Press Release

<< Back
Hostess Brands, Inc. Announces Third Quarter 2019 Financial Results
11/06/19

Net Revenue Increases 7.7% to $227.2 Million, Driven by 8.8% Point of Sale Gain
Market Share Continues Growth, Up 118 Basis Points to 19.2%

KANSAS CITY, Mo.--(BUSINESS WIRE)--Nov. 6, 2019-- Hostess Brands, Inc. (NASDAQ: TWNK) (NASDAQ: TWNKW) (the “Company”), today reported its financial results for the three and nine months ended September 30, 2019.

Business Highlights for the Third Quarter 2019 as Compared to the Prior Year Period1

  • Net revenue increased $16.2 million, or 7.7%, to $227.2 million due to higher volume of core Hostess® branded products and breakfast innovation driven by distribution and merchandising support, as well as the previously announced price increases, partially offset by the sale of the In-Store Bakery ("ISB") business on August 30, 2019. Excluding ISB, net revenue increased 9.2%.
  • Gross profit increased $10.0 million, or 16.6%, to $70.4 million due to higher sales volume and pricing actions as well as continued operating efficiencies. Adjusted gross profit increased $11.1 million, or 17.4%, to $75.2 million, or 33.1% of net revenue, representing a margin improvement of 270 basis points.
  • Net income was $10.7 million, or $0.07 per diluted share, compared to $11.2 million, or $0.08 per diluted share, in the prior period. The decline was primarily due to costs related to the sale of ISB and debt refinancing.
  • Adjusted net income increased $4.8 million, or 32.9%, to $19.2 million, resulting in $0.13 adjusted earnings per share.
  • Adjusted EBITDA increased $7.6 million, or 19.0%, to $47.8 million, or 21.0% of net revenue, representing a margin improvement of 201 basis points.
  • Cash and cash equivalents were $266.9 million as of September 30, 2019 with a leverage ratio of 3.5x.

The Company Refines Full-Year 2019 Outlook

  • The Company expects continued organic revenue growth well above the Sweet Baked Goods (“SBG”) category in 2019 driven by Hostess® branded core and new product innovation due to expanded distribution and improved merchandising execution as well as benefits from increased pricing.
  • The Company expects full year 2019 adjusted EBITDA of $202 million to $208 million, an increase of 9% to 12% over 2018, primarily driven by revenue growth and achievement of operational efficiencies. This reflects the reduction of $3 million as a result of the sale of ISB during the third quarter.
  • The Company's expected leverage ratio estimate is 3.2x to 3.4x at the end of 2019, driven by strong operating cash flows and cash received from the divestiture of ISB.

“We are very pleased with the continued growth momentum of our product offerings and our demonstrated ability to meaningfully increase point-of-sale dollars and market share across sales channels,” commented Andy Callahan, President and Chief Executive Officer. “We achieved significant revenue growth in our Hostess® branded core and new breakfast products during the quarter. This strong top-line growth combined with ongoing cost efficiencies from the disciplined investments in our Chicago bakery contributed to a significant increase in profitability and strong cash flow generation. With our focus on growth and efficiency grounded in our five pillars, we remain confident about the growth potential we have for the balance of the year and 2020. We are excited by the improved capabilities we have built which support meaningful growth ahead of an expanding category that will lead to top-quartile financial results into the future.”

1This press release contains certain non-GAAP financial measures, including adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income attributed to Class A stockholders and adjusted earnings per share (“Adjusted EPS”). Please refer to the schedules in the press release for reconciliations of non-GAAP financial measures to the comparable GAAP measure. Unless otherwise stated, all comparisons of financial measures in this press release are to the third quarter of 2018. All measures of market performance contained in this press release, including point of sale and market share, are for the 13 week period ended September 28, 2019 and include all Company branded products within the SBG category as reported by Nielsen but do not include other products sold outside of the SBG category. The Company's leverage ratio is net debt (total long-term debt less lease obligations, unamortized debt premiums and cash and cash equivalents) divided by adjusted EBITDA for the trailing twelve-month period.

Third Quarter 2019 Compared to Third Quarter 20181

Net revenue was $227.2 million, an increase of 7.7%, or $16.2 million, compared to $211.0 million. Excluding ISB, net revenue increased 9.2%. Sales of core Hostess® branded products, including Donettes® and CupCakes, continued to increase due to strong distribution and merchandising support across multiple sales channels. Sales of new Hostess® branded items, including Danishes, provided revenue growth, along with increased sales of Dolly Madison® branded products, leveraging the customer relationships from the Cloverhill acquisition. Net revenue also benefited from pricing actions implemented in late 2018. Consistent with the Company's expectations, revenue growth was negatively impacted by the temporary shutdown of certain production lines to perform maintenance and operating enhancements.

Gross profit was $70.4 million, or 31.0% of net revenue, compared to $60.4 million, or 28.6% of net revenue. Adjusted gross profit was $75.2 million, or 33.1% of net revenue, an $11.1 million increase as compared to $64.1 million, or 30.4% of net revenue, in the prior year period. Gross margin increased as a result of previously announced favorable pricing actions, increased sales volume and operating cost efficiencies, partially offset by a shift in product mix.

Operating costs and expenses were $46.8 million, or 20.6% of net revenue, compared to $36.7 million, or 17.4% of net revenue. These costs increased due to higher incentive compensation and additional corporate expenses incurred in connection with the relocation of the Company's primary distribution facility and the category sales and marketing functions. Additionally, the sale of ISB resulted in transaction fees, a remeasurement of the tax receivable agreement and loss on sale. Professional service fees were also incurred in anticipation of refinancing of the Company's term loan and revolver which was finalized in October 2019.

The Company's effective tax rate was 22.0% compared to 18.9%. The increase in the effective tax rate is due to the Class B for Class A share exchanges in the second and third quarters of 2019. Subsequent to these exchanges, more income from Hostess Holdings, L.P. was allocated to Hostess Brands, Inc.

Net income was $10.7 million compared to $11.2 million. Net income attributed to Class A stockholders was $8.8 million, or $0.07 per diluted share, compared to $7.9 million, or $0.08 per diluted share. Adjusted net income was $19.2 million compared to $14.5 million. Adjusted earnings per diluted share was $0.13, compared to $0.10.

Adjusted EBITDA was $47.8 million, or 21.0% of net revenue, compared to $40.1 million, or 19.0% of net revenue, an increase of $7.6 million, or 19.0%. The improvement in adjusted EBITDA margin was primarily attributable to increased sales volume, pricing actions and operating cost efficiencies.

Cash from operations for the nine months ended September 30, 2019 was $107.4 million compared to $109.9 million for the same period last year. The decrease was attributable to the timing of working capital conversion.

Sweet Baked Goods Segment: Net revenue was $220.2 million, an increase of $18.5 million, or 9.2%, compared to $201.7 million driven by additional volume and price increases. Gross profit was $68.8 million, or 31.3% of net revenue, compared to $58.9 million, or 29.2% of net revenue. In addition to the increase in sales volume and price increases, gross profit benefited from bakery operating efficiencies.

In-Store Bakery Segment: Net revenue was $7.1 million, a decrease of $2.2 million, or 24.0%, compared to $9.3 million. Gross profit was $1.6 million, or 22.9% of net revenue, compared to gross profit of $1.5 million, or 16.1% of net revenue. The decrease in net revenue reflects the Company's sale of ISB on August 30, 2019.

Refinancing and Extension of Term Loan and Revolver

On October 1, 2019, the Company refinanced its $976.4 million outstanding term loan and its $100.0 million revolving credit agreement extending the maturities to August 3, 2025 and August 3, 2024, respectively. Additionally, the interest rate margin on the revolver was reduced from between 3.00% and 3.50% per annum to 2.25% per annum. All other terms under the term loan and revolver, including variable interest rates, required principal payment, collateralization and financial covenants, remain unchanged.

Outlook

The Company has refined its outlook for 2019 to reflect current expectations for the remainder of the year:

  • Net revenue growth well above the SBG category;
  • Adjusted EBITDA of $202 million to $208 million, an increase of 9% to 12% from 2018;
  • Adjusted EPS of $0.58 to $0.61, an increase of 7% to 13% from 2018;
  • Cash provided by operations of $140 million to $150 million;
  • The expected increase in cash of $135 million to $145 million would result in a leverage ratio of 3.2x to 3.4x at the end of 2019, absent any acquisitions or other strategic uses of cash, compared to 4.5x at December 31, 2018;
  • Capital expenditures of approximately $30 million to $35 million;
  • Income tax rate, excluding discrete items, of 22% to 23% giving effect to the non-controlling interest and the related share exchanges occurring in the second and third quarters. The Company expects to pay distributions to the non-controlling interest holders of $6 million to $7 million and corporate tax payments (net of refunds) of $1 million to $2 million in 2019.

The Company provides guidance only on a non-GAAP basis and does not provide a reconciliation of the Company's forward-looking financial expectations to the most directly comparable GAAP financial measure because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation; including adjustments that could be made for deferred taxes; remeasurement of the tax receivable agreement, changes in allocation to the non-controlling interest, transformation expenses and other non-operating gains or losses reflected in the Company's reconciliation of historic non-GAAP financial measures, the amount of which could be material. Please refer to the Reconciliation of Non-GAAP Financial Measures included in this press release for further information about the use of these measures.

Conference Call and Webcast

The Company will host a conference call and webcast with an accompanying presentation today, November 6, 2019 at 4:30 p.m. EDT to discuss the results for the third quarter. Investors interested in participating in the live call can dial 877-451-6152 from the U.S. and 201-389-0879 internationally. A telephone replay will be available approximately two hours after the call concludes through Wednesday, November 20, 2019, by dialing 844-512-2921 from the U.S., or 412-317-6671 from international locations, and entering confirmation code 13695870. The simultaneous, live webcast and presentation will be available on the Investor Relations section of the Company’s website at www.hostessbrands.com. The webcast will be archived for 30 days.

About Hostess Brands, Inc.

Hostess Brands, Inc. is a leading packaged food company focused on developing, manufacturing, marketing, selling and distributing fresh baked sweet goods in the United States. The brand's history dates back to 1919, when the Hostess® CupCake was introduced to the public, followed by Twinkies® in 1930. Today, the Company produces a variety of new and classic treats in addition to Twinkies® and CupCakes, including Donettes®, Ding Dongs®, Zingers®, Danishes, Honey Buns and Coffee Cakes. For more information about Hostess® products and Hostess Brands, please visit hostesscakes.com. Follow Hostess on Twitter: @Hostess_Snacks; on Facebook: facebook.com/Hostess; on Instagram: Hostess_Snacks; and on Pinterest: pinterest.com/hostesscakes.

The Company has two reportable segments: SBG and In-Store Bakery. The SBG segment consists of sweet baked goods, bread and buns and frozen retail products that are sold under the Hostess®, Dolly Madison®, Cloverhill® and Big Texas® brands. The In-Store Bakery segment consists of Superior on Main® and private label products sold through the in-store bakery section of grocery and club stores. The Company divested its In-Store Bakery segment's operations on August 30, 2019.

Forward-Looking Statements

This press release contains statements reflecting the Company's views about its future performance that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Forward-looking statements are generally identified through the inclusion of words such as “believes,” “expects,” “intends,” “estimates,” “projects,” “anticipates,” “will,” “plan,” “may,” “should,” or similar language. Statements addressing the Company's future operating performance and statements addressing events and developments that the Company expects or anticipates will occur are also considered as forward-looking statements. All forward-looking statements included herein are made only as of the date hereof. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

These statements inherently involve risks and uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements. These risks and uncertainties include, but are not limited to, maintaining, extending and expanding the Company's reputation and brand image; protecting intellectual property rights; leveraging the Company's brand value to compete against lower-priced alternative brands; correctly predicting, identifying and interpreting changes in consumer preferences and demand and offering new products to meet those changes; operating in a highly competitive industry; the ability to maintain or add additional shelf or retail space for the Company's products; the continued ability to produce and successfully market products with extended shelf life; the ability to drive revenue growth in key products or add products that are faster-growing and more profitable; volatility in commodity, energy, and other input prices and the ability to adjust pricing to cover increased costs; dependence on major customers; geographic focus could make the Company particularly vulnerable to economic and other events and trends in North America; increased costs in order to comply with governmental regulation; general political, social and economic conditions; a portion of the workforce belongs to unions and strikes or work stoppages could cause the business to suffer; product liability claims, product recalls, or regulatory enforcement actions; unanticipated business disruptions; dependence on third parties for significant services; insurance may not provide adequate levels of coverage against claims; failures, unavailability, or disruptions of the Company's information technology systems; the Company's ability to achieve expected synergies and benefits and performance from the Company's strategic acquisitions; dependence on key personnel or a highly skilled and diverse workforce; and the Company's ability to finance indebtedness on terms favorable to the Company; and other risks as set forth from time to time in the Company's Securities and Exchange Commission filings.

As a result of a number of known and unknown risks and uncertainties, the Company's actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Risks and uncertainties are identified and discussed in Item 1A-Risk Factors in the Company's Annual Report on Form 10-K for 2018. All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company's behalf are expressly qualified in their entirety by these risk factors. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

HOSTESS BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, amounts in thousands, except shares and per share data)

 

 

September 30, 2019

 

 

December 31, 2018

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

266,871

 

 

 

$

146,377

 

Accounts receivable, net

115,857

 

 

 

105,679

 

Inventories

38,582

 

 

 

38,580

 

Prepaids and other current assets

12,182

 

 

 

8,806

 

Total current assets

433,492

 

 

 

299,442

 

Property and equipment, net

227,114

 

 

 

220,349

 

Intangible assets, net

1,858,943

 

 

 

1,901,215

 

Goodwill

535,853

 

 

 

575,645

 

Other assets, net

11,376

 

 

 

14,062

 

Total assets

$

3,066,778

 

 

 

$

3,010,713

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Long-term debt and lease obligations payable within one year

$

10,166

 

 

 

$

11,268

 

Tax receivable agreement payments payable within one year

10,700

 

 

 

4,400

 

Accounts payable

69,811

 

 

 

65,288

 

Customer trade allowances

44,593

 

 

 

42,010

 

Accrued expenses and other current liabilities

23,389

 

 

 

18,137

 

Total current liabilities

158,659

 

 

 

141,103

 

Long-term debt and lease obligations

972,838

 

 

 

976,736

 

Tax receivable agreement obligations

125,023

 

 

 

64,663

 

Deferred tax liability

252,986

 

 

 

277,954

 

Total liabilities

1,509,506

 

 

 

1,460,456

 

 

 

 

 

 

Class A common stock, $0.0001 par value, 200,000,000 shares authorized,120,947,081 and 100,046,392 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

12

 

 

 

10

 

Class B common stock, $0.0001 par value, 50,000,000 shares authorized, 9,455,184 and 30,255,184 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

1

 

 

 

3

 

Additional paid in capital

1,140,126

 

 

 

925,902

 

Accumulated other comprehensive income (loss)

(687

)

 

 

2,523

 

Retained earnings

312,759

 

 

 

271,365

 

Stockholders’ equity

1,452,211

 

 

 

1,199,803

 

Non-controlling interest

105,061

 

 

 

350,454

 

Total liabilities and stockholders’ equity

$

3,066,778

 

 

 

$

3,010,713

 

HOSTESS BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, amounts in thousands, except shares and per share data)

 

 

Three Months Ended

 

Nine Months Ended

 

September 30,
2019

 

 

September 30,
2018

 

September 30,
2019

 

 

September 30,
2018

Net revenue

$

227,211

 

 

 

$

210,982

 

 

$

691,009

 

 

 

$

635,574

 

Cost of goods sold

156,791

 

 

 

150,604

 

 

461,951

 

 

 

437,098

 

Gross profit

70,420

 

 

 

60,378

 

 

229,058

 

 

 

198,476

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Advertising and marketing

10,627

 

 

 

9,563

 

 

30,186

 

 

 

27,371

 

Selling expense

6,992

 

 

 

7,467

 

 

23,822

 

 

 

22,606

 

General and administrative

17,736

 

 

 

13,569

 

 

54,483

 

 

 

39,315

 

Amortization of customer relationships

5,755

 

 

 

5,994

 

 

17,749

 

 

 

17,983

 

Other operating expense (income)

5,739

 

 

 

92

 

 

6,256

 

 

 

(12

)

Total operating costs and expenses

46,849

 

 

 

36,685

 

 

132,496

 

 

 

107,263

 

Operating income

23,571

 

 

 

23,693

 

 

96,562

 

 

 

91,213

 

Other expense:

 

 

 

 

 

 

 

 

 

Interest expense, net

9,813

 

 

 

9,974

 

 

30,351

 

 

 

29,063

 

Gain on buyout of tax receivable agreement

 

 

 

 

 

 

 

 

(12,372

)

Other expense (income)

 

 

 

(36

)

 

1,286

 

 

 

133

 

Total other expense

9,813

 

 

 

9,938

 

 

31,637

 

 

 

16,824

 

Income before income taxes

13,758

 

 

 

13,755

 

 

64,925

 

 

 

74,389

 

Income tax expense

3,029

 

 

 

2,603

 

 

10,915

 

 

 

9,315

 

Net income

10,729

 

 

 

11,152

 

 

54,010

 

 

 

65,074

 

Less: Net income attributable to the non-controlling interest

1,944

 

 

 

3,211

 

 

12,615

 

 

 

14,010

 

Net income attributable to Class A stockholders

$

8,785

 

 

 

$

7,941

 

 

$

41,395

 

 

 

$

51,064

 

 

 

 

 

 

 

 

 

 

 

Earnings per Class A share:

 

 

 

 

 

 

 

 

 

Basic

$

0.08

 

 

 

$

0.08

 

 

$

0.39

 

 

 

$

0.51

 

Diluted

$

0.07

 

 

 

$

0.08

 

 

$

0.37

 

 

 

$

0.49

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

115,196,195

 

 

 

99,958,244

 

 

106,904,733

 

 

 

99,931,167

 

Diluted

121,122,895

 

 

 

102,963,080

 

 

110,804,367

 

 

 

104,299,251

 

Results of Operations by Segment

Three Months Ended

 

Nine Months Ended

(In thousands)

September 30,
2019

 

 

September 30,
2018

 

September 30,
2019

 

 

September 30,
2018

Net Revenue

 

 

 

 

 

 

 

 

 

Sweet Baked Goods

$

220,156

 

 

 

$

201,693

 

 

$

662,307

 

 

 

$

605,223

 

In-Store Bakery

7,055

 

 

 

9,289

 

28,702

 

 

 

30,351

 

 

$

227,211

 

 

 

$

210,982

 

 

$

691,009

 

 

 

$

635,574

 

Gross Profit

 

 

 

 

 

 

 

 

 

Sweet Baked Goods

$

68,804

 

 

 

$

58,886

 

 

$

222,872

 

 

 

$

192,683

 

In-Store Bakery

1,616

 

 

 

1,492

 

 

6,186

 

 

 

5,793

 

 

$

70,420

 

 

 

$

60,378

 

 

$

229,058

 

 

 

$

198,476

 

HOSTESS BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)

 

 

 

 

Nine Months Ended

 

 

 

 

September 30,
2019

 

 

September 30,
2018

 

Operating activities

 

 

 

 

 

 

Net income

$

54,010

 

 

 

$

65,074

 

 

 

Depreciation and amortization

32,678

 

 

 

31,370

 

 

 

Impairment of property, goodwill and intangibles

1,005

 

 

 

1,417

 

 

 

Debt premium amortization

(803

)

 

 

(810

)

 

 

Tax receivable agreement remeasurement and gain on buyout

1,296

 

 

 

(14,124

)

 

 

Non-cash fees on disposal of assets

1,414

 

 

 

 

 

 

Share-based compensation

7,157

 

 

 

4,237

 

 

 

Deferred taxes

9,519

 

 

 

7,929

 

 

 

Loss on sale of assets

471

 

 

 

1

 

 

 

Change in operating assets and liabilities, net of acquisitions and dispositions:

 

 

 

 

 

 

 

Accounts receivable

(13,536

)

 

 

(5,451

)

 

 

 

Inventories

(3,451

)

 

 

4,670

 

 

 

 

Prepaids and other current assets

(3,793

)

 

 

(2,407

)

 

 

 

Accounts payable and accrued expenses

18,305

 

 

 

20,759

 

 

 

 

Customer trade allowances

3,080

 

 

 

(2,794

)

 

 

Net cash provided by operating activities

107,352

 

 

 

109,871

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

(28,421

)

 

 

(32,886

)

 

 

Acquisition of business, net of cash

 

 

 

(23,910

)

 

 

Proceeds from sale of business, net of cash

63,353

 

 

 

 

 

 

Acquisition and development of software assets

(4,298

)

 

 

(2,480

)

 

 

Net cash provided by investing activities

30,634

 

 

 

(59,276

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Repayments of long-term debt and lease obligations

(7,470

)

 

 

(7,578

)

 

 

Distributions to non-controlling interest

(6,659

)

 

 

(9,533

)

 

 

Tax payments related to issuance of shares to employees

(607

)

 

 

(436

)

 

 

Cash received from exercise of options

23

 

 

 

 

 

 

Payments on tax receivable agreement

(2,779

)

 

 

(41,353

)

 

 

Net cash used in financing activities

(17,492

)

 

 

(58,900

)

 

Net increase (decrease) in cash and cash equivalents

120,494

 

 

 

(8,305

)

 

Cash and cash equivalents at beginning of period

146,377

 

 

 

135,701

 

 

Cash and cash equivalents at end of period

$

266,871

 

 

 

$

127,396

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

$

33,602

 

 

 

$

30,972

 

 

 

Net taxes paid

$

2,416

 

 

 

$

4,092

 

 

Supplemental disclosure of non-cash investing:

 

 

 

 

 

 

Accrued capital expenditures

$

1,468

 

 

 

$

(59

)

 

HOSTESS BRANDS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income attributable to Class A Stockholders and adjusted EPS, collectively referred to as "Non-GAAP Financial Measures," are commonly used in the Company's industry and should not be construed as an alternative to gross profit, net income or earnings per share as indicators of operating performance (as determined in accordance with GAAP). These Non-GAAP Financial Measures may not be comparable to similarly titled measures reported by other companies. The Company has included these Non-GAAP Financial Measures because it believes the measures provide management and investors with additional information to measure the Company's performance, estimate the Company's value and evaluate the Company's ability to service debt.

Non-GAAP Financial Measures are adjusted to exclude certain items that affect comparability. The adjustments are itemized in the tables below. You are encouraged to evaluate these adjustments and the reason the Company considers them appropriate for supplemental analysis. In evaluating adjustments, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments set forth below. The presentation of Non-GAAP Financial Measures should not be construed as an inference that future results will be unaffected by unusual or recurring items.

The Company defines adjusted EBITDA as net income adjusted to exclude (i) interest expense, net, (ii) depreciation and amortization and (iii) income taxes, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of its ongoing operating performance. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of the Company's results as reported under GAAP. For example, adjusted EBITDA:

  • does not reflect the Company's capital expenditures, future requirements for capital expenditures or contractual commitments;
  • does not reflect changes in, or cash requirements for, the Company's working capital needs;
  • does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt; and
  • does not reflect payments related to income taxes, the Tax Receivable Agreement or distributions to the non-controlling interest to reimburse its tax liability.

HOSTESS BRANDS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited, amounts in thousands, except shares and per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,
2019

 

September 30,
2018

 

September 30,
2019

 

September 30,
2018

Reconciliation of Adjusted Gross Profit

 

 

 

 

 

 

 

 

Gross profit

 

$

70,420

 

 

$

60,378

 

 

$

229,058

 

 

$

198,476

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

Acquisition and integration costs

 

 

 

3,512

 

 

1,563

 

 

5,376

 

Facility transition costs

 

4,816

 

 

 

 

4,816

 

 

 

Special employee incentive compensation

 

 

 

214

 

 

33

 

 

1,766

 

Adjusted gross profit

 

$

75,236

 

 

$

64,104

 

 

$

235,470

 

 

$

205,618

 

 

 

 

 

 

 

 

 

 

Adjusted gross margin

 

33.1

%

 

30.4

%

 

34.1

%

 

32.4

%

 

 

 

 

 

 

 

 

 

Reconciliation of Adjusted EBITDA

 

 

 

 

 

 

 

 

Net income

 

$

10,729

 

 

$

11,152

 

 

$

54,010

 

 

$

65,074

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

Income tax provision

 

3,029

 

 

2,603

 

 

10,915

 

 

9,315

 

Interest expense, net

 

9,813

 

 

9,974

 

 

30,351

 

 

29,063

 

Depreciation and amortization

 

10,739

 

 

10,723

 

 

32,678

 

 

31,370

 

Share-based compensation

 

2,377

 

 

1,516

 

 

7,157

 

 

4,237

 

Tax Receivable Agreement remeasurement and gain on buyout

 

1,779

 

 

 

 

1,296

 

 

(14,124

)

Impairment of property and equipment, intangible assets and goodwill and loss on sale of assets

 

471

 

 

 

 

1,476

 

 

1,417

 

Acquisition, disposition and integration costs

 

1,995

 

 

3,512

 

 

3,558

 

 

5,376

 

Facility transition costs

i.

5,347

 

 

 

 

6,163

 

 

 

Special employee incentive compensation

 

 

 

690

 

 

1,910

 

 

2,275

 

Other

ii.

1,493

 

 

(36

)

 

2,773

 

 

760

 

Adjusted EBITDA

 

$

47,772

 

 

$

40,134

 

 

$

152,287

 

 

$

134,763

 

 

 

 

 

 

 

 

 

 

 

i. For the three and nine months ended September 30, 2019, facility transition costs primarily relate to the line maintenance and operating enhancement activities in the Columbus, Georgia bakery and also include non-capitalizable costs incurred to move the Company's primary distribution center and category sales and marketing functions.

ii. For all periods presented, other expenses included transaction and other non-operating professional fees.

HOSTESS BRANDS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited, amounts in thousands, except shares and per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,
2019

 

September 30,
2018

 

September 30,
2019

 

September 30,
2018

Reconciliation of Adjusted Net Income and Adjusted EPS

Net income

 

$

10,729

 

 

$

11,152

 

 

$

54,010

 

 

$

65,074

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

Tax Receivable Agreement remeasurement and gain on buyout

 

1,779

 

 

 

 

1,296

 

 

(14,124

)

Remeasurement of deferred taxes

 

(448

)

 

 

 

(3,672

)

 

(4,995

)

Impairment of property and equipment, intangible assets and goodwill and loss on sale of assets

 

471

 

 

 

 

1,476

 

 

1,417

 

Acquisition and integration costs

 

1,995

 

 

3,512

 

 

3,558

 

 

5,376

 

Facility transition costs

i.

5,347

 

 

 

 

6,163

 

 

 

Special employee incentive compensation

 

 

 

690

 

 

1,910

 

 

2,275

 

Other

ii.

1,493

 

 

 

 

2,333

 

 

 

Tax impact of adjustments

 

(2,158

)

 

(897

)

 

(3,495

)

 

167

 

Adjusted net income

 

19,208

 

 

14,457

 

 

63,579

 

 

55,190

 

Non-controlling interest allocation of net income

 

(1,944

)

 

(3,211

)

 

(12,615

)

 

(14,010

)

Non-controlling interest allocation of adjustments

 

(1,088

)

 

(977

)

 

(2,213

)

 

(2,108

)

Adjusted net income attributed to Class A stockholders

 

$

16,176

 

 

$

10,269

 

 

$

48,751

 

 

$

39,072

 

Weighted average Class A shares outstanding-diluted

 

121,122,895

 

 

102,963,080

 

 

110,804,367

 

 

104,299,251

 

Adjusted EPS

 

$

0.13

 

 

$

0.10

 

 

$

0.44

 

 

$

0.37

 

 

 

 

 

 

 

 

 

 

i. For the three and nine months ended September 30, 2019, facility transition costs primarily include non-capitalizable costs incurred to move the Company's primary distribution center and category sales and marketing functions as well as costs directly related to the line maintenance activities in the Columbus, Georgia bakery.

ii. For all periods presented, other expenses included transaction and other non-operating professional fees.

Source: Hostess Brands, Inc.

Investors, please contact:
Katie Turner
ICR
646-277-1228
katie.turner@icrinc.com

Media, please contact:

Hannah Arnold
LAK Public Relations, Inc.
212-329-1417
harnold@lakpr.com
or
Marie Espinel
LAK Public Relations, Inc.
212-899-4744
mespinel@lakpr.com