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Holley (HLLY) - 2022 Q4 - Annual Report
HLLYHolley (HLLY)2023-03-15 11:03
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Innovation 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 659.4millionoffloating−ratedebtoutstandingasofDecember31,2022,withahypothetical100basispointchangeininterestratesimpactingannualinterestexpensebyapproximately659.4 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 956,000in2021to956,000 in 2021 to 1,162,000 in 2022, reflecting changes in uncollectible accounts[262] - The expired and obsolete inventory reserve grew significantly from 26.28millionin2021to26.28 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 10.00pershare[333]−Aspartofthebusinesscombination,thecompanyraised10.00 per share[333] - As part of the business combination, the company raised 240 million through a PIPE (Private Investment in Public Equity) offering, with 100millionusedtopartiallypayoffdebt[333]−Thecompanyissued5,000,000sharesofcommonstockand1,666,667warrantstoinvestorsaspartoftheAmendedandRestatedForwardPurchaseAgreement,withwarrantsexercisableat100 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 132,299fromBusinessCombinationandPIPEFinancing[337]FinancialReportingandInternalControls−Thecompany′sinternalcontroloverfinancialreportingwasdeemedeffectiveasofDecember31,2022,basedonanassessmentusingtheCOSOframework[250]AccountingStandardsandPolicies−ThecompanyadoptedASU2019−12onJanuary1,2022,whichsimplifiedaccountingforincometaxesbutdidnothaveamaterialimpactonfinancialstatements[328]−ThecompanyhasnotadoptedanyexpedientsorexceptionsunderASU2020−04relatedtothetransitionfromLIBORtoalternativereferencerates[330]WarrantsandEquityHoldings−TheCompanyassumed8,333,310PublicWarrantsand4,666,667PrivateWarrants,eachexercisableat132,299 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]−HolleyStockholderandSponsorcollectivelyownapproximately5514,689[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 18.00pershare[138]AcquisitionsandGoodwill−TheCompanycompleted14acquisitionsoverthreeyears,enhancingitsautomotiveaftermarketandsafetysolutionsportfolio[338]−In2022,theCompanyacquiredJohn′sInd.,Inc.,SouthernKentuckyClassics,andRaceQuipfor18.00 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 9,618ingoodwillandintangibles[341]−In2021,theCompanyacquiredFinspeed,ClassicInstruments,ADS,Rocket,andSpeartechfor9,618 in goodwill and intangibles[341] - In 2021, the Company acquired Finspeed, Classic Instruments, ADS, Rocket, and Speartech for 19,909, resulting in 13,247ingoodwillandintangibles[344]−TheCompanyacquiredBaer,Inc.for13,247 in goodwill and intangibles[344] - The Company acquired Baer, Inc. for 22,170, resulting in 18,989ingoodwillandintangibles[347]−TheCompanyacquiredBrothersMailOrderIndustries,Inc.for18,989 in goodwill and intangibles[347] - The Company acquired Brothers Mail Order Industries, Inc. for 26,135, resulting in 24,835ingoodwillandintangibles[350]−TheCompanyacquiredAdvanceEngineManagementInc.for24,835 in goodwill and intangibles[350] - The Company acquired Advance Engine Management Inc. for 51,243, resulting in 44,486ingoodwillandintangibles[354]−Thefairvalueofacquiredcustomerrelationshipsandtradenameswasestimatedusingtheexcessearningsandrelieffromroyaltymethods,respectively[343][348]−Thecompany′snetsalesfromAEMsincethedateofacquisitionwere44,486 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]−Thecompanyincurredtransactioncostsof2,664[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,with49,104, with 47,104 paid in cash and an earn-out payment of 2,000[358]−TheacquisitionofSimpsonPerformanceProducts,Inc.resultedingoodwillandintangiblestotaling2,000[358] - The acquisition of Simpson Performance Products, Inc. resulted in goodwill and intangibles totaling 105,882, with a purchase price of 117,409[361]−ThefairvalueofthecontingentpaymentforSimpsonwasadjustedto117,409[361] - The fair value of the contingent payment for Simpson was adjusted to 24,373, resulting in a 17,173adjustmentrecognizedinacquisitionandrestructuringcosts[362]ProFormaFinancials−Thecompany′sproformanetsalesfortheyearendedDecember31,2021,were17,173 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]CustomerConcentration−CustomerAaccountedfor19.216,248[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 17,173earn−outadjustment[447]−Acquisitioncostsincludeafeeof17,173 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,withanendingbalanceof12,261, 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 180and180 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]