Workflow
Holley (HLLY) - 2024 Q4 - Annual Report
HLLYHolley (HLLY)2025-03-14 11:03
Transcript

Financial Performance - Net sales for the year ended December 31, 2024, decreased by 57.5million,or8.757.5 million, or 8.7%, to 602.2 million compared to 659.7millionin2023[216].−CostofgoodssoldfortheyearendedDecember31,2024,decreasedby659.7 million in 2023[216]. - Cost of goods sold for the year ended December 31, 2024, decreased by 39.9 million, or 9.9%, to 363.7millioncomparedto363.7 million compared to 403.6 million in 2023[220]. - Gross profit for the year ended December 31, 2024, decreased by 17.5million,or6.917.5 million, or 6.9%, to 238.5 million compared to 256.1millionin2023[216].−Selling,general,andadministrativeexpensesincreasedby256.1 million in 2023[216]. - Selling, general, and administrative expenses increased by 11.9 million, or 9.9%, to 132.1millionin2024comparedto132.1 million in 2024 compared to 120.2 million in 2023[216]. - Research and development costs decreased by 5.1million,or21.55.1 million, or 21.5%, to 18.7 million in 2024 compared to 23.8millionin2023[216].−Impairmentofgoodwillamountedto23.8 million in 2023[216]. - Impairment of goodwill amounted to 40.9 million in 2024, representing a 100% increase from zero in 2023[216]. - Net income for the year ended December 31, 2024, was a loss of 23.2millioncomparedtoanetincomeof23.2 million compared to a net income of 19.2 million in 2023, reflecting a decrease of 42.4millionor221.142.4 million or 221.1%[216]. - Total comprehensive loss for the year ended December 31, 2024, was 23.7 million compared to a comprehensive income of 19.4millionin2023,achangeof19.4 million in 2023, a change of 43.1 million or 222.0%[216]. - The company incurred a loss on the sale of assets amounting to 9.2millionin2024,whichwasnotpresentin2023[216].−Interestexpensedecreasedby9.2 million in 2024, which was not present in 2023[216]. - Interest expense decreased by 10.1 million, or 16.6%, to 50.7millionin2024comparedto50.7 million in 2024 compared to 60.7 million in 2023[216]. Market Position and Strategy - The top five brands of Holley accounted for 55% of total sales in 2024, with Holley EFI representing 14%, Holley 15%, MSD 10%, Simpson 10%, and Flowmaster 6%[34][40]. - Holley plans to expand its market share by entering new product categories and implementing sales and marketing strategies aimed at revenue growth[30]. - The company operates in a highly fragmented performance automotive aftermarket industry, which has seen consistent growth over the last two decades[32]. - Holley has identified opportunities for growth in adjacent markets such as Performance Suspension, Braking, and Powertrain Conversion Systems[37]. - E-tailers and warehouse distributors accounted for 55% of Holley's sales in 2024, with the top ten distribution partners contributing 42% of total sales[46]. - The DTC channel allows Holley to directly interact with customers, enhancing brand engagement and generating attractive margins[45]. - Holley has established long-term relationships with distribution partners, allowing for pricing discipline that supports profit margins[47]. - The company relies on brand reputation and quality to attract and retain customers, which is critical for ongoing demand[84]. - Holley reported a commitment to innovation, focusing on developing new products and expanding product lines to adapt to evolving consumer needs[200]. - The company has pursued a growth strategy through both organic growth and acquisitions, targeting market leaders to enhance profitability and stockholder value[204]. Operational Challenges - The company is exposed to risks related to labor shortages, supply chain disruptions, and the need to adopt new technologies like artificial intelligence[22]. - Significant reductions or fluctuations in demand for products could adversely impact sales and financial condition[72]. - Inflation has led to increased costs of raw materials, including steel, aluminum, and precious metals, which may not be fully passed on to customers[74]. - Disruptions in supply chains and shortages of raw materials have resulted in higher manufacturing costs and could harm profitability[76]. - Labor shortages and increased labor costs could materially affect the company's operations and financial results, necessitating effective management of workforce dynamics[102]. - The company faces significant pricing pressure due to unfavorable economic conditions, intense competition, and changes in consumer demand, which could adversely impact margins and profitability[94]. - Competition from larger companies and original equipment manufacturers may pressure pricing and market share[80]. - The company must continue to innovate and develop new products to meet changing consumer preferences and maintain sales growth[82]. - Expansion into international markets presents challenges, including competition and consumer acceptance of premium products[90]. - The company is exposed to political and country risks due to its operations in various countries, including China, which may disrupt markets and supply chains[143]. Human Resources and Workplace Culture - Holley employed 1,467 full-time employees and 53 temporary employees as of December 31, 2024, with 46% based in Bowling Green, KY[54]. - Approximately 39% of Holley's workforce were women in 2024, reflecting the company's commitment to closing the gender gap[61]. - Holley aims to create a premier workplace to attract and retain skilled personnel, which is critical for its innovation and growth strategy[29]. - The company suspended its 401(k) match effective July 2024, but continues to offer competitive benefits including an HSA-eligible health plan introduced in 2024[56][57]. - The company’s future success depends on the ability to attract and retain skilled personnel, with competition for talent being intense[101]. Financial Obligations and Risks - As of December 31, 2024, the company had 560.9millioninprincipaloutstandingunderitscreditfacility,requiringquarterlypaymentsofprincipalplusaccruedinterest[115].−TheCreditAgreementimposesvariousrestrictions,includinglimitationsondividends,additionalindebtedness,andacquisitions,whichmayhinderthecompany′sabilitytoinvestinbusinessneeds[117].−Thecompanymayneedtoraiseadditionalcapitaltosupportgrowthinitiatives,whichcouldleadtodilutionofexistingstockholders′ownershipiffinancingisnotavailableonsatisfactoryterms[110].−Thecompany’sabilitytoobtainadditionalfinancingmayberestrictedduetoitscurrentindebtednessandtheconditionsoftheCreditAgreement[120].−Thecompanyfacesincreasingscrutinyregardingitsenvironmental,social,andgovernance(ESG)practices,whichmayimposeadditionalcostsandrisks[140].−Thecompanyissubjecttovariouslegalandregulatorycompliancerisks,whichcouldleadtolawsuits,fines,andpenaltiesthatmayharmitsfinancialcondition[148].−Intellectualpropertyclaimscouldresultinsignificantcostsorprohibitthecompanyfromsellingitsproducts,impactingitsoperations[149].−Thecompanyissubjecttoenvironmentalregulationsthatcouldincreasecostsorrestrictoperations,withpotentialliabilitiesforenvironmentalcleanups[152].−Changesintaxlawsandregulationscouldadverselyaffectthecompany′seffectiveincometaxrateandprofitability[158].−Theconcentrationofstockownershipbycertainstakeholdersmaylimitotherstockholders′influenceandcouldaffectthecompany′sabilitytopursuemergersoracquisitions[160].TechnologyandInnovation−Thecompanymusteffectivelyadoptnewtechnologieslikeartificialintelligenceandmachinelearningtoremaincompetitive,asfailuretodosocouldadverselyaffectitsmarketposition[144].−Significantinvestmentsarerequiredfordevelopingandintegratingnewtechnologies,withnoassurancethattheseeffortswillyieldtheintendedresults[145].−Thecompanyisexposedtocybersecurityrisksthatcoulddisruptoperationsandleadtounauthorizedaccesstosensitiveinformation,potentiallyharmingreputationandfinancialperformance[105].−Thecompanyhasidentifiedamaterialweaknessinitsinternalcontroloverfinancialreporting,whichcouldleadtomisstatementsinfinancialstatementsifnotremediated[124].−Thecompany’smanagementteamlacksextensiveexperiencemanagingapubliccompany,whichmayaffectitsabilitytocomplywithregulatoryobligations[133].StockholderConsiderations−AsofDecember31,2024,thereare14,633,311Warrantsoutstanding,eachexercisableforoneshareofCommonStockatanexercisepriceof560.9 million in principal outstanding under its credit facility, requiring quarterly payments of principal plus accrued interest[115]. - The Credit Agreement imposes various restrictions, including limitations on dividends, additional indebtedness, and acquisitions, which may hinder the company's ability to invest in business needs[117]. - The company may need to raise additional capital to support growth initiatives, which could lead to dilution of existing stockholders' ownership if financing is not available on satisfactory terms[110]. - The company’s ability to obtain additional financing may be restricted due to its current indebtedness and the conditions of the Credit Agreement[120]. - The company faces increasing scrutiny regarding its environmental, social, and governance (ESG) practices, which may impose additional costs and risks[140]. - The company is subject to various legal and regulatory compliance risks, which could lead to lawsuits, fines, and penalties that may harm its financial condition[148]. - Intellectual property claims could result in significant costs or prohibit the company from selling its products, impacting its operations[149]. - The company is subject to environmental regulations that could increase costs or restrict operations, with potential liabilities for environmental cleanups[152]. - Changes in tax laws and regulations could adversely affect the company's effective income tax rate and profitability[158]. - The concentration of stock ownership by certain stakeholders may limit other stockholders' influence and could affect the company's ability to pursue mergers or acquisitions[160]. Technology and Innovation - The company must effectively adopt new technologies like artificial intelligence and machine learning to remain competitive, as failure to do so could adversely affect its market position[144]. - Significant investments are required for developing and integrating new technologies, with no assurance that these efforts will yield the intended results[145]. - The company is exposed to cybersecurity risks that could disrupt operations and lead to unauthorized access to sensitive information, potentially harming reputation and financial performance[105]. - The company has identified a material weakness in its internal control over financial reporting, which could lead to misstatements in financial statements if not remediated[124]. - The company’s management team lacks extensive experience managing a public company, which may affect its ability to comply with regulatory obligations[133]. Stockholder Considerations - As of December 31, 2024, there are 14,633,311 Warrants outstanding, each exercisable for one share of Common Stock at an exercise price of 11.50, which could lead to dilution for stockholders[163]. - The company may redeem outstanding Warrants at a price of 0.01perWarrantiftheCommonStockpriceexceeds0.01 per Warrant if the Common Stock price exceeds 18.00, potentially disadvantaging Warrant holders[169]. - Approximately 43% of Common Stock is beneficially owned by the Holley Stockholder and the Sponsor, which could impact market price if these shares are sold[168]. - The company does not intend to pay cash dividends for the foreseeable future, focusing instead on business development and expansion[174]. - The company qualifies as an "emerging growth company," allowing it to take advantage of certain reporting exemptions until December 31, 2025[175]. - Future issuances of debt or equity securities may dilute existing stockholders and adversely affect the market price of Common Stock[173]. - The trading price of Common Stock has experienced significant volatility, which could lead to potential securities class action litigation[166]. - The NYSE may delist the company's securities if it fails to meet continued listing standards, which could limit stockholder transactions and reduce liquidity[171]. - The company has the ability to amend the terms of the Warrants with the approval of at least 50% of the holders, which could adversely affect Warrant holders[164]. - The market price of Common Stock and Warrants may be influenced by analyst reports and projections, which can vary widely from actual results[167].