Holley Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. Holley designs, manufactures and sells performance automotive aftermarket products. The July 2021 business combination was accounted for as a reverse recapitalization; prior-period results presented are those of Holley’s predecessor.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $692.8 million | $504.2 million |
| Gross profit / margin | $286.8 million / 41.4% | $208.2 million / 41.3% |
| Operating income / margin | $77.5 million / 11.2% | $85.5 million / 16.9% |
| Net income (loss) | $(27.1) million | $32.9 million |
| Adjusted EBITDA | $169.5 million | $126.2 million |
| Cash from operations | $21.6 million | $88.4 million |
| Capital expenditures | $15.2 million | $9.4 million |
Amounts are reported in U.S. dollars. Adjusted EBITDA is a non-GAAP measure; the filing’s reconciliation includes substantial adjustments, including fair-value changes, acquisition and restructuring costs, related-party fees and debt-extinguishment loss.
- Revenue and margins: Sales rose 37.4%. Acquisitions contributed $116.4 million, or 23.1 percentage points, of year-over-year growth; the remainder included growth in electronic and mechanical systems. Gross margin was broadly stable, while SG&A rose to 16.9% of sales from 14.1%, contributing to lower operating income.
- Cash flow and liquidity: Operating cash flow declined to $21.6 million, with inventory and prepaid-asset increases weighing on cash generation. Year-end cash was $36.3 million; working capital was $199.9 million. The company reported $98.8 million available under its revolver.
- Debt: The November refinancing established a $600 million first-lien term loan, a $125 million revolver and a $100 million delayed-draw facility. At year-end, $655 million of principal was outstanding under the facility, including $25 million drawn on the revolver and $30 million on the delayed-draw term loan. Total debt, including other debt, was $658.8 million before unamortized issuance costs. The weighted-average borrowing rate was 4.5%; a 100-basis-point rate change would affect annual interest expense by approximately $6.6 million.
Material changes and unusual items
- Despite higher sales, Holley reported a net loss, principally reflecting $32.6 million of warrant-liability fair-value expense, $8.9 million of earn-out-liability fair-value expense and a $13.7 million loss on early debt extinguishment. The company also recorded $25.8 million of related-party acquisition and management fees, including a $23.3 million fee paid at the business-combination closing.
- Acquisition and restructuring costs were $23.7 million, including a $17.2 million adjustment to Simpson contingent consideration. The company completed eight acquisitions in 2021; acquisitions contributed materially to sales and investing cash outflows.
- Operating cash flow fell by $66.8 million year over year, while cash used for acquisitions and capital expenditures was $134.1 million. Year-end inventory increased to $185.0 million from $133.9 million.
Outlook, risks and contingencies
- Management said cash on hand, operating cash flow and revolver availability should meet liquidity and capital-expenditure needs for at least the next 12 months. It forecast FY2022 capital expenditures of $14–$16 million and approximately $30 million of FY2022 interest payments based on year-end rates. No specific revenue or earnings guidance was provided.
- Management cited ongoing supply-chain disruption, product shortages, freight and labor costs, and materials inflation. COVID-19 impacts and their duration remained uncertain. The company also identified risks from discretionary consumer spending, competition and pricing, electric-vehicle adoption, reseller concentration, acquisitions and integration, and variable-rate debt.
- A third-quarter 2021 cyberattack temporarily suspended customer services; the company said it had not had a material impact on operations or financial condition to date. The filing warns future cyber incidents could be more consequential.
- Holley reported that management considered disclosure controls and internal control over financial reporting effective as of December 31, 2021. Prior Empower/SPAC financial-statement restatements and related material weaknesses were disclosed; Holley said remediation actions were completed during 2021. The independent auditor did not attest to internal-control effectiveness.
- The company was in compliance with financial covenants at year-end. Debt is secured by substantially all assets and includes leverage requirements and restrictions on distributions, borrowing and other actions. Management cited the expected LIBOR phaseout as a potential source of financing-cost uncertainty.
Investor verification priorities
- Assess the quality and sustainability of sales growth by separating acquisition-driven growth from organic growth, and monitor customer and reseller concentration.
- Review operating cash conversion, inventory growth and working-capital needs alongside the company’s acquisition and capital-spending plans.
- Track leverage, variable interest costs, covenant headroom and the availability of revolving and delayed-draw credit.
- Reconcile GAAP results with Adjusted EBITDA, particularly the recurring nature and magnitude of exclusions and related-party fees.
- Follow acquisition integration, supply-chain recovery, cyber controls, and the performance of the company’s remediated financial-reporting controls.