Holley Inc

Previous wording

Interest expense consists of interest due on the indebtedness under our credit facilities. Interest is based on SOFR or the base rate, at the Company's election, plus the applicable margin rate. As of March 31, 2024, $575.9 million was outstanding under our Credit Agreement.

Current wording

Interest expense consists of interest due on the indebtedness under our credit facilities. Interest is based on SOFR or the base rate, at the Company's election, plus the applicable margin rate. As of June 30, 2024, $564.2 million was outstanding under our Credit Agreement.

Previous wording

Net sales for the 13-week period ended March 31, 2024 decreased $13.6 million, or 7.9%, to $158.6 million, as compared to $172.2 million for the 13-week period ended April 2, 2023. Lower sales volume resulted in a decrease of approximately $16.7 million, offset partially by improved price realization of approximately $3.1 million compared to the prior year period. Major categories driving the comparable year-over-year results includea decrease in mechanical systems sales of $4.9 million (11.4% category decline), a decrease in electronic systems sales of $4.9 million (7.1% category decline), and a decrease inaccessories sales of $4.1 million (14.9% category decline).

Current wording

Net sales for the 13-week period ended June 30, 2024 decreased $5.8 million, or 3.3%, to $169.5 million, as compared to $175.3 million for the 13-week period ended July 2, 2023. Lower sales volume resulted in a decrease of approximately$9.0 million, offset partially by improved price realization of approximately$3.2 million compared to the prior year period. Major categories driving the comparable year-over-year results includea decrease in electronic systems sales of$2.8 million (3.7% category decline), a decrease in exhaust sales of$2.2 million (12.6% category decline), and a decrease inaccessories sales of$2.0 million (7.4% category decline). An increase in safety sales of$2.3 million (14.3% category incline) partially offset the decrease in electronic systems, exhaust and accessories sales.

Previous wording

Research and development costs for the 13-week period ended March 31, 2024 decreased to $4.8 million as compared to $6.7 million for the 13-week period ended April 2, 2023, primarily due to headcount reductions, reflecting the implementation of cost-saving initiatives.

Current wording

Research and development costs for the 13-week period ended June 30, 2024 decreased to $4.3 million as compared to $6.2 million for the 13-week period ended July 2, 2023, primarily due to headcount reductions, reflecting the implementation of resource allocation efforts in support ofportfolio development optimization.

Previous wording

Restructuring costs for the 13-week period ended March 31, 2024 decreased by $0.7 million to $0.6 million, as compared to $1.3 million for the 13-week period ended April 2, 2023, reflecting a reduction in restructuring and integration activities associated with acquisitions.

Current wording

Restructuring costs for the 13-week period ended June 30, 2024 decreased by $0.4 million to $0.0 million, as compared to $0.4 million for the 13-week period ended July 2, 2023, reflecting a reduction in restructuring and integration activities associated with acquisitions.

Previous wording

As a result of factors described above, operating income for the 13-week period ended March 31, 2024 decreased $15.8 million, or 60.7%, to $10.2 million, as compared to $26.0 million for the 13-week period ended April 2, 2023.

Current wording

As a result of factors described above, operating income for the 13-week period ended June 30, 2024 decreased $2.1 million, or 6.9%, to $27.9 million, as compared to $30.0 million for the 13-week period ended July 2, 2023.

Previous wording

For the 13-week period ended March 31, 2024, we recognized a gain of $3.1 million from the change in fair value of the warrant liability. For the 13-week period ended April 2, 2023, we recognized a loss of $1.4 million from the change in fair value of the warrant liability. The warrant liability reflects the fair value of the Warrants issued in connection with the Business Combination.

Current wording

For the 13-week period ended June 30, 2024, we recognized a gain of $3.4 million from the change in fair value of the warrant liability. For the 13-week period ended July 2, 2023, we recognized a loss of $2.0 million from the change in fair value of the warrant liability. The warrant liability reflects the fair value of the Warrants issued in connection with the Business Combination.

Previous wording

For the 13-week period ended March 31, 2024, we recognized a gain of $0.7 million from the change in fair value of the earn-out liability. For the 13-week period ended April 2, 2023, we recognized a loss of $0.4 million, from the change in fair value of the earn-out liability. The earn-out liability reflects the fair value of the unvested Earn-Out Shares resulting from the Business Combination.

Current wording

For the 13-week period ended June 30, 2024, we recognized a gain of $1.1 million from the change in fair value of the earn-out liability. For the 13-week period ended July 2, 2023, we recognized a loss of $1.0 million, from the change in fair value of the earn-out liability. The earn-out liability reflects the fair value of the unvested Earn-Out Shares resulting from the Business Combination.

Previous wording

Interest expense for the 13-week period ended March 31, 2024 decreased $7.3 million, or 39.9%, to $11.0 million, as compared to $18.3 million for the 13-week period ended April 2, 2023, reflecting lower outstanding debt balances and the positive impact of the interest rate collar, offset in part by a higher effective interest rate on outstanding debt.

Current wording

Interest expense for the 13-week period ended June 30, 2024 increased $3.3 million, or 33.1%, to $13.2 million, as compared to $9.9 million for the 13-week period ended July 2, 2023, reflecting lower outstanding debt balances and the positive impact of the interest rate collar, offset in part by a higher effective interest rate on outstanding debt.

Previous wording

As a result of factors described above, we recognized $2.8 million of income before income taxes for the 13-week period ended March 31, 2024, as compared to income before income taxes of $5.8 million for the 13-week period ended April 2, 2023.

Current wording

As a result of factors described above, we recognized$19.2 million of income before income taxes for the 13-week period ended June 30, 2024, as compared to income before income taxes of$17.1 million for the 13-week period ended July 2, 2023.

Previous wording

As a result of factors described above, we recognized net income of $3.7 million for the 13-week period ended March 31, 2024, as compared to net income of $4.3 million for the 13-week period ended April 2, 2023. Additionally, we recognized total comprehensive income of $3.5 million for the 13-week period ended March 31, 2024, as compared to total comprehensive income of $4.1 million for the 13-week period ended April 2, 2023. Comprehensive income includes the effect of foreign currency translation adjustments.

Current wording

As a result of factors described above, we recognized net income of $17.1 million for the 13-week period ended June 30, 2024, as compared to net income of $13.0 million for the 13-week period ended July 2, 2023. Additionally, we recognized total comprehensive income of $17.2 million for the 13-week period ended June 30, 2024, as compared to total comprehensive income of $13.3 million for the 13-week period ended July 2, 2023. Comprehensive income includes the effect of foreign currency translation adjustments.

Previous wording

Cost of goods sold for the 13-week period ended March 31, 2024 increased $2.1 million, or 2.0%, to $106.6 million, as compared to $104.5 million for the 13-week period ended April 2, 2023. The increase in cost of goods sold in 2024, a period in which product sales decreased 7.9%, was impacted by $9.1 million ofproduct rationalization initiatives that are part of a portfolio transformation aimed at eliminating unprofitable or slow-moving stock keeping units ("SKUs"). Lower freight costs partially offset the impact of these charges.

Current wording

Cost of goods sold for the 26-week period ended June 30, 2024 decreased$4.2 million, or 2.0%, to$205.8 million, as compared to$210.0 million for the 26-week period ended July 2, 2023. The decrease in cost of goods sold in 2024, resulted from a 5.6% decrease in product sales and lower freight costs, partially offset by $8.2 million of product rationalization initiatives that are part of a portfolio transformation aimed at eliminating unprofitable or slow-moving stock keeping units ("SKUs").

Previous wording

Gross profit for the 13-week period ended March 31, 2024 decreased $15.7 million, or 23.1%, to $52.1 million, as compared to $67.7 million for the 13-week period ended April 2, 2023. Gross margin for the 13-week period ended March 31, 2024 was 32.8% as compared to a gross margin of 39.3% for the 13-week period ended April 2, 2023. Gross profit margin declined primarily due to inventory charges driven by product rationalization initiatives, which was partially offset byimprovements in freight costs. After adjusting for the $9.1 million of product rationalization and $0.6 millionin other inventory charges, Adjusted Gross Margin for the quarter was 38.9% for the 13-week period ended March 31, 2024 compared to 39.3% for the 13-week period ended April 2, 2023. Gross profit was also negatively affected by lower sales volume.

Current wording

Gross profit for the 26-week period ended June 30, 2024 decreased $15.1 million, or 11.0%, to $122.4 million, as compared to $137.5 million for the 26-week period ended July 2, 2023. Gross margin for the 26-week period ended June 30, 2024 was 37.3% as compared to a gross margin of 39.6% for the 26-week period ended July 2, 2023. Gross profit margin declined primarily due to inventory charges driven by product rationalization initiatives, which was partially offset by improvements in freight costs. After adjusting for the $8.2 million of product rationalization and $0.6 million in other inventory charges, Adjusted Gross Margin for the year was 40.0% for the 26-week period ended June 30, 2024 compared to 39.3% for the 26-week period ended July 2, 2023. Gross profit was also negatively affected by lower sales volume.

Previous wording

Selling, general and administrative costs for the 13-week period ended March 31, 2024 increased $3.0 million, or 9.9%, to $33.0 million, as compared to $30.0 million for the 13-week period ended April 2, 2023. Selling, general and administrative costs expressed as a percentage of sales increased to 20.8% for the 13-week period ended March 31, 2024 compared to 17.4% for the 13-week period ended April 2, 2023. The increase in selling, general and administrative costs was driven by $0.7 million increase in equity compensation, a $2 million reserve related to litigation settlements, and certain costs incurred for advisory services related to identifying performance initiatives. These increases were partially offset by lower outbound shipping and handling costs.

Current wording

Selling, general and administrative costs for the 26-week period ended June 30, 2024 increased$8.4 million, or 14.3%, to$67.6 million, as compared to$59.1 million for the 26-week period ended July 2, 2023. Selling, general and administrative costs expressed as a percentage of sales increased to 20.6% for the 26-week period ended June 30, 2024 compared to 17.0%for the 26-week period ended July 2, 2023. The increase in selling, general and administrative costs was driven by $0.6 million increase in equity compensation, a $2 million reserve related to litigation settlements, a $2.3 million increase in wages, and $3.7 million of costs incurred for advisory services related to supporting transformation initiatives. These increases were partially offset by lower outbound shipping and handling costs.

Previous wording

Income tax benefit for the 13-week period ended March 31, 2024 was $0.9 million, as compared to income tax expense of $1.6 million for the 13-week period ended April 2, 2023. Our effective tax rate for the 13-week period ended March 31, 2024 was -31.4%. The difference between the effective tax rate for the 13-week period ended March 31, 2024 and the federal statutory rate in 2024 wasdue topermanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period, federal research and development tax credits, and the impact of foreign taxes in higher tax rate jurisdictions. In addition, the company incurred expenses related to product rationalization that were determined to be significant and infrequent in nature, therefore, the full tax benefit of these expenses was recorded during first quarter 2024 as a discrete adjustment.** **The effective tax rate for the 13-week period ended April 2, 2023 was 26.9%. The difference between the effective tax rate and the federal statutory rate in 2023 was primarily due to permanent differences resulting from the change in fair value of the warrant and earn-out liabilities.

Current wording

Income tax expense for the 26-week period ended June 30, 2024 was$1.1 million, as compared to income tax expense of$5.7 million for the 26-week period ended July 2, 2023. Our effective tax rate for the 26-week period ended June 30, 2024 was 5.3%. The difference between the effective tax rate for the 26-week period ended June 30, 2024 and the federal statutory rate in 2024 wasdue topermanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period, federal research and development tax credits, and the impact of foreign taxes in higher tax rate jurisdictions. In addition, the company incurred expenses related to product rationalization that were determined to be significant and infrequent in nature, therefore, the full tax benefit of these expenses was recorded during the year as a discrete adjustment.** **The effective tax rate for the 26-week period ended July 2, 2023 was 24.7%. The difference between the effective tax rate and the federal statutory rate in 2023 was primarily due to permanent differences resulting from the change in fair value of the warrant and earn-out liabilities.

Previous wording

The following unaudited table presents the reconciliation of net income, the most directly comparable GAAP measure, to EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin for the 13-week periods ended March 31, 2024 and April 2, 2023 (dollars in thousands):

Current wording

The following unaudited table presents the reconciliation of net income, the most directly comparable GAAP measure, to EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin for the 13-week and 26-week periods ended June 30, 2024 and July 2, 2023 (dollars in thousands):

Previous wording

The following unaudited table presents the reconciliation of gross profit, the most directly comparable GAAP measure, to Adjusted Gross Profit and Adjusted Gross Margin for the 13-week periods ended March 31, 2024 and April 2, 2023 (dollars in thousands):

Current wording

The following unaudited table presents the reconciliation of gross profit, the most directly comparable GAAP measure, to Adjusted Gross Profit and Adjusted Gross Margin for the 13-week and 26-week periods ended June 30, 2024 and July 2, 2023 (dollars in thousands):

Previous wording

The following unaudited tables present the reconciliation of net income and net income per diluted share, the most directly comparable GAAP measures, to Adjusted Net Income and Adjusted Diluted EPS for the 13-week periods ended March 31, 2024 and April 2, 2023 (dollars in thousands):

Current wording

The following unaudited tables present the reconciliation of net income and net income per diluted share, the most directly comparable GAAP measures, to Adjusted Net Income and Adjusted Diluted EPS for the 13-week and 26-week periods ended June 30, 2024 and July 2, 2023 (dollars in thousands):

Previous wording

The following unaudited table presents the reconciliation of net cash provided by operating activities, the most directly comparable GAAP measure, to Free Cash Flow for the 13-week periods ended March 31, 2024 and April 2, 2023 (dollars in thousands):

Current wording

The following unaudited table presents the reconciliation of net cash provided by operating activities, the most directly comparable GAAP measure, to Free Cash Flow for the 13-week and 26-week periods ended June 30, 2024 and July 2, 2023 (dollars in thousands):

Previous wording

As of March 31, 2024, the Company had cash of $41.1 million and availability of $123.3 million under its revolving credit facility. The Company has a senior secured revolving credit facility with $125 million in borrowing capacity. As of March 31, 2024, the Company had $1.7 million in letters of credit outstanding under the revolving credit facility. In February 2023, the Company entered into an amendment to its Credit Agreement which, among other things, contains a minimum liquidity financial covenant of $45 million, which includes unrestricted cash and any available borrowing capacity under the revolving credit facility. The amendment also increases the Total Leverage Ratio applicable under the Credit Agreement as of the fiscal quarter ending April 2, 2023, to initially 7.25:1.00, and provides for modified step-down levels for such covenant thereafter through the fiscal quarter ending March 31, 2024.

Current wording

As of June 30, 2024, the Company had cash of $53.1 million and availability of $122.9 million under its revolving credit facility. The Company has a senior secured revolving credit facility with $125 million in borrowing capacity. As of June 30, 2024, the Company had $2.2 million in letters of credit outstanding under the revolving credit facility. In February 2023, the Company entered into an amendment to its Credit Agreement which, among other things, contains a minimum liquidity financial covenant of $45 million, which includes unrestricted cash and any available borrowing capacity under the revolving credit facility. The amendment also increases the Total Leverage Ratio applicable under the Credit Agreement as of the fiscal quarter ending April 2, 2023, to initially 7.25:1.00, and provides for modified step-down levels for such covenant thereafter through the fiscal quarter ending June 30, 2024. Subsequent to June 30, 2024, the Company successfully exited the Covenant Relief Period.

Previous wording

The Company is obligated under various operating leases for facilities, equipment and automobiles with estimated lease payments of approximately $5.3 million, inclu ding short term leases, due during the remainder of fiscal year 2024. See Note 14,"Lease Commitments" in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional information related to the Company’s lease obligations.

Current wording

The Company is obligated under various operating leases for facilities, equipment and automobiles with estimated lease payments of approximately $3.2 million, inclu ding short term leases, due during the remainder of fiscal year 2024. See Note 14,"Lease Commitments" in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional information related to the Company’s lease obligations.

Previous wording

Holley's capital expenditures are primarily related to ongoing maintenance and improvements, including investments related to upgrading and maintaining our information technology systems, tooling for new products, vehicles for product development, and machinery and equipment for operations. We expect capital expenditures in the range of $8 million to $12 million in fiscal year 2024.

Current wording

Holley's capital expenditures are primarily related to ongoing maintenance and improvements, including investments related to upgrading and maintaining our information technology systems, tooling for new products, vehicles for product development, and machinery and equipment for operations. We expect capital expenditures in the range of $6 million to $8 million in fiscal year 2024.

Previous wording

See Note 6,"Debt" in the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further detail of our credit facility and the timing of principal maturities. As of March 31, 2024, based on the then current weighted average interest rate of 9.2%, expected interest payments associated with outstanding debt totaled approximately $39.7 million for the remainder of fiscal year 2024.

Current wording

See Note 6,"Debt" in the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further detail of our credit facility and the timing of principal maturities. As of June 30, 2024, based on the then current weighted average interest rate of 9.2%, expected interest payments associated with outstanding debt totaled approximately $26.0 million for the remainder of fiscal year 2024.

Previous wording

Operating Activities. Net cash provided by operating activities for the 13-week period ended March 31, 2024 was $18.8 million compared to net cash provided by operating activities of $3.6 million for the 13-week period ended April 2, 2023. Significant changes in the year-over-year change in working capital activity included positive fluctuations from accounts payable of $14.2 million and accounts receivable of $9.2 million. Partially offsetting these increases were negative fluctuations in inventories of $4.2 million. The change in inventory reflects the impact of fluctuations in sales while changes in accounts payable and accounts receivable are impacted by the timing of payments and receipts.

Current wording

Operating Activities. Net cash provided by operating activities for the 26-week period ended June 30, 2024 was $44.5 million compared to net cash provided by operating activities of $34.4 million for the 26-week period ended July 2, 2023. Significant changes in the year-over-year change in working capital activity included positive fluctuations from accounts payable of $16.3 million and accounts receivable of $2.6 million. Partially offsetting these increases were negative fluctuations in inventories and accrued liabilities of $4.9 million and $4.8 million, respectively. The change in inventory reflects the impact of fluctuations in sales while changes in accounts payable and accounts receivable are impacted by the timing of payments and receipts.

Previous wording

Investing Activities. Cash used in investing activities for the 13-week periods ended March 31, 2024 and April 2, 2023 were $1.1 million and $0.7 million, respectively, due to capital expenditures.

Current wording

Investing Activities. Cash used in investing activities for the 13-week periods ended June 30, 2024 and July 2, 2023 were $2.4 million and $2.4 million, respectively, due to capital expenditures.

Previous wording

Financing Activities. Cash used in financing activities for the 13-week period ended March 31, 2024 was $17.7 million, which primarily reflects $16.7 million in principal payments on long-term debt. The principal payments of long-term debt during the 13-week period ended March 31, 2024 include the repurchase of $15.0 million outstanding principal on the first lien term loan at a discount to par. Cash used in financing activities for the 13-week period ended April 2, 2023 was $8.4 million, which primarily reflects principal payments on long-term debt and deferred financing fees.

Current wording

Financing Activities. Cash used in financing activities for the 26-week period ended June 30, 2024 was $30.0 million, which primarily reflects $28.6 million in principal payments on long-term debt. The principal payments of long-term debt during the 26-week period ended June 30, 2024 include the repurchase of $25.0 million outstanding principal on the first lien term loan. Cash used in financing activities for the 26-week period ended July 2, 2023 was $15.6 million, which primarily reflects principal payments on long-term debt and deferred financing fees.