Holley Inc

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Holley Inc., a Delaware corporation headquartered in Bowling Green, Kentucky, conducts operations through its wholly owned subsidiaries. These operating subsidiaries are comprised of Holley Performance Products Inc., Hot Rod Brands, Inc., Simpson Safety Solutions, Inc., B&M Racing and Performance Products, Inc., and Speedshop.com, Inc. When used in these notes, the terms the “Company” or “Holley” mean Holley, Inc. and all entities included in its consolidated financial statements.

The Company designs, manufactures and distributes high-performance automotive products to car and truck enthusiasts primarily in the United States, Canada and Europe. The Company is a leading manufacturer of a diversified line of performance automotive products, including carburetors, fuel pumps, fuel injection systems, nitrous oxide injection systems, superchargers, exhaust headers, mufflers, distributors, ignition components, engine tuners and automotive performance plumbing products. The Company is also a leading manufacturer of exhaust products as well as shifters, converters, transmission kits, transmissions, tuners and automotive software. The Company’s products are designed to enhance street, off-road, recreational and competitive vehicle performance through increased horsepower, torque and drivability. The Company has locations in the United States, Canada, Italy and China.

Emerging Growth Company Status

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, as well as by geopolitical events, including the conflict in Ukraine, the conflict in the Middle East, and the possible expansion of such conflicts and potential geopolitical consequences. The Company's business is impacted by various economic factors that affect both consumers and the automotive aftermarket industry, including bynot limited to inflation, fuel costs, wage rates, supply chain disruptions, hiring, and other economic conditions. In response to inflationary impacts and supply chain disruptions, the Company has attempted to minimize potential adverse impacts on its business with cost savings initiatives, price increases to customers, and increased attention to maintaining appropriate inventory levels in the distribution channel. The Company's profitability has been, and* 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 unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP" or “GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended* December 31, 2023*, as filed with the SEC on* March 14, 2024,in the Company’s annual report on Form10*-K. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter arenot necessarily indicative of the results for the full fiscal year.

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The Company operates on a fiscal year that ends on* December 31.Thethree*- andsix-month periods ended* June 30, 2024* and* July 2, 2023* each included13 weeks and26 weeks, respectively.

Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

Recent Accounting Pronouncements

Accounting 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 (Topic 280): Improvements to Reportable Segment Disclosures. This ASU expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The standard requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating decision-maker ("CODM") and included within the reported measure of a segment’s profit or loss, requires interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually, requires disclosure of the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and contains other disclosure requirements. This ASU is effective for fiscal years beginning after* December 15, 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 (Topic 740): Improvements to Income Tax Disclosures. This ASU requires additional disclosures of various income tax components that affect the rate reconciliation based on the applicable taxing jurisdictions, as well as the qualitative and quantitative aspects of those components. The standard also requires information pertaining to taxes paid to be disaggregated for federal, state and foreign taxes, and contains other disclosure requirements. This ASU is effective for fiscal years beginning after* December 15, 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.

Inventories of the Company consisted of the following:

During the13-week and26-week periods ended* June 30, 2024*, the Company recognized inventory (gains) charges of ($878) and $8,835, respectively, primarily due to product rationalization initiatives aimed at eliminating unprofitable or slow-moving stock keeping units.

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

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

Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company's business combinations. There wereno changes to goodwill during the26-week period ended* June 30, 2024*.

No goodwill impairment charges were incurred during the13-week and26-week periods ended* June 30, 2024and July 2, 2023*. Potential changes in the Company's costs and operating structure, the implementation of synergies, and overall performance in the automotive aftermarket industry, could negatively impact 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.

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Intangible assets consisted of the following:

The following outlines the estimated future amortization expense related to intangible assets held as of* June 30, 2024*:

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 consisted 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.Proceeds from the credit facility were used to repay in full the Company’s obligations under its previously existingfirst* lien andsecond lien notes and to pay $13,413 in deferred financing fees related to the refinancing.

The revolving credit facility includes a letter of credit facility in the amountof $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 $2,150 in outstanding letters of credit on June 30, 2024*.

Thefirst lien term loan is to be repaid in quarterly payments of $1,643 through* September 30, 2028with 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 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 repurchased $25,000 outstanding principal on itsfirst lien term loan at a discount to par during the26-week period ended* June 30, 2024*.

As of* June 30, 2024*, amounts outstanding under the credit facility accrue interest at a rate equal to either the Secured Overnight Financing Rate ("SOFR")or base rate, at the Company's election, plus a specified margin. In the case of revolving credit loans and letter of credit fees, the specified margin is based on the Company's Total Leverage Ratio, as defined in the Credit Agreement. Commitment fees payable under the revolving credit facility are based on the Company's Total Leverage Ratio. On* June 30, 2024*, the weighted average interest rate on the Company's borrowings under the credit facility was 9.2%.

The Company has entered into an interest rate collar in the notional amount of $500,000 to hedge the Company's exposure to fluctuations in interest rates on its variable-rate debt. Refer to Note8, "Derivative Instruments,**" for additional information.

Obligations under the Credit Agreement are secured by substantially all of the Company’s assets, including a secured interest in the Company's headquarter, with a carrying value of $5,847. 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.

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In* February 2023,the Company entered into an amendment to the Credit Agreement which, among other things, increases the Total Leverage Ratio applicable under the Credit Agreement as of the quarter ending April 2, 2023to initially 7.25:1.00, and provides for modified step-down levels for such covenant thereafter through the fiscal quarter ending June 30, 2024 (the “Covenant Relief Period”). As of June 30, 2024,the required Total Leverage Ratio was*5.00:1.00.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 June 30, 2024, 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 as of* June 30, 2024* are as follows:

The Company consummated a business combination (the “Business Combination”) pursuant to that certain Agreement and Plan of Merger dated* March 11, 2021 (the “Merger Agreement”), by and among Empower Ltd., (“Empower”), Empower Merger Sub I Inc., Empower Merger Sub II LLC, and Holley Intermediate Holdings, Inc. (“Holley Intermediate”) on July 16, 2021, (the “Closing” and such date, the “Closing Date”). Upon the Closing, there were 14,666,644 Warrants, consisting of 9,999,977 public warrants ("Public Warrants") and 4,666,667 private warrants ("Private Warrants" and together with the Public Warrants, the “Warrants”), outstanding to purchase shares of 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, 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 Empower Sponsor Holdings, LLC (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.

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The Company* mayredeem the Public Warrants at a price of $0.01 per warrant upon30* days' notice if the closing price of 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, and the Company will use its commercially reasonable best efforts to register or qualify the shares under applicable blue-sky laws to the extent an exemption isnot available.

The Company’s Warrants are accounted for as a liability in accordance with ASC815-40 and are presented as a warrant liability on the balance sheet. The warrant liability was measured at fair value at inception and on a recurring basis, with changes in fair value recognized as non-operating expense. As of* June 30, 2024* and* December 31, 2023*, a warrant liability with a fair value of $1,854 and $8,383, respectively, was reflected as a long-term liability in the condensed consolidated balance sheet. A decrease of$3,402 and an increase of$2,017 in the fair value of the warrant liability was reflected as change in fair value of warrant liability in the condensed consolidated statements of comprehensive income for the13-week periods ended* June 30, 2024and July 2, 2023*, respectively. A decrease of $6,529 and an increase of $3,452 in the fair value of the warrant liability was reflected as change in fair value of warrant liability in the condensed consolidated statements of comprehensive income for the26-week periods ended* June 30, 2024and July 2, 2023*, respectively.

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. As of June 30, 2024* and* December 31, 2023*, an earn-out liability with a fair value of$1,772 and$3,479, respectively, was reflected as a long-term liability in the condensed consolidated balance sheet. A decrease of$1,058 and an increase of$961 in the fair value of the earn-out liability was reflected as change in fair value of earn-out liability in the condensed consolidated statements of comprehensive income for the13-week periods ended* June 30, 2024and July 2, 2023*, respectively. A decrease of $1,707 and an increase of $1,389 in the fair value of the earn-out liability was reflected as change in fair value of earn-out liability in the condensed consolidated statements of comprehensive income for the26-week periods ended* June 30, 2024and July 2, 2023*, respectively.

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.

As of* June 30, 2024*, the Company recognized a derivative asset of $1,191 for the Collar in other noncurrent assets on the condensed consolidated balance sheet. The Company recorded a net change in the fair value of the Collar as a decrease to interest expense of $74 and$2,355, for the13-week and26-week periods ended* June 30, 2024*, respectively. Cash receipts for the Collar totaled $399 and $868 for the13-week and26-week periods ended* June 30, 2024*, respectively.

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 Note9, "Fair Value Measurements").

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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:

As of* June 30, 2024*, the Company's derivative liabilities for its Private and Public Warrants, earn-out liability, and derivative asset for its Collar are measured at fair value on a recurring basis (see Note7, “Common Stock Warrants and Earn-Out Liability,” and Note8, "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). 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 assets on the condensed consolidated balance sheet, is determined based on models that reflect the contractual terms of the derivative, yield curves, and the credit quality of the counterparties. Inputs are generally observable and 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 condensed consolidated statements of comprehensive income. Changes in the fair value of the Collar is recognized as an adjustment to interest expense in the condensed consolidated statements of comprehensive income. Changes in the fair value of the derivative liabilities related to Warrants and the earn-out liability and changes in the fair value of the Collar are recognized in net cash provided by operating activities on the condensed consolidated statements of cash flows.

The fair value of Private Warrants was estimated as of the measurement date using the Monte Carlo simulation model with the following assumptions:

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The fair value of the earn-out liability was estimated as of the measurement date using the Monte Carlo simulation model with the following assumptions:

As of* June 30, 2024* and* December 31, 2023*, the Company has accounts receivable, accounts payable and accrued expenses for which the carrying value approximates fair value due to the short-term nature of these instruments. The carrying value of the Company’s long-term debt approximates fair value as the rates used approximate the market rates currently available to the Company. Fair value measurements used in the impairment reviews of goodwill and intangible assets are Level3 measurements.

The reconciliation of changes in Level3 liabilities during the26-week periods ended* June 30, 2024and July 2, 2023* 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 our 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 Note15, “Commitments and Contingencies” for more information.

The following table summarizes total revenue by product category.

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

The Company's effective income tax rate is based on expected income, statutory rates and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year's taxable income as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating tax positions.

For the13-week period ended* June 30, 2024*, the Company's effective tax rate of 10.7% differed from the 21% federal statutory rate primarily due to permanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period and the impact of foreign taxes in higher tax rate jurisdictions. For the13-week period ended* July 2, 2023*, the Company’s effective tax rate of 24.0% differed from the 21% federal statutory rate primarily due to permanent differences related to changes in the fair value of the warrant and earn-out liabilities recognized during the period.

For the26-week period ended* June 30, 2024*, the Company's effective tax rate of 5.3% differed from the 21% federal statutory rate primarily due to permanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period, federal research and development tax credits, and the impact of foreign taxes in higher tax rate jurisdictions. In addition, the Company incurred expenses related to 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. For the26-week period ended* July 2, 2023*, the Company’s effective tax rate of 24.7% differed from the 21% federal statutory rate primarily due to permanent differences related to changes in the fair value of the warrant and earn-out liabilities recognized during the period.

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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 because their effect would have been anti-dilutive. Warrants to purchase shares of Common Stock having an exercise price greater than the average share market price are excluded from the calculation of diluted earnings per share.

In2021, the Company adopted the2021 Omnibus Incentive Plan (the*“2021* Plan”), under which awards, including stock options, restricted stock units ("RSUs") and performance 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. As of* June 30, 2024*,4,517,226 shares of Common Stock remained available for future issuance under the2021 Plan. On* June 6, 2023,the Company granted 1,000,000 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.

Equity-based compensation expense included the following components:

All equity-based compensation expenses are recorded in selling, general and administrative costs in the condensed consolidated statements of comprehensive income.

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Restricted Stock Awards

RSUs and PSUs are collectively referred to as "Restricted Stock Awards". The Compensation Committee has awarded RSUs to select employees and non-employee directors and has awarded PSUs to select employees. The RSUs vest ratably 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* June 30, 2024*, there was $9,621 of unrecognized compensation cost related to unvested Restricted Stock Awards that is expected to be recognized over a remaining weighted average period of 2.1 years.

The weighted-average grant-date fair value of Restricted Stock Awards granted during the26-week periods ended* June 30, 2024and July 2, 2023*, was $4.12 and $2.59, respectively. The fair value of Restricted Stock Awards vested and converted to shares of Common Stock during the26-week periods ended* June 30, 2024and July 2, 2023*, was $5,262 and $158, respectively.

The following table summarizes Restricted Stock Award for the26-week period ended* June 30, 2024*:

Performance-based Restricted Stock Units

The PSUs granted under the20**21 Plan represent shares of Common Stock that are potentially issuable in the future based on a combination of performance and service requirements. On* March 4, 2024,the Company granted 340,895 PSUs under the2021* Plan to key employees with a grant date fair value of $4.22 and on* March**18,* 2024, the Company granted an additional 26,020 PSUs with a grant date fair value of $4.25. On* April 1,the Company granted 5,654 PSUs with a grant date fair value of$4.49; on April 8,the Company granted 30,544 PSUs with a grant date fair value of$4.44; on April 15,the Company granted 36,144 PSUs with a grant date fair value of$4.15; on April 29,the Company granted 28,741 PSUs with a grant date fair value of$4.05; and on May 13,*the Company granted 14,138 PSUs with a grant date fair value of$3.93. 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.

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. As of* June 30, 2024*, there was $206 of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a remaining weighted-average period of 0.6 years.

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The following table summarizes stock option activity for the26-week period ended* June 30, 2024*:

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 10 years, inclusive of renewal options that the Company is reasonably certain to exercise.

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:

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The following table summarizes the maturities of the Company's operating lease liabilities as of* June 30, 2024*:

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. The Company has established loss provision for matters in which losses are probable and can be reasonably estimated. Although management will continue to reassess the estimated liability based on future developments, an objective assessment of such claims* may**not* always be predictive of the outcome and actual results* may*vary from current estimates.

A putative securities class action was filed on* November 6, 2023,against the Company, Tom Tomlinson (the Company’s former Director, President, and Chief Executive Officer), and Dominic Bardos (the Company’s former Chief Financial Officer) in the United States District Court for the Western District of Kentucky (the “Complaint”) and is captioned City of Fort Lauderdale General Employees’ Retirement System v. Holley, Inc., f/k/a Empower LTD., Tom Tomlinson, and Dominic Bardos, Civil 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.On April 26, 2024,lead plaintiff filed an amended complaint, adding Vinod Nimmagadda (the Company’s Executive Vice President of Corporate Development and New Ventures) as a defendant. Lead plaintiff alleges that statements made regarding the Company’s business, operations, and prospects violated Sections10*(b), Section20(a) and Rule10b-5 of the Securities Exchange Act of1934 and seeks class certification, damages, interest, attorneys’ fees, and other relief. The Company filed a motion to dismiss on* June 28, 2024.*

Due to the early stage of this proceeding, we cannot reasonably estimate the potential range of loss, if any. The Company disputes the allegations and intends to vigorously defend against them.

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Product Warranties

The Company generally warrants its products against certain manufacturing and other defects. These product warranties are provided for specific periods of time depending on the nature of the product. The accrued product warranty costs are based primarily on historical experience of actual warranty claims and are recorded at the time of the sale.

The following table provides the changes in the Company's accrual for product warranties, which is classified as a component of accrued liabilities in the condensed consolidated balance sheets.

Employee Savings Plans

The Company has a defined-contribution savings plan under Section401(k) of the Internal Revenue Code that covers United States-based employees. United States-based eligible employees* maycontribute up to the current statutory limits under the Internal Revenue Service regulations. Holley matches employee contributions to the401*(k) Plan up to 3.5% each pay period, and an additional discretionary match of up to 1.5% is made based on company performance targets. The Company also has a defined-contribution saving plan for Canada-based employees. Canada-based eligible employees* may*contribute up to the current statutory limits for a Registered Retirement Savings Plan. Holley matches employee contributions to the Group Savings Plan up to 3.0% each pay period, and an additional discretionary match of up to 1.5% is made based on company performance targets.

During the13-week periods ended* June 30, 2024and July 2, 2023*, the Company made matching contributions under the savings plans totaling $512 and $565, respectively. During the26-week periods ended* June 30, 2024and July 2, 2023*, the Company made matching contributions under the savings plans totaling $1,129 and $1,140, respectively.

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