Holley (HLLY)2023-03-15 11:03Innovation and Product Development - Approximately 34% of the company's 2022 sales came from products introduced since 2017, highlighting the importance of innovation in its growth strategy[166] Debt and Interest Rates - The company has $659.4 million of floating-rate debt outstanding as of December 31, 2022, with a hypothetical 100 basis point change in interest rates impacting annual interest expense by approximately $6.6 million[241] Bad Debt and Inventory Reserves - The company's bad debt reserve increased from $956,000 in 2021 to $1,162,000 in 2022, reflecting changes in uncollectible accounts[262] - The expired and obsolete inventory reserve grew significantly from $26.28 million in 2021 to $38.53 million in 2022, indicating challenges in inventory management[262] Business Combination and Equity Issuance - The company completed a business combination on July 16, 2021, resulting in the issuance of 67,673,884 shares of common stock at a deemed value of $10.00 per share[333] - As part of the business combination, the company raised $240 million through a PIPE (Private Investment in Public Equity) offering, with $100 million used to partially pay off debt[333] - The company issued 5,000,000 shares of common stock and 1,666,667 warrants to investors as part of the Amended and Restated Forward Purchase Agreement, with warrants exercisable at $11.50 per share[334] - The Business Combination resulted in net cash contributions of $132,299 from Business Combination and PIPE Financing[337] Financial Reporting and Internal Controls - The company's internal control over financial reporting was deemed effective as of December 31, 2022, based on an assessment using the COSO framework[250] Accounting Standards and Policies - The company adopted ASU 2019-12 on January 1, 2022, which simplified accounting for income taxes but did not have a material impact on financial statements[328] - The company has not adopted any expedients or exceptions under ASU 2020-04 related to the transition from LIBOR to alternative reference rates[330] Warrants and Equity Holdings - The Company assumed 8,333,310 Public Warrants and 4,666,667 Private Warrants, each exercisable at $11.50 per share, expiring on July 16, 2026[335] - Empower Sponsor Holdings LLC received 2,187,500 shares of the Company's common stock, with 1,093,750 shares vested in Q1 2022, valued at $14,689[335] - Holley Stockholder and Sponsor collectively own approximately 55% of Common Stock (57% including warrants)[137] - Warrants can be redeemed at $0.01 per Warrant if Common Stock price exceeds $18.00 per share[138] Acquisitions and Goodwill - The Company completed 14 acquisitions over three years, enhancing its automotive aftermarket and safety solutions portfolio[338] - In 2022, the Company acquired John's Ind., Inc., Southern Kentucky Classics, and RaceQuip for $14,863, resulting in $9,618 in goodwill and intangibles[341] - In 2021, the Company acquired Finspeed, Classic Instruments, ADS, Rocket, and Speartech for $19,909, resulting in $13,247 in goodwill and intangibles[344] - The Company acquired Baer, Inc. for $22,170, resulting in $18,989 in goodwill and intangibles[347] - The Company acquired Brothers Mail Order Industries, Inc. for $26,135, resulting in $24,835 in goodwill and intangibles[350] - The Company acquired Advance Engine Management Inc. for $51,243, resulting in $44,486 in goodwill and intangibles[354] - The fair value of acquired customer relationships and tradenames was estimated using the excess earnings and relief from royalty methods, respectively[343][348] - The company's net sales from AEM since the date of acquisition were $16,593, with net income of $2,664[357] - The company incurred transaction costs of $2,264 related to the acquisition, reflected in operating expenses for the year ended December 31, 2021[357] - The purchase price for Drake Automotive Group LLC was $49,104, with $47,104 paid in cash and an earn-out payment of $2,000[358] - The acquisition of Simpson Performance Products, Inc. resulted in goodwill and intangibles totaling $105,882, with a purchase price of $117,409[361] - The fair value of the contingent payment for Simpson was adjusted to $24,373, resulting in a $17,173 adjustment recognized in acquisition and restructuring costs[362] Pro Forma Financials - The company's pro forma net sales for the year ended December 31, 2021, were $727,369, with a pro forma net loss of $16,248[369] Customer Concentration - Customer A accounted for 19.2% of the company's net sales in 2022 and 19.3% in 2021[446] Acquisition and Restructuring Costs - Total acquisition, restructuring, and management fee costs for 2021 were $49,457, including a $17,173 earn-out adjustment[447] - Acquisition costs include a fee of $23,275 paid to Sentinel Capital Partners in 2021 upon the Closing of the Business Combination[453] Warranty Costs - The company's accrued product warranty costs for 2022 were $12,261, with an ending balance of $3,584[451] Credit Agreements and Amendments - The company amended its Credit Agreement in February 2023, increasing the consolidated net leverage ratio financial covenant level to 7.25:1.00 for the Covenant Relief Period[452] - The company entered into a Credit Agreement dated November 18, 2021, with Wells Fargo Bank, N.A. as administrative agent[457] - An Amendment to the Credit Agreement was executed on March 3, 2023, involving Holley Inc. and certain subsidiaries[457] Director Compensation - Director compensation of $180 and $90 was paid to Sentinel Capital Partners for Mr. Basham's and Mr. Coady's service on Holley's Board of Directors for the years ended December 31, 2022 and 2021[453] Stock and Market Value - The aggregate market value of the company's common stock held by non-affiliates was approximately $560 million as of July 1, 2022[5] - There were 118,241,747 shares of Common Stock, including 1,093,750 restricted earn-out shares, issued and outstanding as of March 10, 2023[6] Agreements and Contracts - The company filed an Amended and Restated Forward Purchase Agreement dated March 11, 2021, with Empower Ltd. and Empower Funding LLC[457] - A Sponsor Agreement was established on March 11, 2021, involving Empower Ltd., Empower Sponsor Holdings LLC, and Holley Parent Holdings, LLC[457] - The company has management contracts and compensatory plans, including indemnity agreements and performance stock unit grants[457] Company Classification and Reporting - The company is classified as an accelerated filer and an emerging growth company as of the filing date[5] - Emerging growth company status allows exemptions from certain reporting requirements[144] - Extended transition period for adopting new accounting standards as an emerging growth company[145] NYSE Listing and Delisting Risks - NYSE listing requires maintaining minimum stockholders' equity and financial standards[139] - Delisting from NYSE could lead to over-the-counter trading and reduced liquidity[140] Future Financing and Dividends - Future debt or equity issuances may dilute existing stockholders and affect stock price[141] - No cash dividends planned for the foreseeable future[142] Facilities and Operations - Corporate headquarters occupies 200,000 square feet, including 69,000 square feet of office space[154] - 14 manufacturing facilities and 18 R&D/Engineering facilities globally[155]