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 September 29, 2024, $564.2 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 March 30, 2025, $559.3 million was outstanding under our Credit Agreement.

Previous wording

Net sales for the 13-week period ended September 29, 2024 decreased $22.5 million, or 14.4%, to $134.0 million, as compared to $156.5 million for the 13-week period ended October 1, 2023. Lower sales volume resulted in a decrease of approximately$24.4 million, offset partially by improved price realization of approximately$1.9 million compared to the prior year period. Major categories driving the comparable year-over-year results includea decrease in electronic systems sales of$12.3 million (17.6% category decline), a decrease in exhaust sales of$2.9 million (20.5% category decline), a decrease in mechanical systems sales of $6.1 million (16.1% category decline) and a decrease inaccessories sales of$1.5 million (6.7% category decline). Partially offset by an increase in safety sales of$0.3 million (2.9% category incline).

Current wording

Net sales for the 13-week period ended March 30, 2025 decreased$5.6 million, or 3.5%, to$153.0 million, as compared to$158.6 million for the 13-week period ended March 31, 2024. Lower sales volume resulted in a decrease of approximately$8.0 million, offset partially by improved price realization of approximately$2.4 million compared to the prior year period.

Previous wording

Cost of goods sold for the 13-week period ended September 29, 2024 decreased$16.4 million, or 16.7%, to$81.7 million, as compared to$98.2 million for the 13-week period ended October 1, 2023. The decrease in cost of goods sold in 2024, a period in which product sales decreased 14.4%, was impacted by lower freight costs and product mix.

Current wording

Cost of goods sold for the 13-week period ended March 30, 2025 decreased $17.6 million, or 16.5%, to $89.0 million, as compared to $106.6 million for the 13-week period ended March 31, 2024. The decrease in cost of goods sold in the first quarter of 2025, a period in which product sales decreased 3.5%, was due to the $9.1 million of product rationalization initiative in 2024. The initiative focused on eliminating unprofitable or slow-moving SKUs. Lower freight costs also contributed to the decrease.

Previous wording

Gross profit for the 13-week period ended September 29, 2024 decreased $6.1 million, or 10.4%, to $52.3 million, as compared to $58.4 million for the 13-week period ended October 1, 2023. Gross margin for the 13-week period ended September 29, 2024 was 39.0% as compared to a gross margin of 37.3% for the 13-week period ended October 1, 2023. Gross profit margin slightly increased due to our continued efforts to improve operational efficiencies primarily through a combination of improvements in freight costs, reduced purchasing price variance, warranty improvements and lower write-downs from E&O.

Current wording

Gross profit for the 13-week period ended March 30, 2025 increased $12.0 million, or 23.1%, to $64.1 million, as compared to $52.1 million for the 13-week period ended March 31, 2024. Gross margin for the 13-week period ended March 30, 2025 was 41.9% as compared to a gross margin of 32.8% for the 13-week period ended March 31, 2024. Gross profit margin increased primarily due to inventory charges in 2024, driven by the product rationalization initiative. The increase was also due to improvements in freight costs.

Previous wording

Selling, general and administrative costs for the 13-week period ended September 29, 2024 increased$1.2 million, or 4.3%, to$30.1 million, as compared to$28.9 million for the 13-week period ended October 1, 2023. Selling, general and administrative costs expressed as a percentage of sales increased to 22.5% for the 13-week period ended September 29, 2024 compared to 18.5% for the 13-week period ended October 1, 2023. The increase in selling, general and administrative costs was driven by $1.0 million of transformation related non-recurring advisory costs to execute on the strategic transformation initiatives.

Current wording

Selling, general and administrative costs for the 13-week period ended March 30, 2025 increased $3.7 million, or 11.2%, to $36.7 million, as compared to $33.0 million for the 13-week period ended March 31, 2024. Selling, general and administrative costs expressed as a percentage of sales increased to 24.0% for the 13-week period ended March 30, 2025 compared to 20.8% for the 13-week period ended March 31, 2024. The increase in selling, general and administrative costs was driven by $0.8 million of internal control related investments, $0.8 million of external sales support and $1.4 million related to the timing impact of marketing expenses.

Previous wording

Research and development costs for the 13-week period ended September 29, 2024 decreased to $4.6 million as compared to $6.1 million for the 13-week period ended October 1, 2023, primarily due to headcount reductions, reflecting the implementation of resource allocation efforts in support ofportfolio development optimization. Further, the decrease is due to the Company's realignment of employees' roles and responsibilities from selling, general and administrative to research and development.

Current wording

Research and development costs for the 13-week period ended March 30, 2025 slightly decreased to$4.1 million as compared to$4.8 million for the 13-week period ended March 31, 2024, primarily due to headcount reductions, reflecting the implementation of resource allocation efforts in support of portfolio development optimization.

Previous wording

Amortization of intangible assets was $3.4 million for the 13-week period ended September 29, 2024 compared to $3.7 million for the 13-week period ended October 1, 2023.

Current wording

Amortization of intangible assets was $3.5 million for the 13-week period ended March 30, 2025 compared to $3.4 million for the 13-week period ended March 31, 2024.

Previous wording

Restructuring costs for the 13-week period ended September 29, 2024 increased by $0.5 million to $1.0 million, as compared to $0.4 million for the 13-week period ended October 1, 2023, reflecting restructuring and integration activities associated with our implementation of resource allocation efforts in support of portfolio development optimization.

Current wording

Restructuring costs for the 13-week period ended March 30, 2025 decreased by $0.1 million to $0.5 million, as compared to $0.6 million for the 13-week period ended March 31, 2024, reflecting restructuring and integration activities associated with our implementation of resource allocation efforts in support of portfolio development optimization.

Previous wording

As a result of factors described above, operating income for the 13-week period ended September 29, 2024 decreased $13.8 million, or 71.2%, to $5.6 million, as compared to $19.3 million for the 13-week period ended October 1, 2023.

Current wording

As a result of factors described above, operating income for the 13-week period ended March 30, 2025 increased $9.1 million, or 89.5%, to $19.3 million, as compared to $10.2 million for the 13-week period ended March 31, 2024.

Previous wording

For the 13-week period ended September 29, 2024, we recognized a gain of $1.0 million from the change in fair value of the warrant liability. For the 13-week period ended October 1, 2023, we recognized a loss of $2.1 million from the change in fair value of the warrant liability, due to our stock price. The warrant liability reflects the fair value of the Warrants issued in connection with the Business Combination.

Current wording

For the 13-week periods ended March 30, 2025 and March 31, 2024, we recognized a gain of $0.1 million and $3.1 million, respectively. 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 September 29, 2024, we recognized a gain of $0.6 million from the change in fair value of the earn-out liability. For the 13-week period ended October 1, 2023, we recognized a loss of $0.7 million, from the change in fair value of the earn-out liability, due to our stock price. The earn-out liability reflects the fair value of the unvested Earn-Out Shares resulting from the Business Combination.

Current wording

For the 13-week periods ended March 30, 2025 and March 31, 2024, we recognized a gain of $0.2 million and $0.6 million, respectively. 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 September 29, 2024 increased $1.3 million, or 9.5%, to $15.0 million, as compared to $13.7 million for the 13-week period ended October 1, 2023, reflecting the negative impact of the interest rate collar. The Company recognized $2.2 million of interest expense and $1.1 million in interest income related to the interest rate collar for 13-week periods ended September 29, 2024 and October 1, 2023, respectively.

Current wording

Interest expense for the 13-week period ended March 30, 2025 increased $4.7 million, or 42.7%, to $15.7 million, as compared to $11.0 million for the 13-week period ended March 31, 2024, reflecting the negative impact of the interest rate collar. The Company recognized interest expense of $3.8 million and interest income of $2.3 million related to the interest rate collar for 13-week periods ended March 30, 2025 and March 31, 2024, respectively.

Previous wording

As a result of factors described above, we recognized$7.8 million of loss before income taxes for the 13-week period ended September 29, 2024, as compared to income before income taxes of$2.8 million for the 13-week period ended October 1, 2023.

Current wording

As a result of factors described above, we recognized $3.9 million and $2.8 million of income before income taxes for the 13-week periods ended March 30, 2025 and March 31, 2024, respectively.

Previous wording

Income tax benefit for the 39-week period ended September 29, 2024 was$0.3 million, as compared to income tax expense of$7.8 million for the 39-week period ended October 1, 2023. Our effective tax rate for the 39-week period ended September 29, 2024 was-2.2%. The difference between the effective tax rate for the 39-week period ended September 29, 2024 and the federal statutory rate in 2024 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 strategic product rationalization charge that were determined to be significant and infrequent in nature, therefore, the full tax benefit of these expenses was recorded during the year as a discrete adjustment.** **The effective tax rate for the 39-week period ended October 1, 2023 was 30.1%. The difference between the effective tax rate and the federal statutory rate in 2023 was primarily due to permanent differences resulting from the change in fair value of the warrant and earn-out liabilities.

Current wording

Income tax expense for the 13-week period ended March 30, 2025 was$1.1 million, as compared to income tax benefit of$0.9 million for the 13-week period ended March 31, 2024. Our effective tax rate for the 13-week period ended March 30, 2025 was 27.6%. The difference between the effective tax rate for the 13-week period ended March 30, 2025 and the federal statutory rate in 2025 was due to federal research and development tax credits, state taxes, the impact of foreign taxes in higher tax rate jurisdictions, and excess tax deficiencies from share-based compensation recognized during the period. The effective tax rate for the 13-week period ended March 31, 2024 was-31.4%. The difference between the effective tax rate and the federal statutory rate in 2024 was 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 quarter as a discrete adjustment.

Previous wording

As a result of factors described above, we recognized net loss of $6.3 million for the 13-week period ended September 29, 2024, as compared to net income of $0.8 million for the 13-week period ended October 1, 2023. Additionally, we recognized total comprehensive loss of $5.9 million for the 13-week period ended September 29, 2024, as compared to total comprehensive income of $0.6 million for the 13-week period ended October 1, 2023. Comprehensive income includes the effect of foreign currency translation adjustments.

Current wording

As a result of factors described above, we recognized net income of $2.8 million and $3.7 million for the 13-week periods ended March 30, 2025 and March 31, 2024, respectively. Additionally, we recognized total comprehensive income of $2.5 million for the 13-week period ended March 30, 2025, as compared to total comprehensive income of $3.5 million for the 13-week period ended March 31, 2024. Comprehensive income includes the effect of foreign currency translation adjustments.

Previous wording

We present certain information with respect to EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash Flow as supplemental measures of our operating performance and believe that such non-GAAP financial measures are useful to investors in evaluating our financial performance and in comparing our financial results between periods because they exclude the impact of certain items that we do not consider indicative of our ongoing operating performance. We believe that the presentation of these non-GAAP financial measures enhances the usefulness of our financial information by presenting measures that management uses internally to establish forecasts, budgets and operational goals to manage and monitor our business. We believe that these non-GAAP financial measures help to depict a more realistic representation of the performance of our underlying business, enabling us to evaluate and plan more effectively for the future.

Current wording

We present certain information with respect to EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash Flow as supplemental measures of our operating performance and believe that such non-GAAP financial measures are useful to investors in evaluating our financial performance and in comparing our financial results between periods because they exclude the impact of certain items that we do not consider indicative of our ongoing operating performance. We believe that the presentation of these non-GAAP financial measures enhances the usefulness of our financial information by presenting measures that management uses internally to establish forecasts, budgets and operational goals to manage and monitor our business. We believe that these non-GAAP financial measures help to depict a more realistic representation of the performance of our underlying business, enabling us to evaluate and plan more effectively for the future.

Previous wording

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash Flow are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. These measures should not be considered as measures of financial performance under GAAP, and the items excluded from or included in these metrics are significant components in understanding and assessing our financial performance. These metrics should not be considered as alternatives to net income, gross profit, net cash provided by operating activities, or any other performance measures, as applicable, derived in accordance with GAAP.

Current wording

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash Flow are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. These measures should not be considered as measures of financial performance under GAAP, and the items excluded from or included in these metrics are significant components in understanding and assessing our financial performance. These metrics should not be considered as alternatives to net income, gross profit, net cash provided by operating activities, or any other performance measures, as applicable, derived in accordance with GAAP.

Previous wording

We define EBITDA as earnings before depreciation, amortization of intangible assets, interest expense, and income tax expense. We define Adjusted EBITDA as EBITDA adjusted to exclude, to the extent applicable, restructuring costs, which includes operational restructuring and integration activities, termination related benefits, facilities relocation, and executive transition costs; changes in the fair value of the warrant liability; changes in the fair value of the earn-out liability; equity-based compensation expense; strategic product rationalization charges primarily due to initiatives that are part of a portfolio transformation aimed at eliminating unprofitable or slow-moving SKUs; loss on sale of assets; gain or loss on the early extinguishment of debt; notable items that we do not believe are reflective of our underlying operating performance, including litigation settlements and certain costs incurred for advisory services related to identifying performance initiatives; and other expenses or gains, which includes gains or losses from disposal of fixed assets, franchise taxes, and gains or losses from foreign currency transactions. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by net sales.

Current wording

We define EBITDA as earnings before depreciation, amortization of intangible assets, interest expense, and income tax expense. We define Adjusted EBITDA as EBITDA adjusted to exclude, to the extent applicable, acquisition and restructuring costs, which includes operational restructuring and integration activities, termination related benefits, facilities relocation, and executive transition costs; changes in the fair value of the warrant liability; changes in the fair value of the earn-out liability; equity-based compensation expense; loss on the early extinguishment of debt; notable items that we do not believe are reflective of our underlying operating performance, including litigation settlements and certain costs incurred for advisory services related to identifying performance initiatives; and other expenses or gains, which includes gains or losses from disposal of fixed assets, franchise taxes, and gains or losses from foreign currency transactions. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by net sales.

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 and 39-week periods ended September 29, 2024 and October 1, 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 period ended March 30, 2025 and March 31, 2024 (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 and 39-week periods ended September 29, 2024 and October 1, 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 period ended March 30, 2025 and March 31, 2024 (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 and 39-week periods ended September 29, 2024 and October 1, 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 period ended March 30, 2025 and March 31, 2024 (dollars in thousands):

Previous wording

As of September 29, 2024, the Company had cash of $50.8 million and availability of $122.8 million under its revolving credit facility. The Company has a senior secured revolving credit facility with $125 million in borrowing capacity. As of September 29, 2024, the Company had$2.2 million in letters of credit outstanding under the revolving credit facility. In February 2023, the Company entered into an amendment to its Credit Agreement which, among other things, contains a minimum liquidity financial covenant of $45 million, which includes unrestricted cash and any available borrowing capacity under the revolving credit facility. The amendment also increased the Total Leverage Ratio applicable under the Credit Agreement as of the fiscal quarter ending April 2, 2023, to initially 7.25:1.00, and provides for modified step-down levels for such covenant thereafter through the fiscal quarter ending June 30, 2024. During the 39-week period ended September 29, 2024, the Company successfully exited the Covenant Relief Period.

Current wording

As of March 30, 2025, the Company had cash of $39.1 million and availability of $97.4 million under its revolving credit facility. The Company has a senior secured revolving credit facility with $100 million in borrowing capacity. As of March 30, 2025, the Company had $2.5 million in letters of credit outstanding under the revolving credit facility. In February 2023, the Company entered into an amendment to its Credit Agreement which, among other things, contains a minimum liquidity financial covenant of $45 million, which includes unrestricted cash and any available borrowing capacity under the revolving credit facility. The amendment also increased the Total Leverage Ratio applicable under the Credit Agreement as of the fiscal quarter ending April 2, 2023, to initially 7.25:1.00, and provides for modified step-down levels for such covenant thereafter through the fiscal quarter ending June 30, 2024. During the 13-week period ended March 30, 2025, 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 $1.6 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 $1.6 million, including short term leases, due during the remainder of fiscal year 2025. 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

See Note 6,"Debt" in the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further detail of our credit facility and the timing of principal maturities. As of September 29, 2024, based on the then current weighted average interest rate of 9.1%, expected interest payments associated with outstanding debt totaled approximately $13.1 million for the remainder of fiscal year 2024.

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 March 30, 2025, based on the then current weighted average interest rate of 8.2%, expected interest payments associated with outstanding debt totaled approximately $11.3 million for the remainder of fiscal year 2025.

Previous wording

Operating Activities. Net cash provided by operating activities for the 39-week period ended September 29, 2024 was$42.8 million compared to net cash provided by operating activities of$56.9 million for the 39-week period ended October 1, 2023. Significant changes in the year-over-year change in working capital activity included negative fluctuations in inventories of$23.4 million. Partially offsetting the decrease was a positive fluctuation from accounts payable of$14.4 million. The change in inventory reflects the impact of fluctuations in sales while changes in accounts payable are impacted by the timing of payments.

Current wording

Operating Activities. Net cash used in operating activities for the 13-week period ended March 30, 2025 was$7.9 million compared to net cash provided by operating activities of$18.8 million for the 13-week period ended March 31, 2024. Significant changes in the year-over-year change in working capital activity included negative fluctuations in accounts receivable and accounts payable of$14.5 million and$13.7 million, respectively. Partially offsetting the decrease was a positive fluctuation from inventories of $3.3 million.

Previous wording

Investing Activities. Cash used in investing activities for the 39-week periods ended September 29, 2024 and October 1, 2023 were$2.7 million and$3.1 million, respectively, due to capital expenditures.

Current wording

Investing Activities. Cash used in investing activities for the 13-week periods ended March 30, 2025 and March 31, 2024 was$7.7 million and$1.1 million, respectively, due to the cash payments related to the acquisition of the perpetual license agreement with Cataclean in January 2025 and other capital expenditures.

Previous wording

Financing Activities. Cash used in financing activities for the 39-week period ended September 29, 2024 was$30.3 million, which primarily reflects $28.8 million in principal payments on long-term debt. The principal payments of long-term debt during the 39-week period ended September 29, 2024 include the repurchase of $25.0 million outstanding principal on the first lien term loan. Cash used in financing activities for the 39-week period ended October 1, 2023 was$43.0 million, which primarily reflects principal payments on long-term debt and deferred financing fees.

Current wording

Financing Activities. Cash used in financing activities for the 13-week period ended March 30, 2025 was$2.4 million, which primarily reflects principal payments on long-term debt and deferred financing fees. Cash used in financing activities for the 13-week period ended March 31, 2024 was$17.7 million, which primarily reflects the repurchase of $15.0 million outstanding principal on the first lien term loan, principal payments on long-term debt.