Holley Inc. — Q2 2022 Form 10-Q
Reporting period: 13 weeks ended July 3, 2022; comparative quarter ended June 27, 2021. Year-to-date figures cover 26 weeks. Dollar amounts below are in millions unless noted.
Business context
Holley designs, manufactures and distributes performance automotive aftermarket products. It completed three acquisitions in the first half of 2022; acquisitions contributed to year-over-year sales growth for the half-year.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $179.4 | $193.0 | $379.5 | $353.4 |
| Gross profit / margin | $75.3 / 42.0% | $81.2 / 42.1% | $158.0 / 41.6% | $146.9 / 41.6% |
| Operating income / margin | $25.1 / 14.0% | $40.1 / 20.8% | $61.2 / 16.1% | $52.8 / 15.0% |
| Net income | $40.6 | $23.1 | $57.4 | $21.0 |
| Adjusted EBITDA | $37.2 | $54.1 | $83.2 | $97.9 |
Q2 basic and diluted EPS were both $0.35, versus $0.34. First-half basic EPS was $0.49 and diluted EPS was $0.31, versus $0.31 for both measures in 2021. First-half diluted EPS reflects a $20.9 million warrant fair-value gain excluded from the diluted EPS numerator under the filing’s calculation.
First-half operating cash flow was $20.8, down from $46.4. Investing cash outflow was $23.4, including $9.6 of capital expenditures and $14.1 for acquisitions. Financing cash outflow was $2.7; cash declined $5.8 to $30.6.
At July 3, 2022, total assets were $1,260.8 and stockholders’ equity was $384.4. Cash was $30.6; inventory was $214.9, up from $185.0 at year-end. Debt was approximately $655.5 gross, including $652.4 under the first-lien term loan; carrying value net of issuance costs and current portion was $636.8 long-term and $6.3 current. The term loan’s weighted-average interest rate was 5.2%. No revolver borrowings were outstanding; $123.8 was available, net of letters of credit. Holley reported compliance with its financial covenants.
Changes versus comparable periods
- Q2 sales fell 7.1%. Acquisitions added $9.4, but comparable sales declined $23.0 (11.9%); lower unit volume was partly offset by $14.0 of improved pricing. Electronic systems sales fell $16.3.
- First-half sales rose 7.4%, with acquisitions adding $27.4; comparable sales declined 0.4%. Lower unit volume, net of pricing, reduced comparable sales by $1.3.
- Gross margin was broadly stable. Q2 operating income declined 37.2%, as higher SG&A and R&D outweighed lower sales. First-half operating income rose 15.8%, aided by lower acquisition/restructuring costs versus the prior-year period.
- GAAP net income benefited from noncash fair-value gains on warrants and earn-out liabilities: $27.4 in Q2 and $22.8 for the first half. These gains do not represent operating cash generation. Adjusted EBITDA declined in both periods.
Outlook, risks and unusual items
- No sales or earnings guidance was provided. Management expects fiscal 2022 capital expenditures of $14–$16 million and believes cash, operating cash flow and revolver availability will meet liquidity needs for at least the next 12 months and the foreseeable future.
- Management cited continuing microchip shortages and supply-chain and logistics constraints that limited production and product availability, alongside reseller destocking and softer consumer demand. Inflationary pressures and higher shipping, personnel and public-company costs also affected results.
- Debt is variable-rate and generally not hedged. The filing estimates a 100-basis-point rate move would change annual interest expense by approximately $6.6 million.
- The company expects a $0.4–$0.55 million pension settlement charge after terminating its defined-benefit plan; distribution is expected by Q4 2022, subject to regulatory requirements and market conditions.
- Management said ordinary-course lawsuits are not expected to materially affect the company. No material risk-factor changes were reported. Disclosure controls were deemed effective, with no material quarterly change in internal control over financial reporting.
Investor verification points
- Track whether supply constraints, destocking and demand softness persist, and whether comparable sales recover.
- Monitor inventory growth, operating cash conversion and the effect of working-capital requirements on liquidity.
- Assess underlying operating performance separately from warrant and earn-out fair-value gains; review the Adjusted EBITDA reconciliation and its exclusions.
- Verify debt, interest-rate exposure, revolver availability and continued covenant compliance.
- Follow acquisition integration and returns, planned capital spending, and the timing and amount of the pension settlement charge.