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Holley Inc. 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Holley Inc.

Filing date:

03/14/2025

TLDR:

ELI5:

Holley, a car parts company, had a tough year with lower sales and lost money overall. They also found a problem with how they track their finances, but they did manage to have more cash on hand.

Accession #:

0001437749-25-007614

Published on

Analyst Summary

  • Net sales decreased by 8.7% due to lower sales volume, partially offset by improved price realization.
  • A goodwill impairment charge of $40.9 million was recorded, indicating a potential overvaluation of acquired assets.
  • The company identified a material weakness in its internal control over financial reporting, which could affect the reliability of financial reporting.
  • Gross Profit Margin increased by 2.03% from 38.82% to 39.61%.
  • Operating Profit Margin decreased by 82.85% from 14.25% to 2.44%.
  • Net Profit Margin decreased by -232.65% from 2.91% to -3.86%.
  • Free Cash Flow decreased by 50.0% from $83.64 million to $41.82 million.
  • Revenue Growth decreased by -8.71%.

Opportunities and Risks

  • Risk: Macroeconomic factors, including economic downturns, inflation, and supply chain disruptions, pose a threat to the company’s performance.
  • Risk: Intense competition in the performance automotive industry could impact market share and profitability.
  • Risk: Failure to innovate and develop new products could harm the company’s business.
  • Risk: The company’s indebtedness may limit its ability to invest in the business.
  • Risk: The identified material weakness in internal control over financial reporting poses a significant risk.
  • Opportunity: Strategic growth initiatives, including new product development and strategic acquisitions, could drive future growth.
  • Opportunity: Continued investment in direct consumer marketing and advertising.

Potential Implications

Company Performance

  • The decrease in net sales and shift to a net loss may indicate challenges in demand or market share and could affect future profitability.
  • The goodwill impairment charge suggests potential overvaluation of acquired assets, which could impact future financial results.
  • The material weakness in internal control over financial reporting could lead to inaccurate financial reporting and potential regulatory scrutiny.
  • The decrease in Adjusted EBITDA suggests a decline in the company’s core operating profitability.
  • The decrease in free cash flow indicates a reduced ability to fund future growth and investments.

Stock Price

  • The negative net profit margin and EPS could negatively impact investor confidence and stock price.
  • The high debt-to-equity ratio may raise concerns about the company’s financial leverage and ability to meet its debt obligations.
  • The low interest coverage ratio indicates difficulty in covering interest expenses, which could negatively affect investor sentiment.
  • The below-average inventory turnover suggests slow-moving inventory, which could lead to write-downs and negatively impact profitability.
  • The below-average asset turnover indicates inefficient use of assets to generate sales, which could negatively affect investor perception.

Holley Inc. 2024 10-K Filing Report

Executive Summary

This report analyzes Holley Inc.’s 2024 10-K filing. Key findings include a decrease in net sales, a goodwill impairment charge, and a material weakness in internal control over financial reporting. The overall assessment is cautious, suggesting a hold position. Recommendations include close monitoring of macroeconomic factors, supply chain management, and remediation of the identified material weakness.

Company Overview

Holley Inc. designs, manufactures, and distributes high-performance automotive aftermarket products. The company operates in the performance automotive aftermarket parts industry, serving car and truck enthusiasts primarily in the United States, Canada, and Europe. Recent developments include acquisitions and a focus on strategic growth initiatives.

Detailed Analysis

Financial Statement Analysis

Key financial data and ratios are presented below:

Metric 2024 2023 Change
Net Sales (in thousands) $602,224 $659,704 (8.7%)
Gross Profit (in thousands) $238,544 $256,089 (6.9%)
Gross Margin 39.6% 38.8% Increased
Net Income (Loss) (in thousands) ($23,235) $19,180 Decreased
Operating Income (in thousands) $14,668 $94,038 (84.4%)

Trends: Net sales decreased, indicating potential challenges in demand or market share. Gross margin improved slightly, suggesting better cost management. The shift from net income to a net loss is concerning and requires further investigation.

Management’s Discussion and Analysis (MD&A) Insights

  • Management attributes the decrease in net sales to lower sales volume, partially offset by improved price realization.
  • The MD&A highlights the impact of inflationary pressures and supply chain disruptions.
  • Management discusses strategic growth initiatives, including new product development and potential acquisitions.

Red Flags & Uncommon Metrics

  • Goodwill Impairment: A significant goodwill impairment charge of $40.9 million was recorded, indicating a potential overvaluation of acquired assets.
  • Material Weakness in Internal Control: The company identified a material weakness in its internal control over financial reporting, which could affect the reliability of financial reporting.
  • Loss on Sale of Assets: A loss of $9.2 million was recognized on the sale of Detroit Speed Engineering.

Risk & Opportunity Assessment

Risks

  • Macroeconomic Factors: The company is exposed to risks associated with economic downturns, inflation, and supply chain disruptions.
  • Competition: The performance automotive industry is highly competitive.
  • Product Development: Failure to innovate and develop new products could harm the company’s business.
  • Financial Risks: The company’s indebtedness may limit its ability to invest in the business.
  • Internal Control Weakness: The identified material weakness in internal control over financial reporting poses a significant risk.

Opportunities

  • Strategic Growth Initiatives: The company’s focus on new product development and strategic acquisitions could drive future growth.
  • Marketing: Continued investment in direct consumer marketing and advertising.

Conclusion & Actionable Insights

Holley Inc.’s 2024 10-K filing reveals a mixed picture. While the company is pursuing strategic growth initiatives, it faces significant challenges, including declining sales, a goodwill impairment charge, and a material weakness in internal control. The overall assessment is cautious, suggesting a hold position.

Recommendations:

  • Monitor Macroeconomic Factors: Closely track economic conditions, inflation, and supply chain developments to anticipate and mitigate potential risks.
  • Supply Chain Management: Implement strategies to diversify suppliers and improve supply chain resilience.
  • Remediate Internal Control Weakness: Prioritize the remediation of the identified material weakness in internal control over financial reporting.
  • Evaluate Acquisition Strategy: Thoroughly assess the valuation and integration of future acquisitions to avoid goodwill impairment charges.

Financial Analysis of Holley Inc. (HLLY) – 2024 Annual Report

1. Commentary

Holley Inc.’s financial performance in 2024 reflects a challenging year with a notable decline in net sales and a significant net loss compared to net income in the previous year. The decrease in sales is attributed to divestitures and strategic product rationalization. The net loss was primarily driven by substantial impairment charges related to goodwill and indefinite-lived intangible assets. Despite these challenges, the company managed to increase its free cash flow, indicating some operational efficiencies.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Metric: 2024: 39.61% (238,544 / 602,224), 2023: 38.82% (256,089 / 659,704)
    • Trend: Increased by 2.03%.
    • Industry: The automotive aftermarket industry typically sees gross profit margins ranging from 30% to 50%. Holley’s gross profit margin is within this range.
  • Operating Profit Margin

    • Metric: 2024: 2.44% (14,668 / 602,224), 2023: 14.25% (94,038 / 659,704)
    • Trend: Decreased by 82.85%.
    • Industry: A healthy operating profit margin for the industry is typically between 8% and 15%. Holley’s 2024 operating profit margin is significantly below this benchmark.
  • Net Profit Margin

    • Metric: 2024: -3.86% (-23,235 / 602,224), 2023: 2.91% (19,180 / 659,704)
    • Trend: Decreased by -232.65%.
    • Industry: The industry average net profit margin is around 5% to 10%. Holley’s negative net profit margin indicates poor performance.
  • Return on Assets (ROA)

    • Metric: 2024: -2.05% (-23,235 / 1,133,320), 2023: 1.59% (19,180 / 1,203,343)
    • Trend: Decreased by -228.93%.
    • Industry: An average ROA for the industry is around 5%. Holley’s ROA is significantly below average.
  • Return on Equity (ROE)

    • Metric: 2024: -5.52% (-23,235 / 421,152), 2023: 4.35% (19,180 / 441,151)
    • Trend: Decreased by -226.89%.
    • Industry: An average ROE for the industry is around 10%. Holley’s ROE is significantly below average.
  • Earnings Per Share (EPS) – Basic and Diluted

    • Metric: 2024: Basic: -$0.20, Diluted: -$0.20, 2023: Basic: $0.16, Diluted: $0.16
    • Trend: Decreased by -225%.
    • Industry: Positive EPS is generally expected. Holley’s negative EPS indicates unprofitability.

Liquidity

  • Current Ratio

    • Metric: 2024: 3.12 (297,347 / 95,172), 2023: 3.17 (297,366 / 93,737)
    • Trend: Decreased by -1.58%.
    • Industry: A current ratio between 1.5 and 2.0 is generally considered healthy. Holley’s current ratio is high, suggesting the company is liquid.
  • Quick Ratio (Acid-Test Ratio)

    • Metric: 2024: 1.11 (297,347 – 192,523) / 95,172, 2023: 1.12 (297,366 – 192,260) / 93,737
    • Trend: Decreased by -0.89%.
    • Industry: A quick ratio of 1 or greater is generally considered acceptable. Holley’s quick ratio is above 1, indicating good short-term liquidity.
  • Cash Ratio

    • Metric: 2024: 0.59 (56,087 / 95,172), 2023: 0.44 (41,081 / 93,737)
    • Trend: Increased by 34.09%.
    • Industry: A cash ratio of 0.5 or higher is generally considered good. Holley’s cash ratio is within this range, indicating a good ability to cover short-term liabilities with cash.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Metric: 2024: 1.7 (712,168 / 421,152), 2023: 1.73 (762,192 / 441,151)
    • Trend: Decreased by -1.73%.
    • Industry: A debt-to-equity ratio of around 1.0 is considered normal. Holley’s ratio is high, indicating a significant amount of leverage.
  • Debt-to-Assets Ratio

    • Metric: 2024: 0.63 (712,168 / 1,133,320), 2023: 0.63 (762,192 / 1,203,343)
    • Trend: No Change.
    • Industry: A debt-to-assets ratio above 0.5 is considered high. Holley’s ratio indicates that a significant portion of its assets are financed by debt.
  • Interest Coverage Ratio (Times Interest Earned)

    • Metric: 2024: 0.29 (14,668 + 50,690) / 50,690, 2023: 2.57 (94,038 + 60,746) / 60,746
    • Trend: Decreased by -88.72%.
    • Industry: A ratio of 1.5 or greater is generally considered safe. Holley’s ratio is very low, indicating difficulty in covering interest expenses.

Activity/Efficiency

  • Inventory Turnover

    • Metric: 2024: 1.89 (363,680 / 192,523), 2023: 2.10 (403,615 / 192,260)
    • Trend: Decreased by -10%.
    • Industry: The average inventory turnover for the auto parts industry is around 2 to 4. Holley’s inventory turnover is below average, suggesting slow-moving inventory.
  • Days Sales Outstanding (DSO)

    • Metric: 2024: 21.88 (36,123 / 602,224) * 365, 2023: 26.88 (48,360 / 659,704) * 365
    • Trend: Decreased by -18.59%.
    • Industry: The average DSO for the industry is around 30 to 45 days. Holley’s DSO is below average, indicating efficient collection of receivables.
  • Days Payable Outstanding (DPO)

    • Metric: 2024: 4.71 (44,781 / 363,680) * 365, 2023: 39.27 (43,692 / 403,615) * 365
    • Trend: Increased by 1.12%.
    • Industry: The average DPO for the industry is around 30 to 50 days. Holley’s DPO is below average, indicating quick payment to suppliers.
  • Asset Turnover

    • Metric: 2024: 0.53 (602,224 / 1,133,320), 2023: 0.55 (659,704 / 1,203,343)
    • Trend: Decreased by -3.64%.
    • Industry: The average asset turnover for the industry is around 0.7 to 1.0. Holley’s asset turnover is below average, indicating inefficient use of assets to generate sales.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Metric: 2024: N/A (Negative Earnings), 2023: 15.06 (2.41 / (0.16*4))
    • Trend: N/A (Negative Earnings)
    • Industry: The average P/E ratio for the industry is around 15 to 25. Holley’s P/E ratio is not applicable due to negative earnings.
  • Price-to-Book Ratio (P/B)

    • Metric: 2024: 0.24 (2.41 / (421,152/118,748,697)), 2023: 0.26 (2.41 / (441,151/117,707,280))
    • Trend: Decreased by -7.69%.
    • Industry: The average P/B ratio for the industry is around 1 to 3. Holley’s P/B ratio is below average, indicating undervaluation.
  • Price-to-Sales Ratio (P/S)

    • Metric: 2024: 0.47 (2.41 * 118,748,697 / 602,224,000), 2023: 0.43 (2.41 * 117,707,280 / 659,704,000)
    • Trend: Increased by 9.3%.
    • Industry: The average P/S ratio for the industry is around 1 to 2. Holley’s P/S ratio is below average, indicating undervaluation.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Metric: 2024: 10.89 ((2.41 * 118,748,697 + 552,586,000 – 56,087,000) / 110,494,000)
    • Trend: N/A
    • Industry: The average EV/EBITDA ratio for the industry is around 10 to 15. Holley’s EV/EBITDA ratio is within this range.

Growth Rates

  • Revenue Growth

    • Metric: 2024: -8.71% ((602,224 – 659,704) / 659,704)
    • Trend: Decreased by -8.71%.
    • Industry: The average revenue growth for the industry is around 5% to 10%. Holley’s revenue growth is negative, indicating a decline in sales.
  • Net Income Growth

    • Metric: 2024: -221.14% ((-23,235 – 19,180) / 19,180)
    • Trend: Decreased by -221.14%.
    • Industry: The average net income growth for the industry is around 10% to 15%. Holley’s net income growth is negative, indicating a significant decline in profitability.
  • EPS Growth

    • Metric: 2024: -225% ((-0.20 – 0.16) / 0.16)
    • Trend: Decreased by -225%.
    • Industry: The average EPS growth for the industry is around 10% to 15%. Holley’s EPS growth is negative, indicating a significant decline in earnings per share.

Other Relevant Metrics

  • Adjusted EBITDA

    • Metric: 2024: $110.49 million, 2023: $130.88 million, 2022: $109.15 million
    • Trend: Decreased by -15.65%.
    • Significance: Adjusted EBITDA is a non-GAAP metric that provides a view of the company’s operating performance by excluding certain non-cash and non-recurring items. The decrease in Adjusted EBITDA suggests a decline in the company’s core operating profitability.
  • Free Cash Flow

    • Metric: 2024: $41.82 million, 2023: $83.64 million, 2022: -$14.69 million
    • Trend: Decreased by -50.0%.
    • Significance: Free cash flow is a measure of the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. The decrease in free cash flow indicates a reduced ability to fund future growth and investments.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️