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Holley Reports Second Quarter 2022 Results

·17-min read

Supply chain disruptions, reseller de-stocking, and softer demand in certain categories cause headwinds

BOWLING GREEN, Ky., August 11, 2022--(BUSINESS WIRE)--Holley Inc. (NYSE: HLLY), the largest and fastest growing platform serving performance automotive enthusiasts, today announced financial results for its second quarter ended July 3, 2022.

Second Quarter Highlights vs. Prior Year Period

  • Net Sales decreased 7.1% to $179.4 million compared to $193.0 million in the prior year’s second quarter

  • Gross Profit decreased 7.3% to $75.3 million compared to $81.2 million in the prior year’s second quarter

  • Net Income of $40.6 million, or $0.35 per diluted share, compared to $23.1 million, or $0.34 per diluted share, in the prior year’s second quarter

  • Adjusted Net Income1 of $13.2 million, compared to $23.1 million reported in the prior year’s second quarter

  • Adjusted EBITDA1 of $37.2 million compared to $54.1 million in the prior year’s second quarter

1See "Use and Reconciliation of Non-GAAP Financial Measures" below.

"Our financial results for the second quarter fell short of expectations primarily due to supply chain challenges including both (1) slower than expected production and movement of goods from global suppliers and (2) shortages in automotive-grade microchips that negatively impacted our ability to build and ship many or our most popular electronic products," said Tom Tomlinson, Holley’s President and Chief Executive Officer. "We also saw meaningful reseller de-stocking in the quarter as resellers reduced their purchases well below their out-the-door sales of our products. These issues, against a backdrop of reduced discretionary consumer spending and the resultant softer demand we experienced in certain categories, caused us to reduce our outlook for the remainder of the year. We are slowing our spending in an effort to optimize our performance and stay ahead of what will likely be a challenging economic environment in the months ahead."

Second Quarter 2022 Financial Results

Net sales decreased 7.1% to $179.4 million in the second quarter of 2022 compared to $193.0 million in the second quarter of 2021. Non-comparable sales associated with acquisitions contributed $9.4 million, or 4.8%, of year-over-year net sales growth in the second quarter. Sales excluding the impact of acquisitions decreased by $23.0 million, or 11.9%, more than offsetting the growth from the acquisitions. The decline in comparable sales was driven by reduced unit volumes, destocking from our resellers, and reduced consumer demand in certain categories including tuning.

Cost of goods sold decreased $7.7 million, or 6.9%, to $104.1 million, as compared to $111.8 million, for the second quarter of 2021 and is primarily attributable to the decrease in product sales. Gross profit for the second quarter of 2022 decreased $5.9 million, or 7.3%, to $75.3 million, as compared to $81.2 million for the second quarter of 2021. The decrease in gross profit was driven by the decrease in sales. Gross margin for the second quarter of 2022 was 42.0% compared to a gross margin of 42.1% for the second quarter of 2021.

Selling, general and administrative costs for the quarter increased $10.1 million to $36.3 million, representing an increase of 38.5% when compared to $26.2 million in 2021. Incremental SG&A from recent acquisitions were responsible for $1.4 million of the increase in the quarter. Additional cost drivers include an increase in non-cash compensation expense related to equity awards, increased administrative and sales personnel costs, reflecting company growth and the additional requirements of becoming a public company, and an increase in outbound shipping costs related to fuel cost inflation.

Net income for the second quarter of 2022 was $40.6 million compared to net income of $23.1 million in 2021. Net income for the second quarter of 2022 was favorably impacted by a $27.4 million non-cash decrease in liabilities for warrants and earn-out shares.

Adjusted for the special transaction and non-cash items noted above this quarter, Adjusted Net Income was $13.2 million, compared to last year’s Adjusted Net Income of $23.1 million. Reconciliation to GAAP Net Income is included in the "Use and Reconciliation of Non-GAAP Financial Measures" table below.

Adjusted EBITDA was $37.2 million in the second quarter of 2022 compared to $54.1 million in the second quarter last year. Reconciliation to GAAP Net Income is included in the "Use and Reconciliation of Non-GAAP Financial Measures" table below.

Diluted EPS of $0.35 for the second quarter of 2022 compared to $0.34 in 2021.

Full Year 2022 Outlook

Holley's current outlook for 2022:

  • Net Sales in the range of $700-$725 million

  • Adjusted EBITDA of $135-$145 million

  • Capital Expenditures in the range of $14-$16 million

  • Depreciation and Amortization Expense of $24-$26 million

  • Interest Expense in the range of $33-$35 million

"Our outlook for the full year 2022 is consistent with the previously communicated full year guidance issued on July 28, 2022, and reflects the current supply chain pressures, inventory, and demand trends we have seen in recent weeks," said Dominic Bardos, Holley’s Chief Financial Officer. "We do not expect to fully resolve the supply chain and inventory issues that are impacting our sales in the near-term, and we have reduced our sales projections accordingly."

Conference Call

A conference call and audio webcast has been scheduled for 8:30 a.m. Eastern Time today to discuss these results. Investors, analysts, and members of the media interested in listening to the live presentation are encouraged to join a webcast of the call available on the investor relations portion of the Company’s website at investor.holley.com. For those that cannot join the webcast, you can participate by dialing 877-407-4019 or 201-689-8337 using the access code of 13731249.

For those unable to participate, a telephone replay recording will be available until Thursday, August 18, 2022. To access the replay, please call 877-660-6853 or 201-612-7415 and enter confirmation code 13731249. A web-based archive of the conference call will also be available at the Company’s website.

About Holley Inc.

Holley Inc. (NYSE: HLLY) is a leading designer, marketer, and manufacturer of high-performance products for car and truck enthusiasts. Holley offers the largest portfolio of iconic brands that deliver innovation and inspiration to a large and diverse community of millions of avid automotive enthusiasts who are passionate about the performance and personalization of their classic and modern cars. Holley has disrupted the performance category by putting the enthusiast consumer first, developing innovative new products, and building a robust M&A process that has added meaningful scale and diversity to its platform. For more information on Holley, visit https://www.holley.com.

Forward-Looking Statements

Certain statements in this press release may be considered "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to future events or Holley’s future financial or operating performance. For example, projections of future revenue and adjusted EBITDA and other metrics are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expect," "intend," "will," "estimate," "anticipate," "believe," "predict," "or" or the negatives of these terms or variations of them or similar terminology. Such forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These forward-looking statements are based upon estimates and assumptions that, while considered reasonable by Holley and its management, are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, but are not limited to: 1) the ability to recognize the anticipated benefits of the business combination with Empower LTD, which may be affected by, among other things, competition, the ability of the combined company to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees; 2) costs related to the business combination and Holley becoming a public company; 3) disruptions to Holley's operations, including as a result of cybersecurity incidents; 4) changes in applicable laws or regulations; 5) the outcome of any legal proceedings that may be instituted against Holley; 6) general economic and political conditions, including political tensions and war (such as the ongoing conflict in Ukraine); 7) the possibility that Holley may be adversely affected by other economic, business and/or competitive factors; 8) Holley’s estimates of its financial performance; 9) the impact of the novel coronavirus disease pandemic and its effect on business and financial conditions; 10) our ability to anticipate and manage through disruptions and higher costs in manufacturing, supply chain, logistical operations, and shortages of certain company products in distribution channels; and 11) other risks and uncertainties set forth in the section entitled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" in the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission ("SEC") on March 15, 2022, and that are otherwise described or updated from time to time in Holley’s filings with the SEC. Although Holley believes the expectations reflected in the forward-looking statements are reasonable, nothing in this press release should be regarded as a representation by any person that the forward-looking statements or projections set forth herein will be achieved or that any of the contemplated results of such forward looking statements or projections will be achieved. There may be additional risks that Holley presently does not know or that Holley currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. Holley undertakes any duty to update these forward-looking statements, except as otherwise required by law.

[Financial Tables to Follow]

HOLLEY INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

For the thirteen weeks ended

For the twenty-six weeks ended

July 3,

June 27,

July 3,

June 27,

2022

2021

Variance
($)

Variance
(%)

2022

2021

Variance
($)

Variance
(%)

Net Sales

$

179,420

$

193,041

$

(13,621

)

-7.1

%

$

379,475

$

353,373

$

26,102

7.4

%

Cost of Goods Sold

104,132

111,841

(7,709

)

-6.9

%

221,466

206,494

14,972

7.3

%

Gross Profit

75,288

81,200

(5,912

)

-7.3

%

158,009

146,879

11,130

7.6

%

Selling, General, and
Administrative

36,269

26,190

10,079

38.5

%

70,611

50,202

20,409

40.7

%

Research and
Development Costs

8,196

7,065

1,131

16.0

%

16,357

13,034

3,323

25.5

%

Amortization of
Intangible Assets

3,662

3,502

160

4.6

%

7,323

6,838

485

7.1

%

Acquisition and
Restructuring Costs

1,691

2,676

(985

)

-36.8

%

1,981

21,509

(19,528

)

-90.8

%

Related Party Acquisition
and Management Fee
Costs

1,658

(1,658

)

-100.0

%

2,539

(2,539

)

-100.0

%

Other Operating Expense

325

47

278

591.5

%

547

(86

)

633

-736.0

%

Operating Expense

50,143

41,138

9,005

21.9

%

96,819

94,036

2,783

3.0

%

Operating Income

25,145

40,062

(14,917

)

-37.2

%

61,190

52,843

8,347

15.8

%

Change in Fair Value of
Warrant Liability

(23,168

)

(23,168

)

nm

(20,941

)

(20,941

)

nm

Change in Fair Value of
Earn-Out Liability

(4,234

)

(4,234

)

nm

(1,853

)

(1,853

)

nm

Interest Expense

8,961

11,174

(2,213

)

-19.8

%

16,352

21,245

(4,893

)

-23.0

%

Non-Operating
(Income) Expense

(18,441

)

11,174

(29,615

)

-265.0

%

(6,442

)

21,245

(27,687

)

-130.3

%

Income Before Income Taxes

43,586

28,888

14,698

50.9

%

67,632

31,598

36,034

114.0

%

Income Tax Expense

3,023

5,790

(2,767

)

-47.8

%

10,211

10,556

(345

)

-3.3

%

Net Income

$

40,563

$

23,098

$

17,465

75.6

%

$

57,421

$

21,042

$

36,379

172.9

%

Comprehensive Income:

Foreign Currency
Translation Adjustment

501

35

466

nm

742

19

723

nm

Total Comprehensive
Income:

$

41,064

$

23,133

$

17,931

77.5

%

$

58,163

$

21,061

$

37,102

176.2

%

Common Share Data:

Basic Net Income per
Share

$

0.35

$

0.34

$

0.01

2.9

%

$

0.49

$

0.31

$

0.18

58.1

%

Diluted Net Income per
Share

$

0.35

$

0.34

$

0.01

2.9

%

$

0.31

$

0.31

$

0.0

%

Weighted Average
Common Shares
Outstanding - Basic

116,932

67,674

49,258

72.8

%

116,398

67,674

48,724

72.0

%

Weighted Average
Common Shares
Outstanding - Diluted

117,115

67,674

49,441

73.1

%

117,344

67,674

49,670

73.4

%

nm - not meaningful

HOLLEY INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands)

(Unaudited)

As of

As of

July 3,

December 31,

2022

2021

Assets

Total Current Assets

$

320,525

$

291,717

Property, Plant and Equipment, Net

56,009

51,495

Goodwill

417,339

411,383

Other Intangibles, Net

434,120

438,461

Right-of-Use Assets

32,762

Total Assets

$

1,260,755

$

1,193,056

Liabilities and Stockholders' Equity

Total Current Liabilities

$

90,842

$

91,795

Long-Term Debt, Net of Current Portion

636,756

637,673

Deferred Taxes

68,955

70,045

Other Noncurrent Liabilities

79,835

89,056

Total Liabilities

876,388

888,569

Common Stock

12

12

Additional Paid-In Capital

351,422

329,705

Accumulated Other Comprehensive Gain (Loss)

486

(256

)

Retained Earnings (Accumulated Deficit)

32,447

(24,974

)

Total Stockholders' Equity

384,367

304,487

Total Liabilities and Stockholders' Equity

$

1,260,755

$

1,193,056

HOLLEY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

For the thirteen weeks
ended

For the twenty-six weeks
ended

July 3,

June 27,

July 3,

June 27,

2022

2021

2022

2021

Operating Activities

Net Income

$

40,563

$

23,098

$

57,421

$

21,042

Adjustments to Reconcile to Net Cash

(12,665

)

8,882

1,335

32,964

Changes in Operating Assets and Liabilities

(25,416

)

(4,539

)

(37,925

)

(7,609

)

Net Cash from Operating Activities

2,482

27,441

20,831

46,397

Investing Activities

Capital Expenditures, Net of Dispositions

(3,778

)

(3,752

)

(9,365

)

(6,856

)

Acquisitions

(12,460

)

(54,011

)

(14,077

)

(54,011

)

Net Cash from Investing Activities

(16,238

)

(57,763

)

(23,442

)

(60,867

)

Financing Activities

Net Change in Debt

189

(1,475

)

(3,099

)

(1,539

)

Proceeds from Issuance of Common Stock Due to Exercise of Warrants

383

383

Net Cash from Financing Activities

572

(1,475

)

(2,716

)

(1,539

)

Effect of Foreign Currency Rate Fluctuations on Cash

(342

)

(443

)

Net Change in Cash and Cash Equivalents

(13,526

)

(31,797

)

(5,770

)

(16,009

)

Cash and Cash Equivalents

Beginning of Period

44,081

87,462

36,325

71,674

End of Period

$

30,555

$

55,665

$

30,555

$

55,665

Holley believes EBITDA, Adjusted EBITDA, Adjusted Net Income, and Organic Sales are useful to investors in evaluating the Company’s financial performance. In addition, Holley uses these measures internally to establish forecasts, budgets and operational goals to manage and monitor its business. Holley believes that these non-GAAP financial measures help to depict a more realistic representation of the performance of the underlying business, enabling the Company to evaluate and plan more effectively for the future.

HOLLEY INC.

USE AND RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands)

(Unaudited)

For the thirteen weeks
ended

For the twenty-six weeks
ended

July 3,

June 27,

July 3,

June 27,

2022

2021

2022

2021

Net Income

$

40,563

$

23,098

$

57,421

$

21,042

Adjustments:

Interest Expense

8,961

11,174

16,352

21,245

Income Taxes

3,023

5,790

10,211

10,556

Depreciation

2,523

2,201

4,663

4,453

Amortization

3,662

3,502

7,323

6,838

EBITDA

58,732

45,765

95,970

64,134

Acquisition and Restructuring Costs

1,691

2,676

1,981

4,336

Earn-Out from Simpson Acquisition

17,173

Change in Fair Value of Warrant Liability

(23,168

)

(20,941

)

Change in Fair Value of Earn-Out Liability

(4,234

)

(1,853

)

Equity-Based Compensation Expense

3,483

131

6,645

262

Related Party Acquisition and Management Fee Costs

1,658

2,539

Notable Items

378

3,862

884

9,575

Other Expense

325

47

547

(86

)

Adjusted EBITDA

$

37,207

$

54,139

$

83,233

$

97,933

For the thirteen weeks
ended

For the twenty-six weeks
ended

July 3,

June 27,

July 3,

June 27,

2022

2021

2022

2021

Net income

$

40,563

$

23,098

$

57,421

$

21,042

Special items:

Adjust for: Change in Fair Value of Warrant Liability

(23,168

)

(20,941

)

Adjust for: Change in Fair Value of Earn-Out Liability

(4,234

)

(1,853

)

Adjust for: Earn-Out from Simpson Acquisition

17,173

Adjusted Net Income

$

13,161

$

23,098

$

34,627

$

38,215

13 Weeks
Ended

July 3, 2022

Net Sales

179,420

Less: Sales from Acquisitions within 365 Days of Purchase (Non-Comparable to Prior Year)

(9,362

)

Organic Sales (Comparable to Prior Year Period Net Sales)

$

170,058

Full Year 2022

2022 Forecast

2022 Forecast

Low Range

High Range

Net Sales

$

700,000

$

725,000

Adjusted EBITDA

135,000

145,000

Depreciation and Amortization

24,000

26,000

Interest Expense

33,000

35,000

Capital Expenditures

14,000

16,000

Holley defines EBITDA as earnings before (a) interest expense, (b) income taxes and (c) depreciation and amortization. Holley defines Adjusted EBITDA as EBITDA plus (i) acquisition integration and restructuring costs, (ii) an adjustment in 2021 due to a change in the fair value of the Simpson acquisition contingent consideration payable, (iii) changes in the fair value of the warrant liability, (iv) changes in the fair value of the earn-out liability, (v) compensation expense related to equity awards, (vi) related party acquisition and management fee costs, (vii) notable items that in 2022 consist primarily of non-cash adjustments related to the adoption of ASC 842, "Leases," and in 2021 consist primarily of the amortization of the fair market value increase in inventory due to acquisitions, and (viii) other expenses, which includes losses from disposal of fixed assets and foreign currency transactions. We have included within the definition of Adjusted EBITDA the changes in the fair value of the warrant liability, changes in the fair value of the earn-out liability and losses from the early extinguishment of debt, as management believes such matters, when they occur, do not directly reflect the performance of the underlying business.

Holley calculates Adjusted Net Income by excluding the after-tax effect of items considered by management to be special items from the earnings reported under U.S. GAAP. Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present consolidated operating results. Holley believes that using this information, along with net income, provides for a more complete analysis of the results of operations.

Organic sales, or sales excluding the impact of acquisitions, excludes the impact from sales from acquisitions within 365 days of the consummation of such acquisition. Holley believes organic sales provides investors with useful supplemental information regarding Holley's underlying sales trends.

EBITDA, Adjusted EBITDA, Adjusted Net Income, and organic sales are not prepared in accordance with accounting principles generally accepted in the United States ("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 Holley’s financial performance. These metrics should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP.

A forecast for full year 2022 Adjusted EBITDA is provided on a non-GAAP basis only because certain information necessary to calculate the most comparable GAAP measure is unavailable due to the uncertainty and inherent difficulty of predicting the occurrence and the future financial statement impact of certain items. Therefore, as a result of the uncertainty and variability of the nature and amount of future adjustments, which could be significant, Holley is unable to provide a reconciliation of these measures without unreasonable effort.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220811005243/en/

Contacts

Investor Relations:
Ross Collins / Stephen Poe
Alpha IR Group
312-445-2870
HLLY@alpha-ir.com