Net Revenue Increased 13.1% from the Prior
Year Period
Excluding the Chicago Bakery, Net Revenue
Increased 5.2%
Chicago Bakery Transformation
Underway
Reaffirms Full Year 2018 Outlook
Hostess Brands, Inc. (NASDAQ: TWNK) (NASDAQ: TWNKW) (“Hostess”
or the “Company”) today reported its financial results for the
three months ended March 31, 2018.
First Quarter 2018 Summary1:
- Net revenue increased 13.1%; excluding
the Chicago Bakery2, net revenue increased 5.2%.
- The Chicago Bakery, acquired on
February 1, 2018, contributed $14.5 million of net revenue.
- Point of sale increased 6.3% for the
12-week period ended March 24, 2018. Point of sale for the top
seven sub-brands increased 8.5%. These sub-brands represent 69.1%
of the Company’s net revenue.
- The Hostess® brand's market share for
the 12-week period ended March 24, 2018 was 17.9%, up 124 basis
points. This represents a record market share for the brand since
its re-launch in 2013.
- Net income was $29.3 million (including
a one-time gain of $12.4 million related to the buyout of a portion
of the tax receivable agreement) compared to $24.2 million. Diluted
EPS was $0.23 per share compared to $0.15 per share.
- Adjusted EPS was $0.14 per share
compared to $0.15 per share.
- Adjusted EBITDA was $47.0 million, or
22.5% of net revenue, compared to $54.5 million or 29.5% or net
revenue.
- Cash and cash equivalents of $100.5
million as of March 31, 2018 with a leverage ratio of 4.00x, both
driven by operating cash flows of $38.3 million.
“We are pleased with our sales momentum and strong start to
2018,” commented Dean Metropoulos, Executive Chairman of Hostess.
“Our Chicago Bakery transformation is well underway, which we
believe will provide significant opportunities for revenue growth
within the Breakfast subcategory and be accretive to our future
earnings. We continue to introduce new innovative items that have
expanded the Hostess® brand market share and continue to expect to
grow well above the category average in 2018 and beyond.”
1 This press release contains certain
non-GAAP financial measures, including adjusted net income
attributed to Class A stockholders, adjusted earnings per share
(“EPS”) and adjusted EBITDA. Please refer to the schedules in the
press release for reconciliations of non-GAAP financial measures to
the comparable GAAP measure. Unless otherwise stated, all
comparisons are to the first quarter of 2017.
2 On February 1, 2018, the Company acquired certain
breakfast-related assets from Aryzta, LLC. These assets included
the Chicago Cloverhill bakery facility, the related inventory, and
the Big Texas® and Cloverhill® brands. Throughout this press
release, these assets are referred to collectively as the “Chicago
Bakery.”
First Quarter 2018 (Comparisons to the First Quarter of
2017)
Net revenue was $208.7 million, an increase of 13.1%, or $24.2
million, compared to $184.5 million. The Chicago Bakery, which the
Company acquired during the quarter to expand its breakfast product
portfolio and manufacturing capabilities, contributed $14.5 million
of net revenue. Excluding the Chicago Bakery, net revenue increased
5.2%, driven by the continued momentum from the Company’s 2017
product innovations.
Gross profit was $71.2 million, or 34.1% of net revenue,
compared to $79.3 million, or 43.0% of net revenue. The decline was
primarily attributed to $4.3 million in negative gross profit from
the Chicago Bakery resulting in a 478 basis point decrease to gross
margin. In addition, higher transportation costs as a result of
tightened shipping capacity, higher co-packing costs and one-time
bonuses paid to hourly employees as a result of the projected
benefits of the newly enacted tax legislation also impacted gross
profit.
Advertising, selling, general and administrative (“SG&A”)
expenses were $30.8 million, or 14.8% of net revenue, compared to
$28.6 million, or 15.5% of net revenue. This increase on a dollar
basis was primarily attributable to an increase in non-cash
share-based compensation of $1.1 million due to a full quarter of
stock compensation expense for the three months ended March 31,
2018, compared to only a partial quarter for the three months ended
March 31, 2017. The Company has also increased display rack
deployment in support of revenue growth.
In the first quarter of 2018, the Company entered into an
agreement to buyout the Apollo Funds' rights to all current and
future tax savings under the tax receivable agreement in exchange
for a $34.0 million cash payment, resulting in a gain of $12.4
million.
The Company recognized an impairment loss of $1.4 million
related to the planned disposition of certain production equipment
before the end of its useful life.
The Company's effective tax rate was 18.2%, giving effect to the
non-controlling interest, a partnership for income tax purposes,
compared to 29.2%. The decrease in the Company's effective tax rate
was primarily attributed to a lower federal statutory rate enacted
by the legislation commonly referred to as the Tax Cuts and Jobs
Act (“Tax Reform”). The tax impact of the gain on the buyout of the
tax receivable agreement also decreased the Company's effective tax
rate.
Net income was $29.3 million, compared to net income of $24.2
million. Net income attributed to Class A stockholders was $23.8
million, or $0.23 per share (on a diluted basis), compared to $15.8
million, or $0.15 per share.
Adjusted EPS was $0.14, compared to $0.15 per share. Adjusted
EBITDA was $47.0 million, or 22.5% of net revenue, compared to
adjusted EBITDA of $54.5 million, or 29.5% of net revenue. The
decreases in adjusted EPS and adjusted EBITDA were primarily
attributable to the negative gross profit from the Chicago
Bakery.
The Company has two reportable segments: Sweet Baked Goods
(“SBG”) and In-Store Bakery. The SBG segment consists of sweet
baked goods that are sold under the Hostess® and Dolly Madison®
brands, Hostess® branded bread and buns and frozen retail products.
The operations attributed to the Chicago Bakery are included in the
SBG segment. The In-Store Bakery segment consists of Superior® and
Hostess® branded products sold through the in-store bakery section
of grocery and club stores. Prior to the fourth quarter of 2017,
the Company had two operating segments: SBG and Other. The analysis
below reflects the new segment presentation for both the current
and comparative periods.
Sweet Baked Goods Segment: Net revenue was $199.3
million, an increase of $24.5 million, or 14.0%, compared to $174.8
million. The Chicago Bakery contributed $14.5 million of the
increase in net revenue. The remaining increase was driven
primarily by continued growth from 2017 product innovations. Gross
profit was $69.4 million, or 34.8% of net revenue, compared to
$76.8 million, or 43.9% of net revenue. The decrease in gross
margin was primarily due to the Chicago Bakery operations, which
produced negative gross profit for the quarter. Gross profit was
also impacted by higher transportation and co-packing costs and
bonuses paid to hourly employees as a result of the projected
benefits of the newly enacted tax legislation.
In-Store Bakery Segment: Net revenue was $9.4 million, a
decrease of 0.3 million, or 3.0%, compared to net revenue of $9.7
million. Gross profit was $1.8 million, or 19.1% of net revenue,
compared to gross profit of $2.5 million, or 25.8% of net revenue.
The decrease in gross margin was primarily attributable to a shift
in product and channel mix. Gross margin further decreased due to
higher transportation costs as well as one-time bonuses paid to
hourly employees.
Balance Sheet and Cash Flow
As of March 31, 2018, the Company had cash and cash equivalents
of $100.5 million and approximately $96.1 million available for
borrowing, net of letters of credit, under its revolving line of
credit. The Company generated operating cash flow of $38.3 million
during the quarter. The Company had outstanding term loan debt of
$991.3 million and net debt of $890.8 million as of March 31, 2018,
resulting in a leverage ratio of 4.00x based on adjusted EBITDA of
$222.7 million for the twelve months ended March 31, 2018. See the
schedules in the press release for the reconciliation of adjusted
EBITDA to net income and the calculation of the leverage ratio.
Outlook
The Company expects that its continued focus on its strategic
initiatives of core distribution expansion, innovation and white
space expansion will result in growth well above the SBG category
in 2018. In addition, the Company expects to continue to serve as a
platform for future acquisitions.
The Company reaffirms its outlook for adjusted EPS of $0.65 to
$0.70. Please refer to the schedules 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 reaffirms its outlook for adjusted EBITDA of $220
million to $230 million for the year ended December 31, 2018. See
the schedules in this press release for a reconciliation of
anticipated 2018 adjusted EBITDA to anticipated net income of $98
million to $106 million for 2018.
The Company reaffirms its outlook for 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 of the Chicago Bakery. The
net increase in cash for 2018 of $35 million to $40 million is
expected to result in a leverage ratio of 3.50x to 3.70x at year
end, prior to any additional acquisitions.
Conference Call and Webcast
The Company will host a conference call and webcast today, May
9, 2018 at 4:30 p.m. EDT to discuss the results for the first
quarter.
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, May 23, 2018, by dialing
844-512-2921 from the U.S., or 412-317-6671 from international
locations, and entering confirmation code 13679120.
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
SBG category. For the 52-week period ended March 24, 2018, the
Company's market share was 17.3% 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-week period
ended March 24, 2018. The Donut and Snack Cake Segments together
account for 48.0% of the SBG category's total dollar sales.
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.
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
(Unaudited, amounts in thousands,
except shares and per share data)
March 31, December 31,
ASSETS 2018 2017 Current assets: Cash
and cash equivalents $ 100,450 $ 135,701 Accounts receivable, net
113,450 101,012 Inventories 39,970 34,345 Prepaids and other
current assets 5,915 7,970 Total current assets
259,785 279,028 Property and equipment, net 192,514 174,121
Intangible assets, net 1,917,093 1,923,088 Goodwill 579,446 579,446
Other assets, net 15,683 10,592 Total assets $
2,964,521 $ 2,966,275
LIABILITIES AND STOCKHOLDERS’
EQUITY Current liabilities: Long-term debt and capital lease
obligation payable within one year $ 11,268 $ 11,268 Tax receivable
agreement payments payable within one year 8,100 14,200 Accounts
payable 65,753 49,992 Customer trade allowances 40,073 40,511
Accrued expenses and other current liabilities 8,714
11,880 Total current liabilities 133,908 127,851 Long-term debt and
capital lease obligation 985,124 987,920 Tax receivable agreement
70,289 110,160 Deferred tax liability 273,279 267,771
Total liabilities 1,462,600 1,493,702 Class A common stock, $0.0001
par value, 200,000,000 shares authorized, 99,915,614 and 99,791,245
shares issued and outstanding at March 31, 2018 and December 31,
2017, respectively 10 10 Class B common stock, $0.0001 par value,
50,000,000 shares authorized, 30,255,184 and 30,319,564 shares
issued and outstanding at March 31, 2018 and December 31, 2017,
respectively 3 3 Additional paid in capital 922,720 920,723
Accumulated other comprehensive income 3,407 1,318 Retained
earnings 232,311 208,279 Stockholders’ equity
1,158,451 1,130,333 Non-controlling interest 343,470
342,240 Total liabilities and stockholders’ equity $ 2,964,521 $
2,966,275
HOSTESS BRANDS, INC. CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands,
except shares and per share data)
Three Months Ended
March 31,
2018
March 31,
2017
Net revenue $ 208,743 $ 184,538 Cost of goods sold
137,502 105,243 Gross profit 71,241
79,295 Operating costs and expenses: Advertising and
marketing 8,870 7,322 Selling expense 7,387 8,112 General and
administrative 14,562 13,183 Amortization of customer relationships
5,994 5,872 Business combination transaction costs 47 — Impairment
of property and equipment 1,417 — Related party expenses 92
83 Total operating costs and expenses 38,369
34,572 Operating income 32,872 44,723 Other expense
(income): Interest expense, net 9,340 9,830 Gain on buyout of tax
receivable agreement (12,372 ) — Other expense 83
714 Total other expense (income) (2,949 )
10,544 Income before income taxes 35,821 34,179 Income tax expense
6,519 9,980 Net income 29,302 24,199 Less: Net
income attributable to the non-controlling interest 5,461
8,367 Net income attributable to Class A stockholders
$ 23,841 $ 15,832 Earnings per Class A share: Basic $ 0.24
0.16 Diluted $ 0.23 0.15 Weighted-average shares outstanding: Basic
99,895,075 98,250,917 Diluted 105,041,015 104,773,887
HOSTESS BRANDS, INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited, amounts in
thousands)
Three Months Ended
March 31,
2018
March 31,
2017
Operating activities Net income $ 29,302 $ 24,199
Depreciation and amortization 10,091 9,266 Impairment of property
and equipment/bakery shutdown costs 1,417 — Debt discount (premium)
amortization (271 ) (248 ) Non-cash gain on tax receivable
agreement (12,372 ) — Stock-based compensation 1,623 521 Deferred
taxes 4,786 5,455 Change in operating assets and liabilities
Accounts receivable (11,437 ) (6,823 ) Inventories 2,006 (1,645 )
Prepaids and other current assets 2,055 (19 ) Accounts payable and
accrued expenses 11,560 (4,152 ) Customer trade allowances (438 )
(278 ) Other — (8 ) Net cash provided by
operating activities 38,322 26,268
Investing activities Purchases of property and
equipment (8,019 ) (4,519 ) Business acquisition (23,910 ) —
Proceeds from sale of assets — 54 Acquisition and development of
software assets (558 ) (446 ) Net cash used in
investing activities (32,487 ) (4,911 )
Financing
activities Repayments of long-term debt and capital lease
obligation (2,526 ) (2,537 ) Distributions to non-controlling
interest (4,153 ) — Tax payments related to issuance of shares to
employees (407 ) — Tax receivable agreement buyout (34,000 )
— Net cash used in financing activities
(41,086 ) (2,537 )
Net increase in cash and cash
equivalents (35,251 ) 18,820 Cash and cash equivalents at
beginning of period 135,701 26,855
Cash and cash equivalents at end of period $ 100,450
$ 45,675
Supplemental Disclosures of Cash Flow
Information: Cash paid during the period for: Interest $ 9,942
$ 14,759 Taxes paid $ 507 $ — Supplemental disclosure of non-cash
investing: Purchases of property and equipment funded by accounts
payable $ 642 $ 3,325
Results of Operations by
Segment—Unaudited
Three Months Ended
(In
thousands)
March 31,
2018
March 31,
2017
Net revenue $ 208,743 $ 184,538 Cost of goods sold 137,502
105,243 Gross profit $ 71,241 $ 79,295
Segment Net Revenue Sweet baked goods $ 199,293
$ 174,793 In-Store Bakery 9,450 9,745 $ 208,743 $
184,538 Gross Profit Sweet baked goods $ 69,438 $ 76,781 In-Store
Bakery 1,803 2,514 $ 71,241 $ 79,295
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 stockholders, and adjusted EPS,
because it believes the 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 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 expense, or the cash requirements necessary to service
interest or principal payments, on the Company's debt; 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
(In
thousands)
March 31,
2018
March 31,
2017
Net income $ 29,302 $ 24,199 Plus non-GAAP
adjustments: Income tax provision 6,519 9,980 Interest expense, net
9,340 9,830 Depreciation and amortization 10,091 9,266 Share-based
compensation i. 1,623 521 Gain on buyout of tax receivable
agreement ii. (12,372 ) — Impairment of property and equipment iii.
1,417 — Tax Reform bonuses iv. 983 — Business combination
transaction costs v. 47 — Other expense vi. 83
714 Adjusted EBITDA $ 47,033 $ 54,510
i. For the three months ended March 31, 2018 and 2017, the
Company recognized expense related to stock compensation awarded
under the Hostess Brands, Inc. 2016 Equity Incentive Plan. ii.
Represents the difference between the $34.0 million cash payment to
buy out a portion of the tax receivable agreement and the carrying
value of the related tax receivable agreement liability. iii.
During the three months ended March 31, 2018, the Company recorded
an impairment loss of $1.4 million related to a planned improvement
in production that was abandoned. iv. During the three months ended
March 31, 2018, the Company utilized a portion of the tax savings
expected to be realized from Tax Reform to pay one-time bonuses to
certain hourly employees. v. Represents fees incurred related to
the acquisition of the Chicago Bakery. vi. For the three
months ended March 31, 2018, other expense included professional
services fees related to the pursuit of potential acquisitions. For
the three months ended March 31, 2017, other expense primarily
consisted of legal and professional fees related to a secondary
public offering of Class A common stock which occurred in April
2017.
Reconciliation of Adjusted Net Income
Attributed to Class A Stockholders and Adjusted EPS
(unaudited)
Three Months Ended
(In thousands
except share and per share data)
March 31,
2018
March 31,
2017
Net income attributed to Class A stockholders $ 23,841 $
15,832 Plus Non-GAAP adjustments (i): Gain on buyout of tax
receivable agreement ii. (10,729 ) — Impairment of property and
equipment iii. 785 — Tax Reform bonuses iv. 545
— Adjusted net income attributed to Class A stockholders $
14,442 $ 15,832 Weighted average Class A shares
outstanding-diluted 105,041,015 104,773,887
Adjusted EPS $ 0.14 $ 0.15 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 three months ended March
31, 2018, the Company entered into an agreement to terminate all
future payments payable under the Tax Receivable Agreement to the
Apollo Funds in exchange for a payment of $34 million. The Company
recognized a gain resulting from the excess of the carrying value
of the liability over the $34 million cash payment. iii. During the
three months ended March 31, 2018 the Company recorded an
impairment loss of $1.4 million related to the planned disposal of
certain production equipment before the end of its useful life. iv.
In response to Tax Reform, the Company paid one-time bonuses
to its hourly employees in the first quarter of 2018.
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 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, the impact to net income resulting from
Tax Receivable Agreement transactions, 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 March 31, 2018. 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 Guidance Adjusted EBITDA Reconciliation
(Unaudited)
Estimated
Year 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 98
- 106 Plus non-GAAP adjustments: Income tax provision ii. 27
- 29 Interest expense, net 41 - 41 Depreciation and amortization 42
- 42 Share-based compensation iii. 8 - 8 Other expenses iv. 4 - 4
Adjusted EBITDA $220 - $230 i.
The Company conducts its business through
its subsidiary Hostess Holdings, L.P. (“Hostess Holdings”). The net
income of Hostess Holdings is allocated to owners pro rata based on
ownership percentage. As of March 31, 2018, the Company owned
approximately 99.9 million of Hostess Holdings' 130.2 million total
partnership units. The remaining approximately 30.3 million
partnership units are owned by a non-controlling interest.
ii. 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. iii. Represents amounts associated with the issuance of
stock options, restricted stock units, or performance share units
to employees of the Company. iv. 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 of the Chicago Bakery.
Other 2018 Guidance
Estimated
Year Ended
December 31, 2018
Earnings per Class A share (i): Basic $0.69 - $0.75 Diluted $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 3.50x - 3.70x
Expected statutory corporate federal and state income tax rate
applied to income attributed to Class A stockholders 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 2017 activity under the terms of the tax receivable
agreement $8 - $9 i. Estimated basic
and diluted EPS exclude the impact of the gain realized in the
first quarter of 2018 related to the tax receivable agreement
buyout transaction. ii. Adjusted EPS excludes the after-tax impact
to net income allocated to Class A stockholders 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 of
the Chicago Bakery. Expected weighted-average dilutive shares as
described in "iv" below were used to calculate adjusted EPS. iii.
Weighted-average basic common shares outstanding for 2018 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 the Chicago Bakery. Both transactions closed in the first
quarter of 2018.
Reconciliation of Adjusted EBITDA
For the Trailing Twelve Months Ended March 31, 2018
(Unaudited)
Year Ended
December 31,
2017
Less: Three
Months Ended
March 31,
2017
Plus: Three
Months Ended
March 31,
2018
Twelve Months
Ended
March 31,
2018
Net income $ 258,108 $ (24,199 ) $ 29,302 $ 263,211 Plus
non-GAAP adjustments: Income tax provision (benefit) (67,204 )
(9,980 ) 6,519 (70,665 ) Interest expense, net 39,174 (9,830 )
9,340 38,684 Depreciation and amortization 38,170 (9,266 ) 10,091
38,995 Share-based compensation 7,413 (521 ) 1,623 8,515 Tax
receivable agreement remeasurement (50,222 ) — — (50,222 ) Gain on
buyout of tax receivable agreement — — (12,372 ) (12,372 ) Loss on
debt modification 2,554 — — 2,554 Impairment of property and
equipment 1,003 — 1,417 2,420 Business combination transaction
costs — — 47 47 Recovery on sale/abandonment of property and
equipment and bakery shutdown costs (144 ) — — (144 ) Tax Reform
bonuses — — 983 983 Other expense 1,360 (714 )
83 729 Adjusted EBITDA $ 230,212
$ (54,510 ) $ 47,033 $ 222,735
Leverage Ratio (Unaudited)
Twelve
Months Ended
March 31, 2018
(in thousands)
Estimated Year
Ended December 31,
2018
(in millions)
Long-term debt and capital lease obligations, including current
maturities $ 996,392 $988 - $988 Less: capital lease obligation
(528 ) 0 - 0 Less: Unamortized debt premium and issuance costs
(4,586 ) (4) - (4) Term loan debt 991,278 984 - 984 Less:
cash and cash equivalents (100,450 ) (170) - (175) Net term
loan debt $ 890,828 $814 - $809 Adjusted EBITDA $ 222,735
$220 - $230 Leverage ratio 4.00 3.70 -
3.50
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version on businesswire.com: https://www.businesswire.com/news/home/20180509006377/en/
Investors, please contact:Katie
TurnerICR646-277-1228katie.turner@icrinc.comorMedia, please
contact:Hannah ArnoldLAK Public Relations,
Inc.212-329-1417harnold@lakpr.comorMarie EspinelLAK Public
Relations, Inc.212-899-4744mespinel@lakpr.com
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