twnk-20210930

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
			September 30, 2021
			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

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)

(816) 701-4600

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each Class	Ticker Symbol	Name of each exchange on which registered
Class A Common Stock, Par Value of $0.0001 per share	TWNK	The Nasdaq Stock Market LLC
Warrants, each exercisable for a half share of Class A Common Stock	TWNKW	The 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 - 138,377,187 shares at November 8, 2021

HOSTESS BRANDS, INC.

FORM 10-Q

For the Three Months Ended September 30, 2021

INDEX


		Page
PART I - Financial Information
Item 1.	C ondensed C onsolidated Financial Statements
	C ondensed C onsolidated Balance Sheets (Unaudited)	4
	C ondensed C onsolidated Statements of Operations (Unaudited)	5
	C ondensed C onsolidated Statements of Comprehensive Income (Loss) (Unaudited)	6
	C ondensed C onsolidated Statements of Stockholders’ Equity (Unaudited)	7
	C ondensed C onsolidated Statements of Cash Flows (Unaudited)	9
	Notes to C ondensed C onsolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4.	Controls and Procedures	22
PART II - Other Information
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Default Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	24

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 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/A for the year ended December 31, 2020, as updated by subsequent filings. 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.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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


	September 30,		December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	228,096	$	173,034
Accounts receivable, net	156,720		125,550
Inventories	49,309		49,348

Prepaids and other current assets	7,624		21,614
Total current assets	441,749		369,546
Property and equipment, net	318,492		303,959
Intangible assets, net	1,950,270		1,967,903
Goodwill	706,615		706,615
Other assets, net	17,861		17,446
Total assets	$	3,434,987	$	3,365,469

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Long-term debt and lease obligations payable within one year	$	14,171	$	13,811
Tax receivable agreement payments payable within one year	10,000		11,800
Accounts payable	71,139		61,428
Customer trade allowances	55,157		46,779
Warrant liabilities	1,249		861
Accrued expenses and other current liabilities	46,541		55,715

Total current liabilities	198,257		190,394
Long-term debt and lease obligations	1,103,327		1,113,037
Tax receivable agreement obligations	137,274		144,744
Deferred tax liability	315,544		295,009
Other long-term liabilities	1,595		1,560
Total liabilities	1,755,997		1,744,744

Commitments and Contingencies (Note 9)

Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 132,741,603 shares issued and 129,170,487 shares outstanding as of September 30, 2021 and 130,791,908 shares issued and 130,347,464 shares outstanding as of December 31, 2020	13		13

Additional paid in capital	1,300,329		1,281,018
Accumulated other comprehensive loss	(4,161)		(10,407)
Retained earnings	438,872		356,101
Treasury stock	(56,063)		(6,000)
Stockholders’ equity	1,678,990		1,620,725

Total liabilities and stockholders’ equity	$	3,434,987	$	3,365,469

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020

Net revenue	$	287,969	$	260,855	$	844,875	$	760,566
Cost of goods sold	188,990		169,700		545,271		500,700
Gross profit	98,979		91,155		299,604		259,866
Operating costs and expenses:
Advertising and marketing	14,767		11,762		39,692		32,983
Selling expense	8,166		8,675		26,250		39,173
General and administrative	23,565		21,913		69,254		71,261
Amortization of customer relationships	5,877		6,739		17,633		20,333
Business combination transaction costs	—		—		—		4,282
Other operating expense	—		729		—		756
Total operating costs and expenses	52,375		49,818		152,829		168,788
Operating income	46,604		41,337		146,775		91,078
Other expense (income):
Interest expense, net	9,928		10,265		29,899		32,570


Change in fair value of warrant liabilities	228		(2,260)		683		(64,978)
Other expense	378		818		1,808		2,503
Total other expense (income)	10,534		8,823		32,390		(29,905)
Income before income taxes	36,070		32,514		114,385		120,983
Income tax expense	9,878		6,281		31,614		12,022
Net income	26,192		26,233		82,771		108,961
Less: Net income attributable to the non-controlling interest	—		1,368		—		2,860
Net income attributable to Class A stockholders	$	26,192	$	24,865	$	82,771	$	106,101

Earnings per Class A share:
Basic	$	0.20	$	0.20	$	0.63	$	0.86
Diluted	$	0.19	$	0.18	$	0.60	$	0.33
Weighted-average shares outstanding:
Basic	129,846,551		124,905,538		130,679,974		123,889,306
Diluted	138,058,866		127,586,881		138,036,371		126,079,472

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, amounts in thousands)


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020

Net income	$	26,192	$	26,233	$	82,771	$	108,961
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate swap and foreign currency contracts designated as a cash flow hedge	(192)		(1,197)		5,058		(16,992)
Reclassification into net income	962		1,352		3,441		2,530
Income tax benefit (expense)	(203)		(39)		(2,253)		3,611
Comprehensive income (loss)	26,759		26,349		89,017		98,110
Less: Comprehensive loss attributed to non-controlling interest	—		1,375		—		2,034
Comprehensive income (loss) attributed to Class A stockholders	$	26,759	$	24,974	$	89,017	$	96,076

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, amounts in thousands)


	Class A Voting Common Stock			Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount									Shares	Amount
Balance–December 31, 2020	130,347	$	13		$	1,281,018	$	(10,407)	$	356,101	444	$	(6,000)	$	1,620,725
Comprehensive income	—	—			—		6,162		26,732		—	—		32,894
Share-based compensation	146	—			2,723		—		—		—	—		2,723


Exercise of employee stock options	20	—			262		—		—		—	—		262
Exercise of public warrants	672	—			7,722		—		—		—	—		7,722
Payment of taxes for employee stock awards	—	—			(843)		—		—		—	—		(843)


Balance–March 31, 2021	131,185	$	13		$	1,290,882	$	(4,245)	$	382,833	444	$	(6,000)	$	1,663,483
Comprehensive income (loss)	—	—			—		(483)		29,847		—	—		29,364
Share-based compensation	22	—			1,640		—		—		—	—		1,640


Exercise of employee stock options	220	—			3,135		—		—		—	—		3,135
Exercise of public warrants	209	—			2,405		—		—		—	—		2,405
Payment of taxes for employee stock awards	—	—			(392)		—		—		—	—		(392)
Repurchase of common stock	(1,176)	—			—		—		—		1,176	(16,691)		(16,691)

Balance–June 30, 2021	130,460	$	13		$	1,297,670	$	(4,728)	$	412,680	1,620	$	(22,691)	$	1,682,944
Comprehensive income (loss)	—	—			—		567		26,192		—	—		26,759
Share-based compensation	—	—			2,642		—		—		—	—		2,642


Exercise of employee stock options	19	—			255		—		—		—	—		255
Exercise of public warrants, net of fees of $500	643	—			(494)		—		—		—	—		(494)
Payment of taxes for employee stock awards	—	—			(42)		—		—		—	—		(42)
Reclassification of warrants	—	—			298		—		—		—	—		298

Repurchase of common stock	(1,952)	—			—		—		—		1,952	(33,372)		(33,372)

Balance–September 30, 2021	129,170	$	13		$	1,300,329	$	(4,161)	$	438,872	3,572	$	(56,063)	$	1,678,990


	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
	Shares	Amount		Shares	Amount
Balance–December 31, 2019	122,107	$	12	8,411	$	1	$	1,123,805	$	(756)	$	251,425	$	1,374,487	$	94,432
Comprehensive income (loss)	—	—		—	—		—		(8,810)		81,448		72,638		(437)
Share-based compensation, including income taxes of $103	106	—		—	—		2,180		—		—		2,180		—
Exchanges	969	—		(969)	—		11,819		(17)		—		11,802		(11,802)
Distributions	—	—		—	—		—		—		—		—		(1,613)
Exercise of employee stock options	2	—		—	—		153		—		—		153		—
Payment of taxes for employee stock awards	—	—		—	—		(1,004)		—		—		(1,004)		—
Exercise of public warrants	1	—		—	—		2		—		—		2		—
Tax receivable agreement arising from exchanges, net of income taxes of $1,341	—	—		—	—		(1,942)		—		—		(1,942)		—
Balance–March 31, 2020	123,185	$	12	7,442	$	1	$	1,135,013	$	(9,583)	$	332,873	$	1,458,316	$	80,580
Comprehensive income (loss)	—	—		—	—		—		(1,324)		(212)		(1,536)		1,096
Share-based compensation, net of income taxes of $496	46	—		—	—		1,929		—		—		1,929		—
Exchanges	1,140	—		(1,140)	—		13,803		(127)		—		13,676		(13,676)
Distributions	—	—		—	—		—		—		—		—		(365)
Exercise of employee stock options and warrants	37	—		—	—		408		—		—		408		—
Payment of taxes for employee stock awards	—	—		—	—		(32)		—		—		(32)		—
Tax receivable agreement arising from exchanges, net of income taxes of $952	—	—		—	—		(2,556)		—		—		(2,556)		—
Balance–June 30, 2020	124,408	$	12	6,302	$	1	$	1,148,565	$	(11,034)	$	332,661	$	1,470,205	$	67,635
Comprehensive income (loss)	—	—		—	—		—		109		24,865		24,974		1,375
Share-based compensation, net of income taxes of $361	60	—		—	—		1,720		—		—		1,720		—
Distributions	—	—		—	—		—		—		—		—		(1,445)
Exercise of employee stock options and warrants	1	—		—	—		2		—		—		2		—
Exchanges	680	—		(680)	—		8,244		(79)		—		8,165		(8,165)
Payment of taxes for employee stock awards	—	—		—	—		(347)		—		—		(347)		—
Tax receivable agreement arising from exchanges, net of income taxes of $754	—	—		—	—		(1,431)		—		—		(1,431)		—
Balance–September 30, 2020	125,149	$	12	5,622	$	1	$	1,156,753	$	(11,004)	$	357,526	$	1,503,288	$	59,400

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)



			Nine Months Ended
			September 30, 2021		September 30, 2020

Operating activities
	Net income		$	82,771	$	108,961
	Depreciation and amortization		37,992		40,999

	Debt discount amortization		931		977
	Change in fair value of warrant liabilities		683		(64,978)
	Tax receivable agreement remeasurement		—		610

	Unrealized foreign exchange losses		(177)		1,392
	Non-cash lease expense		971		358
	Share-based compensation		7,005		6,583

	Deferred taxes		18,280		8,575
	Loss on sale of assets		—		317
	Change in operating assets and liabilities, net of acquisitions and dispositions:
		Accounts receivable	(31,240)		(7,106)
		Inventories	39		7,462
		Prepaids and other current assets	13,991		(4,334)

		Accounts payable and accrued expenses	7,949		2,186
		Customer trade allowances	8,441		5,989

	Net cash provided by operating activities		147,636		107,991

Investing activities
	Purchases of property and equipment		(33,360)		(33,382)
	Acquisition of business, net of cash acquired		—		(316,013)

	Acquisition and development of software assets		(3,330)		(4,994)
	Net cash used in investing activities		(36,690)		(354,389)

Financing activities
	Repayments of long-term debt and lease obligations		(8,375)		(8,375)


	Proceeds from long-term debt origination, net of fees paid		—		136,888
	Distributions to non-controlling interest		—		(3,423)
	Repurchase of common stock		(50,063)		—
	Tax payments related to issuance of shares to employees		(1,277)		(1,383)
	Cash received from exercise of options and warrants, net of fees		13,285		565
	Payments on tax receivable agreement		(9,270)		(10,327)

	Net cash provided by (used in) financing activities		(55,700)		113,945
	Effect of exchange rate changes on cash and cash equivalents		(184)		(337)
Net increase (decrease) in cash and cash equivalents			55,062		(132,790)
Cash and cash equivalents at beginning of period			173,034		285,087
Cash and cash equivalents at end of period			$	228,096	$	152,297








































Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
	Interest	$	29,019	$	31,883
	Net taxes paid	$	1,568	$	5,403
Supplemental disclosure of non-cash investing:
	Accrued capital expenditures	$	5,603	$	3,124

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Description of Business

Hostess Brands, Inc. is a Delaware corporation headquartered in Lenexa, Kansas. The condensed consolidated financial statements include the accounts of Hostess Brands, Inc. and its subsidiaries (collectively, the “Company”). The Company is a leading sweet snacks company focused on developing, manufacturing, marketing, selling and distributing snacks in North America under the Hostess® and Voortman® brands. The Company produces a variety of new and classic treats including iconic Hostess® Donettes®, Twinkies®, CupCakes, Ding Dongs® and Zingers® as well as a variety of Voortman® cookies and wafers.

Basis of Presentation

The Company’s operations are conducted through wholly-owned operating subsidiaries. The condensed 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”). The results of operations for any quarter or a partial fiscal year period are not necessarily indicative of the results to be expected for other periods or the full fiscal year. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. For the periods presented, the Company has one reportable segment.

Adoption of New Accounting Standards

In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”. This update provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. This update is effective for fiscal years beginning after December 15, 2021. The Company is currently evaluating the effect of this ASU on the Company’s condensed consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. ASU No. 2020-04 is elective and effective as of March 12, 2020 through December 31, 2022. Once elected, this ASU must be applied prospectively for all eligible contract modifications. The Company will adopt Topic 848 when its relevant contracts are modified upon transition to alternative reference rates. The Company does not expect the adoption of Topic 848 to have a material impact on its condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes (Topic 740)”. This ASU simplifies the accounting for certain income tax related items, including intraperiod tax allocations, deferred taxes related to foreign subsidiaries and step-up in tax basis of goodwill. The ASU is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. The Company adopted the standard effective January 1, 2021. Adoption of Topic 740 did not have a material impact on the Company’s condensed consolidated financial statements.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of condensed 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 September 30, 2021 and December 31, 2020, the Company’s accounts receivable were $156.7 million and $125.6 million, respectively, which have been reduced by an allowance for damages occurring during shipment, quality claims and doubtful accounts in the amount of $2.6 million and $3.5 million for the periods ending September 30, 2021 and December 31, 2020, 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)	September 30, 2021		December 31, 2020

Ingredients and packaging	$	22,785	$	22,965
Finished goods	23,798		23,583
Inventory in transit to customers	2,726		2,800
	$	49,309	$	49,348

Software Costs

Capitalized software is included in “other assets, net” in the condensed consolidated balance sheets in the amount of $15.1 million and $14.7 million as of September 30, 2021 and December 31, 2020, 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 $1.0 million and $2.9 million for the three and nine months ended September 30, 2021, compared to $1.4 million and $4.0 million for the three and nine months ended September 30, 2020, respectively.

Disaggregation of Revenue

Net revenue consists of sales of packaged food products in the United States, primarily within the Sweet Baked Goods category. The Company also sells products in the United States and Canada within the Cookies category.

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables disaggregate revenue by geographical market and category.


	Three Months Ended September 30, 2021
(In thousands)	Sweet Baked Goods		Cookies		Total
United States	$	258,818	$	25,185	$	284,003
Canada	—		3,966		3,966
	$	258,818	$	29,151	$	287,969


	Three Months Ended September 30, 2020
(In thousands)	Sweet Baked Goods		Cookies		Total
United States	$	234,103	$	22,328	$	256,431
Canada	—		4,424		4,424
	$	234,103	$	26,752	$	260,855


	Nine Months Ended September 30, 2021
(In thousands)	Sweet Baked Goods		Cookies		Total
United States	$	759,010	$	73,394	$	832,404
Canada	—		12,471		12,471
	$	759,010	$	85,865	$	844,875


	Nine Months Ended September 30, 2020
(In thousands)	Sweet Baked Goods		Cookies		Total
United States	$	693,085	$	56,094	$	749,179
Canada	—		11,387		11,387
	$	693,085	$	67,481	$	760,566

Concentrations

For the three months ended September 30, 2021 and 2020, the Company has one customer (together with its affiliates) that accounted for 18.0% and 19.7% of total net revenue, and for the nine months ended September 30, 2021 and 2020, 18.8% and 21.0% of total net revenue, respectively.

Foreign Currency Remeasurement

Certain Voortman Cookies Limited (“Voortman”) sales and costs are denominated in the Canadian dollar (“CAD”). CAD transactions have been remeasured into US dollars (“USD”) on the condensed 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 condensed consolidated balance sheet using the exchange rate at the end of the period. During both the three and nine months ended September 30, 2021, the Company recognized a gain on remeasurement of $0.2 million, which is reported within other expense on the condensed consolidated statement of operations. During the three and nine months ended September 30, 2020, the Company recognized losses on remeasurement of $0.4 million and $1.1 million, respectively, reported within other expense on the condensed consolidated statement of operations.

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Property and Equipment

Property and equipment consists of the following:


(In thousands)	September 30, 2021		December 31, 2020

Land and buildings	$	64,663	$	59,774
Right of use assets, operating	32,192		31,354
Machinery and equipment	272,971		255,821
Construction in progress	34,071		25,041
	403,897		371,990
Less accumulated depreciation and amortization	(85,405)		(68,031)
	$	318,492	$	303,959

Depreciation expense was $5.9 million and $17.4 million for the three and nine months ended September 30, 2021, compared to $6.3 million and $16.6 million for the three and nine months ended September 30, 2020, respectively.

3. Accrued Expenses and Other Current Liabilities

Included in accrued expenses and other current liabilities are the following:


(In thousands)	September 30, 2021		December 31, 2020

Incentive compensation	$	14,239	$	16,199
Payroll, vacation and other compensation	10,447		9,886
Interest rate swap and foreign currency contracts	5,229		13,694
Accrued interest	4,768		4,815
Other	11,858		11,121





	$	46,541	$	55,715

4. Debt and Lease Obligations

A summary of the carrying value of the debt and lease obligations are as follows:


(In thousands)	September 30, 2021		December 31, 2020

Term Loan (3.0% as of September 30, 2021)
Principal	$	1,094,388	$	1,102,763
Unamortized debt premium and issuance costs	(3,987)		(4,917)
	1,090,401		1,097,846
Lease obligations	27,097		29,002
Total debt and lease obligations	1,117,498		1,126,848
Less: Current portion of long term debt and lease obligations	(14,171)		(13,811)
Long-term portion	$	1,103,327	$	1,113,037

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At September 30, 2021, minimum debt repayments under the term loan are due as follows:


(In thousands)
2021	$	2,792
2022	11,167
2023	11,167
2024	11,167
2025	1,058,095

Leases

The Company has entered into operating leases for certain properties which expire at various times through 2026. The Company determines if an arrangement is a lease at inception.

At September 30, 2021 and 2020, right of use assets related to operating leases are included in property and equipment, net on the condensed consolidated balance sheet (see Note 2. Property and Equipment). As of September 30, 2021 and 2020, the Company has no outstanding financing leases. Lease liabilities for operating leases are included in the current and non-current portions of long-term debt and lease obligations on the condensed consolidated balance sheet.

The table below shows the composition of lease expense:


	Three Months Ended				Nine Months Ended
(In thousands)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020


Operating lease expense	$	1,504	$	1,209	$	4,928	$	4,273
Short-term lease expense	501		456		1,083		2,014
Variable lease expense	367		445		1,109		1,466
	$	2,372	$	2,110	$	7,120	$	7,753

5. Derivative Instruments

Warrants

As of September 30, 2021 and December 31, 2020, there were 40,866,087 and 53,936,776 public warrants outstanding, and 419,011 and 541,658 private placement warrants outstanding, respectively. Each warrant entitles its holder to purchase one-half of one share of Class A common stock at an exercise price of $5.75 per half share, to be exercised only for a whole number of shares of Class A common stock. The warrants expire on November 4, 2021, or earlier upon redemption or liquidation. The Company may call the outstanding public warrants for redemption at a price of $0.01 per warrant, if the last sale price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading days within a 30-trading day period ending on the third business day before the Company sends the notice of redemption to the warrant holders. The private placement warrants, however, are nonredeemable so long as they are held by Gores Sponsor, LLC or its permitted transferees. The potential resale of the private placement warrants, which would result in a conversion to public warrants, has been registered with the SEC. When sold to the public, the private placement warrants will become public warrants.

In July 2021, the agreement governing the Company’s public and private placement warrants was amended. Subsequent to the amendment, the exercise price for all outstanding warrants is payable through a “cashless exercise” with a premium of $0.25 added to the valuation price of each share for purposes of calculating the number of shares issuable upon exercise of the warrants.