Underlying demand remains solid,
direct-to-consumer sales up 11%
Supply chain pressures ease, supporting
improvement in sales run-rate within the quarter
Company updates its full year 2022 outlook
to reflect continued impact of supply chain and higher costs on
profitability
Holley Inc. (NYSE: HLLY), the leading platform serving
performance automotive enthusiasts, today announced financial
results for its third quarter ended October 2, 2022.
Third Quarter Highlights vs. Prior Year
Period
- Net Sales decreased 3.1% to $154.8 million compared to $159.7
million in the prior year's third quarter
- Gross Profit decreased 25.8% to $48.4 million compared to $65.2
million in the prior year's third quarter
- Net Income of $31.6 million, or $0.27 per diluted share,
compared to a Net Loss of $(30.2) million, or $(0.28) per diluted
share, in the prior year's third quarter
- Adjusted Net Loss1 of $(4.1) million, compared to Adjusted Net
Income1 of $14.6 million reported in the prior year's third
quarter
- Adjusted EBITDA1 of $16.4 million compared to $35.5 million in
the prior year's third quarter
1See "Use and Reconciliation of Non-GAAP Financial Measures"
below.
“While we are encouraged by the sequential improvement we saw
late in the quarter, earnings fell short of expectations. Supply
chain constraints peaked in July and then began to ease, allowing
us to steadily produce and ship more product in August and
September. Underlying demand remained solid, direct to consumer
sales were up 11%, and enthusiast engagement accelerated at our
Holley-owned events. Channel inventories continued their decline in
July and August, before partially recovering on the back of
stronger shipments to resellers in September,” said Tom Tomlinson,
Holley’s President and Chief Executive Officer.
“As supply chain pressures eased throughout the quarter, we saw
increased deliveries of key inputs. Our suppliers of
automotive-grade microchips also began to resume shipments in the
quarter which allowed us to ship more of our popular electronic
products in September. These suppliers have also provided better
visibility to future shipments. While challenges remain in the
supply chain, we are focused on improving availability of parts and
increasing shipments.”
Tomlinson continued, “Profitability was negatively impacted by
lower production volumes that drove negative operating leverage and
manufacturing inefficiencies, especially earlier in the quarter. We
also saw higher input costs from both inflationary pressures and
from the scarcity of certain automotive-grade microchips. Warranty
costs were higher as resellers caught up on a backlog of warranty
returns, and higher inbound freight and other overhead costs from
earlier in the year are continuing to impact our results as they
work their way through inventory. Pricing actions taken mid-year
partially offset these cost headwinds.”
Tomlinson concluded, “In this challenging environment, we’re
pleased with the solid demand we’ve seen for our products at a time
when consumers are stressed by inflationary pressures. We believe
we are now positioned to convert more of this demand to sales, as
supply chain conditions improve, and as we continue to execute
operationally. While there is still more work to do on lowering our
cost structure and reducing our inventory levels, we are
aggressively pursuing numerous improvement opportunities and
continue to make solid progress integrating acquired businesses to
drive further synergies. We remain confident in the underlying
profitability and cash flow generation potential of our business,
and we firmly believe that Holley’s position as an industry leader
with ample runway for long-term profitable growth is
unchanged."
Third Quarter 2022 Financial
Results Net sales for the third quarter of 2022
decreased $4.9 million, or 3.1%, to $154.8 million as compared to
$159.7 million for the third quarter of 2021. Non-comparable sales
associated with acquisitions contributed $7.7 million, or 4.8%, of
year-over-year growth. The remaining comparable sales decreased by
$12.6 million, or 7.9%, compared to the prior year quarter,
offsetting the impact from the acquisitions. The decline in
comparable sales was primarily driven by supply chain constraints
that prevented us from building and shipping to orders received
from our customers. As a result, lower unit volume drove a decrease
of approximately $24.0 million that was partially offset by
improved price realization of approximately $11.4 million compared
to the prior year period.
Cost of goods sold for the third quarter of 2022 increased $11.9
million, or 12.6%, to $106.4 million, as compared to $94.5 million,
for the third quarter of 2021. The increase in cost of goods sold
during the third quarter reflects compression in gross profit
margin primarily due to manufacturing inefficiencies driven by
supply chain constraints, higher warranty costs, which increased
$4.5 million compared to the prior year period, and inflationary
pressures on certain other costs.
Selling, general and administrative costs for the third quarter
of 2022 increased $3.0 million, or 10.5%, to $31.9 million, as
compared to $28.9 million for the third quarter of 2021. When
expressed as a percentage of sales, selling, general and
administrative costs increased to 20.6% of sales for the third
quarter of 2022 as compared to 18.1% of sales in the third quarter
of 2021. The increase in selling, general and administrative costs
was driven by a $2.6 million increase in outbound shipping and
handling costs related to inflationary pressures from domestic
shipping companies and an increase of $1.0 million attributable to
recent acquisitions. Partially offsetting these increases was a
decrease of $1.6 million in administrative and sales personnel
costs, reflecting the Company's implementation of recent cost
saving initiatives.
Net income for the third quarter of 2022 was $31.6 million
compared to a net loss of $(30.2) million in the third quarter of
2021. Net income for the third quarter of 2022 was favorably
impacted by a $37.6 million non-cash decrease in liabilities for
warrants and earn-out shares, while net loss for the third quarter
of 2021 was negatively impacted by a $24.1 million non-cash
increase in the liabilities for warrants and earn-out shares and
$23.3 million of related party acquisition and management fee
costs.
Adjusted for non-cash items, Adjusted Net Loss was $(4.1)
million, compared to last year’s Adjusted Net Income of $14.6
million. Reconciliation to GAAP Net Income (Loss) is included in
the “Use and Reconciliation of Non-GAAP Financial Measures” table
below.
Adjusted EBITDA was $16.4 million in the third quarter of 2022
compared to $35.5 million in the third quarter last year.
Reconciliation to GAAP Net Income (Loss) is included in the “Use
and Reconciliation of Non-GAAP Financial Measures” table below.
Diluted EPS of $0.27 for the third quarter of 2022 compared to
$(0.28) in 2021.
Holley ended the quarter with $16.6 million in cash on the
balance sheet, and the $125 million revolving credit facility
remains undrawn.
Full Year 2022 Outlook
Holley revised its outlook for 2022 to the following:
- Net Sales in the range of $695-$710 million
- Adjusted EBITDA of $118-$124 million
- Capital Expenditures in the range of $14-$15 million
- Depreciation and Amortization Expense of $24-$26 million
- Interest Expense in the range of $33-$35 million
“While we are encouraged by the improvement we saw in September,
challenges with the supply chain, manufacturing inefficiencies,
freight costs, and elevated expenses continue into the fourth
quarter,” said Stephen Trussell, Vice President of Finance and
Interim Chief Financial Officer. “Consequently, we are reducing our
revenue and Adjusted EBITDA guidance range for the year. Our
balance sheet remains healthy, and we have maintained ample
liquidity through our cash balance and undrawn revolver. We are
focused on improving financial results and working capital
management, towards the goal of healthy cash generation.”
Conference Call A conference
call and audio webcast has been scheduled for 4:30 p.m. Eastern
Time today to discuss these results. Investors, analysts, and
members of the media interested in listening to the live
presentation are encouraged to join a webcast of the call available
on the investor relations portion of the Company’s website at
investor.holley.com. For those that
cannot join the webcast, you can participate by dialing
877-407-4019 (Toll Free) or 201-689-8337 (Toll) using the access
code of 13733382.
For those unable to participate, a telephone replay recording
will be available until Monday, November 21, 2022. To access the
replay, please call 877-660-6853 (Toll Free) or 201-612-7415 (Toll)
and enter confirmation code 13733382. A web-based archive of the
conference call will also be available at the Company’s
website.
About Holley Inc. Holley
Inc. (NYSE: HLLY) is a leading designer, marketer, and manufacturer
of high-performance products for car and truck enthusiasts. Holley
offers the largest portfolio of iconic brands that deliver
innovation and inspiration to a large and diverse community of
millions of avid automotive enthusiasts who are passionate about
the performance and personalization of their classic and modern
cars. Holley has disrupted the performance category by putting the
enthusiast consumer first, developing innovative new products, and
building a robust M&A process that has added meaningful scale
and diversity to its platform. For more information on Holley,
visit https://www.holley.com.
Forward-Looking Statements
Certain statements in this press release may be considered
“forward-looking statements” within the meaning of the “safe
harbor” provisions of the United States Private Securities
Litigation Reform Act of 1995. Forward-looking statements generally
relate to future events or Holley’s future financial or operating
performance. For example, projections of future revenue and
adjusted EBITDA and other metrics are forward-looking statements.
In some cases, you can identify forward-looking statements by
terminology such as “may,” “should,” “expect,” “intend,” “will,”
“estimate,” “anticipate,” “believe,” “predict,” “or” or the
negatives of these terms or variations of them or similar
terminology. Such forward-looking statements are subject to risks,
uncertainties, and other factors which could cause actual results
to differ materially from those expressed or implied by such
forward-looking statements. These forward-looking statements are
based upon estimates and assumptions that, while considered
reasonable by Holley and its management, are inherently uncertain.
Factors that may cause actual results to differ materially from
current expectations include, but are not limited to: 1) the
ability to recognize the anticipated benefits of the business
combination with Empower LTD, which may be affected by, among other
things, competition, the ability of the combined company to grow
and manage growth profitably, maintain relationships with customers
and suppliers and retain its management and key employees; 2) costs
related to the business combination and Holley becoming a public
company; 3) disruptions to Holley's operations, including as a
result of cybersecurity incidents; 4) changes in applicable laws or
regulations; 5) the outcome of any legal proceedings that may be
instituted against Holley; 6) general economic and political
conditions, including political tensions and war (such as the
ongoing conflict in Ukraine); 7) the possibility that Holley may be
adversely affected by other economic, business and/or competitive
factors; 8) Holley’s estimates of its financial performance; 9) the
impact of the novel coronavirus disease pandemic and its effect on
business and financial conditions; 10) our ability to anticipate
and manage through disruptions and higher costs in manufacturing,
supply chain, logistical operations, and shortages of certain
company products in distribution channels; and 11) other risks and
uncertainties set forth in the section entitled “Risk Factors” and
“Cautionary Note Regarding Forward-Looking Statements” in the
Annual Report on Form 10-K for the year ended December 31, 2021
filed with the U.S. Securities and Exchange Commission (“SEC”) on
March 15, 2022, and that are otherwise described or updated from
time to time in Holley’s filings with the SEC. Although Holley
believes the expectations reflected in the forward-looking
statements are reasonable, nothing in this press release should be
regarded as a representation by any person that the forward-looking
statements or projections set forth herein will be achieved or that
any of the contemplated results of such forward looking statements
or projections will be achieved. There may be additional risks that
Holley presently does not know or that Holley currently believes
are immaterial that could also cause actual results to differ from
those contained in the forward-looking statements. You should not
place undue reliance on forward-looking statements, which speak
only as of the date they are made. Holley undertakes any duty to
update these forward-looking statements, except as otherwise
required by law.
[Financial Tables to Follow]
HOLLEY INC.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
For the thirteen weeks
ended
For the thirty-nine weeks
ended
October 2,
September 26,
Variance
Variance
October 2,
September 26,
Variance
Variance
2022
2021
($)
(%)
2022
2021
($)
(%)
Net Sales
$
154,775
$
159,673
$
(4,898
)
-3.1
%
$
534,250
$
513,046
$
21,204
4.1
%
Cost of Goods Sold
106,383
94,475
11,908
12.6
%
327,849
300,969
26,880
8.9
%
Gross Profit
48,392
65,198
(16,806
)
-25.8
%
206,401
212,077
(5,676
)
-2.7
%
Selling, General, and Administrative
31,921
28,891
3,030
10.5
%
102,532
79,093
23,439
29.6
%
Research and Development Costs
6,039
7,133
(1,094
)
-15.3
%
22,396
20,167
2,229
11.1
%
Amortization of Intangible Assets
3,662
3,553
109
3.1
%
10,985
10,391
594
5.7
%
Impairment of Indefinite-Lived Intangible
Assets
2,395
—
2,395
nm
2,395
—
2,395
nm
Acquisition and Restructuring Costs
1,266
368
898
244.0
%
3,247
21,877
(18,630
)
-85.2
%
Related Party Acquisition and Management
Fee Costs
—
23,250
(23,250
)
-100.0
%
—
25,789
(25,789
)
-100.0
%
Other Operating (Income) Expense
47
89
(42
)
-47.2
%
594
3
591
nm
Operating Expense
45,330
63,284
(17,954
)
-28.4
%
142,149
157,320
(15,171
)
-9.6
%
Operating Income
3,062
1,914
1,148
60.0
%
64,252
54,757
9,495
17.3
%
Change in Fair Value of Warrant
Liability
(30,171)
17,273
(47,444
)
nm
(51,112
)
17,273
(68,385
)
nm
Change in Fair Value of Earn-Out
Liability
(7,429)
6,866
(14,295
)
nm
(9,282
)
6,866
(16,148
)
nm
Interest Expense
10,428
9,851
577
5.9
%
26,780
31,096
(4,316
)
-13.9
%
Non-Operating (Income) Expense
(27,172)
35,415
(62,587
)
-176.7
%
(33,614
)
56,660
(90,274
)
nm
Income (Loss) Before Income Taxes
30,234
(33,501)
63,735
nm
97,866
(1,903
)
99,769
nm
Income Tax Expense (Benefit)
(1,345)
(3,301)
1,956
-59.3
%
8,866
7,255
1,611
22.2
%
Net Income (Loss)
$
31,579
$
(30,200)
$
61,779
nm
$
89,000
$
(9,158
)
$
98,158
nm
Comprehensive Income (Loss):
Foreign Currency Translation
Adjustment
516
(31)
547
nm
1,258
(12
)
1,270
nm
Total Comprehensive Income
(Loss)
$
32,095
$
(30,231)
$
62,326
nm
$
90,258
$
(9,170
)
$
99,428
nm
Common Share Data:
Basic Net Income (Loss) per Share
$
0.27
$
(0.28)
$
0.55
nm
$
0.76
$
(0.11
)
$
0.87
nm
Diluted Net Income (Loss) per Share
$
0.27
$
(0.28)
$
0.55
nm
$
0.32
$
(0.11
)
$
0.43
nm
Weighted Average Common Shares Outstanding
- Basic
117,120
106,285
10,835
10.2
%
116,637
80,736
35,901
44.5
%
Weighted Average Common Shares Outstanding
- Diluted
117,138
106,285
10,853
10.2
%
117,274
80,736
36,538
45.3
%
nm - not meaningful
HOLLEY INC.
CONDENSED CONSOLIDATED BALANCE
SHEET
(In thousands)
(Unaudited)
As of
As of
October 2,
December 31,
2022
2021
Assets
Total Current Assets
$
325,315
$
291,717
Property, Plant and Equipment, Net
54,768
51,495
Goodwill
417,298
411,383
Other Intangibles, Net
428,404
438,461
Right-of-Use Assets
31,274
—
Total Assets
$
1,257,059
$
1,193,056
Liabilities and Stockholders' Equity
Total Current Liabilities
$
96,396
$
91,795
Long-Term Debt, Net of Current Portion
635,627
637,673
Deferred Taxes
65,826
70,045
Other Noncurrent Liabilities
40,925
89,056
Total Liabilities
838,774
888,569
Common Stock
12
12
Additional Paid-In Capital
353,245
329,705
Accumulated Other Comprehensive Gain
(Loss)
1,002
(256
)
Retained Earnings (Accumulated
Deficit)
64,026
(24,974
)
Total Stockholders' Equity
418,285
304,487
Total Liabilities and Stockholders'
Equity
$
1,257,059
$
1,193,056
HOLLEY INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the thirteen weeks
ended
For the thirty-nine weeks
ended
October 2,
September 26,
October 2,
September 26,
2022
2021
2022
2021
Operating
Activities
Net Income (Loss)
$
31,579
$
(30,200
)
$
89,000
$
(9,158
)
Adjustments to Reconcile to Net Cash
(23,955
)
36,533
(22,620
)
71,703
Changes in Operating Assets and
Liabilities
(16,291
)
(27,813
)
(54,216
)
(37,628
)
Net Cash from Operating Activities
(8,667
)
(21,480
)
12,164
24,917
Investing
Activities
Capital Expenditures, Net of
Dispositions
(1,907
)
(3,289
)
(11,272
)
(10,145
)
Acquisitions
-
(7,775
)
(14,077
)
(61,786
)
Net Cash from Investing Activities
(1,907
)
(11,064
)
(25,349
)
(71,931
)
Financing
Activities
Net Change in Debt
(1,691
)
(101,493
)
(4,790
)
(103,032
)
Recapitalization
—
132,299
—
132,299
Payments from Stock-Based Award
Activities
(1,050
)
—
(1,050
)
—
Proceeds from Issuance of Common Stock Due
to Exercise of Warrants
—
—
383
—
Net Cash from Financing Activities
(2,741
)
30,806
(5,457
)
29,267
Effect of Foreign Currency Rate
Fluctuations on Cash
(634
)
—
(1,077
)
—
Net Change in Cash and Cash
Equivalents
(13,949
)
(1,738
)
(19,719
)
(17,747
)
Cash and Cash
Equivalents
Beginning of Period
30,555
55,665
36,325
71,674
End of Period
$
16,606
$
53,927
$
16,606
$
53,927
Holley believes EBITDA, Adjusted EBITDA, Adjusted Net Income,
and Organic Sales are useful to investors in evaluating the
Company’s financial performance. In addition, Holley uses these
measures internally to establish forecasts, budgets and operational
goals to manage and monitor its business. Holley believes that
these non-GAAP and other financial measures help to depict a more
realistic representation of the performance of the underlying
business, enabling the Company to evaluate and plan more
effectively for the future.
HOLLEY INC.
USE AND RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES
(In thousands)
(Unaudited)
For the thirteen weeks
ended
For the thirty-nine weeks
ended
October 2,
September 26,
October 2,
September 26,
2022
2021
2022
2021
Net Income (Loss)
$
31,579
$
(30,200
)
$
89,000
$
(9,158
)
Adjustments:
Interest Expense
10,428
9,851
26,780
31,096
Income Taxes
(1,345
)
(3,301
)
8,866
7,255
Depreciation
2,837
2,875
7,500
7,328
Amortization
3,662
3,553
10,985
10,391
EBITDA
47,161
(17,222
)
143,131
46,912
Acquisition and Restructuring Costs
1,266
368
3,247
4,704
Earn-Out from Simpson Acquisition
—
—
—
17,173
Impairment of Indefinite-Lived Intangible
Assets
2,395
—
2,395
—
Change in Fair Value of Warrant
Liability
(30,171
)
17,273
(51,112
)
17,273
Change in Fair Value of Earn-Out
Liability
(7,429
)
6,866
(9,282
)
6,866
Loss on Early Extinguishment of Debt
—
1,425
—
1,425
Equity-Based Compensation Expense
2,873
2,486
9,518
2,748
Related Party Acquisition and Management
Fee Costs
—
23,250
—
25,789
Notable Items
213
938
1,097
10,513
Other (Income) Expense
47
89
594
3
Adjusted EBITDA
$
16,355
$
35,473
$
99,588
$
133,406
For the thirteen weeks
ended
For the thirty-nine weeks
ended
October 2,
September 26,
October 2,
September 26,
2022
2021
2022
2021
Net Income (Loss)
$
31,579
$
(30,200
)
$
89,000
$
(9,158
)
Special items:
Adjust for Impairment of Indefinite-Lived
Intangible Assets
1,892
—
1,892
—
Adjust for: Change in Fair Value of
Warrant Liability
(30,171
)
17,273
(51,112
)
17,273
Adjust for: Change in Fair Value of
Earn-Out Liability
(7,429
)
6,866
(9,282
)
6,866
Adjust for: Earn-Out from Simpson
Acquisition
—
—
—
17,173
Adjust for: Loss on Early Extinguishment
of Debt
—
1,126
—
1,126
Adjust for: Fees paid related to the
Business Combination
—
19,561
—
19,561
Adjusted Net Income (Loss)
$
(4,129
)
$
14,626
$
30,498
$
52,841
13 Weeks Ended
October 2, 2022
Net Sales
154,775
Less: Sales from Acquisitions within 365
Days of Purchase (Non-Comparable to Prior Year)
(7,723
)
Organic Sales (Comparable to Prior Year
Period Net Sales)
$
147,052
Full Year 2022
2022 Forecast
2022 Forecast
Low Range
High Range
Net Sales
$
695,000
$
710,000
Adjusted EBITDA
118,000
124,000
Depreciation and Amortization
24,000
26,000
Interest Expense
33,000
35,000
Capital Expenditures
14,000
15,000
Holley defines EBITDA as earnings before (a) interest expense,
(b) income taxes and (c) depreciation and amortization. Holley
defines Adjusted EBITDA as EBITDA plus (i) acquisition integration
and restructuring costs, (ii) an adjustment in 2021 due to a change
in the fair value of the Simpson acquisition contingent
consideration payable, (iii) impairment of indefinite-lived
intangible assets (iv) changes in the fair value of the warrant
liability, (v) changes in the fair value of the earn-out liability,
(vi) loss on the early extinguishment of debt (vii) compensation
expense related to equity awards, (viii) related party acquisition
and management fee costs, (ix) notable items that in 2022 consist
primarily of non-cash adjustments related to the adoption of ASC
842, "Leases," and in 2021 consist primarily of the amortization of
the fair market value increase in inventory due to acquisitions,
and (x) other expenses, which includes losses from disposal of
fixed assets and foreign currency transactions. We have included
within the definition of Adjusted EBITDA impairment of
indefinite-lived intangible assets, changes in the fair value of
warrant liabilities, changes in the fair value of the earn-out
liability, and losses from the early extinguishment of debt, as
management believes such matters, when they occur, do not directly
reflect the performance of the underlying business.
Holley calculates Adjusted Net Income by excluding the after-tax
effect of items considered by management to be special items from
the earnings reported under U.S. GAAP. Management uses this measure
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. Holley believes
that using this information, along with net income, provides for a
more complete analysis of the results of operations.
Organic sales, or sales excluding the impact of acquisitions,
excludes the impact from sales from acquisitions within 365 days of
the consummation of such acquisition. Holley believes organic sales
provides investors with useful supplemental information regarding
Holley's underlying sales trends.
EBITDA, Adjusted EBITDA, Adjusted Net Income, and organic sales
are not prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) and may be different from
non-GAAP and other 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. These metrics should not
be considered as alternatives to net income or any other
performance measures derived in accordance with GAAP.
A forecast for full year 2022 Adjusted EBITDA is provided on a
non-GAAP basis only because certain information necessary to
calculate the most comparable GAAP measure is unavailable due to
the uncertainty and inherent difficulty of predicting the
occurrence and the future financial statement impact of certain
items. Therefore, as a result of the uncertainty and variability of
the nature and amount of future adjustments, which could be
significant, Holley is unable to provide a reconciliation of these
measures without unreasonable effort.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221114005791/en/
Investor Relations: Ross Collins / Stephen Poe Alpha IR
Group 312-445-2870 HLLY@alpha-ir.com
Holley (NYSE:HLLY)
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