Hostess Brands Inc.: Announces Third Quarter 2016 Financial Results for Hostess Holdings L.P.

Kansas City / MO. (twnk) Hostess Brands Inc., one of the largest manufacturers and marketers of sweet baked goods in the United States including «Twinkies», «Ding Dongs», «Ho Hos», «Donettes» and a variety of new and classic treats, reported third quarter ended September 30, 2016 financial results for its subsidiary Hostess Holdings, L.P. (Hostess).

Third quarter 2016 financial results for Hostess reflect the three months ended September 30, 2016, prior to the closing of the recent business combination between Hostess and the Company (f.k.a. Gores Holding Inc.) which occurred on November 04, 2016. In connection with the closing of the Business Combination, the Company acquired a controlling interest in Hostess Holdings L.P. and changed its name to Hostess Brands Inc.

Third Quarter Financial Highlights

• Net revenues increased 24.0 percent to 196.2 million USD
  • Sweet Baked Goods (sweet baked products) net revenues increased 12.6 percent to 174.0 million USD
  • Other (bread, buns and in-store bakery products) net revenues increased 502.6 percent to 22.2 million USD
• Gross margin improved 640 basis points to 44.1 percent
  • Sweet Baked Goods gross margin was 45.8 percent
  • Other gross margin was 31.0 percent
• GAAP net income was 33.5 million USD, up from a net loss of 4.1 million USD
• Adjusted Ebitda grew 36.7 percent year-over-year to 55.6 million USD

(All comparisons above are with respect to the third quarter of 2015)

«We are very pleased with Hostess’s third quarter financial results which are evidence of the successful execution of our strategy to continue to build out our whitespace distribution opportunities and enhance our product assortment through innovation and new product development», commented Bill Toler, President and Chief Executive Officer of the Company. «The completion of our merger with the Gores team marks an exciting milestone in Hostess’s history as we take another meaningful step forward in our business evolution. We believe Hostess has significant potential to leverage our well-established sweet baked goods brand portfolio to drive continued sales growth, profitability and value for our shareholders».

Third Quarter 2016 Financial Results

Net revenues were 196.2 million USD, an increase of 38.0 million USD or 24.0 percent, compared to net revenues of 158.2 million USD for the third quarter of 2015 primarily due to an increase in the number of cases sold as a result of increased distribution in convenience and drug channels and expanded product offerings. Superior Cake Products Inc. acquired by Hostess on May 10, 2016, contributed 9.7 million USD in net revenues for third quarter of 2016. Sweet Baked Goods represented 88.7 percent and Other represented 11.3 percent of net revenues, respectively.

Gross profit was 86.6 million USD, or 44.1 percent of net revenues, compared to gross profit of 59.6 million USD, or 37.7 percent of net revenues, for the third quarter of 2015. After excluding a 4.0 million USD credit to recall costs related to flour and 2.6 million USD of incentive compensation third quarter of 2016 gross profit was 85.2 million USD, or 43.4 percent of net revenues. Ingredient costs were higher as a percentage of net revenues for the third quarter of 2015, primarily due to the reduced available egg supplies, which increased the egg ingredient prices to record highs.

Selling, general and administrative (SG+A) expenses were 29.1 million USD, an increase of 5.4 million USD, as compared to SG+A of 23.7 million USD for the third quarter of 2015. The increase in SG+A expenses were primarily attributable to increases in field marketing, increases in annual incentive compensation related to increases in operating performance, professional fees and the addition of Superior.

GAAP net income was 33.5 million USD compared to a net loss of 4.1 million USD in the third quarter of 2015.

Adjusted Ebitda was 55.6 million USD, an increase of 14.9 million USD, or 36.6 percent, compared to adjusted Ebitda of 40.7 million USD for the third quarter of 2015. Adjusted Ebitda for the third quarter of 2016 was 28.4 percent of net revenues, compared to adjusted Ebitda of 25.7 percent of net revenues in the same period last year. Adjusted Ebitda is non-GAAP financial measure. Please refer to the tables in this press release for a reconciliation of non-GAAP financial measures.

Segment Review

Hostess has two reportable segments: Sweet Baked Goods and Other. The Sweet Baked Goods segment consists of sweet baked goods and the Other segment consists of branded bread, buns and in-store bakery products. Please refer to the tables in this press release for segment financial disclosures.

Sweet Baked Goods Segment: Net revenues for quarter were 174.0 million USD, an increase of 19.6 million USD, or 12.7 percent, compared to net revenues of 154.4 million USD for the third quarter of 2015. Gross profit was 79.7 million USD, or 45.8 percent of net revenues, compared to gross profit of 58.4 million USD, or 37.8 percent of net revenues for the third quarter of 2015.

Other Segment: Net revenues for quarter were 22.2 million USD, an increase of 18.5 million USD, or 502.6 percent, compared to net revenues of 3.7 million USD for the third quarter of 2015. Gross profit was 6.9 million USD, or 31.1 percent of net revenues, compared to gross profit of 1.2 million USD, or 32.4 percent of net revenues for the third quarter of 2015.

Balance Sheet and Cash Flow

As of September 30, 2016, Hostess had cash and cash equivalents of 64.2 million USD and approximately 97.2 million USD available for borrowing, net of letters of credit, under its revolving line of credit. Following the completion of the Business Combination on November 4, 2016, the Company had cash and cash equivalents of approximately 7.5 million USD and net debt of 991.8 million USD.

About Hostess Brands Inc.

Hostess is one of the largest packaged food companies focused on developing, manufacturing, marketing, selling and distributing fresh baked sweet goods in the United States. The brand’s history dates back to 1919, when the Hostess CupCake was introduced to the public, followed by «Twinkies» in 1930. Today, Hostess produces a variety of new and classic treats including «Ding Dongs», «Ho Hos», «Donettes» and Fruit Pies, in addition to «Twinkies» and CupCakes.