twnk-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


						(Mark One)
			☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
						For the three months ended
						September 30, 2022
						OR
			☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from to

Commission file number 001-37540

HOSTESS BRANDS, INC.

(Exact name of registrant as specified in its charter)


Delaware		47-4168492
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
7905 Quivira Road		66215
Lenexa,	KS	(Zip Code)
(Address of principal executive offices)

(816) 701-4600

Registrant’s telephone number, including area code

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


Title of each Class	Ticker Symbol	Name of each exchange on which registered
Class A Common Stock, Par Value of $0.0001 per share	TWNK	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.:

Large accelerated filer

☒

Accelerated
filer

☐

Non‑accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No ☒

Shares of Class A common stock outstanding - 133,886,737 shares at October 31, 2022

HOSTESS BRANDS, INC.

FORM 10-Q

For the Three Months Ended September 30, 2022

INDEX


		Page
PART I - Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Operations (Unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)	6
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows (Unaudited)	9
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4.	Controls and Procedures	22
PART II - Other Information
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Default Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	25
Item 6.	Exhibits	26

Cautionary Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. Statements that constitute forward-looking statements are generally identified through the inclusion of words such as “believes,” “expects,” “intends,” “estimates,” “projects,” “anticipates,” “will,” “plan,” “may,” “should,” or similar language. Statements addressing events and developments that we expect or anticipate will occur are also considered forward-looking statements. All forward-looking statements included herein are made only as of the date hereof. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. Readers of this Quarterly Report are cautioned not to place undue reliance on any such forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Risks and uncertainties are identified under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as updated by subsequent filings. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required by law.

PART I

Item 1. Financial Statements (Unaudited)

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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


	September 30,		December 31,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	190,828	$	249,159
Short-term investments	41,891		—
Accounts receivable, net	199,917		148,180
Inventories	65,444		52,813

Prepaids and other current assets	10,914		10,564
Total current assets	508,994		460,716
Property and equipment, net	385,085		335,305
Intangible assets, net	1,926,758		1,944,392
Goodwill	706,615		706,615
Other assets, net	72,732		19,283
Total assets	$	3,600,184	$	3,466,311

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Long-term debt and lease obligations payable within one year	$	14,251	$	14,170
Tax receivable agreement payments payable within one year	11,100		11,600
Accounts payable	95,958		68,104
Customer trade allowances	68,799		52,746
Accrued expenses and other current liabilities	54,513		47,009

Total current liabilities	244,621		193,629
Long-term debt and lease obligations	1,088,914		1,099,975
Tax receivable agreement obligations	124,592		134,265
Deferred tax liability	343,009		317,847
Other long-term liabilities	1,568		1,605
Total liabilities	1,802,704		1,747,321

Commitments and Contingencies (Note 9)

Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 142,567,808 shares issued and 134,570,118 shares outstanding as of September 30, 2022 and 142,031,329 shares issued and 138,278,573 shares outstanding as of December 31, 2021	14		14

Additional paid in capital	1,307,813		1,303,254
Accumulated other comprehensive income (loss)	36,172		(506)
Retained earnings	606,703		475,400
Treasury stock	(153,222)		(59,172)
Stockholders’ equity	1,797,480		1,718,990

Total liabilities and stockholders’ equity	$	3,600,184	$	3,466,311

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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


	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021

Net revenue	$	346,226	$	287,969	$	1,018,749	$	844,875
Cost of goods sold	230,805		188,990		675,004		545,271
Gross profit	115,421		98,979		343,745		299,604
Operating costs and expenses:
Advertising and marketing	15,816		14,767		43,353		39,692
Selling	9,696		8,166		29,610		26,250
General and administrative	30,502		23,565		90,301		69,254
Amortization of customer relationships	5,878		5,877		17,634		17,633
Tax receivable agreement remeasurement	(860)		—		(860)		—

Total operating costs and expenses	61,032		52,375		180,038		152,829
Operating income	54,389		46,604		163,707		146,775
Other expense (income):
Interest expense, net	10,276		9,928		29,683		29,899


Change in fair value of warrant liabilities	—		228		—		683
Other expense (income)	(31,921)		378		(31,992)		1,808
Total other expense (income)	(21,645)		10,534		(2,309)		32,390
Income before income taxes	76,034		36,070		166,016		114,385
Income tax expense	9,765		9,878		34,713		31,614
Net income	$	66,269	$	26,192	$	131,303	$	82,771

Earnings per Class A share:
Basic	$	0.49	$	0.20	$	0.95	$	0.63
Diluted	$	0.48	$	0.19	$	0.95	$	0.60
Weighted-average shares outstanding:
Basic	136,436,428		129,846,551		137,636,441		130,679,974
Diluted	137,604,256		138,058,866		138,702,172		138,036,371

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, amounts in thousands)


	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021

Net income	$	66,269	$	26,192	$	131,303	$	82,771
Other comprehensive income:
Unrealized gain (loss) on interest rate swap and foreign currency contracts designated as a cash flow hedge	19,058		(192)		49,041		5,058
Reclassification into net income	(1,188)		962		697		3,441
Income tax expense	(4,691)		(203)		(13,060)		(2,253)
Comprehensive income	$	79,448	$	26,759	$	167,981	$	89,017

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, amounts in thousands)


	Class A Voting Common Stock			Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount									Shares	Amount
Balance–December 31, 2021	138,279	$	14		$	1,303,254	$	(506)	$	475,400	3,753	$	(59,172)	$	1,718,990
Comprehensive income	—	—			—		18,226		34,558		—	—		52,784
Share-based compensation	350	—			2,339		—		—		—	—		2,339


Exercise of employee stock options	105	—			1,662		—		—		—	—		1,662

SEC Form 10-Q filed by Hostess Brands Inc.