Pro Forma Fourth Quarter 2016 Net Revenue
Increased 21.6% to $178.8 million
Pro Forma Full Year 2016 Net Revenue
Increased 17.2% to $727.6 million
Company Introduces Full Year 2017
Outlook
Hostess Brands, Inc. (NASDAQ: TWNK, TWNKW)(the “Company”), one
of the largest manufacturers and marketers in the United States of
sweet baked goods, including Hostess® Twinkies®, Ding Dongs®, Ho
Hos®, Donettes® and a variety of new and classic treats, today
reported financial results for the fourth quarter and full year
ended December 31, 2016.
The Company's results include those of Superior Cake Products,
Inc. ("Superior") from May 10, 2016, the date of its acquisition.
Through Superior, the Company competes in the in-store bakery
section of grocery and club retailers.
On November 4, 2016, the Company completed the acquisition of a
controlling interest in Hostess Holdings, L.P. and changed its name
from Gores Holdings, Inc. to Hostess Brands, Inc. (the "Business
Combination"). As a result, the Company's consolidated financial
results are presented: (i) as of December 31, 2016 (Successor) and
2015 (Predecessor); (ii) for the period November 4, 2016 to
December 31, 2016 (Successor); (iii) for the period January 1, 2016
to November 3, 2016 (Predecessor); and (iv) for the quarter ended
December 31, 2015 and for the years ended December 31, 2015 and
December 31, 2014 (Predecessor).
The Company has also presented supplemental unaudited pro forma
combined financial information for the quarter and year ended
December 31, 2016, giving effect to the Business Combination as if
it had occurred on January 1, 2016. All references in this press
release to results for the quarter and year ended December 31,
2016, refer to such unaudited pro forma combined results. The
Company believes this pro forma information provides helpful
supplemental information with respect to the performance of the
Hostess business during this period.
The Company also has supplemented its discussion with a
presentation of adjusted EBITDA and adjusted gross profit, each a
non-GAAP financial measure. Please refer to the schedules in this
press release for an explanation and reconciliations of these
non-GAAP financial measures.
Fourth Quarter 2016 Pro Forma Combined Financial
Highlights
- Pro forma combined net revenue
increased 21.6%, or $31.8 million, to $178.8 million (revenue
increased 14.8%, excluding Superior acquisition)
- Pro forma combined gross margin
improved 150 basis points to 43.0%
- Pro forma combined net income was $22.0
million for the fourth quarter of 2016, an increase of $4.8 million
compared to the fourth quarter of 2015
- Pro forma combined EPS on a fully
diluted basis was $0.14 per share
- Pro forma combined adjusted EBITDA
increased 25.4%, or $10.7 million, to $52.9 million
Fiscal 2016 Pro Forma Combined Financial Highlights
- Pro forma combined net revenue
increased 17.2%, or $106.8 million, to $727.6 million (revenue
increased 12.9% excluding Superior acquisition)
- Pro forma combined gross margin
improved 116 basis points to 43.4%
- Pro forma combined net income was $82.4
million for 2016, a decrease of $6.3 million compared to 2015
- Pro forma combined EPS on a fully
diluted basis was $0.54 per share
- Pro forma combined adjusted EBITDA
increased 21.0%, or $37.4 million, to $215.3 million
(All comparisons above are with respect to the Predecessor's
fourth quarter and year ended December 31, 2015)
“We are pleased with our strong revenue and profit growth for
the year,” commented Bill Toler, President and Chief Executive
Officer of the Company. “Our financial performance this year
benefited from increased distribution and product innovation
initiatives as well as continuing to build market share on our core
products. We continue to feel confident with our momentum heading
in to 2017.”
Fourth Quarter 2016 Pro Forma Combined Financial
Results
Pro forma combined net revenue was $178.8 million for the fourth
quarter of 2016, an increase of $31.8 million, or 21.6%, compared
to net revenue of $147.0 million for the fourth quarter of 2015
primarily due to $10.2 million of revenue from the acquisition of
Superior, product innovation, including the launch of Suzy Q's® and
Hostess Sweet Shop™ Brownies, and increased distribution.
Pro forma combined gross profit was $77.0 million for the fourth
quarter of 2016, an increase of $15.9 million, compared to gross
profit of $61.1 million for the fourth quarter of 2015.
Pro forma combined gross margin was 43.0% for the fourth quarter
of 2016, compared to 41.5% for the fourth quarter of 2015. The
improved gross margin was driven primarily by commodity cost
decreases and improved bakery costs.
Pro forma combined advertising, selling, general and
administrative (“SG&A”) expenses were $26.4 million for the
fourth quarter of 2016, or 14.8% of net revenue, compared to $20.6
million, or 14.0% of net revenue, for the fourth quarter of 2015.
This increase was primarily attributable to planned expansion of
field marketing activities and increased incentive compensation
related to improved operating performance.
The effective tax rate was 28.5% for the pro forma combined
quarter ended December 31, 2016, giving effect to the
non-controlling interest, a partnership for income tax purposes.
The predecessor was a non-taxable pass-thru limited partnership and
had no income tax expense or benefit.
Pro forma combined net income was $22.0 million, or pro forma
combined earnings of $0.14 per share for the fourth quarter of
2016, compared to net income of $17.2 million in the fourth quarter
of 2015. Gross margin improvements, discussed above, were the
primary drivers of the increase in net income.
Pro forma combined adjusted EBITDA was $52.9 million for the
fourth quarter of 2016, an increase of $10.7 million, or 25.4%,
compared to adjusted EBITDA of $42.1 million for the fourth quarter
of 2015. As a percentage of net revenue, pro forma combined
adjusted EBITDA was 29.6% for the fourth quarter of 2016, compared
to adjusted EBITDA of 28.7% of net revenues in the same period last
year. Adjusted EBITDA is a non-GAAP financial measure. Please refer
to the schedules in this press release for a reconciliation of
non-GAAP financial measures.
Fourth Quarter Pro Forma Combined Segment Results
The Company has two reportable segments: Sweet Baked Goods and
Other. The Sweet Baked Goods segment consists of sweet baked goods
and the Other segment consists of branded bread and buns, in-store
bakery products and frozen retail.
Sweet Baked Goods Segment: Pro forma combined net revenue
for the fourth quarter of 2016 was $162.1 million, an increase of
$19.4 million, or 13.6%, compared to net revenue of $142.8 million
for the fourth quarter of 2015. Pro forma combined gross profit was
$72.0 million, or 44.4% of net revenue, compared to gross profit of
$59.5 million, or 41.7% of net revenue, for the fourth quarter of
2015.
Other Segment: Pro forma combined net revenue for the
fourth quarter of 2016 was $16.7 million, an increase of $12.4
million, or 291.5%, compared to net revenue of $4.3 million for the
fourth quarter of 2015. This increase is primarily due to the
impact of the Superior acquisition. Pro forma combined gross profit
was $5.0 million, or 29.9% of net revenue, compared to gross profit
of $1.6 million, or 37.4% of net revenue for the fourth quarter of
2015.
Fiscal Year 2016 Pro Forma Combined Results
Pro forma combined net revenue was $727.6 million for 2016, an
increase of $106.8 million, or 17.2%, compared to net revenue of
$620.8 million for 2015, primarily due to strong results from new
product launches in 2016 of $44.0 million and contribution of
Superior net revenue of $26.7 million from the date of its
acquisition. New products in 2016 included Deep Fried Twinkies®,
Hostess Sweet Shop™ brownies, plus the relaunch of Suzy Qs® snack
cakes. The Sweet Baked Goods segment represented 92.1% and the
Other segment represented 7.9% of net revenue, respectively, for
the pro forma combined year ended December 31, 2016.
Pro forma combined gross profit was $316.0 million for 2016, an
increase of $53.8 million, compared to gross profit of $262.2
million, or $264.9 million, excluding the impact of a $2.6 million
special employee incentive compensation payment, for the year ended
December 31, 2015.
Pro forma combined gross margin was 43.4% for 2016, compared to
42.2%, or 42.7%, excluding the impact of a $2.6 million special
employee incentive compensation payment for the year ended December
31, 2015. The improved gross margin was driven primarily by
commodity cost decreases and improved bakery costs.
Pro forma combined SG&A expenses were $108.4 million for
2016, or 14.9% of net revenue, compared to SG&A expenses of
$93.0 million, or 15.0% of net revenue, for 2015. The dollar
increase in SG&A expenses was primarily attributable to the
impact of the Business Combination, the addition of Superior,
planned expansion of field marketing activities, and increased
incentive compensation related to improved operating
performance.
Pro forma combined net income was $82.4 million, or pro forma
combined earnings of $0.54 per share for 2016, compared to net
income of $88.8 million for 2015, with the decrease resulting from
the income tax provision for 2016.
Pro forma combined adjusted EBITDA was $215.3 million for 2016,
an increase of $37.4 million, or 21.0%, compared to adjusted EBITDA
of $177.9 million for 2015. Pro forma combined adjusted EBITDA for
2016 was 29.6% of net revenue, compared to adjusted EBITDA of 28.7%
of net revenue last year. Adjusted EBITDA is a non-GAAP financial
measure. Please refer to the schedules in this press release for a
reconciliation of non-GAAP financial measures.
Fiscal Year 2016 Pro Forma Combined Segment Results
Sweet Baked Goods Segment: Pro forma combined net revenue
for 2016 was $670.4 million, an increase of $60.5 million, or 9.9%,
compared to net revenue of $609.9 million for 2015. Pro forma
combined gross profit was $299.0 million, or 44.6% of net revenue,
for 2016, compared to gross profit of $258.2 million, or 42.3% of
net revenue, for 2015.
Other Segment: Pro forma combined net revenue for 2016
was $57.2 million, an increase of $46.3 million, or 423.6%,
compared to net revenue of $10.9 million for 2015 which is
primarily due to the impact of the Superior acquisition. Pro forma
combined gross profit was $17.0 million, or 29.7% of net revenue,
for 2016, compared to gross profit of $4.0 million, or 36.2% of net
revenue, for 2015.
Balance Sheet and Cash Flow
As of December 31, 2016, the Company had cash and cash
equivalents of $26.9 million and approximately $97.2 million
available for borrowing, net of letters of credit, under its
revolving line of credit. The Company had outstanding term loan
debt of $998.8 million and net debt of $971.9 million as of
December 31, 2016, resulting in a total leverage ratio of 4.51x
2016 pro forma combined adjusted EBITDA of $215.3 million.
Outlook
The Company expects to continue to grow above the sweet baked
goods category in 2017. The Company reaffirms anticipated net
revenue of $781 million and adjusted EBITDA of $235 million for the
year ended December 31, 2017. (See the schedules in the press
release for a reconciliation of anticipated 2017 adjusted EBITDA to
estimated net income of $100 million for 2017.) The Company
believes that it is well positioned to grow and enhance shareholder
value through the execution of its strategic initiatives. These key
strategic initiatives are focused on further core distribution
expansion, continued product innovation and line extensions, as
well as the pursuit of white space opportunities.
Conference Call and Webcast
The Company will host a conference call and webcast today,
Tuesday, March 14, 2017 at 3:30 p.m. CT (4:30 p.m. ET) to discuss
the results for the fourth quarter and full year ended December 31,
2016.
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 Tuesday, March 28, 2017, by dialing
844-512-2921 from the U.S., or 412-317-6671 from international
locations, and entering confirmation code 13656729.
There will also be a simultaneous, live webcast 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.
The Company is one of the largest packaged food companies
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 including Ding
Dongs®, Ho Hos®, Donettes® and Fruit Pies, in addition to Twinkies®
and CupCakes.
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.
Forward-Looking Statements
This press release 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 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 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. 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 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.
HOSTESS BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share and
per share data)
December 31, December 31, ASSETS
2016 2015 (Successor) (Predecessor)
Current assets: Cash and cash equivalents $ 26,855 $ 64,473
Restricted cash — 4,655 Accounts receivable, net 89,237 68,518
Inventories 30,444 25,130 Prepaids and other current assets 4,827
6,041 Total current assets 151,363 168,817 Property
and equipment, net 153,224 128,078 Restricted cash — 17,225
Intangible assets, net 1,946,943 263,579 Goodwill 588,460 56,992
Deferred finance charges — 1,696 Other assets, net 7,902
7,142 Total assets $ 2,847,892 $ 643,529
LIABILITIES AND STOCKHOLDERS’ EQUITY/PARTNERS’
DEFICIT Current liabilities: Long-term debt and capital lease
obligation payable within one year $ 11,496 $ 9,250 Accounts
payable 34,083 28,053 Deferred distributions to partners — 4,655
Customer trade allowances 36,691 29,638 Accrued expenses and other
current liabilities 21,656 21,162 Total current
liabilities 103,926 92,758 Long-term debt and capital lease
obligation 993,374 1,193,667 Tax receivable agreement 165,384 —
Deferred tax liability 353,797 — Deferred distributions to partners
— 17,225 Total liabilities 1,616,481 1,303,650 Class
A Common Stock (Successor), $0.0001 par value, 200,000,000 shares
authorized, 98,250,917 issued and outstanding 10 — Class B Common
Stock (Successor), $.0001 par value, 50,000,000 shares authorized
31,704,988 issued and outstanding 3 — Additional paid in capital
(Successor) 912,824 — Retained earnings (accumulated deficit)
(15,618 ) — Stockholders’ equity (Successor)/ partners’
deficit (Predecessor) 897,219 (622,130 ) Non-controlling interest
334,192 (37,991 ) Total liabilities and stockholders’ equity
(partners' deficit) $ 2,847,892 $ 643,529
HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(Dollars in thousands, except per share
data)
2016 2015 2014 (In thousands
except per share data) From November 4, 2016
through December 31, 2016
FromJanuary 1, 2016 through November 3,
2016
Year Ended December 31,
2015
Year EndedDecember 31, 2014 (Successor)
(Predecessor) (Predecessor) (Predecessor) Net
revenue $ 111,998 $ 615,588 $ 620,815 $ 554,695 Cost of goods sold
73,284 346,864 355,963 320,763 Special employee incentive
compensation — 2,195 2,649 — Gross profit
38,714 266,529 262,203 233,932 Operating costs
and expenses: Advertising and marketing 5,245 30,626 31,967
32,197 Selling expense 5,033 25,730 29,484 25,664 General and
administrative 7,322 38,391 31,531 33,122 Special employee
incentive compensation — 2,503 1,274 — Amortization of customer
relationships 3,922 1,185 851 623 Impairment of property and
equipment — 7,300 2,700 13,241 Loss on sale/abandonment of property
and equipment and bakery shutdown costs — 2,551 4,182 5,150
Business combination transaction costs — 31,832 — — Related party
expenses 26,799 3,539 4,306 4,468 Total
operating costs and expenses 48,321 143,657 106,295
114,465 Operating income (loss) (9,607 ) 122,872 155,908
119,467 Other (income) expense: Interest expense, net 6,649 60,384
50,011 37,447 (Gain) loss on debt extinguishment (763 ) — 25,880 —
Other expense (income) 754 1,624 (8,743 ) 556 Total
other expense 6,640 62,008 67,148 38,003
Income (loss) before income taxes (16,247 ) 60,864 88,760 81,464
Income tax expense (benefit) (7,762 ) 439 — — Net
income (loss) (8,485 ) 60,425 88,760 81,464 Less: Net income (loss)
attributable to the non-controlling interest (4,081 ) 3,214
4,507 4,267 Net income (loss) attributable to Class A
shareholders $ (4,404 ) $ 57,211 $ 84,253 $ 77,197
Earnings (loss) per Class A share: Basic (0.05 ) Diluted (0.05 )
Weighted-average shares outstanding: Basic 97,792 Diluted 97,792
HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DATA
(Unaudited)
(Dollars in thousands)
2016 2015
2014 Successor Predecessor
(In thousands)
From November 4, 2016
through December 31, 2016
From January 1, 2016 through
November 3, 2016
Year Ended December 31,
2015
Year Ended December 31,
2014
Net cash provided by operating activities $ 13,611 $ 102,221
$ 132,972 $ 108,329 Net cash provided by (used in) investing
activities $ (428,196 ) $ (76,579 ) $ 17,880 $ (91,393 ) Net cash
used in financing activities $ (232,345 ) $ (31,596 ) $ (296,002 )
$ (9,769 )
SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
The unaudited pro forma combined statements of operations for
each of the quarter and year ended December 31, 2016 present our
consolidated results of operations giving pro forma effect as if
the Business Combination (as defined below) had occurred as of
January 1, 2016. The pro forma combined adjustments are based on
available information and upon assumptions that our management
believes are reasonable in order to reflect, on a pro forma
combined basis, the impact of these transactions on the historical
financial information of our Predecessor and Successor entities, as
applicable.
On November 4, 2016 (the “Closing Date”), in a transaction
referred to as the “Business Combination,” the Company, then known
as Gores Holdings, Inc. acquired a controlling interest in Hostess
Holdings, L.P. (“Hostess Holdings”), an entity owned indirectly by
C. Dean Metropoulos and certain equity funds managed by affiliates
of Apollo Global Management, LLC (the “Apollo Funds”). Hostess
Holdings had acquired the Hostess brand and certain strategic
assets out of the bankruptcy liquidation proceedings of its prior
owner (“Old Hostess”), free and clear of all past liabilities, in
April 2013, and relaunched the Hostess brand later that year.
The Business Combination was accounted for using the acquisition
method of accounting. The initial estimated fair values of the
acquired assets and assumed liabilities as of the Closing Date,
which are based on the consideration paid and estimates and our
assumptions, are reflected herein. The total purchase price of
approximately $2.4 billion to acquire Hostess Holdings, LP has been
allocated to the assets acquired and assumed liabilities of Hostess
Holdings based upon estimated fair values at the date of
acquisition. Third party valuation specialists conducted analyses
in order to assist our management in determining the fair values of
the acquired assets and liabilities assumed. The Company has
completed its review of the purchase consideration and estimated
fair value of assets acquired and liabilities assumed at the date
of acquisition. The unaudited pro forma consolidated financial
information is included for informational purposes only and does
not purport to reflect the results of operations of Hostess Brands,
Inc. that would have occurred had the Business Combination occurred
as of January 1, 2016.
The unaudited pro forma combined financial information contains
a variety of adjustments, assumptions and estimates, is subject to
numerous other uncertainties and the assumptions and adjustments as
described in the accompanying notes hereto and should not be relied
upon as being indicative of our results of operations had the
Business Combination occurred on January 1, 2016. The
unaudited pro forma combined financial information also does not
project our results of operations for any future period or date.
The acquisition of Superior Cake Products, Inc. (“Superior”)
occurred in May 2016. The unaudited pro forma consolidated
financial information for the year ended December 31, 2016 includes
results of the Superior acquisition and its related operations from
May 10, 2016, the date of acquisition, through December 31, 2016.
We evaluated the impact of the Superior acquisition on the
Company’s financial statements and concluded that the impact was
not significant and did not require nor separately warrant the
inclusion of pro forma combined financial results assuming the
acquisition of Superior at January 1, 2016 under applicable SEC
rules and regulations or under GAAP.
On November 18, 2016, we refinanced our first and second lien
term loans (the “Former First and Second Lien Term Loans”) into one
new first lien term loan in the aggregate principal amount of
$998.8 million and with a maturity date of August 3, 2022 (the “New
First Lien Term Loan”). We evaluated the impact of the refinancing
of existing debt pursuant to the New First Lien Term Loan,
completed on November 18, 2016, and concluded that the impact was
not significant and did not require nor separately warrant the
inclusion of pro forma combined financial results assuming the
completion of the refinancing on January 1, 2016.
The pro forma combined adjustments give effect to the items
identified in the pro forma combined table below in connection with
the Business Combination.
Unaudited Pro Forma Combined Statement of OperationsFor
the Year Ended December 31, 2016 compared to the Year Ended
December 31, 2015 Historical (i)
(Successor) (Predecessor)
Pro FormaCombined (Unaudited)
(Predecessor) (In thousands except per share
data) FromNovember 4, 2016 to December
31, 2016 FromJanuary 1, 2016 to November 3,
2016 Pro Forma Adjustments Year EndedDecember
31, 2016 Year Ended December 31, 2015 Net revenue $
111,998 $ 615,588 $ — $ 727,586 $ 620,815 Cost of goods sold 73,284
346,864 (8,541 ) (ii) 411,607 355,963 Special employee incentive
compensation — 2,195 (2,195 ) (iii) — 2,649
Gross profit 38,714 266,529 10,736 315,979 262,203
Advertising and marketing 5,245 30,626 — 35,871 31,967 Selling
expenses 5,033 25,730 — 30,763 29,484 General and administrative
7,322 38,391 (3,902 ) (iv) 41,811 31,531 Special employee incentive
compensation — 2,503 (2,503 ) (iii) — 1,274 Amortization of
customer relationships 3,922 1,185 20,050 (v) 25,157 851 Impairment
of property and equipment — 7,300 — 7,300 2,700 Loss on
sale/abandonment of property and equipment and bakery shutdown
costs — 2,551 — 2,551 4,182 Business combination transaction costs
— 31,832 (31,257 ) (vi) 575 — Related party expenses 26,799
3,539 (26,747 ) (vii) 3,591 4,306 Total
operating costs and expenses 48,321 143,657 (44,359 )
147,619 106,295 Operating income (loss) (9,607 )
122,872 55,095 168,360 155,908 Other
(income) expense: Interest expense, net 6,649 60,384 (15,592 )
(viii) 51,441 50,011 (Gain) loss on debt extinguishment (763 ) — —
(763 ) 25,880 Other (income) expense 754 1,624 —
2,378 (8,743 ) Total other (income) expense 6,640
62,008 (15,592 ) 53,056 67,148 Pretax
net income (loss) (16,247 ) 60,864 70,687 115,304 88,760 Income tax
expense (7,762 ) 439 40,185 (ix) 32,862 —
Net income (loss) $ (8,485 ) $ 60,425 $ 30,502 $ 82,442 $
88,760 Less: Net income (loss) attributable to the non-controlling
interest (4,081 ) 3,214 29,565 (x) 28,698
4,507 Net income (loss) attributable to Class A shareholders
$ (4,404 ) $ 57,211 $ 937 $ 53,744 $ 84,253
Earnings (loss) per Class A share: Basic $ (0.05 ) $ 0.55
Diluted $ (0.05 ) $ 0.54 Weighted-average shares outstanding: Basic
97,792 (180 ) (xi) 97,612 Diluted 97,792 2,393 (xii) 100,185
i. The amounts in these columns represent our Successor's and
Predecessor's historical results of operations for the periods
reflected.
ii. The adjustment reflects the incremental depreciation expense
associated with the allocation of purchase price to property and
equipment and is recorded in cost of goods sold. In addition, for
cost of goods sold, approximately $8.9 million reflects the
non-cash impact of the re-measurement of inventory at fair value as
a result of the Business Combination.
iii. For cost of goods sold, this adjustment represents special
payments we made to certain employees at our bakery facilities of
$2.2 million and for special payments to corporate employees of
$2.5 million as compensation for their efforts in connection with
the Business Combination.
iv. Represents compensation for management profits interest plan
of approximately $3.9 million that was recognized as part of the
Business Combination.
v. Represents additional amortization expense associated with
the fair value recognized for customer relationships in connection
with the Business Combination.
vi. This adjustment consists primarily of legal and professional
fees and other costs associated with the Business Combination.
vii. Represents non cash expenses incurred by Successor for
stock awarded to Mr. Metropoulos as required under his new
employment agreement.
viii. Represents the reduction in interest expense due to the
paydown of Hostess Holdings L.P. debt pursuant to the terms of the
Business Combination.
ix. Represents the effective income tax rate of 28.5% for the
Successor, giving effect to the noncontrolling interest, a
partnership for income tax purposes.
x. Represents the elimination of historical income attributable
to the noncontrolling interest and attributes a portion of the pro
forma income to the noncontrolling interest created in the Business
Combination. Income is allocated to the noncontrolling interest
based on its pro rata share of the total equity of Hostess
Holdings, L.P.
xi. This adjustment annualized the basic weighted average number
of class A shares outstanding.
xii. This adjustment includes the dilutive impact of the
outstanding warrants that are considered anti-dilutive on a
historical basis.
Unaudited Pro Forma Combined Statement of
OperationsFor the Quarter Ended December 31, 2016 compared
to the Quarter Ended December 31, 2015 Historical (i)
(Successor)
(Predecessor) Pro FormaCombined
(Predecessor) (In thousands, except share
data) FromNovember 4, 2016 to December
31, 2016 FromOctober 1, 2016 to
November 3, 2016 Pro Forma Adjustments Quarter
EndedDecember 31, 2016
Quarter Ended December 31,
2015
Net revenue $ 111,998 $ 66,831 $ — $ 178,829 $
147,026 Cost of goods sold 73,284 37,437 (8,856 ) (ii) 101,865
85,966 Special employee incentive compensation — 2,195
(2,195 ) (iii) — — Gross profit 38,714 27,199
11,051 76,964 61,060 Advertising and marketing 5,245 3,097 — 8,342
6,866 Selling expenses 5,033 2,555 — 7,588 6,701 General and
administrative 7,322 6,376 (3,249 ) (iv) 10,449 7,043 Special
employee incentive compensation — 2,503 (2,503 ) (iii) — —
Amortization of customer relationships 3,922 717 2,100 (v) 6,739
622 Impairment of property and equipment — 2,065 — 2,065 750 Loss
on sale/abandonment of property and equipment and bakery shutdown
costs — 33 — 33 3,177 Business combination transaction costs —
24,767 (24,767 ) (vi) — — Related party expenses 26,799 108
(26,747 ) (vii) 160 606 Total operating costs
and expenses 48,321 42,221 (55,166 ) 35,376
25,765 Operating income (loss) (9,607 ) (15,022 ) 66,217
41,588 35,295 Other (income) expense: Interest
expense, net 6,649 6,638 (1,721 ) (viii) 11,566 18,205 Gain on debt
extinguishment (763 ) — — (763 ) — Other (income) expense 754
(721 ) — 33 (65 ) Total other (income) expense
6,640 5,917 (1,721 ) 10,836 18,140
Pretax net income (loss) (16,247 ) (20,939 ) 67,938 30,752 17,155
Income tax expense (7,762 ) 145 16,381 (ix) 8,764
— Net income (loss) $ (8,485 ) $ (21,084 ) $ 51,557
$ 21,988 $ 17,155 Less: Net income (loss)
attributable to the non-controlling interest (4,081 ) (895 ) 12,610
(x) 7,634 871 Net income (loss) attributable
to Class A shareholders $ (4,404 ) $ (20,189 ) $ 38,947 $
14,354 $ 16,284 Earnings (loss) per share: Basic $
(0.05 ) $ 0.15 Diluted $ (0.05 ) $ 0.14 Weighted-average shares
outstanding: Basic 97,792 (96 ) (xi) 97,696 Diluted 97,792 2,477
(xii) 100,269
i. The amounts in these columns represent our Successor's and
Predecessor's historical results of operations for the periods
reflected.
ii. The adjustment reflects the incremental depreciation expense
associated with the allocation of purchase price to property and
equipment and is recorded in cost of goods sold. In addition, for
cost of goods sold, approximately $8.9 million reflects the
non-cash impact of the re-measurement of inventory at fair value as
a result of the Business Combination.
iii. For cost of goods sold, this adjustment represents special
payments we made to certain employees at our bakery facilities of
$2.2 million and for operating costs this adjustment represents
special payments to corporate employees of $2.5 million as
compensation for their efforts in connection with the Business
Combination.
iv. Represents compensation for management profits interest plan
of approximately $3.2 million that was recognized as part of the
Business Combination.
v. Represents additional amortization expense associated with
the fair value recognized for customer relationships in connection
with the Business Combination.
vi. This adjustment consists primarily of legal and professional
fees and other costs associated with the Business Combination.
vii. Represents non cash expenses incurred by Successor for
stock awarded to Mr. Metropoulos as required under his new
employment agreement.
viii. Represents the reduction in interest expense due to the
paydown of Hostess Holdings L.P. debt pursuant to the terms of the
Business Combination.
ix. Represents the effective income tax rate of 28.5% for the
Successor, giving effect to the noncontrolling interest, a
partnership for income tax purposes.
x. Represents the elimination of historical income attributable
to the noncontrolling interest and attributes a portion of the pro
forma income to the noncontrolling interest created in the Business
Combination. Income is allocated to the noncontrolling interest
based on its pro rata share of the total equity of Hostess Holdings
L.P.
xi. This adjustment annualized the basic weighted average number
of class A shares outstanding.
xii. This adjustment includes the dilutive impact of the
outstanding warrants that are considered anti-dilutive on a
historical basis.
Results of Operations by Segment—For
the Unaudited Pro Forma Combined Year Ended December 31,
2016
Pro Forma Segment Data
(Unaudited)
Historical
(In thousands)
From November 4, 2016through
December 31, 2016
From January 1, 2016
through November 3, 2016
Pro Forma Adjustments
Pro Forma Combined Year
Ended
December 31, 2016
Year Ended December 31,
2015
(Successor) (Predecessor) Net Revenue $ 111,998 $ 615,588 — $
727,586 $ 620,815 Cost of goods sold 73,284 346,864 $ (8,541 ) (i)
411,607 355,963 Special employee incentive compensation —
2,195 (2,195 ) (ii) — 2,649 Gross Profit $ 38,714 $
266,529 $ 10,736 $ 315,979 $ 262,203
Segment Net Revenue Sweet baked goods $ 101,319
$ 569,087 $ — $ 670,406 609,895 Other 10,679 46,502 —
57,181 10,920 111,998 615,589 — 727,587 620,815 Gross
Profit Sweet baked goods 36,524 252,432 10,023 (iii) 298,979
258,248 Other 2,190 14,097 713 (iv) 17,000
3,955 $ 38,714 $ 266,529 $ 10,736 $ 315,979 $ 262,203
i. Decreasing cost of goods by the $8.9 million due to the fair
value adjustment of inventory in the Business Combination netted
against additional $0.4 million of incremental depreciation from
the write-up of property and equipment
ii. A special bonus payment was paid to employees at our bakery
facilities as compensation for their efforts in the Business
Combination
iii. The special employee incentive compensation related to
sweet baked goods, as well as $8.2 million related to the fair
value adjustment of inventory and incremental depreciation in
connection with the Business Combination
iv. Decreasing cost of goods sold related to the fair value
adjustment of inventory in the Business Combination
Results of Operations by Segment—For
the Unaudited Pro Forma Combined Quarter Ended December 31,
2016
Pro Forma Segment Data
(Unaudited)
Historical (In
thousands)
From November 4, 2016
through December 31,
2016
From October 1, 2016 through
November 3, 2016
Pro Forma Adjustments
Pro Forma Combined Quarter
Ended December 31, 2016
Quarter Ended December 31,
2015
(Successor) (Predecessor) Net Revenue $ 111,998 $
66,831 — $ 178,829 147,026 Cost of goods sold 73,284 37,437 $
(8,856 ) (i) 101,865 85,966 Special employee incentive compensation
— 2,195 (2,195 ) (ii) — — Gross profit $
38,714 $ 27,199 $ 11,051 $ 76,964 $ 61,060
Segment Net Revenue Sweet baked goods $ 101,319
$ 60,798 $ — $ 162,117 142,757 Other 10,679 6,033 —
16,712 4,269 111,998 66,831 — 178,829 147,026 Gross
Profit Sweet baked goods 36,524 25,110 10,338 (iii) 71,972 59,464
Other 2,190 2,089 713 (iv) 4,992 1,596
$ 38,714 $ 27,199 $ 11,051 $ 76,964 $ 61,060
i. Decreasing cost of goods by the $8.9 million due to the fair
value adjustment of inventory in the Business Combination netted
against additional $0.1 million of incremental depreciation from
the write-up of property and equipment
ii. A special bonus payment was paid to employees at our bakery
facilities as compensation for their efforts in the Business
Combination
iii. The special employee incentive compensation related to
sweet baked goods, as well as $8.2 million related to the fair
value adjustment of inventory and incremental deprecation in
connection with the Business Combination
iv. Decreasing cost of goods sold related to the fair value
adjustment of inventory in the Business Combination
Reconciliation of Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure commonly used in
the Company's industry and should not be construed as an
alternative to net income as an indicator of operating
performance or as an alternative to cash flow provided by operating
activities as a measure of liquidity (each as determined in
accordance with GAAP). Adjusted EBITDA may not be comparable to
similarly titled measures reported by other companies. The Company
has included Adjusted EBITDA because it believes it provides
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.
We define Adjusted EBITDA as net income adjusted to exclude (i)
interest expense, net, (ii) depreciation and amortization and (iii)
as further adjusted to eliminate the impact of certain items that
the Company does not consider indicative of its ongoing operating
performance. These further adjustments are itemized below. You are
encouraged to evaluate these adjustments and the reasons the
Company considers them appropriate for supplemental analysis. In
evaluating Adjusted EBITDA, 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 Company's presentation
of Adjusted EBITDA should not be construed as an inference that its
future results will be unaffected by unusual or non-recurring
items.
Adjusted EBITDA has important 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 expenses, or the cash requirements necessary to service
interest or principal payments, on the Company's debt; and
- does not reflect any cash requirements
for the assets being depreciated and amortized that may have to be
replaced in the future.
- the Company's presentation of Adjusted
EBITDA does not exclude the normal annual cash payments associated
with its employment agreement with Mr. Metropoulos as the Chief
Executive Officer and/or Executive Chairman. These amounts were
$0.6 million for the quarter ended December 31, 2016, $1.1 million
for the quarter ended December 31, 2015, $3.6 million for the year
ended December 31, 2016 and $4.3 million for the year ended
December 31, 2015. Following completion of the Business
Combination, these expenses will be approximately $0.1 million
quarterly.
- The Company’s Proxy Statement dated
October 21, 2016 respecting its November 3, 2016 special meeting at
which stockholders approved various items related to the Business
Combination contained certain projections for 2016 provided by
Hostess Holdings, L.P. to the Company in connection the Company’s
consideration of the acquisition. These projections presented
Adjusted EBITDA, consistent with the transaction agreement,
excluding related party expenses associated with the employment
arrangements with C. Dean Metropoulos. As noted above, the
Company’s presentation of Adjusted EBITDA does not exclude such
related party expenses, which were $3.6 million for the year ending
December 31, 2016. In addition, the projected Adjusted EBITDA
included $2.0 million of estimated pro forma adjusted EBITDA from
Superior’s results prior to its acquisition in May 2016, which are
not included in Adjusted EBITDA as presented by the Company. The
projected Adjusted EBITDA for 2016 included in the proxy statement
of $220.4 million, adjusted for these two items, would have been
$214.8 million, compared to the Company’s reported 2016 pro forma
combined Adjusted EBITDA of $215.3 million.
Reconciliation of Adjusted EBITDA—For
the Unaudited Pro Forma combined Year Ended December 31, 2016
compared to historical Year Ended December 31, 2015
2016 2016 2015
(Successor) (Predecessor) Pro Forma
Combined (In thousands)
FromNovember 4, 2016 through December 31, 2016
FromJanuary 1, 2016 through November 3, 2016
Year endedDecember 31, 2016 Year
EndedDecember 31, 2015 Net income (loss) $
(8,485 ) $ 60,425 $ 82,442 $ 88,760 Plus non-GAAP adjustments:
Income tax provision (7,762 ) 439 32,862 — Interest expense, net
6,649 60,384 51,441 50,011 (Gain) loss on debt extinguishment (i)
(763 ) — (763 ) 25,880 Depreciation and amortization 5,843 10,265
36,520 9,836 Executive chairman agreement termination and execution
(ii) 26,747 — — — Unit-based compensation — 3,891 — 1,381 Other
expense (income) (iii) 751 1,624 2,375 (8,743 ) Impairment of
property and equipment (iv) — 7,300 7,300 2,700 Loss on
sale/abandonment of property and equipment and bakery shutdown
costs (v) — 2,551 2,551 4,182 Business combination transaction
costs (vi) — 31,832 575 — Inventory fair value adjustment (vii)
8,914 — — — Special employee incentive compensation (viii) —
4,698 — 3,923 Adjusted EBITDA $ 31,894
$ 183,409 $ 215,303 $ 177,930
i. For the Successor period November 4, 2016 through December
31, 2016 and pro forma combined year ended December 31, 2016, we
recorded a gain on extinguishment of debt of $0.8 million, which
consisted of penalties of $3.0 million, the write-off of deferred
financing costs of $0.2 million net of debt premium write-offs of
approximately $4.0 million. For the year ended December 31, 2015
(Predecessor), we recorded a loss on extinguishment related to our
2013 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.
ii. For the Successor period November 4, 2016 through December
31, 2016, we expensed $26.7 million related to stock awarded to Mr.
Metropoulos as required under his new employment arrangements.
iii. For the Successor period November 4, 2016 through December
31, 2016, we recorded expenses of $0.8 million which primarily
consisted of legal and professional fees and other post-Business
Combination costs such as fees related to securities filings. For
the Predecessor period from January 1, 2016 through November 3,
2016, other expense consisted of transaction costs attributable the
pursuit of a potential acquisition that has since been abandoned,
offset partially by one-time gain from the settlement of the Grain
Craft peanut recall matter of approximately $0.8 million. For the
year ended December 31, 2015 (Predecessor), other income consisted
of $12.0 million of proceeds from the sale of foreign trademark
rights and certain "know how" in certain countries in the Middle
East, partially offset by $3.3 million for professional service
fees related to the pursuit of a potential sale transactions. For
the year ended, December 31, 2014 (Predecessor), other expense was
$0.6 million.
iv. For the Predecessor period January 1, 2016 through November
3, 2016, and for the pro forma combined year ended December 31,
2016, we closed multiple production lines at the Indianapolis,
Indiana bakery and transitioned production to other facilities
resulting in a loss of $7.3 million.
v. For the Predecessor period January 1, 2016 through November
3, 2016, and for the pro forma combined year ended December 31,
2016, we incurred a loss on a sale/abandonment of property and
bakery shutdown costs of $0.3 million, primarily due to utilities,
insurance, taxes and maintenance expenses related to the Schiller
Park, Illinois bakery. In addition, we incurred losses of
approximately $2.6 million related to equipment that we no longer
intended to use or had idled.
vi. For the Predecessor period from January 1, 2016 through
November 3, 2016, business combination transaction costs consisted
primarily of professional and legal costs.
vii. For the Successor period November 4, 2016 through December
31, 2016, we re-measured inventory at fair value at the Closing
Date, resulting in additional non-cash cost of goods sold of $8.9
million.
viii. For the Predecessor period January 1, 2016 through
November 3, 2016, a special bonus payment of $2.5 million and $2.2
million was paid to employees at the bakery facilities and
corporate employees, respectively, as compensation for their
efforts in the Business Combination. For the year ended December
31, 2015 (Predecessor), a special bonus payment of $2.6 million and
$1.3 million was paid to employees at the bakery facilities and
corporate employees, respectively, as compensation for their
efforts in the recapitalization of the Company.
The following table sets forth Adjusted Gross Profit and
Adjusted Gross Margin:
(In thousands) From
November 4, 2016through
December 31, 2016
FromJanuary 1, 2016 through
November 3, 2016
(Unaudited)
Pro forma combined Year Ended
December 31, 2016
Year Ended
December 31, 2015
Year EndedDecember 31, 2014
(Successor) (Predecessor)
(Predecessor) (Predecessor) Net revenue $ 111,998 $
615,588 $ 727,586 $ 620,815 $ 554,695 Cost of goods sold 73,284
346,864 411,607 355,963 320,763 Special employee incentive
compensation — 2,195 — 2,649
— Gross Profit - US GAAP $ 38,714 $ 266,529 $
315,979 $ 262,203 $ 233,932 Add back: Special employee
incentive compensation (i) — 2,195 — 2,649 — Inventory fair value
adjustment (ii) 8,914 — — — —
Adjusted Gross Profit $ 47,628 $ 268,724 $
315,979 $ 264,852 $ 233,932 Gross
Margin - GAAP 34.6 % 43.3 % 43.4 % 42.2 % 42.2 % Adjusted
Gross Margin 42.5 % 43.7 % 43.4 % 42.7 % 42.2 %
(i) For the Predecessor period January 1, 2016 through November
3, 2016, a special bonus payment of $2.2 million was paid to
employees at the bakery facilities as compensation for their
efforts in the Business Combination. For the year ended December
31, 2015, a special bonus payment of $2.6 million was paid to
employees at the bakery facilities as compensation for their
efforts in the recapitalization of Hostess.
(ii) For the Successor period November 4, 2016 through December
31, 2016 and the pro forma combined year ended December 31, 2016,
the Company re-measured inventory at fair value at the Business
Combination date, resulting in additional non-cash cost of goods
sold of $8.9 million.
Reconciliation of Adjusted EBITDA—For
the Unaudited Pro Forma combined Quarter Ended December 31, 2016
compared to historical Quarter Ended December 31, 2015
2016 2016 2015
(Successor) (Predecessor) Pro Forma
Combined (Predecessor)
(In thousands)
From November 4, 2016
through December 31, 2016
From October 1, 2016 through
November 3, 2016
Quarter EndedDecember 31,
2016
Quarter Ended December 31,
2015
Net income (loss) $ (8,485 ) $ (21,084 ) $ 21,988 $ 17,149
Plus non-GAAP adjustments: Income tax provision (7,762 ) 145
8,764 — Interest expense, net 6,649 6,638 11,566 18,204 (Gain) loss
on debt extinguishment (763 ) — (i) (763 ) — Depreciation and
amortization 5,843 1,212 9,168 2,678 Executive chairman agreement
termination and execution 26,747 — — — Unit-based compensation —
3,204 — 116 Other expense (income) 754 (721 ) (ii) 33 58 Business
combination transaction cost — 24,767 — — Impairment of property
and equipment — 2,065 (iii) 2,065 3,751 Loss on sale/abandonment of
property and equipment and bakery shutdown costs — 33 (iv) 33 176
Inventory fair value adjustment 8,914 — — — Special employee
incentive compensation — 4,698 — — Adjusted
EBITDA $ 31,897 $ 20,957 $ 52,854 $ 42,132
i. For the pro forma combined quarter ended December 31, 2016,
the Company recorded a gain on partial extinguishment of debt of
$0.8 million, which consisted of penalties of $3.0 million, the
write-off of deferred financing costs of $0.2 million net of debt
premium write-offs of approximately $4.0 million.
ii. For the pro forma quarter ended December 31, 2016, the
Company recorded expenses of $0.7 million which primarily consisted
of legal and professional fees post-combination costs such as
registrations. For the Predecessor quarter ended December 31, 2015,
other expense consisted of $0.1 million for professional service
fees related to the pursuit of a potential sale of Hostess.
iii. For the pro forma combined quarter ended December 31, 2016,
the Company impaired assets that had been idled, or otherwise
qualified for impairment.
iv. For pro forma combined quarter ended December 31, 2016, the
Company incurred losses of approximately $0.1 million related to
equipment that the Company no longer intended to use or had
idled.
Reconciliation of Adjusted
EBITDA-Guidance for the year ended December 31, 2017
Unaudited 2017 GuidanceAdjusted EBITDA
Reconciliation
EstimatedYear ended
December 31, 2017
Amounts in
millions
Net income $ 100 Plus non-GAAP adjustments: Income tax
provision 40 Interest expense, net 44 Depreciation and amortization
37 Share based compensation (i)
14
Adjusted EBITDA $ 235
(i) Represents amounts associated with expected issuances of
equity awards which may take the form of stock options, restricted
share units, or performance share units.
Reconciliation of our 2017 adjusted EBITDA guidance to net
income presents inherent difficulty in forecasting certain amounts
that are necessary for a full reconciliation to net income. Our
outlook for 2017 adjusted EBITDA is based on the same methodology
used to present adjusted EBITDA for completed historical and pro
forma periods. However, the amounts, if any, of the non-recurring
items that are excluded from adjusted EBITDA are highly uncertain
and incapable of estimation, and have not been included in the
table above. Such non-recurring items may include non-cash expenses
for earn out liabilities under the terms of the Business
Combination, non-cash expense relating to the Tax Receivable
Agreement and/or other items. As such items are excluded from
adjusted EBITDA, the occurrence and magnitude thereof, while
impacting net income and the reconciliation of adjusted EBITDA to
net income, would have no impact on adjusted EBITDA for 2017. In
addition, the above reconciliation assumes that the overall capital
structure of the Company and effective income tax rates are
consistent with the structure at December 31, 2016. Changes to
these assumptions could significantly impact our net income for
2017 and accordingly, the reconciliation of adjusted EBITDA to net
income, but not adjusted EBITDA itself. For additional information
regarding our Adjusted EBITDA, refer to the related explanations
presented above under “Reconciliation of Adjusted EBITDA”.
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Investors, please contact:ICRKatie Turner,
646-277-1228katie.turner@icrinc.comorMedia, please contact:LAK
Public Relations, Inc.Hannah Arnold,
212-329-1417harnold@lakpr.comorLAK Public Relations, Inc.Marie
Espinel, 212-899-4744mespinel@lakpr.com
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