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•Net income increased 44.0% to $23.6 million and diluted EPS increased 41.7% to $0.17 per share primarily due to a foreign currency contract gain, partially offset by transaction and other facility transition costs and the sale of ISB. Adjusted net income was $22.8 million, compared to $23.5 million and adjusted EPS was $0.16 per share, compared to $0.17 per share. Improved operating performance was offset by the sale of ISB, and higher depreciation and stock compensation expense.

Andy Callahan, the Company's President and Chief Executive Officer commented, “We are excited by the transformative operational progress our team achieved during the year which will continue to fuel sustainable long-term profitability and value for our stockholders. Our fourth quarter and full year financial results reflect meaningful growth in net revenue with a solid increase in market share and strong gross profit margin expansion resulting from gains in volume and distribution of Hostess® branded core products and breakfast innovation. We expect 2020 to continue this positive momentum driving another year of meaningful growth, including the continued growth of our Hostess® branded products, execution of operating enhancements and the integration of our recently completed acquisition of Voortman.”

¹This press release contains certain non-GAAP financial measures, including adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted operating income, and adjusted earnings per share (“EPS”). 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 of financial measures in this press release are to the fourth quarter or full year of 2018, as applicable. All measures of market performance contained in this press release, including point of sale and market share, include all Company branded products within the SBG category as reported by Nielsen but do not include other products sold outside of the SBG category. All market data in this press release refer to the 13-week period ended December 28, 2019 and the prior-year comparable period. The Company's leverage ratio is net debt (total long-term debt less cash) divided by adjusted EBITDA.

Net revenue was $216.7 million, an increase of 0.9%, or $1.9 million, compared to $214.8 million. Excluding the impact of the sale of ISB, net revenue increased $13.5 million or 6.7%. Growth was driven by increased sales volume of Hostess® core products such as Donettes®, strong performance from core and breakfast innovation products and continued growth of our Dolly Madison® branded products. These increases were achieved across sales channels, with growth most notably driven within the club, convenience and mass retail channels.

Gross profit was $70.8 million, or 32.7% of net revenue, compared to $68.8 million, or 32.0% of net revenue. Excluding ISB, gross profit increased 6.7%. Adjusted gross profit was $75.3 million, or 34.8% of net revenue, compared to $73.8 million or 34.3% of net revenue. Adjusted gross profit, excluding ISB, increased 5.7%. Gross margin increased as a result of increased sales volume and operating efficiencies, partially offset by higher input costs.

Operating costs and expenses were $31.2 million, or 14.4% of net revenue, compared to $38.5 million, or 17.9% of net revenue. The Company recognized a $7.1 million gain on the valuation of a foreign currency contract originated during the quarter to hedge the January 2020 purchase of Voortman in Canadian dollars. In 2018, the Company recognized a $3.3 million asset impairment. Excluding these items, operating costs and expenses increased due to costs incurred for the Voortman acquisition and facility transition costs.

In November 2019, the Company executed its previously announced relocation of its primary distribution center from Illinois to Kansas. The new location is closer to the Company’s largest bakery and more centrally located within the United States providing the Company with the ability to reach customers faster, reduce transportation costs and improve service levels. This critical transition provides enhanced infrastructure for future profitable growth.

On January 3, 2020, the Company completed its purchase of Voortman, a manufacturer of premium, branded wafers as well as sugar-free and specialty cookies with distribution mainly in the United States and Canada. Voortman® is a leading brand with a well-defined consumer position that complements and extends the growing Hostess® portfolio into the growing cookie and better-for-you sweet snacking categories with meaningful runway for future growth. As the Company transitions Voortman to unlock meaningful distribution expansion in key growth channels, it expects 2020 net revenue and adjusted EBITDA contribution of approximately $90 million and $20 million, respectively.

The Company provides guidance only on a non-generally accepted accounting principles (non-GAAP) basis and does not provide a reconciliation of the Company's forward-looking financial expectations to the most directly comparable GAAP financial measure because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation; including adjustments that could be made for deferred taxes; remeasurement of the Tax Receivable Agreement, changes in allocation to the non-controlling interest, transformation expenses and other non-operating gains or losses reflected in the Company's reconciliation of historic non-GAAP financial measures, the amount of which could be material. Please refer to the Reconciliation of Non-GAAP Financial Measures included in this press release for further information about the use of these measures.

The Company will host a conference call and webcast with an accompanying presentation today, February 26, 2020 at 4:30 p.m. EDT to discuss the results for the fourth 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 March 13, 2020, by dialing (844) 512-2921 from the U.S., or (412) 317-6671 from international locations, and entering confirmation code 13698714. The simultaneous, live webcast and presentation will be available on the Investor Relations section of the Company’s website at www.hostessbrands.com. The webcast will be archived for 30 days.

Hostess Brands, Inc. is a leading packaged food company focused on developing, manufacturing, marketing, selling and distributing fresh baked sweet goods in North America. The Hostess® 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 in addition to Twinkies® and CupCakes, including Donettes®, Ding Dongs®, Zingers®, Danishes, Honey Buns and Coffee Cakes. In January 2020, the Company acquired Voortman Cookies, Limited which produces a variety of cookies and wafers products, including sugar-free products under the Voortman® brand. 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.

The Company has two reportable segments: SBG and In-Store Bakery. The SBG segment consists of sweet baked goods, bread and buns and frozen retail products that are sold under the Hostess®, Dolly Madison®, Cloverhill® and Big Texas® brands. The In-Store Bakery segment consists of Superior on Main® and private label products sold through the in-store bakery section of grocery and club stores. The Company divested its In-Store Bakery segment's operations on August 30, 2019.

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 anticipates 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 ability to maintain or add additional shelf or retail space for the Company's products; the continued ability to produce and successfully market products with extended shelf life; our ability to successfully integrate, achieve expected synergies and manage our acquired businesses and brands; 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 and the ability to adjust pricing to cover increased costs; 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; 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 for 2019. 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.


	December 31,		December 31,
	2019		2018
ASSETS
Current assets:
Cash and cash equivalents	$	285,087	$	146,377
Accounts receivable, net	104,892		105,679
Inventories	47,608		38,580
Prepaids and other current assets	15,569		8,806
Total current assets	453,156		299,442
Property and equipment, net	242,384		220,349
Intangible assets, net	1,853,315		1,901,215
Goodwill	535,853		575,645
Other assets, net	12,993		14,062
Total assets	$	3,097,701	$	3,010,713

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Long-term debt and lease obligations payable within one year	$	11,883	$	11,268
Tax receivable agreement obligations payable within one year	12,100		4,400
Accounts payable	68,566		65,288
Customer trade allowances	45,715		42,010
Accrued expenses and other current liabilities	21,661		18,137
Total current liabilities	159,925		141,103
Long-term debt and lease obligations	975,405		976,736
Tax receivable agreement obligations	126,096		64,663
Deferred tax liability	256,051		277,954
Total liabilities	1,517,477		1,460,456

Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 122,108,086 and 100,046,392 issued and outstanding at December 31, 2019 and 2018, respectively	12		10
Class B common stock, $0.0001 par value, 50,000,000 shares authorized, 8,409,834 and 30,255,184 shares issued and outstanding at December 31, 2019 and 2018, respectively	1		3
Additional paid in capital	1,152,055		925,902
Accumulated other comprehensive income (loss)	(756)		2,523
Retained earnings	334,480		271,365
Stockholders’ equity	1,485,792		1,199,803
Non-controlling interest	94,432		350,454
Total liabilities, stockholders’ equity and non-controlling interest	$	3,097,701	$	3,010,713


	Three Months Ended						Twelve Months Ended
	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018

Net revenue	$	216,666	$	214,815	$	907,675	$	850,389
Cost of goods sold	145,890		146,014		607,841		583,112
Gross profit	70,776		68,801		299,834		267,277
Operating costs and expenses:
Advertising and marketing	9,589		7,697		39,775		35,069
Selling expense	6,897		7,464		30,719		30,071
General and administrative	14,940		13,445		69,423		52,760
Amortization of customer relationships	5,628		6,074		23,377		24,057
Business combination transaction costs	1,914		250		1,914		297
Tax receivable agreement liability remeasurement	(1,110)		(114)		186		(1,866)
Gain on foreign currency contract	(7,128)		—		(7,128)		—
Other operating expenses	512		3,641		5,472		5,331
Total operating costs and expenses	31,242		38,457		163,738		145,719
Operating income	39,534		30,344		136,096		121,558
Other expense:
Interest expense, net	9,519		10,341		39,870		39,404
Gain on buyout of tax receivable agreement	—		—		—		(12,372)
Other expense	483		15		1,769		146
Total other expense	10,002		10,356		41,639		27,178
Income before income taxes	29,532		19,988		94,457		94,380
Income tax expense	5,977		3,636		16,892		12,954
Net income	23,555		16,352		77,565		81,426
Less: Net income attributable to the non-controlling interest	1,834		4,522		14,450		18,531
Net income attributable to Class A shareholders	$	21,721	$	11,830	$	63,115	$	62,895

Earnings per Class A share:
Basic	$	0.18	$	0.12	$	0.57	$	0.63
Diluted	$	0.17	$	0.12	$	0.55	$	0.61
Weighted-average shares outstanding:
Basic	121,219,637		100,034,285		110,540,264		99,957,049
Diluted	126,108,531		100,113,695		114,699,447		103,098,394


Results of Operations by Segment	Three Months Ended						Twelve Months Ended
(In thousands)	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018





Net Revenue
Sweet baked goods	$	216,666	$	203,132	$	878,973	$	808,355
In-Store Bakery	—		11,683		28,702		42,034
	$	216,666	$	214,815	$	907,675	$	850,389
Gross Profit
Sweet baked goods	$	70,776	$	66,311	$	293,648	$	258,995
In-Store Bakery	—		2,490		6,186		8,282
	$	70,776	$	68,801	$	299,834	$	267,277


			Twelve Months Ended
			December 31, 2019					December 31, 2018
Operating activities
	Net income			$	77,565				$	81,426
	Depreciation and amortization			43,334					41,411
	Impairment of property, goodwill and intangibles			1,505					4,717
	Non-cash loss on debt modification			531					—
	Debt premium amortization			(747)					(1,079)
	Tax receivable agreement remeasurement and gain on buyout			185					(14,237)
	Non-cash fees on sale of business			1,414					—
	Gain on foreign currency contract			(7,128)					—
	Share-based compensation			9,231					5,600
	Loss on sale/abandonment of property and equipment			471					253
	Deferred taxes			14,121					10,255
	Change in operating assets and liabilities, net of acquisitions and dispositions:
		Accounts receivable	(2,570)					(3,667)
		Inventories	(12,477)					3,569
		Prepaids and other current assets	265					(510)
		Accounts payable and accrued expenses	14,072					14,418
	`	Customer trade allowances	4,202					1,499

	Net cash provided by operating activities			143,974					143,655

Investing activities
	Purchases of property and equipment			(34,875)					(44,585)
	Acquisition of business, net of cash			—					(23,160)
	Proceeds from sale of business, net of cash			63,345					—
	Proceeds from sale of assets			—					639
	Acquisition and development of software assets			(5,609)					(3,839)
	Net cash provided by (used in) investing activities			22,861					(70,945)

Financing activities
	Repayments of long-term debt and capital lease obligations			(9,894)					(10,105)
	Debt refinancing costs			(7,433)					—
	Distributions to non-controlling interest			(6,658)					(9,551)

	Payment of taxes related to the net issuance of employee stock awards			(1,431)					(1,025)
	Payments on tax receivable agreement			(2,732)					(41,353)
	Proceeds from the exercise of warrants			23					—
	Net cash used in financing activities			(28,125)					(62,034)
Net increase in cash and cash equivalents						138,710					10,676
Cash and cash equivalents at beginning of period						146,377					135,701
Cash and cash equivalents at end of period						$	285,087				$	146,377

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
	Interest			$	43,986				$	37,617
	Taxes paid			$	1,840				$	3,422
Supplemental disclosure of non-cash investing:
	Accrued capital expenditures			$	2,910				$	7,858

Adjusted gross profit, adjusted operating income, adjusted net income, adjusted EBITDA and adjusted EPS collectively referred to as “Non-GAAP Financial Measures,” are commonly used in the Company's industry and should not be construed as an alternative to gross profit, operating income, net income or earnings per share as indicators of operating performance (as determined in accordance with GAAP). These Non-GAAP Financial Measures may not be comparable to similarly titled measures reported by other companies. The Company has included these Non-GAAP Financial Measures because it believes the measures provide management and investors with additional information to measure the Company's performance, estimate the Company's value and evaluate the Company's ability to service debt.

Non-GAAP Financial Measures are adjusted to exclude certain items that affect comparability. The adjustments are itemized in the tables below. You are encouraged to evaluate these adjustments and the reason the Company considers them appropriate for supplemental analysis. In evaluating adjustments, 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 Non-GAAP Financial Measures should not be construed as an inference that future results will be unaffected by unusual or recurring items.

The Company defines adjusted EBITDA as net income adjusted to exclude (i) interest expense, net, (ii) depreciation and amortization (iii) income taxes and (iv) share-based compensation, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of its ongoing operating performance. 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:


	Three Months Ended December 31, 2019
	Gross Profit		Operating Income		Net Income		Diluted EPS
GAAP Results	$	70,776	$	39,534	$	23,555	$	0.17
Non-GAAP adjustments:
Foreign currency contract gain	—		(7,127)		(7,127)		(0.06)
Acquisition, disposal and integration related costs	—		1,926		1,926		0.02

Facility transition costs	4,565		5,917		5,917		0.05
Tax Receivable Agreement remeasurement	—		(1,110)		(1,110)		(0.01)
Impairment of property and equipment, intangible assets and goodwill	—		500		500		—
Loss on debt refinancing	—		—		530		—
Other	—		—		(47)		—
Remeasurement of deferred taxes	—		—		(892)		(0.01)
Tax impact of adjustments	—		—		(423)		—
NCI allocation of adjustments	—		—		—		—
Adjusted Non-GAAP results	$	75,341	$	39,640	$	22,829	$	0.16

Income tax					7,292
Interest expense					9,519
Depreciation and amortization					10,657
Share-based compensation					2,073
Adjusted EBITDA					$	52,370


	Three Months Ended December 31, 2018
	Gross Profit		Operating Income		Net Income		Diluted EPS
GAAP Results	$	68,801	$	30,344	$	16,352	$	0.12
Non-GAAP adjustments:
Acquisition, disposal and integration related costs	4,761		5,058		5,058		0.05
Special employee incentive compensation	199		1,169		1,169		0.01

Tax Receivable Agreement remeasurement	—		(113)		(113)		—
Impairment of property and equipment, intangible assets and goodwill	—		3,553		3,553		0.03
Other	—		—		10		—
Remeasurement of deferred taxes	—		—		(380)		—
Tax impact of adjustments	—		—		(2,124)		(0.02)
NCI allocation of adjustments	—		—		—		(0.02)
Adjusted Non-GAAP results	$	73,761	$	40,011	$	23,525	$	0.17

Income tax					6,140
Interest expense					10,341
Depreciation and amortization					10,041
Share-based compensation					1,363
Adjusted EBITDA					$	51,410


	Year Ended December 31, 2019
	Gross Profit		Operating Income		Net Income		Diluted EPS
GAAP Results	$	299,834	$	136,096	$	77,565	$	0.55
Non-GAAP adjustments:
Foreign currency contract gain	—		(7,127)		(7,127)		(0.06)
Acquisition, disposal and integration related costs	1,563		5,484		5,484		0.05
Special employee incentive compensation	33		1,910		1,910		0.02
Facility transition costs	9,381		12,080		12,080		0.11
Tax Receivable Agreement remeasurement	—		186		186		—
Impairment of property and equipment, intangible assets and goodwill	—		1,976		1,976		0.02
Loss on debt refinancing	—		1,487		2,023		0.02
Other	—		—		1,233		—
Remeasurement of deferred taxes	—		—		(4,564)		(0.04)
Tax impact of adjustments	—		—		(3,918)		(0.03)
NCI allocation of adjustments	—		—		—		(0.03)
Adjusted Non-GAAP results	$	310,811	$	152,092	$	86,848	$	0.61

Income tax					25,374
Interest expense					39,870
Depreciation and amortization					43,334
Share-based compensation					9,231
Adjusted EBITDA					$	204,657


	Year Ended December 31, 2018
	Gross Profit		Operating Income		Net Income		Diluted EPS
GAAP Results	$	267,277	$	121,558	$	81,426	$	0.61
Non-GAAP adjustments:
Acquisition, disposal and integration related costs	10,137		10,434		10,434		0.10
Special employee incentive compensation	1,965		3,444		3,444		0.03

Tax Receivable Agreement remeasurement	—		(1,865)		(14,237)		(0.14)
Impairment of property and equipment, intangible assets and goodwill	—		4,970		4,970		0.05
Other	—		624		770		—
Remeasurement of deferred taxes	—		—		(5,375)		(0.05)
Tax impact of adjustments	—		—		(2,027)		(0.02)
NCI allocation of adjustments	—		—		—		(0.04)
Adjusted Non-GAAP results	$	279,379	$	139,165	$	79,405	$	0.54

Income tax					20,356
Interest expense					39,404
Depreciation and amortization					41,411
Share-based compensation					5,600
Adjusted EBITDA					$	186,176