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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended
March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-37540
twnk-20200331_g1.jpg
HOSTESS BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware
47-4168492
(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)
7905 Quivira Road
66215
Lenexa,
KS
(Zip Code)
(Address of principal executive offices)
(816701-4600
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTicker Symbol Name of each exchange on which registered
Class A Common Stock, Par Value of $0.0001 per shareTWNKThe Nasdaq Stock Market LLC
Warrants, each exercisable for a half share of Class A Common StockTWNKWThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.:
Large accelerated filer
Accelerated
filer 
Non‑accelerated 
filer 
Smaller reporting company Emerging growth company 
☐ 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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes  No 
Shares of Class A common stock outstanding - 123,202,917 shares at May 5, 2020
Shares of Class B common stock outstanding - 7,440,587 shares at May 5, 2020



HOSTESS BRANDS, INC.
FORM 10-Q
For the Quarter Ended March 31, 2020

INDEX
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.






Cautionary Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. Statements that constitute 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 forward-looking statements. All forward-looking statements included herein are made only as of the date hereof. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. Readers of this Quarterly Report are cautioned not to place undue reliance on any such forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Risks and uncertainties are identified under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and herein, as updated by subsequent filings. The impact of COVID-19 may also exacerbate these risks, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise that the Company is not aware of currently. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

3


HOSTESS BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands, except shares and per share data)

March 31,December 31,
ASSETS
20202019

Current assets:
Cash and cash equivalents
$96,167  $285,087  
Accounts receivable, net
147,064  104,892  
Inventories
50,737  47,608  
Prepaids and other current assets
12,321  15,569  
Total current assets
306,289  453,156  
Property and equipment, net
276,628  242,384  
Intangible assets, net
1,987,931  1,853,315  
Goodwill
701,905  535,853  
Other assets, net
16,824  12,993  
Total assets
$3,289,577  $3,097,701  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Long-term debt and lease obligations payable within one year
$14,437  $11,883  
Tax receivable agreement payments payable within one year
10,800  12,100  
Accounts payable
67,105  68,566  
Customer trade allowances
48,876  45,715  
Accrued expenses and other current liabilities
43,808  21,661  
Total current liabilities
185,026  159,925  
Long-term debt and lease obligations
1,112,388  975,405  
Tax receivable agreement obligations
129,400  126,096  
Deferred tax liability
290,342  256,051  
Other long-term liabilities
1,320    
Total liabilities
1,718,476  1,517,477  
Commitments and Contingencies (Note 13)
Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 123,186,308 and 122,108,086 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
12  12  
Class B common stock, $0.0001 par value, 50,000,000 shares authorized, 7,440,587 and 8,409,834 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
1  1  
Additional paid in capital1,163,263  1,152,055  
Accumulated other comprehensive income (loss)(9,583) (756) 
Retained earnings336,828  334,480  
Stockholders’ equity
1,490,521  1,485,792  
Non-controlling interest
80,580  94,432  
Total liabilities and stockholders’ equity$3,289,577  $3,097,701  
See accompanying notes to the unaudited consolidated financial statements.
4


HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands, except shares and per share data)
Three Months Ended
March 31,
2020
March 31,
2019
Net revenue$243,485  $222,738  
Cost of goods sold164,148  147,550  
Gross profit79,337  75,188  
Operating costs and expenses:
Advertising and marketing
10,063  8,863  
Selling expense
18,120  8,520  
General and administrative
25,195  17,471  
Amortization of customer relationships
6,484  5,985  
 Business combination transaction costs4,282    
 Other operating expense (income)27  (1,761) 
Total operating costs and expenses64,171  39,078  
Operating income 15,166  36,110  
Other expense:
Interest expense, net11,725  10,236  
Other expense553  440  
Total other expense12,278  10,676  
Income before income taxes2,888  25,434  
Income tax expense (benefit)248  (1,178) 
Net income 2,640  26,612  
Less: Net income attributable to the non-controlling interest292  5,486  
Net income attributable to Class A stockholders$2,348  $21,126  
Earnings per Class A share:
Basic$0.02  $0.21  
Diluted$0.02  $0.21  
Weighted-average shares outstanding:
Basic123,123,656  100,085,141  
Diluted126,075,126  100,777,609  


See accompanying notes to the unaudited consolidated financial statements.
5


HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, amounts in thousands)

Three Months Ended
March 31, 2020March 31, 2019
Net income$2,640  $26,612  
Other comprehensive loss:
Unrealized loss on interest rate swap contracts designated as cash flow hedges(12,708) (2,165) 
Tax benefit3,169  447  
Comprehensive income (loss)(6,899) 24,894  
Less: Comprehensive income (loss) attributed to non-controlling interest(437) 4,984  
Comprehensive income (loss) attributed to Class A stockholders$(6,462) $19,910  


See accompanying notes to the unaudited consolidated financial statements.


6


HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, amounts in thousands except share data)

Class A Voting
Common Stock
Class B Voting
Common Stock
Additional
Paid-in Capital
Accumulated
Other Comprehensive Income (Loss)
Retained
Earnings
Total
Stockholders’
Equity
Non-controlling
Interest
SharesAmountSharesAmount
Balance–December 31, 2018  100,046,392  $10  30,255,184  $3  $925,902  $2,523  $271,365  $1,199,803  $350,454  
Comprehensive income (loss) —  —  —  —  —  (1,216) 21,126  19,910  4,984  
Share-based compensation, net of income taxes of $613
—  —  —  —  1,668  —  —  1,668    
Distributions  —  —  —  —  —  —  —  —  (457) 
Exercise of public warrants  50  —  —  —  —  —  —  —  —  
Balance–March 31, 2019  100,046,442  $10  30,255,184  $3  $927,570  $1,307  $292,491  $1,221,381  $354,981  
Balance–December 31, 2019  122,108,086  $12  8,409,834  $1  $1,152,055  $(756) $334,480  $1,485,792  $94,432  
Comprehensive income  —  —  —  —  —  (8,810) 2,348  (6,462) (437) 
Share-based compensation, including income taxes of $103
106,770  —  —  —  2,180  —  —  2,180    
Exchanges  969,247  —  (969.247) —  11,819  (17) —  11,802  (11,802) 
Distributions  —  —  —  —  —  —  —  —  (1,613) 
Exercise of employee stock options  2,030  —  —  —  153  —  —  153  —  
Payment of taxes for employee stock awards  —  —  —  —  (1,004) —  —  (1,004) —  
Exercise of public warrants  175  —  —  —  2  —  —  2  —  
Tax receivable agreement arising from exchanges, net of income taxes of $1,341
—  —  —  —  (1,942) —  —  (1,942) —  
Balance–March 31, 2020  123,186,308  $12  7,440,587  $1  $1,163,263  $(9,583) $336,828  $1,490,521  $80,580  

See accompanying notes to the unaudited consolidated financial statements.

7


HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
Three Months Ended
March 31, 2020March 31, 2019
Operating activities
Net income$2,640  $26,612  
Depreciation and amortization12,821  10,878  
Debt discount (premium) amortization338  (228) 
Tax receivable agreement remeasurement  (1,761) 
Unrealized foreign exchange losses286    
Non-cash lease expense590    
Share-based compensation2,077  2,281  
Deferred taxes(649) (2,882) 
Loss on sale of assets27    
Change in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable(17,463) (23,552) 
Inventories5,180  (4,578) 
Prepaids and other current assets 3,270  2,917  
Accounts payable and accrued expenses864  16,594  
Customer trade allowances3,161  2,104  
Net cash provided by operating activities13,142  28,385  
Investing activities
Purchases of property and equipment(11,323) (9,493) 
Acquisition of business, net of cash acquired(318,427)   
Acquisition and development of software assets(1,793) (1,342) 
Net cash used in investing activities(331,543) (10,835) 
Financing activities
Repayments of long-term debt and lease obligations(2,792) (2,530) 
Proceeds from long-term debt origination, net of fees paid136,888    
Distributions to non-controlling interest(1,614) (457) 
Tax payments related to issuance of shares to employees(1,004)   
Cash received from exercise of options and warrants155    
Payments on tax receivable agreement(1,279) (457) 
Net cash provided by (used in) financing activities130,354  (3,444) 
Effect of exchange rate changes on cash and cash equivalents(873)   
Net increase (decrease) in cash and cash equivalents(188,920) 14,106  
Cash and cash equivalents at beginning of period285,087  146,377  
Cash and cash equivalents at end of period$96,167  $160,483  

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest$10,758  $11,087  
Net taxes refunded$(586) $(10) 
Supplemental disclosure of non-cash investing:
Accrued capital expenditures$2,014  $1,436  
See accompanying notes to the unaudited consolidated financial statements.
8


HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


1. Summary of Significant Accounting Policies

Description of Business
Hostess Brands, Inc. is a Delaware corporation headquartered in Lenexa, Kansas. The consolidated financial statements include the accounts of Hostess Brands, Inc. and its subsidiaries (collectively, the “Company”). The Company is a leading packaged food company focused on developing, manufacturing, marketing, selling and distributing snack products, including sweet baked goods, cookies and wafers in North America.
The Company’s operations are conducted through indirect operating subsidiaries that are wholly-owned by Hostess Holdings, L.P. (“Hostess Holdings”), a direct subsidiary of Hostess Brands, Inc. Hostess Brands, Inc. holds 100% of the general partnership interest in Hostess Holdings and a majority of the limited partnership interests therein and consolidates Hostess Holdings in the Company’s consolidated financial statements. The remaining limited partnership interests in Hostess Holdings are held by the holders of the outstanding shares of Class B common stock of Hostess Brands, Inc. These limited partnership interests in Hostess Holdings are reflected in the consolidated financial statements as a non-controlling interest. In January 2020, the Company acquired Voortman Cookies, Limited (“Voortman”) a manufacturer of premium, branded wafers as well as sugar-free and specialty cookies.

Basis of Presentation
The consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the unaudited consolidated financial statements include all adjustments necessary for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented, and all such adjustments were of a normal and recurring nature. The results of operations are not necessarily indicative of the results to be expected for the full fiscal year. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2019.

For the periods presented, the Company has two reportable segments: Snacking and In-Store Bakery. The Company sold its In-Store Bakery operations on August 30, 2019. Subsequent to the sale, Snacking is the Company’s single reportable segment.
Adoption of New Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“Topic 326”). This ASU requires entities to measure the impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard effective January 1, 2020. Adoption of Topic 326 did not have a material impact on the Company’s consolidated financial statements.

Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its majority-owned or controlled subsidiaries (including those for which the Company is the primary beneficiary of a variable interest entity). All intercompany balances and transactions have been eliminated in consolidation. 
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HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and for the reported amounts of revenues and expenses during the reporting period. Management utilizes estimates, including, but not limited to, valuation and useful lives of tangible and intangible assets, valuation of expected future payments under the tax receivable agreement, and reserves for trade and promotional allowances. Actual results could differ from these estimates.
Accounts Receivable
Accounts receivable represents amounts invoiced to customers for performance obligations which have been satisfied. As of March 31, 2020 and December 31, 2019, the Company’s accounts receivable were $147.1 million and $104.9 million, respectively, which have been reduced by an allowance for damages occurring during shipment, quality claims and doubtful accounts in the amount of $3.7 million and $2.7 million, respectively.
Inventories
Inventories are stated at the lower of cost or net-realizable value on a first-in first-out basis. Abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) are expensed in the period they are incurred.
The components of inventories are as follows:
(In thousands)
March 31,
2020
December 31,
2019
Ingredients and packaging$22,726  $21,439  
Finished goods24,709  22,513  
Inventory in transit to customers3,302  3,656  
$50,737  $47,608  
Software Costs

Capitalized software is included in “Other assets, net” in the consolidated balance sheets in the amount of $14.4 million and $11.9 million at March 31, 2020 and December 31, 2019, respectively. Capitalized software costs are amortized over their estimated useful life of five years commencing when such assets are ready for their intended use. Software amortization expense included in general and administrative operating expense was $1.3 million for the three months ended March 31, 2020, compared to $0.7 million for the three months ended March 31, 2019.
Disaggregation of Revenue
Net revenue consists of sales of packaged food products in the United States primarily within the Sweet Baked Goods category. Beginning with the acquisition of Voortman on January 3, 2020, (see Note 2. Business Combinations) the Company also sells products in the United States and Canada within the Cookies category.
The following tables disaggregate revenues by geographical market.
Three Months Ended March 31, 2020
(In thousands)Sweet Baked GoodsIn-Store BakeryCookiesTotal
United States$226,361  $  $13,307  $239,668  
Canada    3,817  3,817  
$226,361  $  $17,124  $243,485  
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HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Three Months Ended March 31, 2019
(In thousands)Sweet Baked GoodsIn-Store BakeryCookiesTotal
United States$212,879  $9,859  $  $222,738  
Canada        
$212,879  $9,859  $  $222,738  

Concentrations
The Company has one customer (together with its affiliates) that accounted for 10% or more of the Company’s total net revenue. The percentage of total net revenues for this customer is presented below by segment:
Three Months Ended
(% of Consolidated Net Revenues)
March 31, 2020March 31, 2019
Snacking
21.1 %23.5 %
In-Store Bakery0.0 %0.6 %
Total21.1 %24.1 %

Foreign Currency Remeasurement

Certain activity and balances related to the operations of Voortman originate from transactions denominated in the Canadian dollar (CAD). CAD transactions have been remeasured into U.S. dollars (USD) on the consolidated statement of operations using the average exchange rate for the reporting period. Balances expected to be settled in CAD have been remeasured into USD on the consolidated balances sheet using the exchange rate at the end of the period. During the three months ended March 31, 2020, the Company recognized a loss on remeasurement of less than $0.1 million, reported within other expense on the consolidated statement of operations.

2. Business Combinations

On January 3, 2020, the Company completed the previously announced acquisition of all of the shares of the parent company of Voortman, a manufacturer of premium, branded wafers as well as sugar-free and specialty cookies for approximately $325.8 million ($423.2 million CAD), pending final working capital and other closing statement adjustments. This purchase price was reduced by a net gain on a related foreign currency contract of $6.9 million, cash acquired of $1.6 million and a receivable for certain purchase price adjustments of $1.1 million, resulting in a net cash outflow of $318.4 million.

The acquisition of Voortman diversifies and expands the Company’s product offerings and manufacturing capabilities in the adjacent cookie category. The acquisition also leverages the Company’s customer reach and lean and agile business model. The combined Company expects to realize additional benefits of scale via sharing established, efficient infrastructure and strengthening of collaborative retail partnerships in the United States and Canada.

An aggregate of $10.8 million CAD was deposited into an escrow account to satisfy amounts in respect of post-closing adjustments and to provide for payment to the Company of indemnity claims, if any. There were no working capital or other adjustments made to the escrow balance during the three months ended March 31, 2020. The Company continues to work through post-closing working capital and other adjustments in accordance with the terms of the share purchase agreement, as well as other contractual rights it has under the transaction documents.

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HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Included in other non-current liabilities in the table below is a $1.3 million liability for an uncertain tax position acquired in the transaction. It is offset by a non-current receivable balance of $1.3 million representing expected recovery through seller or insurance policy indemnification.

The Company recorded a preliminary allocation of the purchase price to tangible and identified intangible assets acquired and liabilities assumed, based on their fair values as of the closing date. The final allocation of the purchase price is pending the final valuation of certain assets acquired and liabilities assumed and finalization of customary closing adjustments to the final purchase price. The Company expects to finalize the allocation of the purchase consideration as soon as practicable. The preliminary purchase price allocation is as follows:

(In thousands)
Cash$1,639  
Accounts receivable24,848  
Inventory8,309  
Income tax receivable6,079  
Other current assets420  
Property and equipment32,371  
Customer relationships11,100  
Trade names130,000  
Goodwill166,052  
Other non-current assets1,320  
Accounts payable and accrued expenses(4,317) 
Customer trade allowances(4,762) 
Lease liabilities(6,420) 
Deferred taxes(39,554) 
Other non-current liabilities(1,320) 
Assets acquired and liabilities assumed$325,765  

During the three months ended March 31, 2020, the Company incurred $4.3 million of expenses related to this acquisition. These expenses are classified as business combination transaction costs on the consolidated statements of operations.

The following unaudited pro forma combined financial information presents the Company’s results as though the acquisition of Voortman had occurred at January 1, 2019. The unaudited pro forma consolidated financial information has been prepared using the acquisition method of accounting in accordance with U.S. GAAP:

Three Months Ended
(In thousands)
March 31, 2020March 31, 2019
(unaudited, pro forma)
Net revenue$243,485  $243,060  
Net income$2,640  $24,859  

3. Exit Costs
Subsequent to the Company’s acquisition of Voortman, activities were initiated to transition Voortman’s distribution model to the Company’s direct-to-warehouse distribution model. The Company is incurring costs to exit Voortman’s direct-store-delivery model, including severance and contract termination costs, which includes termination of third-party distributor relationships. Total costs are expected to be approximately $10 million through completion of the transition in 2020. During the three months ended March 31, 2020, contract termination costs of $6.4 million and
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HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

severance costs of $2.2 million were recognized within selling expenses and general and administrative expenses, respectively, on the consolidated statement of operations.

Reserves for these activities are reported within accrued expenses on the consolidated balance sheet and had the following activity during the three months ended March 31, 2020:
(In thousands)SeveranceContract TerminationTotal
Charges recorded$2,171  $6,440  $8,611  
Payments made(97) (176) (273) 
Impact of change in exchange rates on CAD denominated liability(222) (429) (651) 
Reserve balance as of March 31, 2020$1,852  $5,835  $7,687  

4. Property and Equipment
Property and equipment consists of the following:
(In thousands)
March 31,
2020
December 31, 2019
Land and buildings$56,106  $53,683  
Right of use assets, operating30,190  23,771  
Machinery and equipment230,313  209,382  
Construction in progress15,802  5,878  
332,411  292,714  
Less accumulated depreciation(55,783) (50,330) 
$276,628  $242,384  

Depreciation expense was $5.0 million for the three months ended March 31, 2020, compared to $4.2 million for the three months ended March 31, 2019.

5. Segment Reporting
For the periods presented, the Company has two reportable segments: Snacking and In-Store Bakery. The Company’s Snacking segment consists of sweet baked goods, cookies, wafers and bread products that are sold under the Hostess®, Dolly Madison®, Cloverhill® Big Texas®, and Voortman® brands. During the three months ended March 31, 2020, the Company added the newly acquired Voortman operations into the reportable segment previously known as Sweet Baked Goods and renamed the segment as “Snacking”. The In-Store Bakery segment consists primarily of Superior on Main® branded and private label products sold through the in-store bakery section of grocery and club stores. The Company divested its In-Store Bakery operations on August 30, 2019. Subsequent to the sale, Snacking is the Company’s single reportable segment.
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HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company evaluates performance and allocates resources based on net revenue and gross profit. Information regarding the operations of these reportable segments is as follows:
Three Months Ended
(In thousands)
March 31, 2020March 31, 2019
  Net revenue:
Snacking
$243,485  $212,879  
In-Store Bakery  9,859  
Net revenue$243,485  $222,738  
Depreciation and amortization:
Snacking
$12,821  $10,180  
In-Store Bakery  698  
Depreciation and amortization $12,821  $10,878  
Gross profit:
Snacking
$79,337  $73,145  
In-Store Bakery  2,043  
Gross profit$79,337  $75,188  
  Capital expenditures (1):
Snacking
$12,152  $4,262  
In-Store Bakery  152  
Capital expenditures$12,152  $4,414  

(1)Capital expenditures consists of purchases of property and equipment and acquisition and development of software assets paid in cash or acquired through accounts payable. For the three months ended March 31, 2020 and 2019, capital expenditures in accounts payable decreased by $0.9 million and $6.4 million, respectively.

After the August 30, 2019 divestiture of the In-Store Bakery operations, the Company retained no assets related to the In-Store Bakery segment. All Assets at March 31, 2020 and December 31, 2019 were attributed to the Snacking segment.

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HOSTESS BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

6. Goodwill and Intangible Assets
The Company recognized goodwill during the three months ended March 31, 2020 related to its acquisition of Voortman, which was incorporated into the Company’s Snacking reporting unit. At March 31, 2020, there is no goodwill associated with the In-Store Bakery reporting segment, which the Company divested in 2019. Goodwill activity is presented below.

(In thousands)
Snacking
Balance as of December 31, 2019$535,853  
Acquisition of Voortman166,052  
Balance as of March 31, 2020$701,905  

Intangible assets consist of the following:
(In thousands)
March 31,
2020
December 31,
2019
Intangible assets with indefinite lives (Trademarks and Trade Names)$1,538,630  $1,408,630  
Intangible assets with definite lives (Customer Relationships)526,813  515,713  
Less accumulated amortization (Customer Relationships)(77,512) (71,028) 
Intangible assets, net$1,987,931  $1,853,315  

The Company recognized additional trade names and customer relationships intangible assets during the three months ended March 31, 2020 related to the acquisition of Voortman. See Note 2. Business Combinations for additional details.
Amortization expense was $6.5 million for the three months ended March 31, 2020, and $6.0 million for the three months ended March 31, 2019. The unamortized portion of customer relationships will be expensed over their remaining useful lives, from 1 to 23 years. The weighted-average amortization period as of March 31, 2020 for customer relationships was 19.4 years.

7. Accrued Expenses and Other Current Liabilities
Included in accrued expenses and other current liabilities are the following:
(In thousands)March 31,
2020
December 31,
2019
Payroll, vacation and other compensation$5,730  $3,389  
Incentive compensation4,862