Fourth Quarter Net Revenue Increased 9.7%
from the Pro Forma Combined Prior Year
Full Year 2017 Net Revenue Increased 6.7%
from the Pro Forma Combined Prior Year
Introduces Full Year 2018 Outlook
Hostess Brands, Inc. (NASDAQ: TWNK) (NASDAQ: TWNKW) (“Hostess”
or the “Company”), today reported its financial results for the
fourth quarter and full year ended December 31, 2017.
Fourth Quarter 2017 Summary (Compared to Pro Forma Combined
Fourth Quarter 2016)1:
- Net revenue increased 9.7% to $196.2
million, representing the Company's best organic growth rate for
the year. The Company's strong performance was led by the
introduction of the Hostess Bakery PetitesTM, a premium snacking
platform made with no artificial flavors or colors, and no high
fructose corn syrup, which contributed 3.1% of the net revenue
increase.
- Net income was $189.6 million (includes
$163.1 million of one-time gains relating to the recently enacted
tax law referred to as "Tax Reform"), compared to $22.0 million.
Diluted EPS was $1.74 per share compared to $0.14 per share.
- Adjusted EPS increased 13.3% to $0.17
per share.
- Adjusted EBITDA increased 9.4% to $57.8
million, or 29.5% of net revenue.
- Point of sale increased 4.3%. Point of
sale for the top seven brands increased 8.2% (which comprise 74% of
total net revenue).
Full 2017 Summary (Compared to Pro Forma Combined Full Year
2016)1:
- Net revenue increased 6.7% to $776.2
million led by current year product innovations of $62.5
million.
- Net income was $258.1 million (includes
$163.1 million of one-time gains relating to Tax Reform) compared
to $82.4 million. Diluted EPS was $2.13 per share compared to $0.54
per share.
- Adjusted EPS increased 5.0% to $0.63
per share.
- Adjusted EBITDA increased 6.9% to
$230.2 million, or 29.7% of net revenue.
- Hostess' year-to-date market share
through December 30, 2017 was 17.2%, increasing 72 basis points
from the prior year.
- Cash and cash equivalents at December
31, 2017 of $135.7 million with a leverage ratio of 3.73x both
driven by operating cash flows of $163.7 million for the year.
“We are pleased with our strong finish to the year,” commented
Bill Toler, President and Chief Executive Officer of Hostess. “We
were able to capitalize on the momentum provided by our robust
product innovation and continued distribution gains to increase our
market share. We are optimistic about the continued growth
opportunity from our product innovation, including our Hostess
Bakery PetitesTM platform and the new breakfast opportunities from
our acquisition of the Big Texas® and Cloverhill® brands.”
1This press release contains certain
non-GAAP financial measures, including adjusted net income
attributed to Class A shareholders, adjusted EPS and adjusted
EBITDA. Please refer to the schedules in this press release for
reconciliations of non-GAAP financial measures to the comparable
GAAP measure. In addition, for comparative purposes, the Company
has also presented supplemental pro forma combined financial
information for the three months and year ended December 31, 2016,
giving effect to the Business Combination (as defined below), as if
it had occurred on January 1, 2016.
Fourth Quarter 2017 (Comparisons to the Pro Forma Combined
Fourth Quarter 2016)
Net revenue was $196.2 million, an increase of 9.7%, or $17.4
million, compared to $178.8 million. New product initiatives
contributed $22.2 million of growth, led by Bakery PetitesTM,
Chocolate Cake Twinkies®, White Fudge Ding Dongs® and Golden
CupCakes. This growth was partially offset by a decrease in net
revenue from 2016 product innovations and discontinued items.
Gross profit was $80.8 million, or 41.2% of net revenue,
compared to $77.0 million, or 43.0% of net revenue. Higher
transportation costs resulting from a tightening of shipping
capacity caused a 120 basis point decrease in gross margin. Gross
margin was also affected by a shift in product mix due to higher
growth in multi-pack sales than other pack types.
Advertising, selling, general and administrative (“SG&A”)
expenses were $25.9 million, or 13.2% of net revenue, compared to
$26.4 million, or 14.8% of net revenue. This decrease was primarily
due to forfeitures of stock based compensation. The decrease was
offset by increased display rack deployment and additional
professional fees related to public company compliance.
The income tax benefit of $98.8 million for the quarter ended
December 31, 2017 includes a benefit of approximately $126.4
million due to the remeasurement of deferred tax items due to Tax
Reform partially offset by a tax expense of $15.1 million due to
the remeasurement of the tax receivable agreement also due to Tax
Reform. The remaining tax expense of $12.5 million represents an
effective tax rate of 32.2%, giving effect to the non-controlling
interest, a partnership for income tax purposes and excluding the
impact of the tax receivable agreement remeasurement.
Net income was $189.6 million, compared to $22.0 million. Net
income attributed to Class A stockholders was $179.7 million, or
$1.74 per share, compared to $14.4 million, or $0.14 per share.
This increase was primarily attributed to a $111.3 million tax
benefit recognized due to the remeasurement of certain deferred tax
items and a gain of $51.8 million on the remeasurement of the tax
receivable agreement, both due to Tax Reform. Earnings attributed
to Class A stockholders were $1.74 per share, compared to $0.14 per
share.
Adjusted net income attributed to Class A stockholders, or
adjusted EPS, increased to $17.6 million, or $0.17 per share,
compared to $15.0 million, or $0.15 per share. The increase was due
to increased sales volume, lower interest expense in 2017 due to
the repricing of the Company's First Lien Term Loan, and
forfeitures of stock-based compensation.
Adjusted EBITDA increased 9.4% to $57.8 million, or 29.5% of net
revenue, compared to $52.9 million, or 29.6% of net revenue.
The Company has two reportable segments: Sweet Baked Goods and
In-Store Bakery. The Sweet Baked Goods segment consists of fresh
and frozen retail sweet baked goods as well as Hostess® branded
bread products. The In-Store Bakery segment consists of products
sold in the bakery section of grocery and club stores. During the
fourth quarter, the Company reassessed its segment presentation.
Previously, the “Other” category included In-Store Bakery as well
as bread and frozen retail products. The 2017 fourth quarter, full
year reporting and comparable prior periods presented below reflect
bread and frozen retail products within the Sweet Baked Goods
segment and discrete presentation for In-Store Bakery. The Company
expects to file a Current Report on Form 8-K on March 1, 2018 to
provide additional historical financial information reflecting the
new segment presentation.
Sweet Baked Goods Segment: Net revenue was $185.3
million, an increase of $16.7 million, or 9.9%, compared to $168.6
million. The increase was driven primarily by net revenue from
current year product innovations of $21.7 million. Gross profit was
$78.4 million, or 42.3% of net revenue, compared to $74.0 million,
or 43.9% of net revenue. Higher transportation costs caused a 120
basis point decrease in gross margin. Gross margin was also
affected by a shift in product mix due to higher growth in
multi-pack sales than other pack types.
In-Store Bakery Segment: Net revenue was $10.9 million,
an increase of $0.7 million, or 6.5%, compared to $10.2 million
primarily due to product innovation. Gross profit was $2.4 million,
or 22.4% of net revenue, compared to $2.9 million, or 28.8% of net
revenue. Higher transportation costs caused a 250 basis point
decrease in gross margin. The decrease in margin was also
attributed to increased ingredient and storage costs.
Full Year 2017 (Comparisons to Pro Forma Combined Full Year
2016)
Net revenue was $776.2 million, an increase of $48.6 million, or
6.7%, compared to $727.6 million. The increase was driven primarily
by current year product initiatives of $62.5 million, and white
space opportunities growth led by In-Store Bakery and other
developing sales channels, partially offset by a decrease in net
revenue from 2016 innovations and discontinued items. The
acquisition of Superior Cake Products, Inc. in May 2016 provided
approximately $11.9 million of growth in 2017.
Net income was $258.1 million compared to $82.4 million. Net
income attributed to Class A shareholders was $223.9 million or
$2.13 per share, compared to $53.7 million or $0.54 per share. This
increase was primarily due to a $111.3 million tax benefit
recognized due to the remeasurement of certain deferred tax items
and a gain of $51.8 million on the remeasurement of the tax
receivable agreement, both due to Tax Reform.
Adjusted net income attributed to Class A common stockholders,
or adjusted EPS, increased to $66.7 million or $0.63 per share
compared to $58.3 million or $0.60 per share. The increase was
attributed to lower interest expense, higher sales volume and 2016
impairment charges not incurred in 2017.
Adjusted EBITDA increased 6.9% to $230.2 million, or 29.7% of
net revenue, compared to $215.3 million, or 29.6% of net
revenue.
Sweet Baked Goods Segment: Net revenue was $733.8
million, an increase of $33.0 million, or 4.7%, compared to $700.9
million. Gross profit was $316.9 million, or 43.2% of net revenue,
compared to $310.5 million, or 44.3% of net revenue. Gross profit
increased primarily due to increased net revenue. Higher
transportation costs caused a 70 basis point decrease in gross
margin. Gross margin was also affected by a shift in product mix
due to higher growth in multi-pack sales than other pack types.
In-Store Bakery Segment: Net revenue was $42.4 million,
an increase of $15.6 million, or 58.5%, compared to $26.7 million.
This increase is primarily due to the Superior acquisition and
subsequent growth in In-Store Bakery products. Gross profit was
$10.0 million, or 23.6% of net revenue, compared to $5.4 million,
or 20.3% of net revenue. Gross profit increased primarily due to
increased net revenue.
Balance Sheet and Cash Flow
As of December 31, 2017, the Company had cash and cash
equivalents of $135.7 million and approximately $96.1 million
available for borrowing, net of letters of credit, under its
revolving line of credit. The Company had outstanding term loan
debt of $993.8 million and net debt of $858.1 million as of
December 31, 2017, resulting in a leverage ratio of 3.73x. See the
schedules in the press release for the calculation of the leverage
ratio.
Outlook
“We are well positioned to grow and enhance stockholder value in
2018 through the execution of our strategic initiatives,” commented
Dean Metropoulos, Executive Chairman of Hostess. “These key
strategic initiatives are focused on further core distribution
expansion, innovation, expansion of white space and serving as a
platform for future acquisitions. We plan to grow well above the
sweet baked goods category in 2018.”
In an effort to enable and drive growth in its breakfast product
portfolio1 and bring important co-manufacturing capabilities
in-house, during the first quarter of 2018 the Company acquired
certain US breakfast assets from Aryzta, LLC (referred to below as
the “Acquisition”). The Acquisition included the Chicago Cloverhill
bakery facility and the Big Texas® and Cloverhill® brands. The
Acquisition is expected to provide $60 million to $70 million of
net revenue for 2018. The Company expects short-term EBITDA losses
of $15 million to $20 million, and corresponding adjusted EPS
dilution of $0.10 to $0.12 as a result of anticipated operating
losses from the acquired business through the second half of 2018
as the Company improves the sales and operating performance of the
facility. The Company expects the acquired business to be EBITDA
positive in the first half of 2019. By 2020, the Company expects
the Acquisition to contribute approximately $20 million to $25
million in EBITDA.
The Company expects adjusted EBITDA of $220 million to $230
million for the year ended December 31, 2018. See the schedules in
the press release for a reconciliation of anticipated 2018 adjusted
EBITDA to anticipated net income of $98 million to $106 million for
2018.
The Company expects adjusted EPS of $0.65 to $0.70, an increase
of 3% to 11% from adjusted EPS of $0.63 for 2017. The impact of Tax
Reform is expected to provide a benefit to adjusted EPS of
approximately $0.12. Please refer to the schedule in this press
release for the calculation of expected basic, diluted, and
adjusted EPS. The Company's expected tax rate for 2018 is
approximately 21% giving effect to the non-controlling interest, a
partnership for income tax purposes.
The Company anticipates cash provided by operations of $175
million to $180 million in 2018. Significant anticipated cash
outflows from investing and financing activities include $50
million to $60 million of total capital expenditures, $34 million
to buy out a portion of the tax receivable agreement and $24
million to fund the Acquisition. The net increase in cash for 2018
of $35 million to $40 million would result in a leverage ratio of
3.60x to 3.80x at year end, prior to any additional acquisitions or
optional debt reductions.
1 For the 52-week period ended December 30, 2017, Breakfast
represented 51% of the SBG category (as defined below) and Hostess
has a 15% share compared to All Day Snacking, which represents 49%
of the SBG category, where Hostess has a 20% share per Nielsen’s
U.S. SBG category data.
Conference Call and Webcast
The Company will host a conference call and webcast today,
February 28, 2018 at 4:30 p.m. EST to discuss the results for the
fourth quarter and year.
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 Wednesday, March 14, 2018, by dialing
844-512-2921 from the U.S., or 412-317-6671 from international
locations, and entering confirmation code 13676521.
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.
Hostess® is the second leading brand by market share within the
Sweet Baked Goods (“SBG”) category. For the 52-week period ended
December 30, 2017 the Company's market share was 17.2% per
Nielsen’s U.S. SBG category data. The Company has a #1 leading
market position within the two largest SBG Segments: Donut Segment
and Snack Cake Segment, according to Nielsen U.S. total universe
for the 52 weeks ended December 30, 2017.
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®, Hostess Bakery
Petites™ and Fruit Pies, in addition to Twinkies® and CupCakes.
The Company's results include those of Superior Cake Products,
Inc. (“Superior”), which was acquired on May 10, 2016. Through
Superior, the Company competes in the in-store bakery section of
retailers.
On November 4, 2016, the Company completed the acquisition of a
controlling interest in Hostess Holdings, L.P. (“Hostess Holdings”)
and changed its name from Gores Holdings, Inc. to Hostess Brands,
Inc. (the “Business Combination”). Hostess Holdings is the
Company's "Predecessor" for accounting purposes. As a result, the
Company's consolidated financial results are presented: (i) as of
December 31, 2017 and for the year ended December 31, 2017
(successor); (ii) as of December 31, 2016 and for the period
November 4, 2016 to December 31, 2016 (Successor); and (iii) for
the period January 1, 2016 to November 3, 2016 (Predecessor).
The Company has also presented supplemental unaudited pro forma
combined financial information for the three months and year ended
December 31, 2016, giving effect to the Business Combination as if
it had occurred on January 1, 2016. The pro forma financial
information does not include the operations of Superior prior to
the May 10, 2016 acquisition date. All references in this press
release to results for the three months and year ended December 31,
2016, refer to such unaudited pro forma results. The Company
believes this unaudited pro forma information provides helpful
supplemental information with respect to the performance of the
Hostess business during this period.
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 the Company's
views about its future performance that constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended and Section 21E of the Securities Exchange Act
of 1934, as amended, that involve substantial risks and
uncertainties. Forward-looking statements are generally identified
through the inclusion of words such as “believes,” “expects,”
“intends,” “estimates,” “projects,” “anticipates,” “will,” “plan,”
“may,” “should,” or similar language. Statements addressing the
Company's future operating performance and statements addressing
events and developments that the Company expects or 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 the Company's reputation and brand image;
protecting intellectual property rights; leveraging the Company's
brand value to compete against lower-priced alternative brands;
correctly predicting, identifying and interpreting changes in
consumer preferences and demand and offering new products to meet
those changes; operating in a highly competitive industry; the
continued ability to produce and successfully market products with
extended shelf life; the ability to drive revenue growth in key
products or add products that are faster-growing and more
profitable; volatility in commodity, energy, and other input
prices; dependence on major customers; geographic focus could make
the Company particularly vulnerable to economic and other events
and trends in North America; increased costs in order to comply
with governmental regulation; general political, social and
economic conditions; a portion of the workforce belongs to unions
and strikes or work stoppages could cause the business to suffer;
product liability claims, product recalls, or regulatory
enforcement actions; unanticipated business disruptions; dependence
on third parties for significant services; insurance may not
provide adequate levels of coverage against claims; failures,
unavailability, or disruptions of the Company's information
technology systems; the Company's ability to achieve expected
synergies and benefits and performance from the Company's strategic
acquisitions; dependence on key personnel or a highly skilled and
diverse workforce; and the Company's ability to finance
indebtedness on terms favorable to the Company; and other risks as
set forth from time to time in the Company's Securities and
Exchange Commission filings.
As a result of a number of known and unknown risks and
uncertainties, the Company's actual results or performance may be
materially different from those expressed or implied by these
forward-looking statements. Risks and uncertainties are identified
and discussed in Item 1A-Risk Factors in the Company's Annual
Report on Form 10-K and its subsequent Securities and Exchange
Commission filings. All subsequent written or oral forward-looking
statements attributable to us or persons acting on the Company's
behalf are expressly qualified in their entirety by these risk
factors. The Company undertakes no obligation to update any
forward-looking statement, whether as a result of new information,
future events, or otherwise.
HOSTESS BRANDS, INC. CONSOLIDATED
BALANCE SHEETS
(Amounts in thousands, except shares
and per share data)
December 31, December 31, ASSETS
2017 2016 Current assets: Cash and cash
equivalents $ 135,701 $ 26,855 Accounts receivable, net 101,012
89,237 Inventories 34,345 30,444 Prepaids and other current assets
7,970 4,827 Total current assets 279,028
151,363 Property and equipment, net 174,121 153,224 Intangible
assets, net 1,923,088 1,946,943 Goodwill 579,446 588,460 Other
assets, net 10,592 7,902 Total assets $ 2,966,275
$ 2,847,892
LIABILITIES AND STOCKHOLDERS’
EQUITY Current liabilities: Long-term debt and capital lease
obligation payable within one year $ 11,268 $ 11,496 Tax receivable
agreement payments payable within one year 14,200 — Accounts
payable 49,992 34,083 Customer trade allowances 40,511 36,691
Accrued expenses and other current liabilities 11,880 21,656
Total current liabilities 127,851 103,926 Long-term debt and
capital lease obligation 987,920 993,374 Tax receivable agreement
110,160 165,384 Deferred tax liability 267,771 353,797
Total liabilities 1,493,702 1,616,481
Class A common stock, $0.0001 par value, 200,000,000 shares
authorized, 99,791,245 and 98,250,917 shares issued and outstanding
at December 31, 2017 and 2016, respectively 10 10 Class B common
stock, $0.0001 par value, 50,000,000 shares authorized, 30,319,564
and 31,704,988 shares issued and outstanding at December 31, 2017
and 2016, respectively 3 3 Additional paid in capital 920,723
912,824 Accumulated other comprehensive income 1,318 — Retained
earnings (accumulated deficit) 208,279 (15,618 )
Stockholders’ equity 1,130,333 897,219 Non-controlling interest
342,240 334,192 Total liabilities, stockholders’
equity and non-controlling interest $ 2,966,275 $ 2,847,892
HOSTESS BRANDS, INC. CONSOLIDATED
STATEMENTS OF OPERATIONS
(Amounts in thousands, except shares
and per share data)
Year EndedDecember 31, 2017 FromNovember 4,
2016 through December 31, 2016
FromJanuary 1, 2016 through November 3,
2016 (Successor) (Successor) (Predecessor)
Net revenue $ 776,188 $ 111,998 $ 615,588 Cost of goods sold
449,290 73,284 346,864 Special employee incentive compensation —
— 2,195 Gross profit 326,898 38,714 266,529
Operating costs and expenses: Advertising and marketing
33,004 5,245 30,626 Selling expense 32,086 5,033 25,730 General and
administrative 52,943 7,322 38,391 Special employee incentive
compensation — — 2,503 Amortization of customer relationships
23,855 3,922 1,185 Impairment of property and equipment 1,003 —
7,300 Loss on sale/abandonment of property and equipment, and
bakery shutdown costs (recoveries) (144 ) — 2,551 Business
combination transaction costs — — 31,832 Related party expenses 381
26,799 3,539 Tax receivable agreement liability remeasurement
(50,222 ) — —
Total operating costs and expenses
92,906 48,321 143,657 Operating income (loss) 233,992
(9,607 ) 122,872
Other (income) expense: Interest expense,
net 39,174 6,649 60,384 Loss (gain) on modification of debt 2,554
(763 ) — Other expense (income) 1,360 754 1,624 Total
other expense 43,088 6,640 62,008 Income (loss)
before income taxes 190,904 (16,247 ) 60,864 Income tax expense
(benefit) (67,204 ) (7,762 ) 439 Net income (loss) 258,108 (8,485 )
60,425 Less: Net income (loss) attributable to the non-controlling
interest 34,211 (4,081 ) 3,214 Net income (loss)
attributable to Class A shareholders/partners $ 223,897 $
(4,404 ) $ 57,211 Earnings (loss) per Class A share: Basic $ 2.26 $
(0.05 ) Diluted $ 2.13 $ (0.05 ) Weighted-average shares
outstanding: Basic 99,109,629 97,791,658 Diluted 105,307,293
97,791,658
HOSTESS BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year EndedDecember 31,
2017 November 4, 2016through December 31,
2016 January 1, 2016through November 3,
2016 (Successor) (Successor) (Predecessor)
Operating activities Net income (loss) $ 258,108 $ (8,485 )
$ 60,425 Depreciation and amortization 38,170 5,843 10,265
Impairment of property 1,003 — 7,300 Non-cash loss (gain) on debt
modification 1,453 (3,974 ) — Debt discount (premium) amortization
(925 ) (197 ) 2,790 Tax receivable agreement remeasurement (50,222
) — — Stock-based compensation 7,413 26,748 3,890 Loss on
sale/abandonment of property and equipment 11 — 2,551 Deferred
taxes (81,270 ) (7,815 ) — Change in operating assets and
liabilities Accounts receivable (11,775 ) 3,705 (19,869 )
Inventories (3,901 ) 8,895 (2,994 ) Prepaids and other current
assets (3,039 ) (1,694 ) (1,049 ) Accounts payable and accrued
expenses 4,839 (11,296 ) 33,886 Customer trade allowances 3,820
2,225 4,828 Other — (344 ) 198 Net cash provided by
operating activities 163,685 13,611 102,221
Investing activities Purchases of property and
equipment (32,913 ) (6,494 ) (28,633 ) Acquisition of business, net
of cash — (421,242 ) (49,735 ) Proceeds from sale of assets 85 —
4,000 Acquisition and development of software assets (2,381 ) (460
) (2,211 ) Net cash used in investing activities (35,209 ) (428,196
) (76,579 )
Financing activities Repayments of
long-term debt and capital lease obligation (5,144 ) (217,400 )
(6,987 ) Payment of deferred underwriting costs — (13,125 ) — Debt
fees (1,066 ) (1,820 ) — Distributions to partners — — (23,582 )
Distributions to non-controlling interest (12,985 ) — (1,027 )
Payment of taxes related to the net issuance of employee stock
awards (436 ) — — Proceeds from the exercise of warrants 1 —
— Net cash used in financing activities (19,630 )
(232,345 ) (31,596 ) Net increase (decrease) in cash and cash
equivalents 108,846 (646,930 ) (5,954 ) Cash and cash equivalents
at beginning of period 26,855 673,785 64,473
Cash and cash equivalents at end of period $ 135,701
$ 26,855 $ 58,519
Supplemental Disclosures
of Cash Flow Information Interest $ 45,431 $ — $
68,606 Taxes paid $ 16,617 $ 43 $ —
Supplemental disclosure of non-cash investing Purchases of property
and equipment funded by accounts payable $ 1,089 $ 673
$ 633
SUPPLEMENTAL UNAUDITED PRO FORMA FINANCIAL
INFORMATION
The unaudited pro forma statements of operations for the year
and the quarter ended December 31, 2016 present 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 adjustments are based on available information and
upon assumptions that management believes are reasonable in order
to reflect, on a pro forma basis, the impact of these transactions
on the historical financial information of the Predecessor
entity.
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 management's
estimates and assumptions, are reflected herein. The total purchase
price of approximately $2.4 billion to acquire Hostess Holdings,
has been allocated to the assets acquired and assumed liabilities
of Hostess Holdings based upon fair values at the date of
acquisition. Third party valuation specialists conducted analyses
in order to assist management in determining the fair values of the
acquired assets and liabilities assumed. The Company has valued the
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 financial information contains a variety
of adjustments, assumptions and estimates, is subject to the
assumptions and adjustments as described in the accompanying notes
hereto and numerous other uncertainties, and should not be relied
upon as being indicative of results of operations had the Business
Combination occurred on January 1, 2016. The unaudited pro
forma financial information also does not project 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 combined consolidated financial information for
the three months and year ended December 31, 2016 does not include
the results of the Superior acquisition and its related operations
prior to the acquisition. The Company evaluated the impact of the
Superior acquisition on the Company’s financial statements and
concluded that the impact was not significant and therefore pro
forma financial results assuming the acquisition of Superior at
January 1, 2016 are not included.
On November 18, 2016, the Company refinanced the 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”). The Company
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 financial
results assuming the completion of the refinancing on January 1,
2016.
The pro forma adjustments give effect to the items identified in
the pro forma table below in connection with the Business
Combination.
HOSTESS BRANDS,
INC. UNAUDITED PRO FORMA COMBINED STATEMENTS OF
OPERATIONS
(amounts in thousands, except shares
and per share data)
Historical(i)
2017 2016 2016
(In thousands,
except per share data)
YearEnded December 31 From November
4through December 31 From January
1through November 3 ProForma
Adjustments ProForma Combined
(Successor) (Successor) (Predecessor) Net revenue $ 776,188 $
111,998 $ 615,588 $ — $ 727,586 Cost of goods sold 449,290 73,284
346,864 (8,541 ) ii 411,607 Special employee incentive compensation
— — 2,195 (2,195 ) iii — Gross profit
326,898 38,714 266,529 10,736 315,979
Operating costs and expenses: Advertising and marketing
33,004 5,245 30,626 — 35,871 Selling expense 32,086 5,033 25,730 —
30,763 General and administrative 52,943 7,322 38,391 (3,902 ) iv
41,811 Special employee incentive compensation — — 2,503 (2,503 )
iii — Amortization of customer relationships 23,855 3,922 1,185
20,050 v 25,157 Impairment of property and equipment 1,003 — 7,300
— 7,300 Loss on sale/abandonment of property and equipment, and
bakery shutdown costs (recoveries) (144 ) — 2,551 — 2,551 Business
combination transaction costs — — 31,832 (31,257 ) vi 575 Related
party expenses 381 26,799 3,539 (26,747 ) vii 3,591 Tax receivable
agreement liability remeasurement (50,222 ) — — —
— Total operating costs and expenses 92,906
48,321 143,657 (44,359 ) 147,619 Operating
income 233,992 (9,607 ) 122,872 55,095 168,360 Other expense
(income): Interest expense, net 39,174 6,649 60,384 (15,592 ) viii
51,441 (Gain) Loss on modification of debt 2,554 (763 ) — — (763 )
Other expense 1,360 754 1,624 — 2,378
Total other expense 43,088 6,640 62,008
(15,592 ) 53,056 Income (loss) before income taxes 190,904
(16,247 ) 60,864 70,687 115,304 Income tax expense (benefit)
(67,204 ) (7,762 ) 439 40,185 ix 32,862 Net
income (loss) 258,108 (8,485 ) 60,425 30,502 82,442 Less: Net
income attributable to the non-controlling interest 34,211
(4,081 ) 3,214 29,565 x 28,698 Net income
attributable to Class A shareholders $ 223,897 $ (4,404 ) $
57,211 $ 937 $ 53,744 Earnings (loss)
per Class A share: Basic $ 2.26 $ (0.05 ) $ 0.55 Diluted $ 2.13 $
(0.05 ) $ 0.54 Weighted-average shares outstanding: Basic
99,109,629 97,791,658 (180,000 ) xi 97,611,658 Diluted 105,307,293
97,791,658 2,393,000 xii 100,184,658
i. The amounts in these columns represent the
Successor’s and Predecessor’s historical results of operations for
the periods reflected. ii. Reflects the non-cash impact of the
remeasurement of inventory at fair value as a result of the
Business Combination of approximately $8.9 million offset by the
impact to depreciation and amortization associated with the
allocation of the purchase price to property and equipment. 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 the 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 $3.9 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
arrangements. viii. Represents the reduction in interest expense
due to the repayment of a portion of Hostess Holdings debt as part
of the Business Combination. ix. Represents the effective income
tax rate of 28.5% for the Successor, giving effect to the
non-controlling interest, and not giving effect to the adjustment
made to the valuation allowance on the Company’s historical
deferred tax assets. x. Represents the elimination of historical
income attributable to the non-controlling interest and attributes
a portion of the pro forma income to the non-controlling interest
created in the Business Combination. Income is allocated to the
non-controlling interest based on its pro rata share of the total
equity of Hostess Holdings. 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.
HOSTESS BRANDS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(Amounts in thousands, except shares
and per share data)
Historical (i)
(Successor) (Successor)
(Predecessor) Pro FormaCombined (In
thousands) Quarter EndedDecember 31, 2017
FromNovember 4, 2016
through December 31,
2016
FromOctober 1, 2016
through
November 3, 2016
Pro
Forma
Adjustments
Quarter EndedDecember 31, 2016 Net revenue $ 196,221
$ 111,998 $ 66,831 $ — $ 178,829 Cost of goods sold 115,428 73,284
37,437 (8,856 ) ii 101,865 Special employee incentive compensation
— — 2,195 (2,195 ) iii. — Gross profit
80,793 38,714 27,199 11,051 76,964
Advertising and marketing 8,700 5,245 3,097 — 8,342 Selling
expenses 7,668 5,033 2,555 — 7,588 General and administrative 9,528
7,322 6,376 (3,249 ) iv. 10,449 Special employee incentive
compensation — — 2,503 (2,503 ) iii. — Amortization of customer
relationships 5,994 3,922 717 2,100 v. 6,739 Impairment of property
and equipment — — 2,065 — 2,065 Loss on sale/abandonment of
property and equipment and bakery shutdown costs (recoveries) (144
) — 33 — 33 Business combination transaction costs — — 24,767
(24,767 ) vi. — Related party expenses 97 26,799 108 (26,747 ) vii.
160 Tax receivable agreement liability remeasurement (51,812 ) —
— Total operating costs and expenses
(19,969 ) 48,321 42,221 (55,166 ) 35,376
Operating income (loss) 100,762 (9,607 ) (15,022 ) 66,217 41,588
Other (income) expense: Interest expense, net 9,517 6,649 6,638
(1,721 ) viii. 11,566 Loss (gain) on debt extinguishment 432 (763 )
— — (763 ) Other (income) expense 51 754 (721 ) —
33 Total other (income) expense 10,000 6,640
5,917 (1,721 ) 10,836 Income (loss) before
income taxes 90,762 (16,247 ) (20,939 ) 67,938 30,752 Income tax
expense (benefit) (98,812 ) (7,762 ) 145 16,381 ix.
8,764 Net income (loss) 189,574 (8,485 ) (21,084 ) 51,557
21,988 Less: Net income (loss) attributable to the non-controlling
interest 9,888 (4,081 ) (895 ) 12,610 x. 7,634
Net income (loss) attributable to Class A shareholders $ 179,686
$ (4,404 ) $ (20,189 ) $ 38,947 $ 14,354
Earnings (loss) per share: Basic $ 1.80 $ (0.05 ) $ 0.15 Diluted $
1.74 $ (0.05 ) $ 0.14 Weighted-average shares outstanding: Basic
99,673,097 97,791,658 (95,749 ) xi. 97,695,909 Diluted 103,389,524
97,791,658 2,477,637 xii. 100,269,295
i. The amounts in these columns
represent the Successor’s and Predecessor’s historical results of
operations for the periods reflected. ii. Reflects the non-cash
impact of the remeasurement of inventory at fair value as a result
of the Business Combination of approximately $8.9 million offset by
the impact to depreciation and amortization associated with the
allocation of the purchase price to property and equipment. iii.
For cost of goods sold, this adjustment represents special payments
the Company made to certain bakery facility employees of $2.2
million and for the 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 $3.9 million that was recognized as
part of the Business Combination offset by the impact to
depreciation and amortization associated with the allocation of the
purchase price to property and equipment. 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
arrangements.
viii.
Represents the reduction in interest expense due to the repayment
of a portion of Hostess Holdings debt as part of the Business
Combination. ix. Represents the effective income tax rate of 28.5%
for the Successor, giving effect to the non-controlling interest,
and not giving effect to the adjustment made to the valuation
allowance on the Company’s historical deferred tax assets. x.
Represents the elimination of historical income attributable to the
non-controlling interest and attributes a portion of the pro forma
income to the non-controlling interest created in the Business
Combination. Income is allocated to the non-controlling interest
based on its pro rata share of the total equity of Hostess
Holdings. 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 Year Ended December 31, 2017 and Pro Forma Year Ended December
31, 2016
(Successor) (Successor)
(Predecessor) Pro
Forma
Combined
(In
thousands)
Year Ended
December 31,
2017
From November 4,
through
December 31
From January 1,
through
November 3, 2016
Pro FormaAdjustments (Unaudited)
Year Ended
December 31,
2016
Net revenue $ 776,188 $ 111,998 $ 615,588 $ — $ 727,586 Cost of
goods sold 449,290 73,284 346,864 (8,541 ) i. 411,607 Special
employee incentive compensation — $ — 2,195
(2,195 ) ii. — Gross profit $ 326,898 $ 38,714 $
266,529 $ 10,736 $ 315,979
Segment
Net Revenue Sweet baked goods $ 733,827 $ 105,211 $ 595,645 $ — $
700,856 In-Store Bakery 42,361 6,787 19,943 —
26,730 $ 776,188 $ 111,998 $ 615,588 $
— $ 727,586 Gross Profit Sweet baked goods $ 316,916 $
37,387 $ 262,930 $ 10,232 iii. $ 310,549 In-Store Bakery 9,982
1,327 3,599 504 iii. 5,430 $ 326,898
$ 38,714 $ 266,529 $ 10,736 $ 315,979
i. Reflects the non-cash
impact of the remeasurement of inventory at fair value as a result
of the Business Combination of approximately $8.9 million offset by
the impact to depreciation and amortization associated with the
allocation of the purchase price to property and equipment. ii.
This adjustment represents special payments the Company made to
certain bakery facility employees in connection with the Business
Combination. iii. This reflects the segment allocation of the
adjustments described in i. and ii. above.
Results of Operations by Segment—For
the Quarter Ended December 31, 2017 and Pro Forma Combined Quarter
Ended December 31, 2016
(Successor) (Successor)
(Predecessor) Pro
Forma
Combined
(In
thousands)
Quarter Ended
December 31,
2017
From November 4,
through
December 31
From October 1,
through
November 3, 2016
Pro FormaAdjustments (Unaudited)
Quarter Ended
December 31,
2016
Net revenue $ 196,221 $ 111,998 $ 66,831 $ — $ 178,829 Cost of
goods sold 115,428 73,284 37,437 (8,856 ) i. 101,865 Special
employee incentive compensation — — 2,195
(2,195 ) ii. — Gross profit $ 80,793 $ 38,714 $
27,199 $ 11,051 $ 76,964
Segment
Net Revenue Sweet baked goods 185,330 105,211 63,394 $ — 168,605
In-Store Bakery 10,891 6,787 3,437 —
10,224 $ 196,221 $ 111,998 $ 66,831 $ —
$ 178,829 Gross Profit Sweet baked goods 78,358 37,387 26,087
10,547 iii. 74,021 In-Store Bakery 2,435 1,327 1,112
504 iii. 2,943 $ 80,793 $ 38,714 $
27,199 $ 11,051 $ 76,964
i. Reflects the non-cash impact of the remeasurement
of inventory at fair value as a result of the Business Combination
of approximately $8.9 million offset by the impact to depreciation
and amortization associated with the allocation of the purchase
price to property and equipment. ii. This adjustment represents
special payments the Company made to certain bakery facility
employees in connection with the Business Combination. iii. This
reflects the segment allocation of the adjustments described in i.
and ii. above.
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA, adjusted net income attributed to Class A
stockholders and adjusted EPS are non-GAAP financial measures
commonly used in the Company's industry and should not be construed
as an alternative to net income or earnings per share as
indicators 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). These measures may
not be comparable to similarly titled measures reported by other
companies. The Company has included adjusted EBITDA, adjusted net
income attributed to Class A shareholders, and adjusted EPS,
because it believes these measures provide management and investors
with additional information to measure the Company's performance
and liquidity, estimate the Company's value and evaluate the
Company's ability to service debt.
Adjusted EBITDA
The Company defines adjusted EBITDA as net income adjusted to
exclude (i) interest expense, net, (ii) depreciation and
amortization, (iii) income taxes and (iv) 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;
- does not reflect any cash requirements
for the assets being depreciated and amortized that may have to be
replaced in the future; and
- does not reflect payments related to
income taxes, the tax receivable agreement or distributions to the
non-controlling interest to reimburse its tax liability.
Adjusted Net Income Attributed to Class A Stockholders and
Adjusted EPS
Adjusted net income attributed to Class A stockholders excludes
certain items that affect comparability. Adjusted net income
attributed to Class A stockholders is divided by weighted average
diluted Class A shares outstanding to determine adjusted EPS. The
adjustments to net income attributed to Class A stockholders are
itemized below. You are encouraged to evaluate these adjustments
and the reasons the Company considers them appropriate for
supplemental analysis. In evaluating adjusted net income attributed
to Class A stockholders and adjusted EPS, you should be aware that
in the future the Company may incur expenses that are the same as
or similar to some of the adjustments set forth below. The
presentation of these measures should not be construed as an
inference that future results will be unaffected by unusual or
recurring items. Certain adjustments are shown net of income taxes
and net of allocation to the non-controlling interest.
Reconciliation of Adjusted EBITDA(Unaudited)
Three Months Ended Year Ended
(In
thousands)
December 31,2017
(Successor)
December 31,2016
Pro Forma Combined
December 31,
2017
(Successor)
December 31,
2016
Pro Forma Combined
Net income $ 189,574 $ 21,988 $ 258,108 $ 82,442 Plus
non-GAAP adjustments: Income tax provision (98,812 ) 8,764 (67,204
) 32,862 Interest expense, net 9,517 11,566 39,174 51,441
Depreciation and amortization 9,594 9,168 38,170 36,520 Share-based
compensation i. (576 ) — 7,413 — Tax receivable agreement liability
remeasurement ii. (51,812 ) — (50,222 ) — Other expense iii. 51 33
1,360 2,375 Loss (gain) on debt modification iv. 432 (763 ) 2,554
(763 ) Impairment of property and equipment v. — 2,065 1,003 7,300
Business combination transaction costs vi. — — — 575 Loss on
sale/abandonment of property and equipment and bakery shutdown
costs (recoveries) vii. (144 ) 33 (144 ) 2,551
Adjusted EBITDA $ 57,824 $ 52,854 $ 230,212 $
215,303 i. For the
three months and year ended December 31, 2017, the Company
recognized expense related to awards under the Hostess Brands, Inc.
2016 Equity Incentive Plan. ii. During the third quarter of 2017,
the Company incurred a loss due to the remeasurement of the tax
receivable agreement due to a change in state tax law. During the
fourth quarter of 2017, the Company recognized a gain due to the
remeasurement of the tax receivable agreement due to a reduction in
the Company's federal tax rate resulting from Tax Reform. iii. For
the year ended December 31, 2017, other costs included professional
fees incurred related to the secondary public offering of common
stock, the registration of certain privately held warrants, and
other special projects. For the pro forma three months and year
ended December 31, 2016, other expense primarily consisted of
professional fees attributed to the pursuit of a potential
acquisition that has since been abandoned, and other special
projects. iv. During the three months and year ended December 31,
2017, the Company recognized costs related to the modification of
its First Lien Term Loan. During the pro forma three months and
year ended December 31, 2016, the Company recognized a gain on
refinancing of its First Lien Term Loan and extinguishment of its
Second Lien Term Loan v. During the year ended December 31, 2017,
the Company transitioned the production of one of its products to a
third party and recognized an impairment loss resulting from the
idling of the related production equipment. During the three months
and year ended December 31, 2016, the Company closed multiple
production lines in its Indianapolis, Indiana bakery and
transitioned production to other facilities resulting in an
impairment loss. vi. For the year ended December 31, 2016, business
combination transaction costs consisted of professional and legal
costs for the acquisition of Superior. vii. For the pro forma
combined three months and year ended December 31, 2016, the Company
incurred a loss on a sale/abandonment of property and bakery
shutdown costs , primarily due to utilities, insurance, taxes and
maintenance expenses related to the Schiller Park, Illinois bakery.
In addition, the Company incurred losses of approximately $2.6
million related to equipment that we no longer intended to use or
had idled. During the three months and year ended December 31,
2017, the Company recovered $0.1 million of these costs.
Reconciliation of Adjusted
Net Income Attributed to Class A Stockholders and Adjusted EPS
(unaudited)
Three Months Ended Year
Ended
(In thousands
except share and per share data)
December 31,
2017
Pro Forma
December 31,
2016
December 31,
2017
Pro Forma
December 31,
2016
Net income attributed to Class A shareholders $ 179,686 $
14,354 $ 223,897 $ 53,744 Plus Non-GAAP adjustments(i): Impairment
of property and equipment ii. — 974 472 3,439 Loss on
sale/abandonment of property and equipment and bakery shutdown
costs iii. (68 ) 16 (68 ) 1,202 Business combination transaction
costs iv. — — — 271 Tax receivable agreement liability
remeasurement v. (51,812 ) — (50,222 ) — State tax law change vi. —
— 1,778 — Federal tax law change vii. (110,399 ) — (110,399 ) —
Loss (gain) on modification of debt viii. 205 (360 ) 1,215
(360 ) Adjusted net income attributed to Class A
stockholders $ 17,612 $ 14,984 $ 66,673 $
58,296 Weighted average Class A shares outstanding-diluted
103,389,524 97,792,658 105,307,293 97,792,658
Adjusted EPS $ 0.17 $ 0.15 $ 0.63 $
0.60 i. All
adjustments to net income attributed to Class A stockholders are
net of the impact to the non-controlling interest and income taxes,
where applicable. ii. During the year ended December 31, 2017, the
Company transitioned the production of one of its products to a
third party and recognized an impairment loss resulting from the
idling of the related production equipment. During the pro forma
combined three months and year ended December 31, 2016, the Company
closed multiple production lines in its Indianapolis, Indiana
bakery and transitioned production to other facilities resulting in
an impairment loss. iii. For the pro forma combined three months
and year ended December 31, 2016, the Company incurred a loss on a
sale/abandonment of property and bakery shutdown costs , primarily
due to utilities, insurance, taxes and maintenance expenses related
to the Schiller Park, Illinois bakery. In addition, the Company
incurred losses related to equipment that we no longer intended to
use or had idled. During the three months and year ended December
31, 2017, the Company recovered a portion of these costs. iv. For
the pro forma year ended December 31, 2016, the Company incurred
expenses related to the acquisition of Superior. v. During the
third quarter of 2017, the Company incurred a loss due to the
remeasurement of the tax receivable agreement due to a change in
state tax law. During the fourth quarter of 2017, the Company
recognized a gain due to the remeasurement of the tax receivable
agreement due to a reduction in the Company's federal tax rate
resulting from Tax Reform. vi. During the third quarter of 2017,
there was an increase in the deferred tax liability due to a change
in state tax law that went into effect during the three months
ended September 30, 2017. vii. During the fourth quarter of 2017,
there was a decrease in the deferred tax liability due to a change
in the Company's federal tax rate resulting from Tax Reform. viii.
During the three months and year ended December 31, 2017 the
Company recognized costs related to the modification of its First
Lien Term Loan. During the pro forma three months and year ended
December 31, 2016, the Company recognized a gain on refinancing of
its First Lien Term Loan and extinguishment of its Second Lien Term
Loan.
Reconciliation of Adjusted EBITDA-Guidance for the year ended
December 31, 2018
Reconciliation of 2018 adjusted EBITDA guidance to net income
presents inherent difficulty in forecasting certain amounts that
are necessary for a full reconciliation to net income. The
Company's outlook for 2018 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 below. 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 2018. In addition, the below reconciliation assumes that
the overall capital structure of the Company and effective income
tax rates are consistent with the structure at December 31, 2017.
Changes to these assumptions could significantly impact net income
for 2018 and accordingly, the reconciliation of adjusted EBITDA to
net income, but not adjusted EBITDA itself. For additional
information regarding adjusted EBITDA, refer to the related
explanations presented above under “Reconciliation of Adjusted
EBITDA”.
2018 GuidanceAdjusted EBITDA Reconciliation
(Unaudited) EstimatedYear Ended
December 31, 2018
Amounts in
millions, except shares and per share data
Net income attributed to common stockholders $69 - $75 Net income
attributed to the non-controlling interest i. 29 - 31 Net income
ii. 98 - 106 Plus non-GAAP adjustments: Income tax provision
iii. 27 - 29 Interest expense, net 41 - 41 Depreciation and
amortization 42 - 42 Share-based compensation iv. 8 - 8 Other
expenses v. 4 - 4 Adjusted EBITDA $220 - $230
i. The net income of Hostess Holdings is
allocated to owners pro rata based on ownership percentage. As of
December 31, 2017, the Company owned approximately 99.8 million of
Hostess Holdings' 130.1 million total partnership units. The
remaining approximately 30.3 million partnership units are owned by
a non-controlling interest. ii. Estimated net income excludes the
impact of the gain expected to be realized in the first quarter of
2018 related to the buyout of the Apollo Funds' interest in the tax
receivable agreement. See the Current Report on Form 8-K filed with
the Securities and Exchange Commission on January 29, 2018 for
further information regarding this transaction. iii. Represents the
corporate income tax expense generated from the Company's interest
in Hostess Holdings. The non-controlling interest represents an
ownership interest in Hostess Holdings, which is a partnership for
tax purposes. This provision reflects the projected effects of Tax
Reform on the Company's effective tax rate. Neither the
non-controlling interest tax distributions nor the tax receivable
agreement payment are included in the income tax provision. iv.
Represents amounts associated with the issuance of stock options,
restricted stock units, or performance share units and restricted
stock to employees of the Company. v. Expected other expenses
consist of $2.0 million of professional fees incurred for the
pursuit of potential acquisitions or financing transactions and
$2.0 million of non-capitalizable costs incurred to transition the
production facility acquired from Aryzta, LLC.
Other 2018 Guidance
EstimatedYear Ended December 31, 2018 Earnings
per Class A share: Basic i. $0.69 - $0.75 Diluted i. $0.64 - $0.69
Adjusted ii. $0.65 - $0.70 Weighted-average shares outstanding:
Basic iii. 99,916,245 Diluted iv. 107,516,245 Net increase
in cash and cash equivalents v. $35 - $40 Capital
expenditures $50 - $60 Leverage ratio 3.60x - 3.80x
Expected statutory corporate federal and state income tax rate
applied to income attributed to Class A shareholders 27% - 28%
Payments related to the Company's current federal and state income
tax liabilities $8 - $9 Distributions to holders of the
non-controlling interest to cover income tax payments 11 - 12 2018
payments to the selling equity holders of Hostess Holdings related
to the 2017 activity under the terms of the tax receivable
agreement 8 - 9 i.
Estimated basic and diluted EPS exclude the impact of the gain
expected to be realized in the first quarter of 2018 related to the
buyout of the Apollo Funds' interest in the tax receivable
agreement. See the Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 29, 2018 for further
information regarding this transaction. ii. Adjusted EPS excludes
the after-tax impact to Class A stockholders allocated net income
attributed to approximately $2 million of professional fees in
pursuit of potential acquisitions or financing transactions and $2
million of non-capitalizable costs incurred to transition the
production facility acquired from Aryzta, LLC. Expected
weighted-average dilutive shares as described in "iv" below were
used to calculate adjusted EPS. iii. Weighted-average basic common
shares outstanding for 2017 includes 99,791,245 Class A common
shares outstanding as of December 31, 2017 and the projected impact
of 2018 stock-based compensation vesting activity. iv. Reflects the
dilutive impact of 7.4 million Class A common shares issuable upon
exercise of outstanding warrants (based on a range of 6.9 million
to 7.9 million) and 0.2 million Class A common shares issuable upon
vesting of outstanding unvested equity awards to employees (based
on a range of 0.1 million to 0.3 million). v. Net increase in cash
and cash equivalents reflects the $34 million of cash used to buy
out a portion of the tax receivable agreement and $24 million used
to purchase certain assets from Aryzta, LLC. Both transactions
happened in the first quarter of 2018.
Leverage Ratio (Unaudited)
Year Ended
December 31, 2017
(in thousands)
Estimated
Year Ended
December 31, 2018
(in millions)
Long-term debt and capital lease obligations, including current
maturities $ 999,188 $988 - $988 Less: capital lease obligation
(569 ) (0) - (0) Less: Unamortized debt premium and issuance costs
(4,857 ) (4) - (4) Term loan debt 993,762 984 - 984 Less: cash and
cash equivalents (135,701 ) (170 - 175) Net term loan debt $
858,061 $814 - $809 Adjusted EBITDA $ 230,212 $215 -
$225 Leverage ratio 3.73 3.80 - 3.60
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180228006419/en/
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
Hostess Brands (NASDAQ:TWNKW)
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