HLLY 10-K & 10-Q changes, risk factors and insider trading

In addition, public health crises, geopolitical instability (including the conflicts in Ukraine and Israelthe Middle East and surrounding areas, and the possible expansion of such conflicts and China-Taiwan relations), tariffs, as well as other global events have significantly increased global macroeconomic uncertainty and volatility. In response to unfavorable economic conditions, there has been and, in the future, could be a reduction in discretionary spending, which may lead to reduced net sales or cause a shift in our product mix from higher-margin to lower-margin product offerings or a shift of consumer purchasing patterns to lower cost options. This shift could force us to reduce prices for our products in order to compete. Conversely, rapid increases in demand due to improving economic conditions could lead to supply chain challenges.

Global markets continued to face threats and uncertainty during fiscal year 2024.2025. Uncertain economic and financial market conditions may also adversely affect the financial condition of our customers, suppliers and other business partners. Any significant decrease in purchases of our products or our inability to collect accounts receivable resulting from an adverse impact of the global markets on customers’ financial condition could have a material adverse effect on our business, financial condition and results of operations. Additionally, disruptions in financial markets could reduce our access to debt and equity capital markets, negatively affecting our ability to implement our business strategy.

Many of the markets in which we sell have been experiencing high levels of inflation, which may raise the prices of our products and depress consumer demand for our products and reduce our profitability. Even in the event that increased costs can be passed through to customers, our gross margin percentages may decline. Additionally, our suppliers are also subject to fluctuations in the prices of raw materials and may attempt to pass all or a portion of such increases on to us. In the event they are successful in doing so, our margins would decline. If prolonged, and if they cannot be passed on to customers in the form of price increases, these fluctuations in the price of raw materials, product components, other inputs, and/or transportation services could have a material adverse effect on our business, sales, financial condition and results of operations.

Disruptions of supply or shortages of raw materials or components used in our products could continue to harm our business and profitability.

A significant disruption at any of our manufacturing facilities or distribution centers could materially and adversely affect our business, sales, financial condition and results of operations. Our manufacturing facilities and distribution centers are highly automated, which means that our operations are complicated and may be subject to a number of risks related to computer viruses, the proper operation of software and hardware, electronic or power interruptions, cybersecurity risks, data breaches, and other system failures, including failures caused by factors outside of our control, such as political unrest, terrorist attacks, military conflicts (including the conflict in Ukraine, the conflict in Israelthe Middle East and surrounding areas, the possible expansion of such conflicts and potential geopolitical consequences), natural disasters or extreme weather (including events that may be caused or exacerbated by climate change). Risks associated with upgrading or expanding these facilities may significantly disrupt or increase the cost of our operations, which may have an immediate, or in some cases prolonged, impact on our margins. Our risk management, business continuity and disaster recovery plans may not be effective at preventing or mitigating the effects of such disruptions, particularly in the case of catastrophic events or longer-term developments, such as the impacts of climate change.

Some of our competitors may have larger customer bases and significantly greater financial, technicaltechnical, and marketing resources than we do. These factors may allow our competitors to respond more quickly than we can to new or emerging technologies and changes in customer requirements by devoting greater resources than we can to the development, promotion and sale of automotive aftermarket products. Increased competition could put additional pressure on us to reduce prices or take other actions, which may have an adverse effect on our business, sales, financial condition and results of operations. We may also lose significant customers or lines of business to competitors.

Our success depends on the value and reputation of our brands, which, in turn, depends on factors such as the quality, design, performance, functionality, and durability of our products, the image of our e-commerce platform and retaildistribution partner floor spaces, our communication activities, including advertising, social media, and public relations, and our management of the customer experience, including direct interfaces through customer service. Maintaining, promoting, and positioning our brands are important to expanding our customer base, and will largely depend on the success of our marketing and merchandising efforts and our ability to provide consistent, high-quality customer experiences. We intend to continue making investments in these areas in order to maintain and enhance our brands, and such investments may not be successful. Ineffective marketing, negative publicity, product diversion to unauthorized distribution channels, product or manufacturing defects, counterfeit products, unfair labor practices, and failure to protect the intellectual property rights in our brands are some of the potential threats to the strength of our brands, and those and other factors could rapidly and severely diminish our relationships with customers and suppliers. These factors could cause our customers to lose the personal connection they feel with our brands and reduce our ability to attract new customers and lead to suppliers terminating their relationships with us. We believe that maintaining and enhancing the image of our brands in our current markets and in new markets where we have limited brand recognition is important to expanding our customer base. If we are unable to maintain or enhance our brands in current or new markets, our business, sales, financial condition and results of operations could be harmed.

We plan our manufacturing capacity based upon the forecasted demand for our products. Forecasting the demand for our products is very difficult given the manufacturing lead time and the amount of specification involved, especially given market volatility. Aside from supply chain disruptions and inflationary pressures, forecasting demand for specific automotive parts can also be challenging due to changing consumer preferences andpreferences, competitive pressurespressures, and longer supply lead times. The nature of our business makes it difficult to quickly adjust our manufacturing capacity if actual demand for our products varies from forecasted demand. If actual demand for our products exceeds forecasted demand, we may not be able to produce sufficient quantities of new products in time to fulfill actual demand, which could limit our sales and adversely affect our financial performance. On the other hand, if actual demand is less than forecasted demand for our products, we could produce excess quantities, resulting in excess inventories and related obsolescence charges that could adversely affect our financial performance.

We believe that our future growth depends not only on continuing to reach our current core demographic, but also continuing to broaden our retaildistribution partner and customer bases. The growth of our business will depend, in part, on our ability to continue to expand our retaildistribution partner and customer bases in the United States, as well as in international markets. In these markets, we may face challenges that are different from those we currently encounter, including competition, merchandising, distribution, hiring, and other difficulties. We may also encounter difficulties in attracting customers due to a lack of consumer familiarity with or acceptance of our brands, or a resistance to paying for premium products, particularly in international markets. We continue to evaluate marketing efforts and other strategies to expand the customer base for our products. In addition, although we are investing in sales and marketing activities to further penetrate newer regions, including expansion of our dedicated sales force, we cannot ensure that we will be successful. If we are not successful, our business, sales, financial condition and results of operations may be harmed.

As our business continues to expand, ourOur competitors have imitated or attempted to imitate, and will likely continue to imitate or attempt to imitate, our product designs and branding, which could harm our business, sales, financial condition and results of operations. Only a portion of the intellectual property used in the manufacture and design of our products is patented, and we, therefore,we rely significantly on trade secrets, trade and service marks, trade dress, and the strength of our brands. We regard our patents, trade dress, trademarks, copyrights, trade secrets, and similar proprietary rights as critical to our success. We also rely on trade secret protection and confidentiality agreements with our employees, consultants, suppliers, manufacturers, and others to protect our proprietary rights. Nevertheless, the steps we take to protect our proprietary rights against infringement or other violations may be inadequate, and we may experience difficulty in effectively limiting the unauthorized use of our patents, trademarks, trade dress, and other intellectual property and proprietary rights worldwide. We also cannot guarantee that others will not independently develop technology with the same or similar function to any proprietary technology that we rely on to conduct our business and differentiate Holley from our competitors. Unauthorized use or invalidation of our patents, trademarks, copyrights, trade dress, trade secrets, or other intellectual property or proprietary rights may cause significant damage to our brands and harm our business, sales, financial condition and results of operations.

Our industry is subject to significant pricing pressure caused by many factors, including unfavorable economic conditions, intense competition, tariffs and other trade restrictions, consolidation in the retail industry, pressure from retailers to reduce the costs of products, and changes in consumer demand. The current economic conditions and macroeconomic trends, including heightened inflation, capital market volatility, interest rate and current rate fluctuations, have had and may continue to have an impact on pricing. Some of these factors may cause us to reduce our prices to retailers and customers or engage in more promotional activity than we anticipate, which could adversely impact our margins and cause our profitability to decline if we are unable to offset price reductions with comparable reductions in our operating costs. This could materially harm our business, sales, financial condition and results of operations. If we fail to keep our existing customers, attract new customers, or fail to do so in a cost-effective manner, we may not be able to maintain or increase sales.

Although we extensively and rigorously test new and enhanced products, there can be no assurance we will be able to detect, prevent, or fix all defects. Defects in materials or components can unexpectedly interfere with the products’ intended use and safety and damage our reputation. Failure to detect, prevent, or fix defects could result in a variety of consequences, including a greater number of product returns than expected from customers and retaildistribution partners, litigation, product recalls, and credit claims, among others, which could harm our business, sales, financial condition and results of operations. The occurrence of real or perceived quality problems or material defects in our current and future products could expose us to product recalls, warranty, or other claims. In addition, any negative publicity or lawsuits filed against us related to the perceived quality and safety of our products could also harm our brand and decrease demand for our products.

Our reliance on foreign suppliers for some of the automotive parts we sell to our customers or include in our products presents risks to the business.

We depend on retaildistribution partners to display and present our products to customers, and our failure to maintain and further develop our relationships with retaildistribution partners could harm our business.

We sell a significant amount of our products through knowledgeable national, regional, and independent retaildistribution partners. Our retaildistribution partners service customers by stocking and displaying our products, explaining the attributes of our products, and sharing the story of our brands. Our relationships with these retaildistribution partners are important to the authenticity of our brands and the marketing programs we continue to deploy. Our failure to maintain these relationships with our retaildistribution partners or financial difficulties experienced by these retaildistribution partners could harm our business.

We have key relationships with national retaildistribution partners. If we lose any of our key retaildistribution partners or any key retaildistribution partner reduces their purchases of our existing or new products or their number of stores or operations, or promotes products of our competitors over ours, our sales would be harmed. Because Holley is a premium brand, our sales depend, in part, on retaildistribution partners effectively displaying our products, including providing attractive space and point of purchase displays in their stores, and training their sales personnel to sell our products. If our retaildistribution partners reduce or terminate those activities, we may experience reduced sales of our products, resulting in lower gross margins, which would harm our business, financial condition and results of operations.

The closuresPeriods of certainbanking regionalsector banksstress, havereduced createdmarket bank-specificliquidity, or tightening credit conditions may create bank specific and broader financial institution liquidity riskrisks and concerns. Future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access working capital needs, and create additional market and economic uncertainty.

Although we do not have any funds in any of the banks that have been placed into receivership to date, we cannot guarantee that the banks or other financial institutions that hold our funds will not experience similar issues. TheseRecent events have resulted in market disruption and volatility and future similar events could lead to greater instability in the credit and financial markets and a deterioration in confidence in economic conditions. Our operations may be adversely affected by any such economic downturn, liquidity shortages, volatile business environments, or unpredictable market conditions. These events could also make any necessary debt or equity financing more difficult and/or costly.

The future effect of these events on the financial services industry and broader economy are unknown and difficult to predict but could include failures of other financial institutions to which we or our customers, vendors, or other counterparties may face direct or more significant exposure. Any such developments could adversely impact our results of operationoperations and financial position, and there may be other risks we have not yet identified.

On November 18, 2021, we entered into a credit facility with a syndicate of lenders and Wells Fargo Bank, N.A., as administrative agent for the lenders, letter of credit issuer and swing line lender (as amended, the "Credit Agreement"). On December 31, 2024,2025, $560.9$529.4 million in principal was outstanding under the credit facility. We are required to make quarterly payments of principal plus accrued interest. The Credit Agreement imposes various restrictions and contains customary affirmative and restrictive covenants, including, without limitation, certain reporting obligations, certain limitations on restricted payments, and certain limitations on liens, encumbrances and indebtedness. In addition, borrowings under the Credit Agreement are jointly and severally guaranteed by us and certain of our wholly owned material subsidiaries and our future subsidiaries that become guarantors (collectively the “Loan Parties"). The First Lien Credit Agreement is secured by a first-priority lien on substantially all of the Loan Parties’ assets, in each case subject to certain customary exceptions. If we fail to comply with the covenants or payments specified in the Credit Agreement, the lender could declare an event of default, which would give it the right to declare all borrowings outstanding, together with any accrued and unpaid interest and fees, to be immediately due and payable.

In addition to the restrictions described above, the Credit Agreement requires us and certain of our subsidiaries to comply with certain other covenants, including a financial maintenance covenant regarding our total net leverage ratio on the last day of each fiscal quarter, with step downs to lower total net leverage ratio levels at specified times as set forth therein. Commencing with the fiscal quarter ending June 30, 2024, the consolidated net leverage financial covenant reverted back to 5:00:1.00.

Failure to comply with thesethe covenantscovenants, payments, and certain other provisions of the Credit Agreement, or the occurrence of a change of control, could result in an event of defaultdefault, which would give the lender the right to declare all borrowings outstanding, together with any accrued and anunpaid acceleration of the Loan Parties’ obligations under the Credit Agreement or other indebtedness that weinterest and ourfees, subsidiariesto maybe incurimmediately indue theand future.payable. If such an event of default and acceleration of the Loan Parties’ obligations occurs, subject to intercreditor agreements agreed to by the lenders, the lenders under the Credit Agreement would have the right to proceed against the collateral the Loan Parties granted to them to securesecuring such indebtedness. If the debt under the Credit Agreement were to be accelerated, we and our subsidiaries may not have sufficient cash or be able to sell sufficient collateral to repay this debt, which would immediately and materially harm our and our subsidiaries’ business, sales, financial condition and results of operations. The threat of our debt being accelerated in connection with a change of control could make it more difficult for us to attract potential buyers or to consummate a change of control transaction that would otherwise be beneficial to our stockholders.

OurWe are required to assess our internal control over financial reporting, and our failure to maintain effective internal controlscontrol over financial reporting could harm us.

As a public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. Pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), we are required to furnish a report by our management on our internal control over financial reporting. We are required to document and test the operating effectiveness of our internal control over financial reporting, which is both costly and challenging. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. As we are no longer an “emerging growth company,company” as of the end of the fiscal year ended December 31, 2025, our independent registered public accounting firm will not beis required to formally attest toto, and report on, the effectiveness of our internal control over financial reportingreporting. pursuantIn todoing Section 404, butso, we anticipatecould thisidentify tomaterial beweaknesses applicable for the 2025 10-K. At such time,in our independentinternal registeredcontrols publicor accountingresult firm may issue a report that isin adverse in the event that it is not satisfied with the level at which our controls are documented, designed or operating.opinion.

AnyIn addition, any failure to maintain internal control over financial reporting, or any failure to fully remediate the existing or any future material weaknesses that may be found to exist,weaknesses, could inhibit our ability to accurately and on a timely basis report our cash flows, results of operations or financial condition in compliance with applicable securities laws. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Common Stock and Warrants could decline and we could be subject to sanctions or investigations by NYSE, the SEC or other regulatory authorities. Failure to remediate any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets and negatively impact the price and trading market for our Common Stock and Warrants.

We havepreviously identified a material weakness in our internal control over financial reportingreporting, thatand ifwe notmay remediatedexperience could result inadditional material misstatementsweaknesses inor our financial statements and cause us tootherwise fail to meet our reportingdesign and maintain effective internal control over financial obligations.reporting.

We have implemented and continue to implement remediation measures, and we are in the process of identifying any additional appropriate remediation measures.     Until our remediation plan is fully implemented, our management will continue to devote significant time and attention to these efforts. Any failure to implement our remediation plan or any difficulties we encounter with our remediation plan could result in additional material weaknesses or deficiencies in our internal control or future material misstatements in our annual or interim financial statements.  Moreover, our failure to remediate the material weakness identified in this Form 10-K or the identification of additional material weaknesses, could adversely affect our stock price and investor confidence.

We assess the potential impairment of goodwill and indefinite-lived intangible assets on an annual basis or whenever events or changes in circumstances indicate the carrying value of these assets may have been impaired. The Company completed its annual goodwill and intangible assets impairment analysis in the fourth quarter of fiscal 2024,2025, in conjunction with its budgeting and forecasting process for fiscal year 20252026 and concluded that no material impairment existed for its reporting unit.unit Basedor onintangible the quantitative assessment in the fourth quarter of 2024, we concluded that it is necessary to record a goodwill and trade name impairments of $40.9 million and $7.7 million, respectively.assets.

Increasing scrutiny and evolvingEvolving expectations with respect to our environmental, social and governance (“ESG”) practices may impose additional costs on us or expose us to new or additional risks.

Unless the context requires otherwise, references to “Holley,” “we,” “us,” “our”, and “the Company” in this section are to the business and operations of Holley Inc. The following discussion and analysis should be read in conjunction with Holley’s consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause Holley’s actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed herein and under the caption, “Cautionary Note Regarding Forward-Looking Statements.”

The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP.U.S. Generally Accepted Accounting Principles ("U.S. GAAP"). Holley Intermediate was deemed the accounting acquirer with Holley Inc. as the successor registrant. As such, Empower was treated as the acquired company for financial reporting purposes, and financial statements for periods prior to the Business Combination are those of Holley Intermediate.

Loss on sale of assets relates to the loss incurred related to the sale of Detroit Speed Engineering.Engineering in the year ended December 31, 2024.

Interest expense consists of interest due on the indebtedness under our credit facilities. On December 31, 2024,2025, $560.9$529.4 million was outstanding under the Credit Agreement. Interest is based on the secured overnight financing rate ("SOFR") or prime rate, plus the applicable margin rate.

The table below presents our net sales for the yearyears ended December 31, 20242025 and 2023,2024, as well as sales related to divestitures and sales partassociated ofwith our strategic product rationalization project. The divestitures sales relate to divested businesses prior to the divestiture date. The divestitures include Detroit Speed Engineering, Gear FXFX, and Proforged. The strategic product rationalization sales relate to discontinued SKUs.stock keeping units ("SKUs").

Cost of goods sold for year ended December 31, 2024,2025, decreased $39.9$16.4 million, or 9.9%,4.5%, to $363.7$347.3 million as compared to $403.6$363.7 million for the year ended December 31, 2023.2024. The decrease in cost of goods sold during the year ended December 31, 2024,2025, resultedwas fromprimarily adue 8.7%to decreasehigher inmanufacturing efficiency, stronger inventory discipline reducing obsolete product salescharges, and lowerimproved freightproduct costs,quality partiallythat offsetlowered bywarranty costs. These operational improvements along with prior year's $8.2 million of strategic product rationalization chargeinitiative thatmore isthan partoffset ofcost pressures despite a portfolio1.9% transformation aimed at eliminating unprofitable or slow-moving stock keeping units ("SKUs"), which was completedincrease in theproduct first quarter of 2024.sales

Gross profit for the year ended December 31, 2024,2025, decreasedincreased $17.5$27.7 million, or 6.9%,11.6%, to $238.5$266.2 million as compared to $256.1$238.5 million for the year ended December 31, 2023.2024. Gross margin for the year ended December 31, 2024,2025, was 39.6%43.4% as compared to a gross margin of 38.8%39.6% for the year ended December 31, 2023.2024. The decreaseincrease in gross profit was primarily due to lowerhigher sales volumevolume, reduced warranty claims, and athe absence of $8.2 million related to the strategic product rationalization charge.charge Thein prior year. Gross margin improvement for the year primarily reflects the absence of prior year inventory and clearance charges, pricing flow‑through, operational efficiencies across our facilities, improved product quality resulting in gross margin was largely driven by cost to serve efforts related to lower freightwarranty costscosts, and improved warranty performance, as well as reduced write-downsfreight for excess and obsolete inventory, partially offset by the million related to the strategic product rationalization charge.expense.

Selling, general and administrative ("SG&A") costs for the year ended December 31, 2024,2025, increased $11.9$14.0 million, or 9.9%,10.6%, to $132.2$146.1 million as compared to $120.2$132.1 million for the year ended December 31, 2023.2024. When expressed as a percentage of sales, selling, general and administrative costs increased to 21.9%23.8% of sales for the year ended December 31, 2024,2025, compared to 18.2%21.9% of sales in 2023.2024. The netincrease increasewas driven primarily by higher salary and personnel-related expenses, reflecting the absence of prior-year furlough activity, higher incentive compensation, and incremental investments in selling, general and administrative costs was predominately driven by a $2.0 million reserve related to litigation settlements, an increase in marketing and advertisingpersonnel to support growth,SOX compliance and incrementalrelated spendgovernance relatedinitiatives. SG&A also reflects increased external sales support and greater brand-building marketing expenditures to advisoryenhance servicesbrand supporting transformation initiatives. These increases were partially offset by furloughsawareness and temporarysupport headcountoverall reductionssales from earlier in the year, reflecting resource allocation efforts for portfolio development optimizationgrowth.

Research and development costs for the year ended December 31, 2024,2025, decreasedincreased $5.1$0.1 million, or 21.5%,0.6%, to $18.7$18.8 million as compared to $23.8$18.7 million for the year ended December 31, 2023.2024. The decreaseincrease was primarily due to headcount reductions, reflecting the implementationCompany's realignment of resourceemployees' allocationroles effortsand inresponsibilities supportfrom ofselling, portfoliogeneral developmentand optimization.administrative to research and development.

Amortization and Impairment of Intangible Assets

There was no impairment of indefinite-lived assets for the year ended December 31, 2025. Impairment of indefinite-lived assets for the year ended December 31, 2024 was $7.7 million, which related to our tradenames.trade names. Refer to Note 5, “Goodwill and Other Intangible Assets” in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information related to our recognition of impairment charges.

ImpairmentThere was no impairment of goodwill for the year ended December 31, 2025. Impairment for goodwill for the year ended December 31, 2024 was $40.9 million. Refer Note 5, “Goodwill and Other Intangible Assets” in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information related to our recognition of impairment charges.

There was no loss on sale of assets for the year ended December 31, 2025. Loss on sale of assets for the year ended December 31, 2024 was $9.2 million, which relates to the sale of Detroit Speed Engineering.

Restructuring costs for the year ended December 31, 2024,2025, decreasedincreased $1.1$1.3 million to $1.6$2.9 million, as compared to $2.6$1.6 million for the year ended December 31, 2023,2024, reflecting a reduction in restructuring and integration activities associated with acquisitions.our implementation of resource allocation efforts in support of portfolio development optimization.

As a result of factors described above, operating income for the year ended December 31, 2024,2025, decreasedincreased $79.3$67.8 million, or 84.4%,462.3%, to $14.7$82.5 million as compared to $94.0$14.7 million for the year ended December 31, 2023,2024, which is primarily attributable to the $48.6 million impairment charges.charges in the prior year.

For the year ended December 31, 2024,2025, we recognized a gainloss of $7.6$1.2 million due to the change in fair value of the warrant liability. This compares to a lossgain of $4.1$7.6 million for the year ended December 31, 2023, a period during which Holley's stock price increased.2024. The warrant liability reflects the fair value of the Warrants issued in connection with the Business Combination.

For the year ended December 31, 2024,2025, we recognized a gainloss of $2.3$0.9 million due to the change in fair value of the earn-out liability, which reflects a decrease in Holley's stock price during 2024.liability. This compares to a lossgain of $2.3 million for the year ended December 31, 2023, a period during which Holley's stock price increased.2024. The earn-out liability reflects the fair value of the unvested Earn-Out Shares resulting from the Business Combination.

For the year ended December 31, 2024,2025, we recognized a lossgain of $0.1 million on the early extinguishment of debt as compared to a gainloss of $0.7$0.1 million for the year ended December 31, 2023.2024. The gain in the year ended December 31, 2025 was recognized on the repurchase of $25.0 million of our first lien term loan at a discount to par, net of the write-off of unamortized debt issuance costs. The loss in the year ended December 31, 2024 was recognized on the repurchase of $25.0 million of our first lien term loan at a discount to par, net of the write-off of unamortized debt issuance costs. The gain in the year ended December 31, 2023 was recognized on the repurchase of $38.8 million of our first lien term loan at a discount to par, net of the write-off of unamortized debt issuance costs (referRefer to Note 7, “Debt” for further discussion).

Interest Expense (Benefit)

Interest expense for the year ended December 31, 2024,2025, decreasedincreased $10.1$1.1 million, or 16.6%,2.3%, to $50.7$51.8 million as compared to $60.8$50.7 million for the year ended December 31, 2023,2024. reflectingThe aincrease lowerwas outstandingprimarily debtattributable balances,to offsetthe inunfavorable partimpact byof a higher effectivethe interest rate oncollar, outstandingwhich debt.resulted The Companyin recognized $1.1interest expense of $3.4 million ofand interest income andof $1.2$1.1 million of interest expense related to the interest rate collar for the year ended December 31, 20242025 and 2023,2024, respectively. This increase was partially offset by lower interest expense on outstanding debt due to a decrease in our debt balance. Excluding the impact of the interest rate collar, underlying interest expense declined as a result of lower average outstanding borrowings from debt prepayments, partially offset by higher average interest rates.

As a result of factors described above, we recognized $26.3$28.6 million of lossnet income before income taxes for the year ended December 31, 2024,2025, as compared to neta incomeloss before income taxes of $27.6$26.3 million for the year ended December 31, 2023.2024.

We recognized income tax expense of $9.5 million for the year ended December 31, 2025, as compared to income tax benefit of $3.0 million for the year ended December 31, 2024, as compared to income tax expense of $8.4 million for the year ended December 31, 2023.2024. The effective tax rate was 11.5%33.0% and 30.5%11.5% for the years ended December 31, 20242025 and 2023,2024, respectively. The difference between the effective tax rate and the federal statutory rate in 2025 was primarily due to permanent differences related to changes in fair value of the warrant and earn-out liabilities recognized during the period, state taxes, the impact of foreign taxes in higher tax rate jurisdictions, and excess tax deficiencies from share-based compensation recognized during the period. The difference between the effective tax rate and the federal statutory rate in 2024 was primarily due to permanent differences resulting from state income taxes, foreign rate differentials, compensation limits with respect to covered employees, goodwill asset impairment, valuation allowance and the change in fair value of warrant and earn-out liabilities. The difference between the effective tax rate and the federal statutory rate in 2023 was primarily due to permanent differences resulting from state income taxes, foreign rate differentials, compensation limits with respect to covered employees, and the change in fair value of warrant and earn-out liabilities

As a result of factors described above, we recognized net income of $19.2 million for the year ended December 31, 2025, as compared to net loss of $23.2 million for the year ended December 31, 2024, as compared to net income of $19.2 million for the year ended December 31, 2023. Additionally, we recognized total comprehensive loss of $23.7 million for the year ended December 31, 2024, as compared to total comprehensive income of $19.4 million for the year ended December 31, 2023. Comprehensive income includes the effect of foreign currency translation.2024.

Our business and results of operations, financial condition, and liquidity are impacted by broad economic conditions including inflation, labor shortages, disruption of the supply chain, and potential tariffs, as well as by geopolitical events, including military conflicts (including the conflict in Ukraine, the conflict in the Middle East, and the possible expansion of such conflicts). Our operations have been adversely impacted, and may continue to be adversely impacted, by inflationary pressures primarily related to transportation, labor and component costs. In response to the global supply chain volatility and inflationary impacts, we have attempted to minimize potential adverse impacts on our business with cost savings initiatives, price increases to customers, and by increasing inventory levels of certain products and working closely with our suppliers and customers to minimize disruptions in delivering products to customers. Our profitability has been, and may continue to be, adversely affected by constrained consumer demand,demand and a shift in sales mix to lower-margin products, which is offset by our cost cutting and operating efficiency gains. Should the ongoing macroeconomic conditions not improve, or worsen, or if our attempts to mitigate the impact on our supply chain, operations and costs is not successful, our business, results of operations and financial condition may be adversely affected.

In February 2025, theThe United States government beganhas to impose newincreased tariffs on importscertain goods imported from certain countries and regions, including China, Canada, Mexico, and the European Union. In response, some foreign governments implemented retaliatory measures. These developments introduced new complexities to global supply chains. However,As discussed in our quarterly report on Form 10-Q for the quarter ended March 29, 2026, we believe Holley's business model and sourcing strategies have positioned us to manage these challenges effectively.effectively and we have proactively developed and implemented plans to mitigate their impact.

On February 20, 2026, the U.S. Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act (“IEEPA”). TheDuring ultimatethe availability,26-week timing,period andended amountJune of28, any2026, potentialwe refundsreceived ofapproximately such tariffs remain highly uncertain and are subject to further legal, regulatory, and administrative developments. Accordingly,$11,057 as ofa March 29, 2026, the Company has not recorded any benefit related to potential refunds of IEEPA tariffs paid. Following the Supreme Court’s decision, the U.S. Administration announced its intention to invoke other laws to collect tariffs and announced new tariffsrefund on imports from all countries, in addition to any existing non-IEEPA tariffs. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariffof levels,which $1,719 was recorded as a reduction of inventory, $8,863 was recorded as other income and whether$475 furtherwas additionalrecorded tariffsas mayinterest be imposed, modified, or suspended, and the impacts of such actions on our business. There also remains substantial uncertainty regarding how countries with which the U.S. has negotiated or is in the process of negotiating tariff trade deals will respond to any further tariff actions by the U.S. Administration.income. We continue to monitor and evaluate these developments in order to analyze their impact on our business and identify possible actions to minimize adverse effects. The ultimate availability, timing and amount of any other potential refunds on such tariffs, and the extent and duration of these tariffs, as well as their broader impact on macroeconomic conditions and our business, remain uncertain and will depend on a variety of factors outside of our control. Nevertheless, we remain committed to optimizing our operations, managing costs and leveraging our diversified supply chain to minimize the impact of tariffs on our results of operations and financial condition.

As part of our strategic plan, we have launched a portfolio optimizationrebalance initiative through which we expect to exit non-core, low profit businesses while reinvesting in targeted mergers and acquisitions that align with our strategic priorities. The first divestiture under this initiative,During the sale26-week period ended June 28, 2026, we sold three brands, ADS, Speartech, and Drake Brands, comprised of ourDrake ArizonaClassic, DesertScott ShocksDrake, ("ADS")Drake business,Muscle wasCars, completedDrake onAutomotive AprilGroup, 18,Drake 2026,Auto Group, and weBrothers Trucks brands. We continue to evaluate additional divestiture and acquisition opportunities that meet our strategic and financial criteria. See Note 18,2, "SubsequentAcquisition Eventsand Divestitures" in the Notes to the condensed consolidated financial statements included in this Quarterly Report for more details.

Selling, general, and administrative costs consist of payroll and related personnel expenses, IT and office services, office rent expense and professional services. In addition, self-insurance, advertising, research and development, outgoing shipping costs, pre-production and start-up costs are also included within selling, general, and administrative. We have incurred additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations and other professional services.

Interest expense consists of interest due on the indebtedness under our credit facilities. Interest is based on SOFR or the base rate, at the Company's election, plus the applicable margin rate. As of MarchJune 29,28, 2026, $529.4$527.7 million was outstanding under our Credit Agreement.

13-Week Period Ended MarchJune 29,28, 2026 Compared With 13-Week Period Ended MarchJune 30,29, 2025

The table below presents Holley’s results of operations for the 13-week periods ended MarchJune 29,28, 2026 and MarchJune 30,29, 2025 (dollars in thousands):

Net sales for the 13-week period ended MarchJune 29,28, 2026 decreasedincreased $5.7$5.3 million, or 3.7%,3.2%, to $147.3$172.0 million, as compared to $153.0$166.7 million for the 13-week period ended MarchJune 30,29, 2025. LowerThe increase was primarily driven by $4.7 million of incremental net sales volumefrom resultedthe inHRX aacquisition decrease of approximately $14.2 million, offset partially byand improved price realization of approximately $8.1$10.0 million, partially offset by lower sales volume of approximately $9.4 million compared to the prior year period.

Cost of goods sold for the 13-week period ended MarchJune 29,28, 2026 decreasedincreased $2.4$4.4 million, or 2.7%,4.5%, to $86.6$101.5 million, as compared to $89.0$97.1 million for the 13-week period ended MarchJune 30,29, 2025. The decreaseincrease in cost of goods sold in the firstsecond quarter of 2026, a period in which product sales decreasedincreased 3.7%,3.2%, was duedriven by higher tariff-related costs, additional costs associated with the recent HRX acquisition, and a one-time adjustment related to lowerthe salesprior-year volumecapitalization andof improvedtariff operational initiatives across facility efficiencies.costs.

Gross profit for the 13-week period ended MarchJune 29,28, 2026 decreasedincreased $3.4$1.0 million, or 5.2%,1.4%, to $60.7$70.5 million, as compared to $64.1$69.6 million for the 13-week period ended MarchJune 30,29, 2025. Gross margin for the 13-week period ended MarchJune 29,28, 2026 was 41.2%41.0% as compared to a gross margin of 41.9%41.7% for the 13-week period ended MarchJune 30,29, 2025. Gross profit margin decreased slightly due to higher tariff-related costs, a one-time adjustment related to the prior-year capitalization of tariff costs, and fixed cost deleverage on lower newnet sales volumevolume, partially offset by pricing actions and improvements in operating efficiency.

Selling, general and administrative costs for the 13-week period ended MarchJune 29,28, 2026 decreasedincreased $1.3$7.4 million, or 3.5%,22.7%, to $35.4$40.4 million, as compared to $36.7$33.0 million for the 13-week period ended MarchJune 30,29, 2025. Selling, general and administrative costs expressed as a percentage of sales remainedincreased theto same at 24.0%23.5% for the 13-week period ended MarchJune 29,28, 2026 compared to 24.0%19.8% for the 13-week period ended MarchJune 30,29, 2025. The decreaseincrease in selling, general and administrative costs was due to greater efficiency onincreased legal fees related to the securities class action and marketingincreased spendinsurance combinedexpenses, withsalaries lowerand outboundwages, freightand costsconsulting onfees reducedrelated salesto volume.our ongoing portfolio rebalancing initiative.

Research and development costs for the 13-week period ended MarchJune 29,28, 2026 slightly decreased to $4.0$3.7 million as compared to $4.1$5.1 million for the 13-week period ended MarchJune 30,29, 2025, primarily due to a decrease in salaries.salaries and consulting fees.

Amortization of intangible assets was $3.4$6.8 million for the 13-week26-week period ended MarchJune 29,28, 2026 compared to $3.5$6.9 million for the 13-week26-week period ended MarchJune 30,29, 2025. Amortization decreased slightly due to tradenames with higher amortization expense in the prior year that became fully amortized.

Restructuring costs for the 13-week26-week period ended MarchJune 29,28, 2026 increased by $0.4$0.9 million to $0.9$1.7 million, as compared to $0.5$0.8 million for the 13-week26-week period ended MarchJune 30,29, 2025, reflecting restructuring and integration activities associated with our implementation of resource allocation efforts in support of portfolio development optimization.rebalancing.

As a result of factors described above, operating income for the 13-week26-week period ended MarchJune 29,28, 2026 decreased $1.8$26.6 million, or 9.5%,56.7%, to $17.5$20.3 million, as compared to $19.3$46.9 million for the 13-week26-week period ended MarchJune 30,29, 2025.

For the 13-week26-week periods ended MarchJune 29,28, 2026 and MarchJune 30,29, 2025, we recognized a gain of $1.0$1.6 million and a gain of $0.1 million, respectively. The warrant liability reflects the fair value of the Warrants issued in connection with the Business Combination.

For the 13-week26-week periods ended MarchJune 29,28, 2026 and MarchJune 30,29, 2025, we recognized a gain of $0.5$1.8 million and a gain of $0.2$0.4 million, respectively. The earn-out liability reflects the fair value of the unvested Earn-Out Shares resulting from the Business Combination.

Interest expense for the 13-week26-week period ended MarchJune 29,28, 2026 decreased $5.8$11.0 million, or 36.9%,37.7%, to $9.9$18.1 million, as compared to $15.7$29.1 million for the 13-week26-week period ended MarchJune 30,29, 2025. The decrease was primarily attributable to changeslower interest expense on outstanding debt due to a decrease in our debt balance as well as the fairfavorable valueimpact of the interest rate collar, which decreasedresulted in recognized interest expenseincome byof $1.0$2.9 million during the 13-week period ended March 29, 2026, compared to an increase toand interest expense of $3.8$5.2 million therelated 13-week period ended March 30, 2025. Additionally,to the interest expenserate decreasecollar resultedfor from26-week aperiods decreaseended inJune our28, outstanding2026 debtand balance.June 29, 2025, respectively.