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What changed in Holley Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Holley Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+343 added−327 removedSource: 10-K (2024-03-14) vs 10-K (2023-03-15)

Top changes in Holley Inc.'s 2023 10-K

343 paragraphs added · 327 removed · 253 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

46 edited+21 added−14 removed33 unchanged
Biggest changeWe know that diversity throughout our company creates stronger teams, leads to innovation, and results in an organization that provides the best service to our customers. We have a recruitment strategy that encourages diversity across the company. We leverage our employee referral program to identify diverse talent during the recruitment process.
Biggest changeWe follow local, state and federal regulations issued by the Occupational Safety and Health Administration and are prepared to implement any applicable workplace requirements in order to keep our employees safe. Inclusion . We know that diversity throughout our company creates stronger teams, leads to innovation, and results in an organization that provides the best service to our customers.
On July 16, 2021, we consummated a business combination (“Business Combination”) pursuant to that certain Agreement and Plan of Merger dated March 11, 2021 (the “Merger Agreement”), by and among Empower Ltd., (“Empower”), Empower Merger Sub I Inc., a direct wholly owned subsidiary of Empower (“Merger Sub I”), Empower Merger Sub II LLC, a direct wholly owned subsidiary of Empower (“Merger Sub II”), and Holley Intermediate Holdings, Inc.
On July 16, 2021, we consummated a business combination (the “Business Combination”) pursuant to that certain Agreement and Plan of Merger dated March 11, 2021 (the “Merger Agreement”), by and among Empower Ltd., (“Empower”), Empower Merger Sub I Inc., a direct wholly owned subsidiary of Empower (“Merger Sub I”), Empower Merger Sub II LLC, a direct wholly owned subsidiary of Empower (“Merger Sub II”), and Holley Intermediate Holdings, Inc.
Our DTC channel provides consumers full access to all of our brands, our unique branded content and our full product assortment. We have turned Holley.com into our primary hub for consumer communication and continue to add features and brands that make it an increasingly attractive digital destination for our consumers.
DTC channel : Our DTC channel provides consumers full access to all of our brands, our unique branded content and our full product assortment. We have turned Holley.com into our primary hub for consumer communication and continue to add features and brands that make it an increasingly attractive digital destination for our consumers.
Environmental Protection Agency (“EPA”) has taken action to control greenhouse gases from certain stationary and mobile sources. In addition, several states have taken steps, such as adoption of cap-and-trade programs or other regulatory systems, to address greenhouse gases. There have also been international efforts seeking legally binding reductions in emissions of greenhouse gases.
Environmental Protection Agency has taken action to control greenhouse gases from certain stationary and mobile sources. In addition, several states have taken steps, such as adoption of cap-and-trade programs or other regulatory systems, to address greenhouse gases. There have also been international efforts seeking legally binding reductions in emissions of greenhouse gases.
Further, we are introducing an internship program designed to provide students in the community an opportunity to gain practical experience. We are committed to fostering an equitable work environment that seeks to ensure fair treatment, equality of opportunity, and fairness in access to information and resources. Social Responsibility . We are committed to social responsibility.
Further, we are introducing an internship program designed to provide students in the community with an opportunity to gain practical experience. We are committed to fostering an equitable work environment that seeks to ensure fair treatment, equality of opportunity, and fairness in access to information and resources. Social Responsibility . We are committed to social responsibility.
Holley offers a variety of products across multiple categories but traces its roots back to carburetors which originally made the brand famous with automotive enthusiasts. • MSD : Currently our third leading brand and represented 10% of our sales for 2022.
Holley offers a variety of products across multiple categories but traces its roots back to carburetors which originally made the brand famous with automotive enthusiasts. • MSD : Currently our third leading brand and represented 10% of our sales for 2023.
Our Holley EFI brand focuses on electronic fuel injection technology and showcases our new product development engine. • Holley : Currently our second largest brand and represented 14% of our sales for 2022. The Holley brand resonates with consumers as the majority of automotive enthusiast consumers recognize the Holley brand.
Our Holley EFI brand focuses on electronic fuel injection technology and showcases our new product development engine. • Holley : Currently our second largest brand and represented 14% of our sales for 2023. The Holley brand resonates with consumers as the majority of automotive enthusiast consumers recognize the Holley brand.
Approximately 48% of our full-time employees are based primarily in our Bowling Green, KY headquarters, distribution center and manufacturing plants. None of our employees are subject to collective bargaining agreements or represented by a labor union.
Approximately 49% of our full-time employees are based primarily in our Bowling Green, KY headquarters, distribution center and manufacturing plants. None of our employees are subject to collective bargaining agreements or represented by a labor union.
These survey results have demonstrated that our employees have a strong sense of belonging, trust in management, and confidence in Holley. These strengths provide a foundation for our success, and we are dedicated to enhancing the employee experience at Holley. 9 Table of Contents Talent Development . The development of our employees’ skills and knowledge is critical to Holley’s success.
These survey results have demonstrated that our employees have a strong sense of belonging, trust in management, and confidence in Holley. These strengths provide a foundation for our success, and we are dedicated to enhancing the employee experience at Holley. Talent Development . The development of our employees’ skills and knowledge is critical to Holley’s success.
These reports and other information are also available, free of charge, at www.sec.gov . In addition, we will provide, at no cost, paper or electronic copies of our reports and other filings made with the SEC. Requests can be made in writing or by phone.
These reports and other information are also available, free of charge, at www.sec.gov . In addition, we will provide, at no cost, paper or electronic copies of our reports and other filings made with the SEC. Requests can be made in writing or by phone. 11 Table of Contents
We believe the following factors distinguish Holley from its competitors: • Brand that resonates with enthusiasts: we actively engage enthusiasts at the platform level across multiple channels (e.g., events, digital media, online communities, etc.), creating reference networks for potential consumers. • Innovative, product development: we invest heavily in product research, innovation and development, and introduce products that meet latest platform and use case-specific needs of our enthusiast consumers. • Operational ability that enables efficient order execution : we make significant investments in sourcing, manufacturing and distribution excellence, enabling management of multiple product lines while maintaining scale and attractive relative pricing. • Differentiated go-to-market strategy : we offer a mix of single product and platform-oriented solutions across DTC and reseller channels, delivering a strong overall consumer experience.
We believe the following factors distinguish Holley from its competitors: • Brand that resonates with enthusiasts: we actively engage enthusiasts at the platform level across multiple channels (e.g., events, digital media, online communities, etc.), creating reference networks for potential consumers. • Innovative, product development: we invest heavily in product research, innovation and development, and introduce products that meet latest platform and use case-specific needs of our enthusiast consumers. • Operational ability that enables efficient order execution : we make significant investments in sourcing, manufacturing and distribution excellence, enabling management of multiple product lines while maintaining scale and attractive relative pricing. • Differentiated go-to-market strategy : we offer a mix of single product and platform-oriented solutions across DTC and reseller channels, delivering a strong overall consumer experience. 6 Table of Contents Brands We have a strong portfolio of brands covering various product categories.
We believe our approach to pricing allows us to better understand consumer demand and identify what our end consumers are buying. Intellectual Property Patents, trademarks, and other proprietary rights are important to the continued success of our business.
We believe our approach to pricing allows us to better understand consumer demand and identify what our end consumers are buying. 8 Table of Contents Intellectual Property Patents, trademarks, and other proprietary rights are important to the continued success of our business.
We have implemented programs and training designed to eliminate workplace incidents, risks and hazards. The core training provided includes Emergency Response, OSHA Reporting, Fire Safety, and Office Ergonomics. We also review and monitor our performance closely.
We have implemented programs and training designed to eliminate workplace incidents, risks and hazards. The core training provided includes Emergency Response, OSHA Reporting, Fire Safety, Slips, Trips and Falls, and Office Ergonomics. We also review and monitor our performance closely.
The Merger Agreement provided for, among other things, the following transactions: (i) Merger Sub I merged with and into Holdings, the separate corporate existence of Merger Sub I ceased, and Holdings became the surviving corporation, and (ii) Holdings merged with and into Merger Sub II, the separate corporate existence of Holdings ceased, and Merger Sub II became the surviving limited liability company.
The Merger Agreement provided for, among other things, the following transactions: (i) Merger Sub I merged with and into Holley Intermediate, the separate corporate existence of Merger Sub I ceased, and Holley Intermediate became the surviving corporation, and (ii) Holley Intermediate merged with and into Merger Sub II, the separate corporate existence of Holley Intermediate ceased, and Merger Sub II became the surviving limited liability company.
Powerteq is focused on exhaust, intakes, drivetrain and engine tuning products and accessories. • Accel : Currently our sixth largest brand and represented 7% of our sales in 2022. Accel is focused on performance fuel and ignition systems. • Flowmaster : Currently our seventh largest brand and represented 6% of our sales in 2022.
Powerteq is focused on exhaust, intakes, drivetrain and engine tuning products and accessories. • Accel : Currently our sixth largest brand and represented 8% of our sales in 2023. Accel is focused on performance fuel and ignition systems. • Flowmaster : Currently our seventh largest brand and represented 6% of our sales in 2023.
Compensation and Benefits . We strive to hire, develop and retain top talent. We attract and reward our employees by providing competitive benefits, including market-competitive compensation, medical, dental and vision insurance, short-term and long-term disability insurance, basic life and accidental death and dismemberment insurance, voluntary supplemental coverages, flexible spending accounts, paid time off, and our 401(k) program.
We attract and reward our employees by providing competitive benefits, including market-competitive compensation, medical, dental and vision insurance, short-term and long-term disability insurance, basic life and accidental death and dismemberment insurance, voluntary supplemental coverages, flexible spending accounts, paid time off, and our 401(k) program.
The information on our website is not, and should not be considered, part of this Form 10-K and is not incorporated by reference in this Form 10-K. The website is, and is only intended to be, for reference purposes only.
Our Internet address is www.holley.com. The information on our website is not, and should not be considered, part of this Form 10-K and is not incorporated by reference in this Form 10-K. The website is, and is only intended to be, for reference purposes only.
We consider our team members to be our most valuable asset and seek to attract and maintain the highest quality talent by offering competitive benefits and wellness services, opportunities to grow professionally, and regular evaluations, among other initiatives. As of December 31, 2022, we employed 1,622 full-time employees and 100 temporary employees.
We consider our team members to be our most valuable asset and seek to attract and maintain the highest quality talent by offering competitive benefits and wellness services, opportunities to grow professionally, and regular evaluations, among other initiatives. On December 31, 2023, we employed 1,594 full-time employees and 39 temporary employees.
Accordingly, we recognize the benefits of female representation in our workforce, and in 2022 over 30% of our workforce were women. We are committed to closing the gender gap and our recruitment and retention strategies support improving women’s representation in leadership roles. Our Culture .
Notably, approximately 30% of Holley consumers are female. Accordingly, we recognize the benefits of female representation in our workforce, and in 2023 over 35% of our workforce were women. We are committed to closing the gender gap and our recruitment and retention strategies support improving women’s representation in leadership roles. Our Culture .
These resellers consist of E-tailers, warehouse distributors, traditional retailers, and jobber/installers with E-tailers and warehouse distributors accounting for 60% of our sales in 2022, and our top ten resellers accounting for 39% of our sales in 2022 with our largest reseller making up 19% of our sales in 2022. We have established mutually beneficial and long-term relationships with our resellers.
These resellers consist of E-tailers, warehouse distributors, traditional retailers, and jobber/installers with E-tailers and warehouse distributors accounting for 59% of our sales in 2023, and our top ten resellers accounting for 42% of our sales in 2023 with our largest reseller making up 21% of our sales in 2023. We have established mutually beneficial and long-term relationships with our resellers.
Our marketing strategy is centered on strong brand equity, leading new product innovation capabilities and delivering consistently high-quality products. In 2022, we spent approximately $11.6 million (or approximately 2% of our 2022 annual gross sales) on marketing and advertising.
Our marketing strategy is centered on strong brand equity, leading new product innovation capabilities and delivering consistently high-quality products. In 2023, we spent approximately $9.9 million (or approximately 1.4% of our 2023 annual gross sales) on marketing and advertising.
MSD has historically been focused on production of ignition products but today has been more focused on developing electronics for the powertrain category. • Simpson : Currently our fourth leading brand and represented 9% of our sales for 2022.
MSD has historically been focused on production of ignition products and recently has been more focused on developing electronics for the powertrain category. • Simpson : Currently our fourth leading brand and represented 8% of our sales for 2023.
These events focus on creating memorable experiences for enthusiasts, celebrate car culture, build community and show enthusiasts how Holley products can help them enjoy their vehicles. Since 2015, our events have grown in total annual attendance from 14,000 to 106,000 in 2022 .
These events focus on creating memorable experiences for enthusiasts, celebrate car culture, build community, and show enthusiasts how Holley products can help them get more performance and enjoyment from their vehicles. Our events have grown in total annual attendance from 14,000 in 2015 to 125,000 in 2023 .
Simpson was acquired in 2020 and has focused on motorsport safety products including helmets, head and neck restraints, seat belts and fire suits. • Powerteq : Currently our fifth leading brand and represented 8% of our sales for 2022.
Simpson is focused on motorsport safety products including helmets, head and neck restraints, seat belts and fire suits. • Powerteq : Currently our fifth leading brand and represented 8% of our sales for 2023.
In recent years, we have shifted our marketing efforts towards digital advertising and have increased investments in consumer engagement directly via digital and social media platforms and campaigns. Additionally, since mid-2020 we increased resources focused on expanding our e-commerce and digital platforms.
We believe these strategies will have a meaningfully positive impact across our brand portfolio. In recent years, we have shifted our marketing efforts towards digital advertising and have increased investments in consumer engagement directly via digital and social media platforms and campaigns. Additionally, since mid-2020 we increased resources focused on expanding our e-commerce and digital platforms.
Item 1. Business About Us Founded in 1903, Holley, Inc. (“Holley” or the “Company”) has been a part of the automotive industry for well over a century. We are a leading designer, marketer, and manufacturer of high-performance automotive aftermarket products for car and truck enthusiasts. Our products span a number of automotive platforms and are sold across multiple channels.
Item 1. Business About Us Founded in 1903, Holley, Inc. has been a part of the automotive industry for well over a century. We design, manufacture, and distribute high-performance automotive aftermarket products to car and truck enthusiasts primarily in the United States, Canada and Europe. Our products span a number of automotive platforms and are sold across multiple channels.
Brands We have a strong portfolio of brands covering various product categories. Our portfolio consists of over 70 brands spanning across 30 product categories. Our top seven brands generated 68% of our sales in 2022. • Holley EFI : Currently our largest brand and represented 14% of our sales for 2022.
Our portfolio consists of over 70 brands spanning across over 30 product categories. Our top seven brands generated 70% of our sales in 2023. • Holley EFI : Currently our largest brand and represented 16% of our sales for 2023.
Flowmaster's main focus is on developing exhaust products. We believe the popularity of our brands is the result of consistently delivering high quality, innovative products that resonate with our enthusiast consumers.
Flowmaster's main focus is on developing exhaust products. We believe the popularity of our brands is the result of consistently delivering high quality, innovative products that resonate with our enthusiast consumers. Our brands have allowed us to build direct, trusted and long-lasting relationships with our consumers and resellers.
Products in the performance automotive aftermarket parts industry range from functional products that enhance vehicle performance to products that improve safety, stability, handling and appearance. 5 Table of Contents Our core competitive set is comprised of four primary types of competitors with fragmentation across the majority of our major product categories: • Multi-product category providers : legacy brands with coverage across multiple performance aftermarket products with multiple brands often under one banner and built through acquisition.
Our core competitive set is comprised of four primary types of competitors with fragmentation across the majority of our major product categories: • Multi-product category providers : legacy brands with coverage across multiple performance aftermarket products with multiple brands often under one banner and built through acquisition.
We expand our existing product families and enter new product categories by creating solutions grounded in our expert insights and relevant market knowledge.
We have thoughtfully expanded our product portfolio over time to adapt to consumer needs and find solutions to new consumer demands. We expand our existing product families and enter new product categories by creating solutions grounded in our expert insights and relevant market knowledge.
Ongoing supply chain disruptions, resulting in supply shortages and higher shipping charges, have and could continue to impact our ability to maintain supplies of products and the costs associated with obtaining raw materials and key components.
Ongoing supply chain disruptions, resulting in supply shortages and higher shipping charges, have and could continue to impact our ability to maintain supplies of products and the costs associated with obtaining raw materials and key components, including automotive-grade microchips. 7 Table of Contents Marketing We reach and engage our consumers where they participate in the performance automotive aftermarket – online and in person.
These developments and further actions that may be taken in the U.S. and in other countries, states or provinces could affect our operations both positively and negatively (e.g., by affecting the demand for or suitability of some of our products). 8 Table of Contents We also may be subject to liability as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act and similar state or foreign laws for contaminated properties that we currently own, lease or operate or that we or our predecessors have previously owned, leased or operated, and sites to which we or our predecessors sent hazardous substances.
We also may be subject to liability as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act and similar state or foreign laws for contaminated properties that we currently own, lease or operate or that we or our predecessors have previously owned, leased or operated, and sites to which we or our predecessors sent hazardous substances.
Continued expansion of and investment in digital and social media are expected in the future, including focusing on strategies to grow the high margin DTC channel. We have also spent significant time and effort in creating engaging, in-person events to build the Holley tribe.
Continued expansion of and investment in digital and social media are expected in the future to support our DTC channel as well as our complete distribution network. We have also spent significant time and effort in curating engaging, in-person events to build the Holley enthusiast community.
We have mutually beneficial relationships with our resellers and are able to maintain strong pricing discipline across our channels with strict conformance to minimum advertised pricing. 7 Table of Contents DTC channel : Consumers are increasingly meeting us online through our DTC channel.
Our omni-channel model enables us to reach our consumers through DTC , E-tailer, warehouse distributor, traditional retailer, and jobber/ installer channels. We have mutually beneficial relationships with our resellers and are able to maintain strong pricing discipline across our channels with strict conformance to minimum advertised pricing.
As of December 2022, our Engineering function includes approximately 203 employees, including many enthusiast-focused engineers who are passionate about cars. We continue to seek out top level talent that will help accomplish our mission and vision moving forward. Our goal is to create an inclusive and safe environment for our employees that keeps them engaged in their work.
On December 31, 2023, our Engineering function included approximately 146 employees, including many enthusiast-focused engineers who are passionate about cars. We continue to seek out top level talent that will help accomplish our mission and vision moving forward.
Competition The performance automotive industry is highly competitive, and we face substantial competition in all the markets that we serve. The principal factors on which industry participants compete include technical features, performance, product design, innovation, reliability and durability, brand, time to market, customer service, reliable order execution, and price.
The principal factors on which industry participants compete include technical features, performance, product design, innovation, reliability and durability, brand, time to market, customer service, reliable order execution, and price. Our success in the marketplace depends on our ability to execute our Business Strategy discussed above. The performance automotive aftermarket parts industry in the United States is large and highly fragmented.
We also engage with a local development board and a local refugee center in Bowling Green, KY to increase our diverse talent candidate pool. We believe our employees should reflect the customers we serve. Notably, approximately 30% of Holley consumers are female.
We have a recruitment strategy that encourages diversity across the company. We leverage our employee referral program to identify diverse talent during the recruitment process. We also engage with a local development board and a local refugee center in Bowling Green, KY to increase our diverse talent candidate pool. We believe our employees should reflect the customers we serve.
We have a history of developing innovative products, including new products in existing categories like Electronic Fuel Injection, product line expansions, and products that bring us into new markets including components for converting ICE vehicles to electric powertrains. We have thoughtfully expanded our product portfolio over time to adapt to consumer needs and find solutions to new consumer demands.
We believe our product development capabilities will enable us to create sustainable long-term growth and margin enhancements for our business. We have a history of developing innovative products, including new products in existing categories like Electronic Fuel Injection, product line expansions, and products that bring us into new markets including components for converting internal combustion engine vehicles to electric powertrains.
Holley matches employee contributions to the 401(k) Plan up to 3.5% each pay period, and an additional discretionary match of up to 1.5% is made based on company performance to targets. Health, Safety and Wellness . Holley is committed to the health and well-being of its employees and designs its compensation and benefit programs to demonstrate this commitment.
Holley matches employee contributions to the 401(k) Plan up to 3.5% each pay period, and an additional discretionary match of up to 1.5% is made based on company performance to targets. We are committed to providing an array of benefits that meet the needs of our workforce, as demonstrated by the addition of an HSA-eligible health plan in 2024.
We attribute a major component of our success to our brands, including “Holley”, “APR”, “MSD” and “Flowmaster”, among others. In addition, we have recently added to our brand lineup through a series of strategic acquisitions, including our 2022 acquisitions of substantially all the assets of John’s Ind., Inc. (“John’s”), Southern Kentucky Classics (“SKC”), and Vesta Motorsports USA, Inc., d.b.a.
In addition, we have recently added to our brand lineup through a series of strategic acquisitions, including our 2022 acquisitions of John’s Ind., Inc., Southern Kentucky Classics, and Vesta Motorsports USA, Inc., d.b.a. RaceQuip, and our 2021 acquisitions of AEM Performance Electronics, Classic Instruments LLC, ADS Precision Machining, Inc., d.b.a. Arizona Desert Shocks, Baer, Inc, d.b.a.
Our brands have allowed us to build direct, trusted and long-lasting relationships with our consumers and resellers. 6 Table of Contents Product Development We offer our enthusiast consumers a comprehensive suite of performance automotive aftermarket products to meet a wide range of needs. We are continuously innovating and evolving our product offerings to meet ever-changing consumer needs.
Product Development We offer our enthusiast consumers a comprehensive suite of performance automotive aftermarket products to meet a wide range of needs. We are continuously innovating and evolving our product offerings to meet ever-changing consumer needs. We invest heavily in developing new products, spending an average of $25.1 million per year on research and development since 2019 .
We currently host seven annual self-funding events, including LS Fest East, LS Fest West, Ford Fest, MoParty, High Voltage, Brother's Truck Show, plus a new event launched in 2022, LS Fest Texas, our largest inaugural event to date. Sales and Distribution We have a diverse omni-channel distribution strategy led by our growing DTC channel.
We hosted seven events in 2023: LS Fest East, LS Fest West, Ford Fest, MoParty, High Voltage, Brother's Truck Show, and LS Fest Texas. Sales and Distribution We have a diverse omni-channel distribution strategy focused on delivering the best customer experience to our enthusiast consumers and distribution partners.
Holley gives its subsidiaries the ability to lead their own community engagement initiatives through contributions to charities and participation in fundraising events. Available Information Our principal executive offices are located at 1801 Russellville Rd., Bowling Green, KY 42101, and our telephone number is (270) 782-2900. Our Internet address is www.holley.com.
Holley gives its subsidiaries the ability to lead their own community engagement initiatives through contributions to charities and participation in fundraising events.
(“Speartech”), and our 2020 acquisitions of Simpson Racing Products, Inc. (“Simpson”), Drake Automotive Group LLC (“Drake”) and Detroit Speed, Inc. (“Detroit Speed”). Through these strategic acquisitions, we have increased our market position in the otherwise highly fragmented performance automotive aftermarket industry. 4 Table of Contents We operate in the performance automotive aftermarket parts industry.
Baer Brakes, Brothers Mail Order Industries, Inc., d.b.a. Brothers Trucks, Rocket Performance Machine, Inc., d.b.a. Rocket Racing Wheels, and Speartech Fuel Injections Systems, Inc. Through these strategic acquisitions, we have increased our market position in the otherwise highly fragmented performance automotive aftermarket industry. We operate in the performance automotive aftermarket parts industry.
Our success in the marketplace depends on our ability to execute our Business Strategy discussed above. The performance automotive aftermarket parts industry in the United States is large and highly fragmented. In addition, we have seen consistent growth within the automotive aftermarket parts industry over the last two decades.
In addition, we have seen consistent growth within the automotive aftermarket parts industry over the last two decades. Products in the performance automotive aftermarket parts industry range from functional products that enhance vehicle performance to products that improve safety, stability, handling and appearance.
Going forward, consistent with our value creation strategies, we intend to continue our investments in direct consumer marketing and advertising as well as refocus our current mix of spending towards activities believed to generate the highest return on investment. We believe these strategies will have a meaningfully positive impact across our brand portfolio.
Going forward, consistent with our value creation strategies, we intend to continue our investments in direct consumer marketing and advertising as well as refocus some of our efforts to support our distribution network to fully meet our customers everywhere they shop.
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RaceQuip (“RaceQuip”), our 2021 acquisitions of substantially all the assets of AEM Performance Electronics (“AEM”), Classic Instruments LLC (“Classic Instruments”), ADS Precision Machining, Inc., d.b.a. Arizona Desert Shocks (“ADS”), Baer, Inc, d.b.a. Baer Brakes (“Baer”), Brothers Mail Order Industries, Inc., d.b.a. Brothers Trucks (“Brothers”), Rocket Performance Machine, Inc., d.b.a. Rocket Racing Wheels (“Rocket”), and Speartech Fuel Injections Systems, Inc.
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We are a leading manufacturer of a diversified line of performance automotive products, including carburetors, fuel pumps, fuel injection systems, nitrous oxide injection systems, superchargers, exhaust headers, mufflers, distributors, ignition components, engine tuners and automotive performance plumbing products. We are also a leading manufacturer of exhaust products as well as shifters, converters, transmission kits, transmissions, tuners and automotive software.
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Upon closing, Empower changed its name to Holley Inc. and its trading symbol on the New York Stock Exchange (the “NYSE”) from “EMPW” to “HLLY.” Business Strategy Our vision is to be the most compelling and inclusive platform for automotive enthusiasts, to inspire and support enthusiasts’ transition to cleaner, more sustainable technologies, and to further accelerate the automotive lifestyle.
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Our products are designed to enhance street, off-road, recreational and competitive vehicle performance through increased horsepower, torque and drivability. We have locations in the United States, Canada, Italy and China. 4 Table of Contents We attribute a major component of our success to our brands, including Holley EFI, Holley, MSD, Simpson, Powerteq, Accel and Flowmaster, among others.
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Our aim is to provide a platform where automotive enthusiasts can purchase aftermarket auto parts for both old model restorations and new vehicle enhancements. We believe our consumers are enthusiastic and passionate about the performance and the personalization of their classic and modern cars. We aim to provide the products and service they need to pursue that passion.
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(“Holley Intermediate”) on July 16, 2021, (the “Closing” and such date, the “Closing Date”).
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We will continue to drive growth and value for our shareholders through our key strategies: • Continuous New Product Development: New products allow us to increase market share in existing categories, extend into adjacent categories, capture new enthusiast consumers and extend or further penetrate new vehicle platforms.
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On the Closing Date, Empower changed its name to Holley Inc. and its trading symbol on the NYSE from “EMPW” to “HLLY.” Business Strategy For over 100 years, we have pursued our mission of bringing innovation, discovery and fun to motor life.
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See “ Risk Factors — Risks Relating to Holley ’ s Business and Industry — If the Company is unable to successfully design, develop and market new products, the Company business may be harmed ” for a discussion of the risks related to the Company’s new product development. • Accelerate Growth Through Continued M&A : We have historically used strategic acquisitions to expand our brand portfolio, enter new product categories and consumer segments, and expand share in current product categories.
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Today, as Holley Performance Brands, we are the leader in delivering high performance platform solutions, driven to accelerate the passion of auto enthusiasts around the globe.
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While we believe our business is positioned for continued organic growth, we intend to continue evaluating opportunities for strategic acquisitions that complement our current business and expand our addressable target market.
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Through our portfolio of leading brands – ranging from icons of the American Road, to emerging technologies – we serve a large, diverse community of expert partners and enthusiast consumers across nine distinct consumer verticals, including Classic Truck, Classic Muscle, Modern Muscle, Modern Truck, Off-Road, Euro, Import, Safety and Racing.
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We believe that our scalable business platform, relationships with our distribution and channel partners, strong loyalty with our growing consumer base, and experienced management team and board of directors, position us to realize the benefits from the integration of recent acquisitions and prime us for future acquisitions.
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We plan to unlock the full potential of Holley’s innovation-led research and development ("R&D") product portfolio and brand powerhouse in the performance automotive aftermarket across all nine verticals through our highly focused Steering Principles of Fueling our Teammates, Supercharging our Customers and Accelerating Profitable Growth. • Fueling our teammates : At the heart of our growth strategy lies not just innovation, but the people who drive it.
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See “ Risk Factors — Risks Relating to Holley ’ s Business and Industry — The Company may acquire or invest in other companies, which could divert the Company management ’ s attention, result in dilution to the Company stockholders, and otherwise disrupt the Company operations and harm the Company business, sales, financial condition and results of operations ” for a discussion of the risks related to the Company’s M&A activity. • Expand Direct-to-Consumer ( “ DTC ” ) Sales and Further Engage with Our Consumers: We are highly focused on deepening our engagement with our enthusiast consumers and selling them products through our fast-growing online platform.
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Our first objective is to create a premier place to work that attracts, retains, and empowers talented individuals who share our passion for automotive performance.
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We have multiple touch points in our consumer ecosystem, ranging from social media to our website, to our many in-person enthusiast events.
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We will do this by creating an environment that excites, empowers, and nurtures our teammates to their full potential by providing them with the resources, knowledge, encouragement, and motivation they need to excel in their roles.
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See “ Risk Factors — Risks Relating to Holley ’ s Business and Industry — If the Company ’ s plans to increase sales through its DTC channel are not successful, the Company ’ s business, sales, financial condition and results of operations could be harmed ” for a discussion of the risks related to the Company’s DTC channel.
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This commitment extends beyond traditional employee engagement strategies; it recognizes the critical link between an enthusiast-driven workforce and the development of highly differentiated products that resonate with our target market.
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We invest heavily in developing new products, spending an average of $20.5 million per year on research and development since 2017 . We believe our product development capabilities will enable us to create sustainable long-term growth and margin enhancements for our business.
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By fostering an environment where our teammates’ automotive passions thrive, with shared goals, we will create a synergy that sparks creative solutions, fuels collaboration, and propels us to new heights. • Supercharging our Customers : As a leading enthusiast platform in the automotive performance aftermarket, our objective is to deliver exceptional value, innovation, and support to our customers, ultimately creating a loyal and satisfied base of consumer and distribution partners who continue to choose Holley Performance Brands for their automotive needs.
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We have experienced, and may continue to experience, disruptions due to the global supply shortage of automotive-grade microchips, which has resulted in increased microchip delivery lead times. Marketing We reach and engage our consumers where they participate in the performance automotive aftermarket – online and in person.
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We have a comprehensive marketing strategy tailored to the specific needs of the targeted consumer verticals. Our objective is sales growth through our DTC channel and our loyal distribution partners. We intend to balance the growth between these two channels based on the needs of the consumer verticals and our overall cost to serve the end customer through each channel.
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Our omni-channel model enables us to reach our consumers through DTC, E-tailer, warehouse distributor, traditional retailer, and jobber/ installer channels.
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Our comprehensive marketing strategy is focused on creating pull for our products through digital and non-digital platforms and partnering with our distribution partners to ensure our products are available and well represented in their offering. In addition, we have a long history of creating excitement around our brands by hosting and participating in experiential enthusiast events.
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In response to the COVID-19 pandemic, we followed guidance from the Centers for Disease Control, the World Health Organization, and the various states and counties in which we operate in order to keep our employees safe. We will continue to make the health and wellbeing of our employees a priority. Inclusion .
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We believe events create the opportunity for us to remain closely connected to our enthusiast consumer, get feedback directly from enthusiasts on our offering, and broaden our understanding of the latest consumer trends. 5 Table of Contents • Accelerating Profitable Growth : Our third strategic objective is to significantly increase revenue by expanding our market share while maintaining and improving profitability.
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We aim to achieve those objectives more quickly than in the past by focusing on our nine go-to-market consumer verticals and launching innovative new products, entering new product categories, implementing sales and marketing strategies to boost revenue, and through strategic acquisitions.
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We also intend to achieve sustainable and long-term profitability by lowering our cost to serve, improving operational efficiencies, and focusing on higher-margin products and services. Competition The performance automotive industry is highly competitive, and we face substantial competition in all the markets that we serve.
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In addition, we have established dedicated consumer verticals that are focusing on our go-to-market strategy for the following nine vertical markets: Classic Truck, Classic Muscle, Modern Muscle, Modern Truck, Off-Road, Euro, Import, Safety and Racing. Our current mix of spending is towards activities believed to generate the highest return on investment.
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These developments and further actions that may be taken in the U.S. and in other countries, states or provinces could affect our operations both positively and negatively (e.g., by affecting the demand for or suitability of some of our products).
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Our goal is to create an inclusive and safe environment for our employees that keeps them engaged in their work. 9 Table of Contents Compensation and Benefits . We strive to hire, develop and retain top talent.
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Health, Safety and Wellness . Holley is committed to the health and well-being of its employees and designs its compensation and benefit programs to demonstrate this commitment.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe Credit Agreement also limits or prohibits, among other things, and in each case, subject to exceptions, materiality thresholds and baskets, our and certain of our subsidiaries’ ability to: (a) pay dividends on, redeem or repurchase stock, or make other distributions; (b) incur or guarantee additional indebtedness; (c) sell stock in certain of our subsidiaries; (d) create or incur liens; (e) make acquisitions or investments; (f) transfer or sell certain assets or merge or consolidate with or into other companies; (g) make certain payments or prepayments of indebtedness subordinated to our obligations under the Credit Agreement; and (h) enter into certain transactions with our affiliates. 18 Table of Contents In addition to the restrictions described above, the Credit Agreement requires us and certain of our subsidiaries to comply with certain other covenants, including a financial maintenance covenant regarding our total net leverage ratio on the last day of each fiscal quarter, with step downs to lower total net leverage ratio levels at specified times as set forth therein.
Biggest changeThe Credit Agreement also limits or prohibits, among other things, and in each case, subject to exceptions, materiality thresholds and baskets, our and certain of our subsidiaries’ ability to: (a) pay dividends on, redeem or repurchase stock, or make other distributions; (b) incur or guarantee additional indebtedness; (c) sell stock in certain of our subsidiaries; (d) create or incur liens; (e) make acquisitions or investments; (f) transfer or sell certain assets or merge or consolidate with or into other companies; (g) make certain payments or prepayments of indebtedness subordinated to our obligations under the Credit Agreement; and (h) enter into certain transactions with our affiliates.
Based on the annual impairment assessment, the estimated fair value exceeded the carrying value of the reporting unit by 15%. As of December 31, 2022, we concluded it was necessary to reevaluate goodwill for impairment due to a further downward revision of earnings estimates for 2022 and a continued decline in our market capitalization.
Based on the annual impairment assessment, the estimated fair value exceeded the carrying value of the reporting unit by 15%. On December 31, 2022, we concluded it was necessary to reevaluate goodwill for impairment due to a further downward revision of earnings estimates for 2022 and a continued decline in our market capitalization.
Internationally, many jurisdictions in which we operate have established their own data security and privacy legal framework with which we or our customers must comply, including, but not limited to, the European General Data Protection Regulation (“GDPR”), which imposes certain privacy-related obligations and potential penalties and risks upon our business.
Internationally, many jurisdictions in which we operate have established their own data security and privacy legal framework with which we or our customers must comply, including, but not limited to, the European General Data Protection Regulation, which imposes certain privacy-related obligations and potential penalties and risks upon our business.
Inflation could result in higher costs and decreased profitability. Rising inflation may continue to adversely affect us by increasing the cost of raw materials. Our products contain various raw materials, including corrosion-resistant steel, non-ferrous metals such as aluminum and nickel, and precious metals such as platinum and palladium.
Inflation could result in higher costs and decreased profitability. Inflation may continue to adversely affect us by increasing the cost of raw materials. Our products contain various raw materials, including corrosion-resistant steel, non-ferrous metals such as aluminum and nickel, and precious metals such as platinum and palladium.
Our Common Stock and Warrants are currently listed on NYSE. We cannot assure that our securities will continue to be listed on the NYSE. In order to continue listing our securities on the NYSE, we will be required to maintain certain financial, distribution and stock price levels. Generally, we will be required to maintain a minimum amount in stockholders’ equity.
Our Common Stock and Warrants are currently listed on NYSE. We cannot assure that our securities will continue to be listed on the NYSE. In order to continue listing our securities on the NYSE, we are required to maintain certain financial, distribution and stock price levels. Generally, we are required to maintain a minimum amount of stockholders’ equity.
Our insurance policies may not provide adequate levels of coverage against all claims, and we may incur losses that are not covered by our insurance. We maintain insurance of the type and in amounts that we believe are commercially reasonable and that is available to businesses in our industry.
Our insurance policies may not provide adequate levels of coverage against all claims, and we may incur losses that are not covered by our insurance. We maintain insurance of the type and in amounts that we believe are commercially reasonable and that are available to businesses in our industry.
In the United States, these include rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures and consumer protection agencies, including, but not limited to, the California Consumer Privacy Act (“CCPA”).
In the United States, these include rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures and consumer protection agencies, including, but not limited to, the California Consumer Privacy Act.
On July 16, 2021, (the “Closing” and such date, the “Closing Date”), the Company, the Sponsor, certain affiliates of the Sponsor, the Holley Stockholder and Sentinel Capital Partners V, L.P., Sentinel Capital Partners V-A, L.P. and Sentinel Capital Investors V, L.P., controlling affiliates of the Holley Stockholder entered into the Stockholders’ Agreement, pursuant to which the Holley Stockholder and the Sponsor have the right to designate nominees for election to our board of directors subject to certain beneficial ownership requirements.
On July 16, 2021, (th e “Closing” and such date, the “Closing Date”), the Company, the Sponsor, certain affiliates of the Sponsor, the Holley Stockholder and Sentinel Capital Partners V, L.P., Sentinel Capital Partners V-A, L.P. and Sentinel Capital Investors V, L.P., controlling affiliates of the Holley Stockholder entered into the Stockholders’ Agreement, pursuant to which the Holley Stockholder and the Sponsor have the right to designate nominees for election to our board of directors subject to certain beneficial ownership requirements.
Any of the foregoing factors, or a combination of them, could increase the cost or reduce the supply of products available to us and materially and adversely impact our business, sales, financial condition and results of operations. 15 Table of Contents We depend on retail partners to display and present our products to customers, and our failure to maintain and further develop our relationships with retail partners could harm our business.
Any of the foregoing factors, or a combination of them, could increase the cost or reduce the supply of products available to us and materially and adversely impact our business, sales, financial condition and results of operations. 17 Table of Contents We depend on retail partners to display and present our products to customers, and our failure to maintain and further develop our relationships with retail partners could harm our business.
The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in the certificate of incorporation to be inapplicable or unenforceable in such action. 29 Table of Contents Item 1B.
The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in the certificate of incorporation to be inapplicable or unenforceable in such action. 31 Table of Contents Item 1B.
The growth of our business will depend, in part, on our ability to continue to expand our retail partner and customer bases in the United States, as well as in international markets. In these markets, we may face challenges that are different from those we currently encounter, including competitive, merchandising, distribution, hiring, and other difficulties.
The growth of our business will depend, in part, on our ability to continue to expand our retail partner and customer bases in the United States, as well as in international markets. In these markets, we may face challenges that are different from those we currently encounter, including competition, merchandising, distribution, hiring, and other difficulties.
While we have taken some lawful steps to limit commerce of our products in the “gray market” in both the United States and abroad, we have not stopped such commerce. We are subject to environmental, health and safety laws and regulations, which could subject us to liabilities, increase our costs or restrict our operations in the future.
While we have taken some lawful steps to limit commerce of our products in the “gray market” in both the United States and abroad, we have not stopped such commerce. We are subject to environmental, health, safety, and other governmental laws and regulations, which could subject us to liabilities, increase our costs or restrict our operations in the future.
As a result of this concentration of stock ownership, these parties acting together have sufficient voting power to effectively control all matters submitted to our stockholders for approval, including director elections and proposed amendments to our certificate of incorporation and bylaws.
As a result of this concentration of stock ownership, these parties acting together have sufficient voting power to effectively control most matters submitted to our stockholders for approval, including director elections and proposed amendments to our certificate of incorporation and bylaws.
If the prices of raw material and other inputs increase, and we are not able to charge our customers higher prices to compensate, our results of operations would be adversely affected. 10 Table of Contents Many of the markets in which we sell have been experiencing high levels of inflation, which may depress consumer demand for our products and reduce our profitability.
If the prices of raw material and other inputs increase, and we are not able to charge our customers higher prices to compensate, our results of operations would be adversely affected. Many of the markets in which we sell have been experiencing high levels of inflation, which may depress consumer demand for our products and reduce our profitability.
None of the Private Warrants will be redeemable by us so long as they are held by the Sponsor, or its permitted transferees. 26 Table of Contents The NYSE may delist our securities from trading on its exchange, which could limit stockholders ’ ability to make transactions in our securities and subject us to additional trading restrictions.
None of the Private Warrants will be redeemable by us so long as they are held by the Sponsor, or its permitted transferees. The NYSE may delist our securities from trading on its exchange, which could limit stockholders ’ ability to make transactions in our securities and subject us to additional trading restrictions.
We also cannot guarantee that others will not independently develop technology with the same or similar function to any proprietary technology that we rely on to conduct our business and differentiate our self from our competitors.
We also cannot guarantee that others will not independently develop technology with the same or similar function to any proprietary technology that we rely on to conduct our business and differentiate Holley from our competitors.
In the event of a substantial loss, the insurance coverage that we carry may not be sufficient to compensate us for the losses we incur or any costs we are responsible for. 23 Table of Contents Changes in tax law or regulation, effective tax rates and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.
In the event of a substantial loss, the insurance coverage that we carry may not be sufficient to compensate us for the losses we incur or any costs we are responsible for. Changes in tax law or regulation, effective tax rates and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.
These risks may include, but are not limited to: • shortages of key component parts used in our products sourced from non-U.S. suppliers; • increased transportation costs; • significant delays in the delivery of cargo due to port security considerations; • imposition of duties, taxes, tariffs or other charges on imports; • potential recalls or cancellations of orders for any product that does not meet our quality standards; • disruption of imports by labor disputes or strikes and local business practices; • heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods; • political tensions, conflicts, and wars, such as the ongoing conflict in Ukraine; • natural disasters, disease, epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas; • inability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and • our ability or inability to enforce any agreements with our foreign suppliers.
These risks may include, but are not limited to: • shortages of key component parts used in our products sourced from non-U.S. suppliers; • increased transportation costs; • significant delays in the delivery of cargo due to port security considerations; • imposition of duties, taxes, tariffs or other charges on imports; • potential recalls or cancellations of orders for any product that does not meet our quality standards; • disruption of imports by labor disputes or strikes and local business practices; • heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods; • political tensions and military conflicts (including the conflict in Ukraine, the conflict in Israel and surrounding areas, and the possible expansion of such conflicts); • natural disasters, disease, epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas; • inability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and • our ability or inability to enforce any agreements with our foreign suppliers.
As these growth initiatives are undertaken, we may not achieve our expected results, which could adversely impact our customer retention or results of operation. If we fail to attract new customers, or fail to do so in a cost-effective manner, we may not be able to increase sales.
As these growth initiatives are undertaken, we may not achieve our expected results, which could adversely impact our customer retention or results of operation. 15 Table of Contents If we fail to attract new customers, or fail to do so in a cost-effective manner, we may not be able to increase sales.
As a result, we are subject to various risks of doing business in foreign markets and importing products from abroad, and these risks may become heightened as a result of unfavorable global economic conditions, including as a result of COVID-19.
As a result, we are subject to various risks of doing business in foreign markets and importing products from abroad, and these risks may become heightened as a result of unfavorable global economic conditions.
If our sales do not increase at a sufficient rate to offset these increases in our operating expenses, our profitability may decline in future periods. 13 Table of Contents We only have a limited history operating our business as a public company at its current scale.
If our sales do not increase at a sufficient rate to offset these increases in our operating expenses, our profitability may decline in future periods. We only have a limited history operating our business as a public company at its current scale.
In February 2023, the Company entered into an amendment to its Credit Agreement which, among other things, increases the consolidated net leverage ratio financial covenant level applicable under the Credit Agreement as of the fiscal quarter ending March 31, 2023 through the fiscal quarter ending March 31, 2024 (the “Covenant Relief Period”), to initially 7.25:1.00, and provides for modified step-down levels for such covenant thereafter.
In February 2023, the Company entered into an amendment to its Credit Agreement which, among other things, increased the consolidated net leverage ratio financial covenant level 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 March 31, 2024 (the "Covenant Relief Period").
All shares held by our affiliates are eligible for resale in the public market, subject to applicable securities laws, including the Securities Act.
All shares held by our affiliates are eligible for resal e in the public market, subject to applicable securities laws, including the Securities Act.
An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, increase in federal or state minimum wages, or increase in general labor costs, caused by the COVID-19 pandemic or as a result of general macroeconomic factors, could have a material adverse impact on our operations, results of operations, liquidity or cash flows.
An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, increase in federal or state minimum wages, or increase in general labor costs as a result of general macroeconomic factors, could have a material adverse impact on our operations, results of operations, liquidity or cash flows.
A sustained labor shortage or increased turnover rates within our employee base, caused by worsening economic conditions, increases in labor costs or the COVID-19 pandemic or other national or international emergencies, could lead to increased costs, such as increased overtime to meet demand and increased salaries and wage rates to attract and retain employees.
A sustained labor shortage or increased turnover rates within our employee base, caused by worsening economic conditions or other national or international emergencies, could lead to increased costs, such as increased overtime to meet demand and increased salaries and wage rates to attract and retain employees.
On November 18, 2021, we entered into a credit facility with a syndicate of lenders and Wells Fargo Bank, N.A., as administrative agent for the lenders, letter of credit issuer and swing line lender (the "Credit Agreement"). On December 31, 2022, $659.4 million in principal was outstanding under the credit facility.
On November 18, 2021, we entered into a credit facility with a syndicate of lenders and Wells Fargo Bank, N.A., as administrative agent for the lenders, letter of credit issuer and swing line lender (as amended, the "Credit Agreement"). On December 31, 2023, $592.5 million in principal was outstanding under the credit facility.
On December 31, 2022, the Holley Stockholder and the Sponsor (together with its affiliates) beneficially own, in the aggregate, approximately 55% of our shares of Common Stock, excluding any warrants exercisable for Common Stock held by Sponsor or its affiliates (or 57% inclusive of shares of Common Stock underlying Warrants held by Sponsor and its affiliates).
On December 31, 2023, the Holley Stockholder and the Sponsor (together with its affiliates) beneficially own, in the aggregate, approximately 50% of our shares of Common Stock, excluding any warrants exercisable for Common Stock held by Sponsor or its affiliates (or 52% inclusive of shares of Common Stock underlying Warrants held by Sponsor and its affiliates).
We cannot guarantee that the market price of Common Stock and Warrants will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following: • the realization of any of the risk factors presented in this Annual Report; • actual or anticipated differences in our estimates, or in the estimates of analysts, for our revenues, results of operations, level of indebtedness, liquidity or financial condition; • additions and departures of key personnel; • failure to comply with the requirements of the NYSE; • failure to comply with the Sarbanes-Oxley Act or other laws or regulations; • future issuances, sales or resales, or anticipated issuances, sales or resales, of Common Stock; • perceptions of the investment opportunity associated with Common Stock relative to other investment alternatives; • the performance and market valuations of other similar companies; • future announcements concerning our business or our competitors’ businesses; • broad disruptions in the financial markets, including sudden disruptions in the credit markets; • speculation in the press or investment community; • actual, potential or perceived control, accounting or reporting problems; • changes in accounting principles, policies and guidelines; and • general economic and political conditions, such as inflation, labor shortages, disruption of the supply chain, interest rates, fuel prices and other transportation costs, international currency fluctuations, geopolitical instability and acts of war (such as the ongoing conflict in Ukraine) or terrorism. 25 Table of Contents In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their securities.
We cannot guarantee that the market price of Common Stock and Warrants will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following: • the realization of any of the risk factors presented in this Annual Report; • actual or anticipated differences in our estimates, or in the estimates of analysts, for our revenues, results of operations, level of indebtedness, liquidity or financial condition; • additions and departures of key personnel; • failure to comply with the requirements of the NYSE; • failure to comply with the Sarbanes-Oxley Act or other laws or regulations; • future issuances, sales or resales, or anticipated issuances, sales or resales, of Common Stock; • perceptions of the investment opportunity associated with Common Stock relative to other investment alternatives; • the performance and market valuations of other similar companies; • future announcements concerning our business or our competitors’ businesses; • broad disruptions in the financial markets, including sudden disruptions in the credit markets; • speculation in the press or investment community; • actual, potential or perceived control, accounting or reporting problems; • changes in accounting principles, policies and guidelines; and • general economic and political conditions, such as inflation, labor shortages, disruption of the supply chain, interest rates, fuel prices and other transportation costs, international currency fluctuations, geopolitical instability, military conflicts (including the conflict in Ukraine, the conflict in Israel and surrounding areas, and the possible expansion of such conflicts) or terrorism.
Our manufacturing facilities and distribution centers are highly automated, which means that our operations are complicated and may be subject to a number of risks related to computer viruses, the proper operation of software and hardware, electronic or power interruptions, and other system failures, including failures caused by factors outside of our control, such as hostilities, political unrest, terrorist attacks, war (including the ongoing conflict in Ukraine), natural disasters or extreme weather (including events that may be caused or exacerbated by climate change).
Our manufacturing facilities and distribution centers are highly automated, which means that our operations are complicated and may be subject to a number of risks related to computer viruses, the proper operation of software and hardware, electronic or power interruptions, and other system failures, including failures caused by factors outside of our control, such as political unrest, terrorist attacks, military conflicts (including the conflict in Ukraine, the conflict in Israel and surrounding areas, the possible expansion of such conflicts and potential geopolitical consequences), natural disasters or extreme weather (including events that may be caused or exacerbated by climate change).
Although our ability to amend the terms of the Warrants with the consent of at least 50% of the then outstanding Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the Warrants, shorten the exercise period or decrease the number of Common Stock purchasable upon exercise of a Warrant.
Although our ability to amend the terms of the Warrants with the consent of at least 50% of the then outstanding Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the Warrants, shorten the exercise period or decrease the number of Common Stock purchasable upon exercise of a Warrant. 27 Table of Contents The market price and trading volume of Common Stock and Warrants may be volatile.
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for Common Stock and Warrants could decrease, which might cause the market price and trading volume of our Common Stock and Warrants to decline significantly.
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for Common Stock and Warrants could decrease, which might cause the market price and trading volume of our Common Stock and Warrants to decline significantly. 28 Table of Contents Future sales of our Common Stock and Warrants in the public market could cause our stock price to fall.
To the extent such Warrants are exercised, additional shares of Common Stock will be issued, which will result in dilution to our stockholders and increase the number of shares eligible for resale in the public market.
The exercise price of the Warrants is $11.50 per share. To the extent such Warrants are exercised, additional shares of Common Stock will be issued, which will result in dilution to our stockholders and increase the number of shares eligible for resale in the public market.
If we are unable to protect or preserve the value of our patents, trade dress, trademarks, copyrights, or other intellectual property rights for any reason, or if we fail to maintain the image of our brands due to actual or perceived product or service quality issues, adverse publicity, governmental investigations or litigation, or other reasons, our brands and reputation could be damaged, and our business may be harmed.
If we are unable to protect or preserve the value of our patents, trade dress, trademarks, copyrights, or other intellectual property rights for any reason, or if we fail to maintain the image of our brands due to actual or perceived product or service quality issues, adverse publicity, governmental investigations or litigation, or other reasons, our brands and reputation could be damaged, and our business may be harmed. 16 Table of Contents Our profitability may decline as a result of increasing pressure on pricing.
Our profitability may decline as a result of increasing pressure on pricing. Our industry is subject to significant pricing pressure caused by many factors, including unfavorable economic conditions, intense competition, consolidation in the retail industry, pressure from retailers to reduce the costs of products, and changes in consumer demand.
Our industry is subject to significant pricing pressure caused by many factors, including unfavorable economic conditions, intense competition, consolidation in the retail industry, pressure from retailers to reduce the costs of products, and changes in consumer demand.
Despite the actions we have undertaken to minimize these impacts, there can be no assurance that unforeseen future events in the global supply chain and our ability to pass on inflationary costs to our customers could have a material adverse effect on our business, financial condition and results of operations.
Despite the actions we have undertaken to minimize these impacts, there can be no assurance that unforeseen future events in the global supply chain and our ability to pass on inflationary costs to our customers could have a material adverse effect on our business, financial condition and results of operations. 13 Table of Contents A significant disruption in the operations of our manufacturing facilities or distribution centers could have a material adverse effect on our business, sales, financial condition and results of operations.
Accordingly, if we do not continue to innovate and develop, or acquire, new and compelling products that capitalize upon new technologies in response to original equipment manufacturer and consumer preferences, or if there is a future shift in consumer preferences towards ownership of more utilitarian vehicles or vehicles that are otherwise less interesting to a large portion of our customers who are automotive enthusiasts, or if there is otherwise a future shift away from automobile ownership among consumers in general, our and our subsidiaries’ business, sales, financial condition and results of operations could be impacted.
Accordingly, if we do not continue to innovate and develop, or acquire, new and compelling products that capitalize upon new technologies in response to original equipment manufacturer and consumer preferences, or if there is a future shift in consumer preferences towards ownership of more utilitarian vehicles or vehicles that are otherwise less interesting to a large portion of our customers who are automotive enthusiasts, or if there is otherwise a future shift away from automobile ownership among consumers in general, our and our subsidiaries’ business, sales, financial condition and results of operations could be impacted. 14 Table of Contents Our business depends on maintaining and strengthening our brands to generate and maintain ongoing demand for our products, and a significant reduction in such demand could harm our business, sales, financial condition and results of operations.
In some cases, those cost increases can be passed on to customers in the form of price increases, in other cases, they cannot. Recent inflationary pressures and other factors have also resulted in significant increases in transportation and freight service costs due to limited capacity and/or availability of containers, shipping vessels, and/or receiving port services.
In some cases, those cost increases can be passed on to customers in the form of price increases, in other cases, they cannot. Transportation and freight service costs are susceptible to volatility and inflationary pressures due to fuel costs, limited capacity and/or availability of containers, shipping vessels, and/or receiving port services.
For 2022, we generated through our DTC channel approximately $149.1 million in gross sales. Part of our growth strategy involves increasing sales through our DTC channel.
For 2023, we generated approximately $144 million in gross sales through our DTC channel. Part of our growth strategy involves increasing sales through our DTC channel.
Even if an active, liquid and orderly trading market develops and is sustained for Common Stock and Warrants, the market price of Common Stock and Warrants may be volatile and could decline significantly, whether or not any price changes are related to matters specific to us.
Stock markets, including the NYSE, have from time-to-time experienced significant price and volume fluctuations. Even if an active, liquid and orderly trading market develops and is sustained for Common Stock and Warrants, the market price of Common Stock and Warrants may be volatile and could decline significantly, whether or not any price changes are related to matters specific to us.
Our results of operations may be adversely affected by labor shortages, turnover and labor cost increases.
Our results of operations may be adversely affected by increases in labor costs, labor shortages, and/or turnover.
Among other things, the certificate of incorporation and bylaws include provisions regarding: • a classified board of directors with staggered, three-year terms; • prevent stockholders from acting by written consent; • limit the ability of stockholders to amend our certificate of incorporation; • limit the ability of stockholders to remove directors; • prevent stockholders from calling special meetings of stockholders; • the ability of the board of directors to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder; • the certificate of incorporation prohibits cumulative voting in the election of directors; • the limitation of the liability of, and the indemnification of, our directors and officers; • the ability of the board of directors to amend the bylaws; and • advance notice procedures with which stockholders must comply to nominate candidates to the board of directors or to propose matters to be acted upon at a stockholders’ meeting. 28 Table of Contents These provisions, alone or together, could discourage, delay or prevent hostile takeovers and changes in control, including transactions in which the acquirer may offer a premium price for our Common Stock and Warrants, or changes in our board of directors or management.
Among other things, the certificate of incorporation and bylaws include provisions regarding: • a classified board of directors with staggered, three-year terms; • prevent stockholders from acting by written consent; • limit the ability of stockholders to amend our certificate of incorporation; • limit the ability of stockholders to remove directors; • prevent stockholders from calling special meetings of stockholders; • the ability of the board of directors to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder; • the certificate of incorporation prohibits cumulative voting in the election of directors; • the limitation of the liability of, and the indemnification of, our directors and officers; • the ability of the board of directors to amend the bylaws; and • advance notice procedures with which stockholders must comply to nominate candidates to the board of directors or to propose matters to be acted upon at a stockholders’ meeting.
A significant disruption in the operations of our manufacturing facilities or distribution centers could have a material adverse effect on our business, sales, financial condition and results of operations. A significant disruption at any of our manufacturing facilities or distribution centers could materially and adversely affect our business, sales, financial condition and results of operations.
A significant disruption at any of our manufacturing facilities or distribution centers could materially and adversely affect our business, sales, financial condition and results of operations.
Failure to remediate any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets and negatively impact the price and trading market for our Common Stock and Warrants. 19 Table of Contents Our disclosure controls and procedures may not prevent or detect all acts of fraud.
Failure to remediate any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets and negatively impact the price and trading market for our Common Stock and Warrants.
Our share price may decline if our actual results do not match the projections of these securities research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, our share price could decline.
Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, our share price could decline.
If we fail to comply with the evolving customer or investor or employee expectations and standards, or if we are perceived to have failed to adequately respond to such expectations and standards, we may suffer from reputational damage, which could have an adverse impact on our business or financial condition.
If we fail to comply with the evolving customer or investor or employee expectations and standards, or if we are perceived to have failed to adequately respond to such expectations and standards, we may suffer from reputational damage, which could have an adverse impact on our business or financial condition. 24 Table of Contents Legal, Regulatory and Compliance Risks Related to Our Business We may become involved in legal or regulatory proceedings and audits.
These factors may allow our competitors to: • respond more quickly than we can to new or emerging technologies and changes in customer requirements by devoting greater resources than we can to the development, promotion and sale of automotive aftermarket products; • engage in more extensive research and development; and • spend more money and resources on marketing and promotion.
Some of our competitors may have larger customer bases and significantly greater financial, technical and marketing resources than we do. These factors may allow our competitors to respond more quickly than we can to new or emerging technologies and changes in customer requirements by devoting greater resources than we can to the development, promotion and sale of automotive aftermarket products.
If our products are found to infringe third-party intellectual property rights, we may be unable to obtain a license to use such technology, and we could incur substantial costs to redesign our products, withdraw them from the market, and/or to defend legal actions. 22 Table of Contents Sales of our products by unauthorized retailers or distributors could adversely affect our authorized distribution channels and harm our reputation.
If our products are found to infringe third-party intellectual property rights, we may be unable to obtain a license to use such technology, and we could incur substantial costs to redesign our products, withdraw them from the market, and/or to defend legal actions.
Some of our products may find their way to unauthorized outlets or distribution channels. This “gray market” for our products can undermine authorized retailers and foreign wholesale distributors who promote and support our products and can injure our brands in the minds of our customers and consumers.
This “gray market” for our products can undermine authorized retailers and foreign wholesale distributors who promote and support our products and can injure our brands in the minds of our customers and consumers.
At December 31, 2022, the “Holley Stockholder” and the "Sponsor" (together with its affiliates) beneficially own, in the aggregate, approximately 55% of our shares of Common Stock, excluding any Warrants exercisable for Common Stock held by Sponsor or its affiliates (or 57% inclusive of shares of Common Stock underlying Warrants held by Sponsor and its affiliates).
On December 31, 2023, the Holley Stockholder and the Sponsor (together with its affiliates) beneficially own, in the aggregate, approximately 50% of shares of Common Stock, excluding any Warrants exercisable for Common Stock held by Sponsor or its affiliates (or 52% inclusive of shares of Common Stock underlying Warrants held by Sponsor and its affiliates).
If this were to occur, we and our stockholders could face significant material adverse consequences including: • a limited availability of market quotations for our securities; • reduced liquidity for our securities; • a determination that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; • a limited amount of news and analyst coverage; and • a decreased ability to issue additional securities or obtain additional financing in the future.
If this were to occur, we and our stockholders could face significant material adverse consequences including: • a limited availability of market quotations for our securities; • reduced liquidity for our securities; • a determination that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; • a limited amount of news and analyst coverage; and • a decreased ability to issue additional securities or obtain additional financing in the future. 29 Table of Contents The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Since our Common Stock and Warrants are listed on the NYSE, they are covered securities.
Our indebtedness may limit our ability to invest in the ongoing needs of our business and if we are unable to comply with the covenants in our current credit agreements, our business, sales, financial condition and results of operations could be harmed.
Any such developments could adversely impact our results of operation and financial position, and there may be other risks we have not yet identified. 20 Table of Contents Our indebtedness may limit our ability to invest in the ongoing needs of our business and if we are unable to comply with the covenants in our current credit agreements, our business, sales, financial condition and results of operations could be harmed.
Accordingly, we performed a qualitative assessment and did not identify any indicators of impairment. Goodwill was $418.1 million as of December 31, 2022, and is considered at higher risk of failing future quantitative impairment tests due to the narrow difference between fair value and carrying value. Global climate change and related regulations could negatively affect our business.
Goodwill was $419.1 million on December 31, 2023 , and is considered at higher risk of failing future quantitative impairment tests due to the narrow difference between fair value and carrying value. 23 Table of Contents Global climate change and related regulations could negatively affect our business.
While we have contingency plans and insurance coverage for potential liabilities of this nature, they may not be sufficient to cover all claims and liabilities and in some cases are subject to deductibles and layers of self-insured retention.
While we have contingency plans and insurance coverage for potential liabilities of this nature, they may not be sufficient to cover all claims and liabilities and in some cases are subject to deductibles and layers of self-insured retention. 19 Table of Contents We are exposed to risks related to the failure to protect the integrity of individually identifiable information of our customers, vendors, suppliers and employees.
Environmental conditions at or related to our current or former properties or operations, and/or the costs of complying with current or future environmental, health and safety requirements (which have become more stringent and complex over time) could materially adversely affect our business, sales, financial condition and results of operations.
Environmental conditions at or related to our current or former properties or operations, and/or the costs of complying with current or future environmental, health and safety requirements (which have become more stringent and complex over time) could materially adversely affect our business, sales, financial condition and results of operations. 25 Table of Contents Compliance with new and proposed ESG disclosure requirements, including the climate change disclosure requirements of the SEC and the State of California, could require significant effort and divert management’s attention and resources, which could adversely affect our operating results.
Relative to transition risk, certain impacts may include: changes in energy and commodity prices driven by climate-related weather events; prolonged climate-related events affecting macroeconomic conditions with related effects on consumer spending and confidence; stakeholder perception of our engagement in climate-related policies; and new regulatory requirements resulting in higher compliance risk and operational costs. 21 Table of Contents Climate change is continuing to receive ever increasing attention worldwide, which could lead to additional legislative and regulatory efforts to increase transparency and standardization of reporting of greenhouse gas emissions, energy policies, and renewable energy usage.
Relative to transition risk, certain impacts may include: changes in energy and commodity prices driven by climate-related weather events; prolonged climate-related events affecting macroeconomic conditions with related effects on consumer spending and confidence; stakeholder perception of our engagement in climate-related policies; and new regulatory requirements resulting in higher compliance risk and operational costs.
The threat of our debt being accelerated in connection with a change of control could make it more difficult for us to attract potential buyers or to consummate a change of control transaction that would otherwise be beneficial to our stockholders. The announced upcoming discontinuance of publishing LIBOR rates may impact the cost or availability of financing for us.
The threat of our debt being accelerated in connection with a change of control could make it more difficult for us to attract potential buyers or to consummate a change of control transaction that would otherwise be beneficial to our stockholders. Our failure to maintain effective internal controls over financial reporting could harm us.
Our risk management, business continuity and disaster recovery plans may not be effective at preventing or mitigating the effects of such disruptions, particularly in the case of catastrophic events or longer-term developments, such as the impacts of climate change. 11 Table of Contents A global pandemic, such as the COVID-19 pandemic could adversely affect our business, sales, financial condition and results of operations and our ability to access current or obtain new lending facilities.
Our risk management, business continuity and disaster recovery plans may not be effective at preventing or mitigating the effects of such disruptions, particularly in the case of catastrophic events or longer-term developments, such as the impacts of climate change. Failure to compete effectively could reduce our market share and significantly harm our business, sales, financial condition and results of operations.
Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We may acquire or invest in other companies to complement our organic growth, which may not be successful and may divert financial and management resources.
We cannot assure that we will be able to successfully integrate acquired businesses into our existing operations or expand into new markets. In addition, we cannot assure that any acquisition, once successfully integrated, will perform as planned, be accretive to earnings, or prove to be beneficial to our results of operations or cash flow.
We cannot provide assurance that any acquisition, once integrated, will perform as planned, be accretive to earnings, or prove to be beneficial to our results of operations or cash flow.
We could also incur significant costs, including, but not limited to, remediation costs, natural resources damages, civil or criminal fines and sanctions, and third-party claims, as a result of past or future violations of, or liabilities, associated with environmental laws. Most members of our management team do not have prior experience in operating a public company.
We could also incur significant costs, including, but not limited to, remediation costs, natural resources damages, civil or criminal fines and sanctions, and third-party claims, as a result of past or future violations of, or liabilities, associated with environmental laws. Any of these factors may have an adverse effect on our business, results of operations and financial condition.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our board of directors deems relevant. 27 Table of Contents The JOBS Act permits “ emerging growth companies ” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our board of directors deems relevant.
Aside from supply chain disruptions and inflationary pressures, forecasting demand for specific automotive parts can also be challenging due to changing consumer preferences and competitive pressures and longer supply lead times. The nature of our business makes it difficult to quickly adjust our manufacturing capacity if actual demand for our products varies from forecasted demand.
Forecasting the demand for our products is very difficult given the manufacturing lead time and the amount of specification involved, especially given market volatility. Aside from supply chain disruptions and inflationary pressures, forecasting demand for specific automotive parts can also be challenging due to changing consumer preferences and competitive pressures and longer supply lead times.
To date these incidents have not had a material impact on our reputation, operations, financial performance and condition; however, there is no assurance that such impacts will not be material in the future, and such incidents have in the past and may in the future have the impacts discussed below.
To date these incidents have not had a material adverse effect on our business and results of operations; however, there can be no assurance that such impacts will not be material in the future.
Even if an acquisition is integrated successfully, it may fail to realize expected revenues, gross and operating margins, net income and other returns. 20 Table of Contents We may also face liability with respect to acquired businesses for violations of environment laws occurring prior to the date of acquisition, which may not be covered by environment insurance secured to mitigate the risk or by indemnification from the sellers of the acquired businesses.
We may also face liability with respect to acquired businesses for violations of environment laws occurring prior to the date of acquisition, which may not be covered by environment insurance secured to mitigate the risk or by indemnification from the sellers of the acquired businesses.
There can be no assurance that the outcomes from such examinations, or changes in tax law or regulation impacting our effective tax rates, will not have an adverse effect on our business, financial condition and results of operations.
There can be no assurance that the outcomes from such examinations, or changes in tax law or regulation impacting our effective tax rates, will not have an adverse effect on our business, financial condition and results of operations. 26 Table of Contents Risks Related to Ownership of Our Securities Certain of our stockholders, including the Holley Stockholder and the Sponsor, may have conflicts of interest with other stockholders and may limit other stockholders' ability to influence corporate matters.
We cannot predict if investors will find our Common Stock and Warrants less attractive because we will rely on these exemptions. If some investors find our Common Stock and Warrants less attractive as a result, there may be a less active trading market for our Common Stock, and Warrants and more stock price volatility.
We cannot predict if investors will find our Common Stock and Warrants less attractive because we will rely on these exemptions.
Consumers are generally more willing to make discretionary purchases of automotive products during favorable economic conditions and when consumers are feeling confident and prosperous. Discretionary spending is also affected by many other factors, including general business conditions, inflation, interest rates, the availability of consumer credit, taxes, and consumer confidence in future economic conditions.
Discretionary spending is also affected by many other factors, including general business conditions, inflation, interest rates, the availability of consumer credit, taxes, and consumer confidence in future economic conditions. Purchases of our products could decline during periods when disposable income is lower, or during periods of actual or perceived unfavorable economic conditions.
Our estimates of fair value are based on assumptions regarding future cash flows, gross margins, expenses, discount rates applied to these cash flows, and current market estimates of value.
We may be required to record future impairments of goodwill, other intangible assets, or fixed assets to the extent the fair value of these assets falls below their book value. Our estimates of fair value are based on assumptions regarding future cash flows, gross margins, expenses, discount rates applied to these cash flows, and current market estimates of value.
Our growth has depended, and our future growth is likely to continue to depend, in part, on our acquisition strategy and the successful integration of acquired businesses into our existing operations. We intend to continue to seek acquisition opportunities both to expand into new markets and to enhance our position in existing markets.
Historically our growth has been dependent on our acquisition strategy, and our future growth may continue to depend, in part, on our acquisition strategy and the successful integration of acquired businesses into our existing operations.
The pursuit of potential acquisitions may divert the attention of management and cause us to incur various costs and expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated. In any future acquisitions, we may not be able to successfully integrate acquired personnel, operations, and technologies, or effectively manage the combined business following the acquisition.
The pursuit of potential acquisitions may divert the attention of management and cause us to incur costs in identifying, investigating, and pursuing acquisitions, whether or not they are consummated.
Delaware law and our certificate of incorporation and bylaws contain certain provisions, including anti- takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
If some investors find our Common Stock and Warrants less attractive as a result, there may be a less active trading market for our Common Stock and Warrants and more stock price volatility. 30 Table of Contents Delaware law and our certificate of incorporation and bylaws contain certain provisions, including anti- takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
Unauthorized use or invalidation of our patents, trademarks, copyrights, trade dress, trade secrets, or other intellectual property or proprietary rights may cause significant damage to our brands and harm our business, sales, financial condition and results of operations. 14 Table of Contents While we actively develop and protect our intellectual property rights, there can be no assurance that we will be adequately protected in all countries in which we conduct our business or that we will prevail when defending our patent, trademark, and proprietary rights.
While we actively develop and protect our intellectual property rights, there can be no assurance that we will be adequately protected in all countries in which we conduct our business or that we will prevail when defending our patent, trademark, and proprietary rights.
Problems in the design or quality of our products, or delays in product introduction, may harm our brands, business, sales, financial condition and results of operations.
Problems in the design or quality of our products, or delays in product introduction, may harm our brands, business, sales, financial condition and results of operations. Any new products that we develop and market may not generate sufficient revenues to cover our development, production, marketing, selling and other costs.
The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.
Personal privacy and data security have become significant issues in the United States, Europe, and in many other jurisdictions in which we operate. The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.
As an ongoing condition to the Covenant Relief Period, the Company also agreed to (i) a minimum liquidity test, (ii) an interest coverage test, (iii) an anti-cash hoarding test at any time revolving loans are outstanding, and (iv) additional reporting obligations.
As an ongoing condition to the Covenant Relief Period, the Company also agreed to (i) a minimum liquidity test, (ii) an interest coverage test, (iii) an anti-cash hoarding test at any time revolving loans are outstanding, and (iv) additional reporting obligations. 21 Table of Contents If such an event of default and acceleration of the Loan Parties’ obligations occurs, subject to intercreditor agreements agreed to by the lenders, the lenders under the Credit Agreement would have the right to proceed against the collateral the Loan Parties granted to them to secure such indebtedness.
Each of the Holley Stockholder and the Sponsor also may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. 24 Table of Contents Warrants are exercisable for Common Stock, which could increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
Each of the Holley Stockholder and the Sponsor also may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.
This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us. Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the market price and trading volume of Common Stock and Warrants.
Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the market price and trading volume of Common Stock and Warrants. The market for Common Stock and Warrants depends in part on the research and reports that securities or industry analysts publish about us or our business.
The market for Common Stock and Warrants depends in part on the research and reports that securities or industry analysts publish about us or our business. Securities research analysts may establish and publish their own periodic projections for Holley. These projections may vary widely and may not accurately predict the results we actually achieve.
Securities research analysts may establish and publish their own periodic projections for Holley. These projections may vary widely and may not accurately predict the results we actually achieve. Our share price may decline if our actual results do not match the projections of these securities research analysts.
Any future successful cyber-attack or catastrophic natural disaster could significantly affect our operating and financial systems and could temporarily disrupt our ability to provide services to our customers, impact our ability to manage our operations and perform vital financial processes, any of which could have a materially adverse effect on our business.
The occurrence and impact of these various risks are difficult to predict, but one or more of them could temporarily disrupt our ability to manage our operations, provide services to our customers and perform vital financial processes, any of which could have a materially adverse effect on our business, cash flows, financial condition and results of operations.
Any perceived or actual unauthorized or inadvertent disclosure of personally identifiable information, whether through a compromise of our network by an unauthorized party, employee theft, misuse or error or otherwise, could harm our reputation, impair our ability to attract website visitors, or subject us to claims or litigation arising from damages suffered by consumers, and adversely affect our operations, financial performance and condition. 17 Table of Contents We depend on cash generated from our operations to support our growth, and we may need to raise additional capital, which may not be available on terms acceptable to us, or at all.
Any unauthorized or inadvertent disclosure of personally identifiable information, whether through a compromise of our network by an unauthorized party, employee theft, misuse, error, or otherwise, has the potential to damage our reputation, impair our ability to attract website visitors, or subject us to claims or litigation arising from damages suffered by consumers.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe have a number of locations across the United States, Canada and Italy that serve multiple functions, including distribution, engineering, manufacturing, office space, R&D, and retail sales. We have 14 facilities that perform manufacturing of our products and 13 distribution locations. We also have 18 R&D/Engineering facilities designed to grow our new product innovations.
Biggest changeWe have a number of leased locations across the United States, Canada and Italy that serve multiple functions, including distribution, engineering, manufacturing, office space, R&D, and retail sales. We have 15 facilities that perform manufacturing of our products and 12 distribution locations. We also have 17 R&D/Engineering facilities designed to develop our new product innovations.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders of Record As of March 14, 2023, there were approximately 20 stockholders of record of our common stock. Dividend Policy We have never declared or paid any cash dividends on our capital stock, and we do not currently anticipate paying any cash dividends in the foreseeable future.
Biggest changeHolders of Record As of March 11, 2024, there w ere approximately 14 stockholders o f record of Common Stock. Dividend Policy Holley has never declared or paid any cash dividends on its Common Stock and does not currently anticipate paying any cash dividends in the foreseeable future.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The principal market on which our common stock and warrants are listed for trading is the New York Stock Exchange. Our common stock and warrants trade under the symbols “HLLY” and “HLLY WS,” respectively.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The principal market on which Holley's Common Stock and Warrants are listed for trading is the New York Stock Exchange. Holley's Common Stock and Warrants trade under the symbols “HLLY” and “HLLY WS,” respectively.
Stock Performance Graph The following graph shows a comparison from July 16, 2021 (the date the Company’s common stock commenced trading on the NYSE) through December 31, 2022, of the cumulative total return for the Company's common stock, the Standard & Poor's 500 Stock Index (S&P 500 Index), and the Standard & Poor’s Consumer Discretionary (Sector) Index.
Stock Performance Graph The following graph shows a comparison from July 16, 2021, (the date the Company’s common stock commenced trading on the NYSE) through December 31, 2023, of the cumulative total return for the Company's common stock, the Standard & Poor's 500 Stock Index (S&P 500 Index), and the Standard & Poor’s Consumer Discretionary (Sector) Index.
Issuer Repurchase of Equity Securities None Unregistered Sales of Equity Securities Except as previously disclosed in a Current Report on Form 8-K, no unregistered sales of the Company’s equity securities were made during the year ended December 31, 2022.
Issuer Repurchase of Equity Securities None Unregistered Sales of Equity Securities Except as previously disclosed in a Current Report on Form 8-K, no unregistered sales of the Company’s equity securities were made during the year ended December 31, 2023.
The graph assumes that $100 was invested in the Company’s common stock at the close of the market on July 16, 2021. In the case of the S&P 500 Index and the S&P Consumer Discretionary Index, the graph assumes that $100 was invested at the close of the market on June 30, 2021 and assumes reinvestments of dividends.
The graph assumes that $100 was invested in the Company’s common stock at the close of the market on July 16, 2021. In the case of the S&P 500 Index and the S&P Consumer Discretionary Index, the graph assumes that $100 was invested at the close of the market on July 16, 2021, and assumes reinvestments of dividends.
We may consider declaring and paying a cash dividend in the future; however, there can be no assurance that we will do so.
Holley may consider declaring and paying a cash dividend in the future; however, there can be no assurance that it will do so.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear Ended December 31, 2021 Compared With Year Ended December 31, 2020 The table below presents Holley’s results of operations for the years ended December 31, 2021 and 2020 (dollars in thousands): For the years ended December 31, 2021 2020 Change ($) Change (%) Net sales $ 692,847 $ 504,179 $ 188,668 37.4 % Cost of goods sold 406,040 295,935 110,105 37.2 % Gross profit 286,807 208,244 78,563 37.7 % Selling, general, and administrative 116,793 70,875 45,918 64.8 % Research and development costs 28,280 23,483 4,797 20.4 % Amortization of intangible assets 13,999 11,082 2,917 26.3 % Acquisition and restructuring costs 23,668 9,743 13,925 142.9 % Related party acquisition and management fee costs 25,789 6,089 19,700 323.5 % Other operating expense 755 1,517 (762 ) (50.2 %) Operating income 77,523 85,455 (7,932 ) (9.3 %) Change in fair value of warrant liability 32,580 — 32,580 n/a Change in fair value of earn-out liability 8,875 — 8,875 n/a Loss on early extinguishment of debt 13,650 — 13,650 n/a Interest expense 39,128 43,772 (4,644 ) (10.6 %) Income (loss) before income taxes (16,710 ) 41,683 (58,393 ) n/a Income tax expense 10,429 8,826 1,603 18.2 % Net income (loss) (27,139 ) 32,857 (59,996 ) n/a Foreign currency translation adjustment 30 16 14 87.5 % Pension liability gain (loss) 388 (293 ) 681 n/a Total comprehensive income (loss) $ (26,721 ) $ 32,580 $ (59,301 ) n/a 37 Table of Contents Net Sales Net sales for the year ended December 31, 2021, increased $188.6 million, or 37.4%, to $692.8 million compared to $504.2 million for the year ended December 31, 2020.
Biggest changeInterest is based on the SOFR or prime rate, plus the applicable margin rate. 37 Table of Contents Results of Operations Year Ended December 31, 2023 Compared With Year Ended December 31, 2022 The table below presents our results of operations for the years ended December 31, 2023 and 2022 (dollars in thousands): For the years ended December 31, 2023 2022 Change ($) Change (%) Net sales $ 659,704 $ 688,415 $ (28,711 ) (4.2 )% Cost of goods sold 403,615 434,757 (31,142 ) (7.2 )% Gross profit 256,089 253,658 2,431 1.0 % Selling, general, and administrative 120,244 150,728 (30,484 ) (20.2 )% Research and development costs 23,844 29,083 (5,239 ) (18.0 )% Amortization of intangible assets 14,557 14,683 (126 ) (0.9 )% Impairment of indefinite-lived intangible assets — 2,395 (2,395 ) (100.0 )% Acquisition and restructuring costs 2,641 4,513 (1,872 ) (41.5 )% Other expense 765 1,514 (749 ) (49.5 )% Operating income 94,038 50,742 43,296 85.3 % Change in fair value of warrant liability 4,111 (57,021 ) 61,132 n/a Change in fair value of earn-out liability 2,303 (10,731 ) 13,034 n/a Gain on early extinguishment of debt (701 ) — (701 ) n/a Interest expense 60,746 40,227 20,519 51.0 % Income before income taxes 27,579 78,267 (50,688 ) (64.8 )% Income tax expense 8,399 4,493 3,906 86.9 % Net income 19,180 73,774 (54,594 ) (74.0 )% Foreign currency translation adjustment 234 (990 ) 1,224 n/a Pension liability gain — 302 (302 ) (100.0 )% Total comprehensive income $ 19,414 $ 73,086 $ (53,672 ) (73.4 )% Net Sales Net sales for the year ended December 31, 2023, decreased $28.7 million, or 4.2%, to $659.7 million as compared to $688.4 million for the year ended December 31, 2022.
Operating Income As a result of factors described above, operating income for the year ended December 31, 2022, decreased $26.8 million, or 34.5%, to $50.7 million compared to $77.5 million for the year ended December 31, 2021.
Operating Income As a result of factors described above, operating income for the year ended December 31, 2022, decreased $26.8 million, or 34.5%, to $50.7 million as compared to $77.5 million for the year ended December 31, 2021.
Net Income (Loss) and Total Comprehensive Income (Loss) As a result of factors described above, we recognized net income of $73.8 million for the year ended December 31, 2022, compared to a net loss of $(27.1) million for the year ended December 31, 2021.
Net Income (Loss) and Total Comprehensive Income (Loss) As a result of factors described above, we recognized net income of $73.8 million for the year ended December 31, 2022, as compared to a net loss of $(27.1) million for the year ended December 31, 2021.
The acquisitions have all been accounted for in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 805, Business Combinations , and the operations of the acquired entities are included in our historical results for the periods following the closing of the acquisition.
The acquisitions have all been accounted for in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 805, Business Combinations , and the operations of the acquired entities are included in our historical results for the periods following the closing of the applicable acquisition.
Related Party Acquisition and Management Fee Costs Related party acquisition and management fee costs consist of fees paid to the Company’s historical private equity sponsor pursuant to a management services agreement for management services and consulting services directly attributable to potential acquisitions. Upon the Closing of the Business Combination, the management services agreement with our private equity sponsor was terminated.
Related Party Acquisition and Management Fee Costs Related party acquisition and management fee costs consist of fees paid to our historical private equity sponsor pursuant to a management services agreement for management services and consulting services directly attributable to potential acquisitions. Upon the Closing of the Business Combination, the management services agreement with our private equity sponsor was terminated.
Research and Development Costs Research and development costs for the year ended December 31, 2022, increased $0.8 million, or 2.8%, to $29.1 million compared to $28.3 million for the year ended December 31, 2021. The increase in research and development costs reflects our pursuit of product innovation and new products.
Research and Development Costs Research and development costs for the year ended December 31, 2022, increased $0.8 million, or 2.8%, to $29.1 million as compared to $28.3 million for the year ended December 31, 2021. The increase in research and development costs reflects our pursuit of product innovation and new products.
The earn-out liability reflects the fair value of the earn-out shares resulting from the Business Combination. Loss on Early Extinguishment of Debt For the year ended December 31, 2021, we recognized a $13.6 million loss on the early extinguishment of debt.
The earn-out liability reflects the fair value of the unvested Earn-Out Shares resulting from the Business Combination. Loss on Early Extinguishment of Debt For the year ended December 31, 2021, we recognized a $13.6 million loss on the early extinguishment of debt.
Amortization and Impairment of Intangible Assets Amortization of intangible assets for the year ended December 31, 2022, increased $0.7 million, or 4.9%, to $14.7 million compared to $14.0 million for the year ended December 31, 2021, due to recent acquisitions.
Amortization and Impairment of Intangible Assets Amortization of intangible assets for the year ended December 31, 2022, increased $0.7 million, or 4.9%, to $14.7 million as compared to $14.0 million for the year ended December 31, 2021, due to recent acquisitions.
Selling, General and Administrative Selling, general and administrative costs for the year ended December 31, 2022, increased $33.9 million, or 29.1%, to $150.7 million compared to $116.8 million for the year ended December 31, 2021.
Selling, General and Administrative Selling, general and administrative costs for the year ended December 31, 2022, increased $33.9 million, or 29.1%, to $150.7 million as compared to $116.8 million for the year ended December 31, 2021.
Cost of Goods Sold Cost of goods sold for year ended December 31, 2022, increased $28.7 million, or 7.1%, to $434.8 million compared to $406.0 million for the year ended December 31, 2021.
Cost of Goods Sold Cost of goods sold for year ended December 31, 2022, increased $28.7 million, or 7.1%, to $434.8 million as compared to $406.0 million for the year ended December 31, 2021.
Income Tax Expense We recognized income tax expense of $4.5 million for the year ended December 31, 2022, compared to $10.4 million for the year ended December 31, 2021. The effective tax rate for the year ended December 31, 2022, was 5.7%.
Income Tax Expense We recognized income tax expense of $4.5 million for the year ended December 31, 2022, as compared to $10.4 million for the year ended December 31, 2021. The effective tax rate for the year ended December 31, 2022, was 5.7%.
The amendment also increases the consolidated net leverage ratio financial covenant level applicable under the Credit Agreement as of the fiscal quarter ending March 31, 2023 through the fiscal quarter ending March 31, 2024 (the “Covenant Relief Period”), to initially 7.25:1.00, and provides for modified step-down levels for such covenant thereafter.
The amendment also increases the consolidated net leverage ratio financial covenant level 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 March 31, 2024 (the “Covenant Relief Period”).
Critical accounting policies and estimates are those that management considers the most important to the portrayal of Holley's financial condition and results of operations because they require the most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Critical accounting policies and estimates are those that management considers the most important to the portrayal of our financial condition and results of operations because they require the most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, impacting Holley's reported results of operations and financial condition.
The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.
Offsetting these increases were decreases in cash provided by inventory, accrued liabilities and accounts payable of $13.3 million, $13.0 million, and $9.5 million, respectively. The changes in accounts receivable, accounts payable, and inventory are impacted by fluctuations in sales and accrued interest, accounts receivable and accounts payable are impacted by the timing of receipts and payments.
Offsetting these increases were decreases in cash provided by inventory, accrued liabilities and accounts payable of $13.3 million, $13.0 million, and $9.5 million, respectively. The changes in accounts receivable, accounts payable, and inventory are impacted by fluctuations in sales and accrued interest, accounts receivable and accounts payable are impacted by the timing of receipts and payments. Investing Activities .
The decline in comparable sales was primarily driven by supply chain constraints that prevented the Company from building and shipping to orders received from customers and stabilizing demand due to a reduction in disposable income of our consumers.
The decline in comparable sales was primarily driven by supply chain constraints that prevented us from building and shipping to orders received from customers and stabilizing demand due to a reduction in disposable income of our consumers.
Interest is based on LIBOR or the prime rate, plus the applicable margin rate. 34 Table of Contents Results of Operations Year Ended December 31, 2022 Compared With Year Ended December 31, 2021 The table below presents Holley’s results of operations for the years ended December 31, 2022 and 2021 (dollars in thousands): For the years ended December 31, 2022 2021 Change ($) Change (%) Net sales $ 688,415 $ 692,847 $ (4,432 ) (0.6 %) Cost of goods sold 434,757 406,040 28,717 7.1 % Gross profit 253,658 286,807 (33,149 ) (11.6 %) Selling, general, and administrative 150,728 116,793 33,935 29.1 % Research and development costs 29,083 28,280 803 2.8 % Amortization of intangible assets 14,683 13,999 684 4.9 % Impairment of indefinite-lived intangible assets 2,395 — 2,395 n/a Acquisition and restructuring costs 4,513 23,668 (19,155 ) (80.9 %) Related party acquisition and management fee costs — 25,789 (25,789 ) (100.0 %) Other expense 1,514 755 759 100.5 % Operating income 50,742 77,523 (26,781 ) (34.5 %) Change in fair value of warrant liability (57,021 ) 32,580 (89,601 ) nm Change in fair value of earn-out liability (10,731 ) 8,875 (19,606 ) nm Loss on early extinguishment of debt — 13,650 (13,650 ) (100.0 %) Interest expense 40,227 39,128 1,099 2.8 % Income (loss) before income taxes 78,267 (16,710 ) 94,977 nm Income tax expense 4,493 10,429 (5,936 ) (56.9 %) Net income (loss) 73,774 (27,139 ) 100,913 nm Foreign currency translation adjustment (990 ) 30 (1,020 ) nm Pension liability gain (loss) 302 388 (86 ) (22.2 %) Total comprehensive income (loss) $ 73,086 $ (26,721 ) $ 99,807 nm Net Sales Net sales for the year ended December 31, 2022, decreased $4.4 million, or 0.6%, to $688.4 million compared to $692.9 million for the year ended December 31, 2021.
Year Ended December 31, 2022 Compared With Year Ended December 31, 2021 The table below presents our results of operations for the years ended December 31, 2022 and 2021 (dollars in thousands): For the years ended December 31, 2022 2021 Change ($) Change (%) Net sales $ 688,415 $ 692,847 $ (4,432 ) (0.6 %) Cost of goods sold 434,757 406,040 28,717 7.1 % Gross profit 253,658 286,807 (33,149 ) (11.6 %) Selling, general, and administrative 150,728 116,793 33,935 29.1 % Research and development costs 29,083 28,280 803 2.8 % Amortization of intangible assets 14,683 13,999 684 4.9 % Impairment of indefinite-lived intangible assets 2,395 — 2,395 n/a Acquisition and restructuring costs 4,513 23,668 (19,155 ) (80.9 %) Related party acquisition and management fee costs — 25,789 (25,789 ) (100.0 %) Other operating expense 1,514 755 759 100.5 % Operating income 50,742 77,523 (26,781 ) (34.5 %) Change in fair value of warrant liability (57,021 ) 32,580 (89,601 ) n/a Change in fair value of earn-out liability (10,731 ) 8,875 (19,606 ) n/a Loss on early extinguishment of debt — 13,650 (13,650 ) (100.0 %) Interest expense 40,227 39,128 1,099 2.8 % Income (loss) before income taxes 78,267 (16,710 ) 94,977 n/a Income tax expense 4,493 10,429 (5,936 ) (56.9 %) Net income (loss) 73,774 (27,139 ) 100,913 n/a Foreign currency translation adjustment (990 ) 30 (1,020 ) n/a Pension liability gain 302 388 (86 ) (22.2 %) Total comprehensive income (loss) $ 73,086 $ (26,721 ) $ 99,807 n/a 40 Table of Contents Net Sales Net sales for the year ended December 31, 2022, decreased $4.4 million, or 0.6%, to $688.4 million as compared to $692.9 million for the year ended December 31, 2021.
In general, gross margin and margins on individual products will remain under pressure due to various factors, including potential increases in manufacturing costs and the shift of the Company's sales mix towards products with lower gross margins.
In general, gross margin and margins on individual products will remain under pressure due to various factors, including potential increases in manufacturing costs and the shift of our sales mix towards products with lower gross margins.
The Company has incurred additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations and other professional services.
We have incurred additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations and other professional services.
I ncome (Loss) before Income Taxes As a result of factors described above, we recognized net income of $78.3 million before income taxes for the year ended December 31, 2022, compared to a net loss before income taxes of $(16.7) million for the year ended December 31, 2021.
Income (Loss) before Income Taxes As a result of factors described above, we recognized net income of $78.3 million before income taxes for the year ended December 31, 2022, as compared to a net loss before income taxes of $(16.7) million for the year ended December 31, 2021.
Related Party Acquisition and Management Fees Related party acquisition and management fees for the year ended December 31, 2021, were $25.8 million, of which $23.3 million represents a fee paid upon the Closing of the Business Combination.
Related party acquisition and management fee costs for the year ended December 31, 2021, were $25.8 million, of which $23.3 million represents a fee paid upon the Closing of the Business Combination.
Recent Accounting Pronouncements For a discussion of Holley’s new or recently adopted accounting pronouncements, see Note 1, “ Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies ,” in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. 44 Table of Contents
Recent Accounting Pronouncements For a discussion of Holley’s new or recently adopted accounting pronouncements, see Note 1, “ Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies ,” in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. 47 Table of Contents
Based on a quantitative assessment in the third quarter of 2022, we did not identify any indicators of goodwill impairment. During the fourth quarter of 2022, management performed the annual impairment test for goodwill, and a quantitative analysis did not identify any indicators of impairment.
Based on a quantitative assessment in the third quarter of 2022, we did not identify any indicators of goodwill impairment. During the fourth quarter of 2022, we performed our annual impairment test for goodwill, and a quantitative analysis did not identify any indicators of impairment.
See Note 1, “ Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies ,” and Note 2, “ Business Combination and Acquisitions ,” in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information related to the Company’s acquisitions and investments.
See Note 1, “ Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies ,” and Note 2, “ Business Combination and Acquisitions ,” in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information related to our acquisitions and investments.
We recognized tax expense on a net loss for the year ended December 31, 2021, due to permanent differences resulting from the Business Combination, change in fair value of the warrant and earn-out liabilities, and the adjustment to the Simpson earnout during the period.
We recognized income tax expense on a net loss for the year ended December 31, 2021, due to permanent differences resulting from the Business Combination, the adjustment to the Simpson earn-out liability during the period, and the change in fair value of the warrant and earn-out liabilities.
We have incurred and expect to continue to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external accounting, legal, and administrative resources, including increased personnel costs, audit and other professional service fees. 32 Table of Contents Acquisitions Holley has historically pursued a growth strategy through both organic growth and acquisitions.
We have incurred and expect to continue to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external accounting, legal, and administrative resources, including increased personnel costs, audit and other professional service fees. 35 Table of Contents Acquisitions We have historically pursued a growth strategy through both organic growth and acquisitions.
See Note 1, " Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies" , in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a complete summary of the significant accounting policies used in the presentation of Holley's financial statements.
See Note 1, " Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies" , in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for a complete summary of the significant accounting policies used in the presentation of our financial statements.
These critical accounting policies are addressed below. 42 Table of Contents Inventory Reserve The Company’s inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess, obsolescence or impaired balances.
These critical accounting policies are addressed below. 45 Table of Contents Inventory Reserve Our inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess, obsolescence or impaired balances.
The Merger Agreement provided for, among other things, the following transactions: (i) Merger Sub I merged with and into Holdings, the separate corporate existence of Merger Sub I ceased and Holdings became the surviving corporation, and (ii) Holdings merged with and into Merger Sub II, the separate corporate existence of Holdings ceased, and Merger Sub II became the surviving limited liability company.
The Merger Agreement provided for, among other things, the following transactions: (i) Merger Sub I merged with and into Holley Intermediate, the separate corporate existence of Merger Sub I ceased and Holley Intermediate became the surviving corporation, and (ii) Holley Intermediate merged with and into Merger Sub II, the separate corporate existence of Holley Intermediate, and Merger Sub II became the surviving limited liability company.
The Company's profitability has been, and may continue to be, adversely affected by constrained consumer demand, a shift in sales to lower-margin products, and demands on our performance that increased our costs.
Our profitability has been, and may continue to be, adversely affected by constrained consumer demand, a shift in sales mix to lower-margin products, and demands on our performance that increased our costs.
No impairment was recognized on intangible assets in 2021. 43 Table of Contents The fair value of the indefinite-lived tradenames was estimated using the relief from royalty method, a form of the income approach. Significant judgement is required in estimating the fair value of a reporting unit and in performing impairment tests.
No impairment was recognized on intangible assets in 2023. 46 Table of Contents The fair value of the indefinite-lived tradenames was estimated using the relief from royalty method, a form of the income approach. Significant judgement is required in estimating the fair value of a reporting unit and in performing impairment tests.
This acquisition increases Holley’s offering in truck and SUV appearance items. • Advance Engine Management Inc. : On April 14, 2021, Holley acquired Advance Engine Management Inc., doing business as AEM Performance Electronics, a developer and supplier of electronic control and monitoring systems for performance automotive applications.
This acquisition increases our offering in truck and SUV appearance items. • Advance Engine Management Inc. : On April 14, 2021, we acquired Advance Engine Management Inc., doing business as AEM Performance Electronics, a developer and supplier of electronic control and monitoring systems for performance automotive applications.
The extinguishment loss includes a write off of $12.2 million in unamortized debt issuance costs associated with our previous first lien and second lien notes due to the refinancing of our previous credit facility (refer to Note 6, “ Debt ” for further discussion).
The extinguishment loss includes a write off of $12.2 million in unamortized debt issuance costs associated with our previous first lien and second lien notes due to the refinancing of our previous credit facility (refer to Note 7, “Debt” for further discussion).
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.
In February 2023, we entered into an amendment to our 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.
See Note 2, " Business Combination, Acquisitions, and Divestiture " and Note 8, " Fair Value Measurements " in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information related to the Company’s assets and liabilities measured at fair value.
See Note 2, " Business Combination, Acquisitions, and Divestiture " and Note 10, " Fair Value Measurements " in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information related to our assets and liabilities measured at fair value.
As a result, lower unit volume drove a decrease of approximately $88.5 million that was partially offset by improved price realization of approximately $52.8 million compared to 20 21.
As a result, lower unit volume drove a decrease of approximately $88.5 million that was partially offset by improved price realization of approximately $52.8 million compared to 2021.
As discussed under “Business Environment” above, although the future impact of supply chain disruptions and inflationary pressures are highly uncertain, the Company believes that its current operating performance, operating plan, cash position, and borrowings available under its revolving credit facility will be sufficient to satisfy its liquidity needs and capital expenditure requirements for at least the next twelve months and thereafter for the foreseeable future.
As discussed under “Business Environment” above, although the future impact of supply chain disruptions and inflationary pressures are highly uncertain, we believe that our current operating performance, operating plan, cash position, and borrowings available under our revolving credit facility will be sufficient to satisfy our liquidity needs and capital expenditure requirements for at least the next twelve months and thereafter for the foreseeable future.
While the ultimate responsibility resides with management, for certain acquisitions the Company retains the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets, tangible long- lived assets, and liabilities assumed in the Business Combination.
While the ultimate responsibility resides with management, for certain acquisitions we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets, tangible long- lived assets, and liabilities assumed in the Business Combination.
For the year ended December 31, 2022, inventories increased by $48.5 million. Offsetting this increase in working capital were a decrease in cash of $10.2 million, an increase in accrued liabilities of $8.5 million, and a decrease in accounts receivable of $4.3 million, Holley’s working capital on December 31, 2021, increased $23.9 million from $176.0 million at December 31, 2020.
Holley’s working capital on December 31, 2022, increased $23.8 million from $199.9 million on December 31, 2021. For the year ended December 31, 2022, inventories increased by $48.5 million. Offsetting this increase in working capital were a decrease in cash of $10.2 million, an increase in accrued liabilities of $8.5 million, and a decrease in accounts receivable of $4.3 million.
As such, Empower was treated as the acquired company for financial reporting purposes, and financial statements for periods prior to the Business Combination are those of Holdings.
As such, Empower was treated as the acquired company for financial reporting purposes, and financial statements for periods prior to the Business Combination are those of Holley Intermediate.
See Part IV, Item 15 in this Annual Report on Form 10-K for additional information related to the Company's inventory valuation reserve.
See Part IV, Item 15 in this Annual Report on Form 10-K for additional information related to our inventory valuation reserve.
This acquisition moves Holley closer to its goals of providing complete vehicle solutions by adding a new product category and brake system expertise. • Brothers Mail Order Industries, Inc. : On December 16, 2021, Holley acquired Brothers Mail Order Industries, Inc., doing business as Brothers Trucks, a distributor of Classic and Custom vehicle restoration parts serving the Chevrolet and GMC truck aftermarket.
This acquisition moves us closer to our goal of providing complete vehicle solutions by adding a new product category and brake system expertise. • Brothers Mail Order Industries, Inc. : On December 16, 2021, we acquired Brothers Mail Order Industries, Inc., doing business as Brothers Trucks, a distributor of Classic and Custom vehicle restoration parts serving the Chevrolet and GMC truck aftermarket.
The Company uses a Monte Carlo simulation model to estimate the fair value of its private warrants and earn-out liability assumed in the Business Combination, which requires certain subjective inputs and assumptions, including expected common stock price volatility, expected term, and risk-free interest rates.
We use a Monte Carlo simulation model to estimate the fair value of our Private Warrants and earn-out liability assumed in the Business Combination, which requires certain subjective inputs and assumptions, including expected common stock price volatility, expected term, and risk-free interest rates.
In response to the global supply chain volatility and inflationary impacts, the Company has attempted to minimize potential adverse impacts on its business with cost savings initiatives, price increases to customers, and by increasing inventory levels of certain products and working closely with its suppliers and customers to minimize disruptions in delivering products to customers.
In response to the global supply chain volatility and inflationary impacts, we have attempted to minimize potential adverse impacts on our business with cost savings initiatives, price increases to customers, and by increasing inventory levels of certain products and working closely with our suppliers and customers to minimize disruptions in delivering products to customers.
Future gross margins could also be affected by the Company's ability to manage product quality and warranty costs effectively and to stimulate demand for certain of its products.
Future gross margins could also be affected by our ability to manage product quality and warranty costs effectively and to stimulate demand for certain of our products.
The Company has generally financed its historical needs with operating cash flows, capital contributions and borrowings under its credit facilities. These sources of liquidity may be impacted by various factors, including demand for Holley’s products, investments made in acquired businesses, plant and equipment and other capital expenditures, and expenditures on general infrastructure and information technology.
We have generally financed our historical needs with operating cash flows, capital contributions and borrowings under our credit facilities. These sources of liquidity may be impacted by various factors, including demand for our products, investments made in acquired businesses, plant and equipment and other capital expenditures, and expenditures on general infrastructure and information technology.
Holley designs, markets, manufactures and distributes a diversified line of performance automotive products including fuel injection systems, tuners, exhaust products, carburetors, safety equipment and various other performance automotive products. Our products are designed to enhance street, off-road, recreational and competitive vehicle performance and safety.
Holley designs, markets, manufactures and distributes a diversified line of performance automotive products including fuel injection systems, tuners, exhaust products, carburetors, safety equipment and various other performance automotive products. Our products are designed to enhance street, off-road, recreational and competitive vehicle performance and safety. Central to our business and growth strategy is a commitment to innovation.
The Company's operations have been adversely impacted by inflationary pressures primarily related to transportation, labor and component costs. Sales growth in certain products has been constrained by continuing supply chain challenges and automotive electronic component shortages.
Our operations have been adversely impacted, and may continue to be adversely impacted, by inflationary pressures primarily related to transportation, labor and component costs. Sales growth in certain products has been constrained by continuing supply chain challenges and automotive electronic component shortages.
Holley's capital expenditures for the year ended December 31, 2022 of $13.6 million are primarily related to ongoing maintenance and improvements, including investments related to upgrading and maintaining our information technology systems, tooling for new products, vehicles for product development, and machinery and equipment for operations.
Our capital expenditures for the year ended December 31, 2023 of $5.9 million are primarily related to ongoing maintenance and improvements, including investments related to upgrading and maintaining our information technology systems, tooling for new products, vehicles for product development, and machinery and equipment for operations.
Based on the annual impairment assessment, the estimated fair value exceeded the carrying value of the reporting unit by 15%. As of December 31, 2022, management concluded it was necessary to reevaluate goodwill for impairment due to a further downward revision of its earnings estimate for 2022 and a continued decline in the Company's market capitalization.
Based on the annual impairment assessment, the estimated fair value exceeded the carrying value of the reporting unit by 15%. On December 31, 2022, we concluded it was necessary to reevaluate goodwill for impairment due to a further downward revision of earnings estimates for 2022 and a continued decline in our market capitalization.
Additionally, an impairment charge of $2.4 million was recognized on certain indefinite-lived tradenames during 2022 (see Note 5, “ Goodwill and Other Intangible Assets ” in the Notes to the Consolidated Financial Statements included elsewhere in the Annual Report on Form 10-K for additional information related to the Company’s recognition of impairment charges).
Additionally, an impairment charge of $2.4 million was recognized on certain indefinite-lived tradenames during 2022 (see Note 5, “Goodwill and Other Intangible Assets” in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information related to our recognition of impairment charges).
The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts and related disclosures of assets, liabilities, revenue, and expenses. Holley evaluates its estimates and assumptions on an ongoing basis.
The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts and related disclosures of assets, liabilities, revenue, and expenses. We evaluate our estimates and assumptions on an ongoing basis.
Should the ongoing macroeconomic conditions not improve, or worsen, or if the Company's attempt to mitigate the impact on its supply chain, operations and costs is not successful, the Company's business, results of operations and financial condition may be adversely affected. 33 Table of Contents Key Components of Results of Operations Net Sales The principal activity from which the Company generates its sales is the designing, marketing, manufacturing and distribution of performance aftermarket automotive parts for its end consumers.
Should the ongoing macroeconomic conditions not improve, or worsen, or if our attempts to mitigate the impact on our supply chain, operations and costs is not successful, our business, results of operations and financial condition may be adversely affected. 36 Table of Contents Key Components of Results of Operations Net Sales The principal activity from which we generate our sales is the designing, marketing, manufacturing and distribution of performance aftermarket automotive parts for our end consumers.
We expect capital expenditures in the range of $10 million to $15 million in fiscal year 2023 . See Note 6, " Debt " in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further detail of our credit facility and the timing of principal maturities.
We expect capital expenditures in the range of $8 million to $12 million in fiscal year 2024 . See Note 7, " Debt " in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further detail of our credit facility and the timing of principal maturities.
From 2020 through 2022, Holley completed 15 acquisitions. The most significant of these acquisitions impacting the comparability of our operating results were: • Baer, Inc. : On December 23, 2021, Holley acquired Baer, Inc. doing business as Baer Brakes, a developer and supplier of brakes and brake systems.
In 2022 and 2021, Holley completed 11 acquisitions. The most significant of these acquisitions impacting the comparability of our operating results were: • Baer, Inc. : On December 23, 2021, we acquired Baer, Inc. doing business as Baer Brakes, a developer and supplier of brakes and brake systems.
Holley believes that its most critical accounting estimates are related to accounting for inventory reserves, the fair value of assets and liabilities acquired in the Business Combination and acquisitions, and accounting for goodwill and intangible assets.
We believe that our most critical accounting estimates are related to accounting for inventory reserves, the fair value of assets and liabilities acquired in the Business Combination and acquisitions, and accounting for goodwill and intangible assets.
Additionally, we recognized total comprehensive income of $73.1 million for the year ended December 31, 2022, compared to total comprehensive loss of $(26.7) million for the year ended December 31, 2021. Comprehensive income (loss) includes the effect of foreign currency translation and pension liability adjustments.
Additionally, we recognized total comprehensive income of $19.4 million for the year ended December 31, 2023, as compared to total comprehensive income of $73.1 million for the year ended December 31, 2022. Comprehensive income (loss) includes the effect of foreign currency translation and pension liability adjustments.
During the third quarter of 2022, management concluded it was necessary to reevaluate goodwill and indefinite-lived intangible assets for impairment after supply chain challenges led to management revising its earnings estimate for 2022, which resulted in a decline in the Company's market capitalization.
During the third quarter of 2022, we concluded it was necessary to reevaluate goodwill and indefinite-lived intangible assets for impairment after supply chain challenges led to a downward revision of earnings estimates for 2022, which resulted in a decline in our market capitalization.
The following unaudited table presents the reconciliation of net income (loss), the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA for the years ended December 31, 2022, 2021 and 2020 (dollars in thousands): For the years ended December 31, 2022 2021 2020 Net income (loss) $ 73,774 $ (27,139 ) $ 32,857 Adjustments: Depreciation 10,107 11,527 7,886 Amortization of intangible assets 14,683 13,999 11,082 Interest expense 40,227 39,128 43,772 Income tax expense 4,493 10,429 8,826 EBITDA 143,284 47,944 104,423 Acquisition and restructuring costs 4,513 23,668 9,743 Impairment of indefinite-lived intangible assets 2,395 — — Change in fair value of warrant liability (57,021 ) 32,580 — Change in fair value of earn-out liability (10,731 ) 8,875 — Equity-based compensation expense 24,395 4,963 487 Product rationalization 4,519 — — Loss on early extinguishment of debt — 13,650 — Related party acquisition and management fee costs — 25,789 6,089 Notable items 1,838 11,270 3,891 Other expense 1,514 755 1,517 Adjusted EBITDA $ 114,706 $ 169,494 $ 126,150 40 Table of Contents Liquidity and Capital Resources Holley’s primary cash needs are to support working capital, capital expenditures, acquisitions, and debt repayments.
The following unaudited table presents the reconciliation of net income (loss), the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA for the years ended December 31, 2023, 2022 and 2021 (dollars in thousands): For the years ended December 31, 2023 2022 2021 Net income (loss) $ 19,180 $ 73,774 $ (27,139 ) Adjustments: Depreciation 10,308 10,107 11,527 Amortization of intangible assets 14,557 14,683 13,999 Interest expense, net 60,746 40,227 39,128 Income tax expense (benefit) 8,399 4,493 10,429 EBITDA 113,190 143,284 47,944 Acquisition and restructuring costs 2,641 4,513 23,668 Change in fair value of warrant liability 4,111 (57,021 ) 32,580 Change in fair value of earn-out liability 2,303 (10,731 ) 8,875 Equity-based compensation expense 7,291 24,395 4,963 Product rationalization (800 ) 4,519 — Impairment of indefinite-lived intangible assets — 2,395 — (Gain) loss on early extinguishment of debt (701 ) — 13,650 Related party acquisition and management fee costs — — 25,789 Notable items 1,285 1,838 11,270 Other expense 765 1,514 755 Adjusted EBITDA $ 130,085 $ 114,706 $ 169,494 43 Table of Contents Liquidity and Capital Resources Our primary cash needs are to support working capital, capital expenditures, acquisitions, and debt repayments.
Cash Flows The following table provides a summary of cash flows from operating, investing, and financing activities for the periods presented (dollars in thousands): For the years ended December 31, 2022 2021 2020 Cash flows provided by operating activities $ 12,312 $ 21,583 $ 88,413 Cash flows used in investing activities (25,037 ) (134,089 ) (165,618 ) Cash flows provided by financing activities 2,850 77,157 140,544 Effect of foreign currency rate fluctuations on cash (300 ) — — Net decrease in cash and cash equivalents $ (10,175 ) $ (35,349 ) $ 63,339 41 Table of Contents Operating Activities .
Cash Flows The following table provides a summary of cash flows from operating, investing, and financing activities for the periods presented (dollars in thousands): For the years ended December 31, 2023 2022 2021 Cash flows provided by operating activities $ 88,092 $ 12,312 $ 21,583 Cash flows used in investing activities (4,453 ) (25,037 ) (134,089 ) Cash flows (used in) provided by financing activities (69,008 ) 2,850 77,157 Effect of foreign currency rate fluctuations on cash 300 (300 ) — Net (decrease) increase in cash and cash equivalents $ 14,931 $ (10,175 ) $ (35,349 ) 44 Table of Contents Operating Activities .
Interest Expense Interest expense consists of interest due on the indebtedness under our credit facilities. On December 31, 2022, $659.4 million was outstanding under the Credit Agreement.
Interest Expense Interest expense consists of interest due on the indebtedness under our credit facilities. On December 31, 2023, $592.5 million was outstanding under the Credit Agreement.
Additionally, we recognized total comprehensive loss of $(26.7) million for the year ended December 31, 2021, compared to total comprehensive income of $32.6 million for the year ended December 31, 2020.
Additionally, we recognized total comprehensive income of $73.1 million for the year ended December 31, 2022, as compared to total comprehensive loss of $(26.7) million for the year ended December 31, 2021.
Factors Affecting our Performance We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section of this Form 10-K titled “Risk Factors.” Business Combination On July 16, 2021, we consummated a business combination (“Business Combination”) pursuant to that certain Agreement and Plan of Merger dated March 11, 2021, (the “Merger Agreement”), by and among Empower Ltd., (“Empower”), Empower Merger Sub I Inc., a direct wholly owned subsidiary of Empower (“Merger Sub I”), Empower Merger Sub II LLC, a direct wholly owned subsidiary of Empower (“Merger Sub II”), and Holley Intermediate Holdings, Inc.
Factors Affecting our Performance We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section of this Form 10-K titled “Risk Factors.” Business Combination On July 16, 2021, we consummated the Business Combination pursuant to the Merger Agreement, by and among Empower, Merger Sub I, Merger Sub II, and Holley Intermediate.
Cash used in investing activities for the year ended December 31, 2022, was $25.0 million, primarily relating to acquisitions of $14.3 million and capital expenditures of $13.6 million. For the year ended December 31, 2021, cash used in investing activities was $134.1 million, primarily relating to acquisitions of $119.2 million and capital expenditures of $15.2 million.
Cash used in investing activities for the year ended December 31, 2023, was $4.5 million, primarily relating to capital expenditures of $5.9 million. For the year ended December 31, 2022, cash used in investing activities was $25.0 million, primarily relating to acquisitions of $14.3 million and capital expenditures of $13.6 million.
Upon closing, Empower changed its name to Holley Inc. and its trading symbol on the New York Stock Exchange (the “NYSE”) from “EMPW” to “HLLY.” The Business Combination was accounted for as a reverse recapitalization. Holdings was deemed the accounting acquirer with Holley Inc. as the successor registrant.
Upon closing of the Business Combination, Empower changed its name to Holley Inc. and its trading symbol on the NYSE from “EMPW” to “HLLY.” The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP. Holley Intermediate was deemed the accounting acquirer with Holley Inc. as the successor registrant.
The warrant liability reflects the fair value of the warrants issued in connection with the Business Combination. 36 Table of Contents Change in Fair Value of Earn-Out Liability For the year ended December 31, 2022, we recognized a gain of $10.7 million from the change in fair value of the earn-out liability as compared to a loss of $8.9 million for the year ended December 31, 2021.
Change in Fair Value of Earn-Out Liability For the year ended December 31, 2022, we recognized a gain of $10.7 million from the change in fair value of the earn-out liability as compared to a loss of $8.9 million for the year ended December 31, 2021.
On December 31, 2022, based on the then current weighted average interest rate of 8.4%, expected interest payments associated with outstanding debt totaled approximately $55.7 million for fiscal year 2023.
On December 31, 2023, based on the then current weighted average interest rate of 9.2%, expected interest payments associated with outstanding debt totaled approximately $54.6 million for fiscal year 2024.
The increase in cost of goods sold during the year ended December 31, 2022, in which sales declined reflects compression in gross profit margin due to manufacturing inefficiencies driven by supply chain constraints, higher product rationalization charges, higher warranty costs, and inflationary pressures on certain other costs. 35 Table of Contents Gross Profit and Gross Margin Gross profit for the year ended December 31, 2022, decreased $33.2 million, or 11.6%, to $253.7 million compared to $286.8 million for the year ended December 31, 2021.
The increase in cost of goods sold during the year ended December 31, 2022, in which sales declined reflects compression in gross profit margin due to manufacturing inefficiencies driven by supply chain constraints, higher product rationalization charges, higher warranty costs, and inflationary pressures on certain other costs.
The Company has pursued acquisitions that it believes will help drive profitability, cash flow and stockholder value. Holley targets companies that are market leaders, expand the Company’s geographic presence, provide a highly synergistic opportunity and/or enhance Holley’s ability to provide a wide array of its products to its customers through its distribution network.
We have pursued acquisitions that we believe will help drive profitability, cash flow and stockholder value. We target companies that we believe are market leaders, expand our geographic presence, provide a highly synergistic opportunity and/or enhance our ability to provide a wide array of our products to our customers through our distribution network.
The earn-out liability reflects the fair value of the earn-out shares resulting from the Business Combination. Interest Expense Interest expense for the year ended December 31, 2022, increased $1.1 million, or 2.8%, to $40.2 million compared to $39.1 million for the year ended December 31, 2021, due to a higher effective interest rate.
Interest Expense Interest expense for the year ended December 31, 2022, increased $1.1 million, or 2.8%, to $40.2 million as compared to $39.1 million for the year ended December 31, 2021, due to a higher effective interest rate.
Acquisition and Restructuring Costs Acquisition and restructuring costs for the year ended December 31, 2022, decreased $19.2 million to $4.5 million, as compared to $23.7 million for the year ended December 31, 2021. The year ended December 31, 2021, included an adjustment of $17.2 million for contingent consideration payable for the acquisition of Simpson Performance Products (“Simpson”).
Acquisition and Restructuring Costs Acquisition and restructuring costs for the year ended December 31, 2022, decreased $19.2 million to $4.5 million, as compared to $23.7 million for the year ended December 31, 2021.
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 (loss) or any other performance measures derived in accordance with GAAP.
EBITDA and Adjusted EBITDA are not prepared in accordance with 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.
Net Income (Loss) and Total Comprehensive Income (Loss) As a result of factors described above, we recognized a net loss of $(27.1) million for the year ended December 31, 2021, compared to net income of $32.9 million for the year ended December 31, 2020.
Net Income and Total Comprehensive Income As a result of factors described above, we recognized net income of $19.2 million for the year ended December 31, 2023, as compared to net income of $73.8 million for the year ended December 31, 2022.
The difference between the effective tax rate for the year ended December 31, 2021, and the federal statutory rate in 2021 was due to the permanent difference resulting from the adjustment to the Simpson earn-out liability during the period and the change in fair value of the warrant and earn-out liabilities.
The difference between the effective tax rate and the federal statutory rate in 2022 was primarily due to permanent differences resulting from the change in fair value of warrant and earn-out liabilities.
Holley defines Adjusted EBITDA as EBITDA plus (i) acquisition and restructuring costs, which for 2021 includes a $17.2 million adjustment due to a change in the fair value of the Simpson acquisition contingent consideration payable, (ii) impairment of indefinite-lived intangible assets, (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) product rationalization initiatives aimed at eliminating unprofitable or slow-moving stock keeping units, (vii) loss on the early extinguishment of debt (viii) related party acquisition and management fee costs, (ix) notable items that consist primarily of non-cash adjustments related to the adoption of ASC Topic 842, " Leases," in 2022, amortization of the fair market value increase in inventory due to acquisitions in 2021, and the amortization of the fair market value increase in inventory due to acquisitions and a legal settlement in 2020, and (x) other expenses, which for 2022 includes a $1.0 million loss on the sale of a business (see Note 2, " Business Combination, Acquisitions, and Divestiture ," in the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information related to the divestiture) and for all periods includes net losses from disposal of fixed assets and foreign currency transactions.
We define Adjusted EBITDA as EBITDA adjusted to exclude, to the extent applicable, acquisition and restructuring costs, which includes transaction fees and expenses, 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; non-cash charges due to our product rationalization initiative aimed at eliminating unprofitable or slow-moving stock keeping units; impairment of indefinite-lived intangible assets; loss or (gain) on the early extinguishment of debt; related party acquisition and management fee costs; notable items that we do not believe are reflective of operating performance, which for the year ended December 31, 2023, includes certain costs incurred for advisory services related to identifying performance initiatives, and for the year ended December 31, 2022, includes a non-cash adjustment related to the adoption of ASC Topic 842, “ Leases ,” and legal fees and costs related to a settlement, and for the year ended December 31, 2021 includes amortization of the fair market value increase in inventory due to acquisitions; and other expenses or gains, which for the year ended December 31, 2022, includes a $1.0 million loss on the sale of a business (see Note 2, " Business Combination, Acquisitions, and Divestiture ," in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information related to the divestiture) and for all periods includes net gains or losses from disposal of fixed assets, franchise taxes, and gains or losses from foreign currency transactions.
For the year ended December 31, 2020, cash used in investing activities was $165.6 million, primarily relating to acquisitions of $156.8 million and capital expenditures of $9.4 million. Financing Activities. Cash provided by financing activities for the year ended December 31, 2022, was $2.9 million, which primarily reflected net borrowings on long-term debt.
Cash provided by financing activities for the year ended December 31, 2022, was $2.9 million, which primarily reflected net borrowings on long-term debt.
Risk Factors for additional discussion on the COVID-19 pandemic and the impact on our business. The Company's business and results of operations, financial condition, and liquidity are impacted by broad economic conditions including inflation, labor shortages, and disruption of the supply chain, as well as by geopolitical events, specifically the conflict in Ukraine.
Business Environment Our business and results of operations, financial condition, and liquidity are impacted by broad economic conditions including inflation, labor shortages, and disruption of the supply chain, as well as by geopolitical events, including military conflicts (including the conflict in Ukraine, the conflict in Israel and surrounding areas, and the possible expansion of such conflicts).
When expressed as a percentage of sales, selling, general and administrative costs increased to 16.9% of sales for the year ended December 31, 2021, compared to 14.1% of sales in 2020. Recent acquisitions accounted for $18.5 million of the increase in selling, general and administrative costs.
When expressed as a percentage of sales, selling, general and administrative costs decreased to 18.2% of sales for the year ended December 31, 2023, compared to 21.9% of sales in 2022.
On December 31, 2022, the Company had cash of $26.2 million and availability of $113.8 million under its revolving credit facility. The Company has a senior secured revolving credit facility with $125 million in borrowing capacity. On December 31, 2022, the Company had $10.0 million in borrowings and $1.2 million of letters of credit outstanding under the revolving credit facility.
On December 31, 2023, we had cash of $41.1 million and availability of $123.3 million under our revolving credit facility. We have a senior secured revolving credit facility with $125 million in borrowing capacity. On December 31, 2023, we had $1.7 million in letters of credit outstanding under the revolving credit facility.
While we believe our business is positioned for continued organic growth, we intend to continue evaluating opportunities for strategic acquisitions that would complement our current business and expand our addressable target market.
While we anticipate continued organic growth, we intend to continue evaluating opportunities for strategic acquisitions that align with our current business, expanding our reach within the target market.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA hypothetical 100 basis point increase or decrease in interest rates would result in an approximately $6.6 million change to Holley’s annual interest expense. Credit and other Risks . Holley is exposed to credit risk associated with cash and cash equivalents and trade receivables.
Biggest changeA hypothetical 100 basis point increase in interest rates would result in an approximately $0.9 million increase in annual interest expense, while a hypothetical 100 basis point decrease in interest rates would result in an approximately $4.1 million decrease to Holley’s annual interest expense. Credit and other Risks .
To manage exposure to such risks, Holley performs ongoing credit evaluations of the Company’s customers and maintains an allowance for potential credit losses. Exchange Rate Sensitivity . On December 31, 2022, the Company was exposed to changes in foreign currency exchange rates.
To manage exposure to such risks, Holley performs ongoing credit evaluations of the Company’s customers and maintains an allowance for potential credit losses. Exchange Rate Sensitivity . On December 31, 2023, the Company was exposed to changes in foreign currency exchange rates.
The majority of the Company’s sales, both domestically and internationally, are denominated in U.S. Dollars. Historically, the majority of the Company’s expenses have also been in U.S. Dollars and we have been somewhat insulated from currency fluctuations. However, Holley may be exposed to greater exchange rate sensitivity in the future.
The majority of the Company’s sales, both domestically and internationally, are denominated in U.S. Dollars. Historically, the majority of the Company’s expenses have also been in U.S. Dollars, and it has been somewhat insulated from currency fluctuations. However, Holley may be exposed to greater exchange rate sensitivity in the future.
On December 31, 2022, the majority the Company’s cash and cash equivalents consisted of cash balances in non-interest-bearing checking accounts which exceed the insurance coverage provided on such deposits. Substantially all trade receivable balances of the business are unsecured.
Holley is exposed to credit risk associated with cash and cash equivalents and trade receivables. On December 31, 2023, the majority of the Company’s cash and cash equivalents consisted of cash balances in non-interest-bearing checking accounts which exceed the insurance coverage provided on such deposits. Substantially all trade receivable balances of the business are unsecured.
Holley has established policies and procedures governing the Company’s management of market risks and the use of financial instruments to manage exposure to such risks. The Company generally does not hedge its interest rate exposure. On December 31, 2022 the Company had $659.4 million of floating-rate debt outstanding under the Credit Agreement.
Holley has established policies and procedures governing the Company’s management of market risks and the use of financial instruments to manage exposure to such risks. When appropriate, the Company uses derivative financial instruments to mitigate some of the effects of increases in interest rates.
Added
On December 31, 2023 the Company had $592.5 million of floating-rate debt outstanding under the Credit Agreement with a weighted average borrowing rate of 9.2%.

Other HLLY 10-K year-over-year comparisons