Holley Inc. — Q1 2022 Form 10-Q
Reporting period: The unaudited quarter covered 13 weeks ended April 3, 2022; comparison is the 13 weeks ended March 28, 2021. Holley designs, manufactures, and distributes performance automotive aftermarket products. Amounts below are in millions of dollars unless otherwise indicated.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $200.1 | $160.3 | +24.8% |
| Gross profit / gross margin | $82.7 / 41.3% | $65.7 / 41.0% | Margin +0.3 percentage points |
| Operating income | $36.0 | $12.8 | +182.0% |
| Net income (loss) | $16.9 | $(2.1) | Improved $18.9 |
| Diluted EPS | $0.15 | $(0.03) | — |
| Adjusted EBITDA | $46.0 | $43.8 | +5.1% |
| Operating cash flow | $18.3 | $19.0 | $(0.6) |
Sales growth included $18.1 million from acquisitions and $21.6 million of comparable growth. Comparable growth reflected $13.6 million from improved price realization and $8.0 million from unit volume. Electronic systems, mechanical systems, and safety products were notable growth categories. Price realization offset higher freight and product costs, supporting a slight gross-margin increase.
SG&A rose 43.0% to $34.3 million, or 17.2% of sales versus 15.0%. The increase included acquisition expenses, higher equity compensation, shipping costs, and personnel and public-company costs. R&D increased 36.7% to $8.2 million, primarily due to headcount investment.
Cash, debt, and liquidity
- Cash was $44.1 million at April 3, up from $36.3 million at year-end 2021.
- Debt carrying amount was $642.6 million, including a $6.3 million current portion; gross debt was approximately $655.5 million. The company also had $25.0 million drawn on its $125 million revolver and $30 million drawn under a delayed-draw term loan. Revolver availability was $97.6 million, after considering outstanding letters of credit.
- The first-lien term loan is due November 2028. The weighted-average borrowing rate was 4.5%; substantially all assets secure the credit agreement. Holley reported compliance with financial covenants.
- Operating cash flow was $18.3 million. Investing used $7.2 million, including $5.7 million of capital expenditures and $1.6 million for an acquisition; financing used $3.3 million, primarily for debt principal payments.
- Management said cash on hand, operating cash flow, and revolver availability should meet liquidity and capital needs for at least 12 months. Expected 2022 capital expenditures were $14–$16 million.
Material changes and unusual items
- Net income turned positive from a prior-year loss. The prior-year quarter included $17.2 million of expense from a fair-value adjustment to Simpson acquisition contingent consideration, as well as $0.9 million in related-party management fees; those costs did not recur in Q1 2022.
- Q1 2022 included non-operating fair-value losses of $2.2 million on warrants and $2.4 million on the earn-out liability. The first tranche of earn-out shares vested: 1,093,750 shares were issued and $14.7 million was reclassified from liability to equity; 1,093,750 potential shares remained.
- Interest expense declined 26.6% to $7.4 million, which management attributed to a lower effective rate and prior debt paydown.
- Holley adopted lease accounting standard ASC 842 on January 1, 2022, recording $32.8 million of right-of-use assets and $33.6 million of lease liabilities at quarter-end. Adoption did not materially affect earnings or cash flows.
- One acquisition, John’s Ind., was completed in March for $1.3 million in cash.
Outlook, risks, and contingencies
Management cited product innovation, organic growth, and strategic acquisitions as elements of its growth strategy. The filing provides a capital-expenditure outlook but no revenue, earnings, or full-year Adjusted EBITDA guidance. Management identified continuing COVID-related supply-chain disruption, product shortages, and higher manufacturing, logistics, and freight costs. Other disclosed risks include interest-rate exposure, customer credit risk, foreign-currency movements, acquisition integration, and the ability to comply with debt covenants. A 100-basis-point interest-rate change was estimated to alter annual interest expense by approximately $6.6 million; Holley generally does not hedge this exposure.
The company reported no legal proceedings expected to have a material adverse effect and no material change in its previously disclosed risk factors. It approved termination of its defined-benefit pension plan, with distributions expected after regulatory requirements are met. The filing’s stated estimate of the resulting settlement charge is unclear in amount or units and should be verified.
Important facts for investors to verify
- How much of sales growth and future performance is sustainable after separating acquisition contributions, pricing, and unit-volume growth.
- Whether gross-margin gains can persist amid supply-chain, freight, and product-cost pressures, and how elevated SG&A and R&D spending develops.
- Debt terms, floating-rate sensitivity, covenant headroom, and actual revolver availability; the filing reports both gross debt and a lower debt carrying amount net of issuance costs.
- The pension-plan termination timing and the unclear settlement-charge estimate.
- The potential dilution and future fair-value volatility from warrants and the remaining earn-out shares.