Holley Inc.

11/07/2025 | Press release | Distributed by Public on 11/07/2025 06:34

Quarterly Report for Quarter Ending September 28, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
Unless the context otherwise requires or indicates, references to "Holley," "we," "us," "our" and "the Company" in this section are to the business and operations of Holley Inc. and its subsidiaries. The following discussion and analysis should be read in conjunction with Holley's condensed consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause Holley's actual results to differ materially from management's expectations. Factors that could cause such differences are discussed herein and under the caption, "Cautionary Note Regarding Forward-Looking Statements."
Overview
We are a leading designer, marketer, and manufacturer of high performance automotive aftermarket products serving car and truck enthusiasts, with sales, processing, and distribution facilities reaching most major markets in the United States, Canada, Europe, and China. We design, market, manufacture and distribute 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.
Innovation is at the core of our business and growth strategy. We have a history of developing innovative products, including new products in existing product families, product line expansions, and accessories, as well as products that bring us into new categories. We have thoughtfully expanded our product portfolio over time to adapt to consumer needs.
In addition, we have historically used strategic acquisitions to (i) expand our brand portfolio, (ii) enter new product categories and consumer segments, (iii) increase direct-to-consumer scale and connection, (iv) expand share in current product categories and (v) realize value-enhancing revenue and cost synergies. 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.
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 above, under the caption, "Cautionary Note Regarding Forward-Looking Statements," in this Quarterly Report on Form 10-Q, under the caption, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 14, 2025, and in our subsequent filings with the SEC.
Business Environment
Our business and results of operations, financial condition, and liquidity are impacted by broad economic conditions, as well as by geopolitical events, including the conflict in Ukraine, the conflict in the Middle East, and the possible expansion of such conflicts and potential geopolitical consequences. Our business is impacted by various economic factors that affect both consumers and the automotive industry, including by not limited to inflation, fuel costs, wage rates, supply chain disruptions, hiring, and other economic conditions. In response to inflationary impacts and supply chain disruptions, we have attempted to minimize potential adverse impacts on our business with cost savings initiatives, price increases to customers, and increased attention to maintaining appropriate inventory levels in the distribution channel. Our 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 increase our costs. Should the ongoing macroeconomic conditions not improve, or worsen, or if our attempt 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.
Impact of Tariffs and International Trade Policy on Our Operations
Since February 2025, the United States government has imposed new tariffs on imports from certain countries and regions, including China, Canada, Mexico and the European Union. In response, some foreign governments have implemented retaliatory measures. These developments have introduced new complexities to global supply chains; however, we believe Holley's business model and sourcing strategies have positioned us to manage these challenges effectively.
We believe that our international exposure is currently primarily centered in China. Tariffs on Chinese imports have been a factor in our sourcing strategies for several years, and we have proactively developed and implemented plans to mitigate their impact. These initiatives include, but are not limited to, conducting a harmonized tariff code audit to ensure accurate classification and compliance, changing to supplier locations outside of China, reshoring products to North America and exploring direct shipping from suppliers to international customers to reduce tariff exposure on goods entering the United States. We continue to evaluate additional strategies to further minimize the impact of tariffs on our operations.
Because our production costs are primarily U.S.-based and we have a broad product portfolio with a strong concentration of manufacturing and sourcing in the United States, we believe our U.S. focus enables us to better manage and mitigate the impact of tariffs on pricing more effectively than competitors who are less diversified and more reliant on single-source imports from China. During the second quarter of 2025, we undertook the initiatives discussed above to mitigate the economic impact of tariffs on our product portfolio. We believe these initiatives combined with our pricing actions have allowed us to successfully manage the impact of the latest tariff decisions. However, if current tariff levels are sustained or increased, there is a risk that our profitability, cash flows and estimates inherent in our financial statements could be negatively affected.
We continue to monitor international trade developments closely, including potential changes in tariff rates and the possibility of new exemptions or retaliatory actions, in order to analyze their impact on our business and identify possible actions to minimize adverse effects. The extent and duration of these tariffs, as well as their broader impact on macroeconomic conditions and our business, remain uncertain and will depend on a variety of factors outside of our control. Nevertheless, we remain committed to optimizing our operations, managing costs and leveraging our diversified supply chain to minimize the impact of tariffs on our results of operations and financial condition.
Key Components of Results of Operations
Net Sales
The principal activity from which we generate sales is the designing, marketing, manufacturing, and distribution of performance after-market automotive parts for our end consumers. Sales are displayed net of rebates and sales returns allowances. Sales returns are recorded as a charge against gross sales in the period in which the related sales are recognized.
Cost of Goods Sold
Cost of goods sold consists primarily of the cost of purchased parts and manufactured products, including materials and direct labor costs. In addition, warranty, incoming shipping and handling and inspection and repair costs are also included within costs of goods sold. Reductions in the cost of inventory to its net realizable value are also a component of cost of goods sold.
Selling, General, and Administrative
Selling, general, and administrative costs consist of payroll and related personnel expenses, IT and office services, office rent expense, and professional services. In addition, self-insurance, advertising, research and development, outgoing shipping costs, pre-production and start-up costs are also included within selling, general, and administrative.
Restructuring Costs
Restructuring costs include charges attributable to operational restructuring and integration activities, including professional and consulting services; termination related benefits; facilities relocation; and executive transition costs.
Interest Expense
Interest expense consists of interest due on the indebtedness under our credit facilities. Interest is based on SOFR or the base rate, at the Company's election, plus the applicable margin rate. As of September 28, 2025, $542.6 million was outstanding under our Credit Agreement.
Results of Operations
13-Week Period Ended September 28, 2025 Compared With 13-Week Period Ended September 29, 2024
The table below presents Holley's results of operations for the 13-week periods ended September 28, 2025 and September 29, 2024 (dollars in thousands):
For the thirteen weeks ended
September 28, 2025 September 29, 2024 Change ($) Change (%)
Net sales $ 138,373 $ 134,038 $ 4,335 3.2 %
Cost of goods sold 78,534 81,732 (3,198) (3.9) %
Gross profit 59,839 52,306 7,533 14.4 %
Selling, general, and administrative 33,466 30,109 3,357 11.1 %
Research and development costs 4,715 4,620 95 2.1 %
Amortization of intangible assets 3,456 3,436 20 0.6 %
Restructuring costs 1,360 954 406 42.6 %
Write-down of assets held for sale - 7,505 (7,505) (100.0 %)
Other operating expense 975 119 856 n/a
Operating income 15,867 5,563 10,304 185.2 %
Change in fair value of warrant liability 3,019 (1,041) 4,060 n/a
Change in fair value of earn-out liability 1,126 (634) 1,760 n/a
Interest expense, net 11,259 15,010 (3,751) (25.0 %)
Income (loss) before income taxes 463 (7,772) 8,235 (106.0 %)
Income tax expense (benefit) 1,269 (1,484) 2,753 (185.5) %
Net income (loss) (806) (6,288) 5,482 (87.2) %
Foreign currency translation adjustment $ 382 $ 386 (4) (1.0 %)
Total comprehensive income (loss) $ (424) $ (5,902) $ 5,478 (92.8) %
Net Sales
Net sales for the 13-week period ended September 28, 2025increased $4.3 million, or 3.2%, to $138.4 million, as compared to $134.0 millionfor the 13-week period ended September 29, 2024. Improved price realization of approximately $4.4 million, offset partially by lower sales volume resulted in a decrease of $0.1 million compared to the prior year period. The flat volume was related to SKU rationalization and divested business.
The table below presents our net sales for the 13-week periods ended September 28, 2025 and September 29, 2024, as well as sales related to divestitures and sales related to our strategic product rationalization project. The divestitures sales relate to divested businesses prior to the divestiture date. The divestitures include Detroit Speed Engineering, Gear FX, and Proforged. The strategic product rationalization sales related to a 2024 initiative to discontinued stock keeping units ("SKUs").
For the thirteen weeks ended
September 28, 2025 September 29, 2024
Net Sales $ 138,373 $ 134,038
Divestitures - 2,780
Strategic Product Rationalization - 1,264
Cost of Goods Sold
Cost of goods sold for the 13-week period ended September 28, 2025 decreased $3.2 million, or 3.9%, to $78.5 million, as compared to $81.7 millionfor the 13-week period ended September 29, 2024. The decrease in cost of goods sold in the third quarter of 2025, a period in which product sales increased3.2%, was due to improved operational initiatives across facility efficiencies, and improvements in quality through reduced warranty claims.
Gross Profit and Gross Margin
Gross profit for the 13-week period ended September 28, 2025 increased $7.5 million, or 14.4%, to $59.8 million, as compared to $52.3 millionfor the 13-week period ended September 29, 2024. Gross margin for the 13-week period ended September 28, 2025 was 43.2% as compared to a gross margin of 39.0% for the 13-week period ended September 29, 2024. This improvement was through a combination of pricing flow through as well as operational initiatives across facility efficiencies, and improvements in quality through reduced warranty claims.
Selling, General and Administrative
Selling, general and administrative costs for the 13-week period ended September 28, 2025 increased $3.4 million, or 11.1%, to $33.5 million, as compared to $30.1 millionfor the 13-week period ended September 29, 2024. Selling, general and administrative costs expressed as a percentage of sales increased to 24.2% for the 13-week period ended September 28, 2025 compared to 22.5% for the 13-week period ended September 29, 2024. The increase in selling, general and administrative costs was due to an increase in salaries for the Company in the third quarter of 2025, compared to the third quarter of 2024. The increase is due to reduced payroll expense in 2024 from the furlough activity, reduced 2024 incentive compensation, and increased investments in 2025 related to SOX, cyber security and tariff mitigation.
Research and Development Costs
Research and development costs for the 13-week period ended September 28, 2025 slightly increased to $4.7 million as compared to $4.6 million for the 13-week period ended September 29, 2024, primarily due to the Company's realignment of employees' roles and responsibilities from selling, general and administrative to research and development.
Amortization and Impairment of Intangible Assets
Amortization of intangible assets was $3.5 millionfor the 13-week period ended September 28, 2025 compared to $3.4 millionfor the 13-week period ended September 29, 2024.
Restructuring Costs
Restructuring costs for the 13-week period ended September 28, 2025 increased by $0.4 millionto $1.4 million, as compared to $1.0 millionfor the 13-week period ended September 29, 2024, reflecting restructuring and integration activities associated with our implementation of resource allocation efforts in support of portfolio development optimization.
Write-Down of Assets Held-For-Sale
Write-down of assets held-for-sale for the 13-week period ended September 29, 2024 related to the sale of Detroit Speed Engineering, reflecting a $7.5 million loss after adjusting the assets from carrying value to fair value.
Operating Income
As a result of factors described above, operating income for the 13-week period ended September 28, 2025 increased $10.3 million, or 185.2%, to $15.9 million, as compared to $5.6 millionfor the 13-week period ended September 29, 2024.
Change in Fair Value of Warrant Liability
For the 13-week periods ended September 28, 2025 and September 29, 2024, we recognized a loss of $3.0 million and a gain of $1.0 million, respectively. The warrant liability reflects the fair value of the Warrants issued in connection with the Business Combination.
Change in Fair Value of Earn-Out Liability
For the 13-week periods ended September 28, 2025 and September 29, 2024, we recognized a loss of $1.1 millionand a gain of $0.6 million, respectively. The earn-out liability reflects the fair value of the unvested Earn-Out Shares resulting from the Business Combination.
Interest Expense
Interest expense for the 13-week period ended September 28, 2025 decreased $3.8 million, or 25.0%, to $11.3 million, as compared to $15.0 millionfor the 13-week period ended September 29, 2024. The increase was primarily attributable to the unfavorable impact of the interest rate collar, which resulted in recognized interest expense of $1.0 million and interest income of $2.2 million related to the interest rate collar for 13-week periods ended September 28, 2025 and September 29, 2024, respectively. This increase was partially offset by lower interest expense on outstanding debt due to a decrease in our debt balance.
Income (Loss) before Income Taxes
As a result of factors described above, we recognized $0.5 million of income before income taxes and $7.8 millionof loss before income taxes for the 13-week periods ended September 28, 2025 and September 29, 2024, respectively.
Income Tax Expense (Benefit)
Income tax expense for the 13-week period ended September 28, 2025 was $1.3 million, as compared to income tax benefit of $1.5 millionfor the 13-week period ended September 29, 2024. Our effective tax rate for the 13-week period ended September 28, 2025 was 274.1%. The difference between the effective tax rate for the 13-week period ended September 28, 2025 and the federal statutory rate in 2025 was due to permanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period, state taxes, and the impact of foreign taxes in higher rate jurisdictions. The effective tax rate for the 13-week period ended September 29, 2024 was 19.1%. The difference between the effective tax rate for the 13-week period ended September 29, 2024 and the federal statutory rate in 2024 was due to permanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period and the impact of foreign taxes in higher tax rate jurisdictions.
Net Income (Loss) and Total Comprehensive Loss
As a result of factors described above, we recognized net loss of $0.8 millionand net loss of $6.3 millionfor the 13-week periods ended September 28, 2025 and September 29, 2024, respectively. Additionally, we recognized total comprehensive loss of $0.4 millionfor the 13-week period ended September 28, 2025, as compared to
total comprehensive loss of $5.9 millionfor the 13-week period ended September 29, 2024. Comprehensive loss includes the effect of foreign currency translation adjustments.
Results of Operations
39-Week Period Ended September 28, 2025 Compared With 39-Week Period Ended September 29, 2024
The table below presents Holley's results of operations for the 39-week periods ended September 28, 2025 and September 29, 2024 (dollars in thousands):
For the thirty-nine weeks ended
September 28, 2025 September 29, 2024 Change ($) Change (%)
Net sales $ 458,078 $ 462,170 $ (4,092) (0.9) %
Cost of goods sold 264,593 287,512 (22,919) (8.0) %
Gross profit 193,485 174,658 18,827 10.8 %
Selling, general, and administrative 103,119 97,675 5,444 5.6 %
Research and development costs 13,894 13,743 151 1.1 %
Amortization of intangible assets 10,338 10,307 31 0.3 %
Restructuring costs 2,178 1,566 612 39.1 %
Write-down of assets held-for-sale - 7,505 (7,505) (100.0) %
Other operating expense 1,232 213 1,019 478.4 %
Operating income 62,724 43,649 19,075 43.7 %
Change in fair value of warrant liability 2,939 (7,570) 10,509 n/a
Change in fair value of earn-out liability 722 (2,341) 3,063 n/a
Loss on early extinguishment of debt - 141 (141) n/a
Interest expense, net 40,341 39,192 1,149 2.9 %
Income before income taxes 18,722 14,227 4,495 31.6 %
Income tax expense (benefit) 5,848 (320) 6,168 (1927.5) %
Net income 12,874 14,547 (1,673) (11.5) %
Foreign currency translation adjustment $ 1,336 $ 244 1,092 447.5 %
Total comprehensive income $ 14,210 $ 14,791 $ (581) (3.9) %
Net Sales
Net sales for the 39-week period ended September 28, 2025decreased $4.1 million, or 0.9%, to $458.1 million, as compared to $462.2 millionfor the 39-week period ended September 29, 2024. Lower sales volume resulted in a decrease of approximately $12.5 million, offset partially by improved price realization of approximately $8.4 million compared to the prior year period.
The table below presents our net sales for the 39-week periods ended September 28, 2025 and September 29, 2024, as well as sales related to divestitures and sales part of our strategic product rationalization project. The divestitures sales relate to divested businesses prior to the divestiture date. The divestitures include Detroit Speed Engineering, Gear FX, and Proforged. The strategic product rationalization sales related to a 2024 initiative to discontinued stock keeping units ("SKUs").
For the thirty-nine weeks ended
September 28, 2025 September 29, 2024
Net Sales $ 458,078 $ 462,170
Divestitures - 9,961
Strategic Product Rationalization - 13,642
Cost of Goods Sold
Cost of goods sold for the 39-week period ended September 28, 2025 decreased $22.9 million, or 8.0%, to $264.6 million, as compared to $287.5 millionfor the 39-week period ended September 29, 2024. The decrease in cost of goods sold in 2025, a period in which product sales decreased 0.9%, was primarily due to the $9.1 million of product rationalization initiative in 2024. The initiative focused on eliminating unprofitable or slow-moving SKUs. Lower freight costs also contributed to the decrease.
Gross Profit and Gross Margin
Gross profit for the 39-week period ended September 28, 2025 increased $18.8 million, or 10.8%, to $193.5 million, as compared to $174.7 millionfor the 39-week period ended September 29, 2024. Gross margin for the 39-week period ended September 28, 2025 was 42.2% as compared to a gross margin of 37.8% for the 39-week period ended September 29, 2024. Gross profit margin increased primarily due to inventory charges in 2024, driven by the product rationalization initiative. The increase was also due to sales and improvements in freight costs.
Selling, General and Administrative
Selling, general and administrative costs for the 39-week period ended September 28, 2025 increased $5.4 million, or 5.6%, to $103.1 million, as compared to $97.7 millionfor the 39-week period ended September 29, 2024. Selling, general and administrative costs expressed as a percentage of sales increased to 22.5% for the 39-week period ended September 28, 2025 compared to 21.1% for the 39-week period ended September 29, 2024. The increase in selling, general and administrative costs was driven by an increase in legal fees of $1.1 million, which was related to legal settlement costs. Overall, salaries increased for the Company in 2025, compared to 2024. The increase is due to the furlough that occurred during 2024. The increase was offset by a decrease in transformative consulting fees.
Research and Development Costs
Research and development costs for the 39-week period ended September 28, 2025 slightly increased to $13.9 million as compared to $13.7 million for the 39-week period ended September 29, 2024, primarily due to the Company's realignment of employees' roles and responsibilities from selling, general and administrative to research and development.
Amortization and Impairment of Intangible Assets
Amortization of intangible assets was $10.3 millionfor the 39-week period ended September 28, 2025 compared to $10.3 millionfor the 39-week period ended September 29, 2024.
Restructuring Costs
Restructuring costs for the 39-week period ended September 28, 2025 increased by $0.6 millionto $2.2 million, as compared to $1.6 millionfor the 39-week period ended September 29, 2024, reflecting restructuring and
integration activities associated with our implementation of resource allocation efforts in support of portfolio development optimization.
Write-Down of Assets Held-For-Sale
Write-down of assets held-for-sale for the 39-week period ended September 29, 2024 related to the sale of Detroit Speed Engineering, reflecting a $7.5 million loss after adjusting the assets from carrying value to fair value.
Operating Income
As a result of factors described above, operating income for the 39-week period ended September 28, 2025 increased $19.1 million, or 43.7%, to $62.7 million, as compared to $43.6 millionfor the 39-week period ended September 29, 2024.
Change in Fair Value of Warrant Liability
For the 39-week periods ended September 28, 2025 and September 29, 2024, we recognized a loss of $2.9 millionand a gain of $7.6 million, respectively. The warrant liability reflects the fair value of the Warrants issued in connection with the Business Combination.
Change in Fair Value of Earn-Out Liability
For the 39-week periods ended September 28, 2025 and September 29, 2024, we recognized a loss of $0.7 millionand a gain of $2.3 million, respectively. The earn-out liability reflects the fair value of the unvested Earn-Out Shares resulting from the Business Combination.
Interest Expense (Benefit)
Interest expense for the 39-week period ended September 28, 2025 increased $1.1 million, or 2.9%, to $40.3 million, as compared to $39.2 million for the 39-week period ended September 29, 2024. The increase was primarily attributable to the unfavorable impact of the interest rate collar, which resulted in recognized interest expense of $4.3 million and interest income of $0.2 million related to the interest rate collar for 39-week periods ended September 28, 2025 and September 29, 2024, respectively. This increase was partially offset by lower interest expense on outstanding debt due to a decrease in our debt balance.
Income before Income Taxes
As a result of factors described above, we recognized $18.7 millionand $14.2 millionof income before income taxes for the 39-week periods ended September 28, 2025 and September 29, 2024, respectively.
Income Tax Expense
Income tax expense for the 39-week period ended September 28, 2025 was $5.8 million, as compared to income tax benefit of $0.3 millionfor the 39-week period ended September 29, 2024. Our effective tax rate for the 39-week period ended September 28, 2025 was 31.2%. The difference between the effective tax rate for the 39-week period ended September 28, 2025 and the federal statutory rate in 2025 was due to permanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period, state taxes, the impact of foreign taxes in higher tax rate jurisdictions, and excess tax deficiencies from share-based compensation recognized during the period. The effective tax rate for the 39 week period ended September 29, 2024 was (2.2)%. The difference between the effective tax rate and the federal statutory rate in 2024 was due to permanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period, federal research and development tax credits, and the impact of foreign taxes in higher tax rate jurisdictions. In addition, the Company incurred expenses related to product rationalization that were determined to be significant and infrequent in nature; therefore, the full tax benefit of these expenses was recorded during the year as a discrete adjustment.
Net Income and Total Comprehensive Income
As a result of factors described above, we recognized net income of $12.9 millionand $14.5 millionfor the 39-week periods ended September 28, 2025 and September 29, 2024, respectively. Additionally, we recognized total comprehensive income of $14.2 millionfor the 39-week period ended September 28, 2025, as compared to total comprehensive income of $14.8 millionfor the 39-week period ended September 29, 2024. Comprehensive income includes the effect of foreign currency translation adjustments.
Non-GAAP Financial Measures
We present certain information with respect to EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash Flow as supplemental measures of our operating performance and believe that such non-GAAP financial measures are useful to investors in evaluating our financial performance and in comparing our financial results between periods because they exclude the impact of certain items that we do not consider indicative of our ongoing operating performance. We believe that the presentation of these non-GAAP financial measures enhances the usefulness of our financial information by presenting measures that management uses internally to establish forecasts, budgets and operational goals to manage and monitor our business. We believe that these non-GAAP financial measures help to depict a more realistic representation of the performance of our underlying business, enabling us to evaluate and plan more effectively for the future.
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Diluted EPS, and Free Cash Flow 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 our financial performance. These metrics should not be considered as alternatives to net income, gross profit, net cash provided by operating activities, or any other performance measures, as applicable, derived in accordance with GAAP.
Adjusted EBITDA
We define EBITDA as earnings before depreciation, amortization of intangible assets, interest expense, and income tax expense. We define Adjusted EBITDA as EBITDA adjusted to exclude, to the extent applicable, acquisition and restructuring costs, which includes operational restructuring and integration activities, 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; loss on the early extinguishment of debt; notable items that we do not believe are reflective of our underlying operating performance, including litigation settlements, transformative consulting fees and certain costs incurred for advisory services related to identifying performance initiatives; and other expenses or gains, which includes gains or losses from disposal of fixed assets, franchise taxes, and gains or losses from foreign currency transactions. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by net sales.
The following unaudited table presents the reconciliation of net income, the most directly comparable GAAP measure, to EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin for the 13-week and 39-week periods ended September 28, 2025 and September 29, 2024 (dollars in thousands):
For the thirteen weeks ended For the thirty-nine weeks ended
September 28, 2025 September 29, 2024 September 28, 2025 September 29, 2024
Net income (loss) $ (806) $ (6,288) $ 12,874 $ 14,547
Adjustments:
Depreciation 2,669 2,231 7,183 7,364
Amortization of intangible assets 3,456 3,436 10,338 10,307
Interest expense, net 11,259 15,010 40,341 39,192
Income tax expense (benefit) 1,269 (1,484) 5,848 (320)
EBITDA 17,847 12,905 76,584 71,090
Change in fair value of warrant liability 3,019 (1,041) 2,939 (7,570)
Change in fair value of earn-out liability 1,126 (634) 722 (2,341)
Write-down of assets held for sale - 7,505 - 7,505
Equity-based compensation expense 2,322 1,521 5,225 4,283
Loss on early extinguishment of debt - - - 141
Restructuring costs 1,360 954 2,178 1,566
Notable items 457 785 1,941 6,479
Other operating expense 975 119 1,232 213
Adjusted EBITDA $ 27,106 $ 22,114 $ 90,821 $ 81,366
Net sales $ 138,373 $ 134,038 $ 458,078 $ 462,170
Net income margin (0.6 %) (4.7 %) 2.8 % 3.1 %
Adjusted EBITDA Margin 19.6 % 16.5 % 19.8 % 17.6 %
Adjusted EBITDA for 2024 includes the impact of a $9.1 million, non-cash charge related to a previously announced strategic product rationalization. For 2024, Adjusted EBITDA includes $2.0 million benefit also related to the strategic product rationalization, netting to $7.1 million non-cash charge.
Adjusted Net Income and Adjusted Diluted EPS
We define Adjusted Net Income as earnings excluding the after-tax effect of changes in the fair value of the warrant liability, changes in the fair value of the earn-out liability, and gain or loss on the early extinguishment of debt. We define Adjusted Diluted EPS as Adjusted Net Income on a per share basis. Management uses these measures to focus on on-going operations and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present consolidated operating results. We believe that using this information, along with net income and net income per diluted share, provides for a more complete analysis of the results of operations.
The following unaudited tables present the reconciliation of net income and net income per diluted share, the most directly comparable GAAP measures, to Adjusted Net Income and Adjusted Diluted EPS for the 13-week and 39-week periods ended September 28, 2025 and September 29, 2024 (dollars in thousands):
For the thirteen weeks ended For the thirty-nine weeks ended
September 28, 2025 September 29, 2024 September 28, 2025 September 29, 2024
Net income (loss) $ (806) $ (6,288) $ 12,874 $ 14,547
Special items:
Adjust for: Change in fair value of Warrant liability 3,019 (1,041) 2,939 (7,570)
Adjust for: Change in fair value of earn-out liability 1,126 (634) 722 (2,341)
Adjust for: Write-down of assets held for sale - 7,505 - 7,505
Adjust for: Loss on early extinguishment of debt - - - 141
Adjusted Net Income (Loss) $ 3,339 $ (458) $ 16,535 $ 12,282
For the thirteen weeks ended For the thirty-nine weeks ended
September 28, 2025 September 29, 2024 September 28, 2025 September 29, 2024
Net income (loss) per diluted share $ (0.01) $ (0.05) $ 0.11 $ 0.12
Special items:
Adjust for: Change in fair value of Warrant liability 0.03 (0.01) 0.02 (0.06)
Adjust for: Change in fair value of earn-out liability 0.01 (0.01) 0.01 (0.02)
Adjust for: Write-down of assets held for sale $ - $ 0.06 $ - $ 0.06
Adjusted Diluted EPS $ 0.03 $ (0.01) $ 0.14 $ 0.10
We define Free Cash Flow as net cash provided by operating activities minus cash payments for capital expenditures, net of dispositions. Management believes providing Free Cash Flow is useful for investors to understand our performance and results of cash generation after making capital investments required to support ongoing business operations.
The following unaudited table presents the reconciliation of net cash provided by operating activities, the most directly comparable GAAP measure, to Free Cash Flow for the 13-week and 39-week periods ended September 28, 2025 and September 29, 2024 (dollars in thousands):
For the thirteen weeks ended For the thirty-nine weeks ended
September 28, 2025 September 29, 2024 September 28, 2025 September 29, 2024
Net cash provided by (used in) operating activities $ 7,430 $ (1,748) $ 40,067 $ 42,773
Capital expenditures (2,145) (1,727) (9,953) (4,372)
Proceeds from the disposal of fixed assets 205 1,416 205 1,645
Free Cash Flow $ 5,490 $ (2,059) $ 30,319 $ 40,046
Liquidity and Capital Resources
Our primary cash needs are to support working capital, capital expenditures, acquisitions, and debt repayments. 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.
As of September 28, 2025, the Company had cash of $50.7 million and availability of $97.5 million under its $100.0 million senior secured revolving credit facility. As of September 28, 2025, the Company had $2.5 million in letters of credit outstanding under the revolving credit facility. In February 2023, the Company entered into an amendment to its Credit Agreement which, among other things, contains a minimum liquidity financial covenant of $45.0 million, which includes unrestricted cash and any available borrowing capacity under the revolving credit facility. The amendment also increased the Total Leverage Ratio 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 June 30, 2024. The Company successfully exited the Covenant Relief Period.
The Company is obligated under various operating leases for facilities, equipment and automobiles with estimated lease payments of approximately $1.9 million, including short term leases, due during the remainder of fiscal year 2025. See Note 14, "Lease Commitments" in the Notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information related to the Company's lease obligations.
See Note 6, "Debt" in the Notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further detail of our credit facility and the timing of principal maturities. As of September 28, 2025, based on the then current weighted average interest rate of 8.2%, expected interest payments associated with outstanding debt totaled approximately $11.6 million for the remainder of fiscal year 2025.
As discussed under "Business Environment" above, although the future impact of supply chain disruptions and inflationary pressures are highly uncertain, we believe that cash generated through our current operating performance, and our operating plans, cash position, and borrowings available under our revolving credit facility, will be sufficient to satisfy our liquidity needs and capital expenditure requirements for the next 12 months and thereafter for the foreseeable future.
Cash Flows
The following table provides a summary of cash flows from operating, investing, and financing activities for the periods presented (dollars in thousands):
39-week period ended September 28, 2025 Compared With 39-week period ended September 29, 2024
For the thirty-nine weeks ended
September 28, 2025 September 29, 2024
Cash flows provided by operating activities $ 40,067 $ 42,773
Cash flows used in investing activities (26,408) (2,727)
Cash flows used in financing activities (19,475) (30,314)
Effect of foreign currency rate fluctuations on cash 452 (62)
Net increase in cash and cash equivalents $ (5,364) $ 9,670
Operating Activities. Net cash provided by operating activities for the 39-week period ended September 28, 2025 was $40.1 million compared to net cash provided by operating activities of $42.8 million for the 39-week period ended September 29, 2024. Significant changes in the year-over-year change in working capital activity included negative fluctuations in accounts receivable, inventories, and accrued and other liabilities of $13.6 million, $3.0 million and $1.3 million, respectively. Partially offsetting the decrease were positive fluctuations from prepaids and other assets, accounts payable and accrued interest of $8.1 million, $6.4 millionand $4.3 million, respectively.
Investing Activities. Net cash used in investing activities for the 39-week periods ended September 28, 2025 and September 29, 2024 was $26.4 million and $2.7 million, respectively, due to the cash payments related to the acquisition of the perpetual license agreement with Cataclean in January 2025 and other capital expenditures.
Financing Activities. Net cash used in financing activities for the 39-week periods ended September 28, 2025 was $19.5 million, which primarily reflects principal payments on long-term debt and deferred financing fees. The principal payments of long-term debt during the 39-week periods ended September 28, 2025 include the repurchase of $15.0 million outstanding principal on the first lien term loan. Cash used in financing activities for the 39-week period ended September 29, 2024 was $30.3 million, which primarily reflects prepayments of principal of $28.8 million on the first lien term loan.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, sales, expenses and related disclosures. We evaluate our estimates, judgments and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. For a discussion of our critical accounting estimates, refer to the section entitled "Critical Accounting Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 14, 2025. For further information see also Note 1, "Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies" in the Notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. There have been no material changes to the Company's critical accounting estimates included in our Annual Report on Form 10-K for the year ended December 31, 2024.
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 condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
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