, 2023. Lower sales volume resulted in a decrease of approximately $24.4 million, offset partially by improved price realization of approximately $1.9 million compared to the prior year period. Major categories driving the comparable year-over-year results include a decrease in electronic systems sales of $12.3 million (17.6% category decline), a decrease in exhaust sales of $2.9 million (20.5% category decline), a decrease in mechanical systems sales of $6.1 million (16.1% category decline) and a decrease in accessories sales of $1.5 million (6.7% category decline). Partially offset by an increase in safety sales of $0.3 million (2.9% category incline).
Cost of Goods Sold
Cost of goods sold for the 13-week period ended September 29, 2024 decreased $16.4 million, or 16.7%, to $81.7 million, as compared to $98.2 million for the 13-week period ended October 1, 2023. The decrease in cost of goods sold in 2024, a period in which product sales decreased 14.4%, was impacted by lower freight costs and product mix.
Gross Profit and Gross Margin
Selling, General and Administrative
Selling, general and administrative costs for the 13-week period ended September 29, 2024 increased $1.2 million, or 4.3%, to $30.1 million, as compared to $28.9 million for the 13-week period ended October 1, 2023. Selling, general and administrative costs expressed as a percentage of sales increased to 22.5% for the 13-week period ended September 29, 2024 compared to 18.5% for the 13-week period ended October 1, 2023. The increase in selling, general and administrative costs was driven by $1.0 million of transformation related non-recurring advisory costs to execute on the strategic transformation initiatives.
Research and Development Costs
Research and development costs for the 13-week period ended September 29, 2024 decreased to $4.6 million as compared to $6.1 million for the 13-week period ended October 1, 2023, primarily due to headcount reductions, reflecting the implementation of resource allocation efforts in support of portfolio development optimization. Further, the decrease is due to the Company's realignment of employees' roles and responsibilities from selling, general and administrative to research and development.
Amortization and Impairment of Intangible Assets
Amortization of intangible assets was $3.4 million for the 13-week period ended September 29, 2024 compared to $3.7 million for the 13-week period ended October 1, 2023.
Restructuring Costs
Restructuring costs for the 13-week period ended September 29, 2024 increased by $0.5 million to $1.0 million, as compared to $0.4 million for the 13-week period ended October 1, 2023, reflecting restructuring and integration activities associated with our implementation of resource allocation efforts in support of portfolio development optimization.
Write-Down of Assets Held-For-Sale
Write-down of assets held-for-sale for the 13-week period ended September 29, 2024 relates to the anticipated sale of Detroit Speed Engineering, reflecting a $7.5 million loss after adjusting the assets from carrying value to fair value. For the 13-week period ended September 29, 2024, the Company entered into a definitive purchase agreement to sell Detroit Speed Engineering, and as such in accordance with U.S. GAAP, the Company recognized a write-down of these assets. The sale is expected to close in the fourth quarter of 2024.
Operating Income
As a result of factors described above, operating income for the 13-week period ended September 29, 2024 decreased $13.8 million, or 71.2%, to $5.6 million, as compared to $19.3 million for the 13-week period ended October 1, 2023.
Change in Fair Value of Warrant Liability
For the 13-week period ended September 29, 2024, we recognized a gain of $1.0 million from the change in fair value of the warrant liability. For the 13-week period ended October 1, 2023, we recognized a loss of $2.1 million from the change in fair value of the warrant liability, due to our stock price. The warrant liability reflects the fair value of the Warrants issued in connection with the Business Combination.
Change in Fair Value of Earn-Out Liability
For the 13-week period ended September 29, 2024, we recognized a gain of $0.6 million from the change in fair value of the earn-out liability. For the 13-week period ended October 1, 2023, we recognized a loss of $0.7 million, from the change in fair value of the earn-out liability, due to our stock price. The earn-out liability reflects the fair value of the unvested Earn-Out Shares resulting from the Business Combination.
Interest Expense
Interest expense for the 13-week period ended September 29, 2024 increased $1.3 million, or 9.5%, to $15.0 million, as compared to $13.7 million for the 13-week period ended October 1, 2023, reflecting the negative impact of the interest rate collar. The Company recognized $2.2 million of interest expense and $1.1 million in interest income related to the interest rate collar for 13-week periods ended September 29, 2024 and October 1, 2023, respectively.
Income (Loss) before Income Taxes
As a result of factors described above, we recognized $7.8 million of loss before income taxes for the 13-week period ended September 29, 2024, as compared to income before income taxes of $2.8 million for the 13-week period ended October 1, 2023.
Income Tax Expense (Benefit)
Income tax benefit for the 13-week period ended September 29, 2024 was $1.5 million, as compared to income tax expense of $2.1 million for the 13-week period ended October 1, 2023. Our effective tax rate for the 13-week period ended September 29, 2024 was 19.1%. The difference between the effective tax rate for the 13-week period ended September 29, 2024 and the federal statutory rate in 2024 was due to permanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period and the impact of foreign taxes in higher tax rate jurisdictions. The effective tax rate for the 13-week period ended October 1, 2023 was 73.6%. The difference between the effective tax rate and the federal statutory rate in 2023 was primarily due to permanent differences resulting from the change in fair value of the warrant and earn-out liabilities.
Net Income (Loss) and Total Comprehensive Income (Loss)
As a result of factors described above, we recognized net loss of $6.3 million for the 13-week period ended September 29, 2024, as compared to net income of $0.8 million for the 13-week period ended October 1, 2023. Additionally, we recognized total comprehensive loss of $5.9 million for the 13-week period ended September 29, 2024, as compared to total comprehensive income of $0.6 million for the 13-week period ended October 1, 2023. Comprehensive income includes the effect of foreign currency translation adjustments.
39-Week Period Ended September 29, 2024 Compared With 39-Week Period Ended October 1, 2023
The table below presents Holley’s results of operations for the 39-week periods ended September 29, 2024 and October 1, 2023 (dollars in thousands):
| For the thirty-nine weeks ended |
||||||||||||||||
| September 29, 2024 |
October 1, 2023 |
Change ($) |
Change (%) |
|||||||||||||
| Net sales |
$ | 462,170 | $ | 503,997 | $ | (41,827 | ) | (8.3 | )% | |||||||
| Cost of goods sold |
287,512 | 308,162 | (20,650 | ) | (6.7 | )% | ||||||||||
| Gross profit |
174,658 | 195,835 | (21,177 | ) | (10.8 | )% | ||||||||||
| Selling, general, and administrative |
97,675 | 87,998 | 9,677 | 11.0 | % | |||||||||||
| Research and development costs |
13,743 | 18,935 | (5,192 | ) | (27.4 | )% | ||||||||||
| Amortization of intangible assets |
10,307 | 11,040 | (733 | ) | (6.6 | )% | ||||||||||
| Restructuring costs |
1,566 | 2,106 | (540 | ) | (25.6 | )% | ||||||||||
| Write-down of assets held-for-sale |
7,505 | — | 7,505 | 100.0 | % | |||||||||||
| Other operating expense |
213 | 508 | (295 | ) | n/a | |||||||||||
| Operating income |
43,649 | 75,248 | (31,599 | ) | (42.0 | )% | ||||||||||
| Change in fair value of warrant liability |
(7,570 | ) | 5,516 | (13,086 | ) | n/a | ||||||||||
| Change in fair value of earn-out liability |
(2,341 | ) | 2,089 | (4,430 | ) | n/a | ||||||||||
| Loss on early extinguishment of debt |
141 | — | 141 | n/a | ||||||||||||
| Interest expense |
39,192 | 41,909 | (2,717 | ) | (6.5 | )% | ||||||||||
| Income before income taxes |
14,227 | 25,734 | (11,507 | ) | (44.7 | )% | ||||||||||
| Income tax expense (benefit) |
(320 | ) | 7,756 | (8,076 | ) | (104.1 | )% | |||||||||
| Net income |
14,547 | 17,978 | (3,431 | ) | (19.1 | )% | ||||||||||
| Foreign currency translation adjustment |
244 | (103 | ) | 347 | (336.9 | )% | ||||||||||
| Total comprehensive income |
$ | 14,791 | $ | 17,875 | $ | (3,084 | ) | (17.3 | )% | |||||||
Net Sales
Net sales for the 39-week period ended September 29, 2024 decreased $41.8 million, or 8.3%, to $462.1 million, as compared to $504.0 million for the 39-week period ended October 1, 2023. Lower sales volume resulted in a decrease of approximately $50.2 million offset partially by improved price realization of approximately $8.3 million compared to the prior year period. Major categories driving the comparable year-over-year results include a decrease in mechanical systems sales of $12.2 million (10.0% category decline), a decrease in electronic systems sales of $20.0 million (9.4% category decline), a decrease in exhaust sales of $7.0 million (14.6% category decline), and a decrease in accessories sales of $7.4 million (9.9% category decline). An increase in safety sales of $4.8 million (10.6% category incline) partially offset the decrease in electronic systems, exhaust and accessories sales.
Cost of Goods Sold
Cost of goods sold for the 39-week period ended September 29, 2024 decreased $20.6 million, or 6.7%, to $287.5 million, as compared to $308.1 million for the 39-week period ended October 1, 2023. The decrease in cost of goods sold in 2024, resulted from a 8.3% decrease in product sales and lower freight costs, partially offset by $8.8 million of strategic product rationalization charge that is part of a portfolio transformation aimed at eliminating unprofitable or slow-moving stock keeping units ("SKUs").
Gross Profit and Gross Margin
Selling, General and Administrative
Selling, general and administrative costs for the 39-week period ended September 29, 2024 increased $9.6 million, or 11.0%, to $97.7 million, as compared to $88.0 million for the 39-week period ended October 1, 2023. Selling, general and administrative costs expressed as a percentage of sales increased to 21.1% for the 39-week period ended September 29, 2024 compared to 17.5% for the 39-week period ended October 1, 2023. The increase in selling, general and administrative costs was driven by a $2 million reserve related to litigation settlements, a $3.0 million increase in wages, and $4.5 million of costs incurred for advisory services related to supporting transformation initiatives. The increase in wages is offset by a reduction in research and development costs due to the Company's realignment of employees' roles and responsibilities from selling, general and administrative to research and development.
Research and Development Costs
Research and development costs for the 39-week period ended September 29, 2024 decreased to $13.7 million as compared to $18.9 million for the 39-week period ended October 1, 2023, primarily due to headcount reductions, reflecting the implementation of resource allocation efforts in support of portfolio development optimization. Further, the decrease is due to the Company's realignment of employees' roles and responsibilities from selling, general and administrative to research and development.
Amortization and Impairment of Intangible Assets
Amortization of intangible assets was $10.3 million for the 39-week period ended September 29, 2024 compared to $11.0 million for the 39-week period ended October 1, 2023.
Restructuring Costs
Restructuring costs for the 39-week period ended September 29, 2024 decreased by $0.5 million to $1.6 million, as compared to $2.1 million for the 39-week period ended October 1, 2023, reflecting a reduction in restructuring and integration activities associated with acquisitions.
Write-Down of Assets Held-For-Sale
Write-down of assets held-for-sale for the 39-week period ended September 29, 2024 relates to the anticipated sale of Detroit Speed Engineering, reflecting a $7.5 million loss after adjusting the assets from carrying value to fair value. For the 39-week period ended September 29, 2024, the Company entered into a definitive purchase agreement to sell Detroit Speed Engineering, and as such in accordance with U.S. GAAP, the Company recognized a write-down of these assets. The sale is expected to be completed in the fourth quarter of 2024.
Operating Income
As a result of factors described above, operating income for the 39-week period ended September 29, 2024 decreased $31.6 million, or 42.0%, to $43.7 million, as compared to $75.2 million for the 39-week period ended October 1, 2023.
Change in Fair Value of Warrant Liability
For the 39-week period ended September 29, 2024, we recognized a gain of $7.6 million from the change in fair value of the warrant liability. For the 39-week period ended October 1, 2023, we recognized a loss of $5.5 million from the change in fair value of the warrant liability. The warrant liability reflects the fair value of the Warrants issued in connection with the Business Combination.
Change in Fair Value of Earn-Out Liability
For the 39-week period ended September 29, 2024, we recognized a gain of $2.3 million from the change in fair value of the earn-out liability. For the 39-week period ended October 1, 2023, we recognized a loss of $2.1 million, from the change in fair value of the earn-out liability. The earn-out liability reflects the fair value of the unvested Earn-Out Shares resulting from the Business Combination.
Interest Expense
Interest expense for the 39-week period ended September 29, 2024 decreased $2.7 million, or 6.5%, to $39.2 million, as compared to $41.9 million for the 39-week period ended October 1, 2023, reflecting lower outstanding debt balances, offset in part by a higher effective interest rate on outstanding debt. The Company recognized $0.2 million and $3.2 million of interest income related to the interest rate collar for 39-week periods ended September 29, 2024 and October 1, 2023, respectively.
Income before Income Taxes
As a result of factors described above, we recognized $14.2 million of income before income taxes for the 39-week period ended September 29, 2024, as compared to income before income taxes of $25.7 million for the 39-week period ended October 1, 2023.
Income Tax Expense (Benefit)
Income tax benefit for the 39-week period ended September 29, 2024 was $0.3 million, as compared to income tax expense of $7.8 million for the 39-week period ended October 1, 2023. Our effective tax rate for the 39-week period ended September 29, 2024 was -2.2%. The difference between the effective tax rate for the 39-week period ended September 29, 2024 and the federal statutory rate in 2024 was due to permanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period, federal research and development tax credits, and the impact of foreign taxes in higher tax rate jurisdictions. In addition, the company incurred expenses related to strategic product rationalization charge that were determined to be significant and infrequent in nature, therefore, the full tax benefit of these expenses was recorded during the year as a discrete adjustment. The effective tax rate for the 39-week period ended October 1, 2023 was 30.1%. The difference between the effective tax rate and the federal statutory rate in 2023 was primarily due to permanent differences resulting from the change in fair value of the warrant and earn-out liabilities.
Net Income and Total Comprehensive Income
As a result of factors described above, we recognized net income of $14.5 million for the 39-week period ended September 29, 2024, as compared to net income of $18.0 million for the 39-week period ended October 1, 2023. Additionally, we recognized total comprehensive income of $14.8 million for the 39-week period ended September 29, 2024, as compared to total comprehensive income of $17.9 million for the 39-week period ended October 1, 2023. Comprehensive income includes the effect of foreign currency translation adjustments.
Non-GAAP Financial Measures
We present certain information with respect to EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash Flow as supplemental measures of our operating performance and believe that such non-GAAP financial measures are useful to investors in evaluating our financial performance and in comparing our financial results between periods because they exclude the impact of certain items that we do not consider indicative of our ongoing operating performance. We believe that the presentation of these non-GAAP financial measures enhances the usefulness of our financial information by presenting measures that management uses internally to establish forecasts, budgets and operational goals to manage and monitor our business. We believe that these non-GAAP financial measures help to depict a more realistic representation of the performance of our underlying business, enabling us to evaluate and plan more effectively for the future.
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash Flow are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. These measures should not be considered as measures of financial performance under GAAP, and the items excluded from or included in these metrics are significant components in understanding and assessing our financial performance. These metrics should not be considered as alternatives to net income, gross profit, net cash provided by operating activities, or any other performance measures, as applicable, derived in accordance with GAAP.
Adjusted EBITDA
We define EBITDA as earnings before depreciation, amortization of intangible assets, interest expense, and income tax expense. We define Adjusted EBITDA as EBITDA adjusted to exclude, to the extent applicable, restructuring costs, which includes operational restructuring and integration activities, termination related benefits, facilities relocation, and executive transition costs; changes in the fair value of the warrant liability; changes in the fair value of the earn-out liability; equity-based compensation expense; strategic product rationalization charges primarily due to initiatives that are part of a portfolio transformation aimed at eliminating unprofitable or slow-moving SKUs; loss on sale of assets; gain or loss on the early extinguishment of debt; notable items that we do not believe are reflective of our underlying operating performance, including litigation settlements and certain costs incurred for advisory services related to identifying performance initiatives; and other expenses or gains, which includes gains or losses from disposal of fixed assets, franchise taxes, and gains or losses from foreign currency transactions. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by net sales.
The following unaudited table presents the reconciliation of net income, the most directly comparable GAAP measure, to EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin for the 13-week and 39-week periods ended September 29, 2024 and October 1, 2023 (dollars in thousands):
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Net income |
$ | (6,288 | ) | $ | 752 | $ | 14,547 | $ | 17,978 | |||||||
| Adjustments: |
||||||||||||||||
| Depreciation |
2,231 | 2,785 | 7,364 | 7,738 | ||||||||||||
| Amortization of intangible assets |
3,436 | 3,687 | 10,307 | 11,040 | ||||||||||||
| Interest expense, net |
15,010 | 13,712 | 39,192 | 41,909 | ||||||||||||
| Income tax expense |
(1,484 | ) | 2,092 | (320 | ) | 7,756 | ||||||||||
| EBITDA |
12,905 | 23,028 | 71,090 | 86,421 | ||||||||||||
| Change in fair value of warrant liability |
(1,041 | ) | 2,064 | (7,570 | ) | 5,516 | ||||||||||
| Change in fair value of earn-out liability |
(634 | ) | 700 | (2,341 | ) | 2,089 | ||||||||||
| Equity-based compensation expense |
1,521 | 2,970 | 4,283 | 5,170 | ||||||||||||
| Strategic product rationalization charge |
— | — | 8,835 | (800 | ) | |||||||||||
| Write-down of assets held-for-sale |
7,505 | — | 7,505 | — | ||||||||||||
| Loss on early extinguishment of debt |
— | — | 141 | — | ||||||||||||
| Restructuring costs |
954 | 415 | 1,566 | 2,106 | ||||||||||||
| Notable items |
785 | 556 | 6,479 | 564 | ||||||||||||
| Other expense |
119 | (28 | ) | 213 | 508 | |||||||||||
| Adjusted EBITDA |
$ | 22,114 | $ | 29,705 | $ | 90,201 | $ | 101,574 | ||||||||
| Net sales |
$ | 134,038 | $ | 156,530 | $ | 462,170 | $ | 503,997 | ||||||||
| Net income margin |
-4.7 | % | 0.5 | % | 3.1 | % | 3.6 | % | ||||||||
| Adjusted EBITDA Margin |
16.5 | % | 19.0 | % | 19.5 | % | 20.2 | % | ||||||||
Adjusted Gross Profit and Adjusted Gross Margin
We define adjusted gross profit as gross profit excluding strategic product rationalization charges primarily due to initiatives that are part of a portfolio transformation aimed at eliminating unprofitable or slow-moving SKUs. We define Adjusted Gross Margin as Adjusted Gross Profit divided by net sales.
The following unaudited table presents the reconciliation of gross profit, the most directly comparable GAAP measure, to Adjusted Gross Profit and Adjusted Gross Margin for the 13-week and 39-week periods ended September 29, 2024 and October 1, 2023 (dollars in thousands):
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Gross profit |
$ | 52,306 | $ | 58,374 | 174,658 | 195,835 | ||||||||||
| Adjust for: Strategic product rationalization charge |
— | — | 8,835 | (800 | ) | |||||||||||
| Adjusted Gross Profit |
$ | 52,306 | $ | 58,374 | 183,493 | 195,035 | ||||||||||
| Net sales |
$ | 134,038 | $ | 156,530 | $ | 462,170 | $ | 503,997 | ||||||||
| Gross margin |
39.0 | % | 37.3 | % | 37.8 | % | 38.9 | % | ||||||||
| Adjusted Gross Margin |
39.0 | % | 37.3 | % | 39.7 | % | 38.7 | % | ||||||||
On October 15, 2024, the Company received a comment letter from the Staff of the SEC’s Division of Corporation Finance (the “Staff”) related to our Annual Report on Form 10-K for the year ended December 31, 2023 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2024. The Staff’s letter included a comment relating to two of our non-GAAP measures, Adjusted EBITDA and Adjusted Gross Profit, seeking an explanation why the adjustment for inventory charges included in each of those measures does not represent costs that are normal operating costs of the business. We are in the process of preparing a response and intend to work with the Staff to address the comment. If the Staff were to object to our continued inclusion of the adjustment for such inventory charges, the “Strategic product rationalization charge” reported above will be removed from our presentation of Adjusted EBITDA and Adjusted Gross Profit and such measures will decrease accordingly.
Adjusted Net Income and Adjusted Diluted EPS
We define Adjusted Net Income as earnings excluding the after-tax effect of changes in the fair value of the warrant liability, changes in the fair value of the earn-out liability, and gain or loss on the early extinguishment of debt. We define Adjusted Diluted EPS as Adjusted Net Income on a per share basis. Management uses these measures to focus on on-going operations and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present consolidated operating results. We believe that using this information, along with net income and net income per diluted share, provides for a more complete analysis of the results of operations.
The following unaudited tables present the reconciliation of net income and net income per diluted share, the most directly comparable GAAP measures, to Adjusted Net Income and Adjusted Diluted EPS for the 13-week and 39-week periods ended September 29, 2024 and October 1, 2023 (dollars in thousands):
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Net income |
$ | (6,288 | ) | $ | 752 | $ | 14,547 | $ | 17,978 | |||||||
| Special items: |
||||||||||||||||
| Adjust for: Change in fair value of Warrant liability |
(1,041 | ) | 2,064 | (7,570 | ) | 5,516 | ||||||||||
| Adjust for: Change in fair value of earn-out liability |
(634 | ) | 700 | (2,341 | ) | 2,089 | ||||||||||
| Adjust for: Write-down of assets held-for-sale |
7,505 | — | 7,505 | — | ||||||||||||
| Adjust for: Loss on early extinguishment of debt |
— | — | 141 | — | ||||||||||||
| Adjusted Net Income (Loss) |
$ | (458 | ) | $ | 3,516 | $ | 12,282 | $ | 25,583 | |||||||
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Net income per diluted share |
$ | (0.05 | ) | $ | 0.01 | $ | 0.12 | $ | 0.15 | |||||||
| Special items: |
||||||||||||||||
| Adjust for: Change in fair value of Warrant liability |
(0.01 | ) | 0.02 | (0.06 | ) | 0.05 | ||||||||||
| Adjust for: Change in fair value of earn-out liability |
(0.01 | ) | 0.01 | (0.02 | ) | 0.02 | ||||||||||
| Adjust for: Write-down of assets held-for-sale |
0.06 | - | 0.06 | - | ||||||||||||
| Adjust for: Loss on early extinguishment of debt |
— | — | — | — | ||||||||||||
| Adjusted Diluted EPS |
$ | (0.01 | ) | $ | 0.04 | $ | 0.10 | $ | 0.22 | |||||||
We define Free Cash Flow as net cash provided by operating activities minus cash payments for capital expenditures, net of dispositions. Management believes providing Free Cash Flow is useful for investors to understand our performance and results of cash generation after making capital investments required to support ongoing business operations.
The following unaudited table presents the reconciliation of net cash provided by operating activities, the most directly comparable GAAP measure, to Free Cash Flow for the 13-week and 39-week periods ended September 29, 2024 and October 1, 2023 (dollars in thousands):
| For the thirteen weeks ended |
For the thirty-nine weeks ended |
|||||||||||||||
| September 29, 2024 |
October 1, 2023 |
September 29, 2024 |
October 1, 2023 |
|||||||||||||
| Net cash provided by operating activities |
$ | (1,748 | ) | $ | 22,480 | $ | 42,773 | $ | 56,863 | |||||||
| Capital expenditures |
(1,727 | ) | (1,679 | ) | (4,372 | ) | (4,417 | ) | ||||||||
| Proceeds from the disposal of fixed assets |
1,416 | 936 | 1,645 | 1,292 | ||||||||||||
| Free Cash Flow |
$ | (2,059 | ) | $ | 21,737 | $ | 40,046 | $ | 53,738 | |||||||
Liquidity and Capital Resources
Our primary cash needs are to support working capital, capital expenditures, acquisitions, and debt repayments. We have generally financed our historical needs with operating cash flows, capital contributions and borrowings under our credit facilities. These sources of liquidity may be impacted by various factors, including demand for our products, investments made in acquired businesses, plant and equipment and other capital expenditures, and expenditures on general infrastructure and information technology.
As of September 29, 2024, the Company had cash of $50.8 million and availability of $122.8 million under its revolving credit facility. The Company has a senior secured revolving credit facility with $125 million in borrowing capacity. As of September 29, 2024, the Company had $2.2 million in letters of credit outstanding under the revolving credit facility. In February 2023, the Company entered into an amendment to its Credit Agreement which, among other things, contains a minimum liquidity financial covenant of $45 million, which includes unrestricted cash and any available borrowing capacity under the revolving credit facility. The amendment also increased the Total Leverage Ratio applicable under the Credit Agreement as of the fiscal quarter ending April 2, 2023, to initially 7.25:1.00, and provides for modified step-down levels for such covenant thereafter through the fiscal quarter ending June 30, 2024. During the 39-week period ended September 29, 2024, the Company successfully exited the Covenant Relief Period.
The Company is obligated under various operating leases for facilities, equipment and automobiles with estimated lease payments of approximately $1.6 million, including short term leases, due during the remainder of fiscal year 2024. See Note 14, "Lease Commitments" in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional information related to the Company’s lease obligations.
Holley's capital expenditures are primarily related to ongoing maintenance and improvements, including investments related to upgrading and maintaining our information technology systems, tooling for new products, vehicles for product development, and machinery and equipment for operations. We expect capital expenditures in the range of $6 million to $8 million in fiscal year 2024.
See Note 6, "Debt" in the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further detail of our credit facility and the timing of principal maturities. As of September 29, 2024, based on the then current weighted average interest rate of 9.1%, expected interest payments associated with outstanding debt totaled approximately $13.1 million for the remainder of fiscal year 2024.
As discussed under “Business Environment” above, although the future impact of supply chain disruptions and inflationary pressures are highly uncertain, we believe that cash generated through our current operating performance, and our operating plans, cash position, and borrowings available under our revolving credit facility, will be sufficient to satisfy our liquidity needs and capital expenditure requirements for the next 12 months and thereafter for the foreseeable future.
Cash Flows
The following table provides a summary of cash flows from operating, investing, and financing activities for the periods presented (dollars in thousands):
39-week period ended September 29, 2024 Compared With 39-week period ended October 1, 2023
| For the thirty-nine weeks ended |
||||||||
| September 29, 2024 |
October 1, 2023 |
|||||||
| Cash flows provided by operating activities |
$ | 42,773 | $ | 56,863 | ||||
| Cash flows used in investing activities |
(2,727 | ) | (3,125 | ) | ||||
| Cash flows used in financing activities |
(30,314 | ) | (42,998 | ) | ||||
| Effect of foreign currency rate fluctuations on cash |
(62 | ) | (57 | ) | ||||
| Net increase in cash and cash equivalents |
$ | 9,670 | $ | 10,683 | ||||
Operating Activities. Net cash provided by operating activities for the 39-week period ended September 29, 2024 was $42.8 million compared to net cash provided by operating activities of $56.9 million for the 39-week period ended October 1, 2023. Significant changes in the year-over-year change in working capital activity included negative fluctuations in inventories of $23.4 million. Partially offsetting the decrease was a positive fluctuation from accounts payable of $14.4 million. The change in inventory reflects the impact of fluctuations in sales while changes in accounts payable are impacted by the timing of payments.
Investing Activities. Cash used in investing activities for the 39-week periods ended September 29, 2024 and October 1, 2023 were $2.7 million and $3.1 million, respectively, due to capital expenditures.
Financing Activities. Cash used in financing activities for the 39-week period ended September 29, 2024 was $30.3 million, which primarily reflects $28.8 million in principal payments on long-term debt. The principal payments of long-term debt during the 39-week period ended September 29, 2024 include the repurchase of $25.0 million outstanding principal on the first lien term loan. Cash used in financing activities for the 39-week period ended October 1, 2023 was $43.0 million, which primarily reflects principal payments on long-term debt and deferred financing fees.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, sales, expenses and related disclosures. We evaluate our estimates, judgements and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. For a discussion of our critical accounting estimates, refer to the section entitled “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 14, 2024. For further information see also Note 1, “Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies” in the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. There have been no material changes to the Company’s critical accounting estimates included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Recent Accounting Pronouncements
For a discussion of Holley’s new or recently adopted accounting pronouncements, see Note 1, “Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies,” in the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. Holley is exposed to market risk in the normal course of business due to the Company’s ongoing investing and financing activities. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. Holley has established policies and procedures governing the Company’s management of market risks and the use of financial instruments to manage exposure to such risks. When appropriate, the Company uses derivative financial instruments to mitigate the risk from its interest rate exposure. The Company's interest rate collar is intended to mitigate some of the effects of increases in interest rates. As of September 29, 2024, a total of $564.2 million of term loan and revolver borrowings were subject to variable interest rates, with a weighted average borrowing rate of 9.1%. A hypothetical 100 basis point increase in interest rates would result in an approximately $0.6 million increase in annual interest expense, while a hypothetical 100 basis point decrease in interest rates would result in an approximately $4.1 million decrease to Holley’s annual interest expense.
Credit and other Risks. Holley is exposed to credit risk associated with cash and cash equivalents and trade receivables. As of September 29, 2024, the majority of the Company’s cash and cash equivalents consisted of cash balances in an overnight sweep account where funds are transferred to an interest-bearing deposit account that is insured by the Federal Deposit Insurance Corporation ("FDIC"). The FDIC insures financial institution deposits up to $250 thousand. Holley maintains deposits in certain accounts which exceed the insurance coverage provided on such deposits. The Company does not believe that its cash equivalents present significant credit risks because the counterparties to the instruments consist of major financial institutions. Substantially all trade receivable balances of the business are unsecured. The credit risk with respect to trade receivables is concentrated by the number of significant customers that the Company has in its customer base and a prolonged economic downturn could increase exposure to credit risk on the Company’s trade receivables. To manage exposure to such risks, Holley performs ongoing credit evaluations of the Company’s customers and maintains an allowance for potential credit losses.
Exchange Rate Sensitivity. As of September 29, 2024, the Company is exposed to changes in foreign currency exchange rates. While historically this exposure to changes in foreign currency exchange rates has not had a material effect on the Company’s financial condition or results of operations, foreign currency fluctuations could have a material adverse effect on business and results of operations in the future. Historically, Holley’s primary exposure has been related to transactions denominated in the Euro and Canadian dollars. The majority of the Company’s sales, both domestically and internationally, are denominated in U.S. Dollars. Historically, the majority of the Company’s expenses have also been in U.S. Dollars, and we have been somewhat insulated from currency fluctuations. However, Holley may be exposed to greater exchange rate sensitivity in the future. Currently, the Company does not hedge foreign currency exposure; however, the Company may consider strategies to mitigate foreign currency exposure in the future if deemed necessary.
Item 4. Controls and Procedures.
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of September 29, 2024 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
See Litigation in Note 15 “Commitments and Contingencies” to the Condensed Consolidated Financial Statements, which is incorporated by reference in this Item 1. Legal Proceedings.
We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. Factors that could materially affect our actual results, levels of activity, performance or achievements include, but are not limited to, those under the caption “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 14, 2024. Such risks, uncertainties and other factors may cause our actual results, performance, and achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these risks or events occur, our business, financial condition or results of operations may be adversely affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Trading Plans
During the fiscal quarter ended September 29, 2024, director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).
| Exhibit No. |
Description |
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| 2.1 |
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| 3.1 |
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| 3.2 |
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| 31.1 |
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| 31.2 |
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| 32.1 |
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| 32.2 |
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| 101.INS |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL Document and include in Exhibit 101) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Holley Inc. |
| /s/ Jesse Weaver |
| Jesse Weaver |
| Chief Financial Officer (Duly Authorized Officer) |
| November 8, 2024 |