Holley Inc

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 consummated a Business Combination pursuant to the Merger Agreement, by and among Empower, Merger Sub I, Merger Sub II, and Holley Intermediate on the Closing Date. The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP in which Holley Intermediate was deemed the accounting acquirer with Holley Inc. as the successor registrant. As such, Empower was treated as the acquired company for financial reporting purposes. On the Closing Date, Empower changed its name to Holley Inc. and its trading symbol on the NYSE from “EMPW” to “HLLY.”

The Company designs, manufactures and distributes performance automotive products to customers 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

Section102(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 including inflation, labor shortages, and disruption of the supply chain, as well as by geopolitical events, including military conflicts (including the conflict in Ukraine, the conflict in Israel and surrounding areas, and the possible expansion of such conflicts). The Company's operations have been adversely impacted by inflationary pressures primarily related to transportation, labor and component costs. Sales growth in certain products has been constrained by supply chain challenges and automotive electronic component shortages. In response to the global supply chain volatility and inflationary impacts, the Company has attempted to minimize potential adverse impacts on its business with cost savings initiatives, price increases to customers, and by closely monitoring inventory levels of certain products and working closely with its suppliers and customers to minimize disruptions in delivering products to customers. Our profitability has been, and* maycontinue 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 conditionsnot* improve, or worsen, or if the Company's attempt to mitigate the impact on its supply chain, operations and costs isnot successful, the Company’s business, results of operations and financial condition* may*be adversely affected.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

Reclassifications

Certain previously reported amounts in the accrued liabilities footnote have been reclassified between line items to conform to the current period presentation.

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Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. These estimates require the use of judgment as future events, and the effect of these events, cannot be predicted with certainty. The estimates will change as new events occur, as more experience is acquired and as more information is obtained. The Company evaluates and updates assumptions and estimates on an ongoing basis and* may*consult outside experts to assist as considered necessary.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity ofthree months or less to be cash equivalents. The Company's cash and cash equivalents include cash and deposits, including 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. The Company maintains deposits exceeding*$250* in certain accounts at financial institutions in the United States. On* December 31, 2023and2022*, the Company had cash in foreign bank accounts of $4,975 and $5,878, respectively. Cash and cash equivalent in foreign bank accounts are primarily held in Italy. Italian deposits are insured up to*€100* per depositor, per bank. The Company maintains deposits exceeding*€100* in certain accounts at financial institutions in Italy. The Company hasnot incurred any losses in these accounts.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable represent amounts due from customers in the ordinary course of business. The receivables are stated at the amount management expects to collect. The Company is subject to risk of loss from uncollectible receivables in excess of its allowance. The Company maintains an allowance for credit losses for estimated losses from customers’ inability to make required payments. In order to estimate the appropriate level of this allowance, the Company analyzes historical bad debts, customer concentrations, current customer creditworthiness, current economic trends and changes in customer payment patterns. Accounts are written off when management determines the account is uncollectable. Interest isnot charged on past due accounts.

Inventory Valuation

The Company's inventories are stated at the lower of cost or net realizable value using thefirst-in,first-out (FIFO) method. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess, obsolescence or impaired balances.

Segments

The Company's operations are managed and reported to its Chief Executive Officer (“CEO”), the Company’s chief operating decision maker, on a consolidated basis. The CEO assesses performance and allocates resources based on the consolidated results of operations. Under this organizational and reporting structure, the Company hasone reportable segment.

Goodwill

Goodwill represents the excess of purchase price over the fair value of the net assets of businesses acquired. On an annual basis or whenever events or changes in circumstances indicate the carrying value of goodwill* mayhave been impaired, the Company mayperform a qualitative assessment to determine if it is more likely thannot* that the fair value of the reporting unit is less than its carrying amount, including goodwill. If the Company determines that the fair value of the reporting unit is less than its carrying amount or electsnot to perform a qualitative assessment, it will perform a quantitative analysis; otherwise,no further evaluation is necessary. For the quantitative impairment assessment, the Company compares the fair value of the reporting unit to its carrying value, including goodwill. The Company determines the fair value of the reporting unit based on a weighting of income and market approaches. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill isnot impaired andno further testing is performed. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company will recognize a loss equal to the excess, limited to the total amount of goodwill allocated to that reporting unit. Impairments, if any, are charged directly to earnings.

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Intangible Assets Other Than Goodwill

Tradenames acquired in certain business combinations were determined to have indefinite useful lives and arenot amortized, but instead are tested for impairment on an annual basis and when facts and circumstances indicate that the carrying values of the assets* maybe impaired. If such review indicates an asset’s carrying value may**not* be recoverable, an impairment loss is recognized for the excess of the carrying value over the fair value of the asset.

As part of separate business acquisitions, the Company’s customer relationships, technology and certain tradenames were identified as definite-lived intangible assets. The customer relationship intangible assets are being amortized over aten totwenty-five year life based on the attrition rate of customers with a weighted-average amortization periodof 23.6 years. The technology intangible assets are being amortized over afive tofourteen year life based on the lifecycle of previous technology with a weighted-average amortization period of 12.1 years. The tradenames are being amortized over afifteen totwenty year life based on the estimated life of the tradename with a weighted-average amortization period of 19.2 years. The weighted-average amortization period for all amortizable intangibles on a combined basis is 22.5 years.

Property, Plant and Equipment

Property, plant and equipment acquired in various acquisitions have been recorded at fair value. All other property, plant and equipment is recorded at cost. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for new property, plant and equipment additions areseven totwenty-five years for buildings, three toten years for machinery and equipment, and the shorter of the estimated lease term or useful life for leasehold improvements. Maintenance, repairs, and betterments which donot enhance the value of or increase the life of the assets are expensed as incurred.

Leases

Operating lease right of use ("ROU") assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The Company's leases* mayinclude options to extend or terminate the lease. These options to extend are included in the lease term when it is reasonably certain that the Company will exercise that option. Some leases have variable payments, however, because they arenot* based on an index or rate, they arenot included in the ROU assets and liabilities. Variable payments for real estate leases primarily relate to common area maintenance, insurance, taxes and utilities. Since the Company's leases generally donot provide an implicit rate, the Company applies a portfolio approach using an estimated incremental borrowing rate based on the lease term and other information available at the commencement date in determining the present value of lease payments. The rate applied is based on the currency of the lease. Leases having a lease term of12 months or less arenot recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the term of the lease. In addition, the Company has applied the practical expedient to account for the lease and non-lease components as a single lease component for all of the Company's leases.

Debt Issuance Costs

Debt issuance costs include fees and costs incurred to obtain financing. Debt issuance costs related to the Company's term loans are presented in the consolidated balance sheet as a direct deduction from the carrying amount of the term loans. These fees and costs are being amortized using the effective interest method over the term of the related loans and are included in interest expense in the Company's consolidated statements of comprehensive income (loss). If the debt is retired before its scheduled maturity date, any remaining unamortized debt issuance costs are written off in the period the debt is retired as a non-operating expense in the statement of operations as loss on the early extinguishment of debt. For the years ended2023,2022 and2021, the amortization of debt issuance costs included in interest expense was $1,780, $1,707, and $3,182, respectively.

Self-Insurance

The Company is self-insured for employee medical and prescription drug benefits up to certain stop loss coverage amounts. The Company accrues an estimate for unpaid claims, as well as incurred butnot reported claims, based upon the Company’s claim experience and expectations of future claim activity. The resulting liability and expense are reflected as a component of accrued expenses, cost of sales and selling, general and administrative expenses in the accompanying consolidated balance sheets and consolidated statements of comprehensive income (loss), respectively.

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Revenue Recognition

The Company recognizes revenue with customers when control of the promised goods transfers to the customer. This generally occurs when the product is shipped to the customer. Revenue is recorded at the amount of consideration the Company expects to be entitled to in exchange for the delivered goods, which includes an estimate of variable consideration, expected returns, or refunds when applicable. The Company estimates variable consideration, such as sales incentives, by using the most likely amount approach, which considers the single most likely amount from a range of possible consideration amounts. Estimates of variable consideration result in an adjustment to the transaction price such that it is probable that a significant reversal of cumulative revenue wouldnot occur in the future. Sales incentives and allowances are recognized as a reduction to revenue at the time of the related sale. Revenue is recorded net of sales tax. Shipping and handling fees billed to customers are included in net sales, while costs of shipping and handling to customers are included in selling, general and administrative costs.

For more information about the Company’s revenue from contracts with customers, see Note11, “Revenue”.

Customer Sales Incentives

Sales incentives provided take the form of either sales discounts or rebates and are treated as a reduction of net sales. The Company also maintains a cooperative advertising program with its customers and provides sales incentives to the extent of the estimated value of advertising provided by the customer on behalf of the Company. The costs incurred under the cooperative advertising program are included as a reduction of net sales.

Product Warranty

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. These obligations are recorded within accrued liabilities in the consolidated balance sheets (see also Note19, “Commitments and Contingencies” for additional information on warranty reserves). Significant judgments and estimates must be made and used in connection with establishing warranty allowances in any accounting period. Revision of these estimates is made, when necessary, based upon changes in these factors.

Sales Returns

Estimated sales returns and allowances are recorded as a charge against gross sales in the period in which the related sales are recognized, net of returns to stock. The Company’s customers are permitted to return new, undamaged products within customer-specific limits (which are generally limited to a specified percentage of their annual purchases) in the event that they have overstocked their inventories. The Company estimates sales returns based primarily upon actual historical returns, planned product discontinuances, and promotional sales. 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.

Cost of goods sold primarily consists of materials and labor expense in the manufacturing of the Company’s products sold to its customers. Cost of goods sold also includes provisions for excess and obsolete inventory, warranty costs, certain allocated costs for facilities, depreciation and other manufacturing overhead.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include personnel costs for employees in selling, general and administrative functions (including equity-based compensation); costs to operate shop locations, corporate offices and back-office support centers; costs to transport products from facilities to our customers; and other selling, general and administrative expenses, such as professional fees, supplies, and advertising expenses.

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Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company recognizes income tax positions only if those positions are “more likely thannot” of being sustained upon examination by taxing authorities. Recognized income tax positions are measured at the largest amount that is greater than50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in its consolidated income statements. The Company hasno amounts accrued for such interest or penalties on** *** December 31, 2023and2022*. The Company files income tax returns in the U.S. federal jurisdiction and various foreign and state jurisdictions.

On* December 31, 2023*, the Company had approximately $329 of unrecognized tax benefits. There wereno unrecognized tax benefits on* December 31, 2022.The statute of limitations remains open for U.S. federal income tax examinations for the years ended December 31, 2020,through December 31, 2022.U.S. state jurisdictions have statues of limitations generally ranging fromthree* toeight years. The Company doesnot expect the total amount of unrecognized tax benefits to significantly change in the next12 months.

Impairment or Disposal of Long-Lived Assets

The Company accounts for long-lived assets, including intangible assets subject to amortization, in accordance with the provisions that require long-lived assets, such as property and equipment, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset* may**not* be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the sum of undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Advertising

Advertising production costs are expensed thefirst time the advertising takes place. Total advertising expenses were $5,987, $7,159, and $6,299 for the years ended* December 31, 2023*,2022, and2021, respectively. Advertising costs are classified as a component of selling, general and administrative costs in the accompanying consolidated statements of comprehensive income (loss).

Research, development, pre-production and start-up costs related to both present and future products are expensed as incurred. Such costs amount to $23,844, $29,083, and $28,280 for the years ended* December 31, 2023*,2022, and2021, respectively.

Other Comprehensive Income (Loss)

Comprehensive income (loss) encompasses all changes in stockholder’s equity and includes net income, change in the foreign currency translation adjustment and minimum pension liability gains. The Company’s accumulated other comprehensive loss shown on the consolidated balance sheets on* December 31, 2023and2022* consists of foreign currency translation adjustments of $710 and $944, respectively.

Foreign Currencies

The functional currency of the Company’s Italian subsidiary is the Euro. Assets and liabilities of foreign operations are translated using period end exchange rates. Revenue and expenses are translated using average exchange rates during each period reported. Translation gains (losses) are reported in accumulated other comprehensive loss as a component of shareholders equity and were $234, ($990), and $30 for the years ended* December 31, 2023*,2022 and2021, respectively. The Company recognizes foreign currency transaction gains (losses) on certain assets and liabilities. These transaction (gains) losses are reported in other expense in the consolidated statements of comprehensive income (loss) and were $278, ($97), and $44 for the years ended* December 31, 2023*,2022 and2021, respectively.

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Earnings per Share

Earnings per share is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application of the treasury stock method.

Warrants

The Company accounts for warrants to purchase its common stock as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Accounting Standards Codification ("ASC") Topic480, Distinguishing Liabilities from Equity,and ASC Topic815, Derivatives and Hedging. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC Topic480, meet the definition of a liability pursuant to ASC Topic480, and whether the warrants meet all of the requirements for equity classification under ASC Topic815, including whether the warrants are indexed to the Company’s own shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

Equity-Based Compensation

The Company accounts for equity-based awards granted to employees and nonemployees under the fair value method prescribed by ASC Subtopic718-10, Stock Compensation. Equity-based compensation cost is measured based on the estimated grant date fair value of the award and is recognized as expense over the requisite service period (generally the vesting period). The fair value of stock options is estimated using the Black Scholes option-pricing model. Restricted stock units are valued at the stock price on the grant date. The fair value of profit interest units granted by the Holley Stockholder is estimated based on the Company’s estimated equity value for each unit class at the time of granting using the Black-Scholes option-pricing model, discounted to reflect market considerations for illiquidity.

Performance share units that vest based on the achievement of company-designated performance targets are valued at the stock price on the grant date. Compensation expense in respect of such performance share units is recognized each period based on the expected level of achievement and, to the extent that the expected levels of achievement change, compensation cost is adjusted in the period of change with the remaining unrecognized cost recognized over the remaining requisite service period. For performance share units that vest based on the achievement of predetermined market conditions, the Company estimates the grant date fair value using a Monte Carlo simulation model.** **The fair value associated with each tranche of the award is recognized, straight-line, over the associated requisite service period for that tranche, subject to acceleration if the market condition is met prior to the end of the derived service period.

Unless the awards contain a market condition, previously recognized expense related to forfeited awards is reversed in the period in which the forfeiture occurs. For awards containing a market condition, previously recognized stock-based compensation expense isnot reversed when the awards are forfeited as long as the service is provided for the duration of the required service period.

Fair Value Measurements

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimizes the use of unobservable inputs to the extent possible. The inputs used to measure fair value are prioritized based on athree-level hierarchy, which are defined as follows:

Level1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level2 – Significant other observable inputs other than Level1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that arenot active; or other inputs that are observable or can be corroborated by observable market data.

Level3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic815, Derivatives and Hedging. For derivative financial instruments that are accounted for as assets or liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative assets and liabilities are classified on the balance sheet as current or non-current based on whether ornot net cash settlement or conversion of the instrument could be required within12 months of the balance sheet date.

The Company uses derivative instruments to manage its exposure to changes in interest rates on borrowings under its debt facility. These derivative instruments are primarily valued on the basis of quotes obtained from banks, brokers, and/or dealers. The valuation of the derivative instruments considers future expected interest rates on the notional principal balance remaining, which is comparable to what a prospective acquirer would pay on the measurement date. Valuation pricing models consider inputs such as forward rates, anticipated interest rate volatility relating to the reference rate, as well as time value, counterparty risk and other factors underlying derivative instruments.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and accounts receivable. The Company controls its exposure to credit risk associated with these instruments by (i) placing cash and cash equivalents with several major financial institutions and (ii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures. For more information on the Company’s net sales to itsthree largest customers, see Note17, “Major Reseller Customers”.

Recent Accounting Pronouncements

Accounting Standards Recently Adopted

In* October 2021,the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")2021-08, Business Combinations (Topic805):* Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires entities to apply the definition of a performance obligation under ASC Topic606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Prior to the adoption of ASU2021-08, an acquirer generally recognized assets acquired, and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASUNo. 2021-08 results in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic606. The Company adopted ASU2021-08 on* January 1, 2023.Adoption of ASU2021*-08 didnot impact the Company's consolidated financial statements.

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Accounting StandardsNot Yet Adopted**

In* October 2023,the FASB issued ASU2023*-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 doesnot 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 ASU2023*-07, Segment Reporting (Topic280*): 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, 2023and 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 ASU2023*-09, Income Taxes (Topic740*): 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 effe ctive for fiscal years beginning after December 15, 2024and 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.

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On* July 16, 2021,*Holley consummated the Business Combination pursuant to the terms of the Merger Agreement, whereby (i) Merger Sub I, a direct wholly owned subsidiary of Empower, merged with and into Holley Intermediate, with Holley Intermediate surviving such merger as a wholly owned subsidiary of Holley (“Merger I”) and (ii) Merger Sub II, a direct wholly owned subsidiary of Empower, merged with and into Holley Intermediate, with Merger Sub II surviving such merger as a wholly owned subsidiary of Holley (“Merger II”).

Pursuant to the Merger Agreement, at the Closing, all outstanding shares of Holley Intermediate common stock as of immediately prior to the effective time of Merger I were cancelled and the Holley Stockholder, the sole stockholder of Holley Intermediate, received $264,718 in cash and 67,673,884 shares of common stock (at a deemed value of $10.00 per share). The Company’s common stock is listed on the NYSE under the symbol “HLLY.”

In connection with the Business Combination, a number of subscribers purchased from the Company an aggregate of 24,000,000 shares of Common Stock (the “PIPE”), for a purchase price of $10.00 per share, or $240,000 in the aggregate. Per the Merger Agreement, $100,000 of the PIPE proceeds were used to partially pay off Holley’s debt.

Pursuant to the Amended and Restated Forward Purchase Agreement (“A&R FPA”), at the Closing,5,000,000 shares of the Company’s Common Stock and 1,666,667 Warrants were issued to certain investors for an aggregate purchase price of $50,000. Pursuant to the A&R FPA, each Warrant entitles the holder to purchaseone share of the Company’s Common Stock at a price of $11.50 per share (the ”Public Warrants”), subject to certain conditions.

The Company also assumed 8,333,310 Public Warrants and 4,666,667 private placement warrants (the “Private Warrants”, and together with the Public Warrants, the “Warrants”) upon the Business Combination, all of which were issued in connection with Empower’s initial public offering. Each Warrant represents the right to purchaseone share of the Company’s common stock at a price of $11.50 per share, subject to certain conditions. The Warrants are exercisable commencing on* October 9, 2021 (theone*-year anniversary of Empower’s initial public offering) and expire on* July 16, 2026 (*five years after the Closing Date). The Public Warrants are listed on the NYSE under the symbol “HLLY WS.”

Additionally, Empower Sponsor Holdings LLC (the "Sponsor") received 2,187,500 shares of the Company’s common stock, which vest intwo equal tranches upon achieving certain market share price milestones as outlined in the Merger Agreement during the earn-out period (“the “Earn-Out Shares”). Thefirst tranche of Earn-Out Shares vested during thefirst quarter of2022. The remaining tranche of Earn-Out Shares will be forfeited if the applicable conditions arenot satisfied before* July 16, 2028 (*seven years after the Closing Date).

The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. This determination was primarily based on the Holley Stockholder having a relative majority of the voting power of the Company, the operations of Holley prior to the acquisition comprising the only ongoing operations of the Company, and senior management of Holley comprising the majority of the senior management of the Company. Under this method of accounting, Empower was treated as the acquired company for financial reporting. Accordingly, the Business Combination was accounted for as the equivalent of Holley issuing stock for the net assets of Empower, accompanied by a recapitalization. The net assets of Empower are stated at historical cost, withno goodwill or other intangible assets recorded. Reported amounts from operations included herein prior to the Business Combination are those of Holley Intermediate. The shares and corresponding capital amounts and earnings per share, prior to the Business Combination, have been retroactively restated based on shares received by the Holley Stockholder.

The following table reconciles the elements of the Business Combination to the consolidated statements of cash flows for the year ended* December 31, 2021:*

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ACQUISITIONS

During thethree years ended* December 31, 2023*, the Company completed11 acquisitions. These acquisitions are expected to enhance the Company's portfolio of products and services in the automotive aftermarket and automotive safety solutions market.

The Company accounts for acquisitions using the acquisition method, and accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. The valuation of the assets acquired and liabilities assumed is subject to revision. If additional information becomes available, the Company* mayfurther revise the purchase price allocation as soon as practical, butno* later thanone year from the acquisition date; however, material changes arenot expected. Goodwill generated by the acquisitions is primarily attributable to the strong market position of the entities acquired.

Purchase price consideration for all acquisitions was paid primarily in cash. All acquisitions were for100 percent of the acquired business and are reported in the Consolidated Statements of Cash Flows, net of acquired cash and cash equivalents. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are typically expensed in the periods in which the costs are incurred and are recorded in acquisition and restructuring costs. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

In2022, the Company acquired substantially all the assets of John's Ind., Inc., Southern Kentucky Classics, and Vesta Motorsports USA, Inc., doing business as RaceQuip. These acquisitions were immaterial business combinations. Cash paid for thethree acquisitions, net of cash acquired, was $14,863, and was funded with borrowings from the Company's credit facility and cash on hand. The acquisitions resulted in both amortizable and nonamortizable intangibles and goodwill totaling $10,553. The goodwill and intangibles generated as a result of these acquisitions are deductible for income tax purposes. Pro forma results of operations and the results of operations since the acquisition dates for these immaterial acquisitions havenot been separately disclosed because the effects werenot significant compared to the consolidated financial statements, individually or in the aggregate.

The determination of the final purchase price allocation to specific assets acquired and liabilities assumed was adjusted to reflect the final fair value estimate of acquired assets and liabilities, as noted below. The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years. The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

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In2021, the Company acquired substantially all the assets of Finspeed, LLC, Classic Instruments LLC, ADS Precision Machining, Inc., doing business as Arizona Desert Shocks, Rocket Performance Machine, Inc., doing business as Rocket Racing Wheels, and Speartech Fuel Injections Systems, Inc. Thesefive acquisitions were individually immaterial business combinations that are material in the aggregate. Cash paid for thefive immaterial acquisitions, net of cash acquired, was $19,909, and was funded with borrowings from the Company's credit facility and cash on hand. The acquisitions resulted in both amortizable and non-amortizable intangibles and goodwill totaling $13,247. The goodwill and intangibles generated as a result of these acquisitions are deductible for income tax purposes. Pro forma results of operations and the results of operations since the acquisition dates for these immaterial acquisitions havenot been separately disclosed because the effects werenot significant compared to the consolidated financial statements, individually or in the aggregate.

The determination of the final purchase price allocation to specific assets acquired and liabilities assumed was adjusted to reflect the final fair value estimate of acquired assets and liabilities, as noted below. The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

The fair value of the acquired customer relationship intangible assets was estimated using the excess earnings approach. The customer relationship intangible assets are being amortized based on the attrition rate of customers which have an estimated weighted average life of 18 years. The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

The remainingthree acquisitions completed during the year ended* December 31, 2021*are described below.

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Baer, Inc.

On* December 23, 2021,*the Company acquired substantially all the assets and liabilities of Baer, Inc., doing business as Baer Brakes ("Baer"). Consideration for the assets acquired was cash payments of $22,170. The acquisition resulted in both amortizable and non-amortizable intangibles and goodwill totaling $18,989. The goodwill and intangibles generated as a result of this acquisition are deductible for income tax purposes. The purchase price was funded with borrowings from the Company's credit facility and cash on hand.

The determination of the final purchase price allocation to specific assets acquired and liabilities assumed was adjusted to reflect the final fair value estimate of acquired assets and liabilities, as noted below. The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years. The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

The contractual value of the accounts receivable acquired was $800.

The Company incurred transaction costs in the amount of $222, which are reflected in operating expenses for the year ended* December 31, 2021.*

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Brothers Mail Order Industries, Inc.

On* December 16, 2021,*the Company acquired substantially all the assets and liabilities of Brothers Mail Order Industries, Inc., doing business as Brothers Trucks ("Brothers"). Consideration for the assets acquired was cash payments of $26,135. The acquisition resulted in non-amortizable intangibles and goodwill totaling $24,835. The goodwill and intangibles generated as a result of this acquisition are deductible for income tax purposes. The purchase price was funded with borrowings from the Company's credit facility and cash on hand.

The determination of the final purchase price allocation to specific assets acquired and liabilities assumed was adjusted to reflect the final fair value estimate of acquired assets and liabilities, as noted below. The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

The contractual value of the accounts receivable acquired was $22.

The Company incurred transaction costs in the amount of $191, which are reflected in operating expenses for the year ended* December 31, 2021.*

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Advance Engine Management Inc.

On* April 14, 2021,*the Company acquired substantially all the assets and liabilities of Advance Engine Management Inc. doing business as AEM Performance Electronics (“AEM”). Consideration for the assets acquired was cash payments of $51,243. The acquisition resulted in both amortizable and non-amortizable intangibles and goodwill, totaling $44,486. The goodwill and intangibles generated as a result of this acquisition are deductible for income tax purposes. The purchase price was funded from cash on hand.

The determination of the final purchase price allocation to specific assets acquired and liabilities assumed was adjusted to reflect the final fair value estimate of acquired assets and liabilities, as noted below. The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years. The fair value of the acquired tradenames and patents intangible assets were estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life. The patents are being amortized over 13 years based on the weighted average remaining life of the patent portfolio.

The contractual value of the accounts receivable acquired was $3,454.

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The Company’s results for the year ended* December 31, 2021,include $16,593 of net sales and $2,664 of net income from AEM since the date of acquisition. The Company incurred transaction costs in the amount of $2,264, which are reflected in operating expenses for the year ended December 31, 2021.*

The following table provides the unaudited consolidated pro forma results for the periods presented as if Baer, Brothers, and AEM had been acquired as of* January 1, 2021.*

The pro forma results include the effects of the amortization of purchased intangible assets and acquired inventory step-up. The pro forma results are based upon unaudited financial information of the acquired entity and are presented for informational purposes only and arenot necessarily indicative of the results of future operations or the results that would have occurred had the acquisitions taken place in the periods noted.

DIVESTITURE

In thefourth quarter of2022, the Company made the decision to sell Finspeed in connection with a strategic review of its product portfolio. Finspeed generated approximately $426 in net sales in2022. The Company received $1,966 cash consideration and recorded a pre-tax loss of $1,037 on the sale of the business, which included a $268 write-down of intangible assets, and was reported as other operating expense in the Consolidated Statements of Comprehensive Income (Loss).

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Inventories of the Company consisted of the following:

Property, plant and equipment of the Company consisted of the following:

The Company’s long-lived assets by geographic locations are as follows:

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The following presents changes to goodwill for the periods indicated:

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 measurement period for the valuation of assets acquired and liabilities assumed ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes available,not to exceed12 months. Adjustments in purchase price allocations* mayrequire a change in the amounts allocated to goodwill during the periods in which the adjustments are determined. In thefourth* quarter of2023, the Company performed a qualitative assessment and didnot identify any indicators of impairment. In thethird quarter andfourth quarters of2022, the Company performed quantitative and qualitative assessments and didnot identify any indicators of impairment. No goodwill impairment charges were incurred during2023 and2022.

Intangible assets consisted of the following:

The following outlines the estimated future amortization expense related to intangible assets held on* December 31, 2023*:

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In thethird quarter of2022, management concluded it was necessary to reevaluate indefinite-lived intangible assets for impairment after supply chain challenges led to a downward revision of earnings estimates for2022, which resulted in a decline in the Company's market capitalization. As a result of this evaluation, a pre-tax impairment of $2,395 was recognized on certain indefinite-lived tradenames. In thefourth quarter of2022, the Company performed a qualitative assessment of indefinite-lived intangible assets and didnot identify any indicators of impairment. The Companyhasnot subsequently identified any circumstances to indicate that it was necessary to reevaluate indefinite-lived intangible assets for impairment. No impairment was recognized on intangible assets in2023.

The fair value of the indefinite-lived tradenames was estimated using the relief from royalty method, a form of the income approach. Significant judgement is required in estimating the fair value of intangible assets and in performing impairment tests. The most significant assumptions utilized in the determination of the estimated fair values of the indefinite-lived tradenames were the sales projections and long-term earnings growth rates, the royalty rate and the discount rate. The long-term earnings growth rate represents the expected rate at which the brands are expected to grow beyond the shorter-term business planning period. The royalty rate is based on observed market royalty rates for various industrial, consumer and commercial trademarks. The discount rate is based on the Company's weighted average cost of capital adjusted for risk. Due to the inherent uncertainty in forecasting future sales, actual results in the future* may*vary significantly from the forecasts.

Potential changes in our costs and operating structure, the implementation of synergies, and overall performance in the automotive aftermarket industry, could negatively impact our near-term cash-flow projections and could trigger a potential impairment of the Company's goodwill and / or indefinite-lived intangible assets. In addition, failure to execute the Company's strategic plans as well as increases in weighted average costs of capital could negatively impact the fair value of the reporting unit and increase the risk of future impairment charges.

Accrued liabilities of the Company consisted of the following:

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Debt of the Company consisted of the following:

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 consists of aseven-year$600,000 first lien term loan, afive-year $125,000 revolving credit facility, and a $100,000 delayed draw term loan. The proceeds of delayed draw loans made after closing were available to the Company to finance acquisitions. Upon the expiration of the delayed draw term loan in May 2022,the Company had drawn $57,000, which is included in the amount outstanding under thefirst* lien term loan due* November 17, 2028.*

The revolving credit facility includes a letter of credit facility in the amount of $10,000, pursuant to which letters of credit* maybe issued as long as revolving loans maybe advanced and subject to availability under the revolving credit facility. The Company had $1,728 in outstanding letters of credit on December 31, 2023*.

In2021, proceeds from the credit facility were used to repay in full the Company’s obligations under its existingfirst lien andsecond lien notes and to pay $13,413 in deferred financing fees related to the refinancing. As a result of the prepayments of the Company’s existingfirst lien andsecond lien notes, losses of $13,650 were recognized in2021 on the early extinguishment of debt due to the write-off of unamortized debt issuance costs.

Thefirst lien term loan is to be repaid in quarterly payments of $1,643 through* September 30, 2028,with the balance due upon maturity on November 17, 2028.The Company is required to make annual payments on the term loan in an amount equal to 50% of annual excess cash flow greater than$5,000,* as defined in the Credit Agreement. This percentage requirement* maydecrease or be eliminated if certain leverage ratios are achieved. Based on the Company's results for2023,* no excess cash flow payment is expected to be required in2024. Any such payments offset future mandatory quarterly payments. The Credit Agreement permits voluntary prepayments at any time, in whole or in part. The Company paid down an aggregate of $56,845 in principal on its outstandingfirst lien term loan during the year ended* December 31, 2023* by repurchasing $38,845 at a discount to par, making a voluntary repayment of $11,000, and making required quarterly payments totaling $7,000. A gain of $701 was recognized on the debt repu rchased at a discount to par, net of the write-off of unamortized debt issuance costs.

On* December 31, 2023*, amounts outstanding under the credit facility accrue interest at a rate equal to either the 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* December 31, 2023*, the weighted average interest rate on the Company's borrowings under the credit facility was 9.2%.

Obligations under the Credit Agreement are secured by substantially all of the Company’s assets, including a secured interest in the Company's corporate headquarters, with a carrying value of $2,999. The Credit Agreement includes representations and warranties, and affirmative and negative covenants customary for financings of this type, including, butnot limited to, limitations on restricted payments, additional borrowings, additional investments, and asset sales. The Credit Agreement also requires that Holley maintain, on the last day of each quarter, a Total Leverage Rationot to exceed a maximum amount. On* December 31, 2023*, the Company was in compliance with all financial covenants.

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In* February 2023,the Company entered into an amendment to its Credit Agreement which, among other things, increases the Total Leverage Ratio applicable under the Credit Agreement as of the fiscal quarter ending April 2, 2023to initially 7.25:1.00, and provides for modified step-down levels for such covenant thereafter through the fiscal quarter ending March 31, 2024 (the “Covenant Relief Period”). As of December 31, 2023,the required Total Leverage Ratio was 5.75:1.00. As an ongoing 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 $45,000, which includes unrestricted cash and any available borrowing capacity under the revolving credit facility. In April 2023,the Company entered into asecond* amendment to the Credit Agreement in which the interest rate on any outstanding borrowings under the Credit Agreement was changed from LIBOR to SOFR. In* May 2023,the Company entered into athird* amendment to the Credit Agreement in which certain defined terms were clarified. The Company incurred $1,427 of deferred financing fees related to these amendments. On* December 31, 2023*, the Company was in compliance with all financial covenants.

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 on* December 31, 2023*, are as follows:

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Upon the Closing, there were 14,666,644 Warrants, consisting of 9,999,977 Public Warrants and 4,666,667 Private Warrants, outstanding to purchase shares of the Company's common stock that were issued by Empower prior to the Business Combination. Each Warrant entitles the registered holder to purchaseone share of Common Stock at a price of $11.50 per share, subject to adjustments, commencing on* October 9, 2021 (theone*-year anniversary of Empower’s initial public offering), provided that the Company has an effective registration statement under the Securities Act covering the shares of Common Stock issuable upon exercise of the Warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities laws of the state of residence of the holder. The Warrants* maybe exercised only for a whole number of shares of Common Stock. The Warrants expire on July 16, 2026,*the date that isfive years after the Closing date, or earlier upon redemption or liquidation. Additionally, the Private Warrants will be non-redeemable and are exercisable on a cashless basis so long as they are held by the Sponsor or any of its permitted transferees. If the Private Warrants are held by someone other than the Sponsor or its permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

The Company* mayredeem the Public Warrants at a price of $0.01 per warrant upon30* days' notice if the closing price of the Company’s common stock equals or exceeds $18.00 per share, subject to adjustments, on the trading day prior to the date on which notice of redemption is given, provided there is an effective registration statement and current prospectus in effect with respect to the ordinary shares underlying such Warrants throughout the30-day redemption period. If the foregoing conditions are satisfied and the Company issues a notice of redemption of the Warrants, the Warrant holder is entitled to exercise his, her or its Warrant prior to the scheduled redemption date. Any such exercise requires the Warrant holder to pay the exercise price for each Warrant being exercised. Further, the Company* mayredeem the Public Warrants at a price of $0.10 per warrant upon30* days' notice if the closing price of Common Stock equals or exceeds $10.00 per share, subject to adjustments, on the trading day prior to the date on which notice of redemption is given. Beginning on the date the notice of redemption is given until the Warrants are redeemed or exercised, holders* may*elect to exercise their Warrants on a cashless basis and receive that number of shares of Common Stock as determined by reference to a table in the warrant agreement.

During any period when the Company has failed to maintain an effective registration statement, warrant holders* mayexercise Warrants on a cashless basis in accordance with Section3*(a)(9) of the Securities Act or another exemption, but 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 isnot available.

The Warrants are accounted for as a liability in accordance with ASC Subtopic815-40, Derivatives and Hedging - Contracts in Entity's Own Equity, 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. On* December 31, 2023and2022*, a warrant liability with a fair value of $8,383 and $4,272, respectively, was reflected as a long-term liability in the consolidated balance sheet. As of both* December 31, 2023and2022*, there were 14,633,311 Warrants outstanding. For the year ended* December 31, 2023*, an increase of $4,111 in the fair value of the warrant liability as compared to a decrease of $57,021 in the fair value of the warrant liability for the year ended* December 31, 2022*, was reflected as change in fair value of warrant liability in the consolidated statements of comprehensive income.

Additionally, the Sponsor received 2,187,500 shares of Common Stock upon the Closing, which vest intwo equal tranches upon achievement of certain market share price milestones during the earn-out period, as outlined in the Merger Agreement (the “Earn-Out Shares”). Thefirst tranche of Earn-Out Shares vested during thefirst quarter of2022. Upon vesting, thefirst tranche of 1,093,750 Earn-Out Shares were issued and a liability of $14,689, representing the fair value of the shares on the date of vesting, was reclassified from liabilities to equity. The remaining tranche of Earn-Out Shares will be forfeited if the applicable conditions arenot satisfied before* July 16, 2028 (seven years after the Closing Date). The unvested Earn-Out Shares are presented as an earn-out liability on the balance sheet and are remeasured at fair value with changes in fair value recognized as non-operating expense. On December 31, 2023and2022*, an earn-out liability with a fair value of $3,479 and $1,176, respectively, was reflected as a long-term liability in the consolidated balance sheet. For the year ended* December 31, 2023*, an increase of $2,303 in the fair value of the earn-out liability as compared to a decrease of $10,731 in the fair value of the earn-out liability for the year ended* December 31, 2022*, was reflected as change in fair value of earn-out liability in the consolidated statements of comprehensive income.

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9. 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 $500,000 that expires on February 18, 2026.The Collar has a floor of 2.811% and a cap of 5% (based onthree*-month SOFR). The structure of this Collar is such that the Company receives an incremental amount if the Collar index exceeds the cap rate. Conversely, the Company pays an incremental amount to Wells Fargo if the Collar index falls below the floor rate.No payments are required if the Collar index falls between the cap and floor rates.

On* December 31, 2023*, the Company recognized a derivative liability of $1,164 for the Collar in other noncurrent liabilities on the consolidated balance sheet. For the year ended* December 31, 2023*, the Company recorded a net change in the fair value of the Collar as an increase to interest expense of$1,164. Cash receipts for the Collar totaled $620 for the year ended* December 31, 2023*.

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 Level2 measurement, as described in Note10, "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:

On* December 31, 2023and2022*, the Company's liabilities for its Private and Public Warrants, earn-out liability, and Collar are measured at fair value on a recurring basis (see Note8, “Common Stock Warrants and Earn-Out Liability,” and Note9, "Derivative Instruments,” for more details). The fair values of the Private Warrants and earn-out liability are determined based on significant inputsnot observable in the market (Level3). These assumptions are believed to be reasonable at the time, but such assumptions are subject to inherent uncertainty. The valuation of the Level3 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 liabilities on the 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 donot contain a high level of subjectivity (Level2). The fair value of the Public Warrants is determined using publicly traded prices (Level1). 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 consolidated statements of comprehensive income (loss). Changes in the fair value of the Collar are recognized as an adjustment to interest expense in the consolidated statements of comprehensive income (loss). Changes in the fair value of the Warrants, the earn-out liability, and the Collar, along with cash flows associated with the Collar, are presented in operating activities on the consolidated statements of cash flows.

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The fair value of Private Warrants was estimated on* December 31, 2023* and2022 using the Monte Carlo simulation model with the following assumptions:

The fair value of the earn-out liability was estimated on* December 31, 2023* and2022 using the Monte Carlo simulation model with the following assumptions:

On* December 31, 2023and2022*, the Company had 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 Level3 measurements.

The reconciliation of changes in Level3 during the years ended* December 31, 2023and2022* is as follows:

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 andnot 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 andnot 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.

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The Company’s payment terms with customers are customary and vary by customer and geography but typically range from30 to365 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 withinone year. The Company has evaluated the terms of its arrangements and determined that they donot contain significant financing components. Additionally, as all contracts with customers have an expected duration ofone 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 Note19, “Commitments and Contingencies” for more information.

The following table summarizes total revenue by product category. The Company's product category definitions have been revised by management in2022. The prior-year period has been revised to conform with the current presentation. There isno change to total sales.

The following table summarizes total revenue based on geographic location from which the product is shipped:

Income tax expense of the Company consisted of the following:

The Company’s income before income taxes was subject to taxes in the following jurisdictions:

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Reported income tax expense for the years ended* December 31, 2023*,2022 and2021 differs from the “expected” tax expense (benefit), computed by applying the U.S. Federal statutory income tax rate of 21% to income before income taxes as follows:

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and deferred tax liabilities consisted of the following:

Based on the Company’s projected pretax earnings, reversal of deferred tax liabilities and other relevant factors, management believes that it is more likely thannot that the Company’s deferred tax assets on* December 31, 2023and2022* will be realized, with the exception of certain state net operating loss carryforwards.

On* December 31, 2023*, the Company's federal and state net operating loss carryforwards for income tax purposes were immaterial. A majority of the U.S. net operating loss carryforwards haveno expiration date. The remaining state net operating loss carryforwards expire at various dates through2035. The entire amount of federal net operating loss carryforward of$381 and a significant portion of state net operating loss carryforward of$2,064 relate to acquisitions, and, as a result, are limited in the amount that can be recognized in anyone year.

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Changes in the valuation allowance for deferred tax assets were as follows:

The valuation allowance on* December 31, 2023,*includes allowances primarily related to unrealized state net operating losses and credit carryforwards of $5.

Uncertain Tax Positions

Under the accounting rules for income taxes, the Company isnot permitted to recognize the tax benefit attributable to a tax position unless such position is more likely thannot to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position. The Company had uncertain tax positions of $329 for the year ended* December 31, 2023*. The Company didnot have any uncertain tax positions for the year ended* December 31, 2022.*

The Company recognizes interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in its consolidated statements of comprehensive income (loss). In2023 and2022, the Company hasnot recognized any amount of interest and penalties for uncertain tax positions in its consolidated statements of comprehensive income (loss).

Changes in unrecognized tax benefits were as follows:

As of* December 31, 2023*,$9 of this total repr esents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. Interest, penalties, and accrued interest related to unrecognized tax benefits are insignificant for the periods presented.

The Company regularly engages in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions in which it conducts business. Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible, that certain U.S. federal and non-U.S. tax audits* maybe concluded within the next12* months, which could increase or decrease the balance of our gross unrecognized tax benefits. The Company estimates that unrecognized tax benefits as of* December 31, 2023,could decrease by as much as $9 in the next12* months.

The Company files federal, state, and non-U.S. tax returns in various foreign jurisdictions. For state and non-U.S. tax returns, the Company is generallyno longer subject to tax examinations for years prior to2014. For federal tax returns, the Company isno longer subject to tax examinations for years prior to2019. The federal tax returns for2020 through2022 remain open for examinations. State income tax returns remain open for examination in various states for tax years2014 through2022.

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The following table sets forth the calculation of basic and diluted earnings per share:

The following outstanding shares of common stock equivalents were excluded from the calculation of diluted earnings per share due to the anti-dilutive effect such shares would have on net loss per common share.

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On* January 28, 2022,the Company approved the termination of its defined benefit pension plan (the "Plan"), effective March 31, 2022.The final distribution of Plan assets pursuant to the termination wasnot* made until the plan termination satisfied all regulatory requirements in thefourth quarter of2022. Plan participants received their accrued benefits from plan assets by electing either lump sum distributions or annuity contracts with a qualifyingthird-party annuity provider. The resulting settlement effect of the Plan termination was determined based on prevailing market conditions, the lump sum offer participation rate of eligible participants, the actual lump sum distributions, and annuity purchase rates at the date of distribution. As a result, the Plan recognized a final settlement loss of $154. Prior to termination, the Projected Unit Credit Actuarial Cost Method was used to determine the normal cost of the Plan and estimated pension benefit obligation. The fair value of Plan assets on* December 31, 2022*, was zero.

The following table shows the changes in the benefit obligation and plan assets and the plan’s funded status.

There wasno remaining accumulated benefit obligation for the Plan on* December 31, 2022*. The Company made contributions of $765 and $471 in2022 and2021, respectively. There wereno participant contributions in2022 or2021.

The pre-tax amounts recognized in other comprehensive income were as follows:

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The following summarizes the components of net periodic benefit cost for the defined benefit pension plan:

Weighted-average assumptions used to determine net cost:

401(k) Plan

The Company has a401(k) savings plan for salaried and non-salaried employees. Participation in the plan is optional. The Company matches employee contributions up to 3.5% each pay period. The Company's matching contributions for the years ended* December 31, 2023*, 2022, and2021, include additional discretionary matching contributions of 1.2%,0%, and 1% based on the Company's performance targets for2023, 2022 and2021, respectively. The Company made matching contributions of $3,154, $2,990, and $2,579 for the years ended* December 31, 2023*,2022, and2021, respectively.

In2021, the Company adopted the2021 Omnibus Incentive Plan (the*“2021* Plan”), under which awards, including stock options, time-based restricted stock units ("RSUs"), and performance-based restricted stock units ("PSUs")* maybe granted to employees and non-employee directors. The2021* Plan authorized 8,850,000 shares of Common Stock to be available for award grants. On* December 31, 2023*,4,679,306 shares of Common Stock remained available for future issuance under the2021 Plan. On* June 6, 2023,the Company granted 1,000,000 time-based RSUs and 1,520,000 PSUs to its new President and Chief Executive Officer. These awards were granted outside of the2021* Plan as employment inducement awards and didnot require shareholder approval under the rules of the NYSE or otherwise.

Restricted Stock Awards

RSUs and PSU 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 overone tofour 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* December 31, 2023*, there was $9,071 of unrecognized compensation cost related to unvested Restricted Stock Awards that is expected to be recognized over a remaining weighted average period of 2.3 years.

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The weighted-average grant-date fair value of Restricted Stock Awards granted during the years ended* December 31, 2023*,2022, and2021, was$2.60, $5.87 and $12.06, respectively. The fair value of Restricted Stock Awards vested and converted to shares of Common Stock was $4,231 for the year ended* December 31, 2023*.

(1) Includes 1.0 million PSUs subject to the Company achieving certain Adjusted EBITDA and sales performance targets during each of fiscal years2023,* 2024, and2025. The criteria are based on a range of these performance targets in which participants* mayearn between 0% to 150% of the base number of awards granted. The weighted average grant date fair value of these PSUs was $1.98. The Company assesses the attainment of target payout rates each reporting period. Equity-based compensation expense is recognized for awards deemed probable of vesting.

Performance-based Restricted Stock Units

The PSUs granted under the2021 Plan represent shares of Common Stock that are potentially issuable in the future based on a combination of performance and service requirements. On* March 8, 2023,the Company granted 949,412 PSUs to key employees with a grant date fair value of $1.98 and on May 8, 2023,*granted an additional 8,050 PSUs with a grant data fair value of $2.43. The PSUs granted to employees were based on salary and include annual net sales and adjusted EBITDA growth targets with threshold and stretch goals. The awards vest ratably over three years, subject to the employee’s continuous employment through the vesting date and the level of performance achieved. The number of PSUs granted reflects the target number able to be earned under a given award. Non-vested PSU compensation expense is based on the most recent performance assumption available and is adjusted as assumptions change. The fair value of a PSU at the grant date is equal to the market price of Common Stock on the grant date. The cost estimates for PSU grants represent initial target awards until the Company can reasonably forecast the financial performance of each PSU award grant. The actual number of shares of Common Stock to be issued at the end of each performance period will range from 0% to 150% of the initial target awards.

On* June 6, 2023,the Company granted 1,520,000 PSUs to its new President and Chief Executive Officer as an employment inducement award. These shares are potentially issuable in the future based on a combination of achievement of certain stock price metrics and service requirements through the expiration date of December 31, 2030.Share-based compensation expense willnot* be adjusted solely because the market condition isnot satisfied, and the award is thereforenot earned, provided the requisite service is rendered. The fair value of this award was determined as of the date of the grant using a Monte Carlo valuation model with the following assumptions:

The Company's estimates of fair value* maybe impacted by certain variables including, butnot* limited to, stock price volatility, the risk-free interest rate, expected dividend yields, and the Company's performance. Expected volatility is based on a size and leverage-adjusted peer volatility estimate since the Company has limited historical volatility. The expected dividend yield is assumed to bezero since the Company has never paid dividends and doesnot have current plans to pay any dividends. The risk-free interest rate is based on a term-matchedzero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the valuation date.

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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, haveten-year terms, and vest ratably over three years of continued employment. In general, vested options expire ifnot exercised within90 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. On* December 31, 2023*, there was $893 of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a remaining weighted-average period of 0.9 years.

The following table presents a summary of stock option activity for the year ended* December 31, 2023*:

The weighted-average grant-date fair value of stock options granted during the years ended* December 31, 2022and2021*, was $4.65 and $3.88, respectively. The fair value of each stock option granted in2022 and2021 was estimated on the grant date using a Black-Scholes option pricing model with the following assumptions:

The expected term has been estimated using a simplified method, which calculates the expected term as the mid-point between the vesting date and the contractual life of the awards since the Company doesnot have an extended history of actual exercises. The expected dividend yield is assumed to bezero since the Company has never paid dividends and doesnot have current plans to pay any dividends. The risk-free interest rate is based on yields of U.S. Treasury securities with maturities similar to the expected term of the options. Expected volatility is based on an evenly weighted blend of implied volatility and historical volatility of publicly traded peer companies since the Company has limited historical volatility.

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Profit Interest Units

The Holley Stockholder authorized an incentive pool of 41,400,000 units of Holley Stockholder that its management had the right to grant to certain employees of the Company. The units, which are designated as Profit Interest Units (“PIU's”), are a special type of limited liability company equity unit that allows the recipient to potentially participate in a future increase in the value of the Company. The PIUs were issued forno consideration and generally provided for vesting over a requisite service period, subject to the recipient remaining an employee of the Company through each vesting date. Compensation expense related to PIUs is recorded based on the grant-date fair value over the requisite service period. For the years ended* December 31, 2022and2021,* 36,506,814 and 1,693,804 PIUs vested with total grant-date fair values of $20,276 and $535, respectively.

In* October 2022,the Holley Stockholder amended the vesting criteria to allow for immediate vesting of all outstanding and unvested PIUs. The changes to these awards were deemed to be modification events under ASC Subtopic718*-10, Stock Compensation. Accordingly, during the year ended* December 31, 2022,*the Company recognized a cumulative adjustment of $11,351, including incremental fair value resulting from the modification, as applicable to each award grant, presented in selling, general and administrative expenses. At that time all PIUs were fully vested withno remaining unrecognized compensation cost, and there areno remaining PIUs authorized for issuance.

Prior to* October 2022,the Holley Stockholder's had granted 24,074,944 PIUs that contained certain performance vesting criteria related to the attainment of specified levels of return for certain other investors in the Holley Stockholder and the occurrence of certain events. Compensation expense for these performance-based awards wasnot* recognized prior to the early vesting date, as meeting the necessary performance conditions for vesting wasnot considered probable. The early vesting of these awards was classified as a Type III: Improbable to Probable modification event under ASC Subtopic718-10, and the fair value of the modified awards was estimated on the modification date using a Black-Scholes option pricing model. The fair value of PIUs was estimated on the grant date with the following assumptions:

Determining the fair value of PIUs is affected by estimates involving inherent uncertainties, as well as assumptions regarding a number of other complex and subjective variables. These variables include the fair value of the equity unit classes, value adjustments for a reduction in marketability, expected unit price volatility over the expected term of the units, unit redemption and cancellation behaviors, risk-free interest rates and expected dividends.

The expected term has been estimated based on the contractual terms, vesting schedules and expectations of future unit holder behavior. The expected dividend yield is assumed to bezero since the Company has never paid dividends and doesnot have current plans to pay any dividends. The risk-free interest rate is based on yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group. As the Holley Stockholder is a private company and doesnot have a trading history for its equity units, the expected price volatility for the equity units is estimated by taking the average historical price volatility for industry peers. Industry peers, which the Company has designated, consist of several public companies in the industry similar in size, stage of life cycle and financial leverage.

The components of share-based compensation expense, included within selling, general and administrative costs in the consolidated statements of comprehensive income, is as follows:

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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 ofone to 14 years, inclusive of renewal options that the Company is reasonably certain to exercise. Taxes, insurance and maintenance expenses relating to all leases are obligations of the Company.

The following table summarizes operating lease assets and obligations and provides information associated with the measurement of operating lease obligations:

The following summarizes the components of operating lease expense and provides supplemental cash flow information for operating leases:

The short-term lease expense for the period doesnot reasonably reflect the Company's short-term lease commitments. The Company's short-term lease commitments as of* December 31, 2023,*were approximately $540.

The following table summarizes the maturities of the Company's operating lease liabilities on* December 31, 2023*:

For the year ended* December 31, 2021,*total rent expense under operating leases approximated $8,412.

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The Company's reseller customers include many large and well-known automotive parts retailers and distributors. The following table summarizes resellers that individually account for more than 5% of the Company’s net sales in any of the periods presented:

The following reseller customers accounted for 10% or more of the Company’s account receivable balance in any of the periods presented:

The following table summarizes total acquisition, restructuring and management fee costs:

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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 willnot 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* maybe beyond the Company’s control, an adverse outcome inone* or more of these matters could be material to the Company’s results of operations or cash flows for any particular reporting period.

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 ActionNo.* 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, 2021and February 6, 2023.Lead plaintiff alleges that statements made regarding the Company’s business, operations, and prospects violated Sections10*(b), Section20(a) and Rule10b-5 of the Securities Exchange Act of1934 and seeks class certification, damages, interest, attorneys’ fees, and other relief.

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 consolidated balance sheets.

Exhibit Index