Document

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 7, 2019
 
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Hostess Brands, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
1-37540
 
47-4168492
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
1 East Armour Boulevard, Kansas City, Missouri
 
64111
 
 
(Address of principal executive offices)
 
(Zip Code)
(816) 701-4600
(Registrant’s telephone number, including area code)

Not applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Trading Symbol
Name of exchange on which registered
Class A Common Stock, par value $0.0001 per share
TWNK
NASDAQ Capital Market
Warrants, each exercisable for a half share of Class A Common Stock
TWNKW
NASDAQ Capital Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
                                
o Emerging growth company
o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.







Item 2.02 Results of Operations and Financial Condition.

On August 7, 2019, Hostess Brands, Inc. (the "Company") issued a press release announcing financial results for the three months ended June 30, 2019, a copy of which is attached as Exhibit 99.1.

The information in this Item 2.02 and Exhibit 99.1 attached hereto is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

Item 7.01    Regulation FD Disclosure

On August 7, 2019, the Company disseminated an investor presentation to be used in connection with the earnings call. A copy of the investor presentation is furnished as Exhibit 99.2 to this Current Report on Form 8-K.

The information furnished in this Item 7.01, and Exhibit 99.2 attached hereto is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, except as may be expressly set forth by specific reference in such filing.

The Company expressly disclaims any obligation to update or revise any of the information contained in the investor presentation. The investor presentation is available on the Company’s website located at www.hostessbrands.com, although the Company reserves the right to discontinue that availability at any time.

Item 9.01     Financial Statements and Exhibits.
(d) Exhibits
Exhibit
No.
 
Description of Exhibits
 
 
99.1
 
99.2
 




 





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
 
 
HOSTESS BRANDS, INC.
 
 
 
 
Date: August 7, 2019
 
By:
/s/ Thomas A. Peterson

 
 
Name:
Thomas A. Peterson
 
 
Title:
Executive Vice President, Chief Financial Officer


 




Exhibit
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Hostess Brands, Inc. Announces Second Quarter 2019 Financial Results
Reports Record Net Revenue Quarter and Strong Gross Profit Growth


KANSAS CITY, MO, August 7, 2019 - Hostess Brands, Inc. (NASDAQ: TWNK, TWNKW) (the “Company”), today reported its financial results for the three and six months ended June 30, 2019.
Business Highlights for the Second Quarter 2019 as Compared to the Prior Year Period
Net revenue increased $25.2 million, or 11.7%, to $241.1 million due to higher volume of both core and new Hostess® branded products driven by distribution and merchandising support as well as realization of price increases.
Total Company point of sale in tracked channels increased 6.3% and market share of 19.0% was up 81 basis points.
Gross profit increased $16.6 million, or 24.8%, to $83.5 million due to higher sales volume and pricing actions as well as continued operating efficiencies.
Net income was $16.7 million, compared to $24.6 million, or diluted earnings per share of $0.10 per share. The decline was primarily due to discrete income tax adjustments of $7.8 million.
Adjusted net income increased $3.8 million or 18.9% to $24.1 million, representing $0.17 adjusted earnings per share.
Adjusted EBITDA increased $7.5 million, or 15.7%, to $55.1 million, or 22.9% of net revenue, compared to $47.6 million, or 22.1% of net revenue
Cash and cash equivalents were $189.3 million as of June 30, 2019 with a leverage ratio of 4.0x, both driven by operating cash flows of $74.1 million for the six months ended June 30, 2019.

Despite Reduction for the Anticipated Sale of In-Store Bakery Operations ("ISB"), the Company Reiterates 2019 Net Revenue and Adjusted EBITDA 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. This will be partially offset by reduced revenue from the anticipated disposition of ISB in the third quarter of 2019.
The Company expects full year 2019 adjusted EBITDA of $200 million to $210 million, an increase of 7% to 13% over 2018, primarily driven by revenue growth and achievement of operational efficiencies, partially offset by the anticipated divestiture of ISB in the third quarter of 2019.
The Company has improved its expected leverage ratio estimate to 3.2x to 3.4x at the end of 2019, driven by strong operating cash flows and the anticipated cash received from the divestiture of ISB.
“The continued execution against our pillars for growth are evidenced this quarter by meaningful revenue growth, increased market share and improvement in our industry-leading profitability,” commented Andy Callahan, President and Chief Executive Officer. “The strength of the Hostess® brand and our investments in our fundamental capabilities have helped us achieve broad-based success across channels. We will continue to focus on execution in the second half of 2019 as we build upon our strong foundation for sustainable growth and shareholder value creation.”

Second Quarter 2019 Compared to Second Quarter 2018
Net revenue was $241.1 million, an increase of 11.7%, or $25.2 million, compared to $215.8 million. The net revenue growth was primarily from increased sales of Hostess® branded products driven by higher volume of both core products and new Hostess® branded breakfast products as distribution and merchandising support improved in multiple sales channels. Dolly Madison® branded products also provided revenue growth as the Company leveraged the acquired Cloverhill customer relationships. Net revenue also benefited from increased pricing implemented in the fourth quarter of 2018.

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 second quarter of 2018. All measures of market performance contained in this press release, including point of sale and market share, 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. All market data in this press release reflect the restatement of convenience channel data executed by Nielsen for the 13-week period ended June 29, 2019. 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.



Gross profit was $83.5 million, or 34.6% of net revenue, compared to $66.9 million, or 31.0% of net revenue. Adjusted gross profit was $83.5 million, or 34.6% of net revenue, a $14.2 million increase as compared to $69.3 million, or 32.1% of net revenue, in the prior year period. Pricing actions and increases in sales volume partially offset the impact of inflationary pressures on ingredient, labor and packaging costs. The Company also benefited from continued operational cost efficiencies.
Operating costs and expenses were $46.6 million, or 19.3% of net revenue, compared to $32.2 million, or 14.9% 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 category sales and marketing functions. Additionally, there was a $1.3 million loss on the remeasurement of the tax receivable agreement obligation in the second quarter of 2019 as compared to a $1.8 million gain on remeasurement in the prior year period driven by changes in estimated future state rates.
The Company's effective tax rate was 35.2% compared to 0.8%. In the second quarter of 2019, the Company recognized a discrete tax expense of $2.8 million as compared to a discrete tax benefit of $5.0 million recognized in the prior year period resulting from revaluing deferred tax balances based on changes in its estimated state apportionment factors and tax rates.
Net income was $16.7 million compared to $24.6 million. Net income attributed to Class A stockholders was $11.5 million, or $0.10 per diluted share, compared to $19.3 million, or $0.18 per diluted share. The decline was primarily due to discrete income tax adjustments of $7.8 million.
Adjusted net income was $24.1 million compared to $20.2 million. Adjusted EPS was $0.17 per diluted share, compared to $0.14 per share. Adjusted EBITDA was $55.1 million, or 22.9% of net revenue, compared to $47.6 million, or 22.1% of net revenue.
Cash from operations for the six months ended June 30, 2019 was $74.1 million compared to $81.2 million for the same period last year. The decrease was attributable to the timing of customer receipts as well as higher working capital needs to facilitate the increased sales volume. Operating cash flow for the second quarter of 2019 was $45.7 million, an increase of 6.5% from the prior year period.
Sweet Baked Goods Segment: Net revenue was $229.3 million, an increase of $25.0 million, or 12.3%, compared to $204.2 million driven by additional volume and price increases. Gross profit was $80.9 million, or 35.3% of net revenue, compared to $64.4 million, or 31.5% of net revenue.
In-Store Bakery Segment: Net revenue was $11.8 million, an increase of $0.2 million, or 1.5%, compared to $11.6 million. The increase in net revenue was attributable to increased sales volume. Gross profit was $2.5 million, or 21.4% of net revenue, compared to gross profit of $2.5 million, or 21.5% of net revenue.
Divestiture of ISB
As previously announced, the Company has entered into a definitive agreement to sell ISB to Sara Lee Frozen Bakery for a purchase price of $65.0 million in cash, subject to post-closing adjustments. The transaction is expected to close during the third quarter, subject to customary closing conditions. The Company expects to use the net proceeds from the transaction to pursue a range of potential strategic options, including reinvesting in its business, de-leveraging its balance sheet, and pursuing potential strategic acquisitions, while effectively managing its capital structure.
New Corporate Headquarters and Research and Development Center
The Company is opening a new consumer research center with a lab, sensory test kitchen and focus group space within the Company's new corporate headquarters building which is relocating within the Kansas City metro area. This new research and development center, which is anticipated to open during the first quarter of 2020, will enhance the Company's in-house innovation capabilities and expand capacity for new product research and development.
Outlook
Despite the impacts of the anticipated divestiture of ISB, the Company reiterated its net revenue and adjusted EBITDA guidance as well as improved its leverage outlook for 2019 to reflect the strong year-to-date financial results:
Net revenue growth well above the SBG category;
Adjusted EBITDA of $200 million to $210 million, an increase of 7% to 13% from 2018;
Adjusted EPS of $0.57 to $0.62, an increase of 6% to 15% from 2018;
The net expected increase in cash of $145 million to $155 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;
Cash provided by operations of $145 million to $155 million, a reduction from previous expectation of $150 million to $160 million;

2


Capital expenditures of approximately $30 million to $35 million;
Income tax rate, excluding discrete items, of 21% to 22% giving effect to the non-controlling interest and the related share exchanges occurring in the second quarter. The Company expects to pay distributions to the non-controlling interest of $7.5 million to $8.5 million and corporate tax payments of $2.0 million to $3.0 million in 2019.
The Company provides guidance only on a non-generally accepted accounting principles (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, August 7, 2019 at 4:30 p.m. EDT to discuss the results for the second 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 August 21, 2019, by dialing 844-512-2921 from the U.S., or 412-317-6671 from international locations, and entering confirmation code 13692886. 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.
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,

3


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.

4


HOSTESS BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands, except shares and per share data)
 
June 30,
 
 
December 31,
 
2019
 
 
2018
ASSETS
 
 
 
 
Current assets:

 
 

Cash and cash equivalents
$
189,284

 
 
$
146,377

Accounts receivable, net
128,187

 
 
105,679

Inventories
42,893

 
 
38,580

Prepaids and other current assets
10,285

 
 
8,806

Total current assets
370,649

 
 
299,442

Property and equipment, net
223,751

 
 
220,349

Intangible assets, net
1,889,221

 
 
1,901,215

Goodwill
574,645

 
 
575,645

Other assets, net
10,713

 
 
14,062

Total assets
$
3,068,979

 
 
$
3,010,713



 
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 
 

Current liabilities:

 
 

Long-term debt and lease obligations payable within one year
$
13,206

 
 
$
11,268

Tax receivable agreement payments payable within one year
7,700

 
 
4,400

Accounts payable
72,161

 
 
65,288

Customer trade allowances
50,765

 
 
42,010

Accrued expenses and other current liabilities
23,100

 
 
18,137

Total current liabilities
166,932

 
 
141,103

Long-term debt and lease obligations
972,118

 
 
976,736

Tax receivable agreement
85,820

 
 
64,663

Other long term liabilities
107

 
 

Deferred tax liability
273,575

 
 
277,954

Total liabilities
1,498,552

 
 
1,460,456

 
 
 
 
 
Class A common stock, $0.0001 par value, 200,000,000 shares authorized,109,323,871 and 100,046,392 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
11

 
 
10

Class B common stock, $0.0001 par value, 50,000,000 shares authorized, 20,999,784 and 30,255,184 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
2

 
 
3

Additional paid in capital
1,022,529

 
 
925,902

Accumulated other comprehensive income (loss)
(190
)
 
 
2,523

Retained earnings
303,974

 
 
271,365

Stockholders’ equity
1,326,326

 
 
1,199,803

Non-controlling interest
244,101

 
 
350,454

Total liabilities and stockholders’ equity
$
3,068,979

 
 
$
3,010,713



5


HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands, except shares and per share data)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
 
June 30, 2018
 
June 30, 2019
 
 
June 30, 2018
Net revenue
$
241,060

 
 
$
215,849

 
$
463,798

 
 
$
424,592

Cost of goods sold
157,610

 
 
148,992

 
305,160

 
 
286,494

Gross profit
83,450

 
 
66,857

 
158,638

 
 
138,098

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Advertising and marketing
10,696

 
 
8,938

 
19,559

 
 
17,808

Selling expense
8,310

 
 
7,751

 
16,830

 
 
15,139

General and administrative
19,276

 
 
11,185

 
36,747

 
 
25,746

Amortization of customer relationships
6,009

 
 
5,994

 
11,994

 
 
11,989

Other operating expense (income)
2,278

 
 
(1,660
)
 
517

 
 
(104
)
Total operating costs and expenses
46,569

 
 
32,208

 
85,647

 
 
70,578

Operating income
36,881

 
 
34,649

 
72,991

 
 
67,520

Other expense (income):
 
 
 
 
 
 
 
 
 
Interest expense, net
10,302

 
 
9,749

 
20,538

 
 
19,089

Gain on buyout of tax receivable agreement

 
 

 

 
 
(12,372
)
Other expense
846

 
 
86

 
1,286

 
 
169

Total other expense
11,148

 
 
9,835

 
21,824

 
 
6,886

Income before income taxes
25,733

 
 
24,814

 
51,167

 
 
60,634

Income tax expense
9,064

 
 
194

 
7,886

 
 
6,712

Net income
16,669

 
 
24,620

 
43,281

 
 
53,922

Less: Net income attributable to the non-controlling interest
5,186

 
 
5,337

 
10,672

 
 
10,799

Net income attributable to Class A stockholders
$
11,483

 
 
$
19,283

 
$
32,609

 
 
$
43,123

 
 
 
 
 
 
 
 
 
 
Earnings per Class A share:
 
 
 
 
 
 
 
 
 
Basic
$
0.11

 
 
$
0.19

 
$
0.32

 
 
$
0.43

Diluted
$
0.10

 
 
$
0.18

 
$
0.31

 
 
$
0.41

Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
105,072,322

 
 
99,939,642

 
102,618,951

 
 
99,916,161

Diluted
109,509,195

 
 
104,773,094

 
105,338,010

 
 
104,911,474

Results of Operations by Segment
Three Months Ended
 
Six Months Ended
(In thousands)
June 30, 2019
 
 
June 30, 2018
 
June 30, 2019
 
 
June 30, 2018
Net Revenue
 
 
 
 
 
 
 
 
 
Sweet Baked Goods
$
229,273

 
 
$
204,237

 
$
442,151

 
 
$
403,529

In-Store Bakery
11,787

 
 
11,612

 
21,647

 
 
21,063

 
$
241,060

 
 
$
215,849

 
$
463,798

 
 
$
424,592

Gross Profit
 
 
 
 
 
 
 
 
 
Sweet Baked Goods
$
80,925

 
 
$
64,359

 
$
154,069

 
 
$
133,797

In-Store Bakery
2,525

 
 
2,498

 
4,569

 
 
4,301

 
$
83,450

 
 
$
66,857

 
$
158,638

 
 
$
138,098



6


HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
 
 
 
Six Months Ended
 
 
 
 
June 30, 2019
 
 
June 30, 2018
 
Operating activities
 
 
 
 
 
 
Net income
$
43,281

 
 
$
53,922

 
 
Depreciation and amortization
21,939

 
 
20,648

 
 
Impairment of property, goodwill and intangibles
1,005

 
 
1,417

 
 
Debt discount (premium) amortization
(536
)
 
 
(541
)
 
 
Non-cash change in tax receivable agreement
(483
)
 
 
(14,124
)
 
 
Share-based compensation
4,780

 
 
2,721

 
 
Deferred taxes
5,637

 
 
4,994

 
 
Change in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
(22,508
)
 
 
(8,458
)
 
 
 
Inventories
(4,313
)
 
 
3,558

 
 
 
Prepaids and other current assets
(1,661
)
 
 
(1,643
)
 
 
 
Accounts payable and accrued expenses
18,168

 
 
17,187

 
 
 
Customer trade allowances
8,755

 
 
1,501

 
 
Net cash provided by operating activities
74,064

 
 
81,182

 
 
 
   
 
 
 
 
 
Investing activities
 
 
 
 
 
 
Purchases of property and equipment
(15,398
)
 
 
(19,836
)
 
 
Acquisition of business, net of cash

 
 
(23,910
)
 
 
Acquisition and development of software assets
(2,907
)
 
 
(1,591
)
 
 
Net cash used in investing activities
(18,305
)
 
 
(45,337
)
 
 
 
 
 
 
 
 
 
Financing activities
 
 
 
 
 
 
Repayments of long-term debt and capital lease obligation
(5,056
)
 
 
(5,051
)
 
 
Distributions to non-controlling interest
(4,916
)
 
 
(9,463
)
 
 
Payment of taxes related to the net issuance of employee stock awards
(124
)
 
 
(407
)
 
 
Cash received from exercise of options
23

 
 

 
 
Payments on tax receivable agreement
(2,779
)
 
 
(41,353
)
 
 
Net cash used in financing activities
(12,852
)
 
 
(56,274
)
 
Net increase (decrease) in cash and cash equivalents
42,907

 
 
(20,429
)
 
Cash and cash equivalents at beginning of period
146,377

 
 
135,701

 
Cash and cash equivalents at end of period
$
189,284

 
 
$
115,272

 
 
 
 
 
 
 
 
 
Supplemental Disclosures of Cash Flow Information:
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
Interest
$
22,472

 
 
$
20,358

 
 
Net taxes paid
$
1,815

 
 
$
3,959

 
Supplemental disclosure of non-cash investing:
 
 
 
 
 
 
Accrued capital expenditures
$
1,527

 
 
$
1,388

 

7


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 or as alternatives to cash provided by operating activities as a measure of liquidity (each 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 and liquidity, 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.

8


HOSTESS BRANDS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited, amounts in thousands, except shares and per share data)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
Reconciliation of Adjusted Gross Profit
 
 
 
 
 
 
 
 
Gross profit
 
$
83,450

 
$
66,857

 
$
158,638

 
$
138,098

Non-GAAP adjustments:
 
 
 

 
 
 
 
Acquisition and integration costs
 

 
1,802

 
1,563

 
1,864

Special employee incentive compensation
 

 
602

 
33

 
1,552

Adjusted gross profit
 
$
83,450

 
$
69,261


$
160,234

 
$
141,514

 
 
 
 
 
 
 
 
 
Adjusted gross margin
 
34.6
%
 
32.1
%
 
34.5
%
 
33.3
%
 
 
 
 
 
 
 
 
 
Reconciliation of Adjusted EBITDA
 
 
 
 
 
 
 
 
Net income
 
$
16,669

 
$
24,620

 
$
43,281

 
$
53,922

Non-GAAP adjustments:
 
 
 
 
 
 
 
 
Income tax provision
 
9,064

 
194

 
7,886

 
6,712

Interest expense, net
 
10,302

 
9,749

 
20,538

 
19,089

Depreciation and amortization
 
11,060

 
10,557

 
21,939

 
20,648

Share-based compensation
 
2,499

 
1,098

 
4,780


2,721

Tax Receivable Agreement remeasurement and gain on buyout
 
1,278

 
(1,752
)
 
(483
)
 
(14,124
)
Impairment of property and equipment, intangible assets and goodwill
 
1,005

 

 
1,005

 
1,417

Acquisition and integration costs
 

 
1,817

 
1,563

 
1,864

Facility transition costs
ii.
816

 

 
816

 

Special employee incentive compensation
 
1,555

 
602

 
1,910

 
1,585

Other
i
840

 
712

 
1,280

 
796

Adjusted EBITDA
 
$
55,088

 
$
47,597

 
$
104,515

 
$
94,630

 
 
 
 
 
 
 
 
 
Reconciliation of Adjusted Net Income and Adjusted EPS
 
 
 
 
 
 
 
 
Net income
 
$
16,669

 
$
24,620

 
$
43,281

 
$
53,922

Non-GAAP adjustments:
 

 
 
 
 
 
 
Tax Receivable Agreement remeasurement and gain on buyout
 
1,278

 
(1,752
)
 
(483
)
 
(14,124
)
Remeasurement of deferred taxes
 
2,823

 
(4,995
)
 
(3,224
)
 
(4,995
)
Impairment of property and equipment, intangible assets and goodwill
 
1,005

 

 
1,005

 
1,417

Acquisition and integration costs
 

 
1,817

 
1,563

 
1,864

Facility transition costs
ii.
816

 

 
816

 

Special employee incentive compensation
 
1,555

 
602

 
1,910

 
1,585

Other
i.
840

 

 
840

 

Tax impact of adjustments
 
(928
)
 
(57
)
 
(1,337
)
 
1,064

Adjusted net income
 
24,058

 
20,235

 
44,371

 
40,733

Non-controlling interest allocation of net income
 
(5,186
)
 
(5,337
)
 
(10,672
)
 
(10,799
)
Non-controlling interest allocation of adjustments
 
(679
)
 
(562
)
 
(1,125
)
 
(1,131
)
Adjusted net income attributed to Class A stockholders
 
$
18,193

 
$
14,336

 
$
32,574

 
$
28,803

Weighted average Class A shares outstanding-diluted
 
109,509,195

 
104,773,094

 
105,338,010

 
104,911,474

Adjusted EPS
 
$
0.17

 
$
0.14

 
$
0.31

 
$
0.27


i. For the three and six months ended June 30, 2019 and 2018, other expenses included transaction and other non-operating professional fees.
ii. For the three and six months ended June 30, 2019, facility transition costs include non-capitalizable costs incurred to move the Company's primary distribution center and category sales and marketing functions.

9
q22019earningsinvestorpr
® Second Quarter 2019 Earnings Investor Presentation August 7, 2019


 
Disclaimer Forward Looking Statements This investor presentation contains statements reflecting our views about the future performance of Hostess Brands, Inc. and its subsidiaries (referred to as “Hostess Brands” or the “Company”) that constitute “forward-looking statements” 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 our future operating performance and statements addressing events and developments that we expect or anticipate will occur are also considered as forward-looking statements. All forward looking statements included herein are made only as of the date hereof. We undertake 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; our ability to maintain, extend or expand our reputation and brand image; failing to protect our intellectual property rights; our ability to leverage our brand value to compete against lower-priced alternative brands; our ability to correctly predict, identify and interpret changes in consumer preferences and demand and offering new products to meet those changes; our ability to operate in a highly competitive industry; our ability to maintain or add additional shelf or retail space for our products; our ability to continue to produce and successfully market products with extended shelf life; our ability to successfully integrate, achieve expected synergies and manage our acquired businesses and brands; our ability to drive revenue growth in our key products or add products that are faster-growing and more profitable; volatility in commodity, energy, and other input prices and our ability to adjust our pricing to cover any increased costs; the availability and pricing of transportation to distribute our products; our dependence on our major customers; our geographic focus could make us particularly vulnerable to economic and other events and trends in North America; consolidation of retail customers; increased costs to comply with governmental regulation; general political, social and economic conditions; increased healthcare and labor costs; the fact that a portion of our workforce belongs to unions and strikes or work stoppages could cause our business to suffer; product liability claims, product recalls, or regulatory enforcement actions; unanticipated business disruptions; dependence on third parties for significant services; ability to achieve expected synergies and benefits and performance from strategic acquisitions; inability to identify or complete strategic acquisitions; our insurance not providing adequate levels of coverage against claims; failures, unavailability, or disruptions of our information technology systems; departure of key personnel or a highly skilled and diverse workforce; and our ability to finance our indebtedness on terms favorable to us; and other risks as set forth under the caption “Risk Factors” from time to time in our Securities and Exchange Commission filings. Industry and Market Data In this Investor Presentation, Hostess Brands relies on and refers to information and statistics regarding market shares in the sectors in which it competes and other industry data. Hostess Brands obtained this information and statistics from third-party sources, including reports by market research firms, such as Nielsen. Current and prior period market data presented herein reflects restatements of Convenience Channel data executed by Nielsen during the second quarter of 2019 and fourth quarter of 2018. Additionally, prior period Nielsen data was adjusted to exclude the Cloverhill® and Big Texas® brands in the periods they were not owned by Hostess. Hostess Brands has supplemented this information where necessary with information from discussions with Hostess customers and its own internal estimates, taking into account publicly available information about other industry participants and Hostess Brands’ management’s best view as to information that is not publicly available. Use of Non-GAAP Financial Measures This Investor Presentation includes non-GAAP financial measures, including earnings before interest, taxes, depreciation, amortization and other adjustments to eliminate the impact of certain items that we do not consider indicative of our ongoing performance (“Adjusted EBITDA”), Adjusted EBITDA Margin, Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Net Income and Adjusted Earnings per Share (“Adjusted EPS”). Adjusted EBITDA, Adjusted Gross Profit, Adjusted Net Income and Adjusted EPS exclude certain items included in the comparable GAAP financial measure. Adjusted EBITDA Margin represents Adjusted EBITDA divided by net revenues. Adjusted Gross Margin represents Adjusted Gross Profit divided by net revenues, Hostess Brands believes that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to Hostess Brands’ financial condition and results of operations. Hostess Brands’ management uses these non-GAAP financial measures to compare Hostess Brands’ performance to that of prior periods for trend analysis, for purposes of determining management incentive compensation, and for budgeting and planning purposes. Hostess Brands believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends. Management of Hostess Brands does not consider these non-GAAP financial measures in isolation or as an alternative to financial measures determined in accordance with GAAP. Other companies may calculate Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Net Income, Adjusted EPS, and other non-GAAP measures differently, and therefore Hostess Brands’ non-GAAP measures may not be directly comparable to similarly titled measures of other companies. Totals in this Investor Presentation may not add up due to rounding. 2


 
Hostess Brands Celebrating 100 Years of Delighting Consumers Key Highlights LTM Net Sales: $890 million Efficient Continuous Manufacturing Proven LTM Adj. EBITDA: Iconic Brands 19.0% $196 million Innovation to and Distribution Scalable Market Share Drive Growth Model Platform LTM Operating Cash Flow: $137 million Financial data are for the last twelve months (“LTM”) ended June 30, 2019 as reported. Adjusted EBITDA is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” and the Appendix for an explanation of all non-GAAP financial measures and reconciliations to the comparable GAAP measures. Market Share for the Company within the Sweet Baked Goods (“SBG”) category per Nielsen U.S. total universe, 13 weeks ending June 29, 2019 reflects the restatement of convenience channel data executed by Nielsen during the second quarter of 2019. 3


 
At Hostess Brands . . . We delight consumers and build iconic brands supported by our core competencies to drive profitable growth Strong Brand Equity Strong Brand Our Growth Strategy Equity Ø Strengthening our core Hostess brand and expanding into adjacent categories through innovation and strong partnerships with our Significant Low Cost customers Cash Flow Model Ø Leveraging our highly efficient and CORE profitable business model COMPETENCIES Ø Executing strategic acquisitions to Collaborative accelerate growth while effectively Continuous Customer managing our capital structure Innovation Partnerships 4


 
Strong Market Position Growing in the SBG Category Market Share Point-of-Sale 18.4% $1,220 CAGR $1,173 17.7% 3.9% $1,118 GainingPoint Almost Annually 1 Share 16.8% $1,045 15.7% in millions 2016 2017 2018 2019 2016 2017 2018 2019 Source: Nielsen, Total Nielsen Universe for the Company within the SBG Category. Point of Sale and Market Share, 52 weeks ending 7/2/16, 7/1/17, 6/30/2018 & 6/29/19. Current and prior period market data presented herein reflects the restatements of Convenience Channel data executed by Nielsen during the fourth quarter 5 2018 and the second quarter of 2019. Additionally, prior period Nielsen data was adjusted to exclude the Cloverhill® and Big Texas® brands in the periods they were not owned by Hostess.


 
Sustainable, Profitable Growth Through Strengthening Scalable Platforms ▪ Core Hostess continues to grow with strong customer partnerships and sharpened analytical capabilities ▪ Innovation focus to fuel growth in the core and complementary indulgent and snacking categories based on consumer-centric ideas ▪ Operating with speed and agility, while investing in high ROI activities ▪ Leveraging consumer and customer insights to enhance growth ▪ Additions of top talent in areas to complement existing team ▪ Consistent, strong cash generation provides strategic options to create shareholder value 6


 
Progress Against 2019 Growth Pillars Pillars for Growth YTD 2019 Actions ü Grow the Core Profitably drive core growth by Multi-faceted price increase across all channels completed ü building the consumer brand and building customer Developing new tools and capabilities to improve analytics relationships ü Expanding Hostess Partner Program to grocery ü Grow Through Innovation Accelerate Launch of Birthday Cupcakes and Totally Nutty ü growth through innovation based on consumer Expansion of Breakfast and Value brands insights and industry-leading capabilities ü Continued development of pipeline of innovative products ü Cloverhill Business improved profitability Improve Through Agility & Efficiency ü Developing in-house distribution capabilities in Kansas, expected to Operate at lowest practical cost and optimum value generate significant savings and enhanced servicing by Q1 2020 to consumers ü Achieved additional core bakery savings Cultivate Talent & Capabilities ü Hired Chief Human Resources Officer and Chief Marketing Officer ü Focused on investing in talent, insights and Expanding new hub for marketing, innovation and category management information to create industry-leading capabilities to in Chicago with key new hires support the next phase of growth ü Investing in new R&D Center ü Leverage Strong Cash Flow Generated Generated operating cash flow of $74.1 million ü from high cash conversion rates and efficient Improved leverage by 0.5x or 11% and on pace to achieve full year target operating capital needs ü Monetizing ISB operations 7


 
Current Results and Outlook


 
Second Quarter 2019 Highlights ▪ Net revenue increased $25.2 million, or 11.7%, to $241.1 million primarily from strong growth in Hostess® branded core products driven by innovation, distribution and merchandising support as well as realization of price increases. ▪ Total Company point of sale increased 6.3% and market share of 19.0% increased by 81 bps compared to the second quarter of 2018.* ▪ Adjusted EBITDA increased 15.7% or $7.5 million to $55.1 million, or 22.9% of net revenue. ▪ Cash and cash equivalents were $189.3 million as of June 30, 2019 with a leverage ratio of 4.0x, both driven by second quarter operating cash flows of $74.1 million. * Point of sale and market share data for the 13 weeks ended June 29, 2019 versus the comparable period in the prior year. Market data presented herein reflects restatements of Convenience Channel data executed by Nielsen during fourth quarter of 2018 and the second quarter of 2019. 9


 
Consolidated Financial Results Meaningful Growth in Revenue, Adjusted Gross Profit and Adjusted EBITDA Quarter Ended June 30, Year-to-Date June 30, Change Change ($ in millions, except per share data) 2019 2018 $ % 2019 2018 $ % Net Revenue $ 241.1 $ 215.8 $ 25.3 11.7% $ 463.8 $ 424.6 $ 39.2 9.2% Adjusted Gross Profit $ 83.5 $ 69.3 $ 14.2 20.5% $ 160.2 $ 141.5 $ 18.7 13.2% Adjusted Gross Margin 34.6% 32.1% 2.5% 34.5% 33.3% 1.2% Adjusted EBITDA $ 55.1 $ 47.6 $ 7.5 15.8% $ 104.5 $ 94.6 $ 9.9 10.5% Adjusted EPS $ 0.17 $ 0.14 $ 0.03 21.4% $ 0.31 $ 0.27 $ 0.04 14.8% Adjusted Gross Profit, Adjusted Gross Margin, Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures. See “Use of Non-GAAP Financial Measures” and the Appendix for an explanation of all non-GAAP financial measures and reconciliations to the comparable GAAP measures. 10


 
QTD Point of Sale & Market Share Across Multiple Channels POS Change 4.3% 1.3% 0.9% 11.8% 60.2% 6.2% $160 $140 $120 $100 ) s n o i l $80 l i M ( POS Dollars $60 $40 $20 $0 Convenience Grocery Drug Dollar Club Mass 13 WE 6/30/2018 13 WE 6/29/2019 Market Share 24.2% 13.6% 43.6% 23.2% 23.1% 16.0% Market Share 90 Change (bps) 10 (100) 110 850 20 Point of sale and market share data for the 13 weeks ended 6/29/19 as compared to the comparable period in the prior year. Data reflects restatements of the Convenience Channel data executed by Nielsen during the fourth quarter of 2018 and the second quarter of 2019. Prior period Nielsen data was adjusted to exclude the Cloverhill® and Big Texas® brands in the periods they were not owned by Hostess. 11


 
Full-Year 2019 Guidance Update 2019 Previous 2019 Updated 2018 Actuals Guidance Guidance ($ in millions, except ratio, per share data and tax rate) Growth well above Growth well above Net Revenue $850.4 the SBG Category the SBG Category Adjusted EBITDA $186.2 $200 - $210 $200 - $210 Adjusted EPS $0.54 $0.57 - $0.62 $0.57 - $0.62 Leverage Ratio 4.5x 3.5x - 3.7x 3.2x - 3.4x Cash Flow from Operations $143.7 $150 - $160 $145 - $155 Capital Expenditures $ 48.4 $30 - $35 $30 - $35 Effective Tax Rate 18.2% 21% - 22% 21% - 22% Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures. See “Use of Non-GAAP Financial Measures” and the Appendix for an explanation of all non-GAAP financial measures and reconciliations to the comparable GAAP measures. The Company’s leverage ratio is net debt (total long-term debt less cash) divided by adjusted EBITDA. 12


 
Divestiture of In-Store Bakery ▪ Signed definitive agreement to sell Superior In-Store Bakery operations for $65 million in cash, subject to post closing adjustments. The transaction is expected to close during the third quarter. The Superior business was acquired in 2016 for $51 million. ▪ The sale allows focus of future investments on areas that better leverage core competencies and pillars for growth. ▪ Expect to use the net proceeds from the sale to pursue a range of potential strategic options, including reinvesting in its business, de-leveraging the balance sheet and pursuing potential strategic acquisitions. ▪ The ISB sale transaction is expected to result in lower 2019 Adjusted EBITDA of approximately $3 million and lower Adjusted EPS of approximately $0.01 per share. On an annualized basis, the sale is expected to reduce Adjusted EBITDA by approximately $7 million and be dilutive to Adjusted EPS by approximately $0.03 per share. The Company does not provide a reconciliation of forward-looking information because of the inherent difficulty forecasting and quantifying certain amounts necessary for such reconciliations. 13


 
A Look Ahead to 2019 Revenue Growth Well Above the SBG Category & Significant Adjusted EBITDA Growth Q1 Q2 Q3 Q4 þ Execute Pricing & þ Expand Distribution ¨ Continue ¨ Finish 2019 Launch Breakfast of New Products Distribution Build Strong with of Breakfast & Significant þ Accelerate Growth Other Innovation Revenue & Behind Improved EBITDA Growth Merchandising ¨ Strong Back-to- Execution School ¨ Substantially Programming Improve Net Leverage 14


 
Appendix


 
Non-GAAP Reconciliations Adjusted Gross Profit & Adjusted Gross Margin Three Months Three Months Six Months Six Months Ended June 30, Ended June 30, Ended June 30, Ended June 30, ($ in millions) 2019 2018 2019 2018 Net revenue $ 241.1 $ 215.8 $ 463.8 $ 424.6 Cost of goods sold 157.6 149.0 305.2 286.5 Gross profit $ 83.5 $ 66.9 $ 158.6 $ 138.1 Gross margin 34.6% 31.0% 34.2% 32.5% Non-GAAP adjustments: Acquisition and integration costs — 1.8 1.6 1.9 Special employee incentive compensation — 0.6 — 1.6 Adjusted gross profit $ 83.5 $ 69.3 $ 160.2 $ 141.6 Adjusted gross margin 34.6% 32.1% 34.5% 33.3% 16


 
Non-GAAP Reconciliations Adjusted EBITDA Three Months Three Months Six Months Six Months Ended June Ended June Ended June Ended June ($ in millions) 30, 2019 30, 2018 30, 2019 30, 2018 Net income $ 16.7 $ 24.6 $ 43.3 $ 53.9 Non-GAAP adjustments: Income tax provision 9.1 0.2 7.9 6.7 Interest expense, net 10.3 9.7 20.5 19.1 Depreciation and amortization 11.1 10.6 21.9 20.6 Share-based compensation 2.5 1.1 4.8 2.7 Tax Receivable Agreement remeasurement and gain on buyout 2.3 (1.8) (0.5) (14.1) Impairment of property and equipment, intangible assets and goodwill 1.0 — 1.0 1.4 Acquisition and integration costs — 1.8 1.6 1.9 Facility transition costs 0.8 — 0.8 — Special employee incentive compensation 1.6 0.6 1.9 1.6 Other 0.8 0.7 1.3 0.8 Adjusted EBITDA $ 55.1 $ 47.6 $ 104.5 $ 94.6 17


 
Non-GAAP Reconciliations Adjusted Net Income & Adjusted EPS Three Months Three Months Six Months Six Months Ended June 30, Ended June Ended June Ended June ($ in millions, except shares and per share) 2019 30, 2018 30, 2019 30, 2018 Net income $ 16.7 $ 24.6 $ 43.3 $ 53.9 Non-GAAP adjustments: Tax Receivable Agreement remeasurement and gain on buyout 1.3 (1.8) (0.5) (14.1) Remeasurement of deferred taxes 2.8 (5.0) (3.2) (5.0) Impairment of property and equipment, intangible assets and goodwill 1.0 — 1.0 1.4 Acquisition and integration costs — 1.8 1.6 1.9 Facility transition costs 0.8 — 0.8 — Special employee incentive compensation 1.6 0.6 1.9 1.6 Other 0.8 — 0.8 — Tax impact of adjustments (0.9) (0.1) (1.3) 1.1 Adjusted net income 24.0 20.2 44.4 40.7 Non-controlling interest allocation of net income (5.2) (5.3) (10.7) (10.8) Non-controlling interest allocation of adjustments (0.7) (0.6) (1.1) (1.1) Adjusted net income attributed to Class A stockholders $ 18.1 $ 14.4 $ 32.6 $ 28.8 Weighted average Class A shares outstanding-diluted 109,509,195 104,773,094 105,338,010 104,911,474 Adjusted EPS $ 0.17 $ 0.14 $ 0.31 $ 0.27 18