Holley (HLLY) - 2024 Q1 - Quarterly Report

Financial Performance - Net sales for the 13-week period ended March 31, 2024 decreased by $13.6 million, or 7.9%, to $158.6 million compared to $172.2 million for the same period in 2023[104] - Gross profit decreased by $15.7 million, or 23.1%, to $52.1 million, with a gross margin of 32.8% compared to 39.3% in the prior year[106] - Operating income fell by $15.8 million, or 60.7%, to $10.2 million compared to $26.0 million in the previous year[111] - Net income for the 13-week period was $3.7 million, down from $4.3 million in the same period last year, with total comprehensive income of $3.5 million[117] - For the 13-week period ended March 31, 2024, net income was $3.73 million, a decrease from $4.25 million for the same period in 2023[122] - Adjusted EBITDA for the same period was $30.67 million, compared to $33.95 million in the prior year, with an Adjusted EBITDA Margin of 19.3%[122] Costs and Expenses - Cost of goods sold increased by $2.1 million, or 2.0%, to $106.6 million, influenced by $9.1 million of product rationalization initiatives[105] - Selling, general, and administrative costs rose by $3.0 million, or 9.9%, to $33.0 million, representing 20.8% of sales[107] - Research and development costs decreased to $4.8 million, down from $6.7 million, primarily due to headcount reductions[108] Cash Flow and Liquidity - Free Cash Flow for the 13-week period ended March 31, 2024, was $17.75 million, significantly up from $2.96 million in the previous year[127] - Cash provided by operating activities increased to $18.84 million from $3.64 million year-over-year, driven by positive fluctuations in accounts payable and receivable[135] - The company had cash of $41.1 million and $123.3 million available under its revolving credit facility as of March 31, 2024[129] - The company anticipates sufficient liquidity to meet its capital expenditure requirements for the next 12 months[133] Debt and Interest - Interest expense decreased by $7.3 million, or 39.9%, to $11.0 million, reflecting lower outstanding debt balances[114] - As of March 31, 2024, Holley has $575.9 million in term loan and revolver borrowings subject to variable interest rates, with a weighted average borrowing rate of 9.2%[141] - A hypothetical 100 basis point increase in interest rates would lead to an approximately $0.8 million increase in annual interest expense, while a decrease of the same magnitude would decrease annual interest expense by approximately $4.0 million[141] - Cash used in financing activities for the 13-week period ended March 31, 2024, was $17.67 million, primarily for principal payments on long-term debt[137] Strategic Outlook - The company plans to continue evaluating opportunities for strategic acquisitions to complement its current business and expand its addressable market[95] Currency and Credit Risk - Holley performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses to manage credit risk associated with trade receivables[142] - As of March 31, 2024, Holley is exposed to foreign currency exchange rate fluctuations, primarily related to transactions in Euros and Canadian dollars[143] - The majority of Holley's sales and expenses are denominated in U.S. Dollars, providing some insulation from currency fluctuations[143] - Holley does not currently hedge foreign currency exposure but may consider strategies to mitigate this risk in the future if necessary[143]