Holley Inc.

Previous wording

Item 2. Management**’s Discussion and Analysis of Financial Condition and Results of Operations.

Current wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Previous wording

Unless the context requires otherwise, references to“Holley,”* “we,” “us,” “our” and*“the Company”* in this section are to the business and operations of Holley Inc. and its subsidiaries unless the context otherwise indicates**. The following discussion and analysis should be read in conjunction with Holley*’s condensed consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause Holley’s actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed herein and under the caption,“Cautionary Note Regarding Forward-Looking Statements.”* *

Current wording

Unless the context requires otherwise, references to “Holley,” “we,” “us,” “our” and “the Company” in this section are to the business and operations of Holley Inc. and its subsidiaries unless the context otherwise indicates. The following discussion and analysis should be read in conjunction with Holley’s condensed consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause Holley’s actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed herein and under the caption, “Cautionary Note Regarding Forward-Looking Statements.”

Previous wording

We believe that our international exposure is currently primarily centered in China, which remains a significant source of certain raw materials and components. Tariffs on Chinese imports have been a factor in our sourcing strategies for several years, and we have proactively developed and implemented plans to mitigate their impact. These initiatives include, but are not limited to, conducting a harmonized tariff code audit to ensure accurate classification and compliance and exploring direct shipping from suppliers to international customers to reduce tariff exposure on goods entering the United States. We continue to evaluate additional strategies to further minimize the impact of tariffs on our operations.

Current wording

We believe that our international exposure is currently primarily centered in China. Tariffs on Chinese imports have been a factor in our sourcing strategies for several years, and we have proactively developed and implemented plans to mitigate their impact. These initiatives include, but are not limited to, conducting a harmonized tariff code audit to ensure accurate classification and compliance, changing to supplier locations outside of China, reshoring products to North America and exploring direct shipping from suppliers to international customers to reduce tariff exposure on goods entering the United States. We continue to evaluate additional strategies to further minimize the impact of tariffs on our operations.

Previous wording

Because our production costs are primarily U.S.-based and we have a broad product portfolio with a strong concentration of manufacturing and sourcing in the United States, we believe our U.S. focus enables us to better manage and mitigate the impact of tariffs on pricing more effectively than competitors who are less diversified and more reliant on single-source imports from China. However, if current tariff levels are sustained or increased, there is a risk that our profitability, cash flows and estimates inherent in our financial statements could be negatively affected.

Current wording

Because our production costs are primarily U.S.-based and we have a broad product portfolio with a strong concentration of manufacturing and sourcing in the United States, we believe our U.S. focus enables us to better manage and mitigate the impact of tariffs on pricing more effectively than competitors who are less diversified and more reliant on single-source imports from China. During the second quarter of 2025, we undertook the initiatives discussed above to mitigate the economic impact of tariffs on our product portfolio. We believe these initiatives combined with our pricing actions have allowed us to successfully manage the impact of the latest tariff decisions. However, if current tariff levels are sustained or increased, there is a risk that our profitability, cash flows and estimates inherent in our financial statements could be negatively affected.

Previous wording

actions to minimize adverse effects. The extent and duration of these tariffs, as well as their broader impact on macroeconomic conditions and our business, remain uncertain and will depend on a variety of factors outside of our control. Nevertheless, we remain committed to optimizing our operations, managing costs and leveraging our diversified supply chain to minimize the impact of tariffs on our results of operations and financial condition.

Current wording

We continue to monitor international trade developments closely, including potential changes in tariff rates and the possibility of new exemptions or retaliatory actions, in order to analyze their impact on our business and identify possible actions to minimize adverse effects. The extent and duration of these tariffs, as well as their broader impact on macroeconomic conditions and our business, remain uncertain and will depend on a variety of factors outside of our control. Nevertheless, we remain committed to optimizing our operations, managing costs and leveraging our diversified supply chain to minimize the impact of tariffs on our results of operations and financial condition.

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 30, 2025, $559.3 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 29, 2025, $557.6 million was outstanding under our Credit Agreement.

Previous 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.

Current wording

Net sales for the 13-week period ended June 29, 2025 decreased $2.8 million, or 1.7%, to $166.7 million, as compared to $169.5 million for the 13-week period ended June 30, 2024. Lower sales volume resulted in a decrease of approximately $4.2 million, offset partially by improved price realization of approximately $1.4 million compared to the prior year period.

Previous 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.

Current wording

Restructuring costs for the 13-week period ended June 29, 2025 increased by$0.4 million to$0.4 million, as compared to less than $0.1 million for the 13-week period ended June 30, 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 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.

Current wording

As a result of factors described above, operating income for the 13-week period ended June 29, 2025 decreased$0.4 million, or 1.3%, to$27.5 million, as compared to$27.9 million for the 13-week period ended June 30, 2024.

Previous 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.

Current wording

For the 13-week periods ended June 29, 2025 and June 30, 2024, we recognized a gain of less than $0.1 million and$3.4 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 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.

Current wording

For the 13-week periods ended June 29, 2025 and June 30, 2024, we recognized a gain of$0.2 million and$1.1 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 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.

Current wording

Interest expense for the 13-week period ended June 29, 2025 increased$0.2 million, or 1.5%, to$13.4 million, as compared to$13.2 million for the 13-week period ended June 30, 2024, reflecting the negative impact of the interest rate collar. The Company recognized interest expense of$1.4 million and interest income of$(0.1) million related to the interest rate collar for 13-week periods ended June 29, 2025 and June 30, 2024, respectively.

Previous 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.

Current wording

As a result of factors described above, we recognized$14.4 million and$19.2 million of income before income taxes for the 13-week periods ended June 29, 2025 and June 30, 2024, respectively.

Previous 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.

Current wording

As a result of factors described above, we recognized net income of$10.9 million and$17.1 million for the 13-week periods ended June 29, 2025 and June 30, 2024, respectively. Additionally, we recognized total comprehensive income of$12.1 million for the 13-week period ended June 29, 2025, as compared to total comprehensive income of$17.1 million for the 13-week period ended June 30, 2024. Comprehensive income includes the effect of foreign currency translation adjustments.

Previous 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.

Current wording

Cost of goods sold for the 26-week period ended June 29, 2025 decreased$19.7 million, or 9.6%, to$186.1 million, as compared to$205.8 million for the 26-week period ended June 30, 2024. The decrease in cost of goods sold in 2025, a period in which product sales decreased 2.6%, 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 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.

Current wording

Gross profit for the 26-week period ended June 29, 2025 increased$11.3 million, or 9.2%, to$133.6 million, as compared to$122.4 million for the 26-week period ended June 30, 2024. Gross margin for the 26-week period ended June 29, 2025 was 41.8% as compared to a gross margin of 37.3% for the 26-week period ended June 30, 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 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.

Current wording

Selling, general and administrative costs for the 26-week period ended June 29, 2025 increased$2.1 million, or 3.1%, to$69.7 million, as compared to$67.6 million for the 26-week period ended June 30, 2024. Selling, general and administrative costs expressed as a percentage of sales increased to 21.8% for the 26-week period ended June 29, 2025 compared to 20.6% for the 26-week period ended June 30, 2024. The increase in selling, general and administrative costs was driven by an increase in legal fees of $2.3 million, which included $1.3 million in legal settlement costs.

Previous 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.

Current wording

Restructuring costs for the 26-week period ended June 29, 2025 increased by$0.2 million to$0.8 million, as compared to$0.6 million for the 26-week period ended June 30, 2024, reflecting restructuring and integration activities associated with our implementation of resource allocation efforts in support of portfolio development optimization.

Previous 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.

Current wording

Income tax expense for the 26-week period ended June 29, 2025 was$4.6 million, as compared to income tax expense of$1.2 million for the 26-week period ended June 30, 2024. Our effective tax rate for the 26-week period ended June 29, 2025 was 25.1%. The difference between the effective tax rate for the 26-week period ended June 29, 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 26 week period ended June 30, 2024 was 5.3%. The difference between the effective tax rate and the federal statutory rate in 2024 was due to permanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period, federal research and development tax credits, and the impact of foreign taxes in higher tax rate jurisdictions. In addition, the company incurred expenses related to 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.

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, 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.

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, transformative consulting fees 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 period ended March 30, 2025 and March 31, 2024 (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 29, 2025 and June 30, 2024 (dollars in thousands):

Previous wording

Adjusted EBITDA for 2024 includes the impact of a $9.1 million, non-cash charge related to a previously announced strategic product rationalization. For 2024, Adjusted EBITDA includes $2.1 million benefit also related to the strategic product rationalization, netting to $7.0 million non-cash charge.

Current wording

Adjusted EBITDA for 2024 includes the impact of a $9.1 million, non-cash charge related to a previously announced strategic product rationalization. For 2024, Adjusted EBITDA includes $2.8 million benefit also related to the strategic product rationalization, netting to $6.3 million non-cash charge.

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 period ended March 30, 2025 and March 31, 2024 (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 29, 2025 and June 30, 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 period ended March 30, 2025 and March 31, 2024 (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 29, 2025 and June 30, 2024 (dollars in thousands):

Previous 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.

Current wording

As of June 29, 2025, the Company had cash of $63.8 million and availability of $97.4 million under its revolving credit facility. The Company has a senior secured revolving credit facility with $100.0 million in borrowing capacity. As of June 29, 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 $45.0 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. 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, 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.

Current wording

The Company is obligated under various operating leases for facilities, equipment and automobiles with estimated lease payments of approximately $3.8 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 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.

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 29, 2025, based on the then current weighted average interest rate of 8.2%, expected interest payments associated with outstanding debt totaled approximately $22.8 million for the remainder of fiscal year 2025.

Previous 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.

Current wording

Operating Activities. Net cash provided by operating activities for the 26-week period ended June 29, 2025 was $32.6 million compared to net cash provided by operating activities of $44.5 million for the 26-week period ended June 30, 2024. Significant changes in the year-over-year change in working capital activity included negative fluctuations in accounts receivable and accrued and other liabilities of $14.9 million and $2.9 million, respectively. Partially offsetting the decrease was a positive fluctuation from inventories of $9.2 million.

Previous 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.

Current wording

Investing Activities. Net cash used in investing activities for the 26-week periods ended June 29, 2025 and June 30, 2024 was $20.9 million and $2.4 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 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.

Current wording

Financing Activities. Net cash used in financing activities for the 26-week periods ended June 29, 2025 was $4.5 million, which primarily reflects principal payments on long-term debt and deferred financing fees. Cash used in financing activities for the 26-week period ended June 30, 2024 was $30.0 million, which primarily reflects the repurchase of $28.6 million outstanding principal on the first lien term loan, principal payments on long-term debt.