(Former name, former address and former fiscal year, if changed since last report) N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in ~~Rule12b-2of~~Rule12b-2 of the Exchange Act).
Yes ☐ No ☒

There were ~~115,805,639~~118,026,472 shares of Common Stock, including 1,093,750 restricted earn-out shares, par value $0.0001 per share, issued and outstanding as of ~~November 09, 2021.~~May 11, 2022.

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for the Company’s business. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends” or similar expressions. These forward-looking statements are subject to a number of risks and uncertainties and actual results could differ materially due to numerous factors, including but not limited to the Company’s ability to do any of the following:

Forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and our management’s expectations, forecasts and assumptions, and involve a number of judgements, risks and uncertainties, and actual results, developments and business decisions may differ materially from those envisaged by such forward-looking statements. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We undertake no obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as my be required under applicable securities laws.

The accompanying notes are an integral part of the unaudited condensed consolidated financial ~~statements~~statements.


	Common Stock																Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings (Accumulated Deficit)			Total			Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings (Accumulated Deficit)			Total
Balance at December 31, 2019		100	$	—	$	236,503		$	(397	)	$	(30,692	)	$	205,414
Balance at December 31, 2020																		100	$	—	$	238,890		$	(674	)	$	2,165		$	240,381
Retroactive application of recapitalization		67,673,784		7		(7	)		—			—			—			67,673,784		7		(7	)		—			—			—

Adjusted balance at December 31, 2019		67,673,884		7		236,496			(397	)		(30,692	)		205,414
Net income		—		—		—			—			4,852			4,852
Equity compensation		—		—		121			—			—			121

Balance at March 29, 2020		67,673,884		7		236,617			(397	)		(25,840	)		210,387
Net income		—		—		—			—			12,509			12,509
Equity compensation		—		—		114			—			—			114
Capital distributions		—		—		(100	)		—			—			(100	)

Balance at June 28, 2020		67,673,884		7		236,631			(397	)		(13,331	)		222,910
Net income		—		—		—			—			13,543			13,543
Equity compensation		—		—		121			—			—			121

Balance at September 27, 2020		67,673,884	$	7	$	236,752		$	(397	)	$	212		$	236,574


Balance at December 31, 2020		67,673,884	$	7	$	238,883		$	(674	)	$	2,165		$	240,381
Adjusted balance at December 31, 2020																		67,673,884		7		238,883			(674	)		2,165			240,381
Net loss		—		—		—			—			(2,056	)		(2,056	)		—		—		—			—			(2,056	)		(2,056	)
Equity compensation		—		—		131			—			—			131			—		—		131			—			—			131
Foreign currency translation		—		—		—			(16	)		—			(16	)		—		—		—			(16	)		—			(16	)
Balance at March 28, 2021																		67,673,884	$	7	$	239,014		$	(690	)	$	109		$	238,440

Balance at March 28, 2021		67,673,884		7		239,014			(690	)		109			238,440

Balance at December 31, 2021																		115,805,639	$	12	$	329,705		$	(256	)	$	(24,974	)	$	304,487
Net income		—		—		—			—			23,098			23,098			—		—		—			—			16,858			16,858
Equity compensation		—		—		131			—			—			131			—		—		3,162			—			—			3,162
Foreign currency translation		—		—		—			35			—			35			—		—		—			241			—			241

Balance at June 27, 2021		67,673,884		7		239,145			(655	)		23,207			261,704
Net loss		—		—		—			—			(30,200	)		(30,200	)
Equity compensation		—		—		2,486			—			—			2,486
Foreign currency translation		—		—		—			(31	)		—			(31	)
Recapitalization transaction, net		48,131,755		5		85,859			—			—			85,864

Balance at September 26, 2021		115,805,639	$	12	$	327,490		$	(686	)	$	(6,993	)	$	319,823
Issuance of earn-out shares																		1,093,750		—		14,689			—			—			14,689
Balance at April 3, 2022																		116,899,389	$	12	$	347,556		$	(15	)	$	(8,116	)	$	339,437

The accompanying notes are an integral part of the unaudited condensed consolidated financial ~~statements~~statements.

1. Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies

Holley Inc., a Delaware corporation headquartered in Bowling Green, Kentucky (the “Company” or “Holley”), conducts operations through its wholly-owned subsidiaries. These operating subsidiaries are comprised of Holley Performance Products Inc. (“Holley Performance”), Hot Rod Brands, Inc. (“Hot Rod Brands”), Simpson Safety Solutions, Inc., B&M Racing and Performance Products, Inc., and Speedshop.com, Inc. Investment funds managed by Sentinel Capital Partners hold a controlling interest in Holley.

On July 16, 2021, (the “Closing” and such date, the “Closing Date”) the Company consummated the 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. (“Merger Sub I”), Empower Merger Sub II LLC (“Merger Sub II”), and Holley Intermediate Holdings, Inc. (“Holley Intermediate”). On the Closing Date, Empower changed its name to Holley Inc. See Note 2, “Business Combination and Acquisitions,” for more information.

Holley Intermediate, the predecessor to Holley, was incorporated on October 25, 2018 to effect the merger of Driven Performance Brands, Inc. (“Driven”) and the purchase of High Performance Industries, Inc. (“HPI”). The Company designs, manufactures and distributes performance automotive products to customers primarily in the United States, Canada and Europe. The Company is 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 that are produced through its two major subsidiaries, Holley Performance and Hot Rod Brands.~~products. The Company is also a leading manufacturer of exhaust products as well as shifters, converters, transmission kits, transmissions, tuners and automotive software. The Company’s products are designed to enhance street, off-road, recreational and competitive vehicle performance through increased horsepower, torque and drivability. The Company has locations in North America, Canada, Italy and China.

~~Basis of Presentation~~

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP" or “GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the Holley Intermediate Holdings, Inc. audited consolidated financial statements and notes thereto for the year ended December 31, 2020, as filed with the SEC in the Company’s prospectus filed pursuant to Rule 424(b)(3) on July 28, 2021. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year.

The Company operates on a calendar year that ends on December 31, 2021 and 2020. The three and nine month periods ended September 26, 2021 and September 27, 2020 each included 13 weeks and 39 weeks, respectively.

~~HOLLEY INC.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share data)~~

~~(unaudited)~~

~~Principles of Consolidation~~

These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

~~Use of Estimates~~

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant areas for which management uses estimates include: (1) warranties; (2) allowance for credit losses; (3) inventory reserves; (4) asset impairments, including goodwill, intangible assets and other long-lived assets; (5) customer co-operative advertising; (6) sales returns and allowances; (7) tax positions; (8) deferred tax liabilities; and (9) fair value measurements, including equity awards and warrant and earn-out liabilities. These estimates require the use of judgment as future events and the effect of these events cannot be predicted with certainty. The estimates will change as new events occur, as more experience is acquired and as more information is obtained. The Company evaluates and updates assumptions and estimates on an ongoing basis and may consult outside experts to assist as considered necessary.

Emerging Growth Company Status

Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company is an emerging growth company, and, as such, has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards.

Risks and Uncertainties

COVID-19 has adversely impacted global supply chain and general economic conditions. The Company has experienced disruptions and higher costs in manufacturing, supply chain, logistical operations, and shortages of certain Company products in distribution channels. The full extent of the impact of the COVID-19 pandemic on the Company's business and operational and financial performance and condition is currently uncertain and will depend on many factors outside the Company's control, including but not limited to the timing, extent, duration and effects of the virus and any of its mutations, the utilization and effectiveness of treatments and vaccines, the imposition of effective public safety and other protective measures, the further impact of COVID-19 on the global economy and demand for the Company's products and services. Should the COVID-19 pandemic, including variants such as Delta and Omicron, not improve or worsen, or if the Company's attempt to mitigate its impact on its supply chain, operations and costs is not successful, the Company's business, results of operations, financial condition and prospects may be adversely affected.

HOLLEY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(unaudited)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP" or “GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2021, as filed with the SEC on March 15, 2022 in the Company’s annual report on Form 10-K. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year.

The Company operates on a calendar year that ends on December 31, 2022 and 2021. The three month periods ended April 3, 2022 and March 28, 2021 each included 13 weeks.

Principles of Consolidation

Summary of Significant Accounting Policies

The following are updates to the significant accounting policies described in our audited consolidated financial statements as of and for the year ended December 31, ~~2020.~~

~~Earnings per Share~~2021.

~~Earnings per share~~Leases

Operating lease right of use (ROU) assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The Company's leases may include options to extend or terminate the lease. These options to extend are included in the lease term when it is ~~computed by dividing net income~~reasonably certain that the Company will exercise that option. Some leases have variable payments, however, because they are not based on an index or ~~loss available~~rate, they are not included in the ROU assets and liabilities. Variable payments for real estate leases primarily relate to common ~~stockholders by~~area maintenance, insurance, taxes and utilities. Since the ~~weighted average number~~Company's leases generally do not provide an implicit rate, the Company applies a portfolio approach using an estimated incremental borrowing rate based on the lease term and other information available at the commencement date in determining the present value of ~~common shares outstanding~~lease payments. The rate applied is based on the currency of the lease. Leases having a lease term of twelve months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the term of the lease. In addition, the Company has applied the practical expedient to account for the ~~period. Diluted earnings per share is computed by giving effect to~~lease and non-lease components as a single lease component for all ~~potential dilutive common stock equivalents outstanding for the period. The dilutive effect of these potential common shares is reflected in diluted earnings per share by application~~ of the ~~treasury stock method.~~Company's leases. See Note 14, "Lease Commitments," for further details.

Warrants

The Company ~~reviews the terms of~~accounts for warrants to purchase its common stock as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ~~determine~~ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants ~~should be classified as liabilities or stockholders'~~meet all of the requirements for equity ~~in its consolidated balance sheet. In order for a warrant to be classified in stockholders' equity,~~classification under ASC 815, including whether the ~~warrant must be (a)~~warrants are indexed to the ~~Company's equity~~Company’s own shares and ~~(b) meet~~whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity ~~classification~~ classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

HOLLEY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in ~~Accounting Standards Codification ("ASC") Subtopic 815-40, Derivatives and Hedging-Contracts in an Entity's Own Equity.~~ thousands, except share data)

(unaudited)

If a warrant does not meet the conditions for equity classification, it is carried in the ~~condensed~~ consolidated balance sheet as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in the ~~condensed~~ consolidated statements of comprehensive income as a non-operating expense. If a warrant meets both conditions for equity classification, the warrant is initially recorded in additional paid-in capital on the consolidated balance sheet, and the amount initially recorded is not subsequently ~~remeasured~~re-measured at fair value. See Note 7, "Common Stock Warrants,"

~~Stock-Based Compensation~~

~~The Company accounts for share-based awards granted to employees~~ and nonemployees under the fair value method prescribed by ASC Subtopic 718-10, Stock Compensation. Stock-based compensation cost is measured based on the estimated grant date fair value of the award and is recognized as expense over the requisite service period. The fair value of stock options is estimated using the Black Scholes option-pricing model. The Company accounts for forfeitures as they occur.Note 8,

"Fair Value Measurements," ~~Measurements~~

~~Fair value is defined as the price that would be received~~ for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimizes the use of unobservable inputs to the extent possible. The inputs used to measure fair value are prioritized based on a three-level hierarchy, which are defined as follows:

~~Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.~~

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

~~Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.~~

~~HOLLEY INC.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share data)~~

~~(unaudited)~~

~~Derivative Financial Instruments~~

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative liabilities are classified on the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.further details.

Recent Accounting Pronouncements

Accounting Standards ~~Not Yet~~Recently Adopted

In February 2016, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU~~Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842)~~. The ASU is effective~~ which requires lessees to recognize right-of-use assets, representing their right to use the underlying asset for the ~~Company for annual reporting periods beginning after December 15, 2021~~lease term, and ~~interim periods therein, with early adoption permitted. The ASU will require lessees to report most leases as assets and~~lease liabilities on the balance ~~sheet.~~sheet for all leases with terms greater than 12 months. The Company ~~is currently evaluating~~adopted the ~~potential impact~~provisions of ~~adopting~~ this guidance effective January 1, 2022, using the modified retrospective optional transition method. Therefore, the standard was applied beginning January 1, 2022 and prior periods were not restated. The adoption of the standard did not result in a cumulative-effect adjustment to the opening balance of retained earnings. The Company elected the package of practical expedients and implemented internal controls and executed changes to business processes to enable the preparation of financial information upon adoption. The adoption of the new standard resulted in the recognition of a right of use asset and short-term and long-term liabilities recorded on ~~its financial statements.~~the Company's consolidated balance sheet related to operating leases. In addition, the adoption of the standard did not have a material impact on the Company's results of operations or cash flows. See Note 14, "Lease Commitments," for further details.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirements Benefits – Defined Benefit Plans – General (Subtopic 715-20). The ASU is effective for the Company for annual reporting periods beginning after December 15, 2021 with early adoption permitted. This guidance should be applied on a retrospective basis to all periods presented. The ASU will update disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans. The Company ~~is currently evaluating~~adopted ASU 2019-12 on a retrospective basis as of January 1, 2022. Adoption did not result in a significant change to the ~~potential impact of adopting this guidance on its~~Company's consolidated financial ~~statements.~~statement disclosures.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) which is intended to simplify various aspects related to accounting for income taxes. ~~This ASU is effective for the Company for annual reporting periods beginning after December 15, 2021 and interim periods therein, with early adoption permitted.~~ The ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 on a prospective basis as of January 1, 2022. Adoption of the ASU did not have a material effect on the Company's consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Subtopic 470-20). ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. The new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. The Company adopted ASU 2020-06 on January 1, 2022. Adoption of the ASU did not impact the Company's consolidated financial statements.

Accounting Standards Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires entities to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. Adoption of the provisions of ASU 2021-08 are effective for the Company's fiscal year beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.

HOLLEY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(unaudited)

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. As of ~~September 26, 2021,~~April 3, 2022, the Company did not adopt any expedients or exceptions under ASU 2020-04. The Company will continue to evaluate the impact of ASU 2020-04 and whether it will apply the optional expedients and exceptions.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Subtopic 470-20). The ASU is effective for the Company for annual reporting periods beginning after December 15, 2023 and interim periods therein, with early adoption permitted as of the beginning of the Company's annual fiscal year. The ASU includes amendments to the guidance on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and simplifies the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20. Additionally, the ASU requires entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.

~~HOLLEY INC.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share data)~~

~~(unaudited)~~

2. BUSINESS COMBINATION AND ACQUISITIONS

BUSINESS COMBINATION

On July 16, 2021, Holley consummated the Business Combination pursuant to the terms of the Merger Agreement, whereby (i) Merger Sub I, a direct wholly owned subsidiary of Empower, merged with and into Holley Intermediate, with Holley Intermediate surviving such merger as a wholly owned subsidiary of Holley (“Merger I”) and (ii) Merger Sub II, a direct wholly owned subsidiary of Empower, merged with and into Holley Intermediate, with Merger Sub II surviving such merger as a wholly owned subsidiary of Holley (“Merger II”).

Pursuant to the Merger Agreement, at the Closing, all outstanding shares of Holley Intermediate common stock as of immediately prior to the effective time of Merger I were cancelled and Holley Parent Holdings, LLC, the sole stockholder of Holley Intermediate (the “Holley Stockholder” or “Parent”), received $264,718 in cash and 67,673,884 shares of common stock (at a deemed value of $10.00 per share). The Company’s common stock is listed on the NYSE under the symbol “HLLY.”

In connection with the Business Combination, a number of subscribers purchased from the Company an aggregate of 24,000,000 shares of common stock (the “PIPE”), for a purchase price of $10.00 per share, or $240,000 in the aggregate. Per the Merger Agreement, ~~$100,000~~$100,000 of the PIPE proceeds were used to partially pay off Holley’s debt.

Pursuant to the Amended and Restated Forward Purchase Agreement (“A&R FPA”), at the Closing, 5,000,000 shares of the Company’s common stock and 1,666,667 warrants were issued to certain investors for an aggregate purchase price of $50,000. Pursuant to the A&R FPA, each warrant entitles the holder to purchase one share of the Company’s common stock at a price of $11.50 per share (the ”Public Warrants”), subject to certain conditions.

The Company also assumed 8,333,310 Public Warrants and 4,666,667 private placement warrants (the “Private Warrants”, and together with the Public Warrants, the “Warrants”) upon the Business Combination, all of which were issued in connection with Empower’s initial public offering. Each Warrant represents the right to purchase one share of the Company’s common stock at a price of $11.50 per share, subject to certain conditions. The Warrants ~~are~~became exercisable ~~commencing~~ on October 9, 2021 (the one-year anniversary of Empower’s initial public offering) and expire on July 16, 2026 (five years after the Closing Date). The Public Warrants are listed on the NYSE under the symbol “HLLY WS.”

Additionally, Empower Sponsor Holdings LLC (the "Sponsor") ~~may be entitled to receive up to~~received 2,187,500 shares of the Company’s common stock, ~~vesting~~which vest in two equal tranches upon achieving certain market share price milestones as outlined in the Merger Agreement during the earn-out period (“the “Earn-Out Shares”). The first tranche of Earn-Out Shares vested during the first quarter of 2022. Upon vesting, the first tranche of the Earn-Out Shares, or 1,093,750 shares, were issued and a liability of $14,689, representing the fair value of the shares on the date of vesting, was reclassified from liabilities to equity. The remaining tranche of Earn-Out Shares will be forfeited if the applicable conditions are not satisfied before July 16, 2028 (seven years after the Closing Date). The ~~earnout is~~remaining Earn-Out Shares are classified as a liability inon the condensed consolidated balance sheet and isare remeasured at fair value with changes in the post-Business Combination fair value recognized in the Company’s condensed consolidated statement of comprehensive income (loss) as non-operating expense.

912

HOLLEY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(unaudited)

The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. This determination was primarily based on current shareholders of Holley having a relative majority of the voting power of the Company, the operations of Holley prior to the acquisition comprising the only ongoing operations of the Company, and senior management of Holley comprising the majority of the senior management of the Company. Under this method of accounting, Empower was treated as the acquired company for financial reporting. Accordingly, the Business Combination was accounted for as the equivalent of Holley issuing stock for the net assets of Empower, accompanied by a recapitalization. The net assets of Empower are stated at historical cost, with no goodwill or other intangible assets recorded. Reported amounts from operations included herein prior to the Business Combination are those of Holley Intermediate. The shares and corresponding capital amounts and earnings per share, prior to the Business Combination, have been retroactively restated based on shares received by the Holley Stockholder.

~~The following table reconciles the elements of the Business Combination to the condensed consolidated statements of cash flows for the 39-week period ended September 26, 2021:~~

Recapitalization

Cash - Empower's trust and cash (net of redemptions of $99,353 and
transaction costs of $44,314)

$
107,042

Cash - Forward Purchase Agreement

50,000

Cash - PIPE Financing

240,000

Net cash provided by Business Combination and PIPE Financing

397,042

Less: cash consideration paid to Holley Stockholder

(264,718
)
Net contributions from Business Combination and PIPE Financing

$
132,324

ACQUISITIONS

~~Drake Automotive Group LLC~~During the quarter ended April 3, 2022 the Company completed one acquisition, and during the year ended December 31, 2021, the Company completed eight acquisitions. These acquisitions are expected to enhance the Company's portfolio of products and services in the automotive aftermarket and automotive safety solutions market.

The Company accounts for acquisitions using the acquisition method, and accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. The valuation of the assets acquired and liabilities assumed is subject to revision. If additional information becomes available, the Company may further revise the purchase price allocation as soon as practical, but no later than one year from the acquisition date; however, material changes are not expected. Goodwill generated by the acquisitions is primarily attributable to the strong market position of the entities acquired.

Purchase price consideration for all acquisitions was paid primarily in cash. All acquisitions were for 100 percent of the acquired business and are reported in the Consolidated Statements of Cash Flows, net of acquired cash and cash equivalents. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are typically expensed in the periods in which the costs are incurred and are recorded in acquisition and restructuring costs. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

On ~~November 11, 2020~~,March 2, 2022, the Company acquired ~~Drake Automotive Group LLC (“Drake”~~John's Ind., Inc. ("John's"). The purchase price was cash consideration of $~~49,104~~1,318. The Company acquired ~~100~~%substantially all of the ~~outstanding member units~~assets and liabilities of ~~Drake. The Company purchased Drake in order to acquire strong brands in the automotive aftermarket.~~John's. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. ~~Consideration for~~The determination of the purchase price allocation to specific assets acquired ~~consisted~~and liabilities assumed is incomplete for John's. The acquisition resulted in goodwill of ~~cash payments of~~approximately $~~47,104~~ ~~plus an earn-out value of $2,000~~240. The ~~acquisition~~purchase price was funded from cash on hand.

In 2021, the Company acquired substantially all the assets of Finspeed, LLC (“Finspeed”), Classic Instruments LLC (“Classic Instruments”), ADS Precision Machining, Inc., doing business as Arizona Desert Shocks (“ADS”), Rocket Performance Machine, Inc., doing business as Rocket Racing Wheels (“Rocket”), and Speartech Fuel Injections Systems, Inc. (“Speartech”). These five acquisitions were individually immaterial business combinations that are material in the aggregate. Cash paid for the five immaterial acquisitions, net of cash acquired, was $19,685, and was funded with borrowings from the Company's credit facility and cash on hand. The acquisitions resulted in both amortizable and ~~non-amortizable~~nonamortizable intangibles and goodwill totaling $~~32,441~~13,023. ~~The goodwill arising from the acquisition is primarily due to Drake’s strong market position.~~ The goodwill and intangibles generated as a result of ~~this acquisition~~these acquisitions are deductible for income tax purposes. The final allocation of the purchase price ~~was funded from~~to specific assets acquired and liabilities assumed may change in future periods as the ~~proceeds of debt and cash on hand.~~

~~The purchase agreement included a potential contingent payment based on 2020 performance. The seller could earn up to an additional $2,000. The~~ fair value estimates of ~~this contingent payment was determined to be $2,000~~ ~~based on the likelihood of achieving the required financial performance at the time of the valuation. The earn-out payment of $2,000 was paid in March 2021.~~inventory and intangibles are completed.

HOLLEY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(unaudited)

The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:


				2021 (as initially reported)			Measurement Period Adjustments			2021 (as adjusted)
Cash	$	205		$	122					$	122
Accounts receivable		3,947			618						618
Inventory		14,198			3,975						3,975
Property, plant and equipment		1,296			2,274						2,274
Other assets		189			23						23
Tradenames		7,715			2,608						2,608
Customer relationships		17,175			2,450						2,450
Goodwill		7,551			8,087			(122	)		7,965
Accounts payable		(2,524	)		(343	)					(343	)
Accrued liabilities		(648	)		(129	)		122			(7	)
	$	49,104		$	19,685		$	0		$	19,685

The fair value of the acquired customer relationship intangible assets were estimated using the excess earnings

approach. The customer relationship intangible assets are being amortized based on the attrition rate of customers which have an estimated weighted average life of 18 years. The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

The remaining three acquisitions completed during 2021 are described below.

Baer, Inc.

On December 23, 2021, the Company acquired substantially all the assets and liabilities of Baer, Inc., doing business as Baer Brakes ("Baer"). Consideration for the assets acquired was cash payments of $22,170. The acquisition resulted in both amortizable and non-amortizable intangibles and goodwill totaling $18,989. The goodwill and intangibles generated as a result of this acquisition are deductible for income tax purposes. The purchase price was funded with borrowings from the Company's credit facility and cash on hand. The determination of the final purchase price allocation to specific assets acquired and liabilities assumed may change in future periods as the fair value estimates of inventory and intangibles are completed.

The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:


	December 23, 2021 (as initially reported)			Measurement Period Adjustments			December 23, 2021 (as adjusted)
Accounts receivable	$	627					$	627
Inventory		1,813						1,813
Property, plant and equipment		695						695
Other assets		76						76
Tradenames		4,630						4,630
Customer relationships		6,075						6,075
Goodwill		8,363			(79	)		8,284
Accounts payable		(81	)		79			(2	)
Accrued liabilities		(28	)					(28	)
	$	22,170		$	0		$	22,170

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years. The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

~~The contractual value of the accounts receivable acquired was $4,155~~.

~~Simpson Performance Products, Inc.~~

On ~~November 16, 2020, the Company acquired Simpson Performance Products, Inc. (“Simpson”). The purchase price was $117,409. The Company acquired~~ ~~100~~% of the outstanding common stock of Simpson. The Company purchased Simpson in order to acquire strong brands in the automotive safety solutions market. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. Consideration for the assets acquired consisted of cash payments of $~~110,209~~ ~~and an earnout initially valued at $7,200. The acquisition resulted in both amortizable and non-amortizable intangibles and goodwill, totaling $107,618~~. The goodwill arising from the acquisition is primarily due to Simpson’s strong market position. The goodwill and intangibles generated as a result of this acquisition are not deductible for income tax purposes. The purchase price was funded from the proceeds of debt and cash on hand.

~~The purchase agreement included a potential contingent payment based on the performance for the twelve months ended October 3, 2021. The seller could earn up to an additional $25,000. The fair value of this contingent payment was initially determined to be $7,200~~ using the “Bull Call” option strategy utilizing the option values from the Black-Scholes Option Pricing Model. Based on actual performance and updated projections of Simpson’s performance for the earn-out period, the fair value of the contingent payment was determined to be $~~24,373~~ ~~as of March 28, 2021. Therefore, during the thirteen weeks ended March 28, 2021, an adjustment of $17,173~~ ~~was recorded as expense, which is recognized in acquisition and restructuring costs in the condensed consolidated statement of comprehensive income for the 39-week period ended September 26, 2021.~~

1114

HOLLEY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(unaudited)

The contractual value of the accounts receivable acquired was $800.

Brothers Mail Order Industries, Inc.

On December 16, 2021, the Company acquired substantially all the assets and liabilities of Brothers Mail Order Industries, Inc., doing business as Brothers Trucks ("Brothers"). Consideration for the assets acquired was cash payments of $26,135. The acquisition resulted in non-amortizable intangibles and goodwill totaling $24,835. The goodwill and intangibles generated as a result of this acquisition are deductible for income tax purposes. The purchase price was funded with borrowings from the Company's credit facility and cash on hand. The determination of the final purchase price allocation to specific assets acquired and liabilities assumed ~~was adjusted to reflect the final fair value estimate of finished goods inventory,~~may change in future periods as ~~noted below.~~ ~~The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of~~ the fair value estimates of ~~the net assets as follows:~~

November 16, 2020 (as initially reported)

Measurement Period Adjustments

November 16, 2020 (as adjusted)

Cash

$
7,715

$
0

$
7,715

Accounts receivable

3,894

0

3,894

Inventory

19,265

(770
)

18,495

Property, plant and equipment

5,952

0

5,952

Other assets

1,613

0

1,613

Tradenames

23,980

0

23,980

Customer relationships

28,770

0

28,770

Patents

2,720

0

2,720

Goodwill

51,305

843

52,148

Accounts payable

(2,483
)

0

(2,483
)
Accrued liabilities

(7,787
)

0

(7,787
)
Deferred tax liability

(12,993
)

0

(12,993
)
Debt

(4,615
)

0

(4,615
)

$
117,336

$
73

$
117,409

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years. The fair value of the acquired tradenames and patents intangible assets were estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life. The patents are being amortized over 10 ~~years based on the weighted average remaining life of the patent portfolio.~~

~~The contractual value of the accounts receivable acquired was $3,894~~.

~~HOLLEY INC.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share data)~~

~~(unaudited)~~

~~Detroit Speed, Inc.~~

On ~~December 18, 2020, the Company acquired Detroit Speed, Inc. (“Detroit Speed”). The purchase price was $11,297~~. The Company acquired substantially all of the assets and liabilities of Detroit Speed. The Company purchased Detroit Speed in order to acquire strong brands in the automotive aftermarket. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. Consideration for the assets acquired includes cash payments of $~~9,297~~ ~~and Class A Units of Parent of $2,000. The acquisition resulted in both amortizable and non-amortizable intangibles and goodwill, totaling $4,323. The goodwill arising from the acquisition is primarily due to Detroit Speed’s strong market position. The goodwill~~inventory and intangibles ~~generated as a result of this acquisition~~ are ~~partially deductible for income tax purposes. The purchase price was funded from cash on hand and distribution of Class A Units of Parent.~~

completed.

The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:


Cash	$	1,784
				December 16, 2021 (as initially reported)			Measurement Period Adjustments		December 16, 2021 (as adjusted)
Accounts receivable		418		$	22				$	22
Inventory		3,478			1,682					1,682
Property, plant and equipment		3,040			20					20
Other assets		215			13					13
Tradenames		1,127			4,975					4,975
Customer relationships		560
Goodwill		2,636			19,561			299		19,860
Accounts payable		(668	)		(34	)				(34	)
Accrued liabilities		(1,019	)		(403	)				(403	)
Deferred tax liability		(274	)
	$	11,297		$	25,836		$	299	$	26,135

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 10 ~~years.~~ The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

The contractual value of the accounts receivable acquired was $~~418~~22.

Advance Engine Management Inc.

On April 14, 2021, the Company acquired substantially all the assets and liabilities of Advance Engine Management Inc. doing business as AEM Performance Electronics (“AEM”). ~~The purchase price~~Consideration for the assets acquired was cash ~~consideration~~payments of $51,243. The Company acquired substantially all of the assets and liabilities of AEM. The Company purchased AEM in order to acquire strong brands in the automotive aftermarket. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. The acquisition resulted in both amortizable and non-amortizable intangibles and goodwill, totaling $~~44,906~~44,486. ~~The goodwill arising from the acquisition is primarily due to AEM’s strong market position.~~ The goodwill and intangibles generated as a result of this acquisition are deductible for income tax purposes. The purchase price was funded from cash on hand.

1315

HOLLEY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(unaudited)

The determination of the final purchase price allocation to specific assets acquired and liabilities assumed was adjusted to reflect the final fair value estimate of acquired assets and liabilities, as noted below. The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:


	April 14, 2021 (as initially reported)			Measurement Period Adjustments			April 14, 2021 (as adjusted)
Accounts receivable	$	3,454		$	(61	)	$	3,393
Inventory		3,892			0			3,892
Property, plant and equipment		1,342			0			1,342
Other assets		493			(91	)		402
Tradenames		10,760			0			10,760
Customer relationships		14,640			0			14,640
Patents		1,970			0			1,970
Technology intangibles		110			0			110
Goodwill		17,426			(420	)		17,006
Accounts payable		(2,032	)		110			(1,922	)
Accrued liabilities		(489	)		139			(350	)
	$	51,566		$	(323	)	$	51,243

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years ~~years.~~. The fair value of the acquired tradenames and patents intangible assets were estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life. The patents are being amortized over 13 years ~~years~~ based on the weighted average remaining life of the patent portfolio.

The contractual value of the accounts receivable acquired was $3,454.

3. INVENTORY

~~The Company’s results for the 13-week and 39-week periods ended September 26, 2021 include $5,904~~ ~~and $11,341~~ ~~of net sales, respectively, and $896~~ ~~and $1,583~~ ~~of net income, respectively, from AEM since the date of acquisition. The Company incurred transaction costs in the amount of $~~46 ~~and $2,251, which are reflected in operating expenses in the 13-week and 39-week periods ended September 26, 2021, respectively.~~

~~The following table provides~~Inventories of the ~~unaudited consolidated pro forma results for~~Company consisted of the ~~periods presented as if AEM had been acquired as of January 1, 2020.~~following:

For the thirteen weeks ended

For the thirty-nine weeks ended

September 26, 2021

September 27, 2020

September 26, 2021

September 27, 2020

Pro forma net sales
$
159,673

$
140,195

$
521,836

$
384,237

Pro forma net income

(30,200
)

15,045

(6,906
)

33,195


	April 3,		December 31,
	2022		2021
Raw materials	$	53,104	$	54,818
Work-in-process		25,478		21,728
Finished goods		112,544		108,494
	$	191,126	$	185,040

The pro forma results include the effects of the amortization of purchased intangible assets and acquired inventory step-up. The pro forma results are based upon unaudited financial information of the acquired entity and are presented for informational purposes only and are not necessarily indicative of the results of future operations or the results that would have occurred had the acquisitions taken place in the periods noted.

1416

HOLLEY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(unaudited)

~~Finspeed LLC~~

On ~~May 24, 2021, the Company acquired Finspeed LLC (“Finspeed”). The purchase price was cash consideration of $2,505~~. The Company acquired substantially all of the assets and liabilities of Finspeed. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. The acquisition resulted in non-amortizable intangibles of $~~268. The purchase price was funded from cash on hand.~~

~~Classic Instruments LLC~~

On ~~August 31, 2021, the Company acquired Classic Instruments LLC ("Classic Instruments"). The purchase price was cash consideration of $6,120~~. The Company acquired substantially all of the assets and liabilities of Classic Instruments. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. The determination of the purchase price allocation to specific assets acquired and liabilities assumed is incomplete for Classic Instruments. The acquisition resulted in intangibles and goodwill of approximately $~~4,912. The purchase price was funded from cash on hand.~~

Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company's business combinations. The measurement period for the valuation of assets acquired and liabilities assumed ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes available, not to exceed 12 months. Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.

~~For the 13-week periods ended September 26, 2021 and September 27, 2020, the Company’s effective tax rates of~~ ~~9.9% and~~ ~~28.9%, respectively differed from the~~ 21~~% federal statutory rate primarily due to permanent differences.~~

For the 39-week period ended September 26, 2021, the Company recognized tax expense on a net loss for the period due to permanent differences related to the Business Combination and the increase in the Simpson earn-out liability recognized during the thirteen weeks ended March 28, 2021. For the 39-week period ended September 27, 2020, the Company’s effective tax rate of ~~23.8% differed from the~~ 21~~% federal statutory rate primarily due to permanent differences.~~

13. EQUITY-BASED COMPENSATION PLANS

In 2021, the Company adopted the 2021 Omnibus Incentive Plan (the “2021 Plan”), which provides for the grant of restricted stock awards, incentive and nonqualified stock options, and other share based awards to employees, directors and non-employees. The 2021 Plan authorized 8,850,000 new shares of the Company’s common stock to be available for award grants. As of ~~September 26, 2021,~~April 3, 2022, ~~6,797,101~~6,030,360 shares of common stock remained available for future issuance under the 2021 Plan.

Equity-based compensation expense included the following components:


	For the thirteen weeks ended				For the thirty-nine weeks ended				For the thirteen weeks ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020		April 3, 2022		March 28, 2021
Stock options	$	376	$	—	$	376	$	—	$	553	$	0
Restricted stock units										1,183		0
Profit interest units		2,110		121		2,372		356		1,426		131

All equity-based compensation expense is recorded in selling, general and administrative costs in the condensed consolidated statements of comprehensive income.

Stock Options

Stock option grants have an exercise price at least equal to the market value of the underlying common stock on the date of grant, have ten-year terms, and vest ratably over three years of continued employment. In general, vested options expire if not exercised at termination of service. On ~~July 16, 2021,~~February 15, 2022, the Company granted ~~1,394,008~~548,001 options to purchase shares of the Company’s common stock to key employees. These stock options had a weighted-average grant date fair value $~~3.88~~4.68 per share, and remain outstanding and unvested as of September 26, 2021. Compensation expense for stock options is recorded based on straight-line amortization of the grant date fair value over the requisite service period.

~~HOLLEY INC.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share data)~~

~~(unaudited)~~

~~As of September 26, 2021, there was $5,033~~ ~~of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a remaining weighted-average period of~~ ~~2.8~~ ~~years.~~

~~The fair value of each stock option granted on July 16, 2021~~which was estimated on ~~the~~ grant date using the Black-Scholes option pricing model with the following assumptions:


Weighted-average expected term		6.0			6.0
Expected volatility		40.3	%		36.0	%
Expected dividend	$	0		$	0
Risk-free interest rate		0.94	%		1.98	%

The expected term has been estimated using a simplified method, which calculates the expected term as the mid-point between the vesting date and the contractual life of the awards since the Company does not have an extended history of actual exercises. The expected dividend yield is assumed to be ~~zero~~0 since the Company has never paid dividends and does not have current plans to pay any dividends. The risk-free interest rate is based on yields of U.S. Treasury securities with maturities similar to the expected term of the options. Expected volatility is based on an evenly weighted blend of implied volatility and historical volatility of publicly-traded peer companies since the Company has limited historical volatility.

Compensation expense for stock options is recorded based on straight-line amortization of the grant date fair value over the requisite service period. As of April 3, 2022, there was $6,569 of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a remaining weighted-average period of 2.5 years.

Restricted Stock Units

Restricted stock units (“RSUs”) vest ratably over one to three years ~~from the anniversary~~ of ~~the Closing Date, or July 16, 2021, and expire~~ ~~ten years~~ ~~from the date of grant.~~continued employment. The fair value of a RSU at the grant date is equal to the market price of the Company’s common stock on the grant date. On ~~September 23, 2021,~~February 15, 2022, the Company granted ~~658,891~~228,180 RSUs to key employees ~~and directors. These RSUs had~~with a ~~weighted-average~~ grant date fair value of $~~12.06~~12.29 per ~~unit and remain outstanding and unvested as of September 26, 2021.~~unit. Compensation expense for RSUs is recorded based on amortization of the grant date fair market value over the period the restrictions ~~lapse,~~

lapse. As of ~~September 26, 2021,~~April 3, 2022, there was $~~7,946~~8,468 of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a remaining weighted average period of ~~2.5~~2.4 years.

HOLLEY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(unaudited)

Profit Interest Units

The Holley Stockholder ~~made grants~~has authorized an incentive pool of ~~8,445~~41.4 ~~and~~ ~~5,932~~ ~~profit interest~~million units ~~(“PIUs”)~~of Parent, which are designated as PIUs, that its management has the right to grant to certain employees of the ~~Company during the thirty-nine week periods ended September 26, 2021, and September 27, 2020, respectively. PIUs~~Company. As of April 3, 2022, no units are available for grant. The PIU's are a special type of limited liability company equity unit that allows the recipient to potentially participate in a future increase in the value of the Company. PIUs are issued for no consideration and generally provide for vesting over the requisite service period, subject to the recipient remaining an employee of the Company through each vesting date. ~~The 2020 grants included~~ ~~4,507~~ PIUs that contained certain performance vesting criteria related to the attainment of specified levels of return for certain other investors in Holley Stockholder. The weighted-average grant date fair value of these performance-based PIUs was $~~0.27~~ ~~per unit. No expense has been recorded for the performance-based PIUs as meeting the necessary performance conditions for vesting is not considered probable.~~

As of ~~September 26, 2021,~~April 3, 2022, there ~~were~~ was $~~36,045~~8,057 of unrecognized compensation cost related to unvested time-based PIUs ~~with~~that is expected to be recognized over a ~~weighted average grant date fair value~~remaining weighted-average period of 1.4 years.

14. LEASE COMMITMENTS

On January 1, 2022, the Company adopted ASC 842 using the modified retrospective optional transition method provided by ASU 2018-11. The effect of applying this guidance resulted in an increase in noncurrent assets for right-of-use assets of $~~0.64~~33.9. million and an increase in liabilities for associated lease obligations of $34.6 million, most of which were classified as noncurrent. The adoption of the standard did not result in a cumulative-effect adjustment to the opening balance of retained earnings.

Under the transition option elected by the Company, ASC 842 is applied only to the most current period and reporting for comparative periods presented in the financial statements continues to be in accordance with Topic 840, including disclosures. Upon adoption, the Company elected the following practical expedients related to ASC 842:


	•		not reassess whether any expired or existing contracts are or contain leases, not reassess the lease classification for any expired or existing leases, and not reassess initial direct costs for any existing leases;


	•		to account for the lease and non-lease components as a single lease component for all of the Company's leases; and


	•		to apply accounting similar to Topic 840 to leases that meet the definition of short-term leases.

The Company leases retail stores, manufacturing, distribution, engineering, and research and development facilities, office space, equipment, and automobiles under operating lease agreements. Leases have remaining lease terms of one to 14 years, inclusive of renewal options that the Company is reasonably certain to exercise.

The following table summarizes operating lease assets and obligations:


	April 3, 2022
Assets:
Operating right of use assets	$	32,814
Liabilities:
Current operating lease liabilities	$	5,129
Long-term lease liabilities		28,433
Total lease liabilities	$	33,562

2426

HOLLEY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(unaudited)

~~During~~The following summarizes the ~~39-week periods ended September 26, 2021~~components of operating lease expense and ~~September 27, 2020,~~ ~~2,169~~ ~~and~~ ~~1,228~~ ~~PIUs were fully vested, respectively, with a total grant-date fair value of $2,110~~ ~~and $356~~ ~~in 2021 and 2020, respectively. As of September 26, 2021, there was $15,999~~ ~~of total unrecognized compensation cost related to unvested time-based PIUs that is expected to be recognized over a remaining weighted-average period of~~ ~~1.9~~ ~~years.~~provides supplemental cash flow information for operating leases:

~~During the 39-week period ended September 26, 2021,~~ ~~2,614~~ ~~PIUs were forfeited.~~


	For the thirteen weeks ended
	April 3, 2022
Components of lease expense:
Operating lease expense	$	2,419
Short-term lease expense		608
Variable lease expense		87
Total lease expense	$	3,114

Supplemental cash flow information related to leases:
Cash paid for amounts included in measurement of operating lease liabilities	$	1,760
Right of use assets obtained in exchange for new operating lease liabilities	$	278

~~14. LEASE COMMITMENTS~~Information associated with the measurement of operating lease obligations as of April 3, 2022 is as follows:


Weighted average remaining lease term	9.3 years
Weighted average discount rate		5.92	%

~~The Company is obligated under various operating leases for manufacturing facilities, equipment and automobiles. Leases have a remaining term of~~ ~~one~~ to ~~ten years~~ ~~some of which have an option to renew.~~ ~~The aggregate future minimum fixed lease obligations under operating leases for the Company as of September 26, 2021, are as follows:~~

The following table summarizes the maturities of the Company's operating lease liabilities as of April 3, 2022:

2021 (excluding the thirty-nine weeks ended September 26, 2021)

$
1,705

2022

6,485

2023

5,036

2024

3,679

2025

2,752

Thereafter

11,045


2022 (excluding the thirteen weeks ended April 3, 2022)	$	5,311
2023		6,469
2024		5,201
2025		3,477
2026		3,261
Thereafter		21,376
Total lease payments		45,095
Less imputed interest		(11,533	)
Present value of lease liabilities	$	33,562

For the 13-week ~~periods~~period ended ~~September 26,~~March 28, 2021, ~~and September 27, 2020,~~ total rent expense under operating leases approximated $~~1,992~~1,693 ~~and $~~.~~968~~

In accordance with ASC 840, Leases, ~~, respectively. For~~ the ~~39-week periods ended September 26, 2021 and September 27, 2020, total rent expense~~aggregate minimum non-cancelable annual lease payments under operating leases ~~approximated $~~in effect on December 31, 2021 were as follows:~~5,665~~

~~and $~~


2022	$	8,517
2023		6,320
2024		4,766
2025		2,995
2026		2,813
Thereafter		8,546
Total minimum lease commitments	$	33,957

~~3,337, respectively. Taxes, insurance and maintenance expenses relating to all leases are obligations of the Company.~~

HOLLEY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

(unaudited)

15. ACQUISITION, RESTRUCTURING AND MANAGEMENT FEE COSTS

The following table summarizes total acquisition, restructuring and management fee costs:


	For the thirteen weeks ended				For the thirty-nine weeks ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020		For the thirteen weeks ended
									April 3, 2022		March 28, 2021
Acquisitions (1)	$	204	$	137	$	3,415	$	1,301	$	249	$	1,039
Restructuring (2)		140		955		1,265		4,323		41		621
Management fees (3)		23,274		894		25,813		2,665		0		881
Earn out adjustment (4)		—		—		17,173		—		0		17,173
Total acquisition, restructuring and management fees	$	23,618	$	1,986	$	47,666	$	8,289	$	290	$	19,714

(1)

Includes professional fees for legal, accounting, consulting, administrative, and other professional services directly attributable to potential acquisitions.

(2)

Includes costs incurred as part of the restructuring of operations including professional and consulting services.

(3)

Includes acquisition costs and management fees paid to Sentinel Capital ~~Partners, including a fee of $23,275~~ ~~paid in the 13-week period ended September 26, 2021 upon the Closing of the Business Combination.~~Partners.

(4)

A fair value adjustment to the contingent consideration payable from the Simpson acquisition.

~~HOLLEY INC.~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share data)~~

~~(unaudited)~~

16. COMMITMENTS AND CONTINGENCIES

The Company is a party to various lawsuits and claims in the normal course of business. While the lawsuits and claims against the Company cannot be predicted with certainty, management believes that the ultimate resolution of the matters will not have a material effect on the consolidated financial position or results of operations of the Company.

~~In September 2021, the Company experienced a cybersecurity incident. For details regarding this incident, see Part II - Other Information, Item 1A - Risk Factors of this Form 10-Q.~~

The Company generally warrants its products against certain manufacturing and other defects. These product warranties are provided for specific periods of time depending on the nature of the product. The accrued product warranty costs are based primarily on historical experience of actual warranty claims and are recorded at the time of the sale.

The following table provides the changes in the Company's accrual for product warranties, which is classified as a component of accrued liabilities in the condensed consolidated balance sheets.


	For the thirteen weeks ended						For the thirty-nine weeks ended						For the thirteen weeks ended
	September 26, 2021			September 27, 2020			September 26, 2021			September 27, 2020			April 3, 2022			March 28, 2021
Beginning balance	$	2,928		$	2,962		$	3,989		$	3,454		$	3,994		$	3,989
Accrued for current year warranty claims		2,027			3,710			5,462			7,637			2,588			957
Settlement of warranty claims		(2,310	)		(3,176	)		(6,806	)		(7,595	)		(2,766	)		(2,079	)
Ending balance	$	2,645		$	3,496		$	2,645		$	3,496		$	3,816		$	2,867

2628

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Unless the context requires otherwise, references to “Holley,” “we,” “us,” “our” and “the Company” in this section are to the business and operations of Holley Inc. 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 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. 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. The Company’s 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. Approximately 40%, 40% and 36%,~~strategy with approximately 35% of our ~~annual~~2021 sales ~~for fiscal 2020, 2019 and 2018, respectively, were generated~~coming from products introduced by ~~products that we first introduced in~~us into the ~~last five years.~~market since 2016. 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 (“DTC”) 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. Between 2014 and 2020 we completed eight acquisitions, which, as of the end of 2020, generated a total of $35 million of cost saving synergies through reductions in product cost, elimination of headcount, facility costs and other SG&A expenses.

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 those under the caption, “Risk Factors,” in our ~~prospectus,~~Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on ~~July 28, 2021,~~March 15, 2022, and those in our subsequent filings with the SEC.

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. ("Holdings").

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. 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. 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 a result of the Business Combination, Holley Inc. listed on the NYSE, which required us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. 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.

Acquisitions

Holley has historically pursued a growth strategy through both organic growth and acquisitions. 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.

In 2021 Holley completed 8 acquisitions. The most significant ~~of these~~ acquisitions impacting the comparability of our operating results were:

•

~~AEM Performance Electronics~~Advance Engine Management Inc.: On April 14, 2021 Holley acquired Advance Engine Management Inc., doing business as AEM Performance Electronics (“AEM”), a developer and supplier of electronic control and monitoring systems for performance automotive applications. This acquisition increases Holley’s penetration into the import and other sport compact cars submarket.

•

~~Drake Automotive Group:~~ Brothers Mail Order Industries, Inc.: On ~~November 11, 2020~~December 16, 2021, Holley acquired ~~Drake Automotive Group LLC (“Drake”~~Brothers Mail Order Industries, Inc., doing business as Brothers Trucks ("Brothers"), a ~~designer~~distributor of classic and ~~seller of automotive aftermarket appearance~~custom vehicle restoration parts ~~wheels, chassis & suspension products~~serving the Chevrolet and ~~accessories.~~GMC truck aftermarket. This acquisition increases ~~Holley’s penetration within the Ford/Mustang platform where it has historically been under indexed relative to the market.~~Holley's offerings in truck and SUV appearance items.

•

~~Simpson Performance Products:~~Baer, Inc.: On ~~November 16, 2020~~December 23, 2021, Holley acquired ~~Simpson Performance Products,~~Baer, Inc. ~~(“Simpson”~~, doing business as Baer Brakes ("Baer"), a ~~designer~~developer and ~~seller~~supplier of ~~motorsport safety products including helmets head & neck restraints, seat belts, firesuits~~brakes and ~~more.~~brake systems. This acquisition ~~extended Holley’s footprint into the safety~~moves Holley closer to its goal of providing complete vehicle solutions by adding a new product category and ~~racing segment.~~brake system expertise.

The acquisitions have all been accounted for in accordance with FASB 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. See Note 1, ~~“Description~~“Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies,” and Note 2, ~~“Business~~“Business Combination and Acquisitions,” 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 acquisitions and investments.

~~Seasonality~~

Holley’s operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond the Company’s control. Due to these factors and others, which may be unknown to the Company at this time, operating results in future periods can be expected to fluctuate. Accordingly, the Company’s historical results of operations may not be indicative of future performance.

~~Geopolitical~~

Geopolitical factors could adversely impact the U.S. and other economies, with specific impacts felt by the automotive sector. In particular, changes to international trade agreements, such as the United States-Mexico-Canada Agreement or other political pressures could affect the operations of the Company’s

~~customers, resulting in reduced automotive production in certain regions or shifts in the mix of production to higher cost regions.~~

~~Competition~~

The performance automotive industry is highly competitive. 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. Existing competitors may expand their product offerings and sales strategies, and new competitors may enter the market. If Holley’s market share decreases due to increased competition, its revenue and ability to generate profits in the future may be impacted.

~~Regulatory Environment~~

Holley is subject to federal, state and local regulations including consumer laws and regulations, tax laws and regulations, and engineering and environmental laws and regulations. Holley’s current business plan assumes no material change in these laws and regulations. In the event any such change occurs, compliance with new laws and regulations might significantly affect Holley’s operations and cost of doing business.

COVID-19 Outbreak

COVID-19 has adversely impacted global supply chain and general economic conditions. The Company has ~~experienced~~continued to experience disruptions and higher costs in manufacturing, supply chain, logistical operations, and shortages of certain Company products in distribution channels. The full extent of the impact of the COVID-19 pandemic on the Company's business and operational and financial performance and condition is currently uncertain and will depend on many factors outside the Company's control, including but not limited to the timing, extent, duration and effects of the virus and any of its mutations, the utilization and effectiveness of treatments and vaccines, the imposition of effective public safety and other protective measures, the further impact of COVID-19 on the global economy and demand for the Company's products and services. Should the COVID-19 pandemic, including variants such as Delta and Omicron, not improve or worsen, or if the Company's attempt to mitigate its impact on its supply chain, operations and costs is not successful, the Company's business, results of operations, financial condition and prospects may be adversely affected.

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 after-market automotive parts for its 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.

2930

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.

~~Gross Profit and Gross Margin~~

~~Gross profit consists of Holley’s net sales less its cost of goods sold. Gross margin is gross profit as a percentage of net sales.~~

Selling, General, and Administrative

Selling, general, and administrative 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, pre-production and start-up costs are also included within selling, general, and administrative. The Company expects to incur 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.

~~Research and Development Costs~~

~~Research and development costs consist of personnel expenses and other costs associated with the development and innovation of new products as well as the maintenance of existing products.~~

~~Amortization of Intangible Assets~~

~~Amortization of intangibles consists of amortization of definite-lived intangible assets over their respective useful lives.~~

Acquisition and Restructuring Costs

Acquisition and restructuring costs consist of professional fees for legal, accounting, consulting, administrative, and other professional services directly attributable to potential acquisitions. In addition, operational restructuring costs are included within this classification.

Related Party Acquisition and Management Fee Costs

Related party acquisition and management fee costs consist of fees paid to the Company’s 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.

~~Other Expense (Income)~~

~~Other expenses consist of foreign currency transaction gains and losses, gains and losses on the disposal of fixed asset and other miscellaneous items.~~

~~Operating Income~~

Operating income consists of Holley’s gross profit less selling, general and administrative expenses, amortization of intangibles, acquisition, restructuring and management fee costs and other expenses.

~~Change in Fair Value of Warrant Liability~~

Change in fair value of warrant liability includes net gains and losses from the revaluation of the warrant liability. Warrants recorded as liabilities are remeasured at their fair value each reporting period.

~~Change in Fair Value of Earn-Out Liability~~

Change in fair value of earn-out liability includes net gains and losses from the revaluation of the Earn-Out Shares. Earn-Out Shares recorded as liabilities are remeasured at their fair value each reporting period.

~~Loss on Early Extinguishment of Debt~~

~~Loss on the early extinguishment of debt is comprised of the write-off of certain deferred financing costs as a result of the early paydown on Holley's second-lien notes.~~

Interest Expense

Interest expense consists of interest due on the indebtedness under our credit facilities. Interest is based on LIBOR or the prime rate, plus the applicable margin rate. As of ~~September 26, 2021, $539.2~~April 3, 2022, $626.9 million was outstanding under the ~~First Lien~~Company's Credit ~~Agreement and $45.0 million outstanding under our Second Lien Credit~~ Agreement.

~~Income Tax Expense~~

~~Income tax expense consists of the Company’s current income tax expense less the deferred income tax benefit.~~

~~Foreign Currency Translation Adjustment~~

Foreign currency translation adjustment is based on the translation of assets and liabilities translated using period end exchange rates and revenue and expenses translated using average exchange rates.

Results of Operations

13-Week Period Ended ~~September 26, 2021~~April 3, 2022 Compared With 13-Week Period Ended ~~September 27, 2020~~March 28, 2021

The table below presents Holley’s results of operations for the 13-week periods ended ~~September 26, 2021~~April 3, 2022 and ~~September 27, 2020:~~March 28, 2021:

For the thirteen weeks ended

Change

September 26, 2021

September 27, 2020

$

%

Net sales

$
159,673

$
133,307

$
26,366

19.8
%
Cost of goods sold

94,475

77,778

16,697

21.5
%
Gross profit

65,198

55,529

9,669

17.4
%
Selling, general, and administrative

28,891

17,303

11,588

67.0
%
Research and development costs

7,133

5,982

1,151

19.2
%
Amortization of intangible
assets

3,553

2,699

854

31.6
%
Acquisition and restructuring costs

368

1,092

(724
)

(66.3
%)
Related party acquisition and
management fee costs

23,250

894

22,356

2,501
%
Other expense (income)

89

(821
)

910

n/a

Operating income

1,914

28,380

(26,466
)

(93.3
%)
Change in fair value of warrant liability

17,273

—

17,273

n/a

Change in fair value of earn-out liability

6,866

—

6,866

n/a

Loss on early extinguishment of debt

1,425

—

1,425

n/a

Interest expense

9,851

9,325

526

5.6
%
Income before income taxes

(33,501
)

19,055

(52,556
)

(275.8
%)
Income tax expense

(3,301
)

5,512

(8,813
)

(159.9
%)
Net income

(30,200
)

13,543

(43,743
)

(323.0
%)
Foreign currency translation adjustment

(31
)

—

(31
)

n/a

Total comprehensive income

$
(30,231
)

$
13,543

$
(43,774
)

(323.2
%)


	For the thirteen weeks ended					Change
	April 3, 2022		March 28, 2021			$			%

Net sales	$	200,055	$	160,332		$	39,723			24.8	%
Cost of goods sold		117,334		94,653			22,681			24.0	%
Gross profit		82,721		65,679			17,042			25.9	%
Selling, general, and administrative		34,342		24,012			10,330			43.0	%
Research and development costs		8,161		5,969			2,192			36.7	%
Amortization of intangible assets		3,661		3,336			325			9.7	%
Acquisition and restructuring costs		290		18,833			(18,543	)		(98.5	%)
Related party acquisition and management fee costs		—		881			(881	)		(100.0	%)
Other expense (income)		222		(133	)		355		n/a
Operating income		36,045		12,781			23,264			182.0	%
Change in fair value of warrant liability		2,227		—			2,227		n/a
Change in fair value of earn-out liability		2,381		—			2,381		n/a
Interest expense		7,391		10,071			(2,680	)		(26.6	%)
Income before income taxes		24,046		2,710			21,336			787.3	%
Income tax expense		7,188		4,766			2,422			50.8	%
Net income (loss)		16,858		(2,056	)		18,914		n/a
Foreign currency translation adjustment		241		(16	)		257		n/a
Total comprehensive income (loss)	$	17,099	$	(2,072	)	$	19,171		n/a

Net Sales

Net sales for the 13-week period ended ~~September 26, 2021~~April 3, 2022 increased ~~$26.4~~$39.7 million, or ~~19.8%~~24.8%, to ~~$159.7~~$200.1 million, as compared to ~~$133.3~~$160.3 million for the 13-week period ended ~~September 27, 2020. Net~~March 28, 2021. Non-comparable sales during the 13-week period ended September 26, 2021 increased $29.8 million due to our recent business acquisitions. Additionally, we estimate that approximately $7 million of sales were deferred from third quarter into fourth quarter due to a cybersecurity incident near the end of the quarter.

~~Cost of Goods Sold~~

~~Cost of goods sold for 13-week period ended September 26, 2021 increased $16.7~~associated with acquisitions contributed $18.1 million, or ~~21.5%, to $94.5 million, as compared to $77.8 million for~~11.3% of year-over-year growth. The remaining comparable sales growth in the ~~13-week period ended September 27, 2020. The increase in cost of goods sold during the 13-week period ended September 26, 2021~~quarter was ~~in line with a corresponding increase in product sales during such period.~~

~~Gross Profit and Gross Margin~~

~~Gross profit for the 13-week period ended September 26, 2021 increased $9.7~~$21.6 million, or ~~17.4%, to $65.2 million, as compared to $55.5 million for the 13-week period ended September 27, 2020. The increase in gross profit~~13.5% of year-over-year growth. This comparable growth was driven by improved price realization of $13.6 million and unit volume growth of $8.0 million over the ~~increase in sales. Gross margin for~~prior year period. Major categories driving the ~~13-week period ended September 26, 2021 was 40.8% compared to a gross margin~~comparable year-over-year growth include: electronic system growth of ~~41.7% for the 13-week period ended September 27, 2020.~~

~~The decline in margin is attributable to increased inbound shipping costs, some component cost increases, and product mix.~~

~~Selling, General and Administrative~~

~~Selling, general and administrative costs for the 13-week period ended September 26, 2021 increased $11.6~~$10.7 million ~~or 67.0%~~(15.2% category growth), ~~to $28.9~~mechanical system growth of $5.0 million as compared to $17.3 million for the 13-week period ended September 27, 2020. When expressed as a percentage of sales, selling, general and administrative costs increased to 18.1% of sales for the 13-week period ended September 26, 2021, as compared to 13.0% of sales in 2020. $5.4 million of the increase is related to selling, general and administrative costs of recent acquisitions. The increase in costs was also driven by ~~a $2.4 million increase in compensation expense related to equity awards,~~ ~~a $1.2 million increase in outbound shipping costs related to higher sales and domestic supply chain pressure, and a $0.5 million increase in~~ ~~professional fees, primarily due to the Business Combination and as a result of becoming a public company.~~

~~Research and Development Costs~~

Research and development costs for the 13-week period ended September 26, 2021 increased $1.1 million, or 19.2%, to $7.1 million, as compared to $6.0 million for the 13-week period ended September 27, 2020. The increase in research and development costs was primarily due to headcount investments as we continue to pursue product innovation and new products.

~~Amortization of Intangible Assets~~

Amortization of intangible assets for the 13-week period ended September 26, 2021 increased $0.8 million, or 31.6%, to $3.5 million, as compared to $2.7 million for the 13-week period ended September 27, 2020 due to recent acquisitions.

~~Acquisition and Restructuring Costs~~

Acquisition and restructuring costs for the 13-week period ended September 26, 2021 decreased $0.7 million, to $0.4 million, as compared to $1.1 million for the 13-week period ended September 27, 2020, reflecting lower restructuring costs related to the businesses recently acquired.

~~Related Party Acquisition and Management Fee Costs~~

~~Related party acquisition and management fees for the 13-week period ended September 26, 2021 were $23.3 million, which represents a fee~~ ~~paid upon the Closing of the Business Combination.~~ ~~Related party acquisition and management fee costs were $0.9 million for the 13-week period ended September 27, 2020.~~

~~Operating Income~~

As a result of factors described above, operating income for the 13-week period ended September 26, 2021 decreased ($26.4) million, or (93.3%), to $1.9 million, as compared to $28.3 million for the 13-week period ended September 27, 2020.

~~Change in Fair Value of Warrant Liability~~

~~For the 13-week period ended September 26, 2021 we recognized a loss of $17.3 million from the change in fair value of the warrant liability.~~

~~Change in Fair Value of Earn-Out Liability~~

~~For the 13-week period ended September 26, 2021 we recognized a loss of $6.9 million from the change in fair value of the earn-out liability.~~

~~Loss on Early Extinguishment of Debt~~

For the 13-week period ended September 26, 2021 we recognized a loss of $1.4 million from the write-off of unamortized debt issuance costs as we used a portion of the net proceeds from the Business Combination to repay $100 million of the outstanding principal of our second lien note.

~~Interest Expense~~

Interest expense for the 13-week period ended September 26, 2021 increased $0.5 million, or 5.6%, to $9.8 million as compared to $9.3 million for the 13-week period ended September 27, 2020, due to a higher effective interest rate which offset the favorable impact of the $100 million paydown on our second lien note.

~~Income before Income Taxes~~

As a result of factors described above, income before income taxes for the 13-week period ended September 26, 2021 decreased $52.5 million to ($33.5) million, as compared to $19.0 million for the 13-week period ended September 27, 2020.

~~Income Tax Expense~~

Income tax expense for the 13-week period ended September 26, 2021 decreased $8.8 million to ($3.3) million, as compared to $5.5 million for the 13-week period ended September 27, 2020. The decrease resulted primarily from the increased costs associated with the Business Combination. The effective tax rates were 9.9% and 28.9% for the 13-week periods ended September 26, 2021 and September 27, 2020, respectively.

~~Net Income~~

As a result of factors described above, net income for the 13-week period ended September 26, 2021 decreased $43.7 million to ($30.2) million, as compared to $13.5 million for the 13-week period ended September 27, 2020.

~~Total Comprehensive Income~~

As a result of factors described above, total comprehensive income for the 13-week period ended September 26, 2021 decreased $43.7 million to ($30.2) million, as compared to $13.5 million for the 13-week period ended September 27, 2020.

~~39-Week Period Ended September 26, 2021 Compared With 39-Week Period Ended September 27, 2020~~

~~The table below presents Holley’s results of operations for the 39-week periods ended September 26, 2021 and September 27, 2020:~~

For the thirty-nine weeks ended

Change

September 26, 2021

September 27, 2020

$

%

Net sales

$
513,046

$
365,760

$
147,286

40.3
%
Cost of goods sold

300,969

212,070

88,899

41.9
%
Gross profit

212,077

153,690

58,387

38.0
%
Selling, general, and administrative

79,093

48,790

30,303

62.1
%
Research and development costs

20,167

17,198

2,969

17.3
%
Amortization of intangible
assets

10,391

8,099

2,292

28.3
%
Acquisition and restructuring costs

21,877

5,624

16,253

289.0
%
Related party acquisition and
management fee costs

25,789

2,665

23,124

867.7
%
Other income

3

(1,089
)

1,092

n/a

Operating income

54,757

72,403

(17,646
)

(24.4
%)
Change in fair value of warrant liability

17,273

—

17,273

n/a

Change in fair value of earn-out liability

6,866

—

6,866

n/a

Loss on early extinguishment of debt

1,425

—

1,425

n/a

Interest expense

31,096

31,843

(747
)

(2.3
%)
Income before income taxes

(1,903
)

40,560

(42,463
)

(104.7
%)
Income tax expense

7,255

9,656

(2,401
)

(24.9
%)
Net income

(9,158
)

30,904

(40,062
)

(129.6
%)
Foreign currency translation adjustment

(12
)

—

(12
)

n/a

Total comprehensive income

$
(9,170
)

$
30,904

$
(40,074
)

(129.7
%)

~~Net Sales~~

Net sales for the 39-week period ended September 26, 2021 increased $147.2 million, or 40.3%, to $513.0 million, as compared to $365.8 million for the 39-week period ended September 27, 2020. Net sales during the 39-week period ended September 26, 2021 increased $93.0 million due to our recent business acquisitions. In addition, our electronic products increased $32.6 million, or 16.5%(14.0% category growth), and ~~our exhaust products increased $6.3~~safety product growth of $4.2 million ~~or 11.9%, primarily due higher sales volume reflecting the continued success of our new product introductions.~~(26.7% category growth).

Cost of Goods Sold

Cost of goods sold for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 increased ~~$88.9~~$22.7 million, or ~~41.9%~~24.0%, to ~~$301.0~~$117.3 million, as compared to ~~$212.1~~$94.6 million for the ~~39-week~~13-week period ended ~~September 27, 2020.~~March 28, 2021. The increase in cost of goods sold during the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 was in line with a corresponding increase in product sales during such period.

Gross Profit and Gross Margin

Gross profit for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 increased ~~$58.3~~$17.0 million, or ~~38.0%~~25.9%, to ~~$212.0~~$82.7 million, as compared to ~~$153.7~~$65.7 million for the ~~39-week~~13-week period ended ~~September 27, 2020.~~March 28, 2021. The increase in gross profit was driven by the increase in sales. Gross margin for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 was 41.3% compared to a gross margin of ~~42.0%~~41.0% for the ~~39-week~~13-week period ended ~~September 27, 2020. The decline~~March 28, 2021. Gains in ~~margin is attributable to increased inbound shipping costs, some component~~price realization fully offset higher freight and product cost increases and ~~product mix.~~allowed for a slight increase in gross margin.

3532

Selling, General and Administrative

Selling, general and administrative costs for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 increased ~~$30.3~~$10.3 million, or ~~62.1%~~43.0%, to ~~$79.1~~$34.3 million, as compared to ~~$48.8~~$24.0 million for the ~~39-week~~13-week period ended ~~September 27, 2020.~~March 28, 2021. When expressed as a percentage of sales, selling, general and administrative costs increased to ~~15.4%~~17.2% of sales for the ~~39-week~~13-week period ended ~~September 26, 2021,~~April 3, 2022, as compared to ~~13.3%~~15.0% of sales in ~~2020. $14.4~~2021. Recent acquisitions accounted for $1.9 million of the increase ~~is related to~~in selling, general and administrative ~~costs of recent acquisitions.~~costs. The increase in costs was also driven by a ~~$4.5~~$3.0 million increase in compensation expense related to equity awards, a $1.0 million increase in outbound shipping and handling costs related to higher sales and domestic supply chain pressure, and a ~~$4.0~~$2.8 million increase in ~~professional fees, primarily due to~~administrative and sales personnel costs, reflecting company growth and the ~~Business Combination and as a result~~additional requirements of becoming a public ~~company, and a $2.4 million increase in compensation expense related to equity awards.~~company.

Research and Development Costs

Research and development costs for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 increased ~~$2.9~~$2.2 million, or ~~17.3%~~36.7%, to ~~$20.1~~$8.2 million, as compared to ~~$17.2~~$6.0 million for the ~~39-week~~13-week period ended ~~September 27, 2020.~~March 28, 2021. The increase in research and development costs were primarily due to headcount investments as we continue to pursue product innovation and new products.

Amortization of Intangible Assets

Amortization of intangible assets for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 increased ~~$2.3~~$0.4 million, or ~~28.3%~~9.7%, to ~~$10.4~~$3.7 million, as compared to ~~$8.1~~$3.3 million for the ~~39-week~~13-week period ended ~~September 27, 2020~~March 28, 2021 due to recent acquisitions.

Acquisition and Restructuring Costs

Acquisition and restructuring costs for the ~~39-week~~13-week period ended ~~September 26, 2021 increased $16.3~~April 3, 2022 decreased $18.5 million, or ~~289.0%~~98.5%, to ~~$21.9~~$0.3 million, as compared to ~~$5.6~~$18.8 million for the ~~39-week~~13-week period ended ~~September 27, 2020.~~March 28, 2021. The ~~increase was primarily due to~~13-week period ended March 28, 2021 included an ~~increase~~adjustment of $17.2 million ~~to the~~for contingent consideration payable ~~from~~for the Simpson ~~acquisition.~~acquisition.

Related Party Acquisition and Management Fee Costs

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 for the ~~39-week~~13-week period ended ~~September 26,~~March 28, 2021 were ~~$25.8 million, which includes a fee of $23.3 million~~ ~~paid upon the Closing of the Business Combination.~~ ~~Related party acquisition and management fee costs for the 39-week period ended September 27, 2020 were $2.7~~$0.9 million.

Operating Income

As a result of factors described above, operating income for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 increased ~~($17.7)~~$23.2 million, or ~~(24.4%)~~182.0%, to ~~$54.7~~$36.0 million, as compared to ~~$72.4~~$12.8 million for the ~~39-week~~13-week period ended ~~September 27, 2020.~~March 28, 2021.

Change in Fair Value of Warrant Liability

For the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 we recognized a loss of ~~$17.3~~$2.2 million from the change in fair value of the warrant liability. 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 ~~the39-week~~the 13-week period ended ~~September 26, 2021~~April 3, 2022 we recognized a loss of ~~$6.8~~$2.4 million from the change in fair value of the earn-out liability. The earn-out liability reflects the fair value of the earn-out shares resulting from the Business Combination. During the first quarter of 2022, the first tranche, representing half of the Earn-Out Shares, met the required market share price criteria and were issued. This issuance of the Company's common stock resulted in a reduction of the earn-out liability of $14.7 million, representing the fair value of the earn-out shares on the vesting date, which was reclassified from liabilities to equity. At April 3, 2022, there are 1,093,750 potential future Earn-Out Shares remaining.

~~Loss on Early Extinguishment of Debt~~

For the 39-week period ended September 26, 2021 we recognized a loss of $1.4 million from the write-off of unamortized debt issuance costs as we used a portion of the net proceeds from the Business Combination to repay $100 million of the outstanding principal of our second lien note.

Interest Expense

Interest expense for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 decreased ~~($0.7)~~$2.7 million, or ~~(2.3%)~~26.6%, to ~~$31.1~~$7.4 million, as compared to ~~$31.8~~$10.1 million for the ~~thirty-nine weeks~~13-week period ended ~~September 27, 2020.~~ March 28, 2021. The decrease was primarily due to a lower effective interest ~~rate.~~rate combined with the favorable impact of the $100 million paydown on our second lien note in July 2021.

Income (Loss) before Income Taxes

As a result of factors described above, we recognized $24.0 million of income before income taxes for the ~~39-week~~13-week period ended ~~September 26, 2021 decreased $42.5 million, or (104.7%), to ($1.9) million,~~April 3, 2022, as compared to ~~$40.6~~income before income taxes of $2.7 million for the ~~39-week~~13-week period ended ~~September 27, 2020.~~March 28, 2021.

Income Tax Expense

Income tax expense for the ~~39-week~~13-week period ended ~~September 26, 2021 decreased~~April 3, 2022 increased $2.4 million to ~~$7.3~~$7.2 million, as compared to ~~$9.7~~$4.8 million for the ~~39-week~~13-week period ended ~~September 27, 2020. We recognized~~March 28, 2021. The effective tax ~~expense on a net loss~~rate for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 was 29.9%. The difference between the effective tax rate and the federal statutory rate in 2022 was primarily due to permanent differences resulting from the ~~Business Combination~~change in fair value of the warrant and ~~the adjustment to the Simpson earnout during the period.~~earn-out liabilities. The effective tax rate for the ~~39-week~~13-week period ended ~~September 27, 2020~~March 28, 2021 was ~~23.8%~~175.9%. The difference between the effective tax rate 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.

Net Income (Loss) and Total Comprehensive Income (Loss)

As a result of factors described above, we recognized net income of $16.8 million for the ~~39-week~~13-week period ended ~~September 26, 2021 decreased $40.1 million to ($9.2) million,~~April 3, 2022, as compared to ~~$30.9~~a net loss of ($2.1) million for the ~~39-week~~13-week period ended ~~September 27, 2020.~~

~~Total Comprehensive Income~~

~~As a result of factors described above,~~March 28, 2021. Additionally, we recognized total comprehensive income of $17.1 million for the ~~39-week~~13-week period ended ~~September 26, 2021 decreased $40.1 million to ($9.2) million,~~April 3, 2022, as compared to ~~$30.9~~a total comprehensive loss of ($2.1) million for the ~~39-week~~13-week period ended ~~September 27, 2020.~~March 28, 2021. Comprehensive income (loss) includes the effect of foreign currency translation adjustments.

Non-GAAP Financial Measures

Holley believes EBITDA and Adjusted EBITDA 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 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 believes that investors should have access to the same set of tools that its management uses in analyzing operating results.

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) notable items ~~that~~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 ~~and in 2020 consist primarily of the amortization of the fair market value increase in inventory and a legal settlement,~~due to acquisitions, (ii) compensation expense related to equity awards (iii) acquisition and restructuring costs, which for the ~~39-week~~13-week period ended ~~September 26,~~March 28, 2021 includes a $17.2 million adjustment due to a change in the fair value of the Simpson acquisition contingent consideration payable, (iv) changes in the fair value of the warrant liability, (v) changes in the fair value of the earn-out liability, (vi) ~~losses from the early extinguishment of debt, (vii)~~ related party acquisition and management fee costs, and ~~(viii)~~(vii) other expenses, which includes losses from disposal of fixed assets and foreign currency transactions. We have included within the definition of Adjusted EBITDA the changes in the fair value of the warrant liability and 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.

EBITDA and Adjusted EBITDA are not prepared in accordance with accounting principles generally accepted in the United States (“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. These metrics should not be considered as alternatives to net income (loss) or any other performance measures derived in accordance with GAAP.

The following unaudited table presents the reconciliation of net income (loss), the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA for the 13-week ~~and 39-week~~ periods ended ~~September 26, 2021~~April 3, 2022 and ~~September 27, 2020:~~March 28, 2021:

For the thirteen weeks ended

For the thirty-nine weeks ended

September 26, 2021

September 27, 2020

September 26, 2021

September 27, 2020

Net income (loss)

$
(30,200
)

$
13,543

$
(9,158
)

$
30,904

Adjustments:

Depreciation

2,875

2,026

7,328

6,039

Amortization of intangible
   assets

3,553

2,699

10,391

8,099

Interest expense

9,851

9,325

31,096

31,843

Income tax expense
   (benefit)

(3,301
)

5,512

7,255

9,656

EBITDA

(17,222
)

33,105

46,912

86,541

Notable items

938

205

10,513

1,643

Equity-based compensation
   expense

2,486

121

2,748

356

Acquisition and restructuring
   costs

368

1,092

21,877

5,624

Change in fair value of
   warrant liability

17,273

—

17,273

—

Change in fair value of earn-
   out liability

6,866

—

6,866

—

Loss on early
   extinguishment of debt

1,425

—

1,425

—

Related party acquisition
   and management fee
   costs

23,250

894

25,789

2,665

Other expense

89

(821
)

3

(1,089
)
Adjusted EBITDA

$
35,473

$
34,596

$
133,406

$
95,740


	For the thirteen weeks ended
	April 3, 2022		March 28, 2021
Net income (loss)	$	16,858	$	(2,056	)
Adjustments:
Depreciation		2,140		2,252
Amortization of intangible assets		3,661		3,336
Interest expense		7,391		10,071
Income tax expense		7,188		4,766
EBITDA		37,238		18,369
Acquisition and restructuring costs		290		18,833
Change in fair value of warrant liability		2,227		—
Change in fair value of earn-out liability		2,381		—
Equity-based compensation expense		3,162		131
Related party acquisition and management fee costs		—		881
Notable items		506		5,713
Other expense (income)		222		(133	)
Adjusted EBITDA	$	46,026	$	43,794

Liquidity and Capital Resources

Holley’s primary cash needs are to support working capital, capital expenditures, acquisitions, and debt repayments. 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.

As of April 3, 2022, the Company had cash of $44.1 million and availability of $97.6 million under its revolving credit facility. The Company has a senior secured revolving credit facility with $125 million in borrowing capacity. As of April 3, 2022, $25.0 million was outstanding under the revolving credit facility. The Company also had $2.4 million of outstanding letters of credit as of April 3, 2022.

The Company is obligated under various operating leases for facilities, equipment and automobiles with estimated lease payments of approximately $6.4 million, including short term leases, due during the remainder of fiscal year 2022. 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.

Holley's capital expenditures 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. We expect capital expenditures in the range of $14 million to $16 million in fiscal year 2022.

See Note 6, "Debt" in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this quarterly report on Form 10-Q for further detail of our credit facility and the timing of principal maturities. As of April 3, 2022, based on the then current weighted average interest rate of 4.5%, expected interest payments associated with outstanding debt totaled approximately $23 million for the remainder of fiscal year 2022.

The Company believes that its cash on hand, cash from operations 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. ~~As of September 26, 2021, the Company had $48.8 million available to be drawn under its revolving credit facility.~~

3835

Cash Flows

The following table provides a summary of cash flows from operating, investing, and financing activities for the periods presented:

~~39-Week~~13-Week Period Ended ~~September 26, 2021~~April 3, 2022 Compared With ~~39-Week~~13-Week Period Ended ~~September 27, 2020~~March 28, 2021


	For the thirty-nine weeks ended						For the thirteen weeks ended
	September 26, 2021			September 27, 2020			April 3, 2022			March 28, 2021
Cash flows from operating activities	$	24,917		$	75,604		$	18,349		$	18,956
Cash flows used in investing activities		(71,931	)		(6,703	)		(7,204	)		(3,104	)
Cash (used in) from financing activities		29,267			(22,500	)
Net increase (decrease) in cash and cash equivalents	$	(17,747	)	$	46,401
Cash flows used in financing activities								(3,288	)		(64	)
Effect of foreign currency rate fluctuations on cash								(101	)		—
Net increase in cash and cash equivalents							$	7,756		$	15,788

Operating Activities. Cash provided by operating activities for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 was ~~$24.9~~$18.3 million compared to cash provided by operating activities of ~~$75.6~~$19.0 million during the ~~39-week~~13-week period ended ~~September 27, 2020. Cash~~March 28, 2021. Significant components of the year-over-year change in cash provided by ~~accounts receivable~~operating activities included positive fluctuations from accrued liabilities, prepaids and ~~accounts payable increased by $10.5~~other current assets, and warrant and earn-out liabilities of $6.9 million, $6.1 million, and ~~$7.9~~$4.6 million respectively. Offsetting these increases were decreases in cash provided by inventory, ~~accrued liabilities,~~accounts payable and ~~prepaids and other current assets~~accounts receivable of ~~$59.2~~$13.4 million, ~~$14.1~~$5.2 million, and ~~$6.0~~$4.1 million, respectively. The changes in ~~accrued liabilities,~~inventory, accounts ~~receivable, inventory~~payable and accounts ~~payable~~receivable reflect the growth in the business in ~~2021.~~2022 while accounts payable and accounts receivable are also impacted by the timing of payments.

Investing Activities. Cash used in investing activities for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 was ~~$71.9~~$7.2 million, which included ~~$61.8 million relating to acquisitions and $10.5~~$5.7 million relating to capital ~~expenditures.~~expenditures and $1.6 million relating to acquisitions. During the ~~39-week~~13-week period ended ~~September 27, 2020,~~March 28, 2021, cash used in investing activities was ~~$6.7~~$3.1 million ~~primarily relating~~due to capital expenditures.

Financing Activities. Cash ~~provided by~~used in financing activities for the ~~39-week~~13-week period ended ~~September 26, 2021~~April 3, 2022 was ~~$29.3~~$3.3 million ~~which included $132.3 million in cash received~~ due to ~~the recapitalization and $103.0 million in~~ principal payments on long-term debt. Cash used in financing activities for the ~~39-week~~13-week period ended ~~September 27, 2020 primarily~~March 28, 2021 also reflected principal payments on long-term debt.

~~Off-Balance Sheet Arrangements~~

~~The Company does not have any off-balance sheet financing arrangements at September 26, 2021, September 27, 2020, or December 31, 2020.~~

Critical Accounting ~~Policies and~~ Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, sales, expenses and related disclosures. We evaluate our estimates, judgements 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. ~~We believe that~~For a discussion of our critical accounting estimates, refer to the ~~assumptions, judgements and estimates associated~~section entitled “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the ~~following have the greatest potential impact~~SEC on and are critical to the understanding of, our results of operations: revenue recognition, accounts receivable and allowance for credit losses, inventory, goodwill and intangible assets, income taxes, business combinations and purchase accounting.March 15, 2022. 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 elsewhere in this quarterly report on Form 10-Q.

~~Revenue Recognition~~

The Company recognizes revenue with customers when control of the promised goods transfers to the customer. This generally occurs when the product is delivered to the customer. Revenue is recorded at the amount of consideration the Company expects to be entitled to in exchange for the delivered goods, which includes an estimate of variable consideration, expected returns, or refunds when applicable. The Company estimates variable consideration, such as sales incentives, by using the most likely amount approach, which considers the single most likely amount from a range of possible consideration amounts. Estimates of variable consideration result in an adjustment to the transaction price such that it is probable that a significant reversal of cumulative revenue would not occur in the future. Sales incentives and allowances are recognized as a reduction to revenue at the time of the related sale. Revenue is recorded net of sales tax. Shipping and handling fees billed to customers are included in net sales, while costs of shipping and handling are included in selling, general and administrative costs.

~~Accounts Receivable and Allowance for Credit Losses~~

Accounts receivable represent amounts due from customers in the ordinary course of business. The receivables are stated at the amount management expects to collect. The Company is subject to risk of loss from uncollectible receivables in excess of its allowance. The Company maintains an allowance for credit losses for estimated losses from customers’ inability to make required payments. In order to estimate the appropriate level of this allowance, the Company analyzes historical bad debts, customer concentrations, current customer credit worthiness, current economic trends and changes in customer payment patterns. Accounts are written off when management determines the account is uncollectable. Interest is not charged on past due accounts.

~~Inventory~~

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.

We regularly monitor inventory quantities on hand and on order and record write-downs for excess and obsolete inventories based on our estimate of the demand for our products, potential obsolescence of technology, product life cycles, and when pricing trends or forecast indicate that the carrying value of inventory exceeds our estimated selling price. These factors are affected by market and economic conditions, technology changes, and new product introductions and require estimates that may include elements that are uncertain. Actual demand may differ from forecasted demand and may have a material effect on our gross margin. If inventory is written down, a new cost basis will be established that cannot be increased in future periods.

~~Goodwill and Intangible Assets~~

Goodwill is not subject to amortization and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill represents the excess of the purchase price paid over the fair value of its identifiable net assets acquired. If the carrying amount of the goodwill exceeds the fair value, then an impairment loss will be recognized in the amount equal to the excess. After an impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. Accounting guidance on the testing of goodwill for impairment allows entities testing goodwill for impairment, the option of performing a qualitative assessment to determine the likelihood of goodwill impairment and whether it is necessary to perform such impairment test.

~~Under Accounting Standards Update (“ASU”) No. 2017-04,~~ ~~Intangibles-Goodwill and Other~~ (Topic 350): Simplifying the Test for Goodwill Impairment, step 2 of the goodwill impairment test has been eliminated. Step 2 of the goodwill impairment test required companies to determine the implied fair value of the reporting unit’s goodwill. Under the new standard, an entity recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Intangible assets include trade names, customer relationships and developed technology obtained through business acquisitions. Intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods deemed appropriate for the type of intangible assets acquired. Intangible assets with finite lives are amortized over their estimated useful life and are reported net of accumulated amortization, separately from goodwill. Indefinite life intangibles are not amortized but are subject to testing for impairment annually.

~~Income Taxes~~

We are subject to income taxes in the U.S. (federal and state) and foreign jurisdictions. We compute our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the currently enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The income tax effects of these differences are classified as long-term deferred tax assets and liabilities in our condensed consolidated balance sheets.

Significant judgments are required in order to determine the realizability of these deferred tax assets. In assessing the need for a valuation allowance, we evaluate all significant available positive and negative evidence, including but not limited to, historical operating results, forecasted earnings, estimates of future taxable income of a character necessary to realize the deferred asset, relative proportions of revenue and pre-tax income in the various domestic and jurisdictions in which we operate, and the existence of prudent and feasible tax planning strategies. Changes in the expectations regarding the realization of deferred tax assets could materially impact income tax expense in future periods.

~~Business Combinations and Purchase Accounting~~

Business combinations are accounted for using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their respective fair values. The excess of the purchase price over the estimated fair value is recorded as goodwill. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values and the values of assets in use, and often requires the application of judgment regarding estimates and assumptions. 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 and tangible long-lived assets. Acquired intangible assets, excluding goodwill, are valued using various methodologies including discounted cash flows, relief from royalty, and multiperiod excess earnings depending on the type of intangible asset purchased. These methodologies incorporate various estimates and assumptions, such as projected revenue growth rates, profit margins and forecasted cash flows based on discount rates and terminal growth rates.

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 elsewhere in this quarterly report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk. Holley is exposed to market risk in the normal course of business due to the Company’s ongoing investing and financing activities. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. 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. The Company had ~~$588.5~~$655.5 million of debt outstanding as of ~~September 26, 2021.~~April 3, 2022. A hypothetical 100 basis point increase or decrease in interest rates would result in an approximately ~~$5.9~~$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. As of ~~September 26, 2021,~~April 3, 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. The Company does not believe that its cash equivalents present significant credit risks because the counterparties to the instruments consist of major financial institutions. Substantially all trade receivable balances of the business are unsecured. The credit risk with respect to trade receivables is concentrated by the number of significant customers that the Company has in its customer base and a prolonged economic downturn could increase exposure to credit risk on the Company’s trade receivables. 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. As of ~~September 26, 2021,~~April 3, 2022, the Company is exposed to changes in foreign currency exchange rates. While historically this exposure to changes in foreign currency exchange rates has not had a material effect on the Company’s financial condition or results of operations, foreign currency fluctuations could have an adverse effect on business and results of operations in the future. Historically, Holley’s primary exposure has been related to transactions denominated in the Euros and Canadian dollars. 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. Currently, the Company does not hedge foreign currency exposure; however, the Company may consider strategies to mitigate foreign currency exposure in the future if deemed necessary.

Item 4. Controls and Procedures.

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of ~~September 26, 2021~~April 3, 2022 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

~~During~~The Company implemented controls related to the ~~13-week period ended September 26, 2021, we completed the Business Combination~~adoption of ASC 842 and the ~~internal controls of Holley Intermediate became our internal controls. Management has added resources and implemented a number of process~~related financial statement reporting. There were no other changes ~~to improve~~in the ~~design and implementation of our~~Company's internal control over financial reporting as(as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange ~~Act, in a manner commensurate with~~Act) during the ~~scale of our operations subsequent~~most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the ~~Business Combination.~~Company's internal control over financial reporting.

4337

Part II - Other Information

Item 1. Legal Proceedings

We are currently not a party to any legal proceedings that would be expected to have a material adverse effect on our business or financial condition. From time to time, we are subject to litigation incidental to our business, as well as other litigation of a non-material nature in the ordinary course of business.

Item 1A. Risk Factors

We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. Factors that could materially affect our actual results, levels of activity, performance or achievements include, but are not limited to, those ~~detailed below, those~~ under the caption “Risk Factors” included in our ~~prospectus,~~Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on ~~July 28, 2021, and those in our subsequent filings with the SEC.~~March 15, 2022. Such risks, uncertainties and other factors may cause our actual results, performance and achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these risks or events occur, our business, financial condition or results of operations may be adversely affected.

~~Other than the risk factor set forth below, there~~There have been no material changes in ~~our~~the Company's risk factors ~~since our prospectus,~~from those disclosed in Part I, Item 1A of the Company's Annual Report on Form 10-K as filed with the SEC on ~~July 28,~~March 15, 2022, for the year ended December 31, 2021.

The Company relies on complex information systems for management of its manufacturing, distribution, sales and other functions. If the Company’s information systems fail to perform these functions adequately or if the Company experiences an interruption in their operation, including a breach in cyber security, its business, sales, financial condition and results of operations could suffer.

All of the Company’s major operations, including manufacturing, distribution, sales and accounting, are dependent upon the Company’s complex information systems. The Company’s information systems are vulnerable to damage or interruption from:


	•		~~earthquake, fire, flood, hurricane and other natural disasters;~~


	•		~~power loss, computer systems failure, Internet and telecommunications or data network failure; and~~


	•		~~hackers, computer viruses, software bugs or glitches.~~

Any damage or significant disruption in the operation of such systems, the failure of the Company’s information systems to perform as expected, the failure to successfully integrate the information technology systems of the businesses that the Company has recently acquired or any security breach to the information systems (including financial or credit/payment frauds) would disrupt the Company’s business, which may result in decreased sales, increased overhead costs, excess inventory and product shortages and otherwise adversely affect the Company’s reputation, operations, financial performance and condition.

Our information systems are subject to security threats and sophisticated cyber-based attacks, including, but not limited to, denial-of-service attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, employee or insider error, malfeasance, social engineering, or physical breaches, that can cause deliberate or unintentional damage, create system disruptions, unauthorized acquisition of our or customer information, or destruction or misuse, manipulation, denial of access to or disclosure of confidential or important information. We have experienced, and expect to continue to confront, efforts by hackers and other third parties to gain unauthorized access or deny access to, or otherwise disrupt, our information systems. For example, we were the target of an external cyber-attack in third quarter 2021, which resulted in a temporary suspension of services to our customers. To date these incidents have not had a material impact on the Company’s 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. 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.

Moreover, the threat of cyber-attacks is constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures and we cannot ensure that we will be able to identify, prevent or contain the effects of future cyber-attacks or other cybersecurity risks that bypass our security measures or disrupt our information technology systems or business. While we have security technologies, processes and procedures in place to protect against cybersecurity risks and security breaches, the hardware, software or applications we develop or procure from third parties may contain defects in design, manufacturer defects or other problems that could unexpectedly compromise information security. In addition, because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, are becoming increasingly sophisticated, and may not immediately produce signs of intrusion, we may be unable to anticipate these techniques, timely discover or counter them or implement adequate preventative measures.

As a result of any such incidents, we could be subject to litigation and regulatory risk, civil and criminal penalties, additional costs and diversion of management attention due to investigation, remediation efforts and engagement of third party consultants and legal counsel in connection with such incidents, payment of “ransoms” to regain access to our systems and information, loss of customers, damage to customer relationships, reduced revenue and profits, refunds of customer charges and damage to our reputation, any of which could have a material adverse effect on our business, cash flows, financial condition and results of operations. 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~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 13-week period ended September 26, 2021.~~None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

In October 2021, the Nominating and Governance Committee of the Company’s Board of Directors established procedures for stockholders of the Company to recommend director nominees. Under such procedures, any stockholder who wishes to propose director nominees for consideration by the Company’s Nominating and Governance Committee, but does not wish to present such proposal at an annual meeting of stockholders, may do so at any time by sending each proposed nominee’s name and a description of his or her qualifications for board membership to the chair of the Nominating and Governance Committee in writing to, c/o Chief Financial Officer, at Holley Inc., 1801 Russellville Road, Bowling Green, KY 42101. The recommendation should contain all of the information regarding the nominee required under the “advance notice” provisions of the Company’s bylaws. The Nominating and Governance Committee evaluates nominee recommendations submitted by stockholders in the same manner in which it evaluates other director nominees.None.

4538

Item 6. Exhibits


Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated as of March 11, 2021, by and among Empower Ltd., Empower Merger Sub I Inc., Empower Merger Sub II LLC and Holley Intermediate Holdings, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 12, 2021).
3.1		Certificate of Incorporation of the Company, dated July 16, 2021 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).
3.2		Bylaws of the Company, dated July 16, 2021 (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).
~~10.1~~		Amended and Restated Registration Rights Agreement, dated as of July 16, 2021, by and among Empower Sponsor Holdings LLC, Holley Parent Holdings LLC and Holley Inc. (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).
~~10.2~~		Stockholders’ Agreement, dated as of July 16, 2021, by and among Holley Inc., Empower Sponsor Holdings LLC, MidOcean Partners V, L.P., MidOcean Partners V Executive, L.P., Holley Parent Holdings, LLC, Sentinel Capital Partners V, L.P., Sentinel Capital Partners V-A, L.P., and Sentinel Capital Investors V, L.P. (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).
~~10.3~~		~~Holley 2021 Stock Incentive Plan (incorporated by reference to Exhibit 10.12 of Amendment No. 1 to the Company’s Registration Statement on Form S-4/A, filed with the SEC on May 25, 2021).~~
~~10.4~~		New Executive Agreement, effective July 16, 2021, by and among Holley Intermediate Holdings Inc. and Thomas W. Tomlinson (as assigned to Holley Inc.) (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).
~~10.5~~		New Executive Agreement, effective July 16, 2021, by and among Holley Intermediate Holdings Inc. and Dominic Bardos (as assigned to Holley Inc.) (incorporated by reference to Exhibit 10.10 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).
~~10.6~~		New Executive Agreement, effective July 16, 2021, by and among Holley Intermediate Holdings Inc. and Sean Crawford (as assigned to Holley Inc.) (incorporated by reference to Exhibit 10.11 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).
~~10.7~~		New Executive Agreement, effective July 16, 2021, by and among Holley Intermediate Holdings Inc. and Terrill M. Rutledge (as assigned to Holley Inc.) (incorporated by reference to Exhibit 10.12 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).
~~10.8~~		New Executive Agreement, effective July 16, 2021, by and among Holley Intermediate Holdings Inc. and Vinod Nimmagadda (as assigned to Holley Inc.) (incorporated by reference to Exhibit 10.13 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).
~~10.9~~		~~Form of Indemnification Agreement of Holley Inc. (incorporated by reference to Exhibit 10.14 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).~~
~~10.10~~		~~Form of Option Grant Notice and Agreement (incorporated by reference to Exhibit 10.22 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).~~
~~10.11~~		~~Form of Restricted Stock Unit Grant Notice and Agreement (incorporated by reference to Exhibit 10.23 of the Company’s Current Report on Form 8-K, filed with the SEC on July 21, 2021).~~
~~10.12~~		Non-Disclosure Agreement, dated as of August 10, 2021, between the Company, Sentinel Capital Partners, L.L.C., Owen Basham and James Coady (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on August 12, 2021).


~~10.13~~		Non-Disclosure Agreement, dated as of August 10, 2021, between the Company, MidOcean US Advisor, LP, Matthew Rubel and Graham Clempson (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed with the SEC on August 12, 2021).
31.1		Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act

31.2		Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act

32.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

4739

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Holley Inc.

/s/ Dominic Bardos

Dominic Bardos

Chief Financial Officer

(Duly Authorized Officer)

~~November 10, 2021~~May 12, 2022

4840



Delaware		87-1727560
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 Warrants to purchase common stock	HLLY HLLY WS	New York Stock Exchange New York Stock Exchange


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.	15

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2729

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	4237

Item 4. Controls and Procedures	4237


PART II – OTHER INFORMATION
Item 1. Legal Proceedings.	4438

Item 1A. Risk Factors.	4438

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	4538

Item 3. Defaults Upon Senior Securities.	4538

Item 4. Mine Safety Disclosures	4538

Item 5. Other Information.	4538

Item 6. Exhibits.	4639

SIGNATURE	4840


	As of			As of			As of
	September 26, 2021			December 31, 2020			April 3, 2022			December 31, 2021
ASSETS
Cash and cash equivalents	$	53,927		$	71,674		$	44,081		$	36,325
Accounts receivable, less allowance for credit losses of $1,616 and $1,240, respectively		55,359			47,341
Accounts receivable, less allowance for credit losses of $1,265 and $1,387, respectively								63,722			51,390
Inventory		164,343			133,928			191,126			185,040
Prepaids and other current assets		8,934			5,037			15,357			18,962
Total current assets		282,563			257,980			314,286			291,717

Property, plant, and equipment, net		50,393			43,729			55,192			51,495
Goodwill		381,860			359,099			411,721			411,383
Other intangibles assets, net		421,870			404,522			434,672			438,461
Right-of-use assets								32,814			0
Total assets	$	1,136,686		$	1,065,330		$	1,248,685		$	1,193,056
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	46,631		$	34,601		$	41,931		$	45,708
Accrued interest		6,277			6,588			3,187			3,359
Accrued liabilities		18,768			26,092			45,391			34,853
Acquisition contingent consideration payable		24,373			9,200
Current portion of long-term debt		5,528			5,528			6,300			7,875
Total current liabilities		101,577			82,009			96,809			91,795

Long-term debt, net of current portion		564,187			649,458			636,303			637,673
Long-term debt due to related party		6,207			20,000
Warrant liability		45,986			—			63,520			61,293
Earn-out liability		24,588			—			14,288			26,596
Deferred taxes		72,172			71,336			68,735			70,045
Other noncurrent liabilities		2,146			2,146			29,593			1,167
Total liabilities		816,863			824,949			909,248			888,569
Commitments and contingencies (Refer to Note 16 - Commitments and Contingencies)
Stockholders' equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 0ne issued and outstanding as of September 26, 2021 and December 31, 2020		—			—
Common stock, $0.0001 par value, 550,000,000 shares authorized, 115,805,639 and 67,673,884 shares issued and outstanding as of September 26, 2021 and December 31, 2020, respectively		12			7
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 0ne issued and outstanding as of April 3, 2022 and December 31, 2021								0			0
Common stock, $0.0001 par value, 550,000,000 shares authorized, 116,899,389 and 115,805,639 shares issued and outstanding as of April 3, 2022 and December 31, 2021, respectively								12			12
Additional paid-in capital		327,490			238,883			347,556			329,705
Accumulated other comprehensive loss		(686	)		(674	)		(15	)		(256	)
Retained earnings		(6,993	)		2,165
Accumulated deficit								(8,116	)		(24,974	)
Total stockholders' equity		319,823			240,381			339,437			304,487
Total liabilities and stockholders' equity	$	1,136,686		$	1,065,330		$	1,248,685		$	1,193,056


	For the thirty-nine weeks ended						For the thirteen weeks ended
	September 26, 2021			September 27, 2020			April 3, 2022			March 28, 2021
OPERATING ACTIVITIES
Net income	$	(9,158	)	$	30,904
Adjustments to reconcile net income to net cash from operating activities:
Net income (loss)							$	16,858		$	(2,056	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation		7,328			6,039			2,140			2,252
Amortization of intangible assets		10,391			8,099			3,661			3,336
Amortization of deferred loan costs		2,656			2,201			417			729
Amortization of right of use assets								1,348			0
Increase in warrant liability		17,273			—			2,227			0
Increase in earn-out liability								2,381			0
Increase in acquisition contingent consideration payable		17,173			—			0			17,173
Increase in earn-out liability		6,866			—
Equity compensation		2,748			356			3,162			131
Change in deferred taxes		836			583			(1,310	)		478
Loss on early extinguishment of long-term debt		1,425			—
Loss (gain) on disposal of property, plant and equipment		(290	)		18
Allowance for credit losses		738			581
Loss on disposal of property, plant and equipment								52			0
Increase (decrease) in Inventory reserves								44			(233	)
(Decrease) increase in allowance for credit losses								(122	)		216
Change in operating assets and liabilities:
Accounts receivable		(5,196	)		(15,678	)		(12,275	)		(8,160	)
Inventories		(25,996	)		33,208			(5,384	)		7,967
Prepaids and other current assets		(3,472	)		2,494			4,286			(1,854	)
Accounts payable		9,765			1,871			(3,712	)		1,506
Accrued interest		(311	)		(1,352	)		(172	)		(424	)
Accrued liabilities		(7,859	)		6,280
Net cash from operating activities		24,917			75,604
Accrued and other liabilities								4,748			(2,105	)
Net cash provided by operating activities								18,349			18,956
INVESTING ACTIVITIES
Capital expenditures		(10,468	)		(6,653	)		(5,740	)		(3,104	)
Proceeds from the disposal of fixed assets		323			—			153			0
Cash paid for acquisitions, net		(61,786	)		—			(1,617	)		0
Trademark acquisition		—			(50	)
Net cash used in investing activities		(71,931	)		(6,703	)		(7,204	)		(3,104	)
FINANCING ACTIVITIES
Net change under revolving credit agreement		—			(20,500	)
Principal payments on long-term debt		(103,032	)		(1,900	)		(3,288	)		(64	)
Proceeds from Business Combination and PIPE financing, net of issuance costs paid		132,299			—
Capital distributions		—			(100	)
Net cash (used in) from financing activities		29,267			(22,500	)
Net cash used in financing activities								(3,288	)		(64	)
Effect of foreign currency rate fluctuations on cash								(101	)		0
Net change in cash and cash equivalents		(17,747	)		46,401			7,756			15,788
Cash and cash equivalents:
Beginning of period		71,674			8,335			36,325			71,674
End of period	$	53,927		$	54,736		$	44,081		$	87,462
Supplemental disclosures of cash flow information:
Earn-out shares issued to Empower Sponsor Holdings LLC							$	14,689		$	0
Cash paid for interest	$	28,751		$	30,995		$	8,129		$	9,767
Cash paid for income taxes	$	10,648		$	1,865		$	0		$	1,266
Noncash investing and financing activities:
Assumption of warrant liability	$	28,713		$	—
Assumption of earn-out liability	$	17,722		$	—


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒


	•		execute its business strategy, including monetization of services provided and expansions in and into existing and new lines of business;


	•		anticipate the impact of the coronavirus disease 2019 (“COVID-19”) pandemic and its effect on business and financial conditions;


	•		manage risks associated with operational changes in response to the COVID-19 pandemic;


	•		recognize the anticipated benefits of and successfully deploy the proceeds from the Business Combination (as defined herein), which may be affected by, among other things, competition, the ability to integrate the combined businesses and the ability of the combined business to grow and manage growth profitably;


	•		anticipate the uncertainties inherent in the development of new business lines and business strategies;


	•		attract, train and retain effective officers, key employees or directors;


	•		respond to cyber-attacks, security breaches, or computer viruses;


	•		anticipate rapid technological changes;


	•		manage to finance operations on an economically viable basis;


	•		meet future liquidity requirements and comply with restrictive covenants related to long-term indebtedness;


	•		effectively respond to general economic and business ~~conditions;~~conditions (including the impacts of the Russian invasion of Ukraine and its regional and global ramifications);


	•		maintain the listing on, or the delisting of the Company’s securities from, the NYSE or an inability to have our securities listed on another national securities exchange;


	•		obtain additional capital, including use of the debt market;


	•		comply with laws and regulations applicable to its business and industry, including laws and regulations related to environmental health and safety;


	•		anticipate the impact of, and response to, new accounting standards;


	•		respond to fluctuations in foreign currency exchange rates and political unrest and regulatory changes in international markets from various events;


	•		anticipate the rise in interest rates which would increase the cost of capital;


	•		anticipate the significance and timing of contractual obligations;


	•		maintain key strategic relationships with partners and resellers;


	•		respond to uncertainties associated with product and service development and market acceptance;


	•		anticipate the impact of new U.S. federal income tax law, including the impact on deferred tax assets;


	•		respond to litigation, complaints, product liability claims and/or adverse publicity;


	•		anticipate the time during which we will be an emerging growth company under the JOBS ~~Act~~Act;


	•		anticipate the impact of changes in consumer spending patterns, consumer preferences, local, regional and national economic conditions, crime, weather, demographic trends and employee availability; and


	•		other risks and factors, listed under the caption “Risk Factors” included in ~~this Quarterly~~our Annual Report ~~and our prospectus,~~on 10-K for the year ended December 31, 2021, as filed with the SEC on ~~July 28, 2021,~~March 15, 2022, and in any subsequent filings with the SEC.


	Recapitalization
Cash - Empower's trust and cash (net of redemptions of $99,353 and transaction costs of $44,314)	$	107,042
Cash - Forward Purchase Agreement		50,000
Cash - PIPE Financing		240,000
Net cash provided by Business Combination and PIPE Financing		397,042
Less: cash consideration paid to Holley Stockholder		(264,718	)
Net contributions from Business Combination and PIPE Financing	$	132,324


	November 16, 2020 (as initially reported)			Measurement Period Adjustments			November 16, 2020 (as adjusted)
Cash	$	7,715		$	0		$	7,715
Accounts receivable		3,894			0			3,894
Inventory		19,265			(770	)		18,495
Property, plant and equipment		5,952			0			5,952
Other assets		1,613			0			1,613
Tradenames		23,980			0			23,980
Customer relationships		28,770			0			28,770
Patents		2,720			0			2,720
Goodwill		51,305			843			52,148
Accounts payable		(2,483	)		0			(2,483	)
Accrued liabilities		(7,787	)		0			(7,787	)
Deferred tax liability		(12,993	)		0			(12,993	)
Debt		(4,615	)		0			(4,615	)
	$	117,336		$	73		$	117,409


	September 26,		December 31,
	2021		2020
Raw materials	$	48,665	$	44,474
Work-in-process		18,960		12,946
Finished goods		96,718		76,508
	$	164,343	$	133,928


	For the thirty-nine weeks ended September 26, 2021
Balance at December 31, 2020	$	359,099
Advance Engine Management acquisition		17,426
Classic Instruments acquisition		4,912
Measurement period adjustments*		423
Balance at September 26, 2021	$	381,860