PAGE
0
®
®
HOSTESS BRANDS
INVESTOR PRESENTATION
November 2016
PAGE
1
®
DISCLAIMER
Forward Looking Statements
This investor presentation contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 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. Hostess 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 our reputation and brand image; protecting our intellectual property rights; leveraging our 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; our continued ability to produce and successfully market products with extended shelf life; 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; our dependence on our major customers; our geographic focus
could make us 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 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; our insurance may not provide adequate levels of coverage against claims;
failures, unavailability, or disruptions of our information technology systems; our ability to achieve expected synergies and benefits and performance from our strategic acquisitions;
dependence on 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 from time to time in
our Securities and Exchange Commission filings, including, without limitation, our Annual Report on Form 10-K.
Industry and Market Data
In this Investor Presentation, Hostess relies on and refers to information and statistics regarding market shares in the sectors in which it competes and other industry data. Hostess obtained
this information and statistics from third-party sources, including reports by market research firms, such as Nielsen. Hostess 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’
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 and amortization (“Adjusted EBITDA”), Adjusted EBITDA Margin and
Free Cash Flow. In this Investor Presentation, Adjusted EBITDA and Adjusted EBITDA Margin exclude certain add-backs. Adjusted EBITDA Margin represents Adjusted EBITDA divided by
total revenues. Free Cash Flow conversion is defined as Adjusted EBITDA minus capital expenditures divided by Adjusted EBITDA. You can find the reconciliation of these measures to the
nearest comparable GAAP measures in the Appendix.
Hostess believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to
Hostess’ financial condition and results of operations. Hostess’ management uses these non-GAAP measures to compare Hostess’ performance to that of prior periods for trend analyses, for
purposes of determining management incentive compensation, and for budgeting and planning purposes. These measures are used in monthly financial reports prepared for management and
Hostess’ board of directors.
Hostess 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 does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP.
Other companies may calculate Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and other non-GAAP measures differently, and therefore Hostess’ Adjusted EBITDA, Adjusted
EBITDA Margin, Free Cash Flow and other non-GAAP measures may not be directly comparable to similarly titled measures of other companies.
PAGE
2
®
Hostess
EXPERIENCED SENIOR LEADERSHIP
Dean Metropoulos
Executive Chairman
Bill Toler
President & CEO
Tom Peterson
EVP & CFO
Executive Chairman of Hostess
Founder and Executive Chairman of Metropoulos & Co.
More than 30 years of successful experience revamping iconic brands throughout
the consumer space
Strong track record of growing revenues, reducing costs and enhancing capital
efficiency of portfolio companies
President and CEO of Hostess
Former CEO and President of AdvancePierre Foods and former President of
Pinnacle Foods
More than 30 years of executive experience in the food and consumer sector
Proven track record for brand growth, strategic planning and operations
Served as Hostess Corporate Controller since relaunch and promoted to CFO in
March 2016
Formerly a Managing Director at FTI Consulting and on the restructuring team of
Legacy Hostess
More than 20 years of accounting and finance expertise in a broad range of
industries
PAGE
3
®
®I. BUSINESS OVERVIEW
PAGE
4
®
KEY BUSINESS THEMES
Iconic brands with nearly 100-year history
Hostess business transformation:
Significant capital investment (~$150 million) since the relaunch has driven optimization across
manufacturing, distribution and implementation of highly analytical IT systems
Strong customer support – Hostess brand driving Sweet Baked Goods (“SBG”) category growth while
providing retailers the premium brand consumers want, improved penny profits, and higher margins
The growth potential of this platform is strong and expanding
Core: Innovation and Brand extensions – Flavors, Forms, Packaging, Bread, Premium, Better For You
White-space: In-Store Bakery, Frozen Retail, Foodservice, and International opportunities largely untapped
Acquisitions: Recent acquisition of Superior Cake Products (“Superior”) aimed at accelerating development in the ISB
category
Best-in-class financial position
Strong and sustainable top-line growth
Industry-leading EBITDA margins of ~29%(1)
Significant Adjusted EBITDA to Free Cash Flow Conversion(2)
Clean balance sheet – No legacy issues
Hostess Brand
Warehouse ModelShelf-life Technology
(1) See Appendix for an explanation of all non-GAAP measures and a reconciliation to the most comparable GAAP measures.
(2) Defined as (Adj. EBITDA – Capex) / Adj. EBITDA. Capex includes maintenance capex and expansion capex.
Hostess is a $1bn+ brand at Retail with upside potential
PAGE
5
®
$2.68
$3.03
$4.40 $4.44
$4.86
BRAND STRENGTH DRIVING GROWTH AND
CATEGORY
Special emotional relationship with consumers
U.S. consumers share a special emotional relationship with the 96
year old Hostess, a brand that defines the rapidly growing
“Indulgent Snacking” trend
96
year
history Brand
awareness
Strong growth momentum(5)
Despite two years of rapid gains, Hostess still has room to grow
Leading category growth
Hostess has contributed over 70% of the SBG category’s growth
during recent 52 weeks
Recent 52 weeks
Premium price point(1)
Hostess products sell at a premium to the competition and the gap
continues to widen
Private
label
SBG
Avg.
$3.66
82%
premium($ / lb.)
(2) (3)
Category growth
Hostess contribution to
category growth(4)
Market Share
(Nielsen Total Universe)
Notes: Hostess data does not include Superior.
(1) Nielsen U.S. total universe, 52 weeks ending 9/10/2016.
(2) Nielsen U.S. total universe, 12 weeks ending 11/3/2012 compared to 12 weeks ending 1/26/2013.
(3) Nielsen U.S. total universe, 52 weeks ending 9/10/2016.
(4) Nielsen U.S. 52 weeks ending 8/13/2016.
(5) Hostess market share, Total Nielsen Universe. Nielsen U.S. 12 weeks ending 10/6/2012, 24 weeks ending 1/4/2014, 52 weeks ending 12/27/2014, 1/3/2015, and year-to date ending 9/10/2016.
Market share based on retail sales dollars.
(9%)
11%
Hostess hiatus Category growth
since relaunch
84%
16%
Hostess All Other
10.6%
13.2%
14.9%
16.0%
22.3%
2H13 2014 2015 2016 OldCo
PAGE
6
®
16%
22%
2016 OldCo
HOSTESS STILL HAS SIGNIFICANT HEADROOM FOR
GROWTH AND SHARE GAINS
Hostess $ share of SBG category1
Distribution expansion (more
items in more stores)
Custom SKUs
Seasonal flavors
Display execution
Portfolio optimization
eCommerce
Significant Upside Remains
Notes: Hostess data does not include Superior.
1 Hostess market share, Total Nielsen Universe. Nielsen U.S. 12 weeks ending 10/6/2012, year-to-date ending 9/10/2016. Market share based on retail sales dollars.
®
~6% gap to
Old Co
PAGE
7
®
HOSTESS HAS SIGNIFICANT ROOM FOR GROWTH
BOTH IN AND BEYOND SBG
FREEZER
AISLE
FOOD-SERVICE
INTERNATIONAL
IN-STORE
BAKERY
CLUB
NEW
FORMS
NEW
FILLINGS
NEW
FLAVORS
$1.1B $1.5B $2B
LICENSING
T
O
D
A
Y
1
IN
-A
IS
L
E
W
H
IT
E
S
P
A
C
E
2
N
E
W
A
IS
L
ES
A
N
D
C
H
A
N
N
E
L
S
2
BFY
1 Current sales, 8/13/2016, AC Nielsen total universe.
2 Estimated based on assumptions of reasonable share gains against market size in new snack categories.
PAGE
8
®
Acquisition of Superior Cake Products, Inc.1
Cross-category licensing partnerships
OPPORTUNITIES FOR THE FUTURE
Core
New products and
platforms
Line extensions and
flavors
Seasonal LTO
programs
ACV expansion
White Space
Frozen Retail
Food Service
Club
International
School items
Acquisitions &
Licensing
Great Foundation Culture of Growth Innovation
Notes: Mars is a registered trademark of Mars, Incorporated. Ghostbusters is a registered trademark of Columbia Pictures Industries, Inc.
1 May 2016.
PAGE
9
®
HOSTESS’ APPROACH TO BETTER-FOR-YOU
Objective: provide better-for-you options for consumers while maintaining brand equity and taste credentials
Today – “0 grams trans fat per serving and no
PHOs”
Short-term – Label simplification and focus on
natural flavors and colors
Long-term – Formulation changes to remove
animal fats and other targeted ingredients
Today – New Mini Muffins deliver 8g whole
grain. Banana muffins: “smart snack” for
school nutrition compliance
Longer-term – New platforms to deliver
positive nutrition
Removal of
negatives
Addition of
positives
Phased approach to
“cleaner label” on core
New items delivering BFY benefits
Two-Pronged
BFY Strategy
®
PAGE
10
®
®II. FINANCIAL OVERVIEW
PAGE
11
®
SIGNIFICANT GROWTH SINCE RE-LAUNCH WITH
MEANINGFUL UPSIDE POTENTIAL
Adj. EBITDA Capital Expenditures
Net Revenue Gross Profit(1)
($ in millions) ($ in millions)
($ in millions)
Notes: Superior Cake Products, Inc. figures are unaudited based upon actual/estimated results and do not contain any adjustments as a result of applying purchase accounting. Some figures may not add up exactly due to
rounding. See Appendix for an explanation of all non-GAAP measures and a reconciliation to the most comparable GAAP measures.
(1) Gross profit figures exclude special employee incentive compensation as well as costs associated with Recall.
Hostess Standalone Superior Standalone
555
621
679
27
33
39
$582
$654
$718
2014A 2015A LTM 9/30/16A
145
178
202 2
4
6
$147
$182
$208
2014A 2015A LTM 9/30/16A
234
265
296
5
7
10
$239
$272
$306
2014A 2015A LTM 9/30/16A
% Margin: 41% 42% 43%
% Margin: 25% 28% 29%
$55
$28 $29
2014A 2015A LTM 9/30/16A
($ in millions)
PAGE
12
®
136
162
41 56
3
2
1
$139
$164
$42
$56
YTD '15 YTD '16 Q3 '15 Q3 '16
204
239
62
83
5
4
2
$209
$243
$64
$83
YTD '15 YTD '16 Q3 '15 Q3 '16
STRONG MOMENTUM CONTINUES IN Q3 2016
Adj. EBITDA Adj. EBITDA Margin
Net Revenue Gross Profit(1)
($ in millions) ($ in millions)
($ in millions)
Q3 2016 Highlights:
Hostess continues significant
growth with 24% on a GAAP
basis and 18% pro forma for
Superior pre-acquisition results,
driven by new product launches
and continued development in
small format
Hostess drove gross margin
increase of 3.7% and $19
million of total gross profit
dollars, a 29% increase
Hostess increased Adjusted
EBITDA by 34%
Hostess Adjusted EBITDA
margin increased 330 bps for
Q3 and 130 bps YTD
474
549
158 196
24
14
8
$498
$563
$166
$196
YTD '15 YTD '16 Q3 '15 Q3 '16
27.9%
29.2%
25.1%
28.4%
YTD '15 YTD '16 Q3 '15 Q3 '16
18%
29%
34%
18%
16%
13%
Hostess(2) Superior(3)
Notes: Some figures may not add up exactly due to rounding. See Appendix for an explanation of all non-GAAP measures and a reconciliation to the most comparable GAAP measures.
(1) Gross profit figures exclude costs associated with Recall.
(2) Hostess YTD’16 financials include the performance of Superior from 5/10/2016 through 9/30/2016 (correspondingly excluded from YTD’16 Superior results).
(3) Superior YTD’16 financials include the performance of Superior from 1/1/2016 through 5/9/2016.
PAGE
13
®
SUSTAINABILITY OF MARGINS
Strong margin profile driven by: (i) the health of the SBG category combined with (ii) Hostess’
leading brand position in the premium segment and (iii) a highly efficient operating model that
could only be implemented through the unique circumstances around the relaunch
No material change in retail pricing model relative to legacy business
Hostess is the leading brand in the premium segment
As a category leader, retailers are supportive of our price structure since it generates a higher penny
profit and profit margin for them relative to other brands
Pricing
~$150 million invested to create state-of-the-art manufacturing capabilities
Hostess has a 3 bakery model that concentrates production of items to individual production lines
Hostess has significant future cost savings potential and cost avoidance opportunities as we grow:
~$25m of annual manufacturing costs are fixed overhead that can be leveraged
Less than 80% capacity utilization today
Significant automation opportunities available
Manufacturing
SG&A functions fully built out with no legacy costs, pension obligations, etc.
~40% of SG&A is fixed (e.g., corporate) that can scale with incremental sales
Third party warehouse and common carrier transportation provides scale and efficiency
SG&A and
Distribution
Driver Commentary
PAGE
14
®
ATTRACTIVE MARGIN PROFILE RELATIVE TO PEERS
LTM 9/30/16 Adj. EBITDA Margins
LTM 9/30/16 FCF Conversion(1)
High growth food & beverage Snacking & baking Mid-cap food
(3)
(2)
Source: Company and public filings; WallStreet Research; FactSet.
Notes: LTM as of 9/30/2016.
(1) FCF conversion defined as (Adj. EBITDA-Capex) / Adj. EBITDA.
(2) Represents LTM 9/30/2016 Hostess FCF Conversion; Adj. EBITDA - $207.4 million, Capex $29.4 million; Hostess LTM 9/30/16 FCF Conversion of 85.8%
High growth food & beverage Snacking & baking Mid-cap food
85.8% 84.5%
45.7%
99.6%
84.3%
78.4% 75.6%
92.0% 90.5% 86.9% 84.8% 81.0% 80.8%
69.3%
Median = 65.1% Median = 81.3% Median = 84.8%
~29%
13.6% 13.3%
32.2%
23.7%
13.7%
11.6%
23.1% 22.6%
20.5%
18.1% 17.5% 17.5%
10.5%
Median = 18.1%Median = 18.7%Median = 13.5%
Hostess’ competitively advantaged business model contributes to its best in class margins
PAGE
15
®
®III. TRANSACTION SUMMARY
PAGE
16
®
At transaction
close
Gores share price $10.00
Shares outstanding (millions)2 130.0
Total equity value $1,300.4
Net debt $991.8
Acquisition enterprise value $2,292.2
SPAC TRANSACTION TERMS
Valuation
Post-transaction ownership breakdown
• Acquisition enterprise value of $2,292 million
• Net Debt of approximately $991M, recapitalized to an all first lien structure at LIBOR + 300 bps
• C. Dean Metropoulos (CDM) is Executive Chairman.
• C. Dean Metropoulos and family affiliates continue to have over $300 million invested in the company
• Completed $350 million private placement (includes $50mm of additional roll-over contribution from C. Dean Metropoulos) with additional PIPE investors
• Transaction completed on November 4, 2016
($ in millions, except per share values)
Sources & uses
($ in millions)
1 Cash consideration is prior to $50mm additional roll-over contribution by CDM and before transaction costs incurred by Hostess.
2 Post-transaction share count includes 37.5mm Gores Holdings public shares, 5.3mm Gores Holdings Founder shares, 46.6mm rollover shares issued to sellers, 32.7mm shares issued
to additional PIPE investors (including 5.4mm to Gores), and 7.9mm shares issued to CDM (including his additional roll-over contribution).
Sources
Gores Holdings cash $375
Additional PIPE investors (excluding $50mm additional roll-over
contribution from CDM)
$300
CDM additional roll-over contribution $50
Total sources $725
Uses
Cash consideration $522
Cash to de-lever $173
Gores Holdings transaction costs $30
Total uses $725
SPAC
shareholders
29%
Additional PIPE
investors (excl. CDM
and Gores)
21%Gores
8%
Apollo
17%
C. Dean
Metropoulos
25%
PAGE
17
®
®IV. APPENDIX
PAGE
18
®
HOSTESS NON-GAAP RECONCILIATIONS (UNAUDITED)
18
Twelve
Months
Ended
30-Sep-16
Nine Months
Ended
30-Sep-16
Three
Months
Ended
30-Sep-16
Twelve
Months
Ended
31-Dec-15
Nine Months
Ended
30-Sep-15
Three
Months
Ended
30-Sep-15
Twelve
Months
Ended
31-Dec-14
Net income (loss) $98.7 $81.5 $33.5 $88.8 $71.6 ($4.1) $81.5
Plus non-GAAP adjustments:
Interest expense, net 71.9 53.8 18.0 50.0 31.8 32.3 37.4
Loss on debt extinguishment(1) – – – 25.9 25.9 – –
Depreciation and amortization 11.7 9.1 3.4 9.8 7.2 2.6 7.1
Unit-based compensation 0.8 0.7 0.3 1.4 1.3 0.9 0.4
Other (income) expense(2) 9.4 9.4 0.2 (8.7) (4.8) 7.3 0.6
Impairment of property and equipment 11.2 7.5 0.2 2.7 1.9 1.5 13.2
Loss on sale/abandonment of property and equipment and
bakery shutdown costs(3)
0.4 0.3 0.0 4.2 1.0 0.2 5.2
Special employee incentive compensation(4) – – – 3.9 – – –
Distributions for Cash taxes and tax sharing and income
tax provision
0.3 0.3 0.0 – – – –
Adjusted EBITDA(5) $204.5 $162.4 $55.6 $177.9 $135.9 $40.7 $145.3
Superior Adjusted EBITDA(6)(7) 3.0 2.0 – 4.2 3.3 0.9 2.1
Adjusted EBITDA (incl. Superior) $207.4 $164.5 $55.6 $182.2 $139.2 $41.6 $147.5
Revenue (incl. Superior) $717.9 $562.5 $196.2 $653.7 $498.3 $166.2 $582.2
EBITDA Margin (Adjusted EBITDA divided by Revenue) 28.9% 29.2% 28.4% 27.9% 27.9% 25.1% 25.3%
Capital Expenditures (incl. Superior) $29.4 $26.0 $11.0 $27.7 $24.3 $6.9 $55.1
FCF Conversion (Adjusted EBITDA incl. Superior – Capital
Expenditures divided by Adjusted EBITDA incl. Superior)
85.8% 84.2% 80.2% 84.8% 82.5% 83.3% 62.6%
(1) For the nine months ended September 30, 2015, Hostess Holdings recorded a loss on a partial extinguishment of Hostess Holdings’ original Term Loan of $25.9 million, which consisted of prepayment penalties of $9.9 million and write-off of
deferred financing costs of $16.0 million. For the year ended December 31, 2015, Hostess Holdings recorded a loss on extinguishment related to Hostess Holdings’ original Term Loan of $25.9 million, which consisted of prepayment penalties of
$9.9 million and write-off of deferred financing costs of $16.0 million.
(2) For the nine months ended September 30, 2016, other expense of $9.4 million primarily consisted of legal and professional fees related to Hostess Holdings’ business combination agreement with Gores Holdings, Inc., transaction costs
attributable to the acquisition of Superior, and the pursuit of a potential acquisition that has since been abandoned. Other income for the nine months ended September 30, 2015, primarily consisted of $12.0 million of proceeds from the sale of
foreign trademark rights and perpetual irrevocable licenses to certain “know how” in certain countries in the Middle East. For the year ended December 31, 2015, other income consisted of $12.0 million of proceeds from the sale of foreign
trademark rights and perpetual irrevocable licenses to certain “know how” in certain countries in the Middle East, partially offset by $3.3 million for professional service fees related to Hostess Holdings’ pursuit of a potential sale of Hostess. For the
year ended December 31, 2014 and the period February 6, 2013 (inception) through December 31, 2013, other expense was $0.6 million and $1.2 million, respectively.
(3) For the nine months ended September 30, 2016, Hostess Holdings incurred a loss on sale/abandonment of property and equipment and bakery shutdown costs of $0.4 million, primarily due to utilities, insurance, taxes and maintenance expenses
related to the Schiller Park, Illinois bakery. For the nine months ended September 30, 2015, Hostess Holdings incurred bakery shutdown costs of $1.0 million associated with the closure and relocation of assets. For the years ended December 31,
2015 and December 31, 2014, Hostess Holdings incurred bakery shutdown costs associated with the closure and relocation of assets of $1.2 million and $1.4 million, respectively. Also, for the year ended December 31, 2014, Hostess Holdings
incurred bakery shutdown costs associated with employee severance and Worker Adjustment and Retraining Notification (WARN) Act payments of $2.9 million. Hostess Holdings recorded a loss on sale and abandonment of property and
equipment of $3.0 million and $0.8 million for the years ended December 31, 2015 and December 31, 2014, respectively.
(4) For the year ended December 31, 2015, a one-time special bonus payment of $2.6 million and $1.3 million was paid to employees at Hostess Holdings’ bakery facilities and corporate employees, respectively, as compensation for their efforts in
the successful recapitalization of Hostess.
(5) Adjusted EBITDA is as presented in public filings with SEC, unlike in prior presentations, CDM’s compensation is not added back.
(6) Hostess YTD’16 financials include the performance of Superior from May 10, 2016 through September 30, 2016 (correspondingly excluded from Superior results).
(7) Superior YTD’16 financials include the performance of Superior from January 1, 2016 through May 9, 2016.
($ in millions)
PAGE
19
®
GLOSSARY
Term Definition
ACV All-commodity volume (%)
BFY Better-for-you
C-store Convenience store
ISB In-store bakery
LTO Limited time offer
PHO Partially hydrogenated oils
SBG Sweet baked goods
SKU Stock keeping unit