Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of Hostess Brands, Inc. This discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included herein, and our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019. The terms “our”, “we,” “us,” and “Company” as used herein refer to Hostess Brands, Inc. and its consolidated subsidiaries.

Overview

We are a leading ~~United States~~North America packaged food company, ~~focused on developing, manufacturing, marketing, selling and distributing fresh~~currently operating in one reportable segment: Snacking, which includes sweet baked goods ~~coast-to-coast, providing a wide range of snack cakes, donuts, sweet rolls, snack pies~~(“SBG”) as well as our cookie and ~~related~~wafer products. We acquired the Hostess® brand and certain strategic assets out of the bankruptcy liquidation proceedings of Old Hostess Inc., its prior owner, free and clear of all past liabilities, in April 2013, and relaunched the brand later that year.

~~We operate five bakeries and three centralized distribution centers.~~ Our direct-to-warehouse (“DTW”) product distribution system allows us to deliver to our customers’ warehouses. Our customers in turn distribute to ~~their~~the retail ~~stores and/or distributors.~~stores.

We have two reportable segments: “Sweet Baked Goods” and “Other”. Sweet Baked Goods consists of sweet baked goods that are sold under the Hostess® and Dolly Madison® brands. Other consists of Hostess® branded bread and buns, frozen retail (which includes deep-fried Twinkies®, launched in August 2016), “In-Store Bakery,” or “ISB” (which includes Superior Cake Products, Inc. (“Superior”), which we purchased in May 2016, and which manufactures and distributes eclairs, madeleines, brownies, and iced cookies in the ISB section of retailers) and licensing.

Hostess® is the second leading brand by market share within the ~~Sweet Baked Goods (“SBG”)~~SBG category, according to Nielsen U.S. total universe. For the ~~52-week~~13-week period ended ~~October 7, 2017~~September 26, 2020, our branded SBG products (which include Hostess®, Dolly Madison®, Cloverhill® and Big Texas®) market share was ~~17.0%~~19.7% per Nielsen’s U.S. SBG category data.

Historically, we operated in two reportable segments: SBG and In-Store Bakery (“ISB”), which we sold in August of 2019.

Factors Impacting Recent Results

Acquisition

On January 3, 2020, we completed the acquisition of all of the shares of the parent company of Voortman Cookies Limited (“Voortman”), a manufacturer of premium, branded wafers as well as sugar-free and specialty cookies. By adding the Voortman® brand, we expect to have greater growth opportunities provided by a more diverse portfolio of brands and products. Our consolidated statement of operations includes the operation of these assets from January 3, 2020 through September 30, 2020. During the year, we transitioned Voortman from its legacy direct-store-delivery distribution model into our centralized DTW model.

Divestiture

On August 30, 2019, the Company sold the ISB operations, including relevant trademarks and licensing agreements, to an unrelated party. The ISB operations provided products that were primarily sold in the in-store bakery section of U.S. retail channels. The Company divested the operations to focus on areas of our business that better leverage our core competencies.

COVID-19

The acute and far-reaching impact of the COVID-19 pandemic and actions taken by governments to contain the spread of the virus have impacted our operations during the three and nine months ended September 30, 2020. As consumers prepared for extended stays at home, we experienced an increase in consumption in the last few weeks of the first quarter, particularly in our multi-pack products sold through grocery and mass retailer channels. Conversely, we experienced lower consumption of single-serve products, often consumed away from home. This trend has moderated during the second and third quarters, however, we cannot predict if these trends will sustain or reverse in future periods.

We have established a ~~#1 leading market position within~~task force to monitor the ~~two largest SBG Segments; Donut Segment~~rapidly evolving situation and ~~Snack Cake Segment,~~recommend risk mitigation actions as deemed necessary. To date, we have experienced minimal disruption to our supply chain or distribution network, including the supply of our ingredients, packaging or other sourced materials, though it is possible that more significant disruptions could occur if the COVID-19 pandemic continues to impact markets around the world. We are also working closely with all of our contract manufacturers, distributors and other external business partners. As a food producer, we are an essential service and our production and distribution facilities continue to operate. To protect our employees and ensure continuity of operations, we have implemented additional security and sanitation

measures in all of our facilities. We are monitoring our employees’ health and providing additional resources and protocols to enable effective social distancing and adherence to our stringent internal food safety guidelines, industry best practices and evolving CDC guidelines. Many non-production team members, including sales, marketing and corporate employees, are adhering to social distancing guidelines by working from home and reducing person-to-person contact while supporting our ability to bring products to consumers.

We have adequate liquidity to pay for the costs associated with these additional measures while servicing our on-going operating and capital needs. However, we continue to actively monitor and will take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate in this dynamic environment.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The ~~Donut~~ CARES Act provides a substantial stimulus and ~~Snack Cake Segments together account for 49.6%~~assistance package intended to address the impact of the ~~Sweet Baked Goods category’s total dollar sales.~~

~~Explanatory Note~~

Hostess Brands, Inc. (f/k/a Gores Holdings, Inc.) was originally incorporated in Delaware on June 1, 2015 as a special purpose acquisition company (SPAC), formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On August 19, 2015, Gores Holdings, Inc. consummated its initial public offering (the “IPO”), following which its shares began tradingCOVID-19 pandemic, including tax relief and government loans, grants and investments. Apart from their impact on the ~~Nasdaq Capital Market (“NASDAQ”).~~

On November 4, 2016 (the “Closing Date”), in a transaction referred to as the “Business Combination,” 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.

In connection with the closing of the Business Combination, Gores Holdings, Inc. changed its name to “Hostess Brands, Inc.” and its trading symbols on NASDAQ from “GRSH” and “GRSHW,” to “TWNK” and “TWNKW”.

Following the Business Combination, Mr. Metropoulos and the Apollo Funds continued as stockholders and Mr. Metropoulos became Executive Chairman of Hostess Brands, Inc. On April 19, 2017, the Apollo Funds completed the public sale of substantially all of their holdings of Class A common stock. Other equityholders also sold shares of Class A common stock through the public sale.

As a result of the Business Combination, for accounting purposes, Hostess Brands, Inc. is the acquirer and Hostess Holdings is the acquired party and accounting predecessor. Our financial statement presentation includes the financial statements of Hostess Holdings and its subsidiaries as “Predecessor” for periods prior to the completion of the Business Combination and of Hostess Brands, Inc.,general economy, including the ~~consolidation of Hostess Holdings~~labor market and ~~its subsidiaries, for periods from and after~~consumer demand, neither the ~~Closing Date. For convenience, we have also included supplemental pro forma information~~CARES Act nor any other government program intended to address COVID-19 had any material impact on our consolidated financial statements for the three and nine months ended September 30, 2016 that gives effect to the Business Combination as if such transaction had been consummated on January 1, 2016. References in this Quarterly Report to information provided for 2016 on a pro forma basis refer to such supplemental pro forma financial information.

Unless the context otherwise requires, “we,” “us,” “our” and the “Company” refer, for periods prior to the completion of the Business Combination, to Hostess Holdings and its subsidiaries and, for periods upon or after the completion of the Business Combination, to Hostess Brands, Inc. and its subsidiaries, including Hostess Holdings and its subsidiaries. Our “Sponsor” refers to Gores Sponsor, LLC, a Delaware limited liability company and the principal stockholder of Gores Holdings, Inc. prior to the Business Combination, and the “The Gores Group” refers to The Gores Group LLC, an affiliate of our Sponsor. “Metropoulos Entities” refer to Mr. Metropoulos and entities controlled by him that2020. We continue to ~~hold an equity stake in us. “Legacy Hostess Equityholders” refer to~~monitor any effects that may result from the ~~Apollo Funds~~CARES Act and ~~the Metropoulos Entities, collectively.~~other stimulus programs.

~~Principal Components of~~

Operating Results


	Three Months Ended						Nine Months Ended
(In thousands, except per share data)	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Net revenue	$	260,855		$	227,211		$	760,566		$	691,009
Gross profit	91,155			70,420			259,866			229,058
As a % of net revenue	35.0		%	31.0		%	34.2		%	33.2		%

Operating costs and expenses	49,818			46,849			168,788			132,496
Operating income	41,337			23,571			91,078			96,562


Other expense	11,083			9,813			35,073			31,637

Income tax expense	6,281			3,029			12,022			10,915
Net income	23,973			10,729			43,983			54,010

Net income attributable to Class A stockholders	$	22,605		$	8,785		$	41,123		$	41,395

Earnings per Class A share:
Basic	$	0.18		$	0.08		$	0.33		$	0.39
Diluted	$	0.18		$	0.07		$	0.33		$	0.37

Results of Operations

Net Revenue

~~We generate~~Net revenue primarily through selling sweet baked goods and other products under the Hostess® group of brands, which includes iconic products such as Twinkies®, CupCakes, Ding Dongs®, Zingers®, HoHo’s® and Donettes® and the Dolly Madison® brand and the group of products under the Superior on Main® brand (e.g., eclairs, madeleines, brownies and iced cookies). Our product assortment, which includes snack cakes, muffins, donuts and pies, is sold to customers’ warehouses and distribution centers by the case or in display ready corrugate units. Retailers display and sell our products to the end consumer in single-serve, multi-pack or club-pack formats. We sell our products primarily to supermarket chains, national mass merchandisers and convenience stores, along with a smaller portion of our product sales going to dollar stores, vending, club, and other retail outlets.

Our revenues are driven by average net price and total volume of products sold. Factors that impact unit pricing and sales volume include product mix, the cost of ingredients, the promotional activities implemented by our Company and our competitors, industry capacity, new product initiatives and quality and consumer preferences. We do not keep a significant backlog of finished goods inventory, as our fresh baked products are promptly shipped to our distribution centers after being produced and then distributed to customers.

~~Cost of Goods Sold~~

Cost of goods sold consists of ingredients, packaging, labor, energy, other production costs, warehousing and transportation costs for the distribution of our products to our customers. The cost of ingredients and packaging represent the majority of our total costs of goods sold. All costs that are incurred at the bakeries are included in cost of goods sold. We do not allocate any corporate functions into cost of goods sold.

Our cost of ingredients consists principally of flour, sweeteners, edible oils and cocoa, which are subject to substantial price fluctuations, as is the cost of paper, corrugate, films and plastics used to package our products. The prices for raw materials are influenced by a number of factors, including the weather, crop production, transportation and processing costs, government regulation and policies and worldwide market supply and demand. We also rely on fuel products, such as natural gas, diesel, propane and electricity, to operate our bakeries and produce our products. Fluctuations in the prices of the raw materials or fuel products used in the production, packaging or transportation of our products affect the cost of products sold and our product pricing strategy. We utilize forward buying strategies through short-term and long-term advance purchase contracts to lock in prices for certain high-volume raw materials, packaged components and certain fuel inputs. Through these initiatives, we believe we are able to obtain competitive pricing.

~~Advertising and Marketing~~

Our advertising and marketing expenses primarily relate to our advertising campaigns, which include social media, print, online advertising, local promotional events and monthly agency fees. We also invest in wire and corrugate displays delivered to customers to display our products off shelf, field marketing and merchandising to reset and check the store inventory on a regular basis and marketing employment costs.

~~Selling Expense~~

Selling expenses primarily include sales management, employment, travel, and related expenses, as well as broker fees. We utilize brokers for sales support, including merchandising and order processing.

~~General and Administrative~~

General and administrative expenses primarily include employee and related expenses for the accounting, planning, customer service, legal, human resources, corporate operations, research and development, purchasing, logistics and executive functions. Also included are professional service fees related to audit and tax, legal, outsourced information technology functions, transportation planning, and corporate site and insurance costs.

The majority of our research and development spend is dedicated to enhancing and expanding our product lines responding to changing consumer preferences and trends and continuing to enhance the taste of our products. In addition, our research and development organization provides technical support to ensure that our core products are consistently produced in accordance with our high quality standards and specifications. Finally, this department is charged with developing processes to reduce our costs without adversely affecting the quality of our products.

~~Related Party Expenses~~

For periods prior to the Business Combination, related party expenses consisted of the normal annual cash payments associated with our employment arrangements with Mr. Metropoulos as Chief Executive Officer and/or Executive Chairman. Following the consummation of the Business Combination, the cash expenses associated with Mr. Metropoulos’s employment arrangements are approximately $0.3 million annually.

~~Non-Controlling Interest~~

Subsequent to the Business Combination, Hostess Brands, Inc. consolidated the financial position and results of operations of Hostess Holdings. Mr. Metropoulos and the Metropoulos Entities hold their equity investment in us primarily through Class B limited partnership units in the Company’s subsidiary, Hostess Holdings, (“Class B Units”) and an equal number of shares of the Company’s Class B common stock (“Class B Stock”). Our Class B Stock has voting, but no economic rights, while Hostess Holdings’ Class B Units have economic, but no voting rights. Each Class B Unit, together with a share of Class B Stock held by the Metropoulos Entities, is exchangeable for a share of the Company’s Class A common stock (or at the option of the Company, the cash equivalent thereof). The Company holds 100% of the general partnership interest in Hostess Holdings and a majority of the limited partnership interests, and consolidates Hostess Holdings in the Company’s consolidated financial statements. The interest of the Metropoulos Entities in Hostess Holdings’ Class B Units is reflected in our consolidated financial statements as a non-controlling interest.

For periods prior to the Business Combination, Hostess Holdings consolidated the financial position and results of operations of New Hostess Holdco, LLC. The portion of New Hostess Holdco, LLC not owned by Hostess Holdings (which constituted a profits interest plan for management) was recognized as a non-controlling interest in its consolidated financial statements.

~~Factors Impacting Recent Results~~

~~Long-term Debt Refinancing and Interest Rate Risk Management~~

On November 18, 2016, we refinanced our 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”).

To manage the risk related to our variable rate debt, on April 7, 2017, we entered into an interest rate swap contract with a counter party to make a series of payments based on a fixed interest rate of 1.78% and receive a series of payments based on the greater of LIBOR or 0.75%. Both the fixed and floating payment streams are based on a notional amount of $500 million at the inception of the contract and will be reduced by $100 million each year of the five year contract.

On May 19, 2017, the New First Lien Term Loan was amended resulting in a 0.5% decrease to the margin applied to our variable rate (the “Second Amended First Lien Term Loan”). The maturity date of August 3, 2022 remained unchanged.

~~Acquisition of Superior~~

On May 10, 2016, we acquired the stock of Superior for $51.0 million, including cash. The purchase price was subject to working capital and other purchase price adjustments as described in the stock purchase agreement. Superior is located in Southbridge, Massachusetts and manufactures eclairs, madeleines, brownies, and iced cookies. We acquired Superior to expand our market and product offerings in the “In-Store Bakery” section of retailers.

~~Seasonality~~

Sweet baked goods revenues tend to be moderately seasonal, with declines during the early winter period, which we believe are attributable to altered consumption patterns during the holiday season. We expect this trend to continue and continue to be applicable to our business. We strive to mitigate the seasonality by running certain targeted promotional campaigns.

~~Unaudited Statement of Operations~~

Historical and Pro Forma*

(Successor)
Historicalⁱ (Predecessor)
Pro Forma
(In thousands, except per share data)
Three Months
Ended September 30, 2017
%
of Net Revenues
Three Months
Ended September 30, 2016

Pro Forma
Adjustments

Three Months
Ended September 30, 2016
%
of Net Revenues
Net revenue $ 192,250
100.0 % $ 196,197
$ —

$ 196,197
100.0 %
Cost of goods sold 113,885
59.2
113,618
(185 ) ii 113,433
57.8
Gross profit 78,365
40.8
82,579
185

82,764
42.2

Operating costs and expenses:
Advertising and marketing 8,871
4.6
10,381
—

10,381
5.3
Selling expense 7,606
4.0
8,271
—

8,271
4.2
General and administrative 14,494
7.5
10,784
(346 ) ii 10,438
5.3
Amortization of customer relationships 5,994
3.1
156
5,938
iii 6,094
3.1
Impairment of property and equipment 1,003
0.5
—
—

—
—
Business combination transaction costs —
—
4,049
(4,049 ) iv —
—
Related party expenses 92
—
1,058
—

1,058
0.5
Tax receivable agreement liability remeasurement 1,589
0.8
—
—
—
—
Recall and other costs (recoveries) —
—
(3,787 ) —
(3,787 ) (1.9 )
Total operating costs and expenses 39,649
20.5
30,912
1,543
32,455
16.5
Operating income 38,716
20.1
51,667
(1,358 ) 50,309
25.7
Other expense:
Interest expense, net 9,966
5.2
18,004
(4,623 ) v 13,381
6.8
Loss on modification of debt 2,122
1.1
—
—
—
—
—
—
Other expense 182
0.1
173
—

173
0.1
Total other expense 12,270
6.4
18,177
(4,623 ) 13,554
6.9
Income before income taxes 26,446
13.7
33,490
3,265
36,755
18.7
Income tax expense (benefit) 10,316
5.4
(23 ) 10,496
vi 10,473
5.3
Net income 16,130
8.3
33,513
(7,231 ) 26,282
13.4
Less: Net income attributable to the non-controlling interest 6,581
3.4
2,329
6,852
vii 9,181
4.7
Net income attributable to Class A shareholders $ 9,549
4.9 % $ 31,184
$ (14,083 ) $ 17,101
8.7 %

Earnings per Class A share:
Basic $ 0.10
$ 0.18

Diluted $ 0.09
$ 0.18

Weighted-average shares outstanding:

Basic 99,557,183
97,589,217
viii 97,589,217

Diluted 105,418,566
97,589,217
viii 97,589,217

*For convenience, we have included this supplemental pro forma information for the three months ended September 30, ~~2016 that gives effect to the Business Combination as if such information had been consummated on January 1, 2016.~~

~~The unaudited pro forma statements~~2020 was $260.9 million, an increase of operations for the three months ended September 30, 2016 presents our consolidated results of operations giving pro forma effect to the Business Combination as if it had occurred as of January 1, 2016. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of these transactions on the historical financial information of our Predecessor and Successor entities, as applicable.

The Business Combination was accounted for using the acquisition method of accounting. The estimated fair values of the acquired assets and assumed liabilities as of the Closing Date, which are based on the consideration paid and our estimates and assumptions, are reflected herein. The total purchase price to acquire Hostess Holdings has been allocated to the assets acquired and assumed liabilities of Hostess Holdings, based upon preliminary estimated fair values at the Closing Date. We utilized third-party valuation specialists to assist our management in determining the fair values of the acquired assets and liabilities assumed.

The unaudited pro forma financial information contains a variety of adjustments, assumptions and estimates, is subject to numerous other uncertainties and the assumptions and adjustments as described in the accompanying notes hereto and should not be relied upon as being indicative of our results of operations had the Business Combination occurred on January 1, 2016. The unaudited pro forma financial information also does not project our 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 consolidated financial information for the three and nine months ended September 30, 2016 does not include the results of the Superior acquisition and its related operations prior to the acquisition. We evaluated the impact of the Superior acquisition on the Company’s financial statements and concluded that the impact was not significant and did not separately warrant the inclusion of pro forma financial results assuming the acquisition of Superior on January 1, 2016 under SEC rules and regulations or under GAAP. The pro forma adjustments give effect to the items identified in the pro forma table above in connection with the Business Combination.


i.	The amounts in these columns represent our Hostess Holdings historical results of operations for the period reflected. Certain amounts previously reported within the 2016 Hostess Holdings quarterly financial statements have been reclassified to conform with the current financial statement presentation.


~~ii.~~	~~Represents the adjustment to depreciation expense associated with the allocation of purchase price to property and equipment.~~


~~iii.~~	~~Represents additional amortization expense associated with the fair value recognized for customer relationships in connection with the Business Combination.~~


~~iv.~~	~~This adjustment consists primarily of legal and professional fees and other costs associated with the Business Combination.~~


v.	~~Represents the reduction in interest expense due to the repayment of Hostess Holdings debt pursuant to the terms of the Business Combination.~~


~~vi.~~	~~Represents the effective income tax rate of 28.5%, giving effect to the non-controlling interest, a partnership for income tax purposes.~~


~~vii.~~	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.


~~viii.~~	Represents the basic and diluted weighted average number of Class A shares that would have been outstanding had the Business Combination occurred on January 1, 2016. The outstanding warrants were determined not to be dilutive.

~~Reconciliation of Adjusted EBITDA~~

Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net income as an indicator 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). This measure may not be comparable to similarly titled measures reported by other companies. We have included these measures because we believe they provide management and investors with additional information to measure our performance and liquidity, estimate our value and evaluate our ability to service debt.

We define 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 we do not consider indicative of our ongoing operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments set forth below. Our presentation of adjusted EBITDA should not be construed as an inference that our 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 our results as reported under GAAP. For example, adjusted EBITDA:

~~does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments;~~

~~does not reflect changes in, or cash requirements for, our working capital needs;~~

~~does not reflect the significant interest expenses, or the cash requirements necessary to service interest or principal payments, on our 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.~~

Our presentation of adjusted EBITDA does not exclude the normal annual cash payments associated with our employment arrangements with Mr. Metropoulos as the Chief Executive Officer and/or Executive Chairman. These payments were $0.1 million and $0.2 million for the three and nine months ended September 30, 2017, and $1.1 million and $3.4 million for the three and nine months ended September 30, 2016, respectively. Following completion of the Business Combination, these cash expenses will be approximately $0.3 million annually.

Reconciliation of Adjusted EBITDA
(Unaudited)

(In thousands) Three Months
Ended September 30,
2017 Pro Forma
Three Months
Ended September 30,
2016

Net income $ 16,130
$ 26,282
Plus non-GAAP adjustments:
Income tax provision 10,316
10,473
Interest expense, net 9,966
13,381
Depreciation and amortization 9,722
9,103
Share-based compensation i. 3,630
—
Tax receivable agreement liability remeasurement ii. 1,589
—
Recall and other iii. —
(3,787 )
Other expense iv. 182
173
Loss on debt modification v. 2,122
—
Impairment of property and equipment vi. 1,003
—
Adjusted EBITDA $ 54,660
$ 55,625


i.	~~For the three months ended September 30, 2017, the Company recognized expense related to stock compensation awarded under the Hostess Brands, Inc. 2016 Equity Incentive Plan.~~


~~ii.~~	~~For the three months ended September 30, 2017, the Company incurred a loss on the remeasurement of the tax receivable agreement due to a change in a state tax law.~~


~~iii.~~	For the pro forma three months ended September 30, 2016, the Company recovered costs previously incurred in the second quarter of 2016 related to the voluntary recall of product containing undeclared peanut residue attributed to one of the Company’s suppliers.


~~iv.~~	During the three months ended September 30, 2017, the Company incurred professional fees related to the registration of certain privately held securities. During the pro forma three months ended September 30, 2016, the Company incurred professional fees attributable to the pursuit of a potential acquisition that has since been abandoned, and other special projects.


v.	~~During the three months ended September 30, 2017, previously capitalized debt issuance costs were expensed.~~


~~vi.~~	During the three months ended September 30, 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.

~~Net Revenue~~

~~Net revenue of $192.3 million decreased 2.0%~~14.8%, or ~~$3.9~~$33.7 million, compared to historical and pro forma net revenue of $196.2 million for the third quarter of 2016. The third quarter 2017 growth in net revenue from current year new product initiatives of $17.0 million, particularly Chocolate Cake Twinkies®, White Fudge Ding Dongs® and Golden Cupcakes was offset primarily by a decrease in net revenue from 2016 product innovations of $14.0 million, the impact of a co-manufacturer's production challenges of approximately $3.2 million and a decrease of revenue from discontinued items of $2.2 million. Net revenue for the quarter was also impacted by point of sale and shipment disruptions from hurricanes Harvey and Irma.

~~Cost of Goods Sold and Gross Profit~~

~~Cost of goods sold for the three months ended September 30, 2017 of $113.9 million represents an~~ ~~increase of$0.3 million~~ ~~or 0.2% from the historical costs of goods sold of $113.6~~$227.2 million for the three months ended September 30, ~~2016~~2019. Excluding ISB, net revenue increased $40.8 million or 18.5%. The increase was driven primarily by the acquisition of Voortman which contributed $26.8 million of net revenue. Sweet baked goods net revenue increased $13.9 million, primarily driven by higher volume of core Hostess® branded products partially offset by lower sales of private label and non-Hostess branded products. Additionally during the current year period, we increased the reserve for customer credits related to the recall of certain Raspberry Zinger® products, which was established in the previous quarter. Net revenue was negatively impacted in the prior-year period by the temporary shutdown of certain production lines to perform maintenance and operating enhancements.

Net revenue for the nine months ended September 30, 2020 was $760.6 million, an increase of ~~$0.5~~10.1%, or $69.6 million, compared to $691.0 million for the nine months ended September 30, 2019. Excluding ISB, net revenue increased $98.3 million or ~~0.4% from~~14.8%. The acquisition of Voortman contributed $67.5 million of net revenue. The remaining increase was attributed to higher volume of Hostess® branded multi-pack products due to strong demand, particularly in the ~~pro forma costs~~grocery and dollar channels, partially offset by lower sales of ~~goods sold~~private label and non-Hostess branded products and lower sales of ~~$113.4 million~~Hostess® branded single-serve products.

Gross Profit

Gross profit for the three months ended September 30, ~~2016. The increase in thethree months ended September 30, 2017~~ from both historical and pro forma three months ended September 30, 2016 is primarily attributed to additional cost of transportation due to the tightening of shipping capacity and an increase in the percentage of orders on a refrigerated class of transportation.

~~Gross profit~~2020 was ~~$78.4 million for the three months ended September 30, 2017, a decrease of $4.2~~$91.2 million, or 5.1%, compared to historical gross profit of $82.6 million for the three months ended September 30, 2016 and a decrease of $4.4 million, or 5.3% compared to pro forma gross profit of $82.8 million for the three months ended September 30, 2016. The decrease in the three months ended September 30, 2017 from both historical and pro forma three months ended September 30, 2016 was primarily attributed to the tightening of shipping capacity and an increase in the percentage of orders on a refrigerated class of transportation, which caused a 120 basis point increase in the cost of transportation as a percentage of revenue. ~~In addition, there was a shift in product mix due to growth in multi-pack and club-pack sales.~~

Gross margin was 40.8% for the three months ended September 30, 2017, compared to historical gross margin of 42.1% for the three months ended September 30, 2016 and pro forma gross margin of 42.2% for the three months ended September 30, 2016. The decrease in margin for the three months ended September 30, 2017 from both historical and pro forma gross margin for the three months ended September 30, 2016 is ~~primarily due to additional transportation costs and a shift in product mix.~~

~~Gross profit for the Sweet Baked Goods segment for the three months ended September 30, 2017 was $73.0 million, or 42.0%~~35.0% of net revenue, compared to ~~gross profit of $76.8~~$70.4 million, or 44.0% of net revenue for the historical three months ended September 30, 2016. Gross margin decreased due to the tightening of shipping capacity and an increase in the percentage of orders on a refrigerated class of transportation, which caused a 120 basis point increase in the cost of transportation as a percentage of revenue. In addition, there was a shift in product mix due to growth in multi-pack and club-pack sales.

~~Gross profit for the Other segment for the three months ended September 30, 2017 was $5.4 million, or 28.9% of net revenue, compared to historical gross profit of $5.8 million, or 26.7%~~31.0% of net revenue for the three months ended September 30, ~~2016.~~2019. Excluding ISB, gross profit increased 32.6% resulting from the accretion from Voortman supported by achievement of synergies, lower promotional activity and and higher pro+ductivity efficiencies, partially offset by higher operating costs due to COVID-19.

Gross profit for the nine months ended September 30, 2020 was $259.9 million, or 34.2% of net revenue, compared to $229.1 million, or 33.2% of net revenue for the nine months ended September 30, 2019. Excluding ISB, gross profit increased 16.6%. The increase ~~in margin was attributed~~resulted primarily from the accretion from Voortman and efficiencies from higher sales volume, partially offset by transition costs related to ~~efficiencies in In-Store Bakery operations.~~Voortman operations and higher operating costs due to COVID-19.

Operating Costs and Expenses

~~Advertising~~Operating costs and ~~Marketing~~

~~Advertising and marketing~~ expenses for the three months ended September 30, ~~2017 of $8.9~~2020 were $49.8 million, ~~represents a~~ ~~decrease~~ ~~of 14.5% over the historical and pro forma advertising and marketing expenses of $10.4~~compared to $46.8 million for the three months ended September 30, ~~2016 as a result~~2019. The increase was primarily attributed to the addition of ~~lower packaging design~~Voortman's on-going operating costs, partially offset by prior-year charges related to the sale of the In-Store Bakery business, debt refinancing costs, remeasurement of the tax receivable agreement and costs related to the transition of the Company's primary distribution center.

Operating costs and ~~reduced permanent wire display deployment during~~expenses for the ~~quarter.~~nine months ended September 30, 2020 were $168.8 million, compared to $132.5 million for the nine months ended September 30, 2019. The increase was attributed to costs related to the transition of Voortman's operations as well as Voortman's on-going operating costs, partially offset by prior-year charges related to the transition of the Company’s distribution center, a prior-year nonrecurring payment under the Company's long-term incentive plan, costs related to the sale of the In-Store Bakery business and debt refinancing costs.

~~Selling~~Other Expense

~~Selling~~Other expense ~~of $7.6 million, or 4.0% of revenue~~ for the three months ended September 30, ~~2017~~2020 was ~~comparable~~$11.1 million compared to ~~$8.3~~$9.8 million ~~or 4.2% of revenue on a historical and pro forma basis~~ for the three months ended September 30, ~~2016.~~

~~General~~2019, in each case consisting primarily of interest expense. Interest expense on our term loans was $10.0 million and ~~Administrative~~

~~General and administrative expenses for the three months ended September 30, 2017 of $14.5 million represent an increase of $3.7 million or 34.4% over historical general and administrative expenses of~~ $10.8 million for the three months ended September 30, ~~2016~~2020 and ~~an increase~~2019, respectively.

Other expense for the nine months ended September 30, 2020 was $35.1 million compared to $31.6 million for the nine months ended September 30, 2019, in each case consisting primarily of ~~$4.1~~interest expense. Interest expense on our term loans was $31.9 million ~~or 38.9% over~~and $32.8 million for the ~~pro forma general~~nine months ended September 30, 2020 and ~~administrative expenses of $10.4 million~~2019, respectively.

Income Taxes

Our effective tax rate for the three months ended September 30, ~~2016. The increase of the third quarter 2017 expenses over both the historical and pro forma third quarter 2016 expenses is attributed~~2020 was 20.8% compared to ~~increased non-cash share-based compensation of $3.6 million.~~

~~Amortization of Customer Relationships~~

~~Amortization of customer relationships was $6.0 million~~22.0% for the three months ended September 30, ~~2017, compared~~2019. Our current year effective tax rate was impacted by a discrete tax benefit of $1.2 million related to historical customer relationships amortization of $0.2 million for the three months ended September 30, 2016 and pro forma customer relationships amortization of $6.1 million for the three months ended September 30, 2016. For the third quarter 2016 on a historical basis, amortization expense was based on the valuation of customer relationships acquired from Old Hostess in 2013. The amortization expense for the three months ended September 30, 2017 and the three months ended September 30, 2016 on a pro forma basis reflects the new valuation of the customer relationships acquired through the Business Combination.

~~Impairment of Property and Equipment~~

tax law change. During the three months ended September 30, ~~2017, we idled~~2019, the effective tax rate benefited by a ~~production line in our Columbus, Georgia facility and transitioned~~discrete tax benefit of $0.5 million related to the ~~production to a third party. We recognized an impairment loss~~divestiture of ~~$1.0 million.~~the In-Store Bakery operations.

~~Related Party Expenses~~

~~Related party expenses were $0.1 million~~

Our effective tax rate for the ~~three~~nine months ended September 30, ~~2017~~2020 was 21.5% compared to ~~historical and pro forma expenses of $1.1 million~~16.8% for the ~~three~~nine months ended September 30, ~~2016. These expenses represent payments made~~2019. The current year effective tax rate was impacted by an adjustment to ~~Mr. Metropoulos under~~deferred taxes related to Voortman and a tax law change, which collectively resulted in a discrete tax benefit of $1.7 million. Our prior year effective tax rate was impacted by a discrete tax benefit of $3.7 million primarily related to the ~~terms~~remeasurement of ~~his employment arrangements. Following the Business Combination, the expenses associated with Mr. Metropoulos’s employment arrangement are~~deferred tax balances arising from changes in estimated state apportionment factors and rates due to ~~be $0.3 million annually.~~business operation changes.

~~Tax Receivable Agreement Liability Remeasurement~~

Segments

For the ~~three months ended September 30, 2017,~~reporting periods presented, we ~~recorded a loss of $1.6 million due to an adjustment to the tax receivable agreement resulting from a change in a state tax law.~~

~~Recall and Other Costs~~

During the three months ended September 30, 2016, we recovered approximately $4.0 million of previously recognized costs when it was determined that expenses incurred to recall 710,000 cases of snack cakes and donuts for undeclared peanut residue in certain lots of flour would be reimbursed by our flour supplier, Graincraft.

~~Operating Income~~

~~The 25.1% decrease in operating income from a historical basis of $51.7 million for the three months ended September 30, 2016 to $38.7 million for the three months ended September 30, 2017 is primarily from the increase in additional customer~~ relationship amortization as well as share-based compensation, which is included within general and administrative expenses. The decrease was also attributed to lower gross profit due to a change in product mix and lower overall revenues.

~~Interest Expense, net~~

Our interest expense decreased 44.6% from $18.0 million for the historical three months ended September 30, 2016 to $10.0 million for the three months ended September 30, 2017 primarily from the refinancing of our Second Lien Term Loan in November 2016 and amendment of our First Lien Term Loan in May 2017. In both cases, the effective interest rate on our outstanding debt was decreased. Additionally, $217 million of principal was repaid as part of the Business Combination. This was offset by the additional interest expense related to our interest rate swap contract, which was effective in May 2017. Excluding expense associated with the principal repayment, interest expense for the three months ended September 30, 2017 decreased 25.5% from pro forma interest expense of $13.4 million for the three months ended September 30, 2016, as a result of the lower effective interest rate offset by the interest rate swap settlement.

~~Loss on Modification of debt~~

During the three months ended September 30, 2017, we expensed $2.1 million of previously capitalized debt financing charges, which are offset by a slight gain in the prior period. See Note 1-Summary of Significant Accounting Policies to the consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

~~Other Expense~~

For the three months ended September 30, 2017, we recorded other expenses of $0.2 million which primarily consisted of professional fees related to the registration of certain privately held securities.

~~Income Taxes~~

The income tax expense of $10.3 million for the three months ended September 30, 2017 includes an adjustment to our deferred tax liability of approximately $2.2 million caused by a change to a state tax rate. The remaining tax expense of $8.1 million represents an effective tax rate of 30.7%, giving effect to the non-controlling interest, a partnership for income tax purposes. Historical income tax benefit for the three months ended September 30, 2016 was less than $0.1 million as the Company was a partnership for income taxes prior to the Business Combination, with the exception of the loss attributed to Superior, which is taxed as a corporation. The increase from pro forma tax expense of $10.5 million for the three months ended September 30, 2016 is due to a change in state tax law offset by a decrease in pretax income before income taxes.

~~Adjusted EBITDA~~

Adjusted EBITDA for the three months ended September 30, 2017, was $54.7 million, a decrease of $1.0 million, or (1.7)%, compared to pro forma adjusted EBITDA of $55.6 million for the three months ended September 30, 2016. As a percentage of net revenue, adjusted EBITDA was 28.4% for the three months ended September 30, 2017, compared to pro forma adjusted EBITDA of 28.4% of net revenues for the three months ended September 30, 2016.

~~Segments~~

~~We have~~had two reportable segments: ~~“Sweet Baked Goods”~~Snacking and ~~“Other.”~~In-Store Bakery. In January of 2020, we added the newly acquired Voortman operations into the reportable segment previously known as Sweet Baked Goods and renamed the segment as “Snacking”. Our Snacking segment consists of ~~sweet~~ baked goods, cookies, wafers and bread products that are sold under the Hostess®, Dolly Madison®, Cloverhill®, Big Texas® and ~~Dolly Madison®~~Voortman® brands. ~~Other consists of Hostess® branded bread and buns, which we launched in April 2015, frozen retail (which consists of deep-fried Twinkies®, launched in August 2016) and “In-Store~~The In-Store Bakery~~” or “ISB” (which consists~~ segment consisted primarily of Superior ~~which we purchased in May 2016,~~on Main® branded and ~~manufactures and distributes eclairs, madeleines, brownies, and iced cookies in~~private label products sold through the ~~ISB~~in-store bakery section of ~~retailers),~~grocery and ~~licensing.~~club stores. We divested our In-Store Bakery operations on August 30, 2019.

We evaluate performance and allocate resources based on net revenue and gross profit. Information regarding the operations of these reportable segments is as follows:


Unaudited Segment Financial Data	Three Months Ended				Nine Months Ended
(In thousands)	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019

Net revenue:
Snacking	$	260,855	$	220,156	$	760,566	$	662,307
In-Store Bakery	—		7,055		—		28,702
Net revenue	$	260,855	$	227,211	$	760,566	$	691,009

Gross profit:
Snacking	$	91,155	$	68,804	$	259,866	$	222,872
In-Store Bakery	—		1,616		—		6,186
Gross profit	$	91,155	$	70,420	$	259,866	$	229,058

Unaudited Segment Financial Data
(In thousands) Three Months
Ended September 30,
2017 Three Months
Ended September 30,
2016

(Successor) (Predecessor)
Net revenue:

Sweet Baked Goods $ 173,552
$ 174,473

Other 18,698
21,724

Net revenue $ 192,250
$ 196,197

Gross profit:
Sweet Baked Goods $ 72,965
$ 76,777

Other 5,400
5,802

Gross profit $ 78,365
$ 82,579

Capital expenditures (1):

Sweet Baked Goods $ 9,109
$ 9,312

Other
205
161

Capital expenditures $ 9,314
$ 9,473


~~(1)~~	Capital expenditures consists of purchases of property and equipment and acquisition and development of software assets paid in cash or acquired through accounts payable during the three months ended September 30, 2017 (Successor) and 2016 (Predecessor).

~~We have one customer that accounted for 10% or more of our net revenues. The percentage of net revenue from this customer is presented below by segment:~~

Unaudited Segment Data
Three Months Ended
(% of Consolidated Net Revenues)
September 30, 2017
September 30, 2016
Sweet Baked Goods 18.8 %
18.1 %
Other 0.9 %
3.1 %
Total 19.7 %
21.2 %

~~Unaudited Statement of Operations~~

Historical and Pro Forma*

(Successor)
Historicalⁱ (Predecessor)
Pro forma
(In thousands, except per share data)
Nine Months
Ended September 30, 2017
%
of Net Revenues
Nine Months
Ended September 30, 2016

Pro Forma
Adjustments

Nine Months
Ended September 30, 2016
%
of Net Revenues
Net revenue $ 579,967
100.0 % $ 548,757
—
$ 548,757
100.0 %
Cost of goods sold 333,861
57.6
309,427
315
ii 309,742
56.4
Gross profit 246,106
42.4
239,330
(315 ) 239,015
43.6

Operating costs and expenses:
Advertising and marketing 24,304
4.2
27,529
—
27,529
5.0
Selling expense 24,418
4.2
23,175
—
23,175
4.2
General and administrative 43,416
7.5
32,015
(653 ) ii 31,362
5.7
Amortization of customer relationships 17,860
3.1
468
17,950
iii 18,418
3.4
Impairment of property and equipment 1,003
0.2
7,267
—
7,267
1.3
Business combination transaction costs —
—
7,065
(6,490 ) iv 575
0.1
Related party expenses 284
—
3,431
—
3,431
0.6
Tax receivable agreement liability remeasurement 1,589
0.3
—
—
—
—
Recall and other costs (recoveries) —
—
473
—
473
0.1
Total operating costs and expenses 112,874
19.5
101,423
10,807
112,230
20.4
Operating income 133,232
22.9
137,907
(11,122 ) 126,785
23.1
Other expense:
Interest expense, net 29,831
5.1
53,746
(13,871 ) v 39,875
7.3
Loss on debt modification 1,948
0.3
—
—
—
—
Other expense 1,309
0.2
2,344
—
2,344
0.4
Total other expense 33,088
5.6
56,090
(13,871 ) 42,219
7.7
Income before income taxes 100,144
17.3
81,817
2,749
84,566
15.4
Income tax expense 31,608
5.4
294
23,804
vi 24,098
4.4
Net income 68,536
11.8
81,523
(21,055 ) 60,468
11.0
Less: Net income attributable to the non-controlling interest 24,325
4.2
4,110
16,954
vii 21,064
3.8
Net income attributable to Class A shareholders $ 44,211
7.6 % $ 77,413
(38,009 ) $ 39,404
7.2 %

Earnings per Class A share:
Basic $ 0.45
$ 0.40

Diluted $ 0.42
$ 0.40

Weighted-average shares outstanding:
Basic 98,920,808
97,589,217
viii 97,589,217

Diluted 105,840,673
97,589,217
viii 97,589,217

* For convenience, we have included this supplemental pro forma information for the nine months ended September 30, 2016 that gives effect to the Business Combination as if such information had been consummated on January 1, 2016.

The unaudited pro forma statements of operations for the nine months ended September 30, 2016 presents our consolidated results of operations giving pro forma effect to the Business Combination as if it had occurred as of January 1, 2016. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of these transactions on the historical financial information of our Predecessor and Successor entities, as applicable.

The unaudited pro forma financial information contains a variety of adjustments, assumptions and estimates, is subject to numerous other uncertainties and the assumptions and adjustments as described in the accompanying notes hereto and should not be relied upon as being indicative of our results of operations had the Business Combination occurred on January 1, 2016. The unaudited pro forma financial information also does not project our results of operations for any future period or date. The acquisition of Superior occurred in May 2016. The unaudited pro forma consolidated financial information for the three and nine months ended September 30, 2016 does not include the results of the Superior acquisition and its related operations prior to the acquisition. We evaluated the impact of the Superior acquisition on the Company’s financial statements and concluded that the impact was not significant and did not separately warrant the inclusion of pro forma financial results assuming the acquisition of Superior on January 1, 2016 under SEC rules and regulations or under GAAP. The pro forma adjustments give effect to the items identified in the pro forma table above in connection with the Business Combination.


i.	The amounts in these columns represent our Hostess Holdings historical results of operations for the period reflected. Certain amounts previously reported within the 2016 Hostess Holdings quarterly financial statements have been reclassified to conform with the current financial statement presentation.


~~ii.~~	~~Represents the adjustment to depreciation expense associated with the allocation of purchase price to property and equipment.~~


~~iii.~~	~~Represents additional amortization expense associated with the fair value recognized for customer relationships in connection with the Business Combination.~~


~~iv.~~	~~This adjustment consists primarily of legal and professional fees and other costs associated with the Business Combination.~~


v.	~~Represents the reduction in interest expense due to the repayment of Hostess Holdings debt pursuant to the terms of the Business Combination.~~


~~vi.~~	~~Represents the effective income tax rate of 28.5%, giving effect to the non-controlling interest, a partnership for income tax purposes.~~


~~vii.~~	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.


~~viii.~~	Represents the basic and diluted weighted average number of Class A shares that would have been outstanding had the Business Combination occurred on January 1, 2016. The outstanding warrants were determined not to be dilutive.

~~Reconciliation of Adjusted EBITDA~~

~~does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments;~~

~~does not reflect changes in, or cash requirements for, our working capital needs;~~

~~does not reflect the significant interest expenses, or the cash requirements necessary to service interest or principal payments, on our 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.~~

Reconciliation of Adjusted EBITDA
(Unaudited)

(In thousands) Nine Months
Ended September 30,
2017 Pro Forma
Nine Months
Ended September 30,
2016

Net income $ 68,536
$ 60,468
Plus non-GAAP adjustments:
Income tax provision 31,608
24,098
Interest expense, net 29,831
39,875
Depreciation and amortization 28,576
27,352
Share-based compensation i. 7,990
—
Tax receivable agreement liability remeasurement ii. 1,589
—
Recall and other iii. —
473
Other expense iv. 1,309
2,342
Loss on debt modification v. 1,948
—
Impairment of property and equipment vi. 1,003
7,267
Business combination transaction costs vii. —
575
Adjusted EBITDA $ 172,390
$ 162,450


i.	~~For the nine months ended September 30, 2017, the Company recognized expense related to stock compensation awarded under the Hostess Brands, Inc. 2016 Equity Incentive Plan.~~


~~ii.~~	~~For the nine months ended September 30, 2017, the Company incurred a loss on the remeasurement of the tax receivable agreement due to a change in state tax law.~~


~~iii.~~	For the nine months ended September 30, 2016, we 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.

~~iv.~~

For the nine months ended September 30, 2017, other expense primarily included professional fees incurred related to the secondary public offering of common stock and the registration of certain privately held warrants. For the pro forma nine months ended September 30, 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.


v.	~~During the nine months ended September 30, 2017, previously capitalized debt issuance costs were expensed.~~

~~vi.~~

During the nine months ended September 30, 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 nine months ended September 30, 2016, the Company closed multiple production lines in Indianapolis, Indiana bakery and transitioned production to other facilities resulting in an impairment loss.


~~vii.~~	~~For the pro forma nine months ended September 30, 2016, business combination transaction costs consisted of professional and legal costs for the acquisition of Superior.~~

~~Net Revenue~~

Net revenue was $580.0 million, an increase of $31.2 million, or 5.7%, compared to historical and pro forma net revenue of $548.8 million for the nine months ended September 30, 2016. The increase was primarily due to 2017 new product initiatives along with white space opportunities growth led by In-Store Bakery (which contributed $15.0 million due to the acquisition of Superior and In-Store Bakery product innovation), and other developing sales channels. These amounts were partially offset by lower prior year innovation revenue and discontinued items.

~~Cost of Goods Sold and Gross Profit~~

Cost of goods sold for the nine months ended September 30, 2017 of $333.9 million represents an increase of $24.4 million or 7.9% from the historical costs of goods sold of $309.4 million for the nine months ended September 30, 2016 and an increase of $24.1 million or 7.8% from the pro forma costs of goods sold of $309.7 million for the nine months ended September 30, 2016. The increase in the nine months ended September 30, 2017 from both historical and pro forma nine months ended September 30, 2016 is primarily attributed to the increase in revenue.

Gross profit was $246.1 million for the nine months ended September 30, 2017, an increase of $6.8 million, or 2.8%, compared to historical gross profit of $239.3 million for the nine months ended September 30, 2016 and an increase of $7.1 million, or 3.0% compared to pro forma gross profit of $239.0 million for the nine months ended September 30, 2016. The increase in the nine months ended September 30, 2017 from both historical and pro forma nine months ended September 30, 2016 is primarily attributed to the increase in revenue.

Gross margin was 42.4% for the nine months ended September 30, 2017, compared to historical gross margin of 43.6% for the nine months ended September 30, 2016 and pro forma gross margin of 43.6% for the nine months ended September 30, 2016. The decrease in margin for the nine months ended September 30, 2017 from both historical and pro forma gross margin for the nine months ended September 30, 2016 is primarily due to a shift in product mix to include the Company’s In-Store Bakery operations and growth in multi-pack and club-pack product sales as a percentage of total revenue. In addition, the cost of transportation as a percentage of net revenue increased 60 basis points due to tightening of shipping capacity and an increase in the percentage of orders on a refrigerated class of transportation.

Gross profit for the Sweet Baked Goods segment for the nine months ended September 30, 2017 was $230.2 million, or 43.9% of net revenue, compared to gross profit of $227.3 million or 44.7% of net revenue for the historical nine months ended September 30, 2016. Gross margin decreased due to larger growth in our multi-pack and club-pack product sales as a percentage of total sales growth. In addition, the cost of transportation as a percentage of revenue increased by approximately 60 basis points due to tightening of shipping capacity and an increase in the percentage of orders on a refrigerated class of transportation.

Gross profit for the Other segment for the nine months ended September 30, 2017 was $15.9 million, or 28.8% of net revenue, compared to historical gross profit of $12.0 million, or 29.7% of net revenue for the nine months ended September 30, 2016. The decrease in margin was attributed to In-Store Bakery sales.

~~Operating Costs and Expenses~~

~~Advertising and Marketing~~

Advertising and marketing expenses for the nine months ended September 30, 2017 of $24.3 million represents a decrease of 11.7% over the historical and pro forma advertising and marketing expenses of $27.5 million for the nine months ended September 30, 2016, as a result of lower packaging design costs and reduced permanent display deployment during the year.

~~Selling Expense~~

~~Selling expense of $24.4 million, or 4.2% of revenue for the~~ ~~nine months ended September 30, 2017~~ ~~was comparable to $23.2 million, or 4.2% of revenue on a historical and pro forma basis for the~~ ~~nine months ended September 30, 2016~~ ~~due to the addition of In-Store Bakery operations and an adjustment to our bad debt expense.~~

~~General and Administrative~~

General and administrative expenses for the nine months ended September 30, 2017 of $43.4 million represents an increase of $11.4 million or 35.6% over historical general and administrative expense of $32.0 million for the nine months ended September 30, 2016 and ~~an increase of$12.1 million~~ or 38.6% over the pro forma general and administrative expenses of $31.4 million for the nine months ended September 30, 2016. The increase of the 2017 expenses over both the historical and pro forma 2016 expenses is attributed to increased non-cash share-based compensation of $8.0 million and increased professional fees related to public company compliance of $2.6 million.

~~Amortization of Customer Relationships~~

Amortization of customer relationships was $17.9 million for the nine months ended September 30, 2017, compared to historical customer relationships amortization of $0.5 million for the nine months ended September 30, 2016 and pro forma customer relationships amortization of $18.4 million for the nine months ended September 30, 2016. For the third quarter 2016 on a historical basis, amortization expense was based on the valuation of customer relationships acquired from Old Hostess in 2013. The amortization expense for the nine months ended September 30, 2017 and the nine months ended September 30, 2016 on a pro forma basis reflects the new valuation of the customer relationships acquired through the Business Combination.

~~Impairment of Property and Equipment~~

During the nine months ended September 30, 2017, we idled a production line in our Columbus, Georgia facility and transitioned the production to a third party. We recognized an impairment loss of $1.0 million.

For the nine months ended September 30, 2016 on a historical and pro forma basis, we recorded an impairment loss of $7.3 million resulting from the closure of multiple production lines at the Indianapolis, Indiana bakery and the transition of those production lines to other facilities. There was no such activity for the the nine months ended September 30, 2017.

~~Tax Receivable Agreement Liability Remeasurement~~

~~For the nine months ended September 30, 2017, we recognized a loss of $1.6 million related to a remeasurement of the tax receivable agreement due to a change in state tax law.~~

~~Recall and Other Costs~~

For the nine months ended September 30, 2016, other costs, on both a historical and pro forma basis, are attributed to utilities, insurance, taxes, and maintenance expenses related to the closure of our Schiller Park, Illinois bakery.

~~Related Party Expenses~~

Related party expenses were $0.3 million for the nine months ended September 30, 2017 compared to historical and pro forma expenses of $3.4 million for the nine months ended September 30, 2016. These expenses represent payments made to Mr. Metropoulos under the terms of his employment arrangements. Following the Business Combination, the expenses associated with Mr. Metropoulos’s employment arrangement are estimated to be $0.3 million annually.

~~Operating Income~~

The 3.4% decrease in operating income from historical operating income of $137.9 million for the nine months ended September 30, 2016 to $133.2 million for the nine months ended September 30, 2017 attributed to additional depreciation and amortization and stock-based compensation in 2017 offset by an increase in sales. ~~When considering the additional depreciation and amortization expense resulting from the Business Combination, operating income for the nine months ended September 30, 2017~~ ~~increased$6.4 million~~ ~~or 5.0% compared to pro forma operating income for the nine months ended September 30, 2016.~~

~~Interest Expense, net~~

Our interest expense decreased 44.5% from $53.7 million for the historical nine months ended September 30, 2016 to $29.8 million for the nine months ended September 30, 2017 primarily from the refinancing of our Second Lien Term Loan in November 2016 and the amendment of our First Lien Term Loan in May 2017. In both cases, our effective interest rate on outstanding debt was decreased. Additionally, $217 million of principal was repaid as part of the Business Combination. This was offset by the additional interest expense related to our interest rate swap, which was effective in May 2017. Excluding expense associated with the principal repayment, interest expense for the nine months ended September 30, 2017 decreased 25.1% from pro forma interest expense of $39.9 million for the nine months ended September 30, 2016, as a result of the lower effective interest rate offset by the interest rate swap settlement.

~~Loss on Modification of Debt~~

During the nine months ended September 30, 2017, we expensed $2.1 million of previously capitalized debt financing charges. See Note 1-“Summary of Significant Accounting Policies” to the consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

~~Other Expense~~

For the nine months ended September 30, 2017, we recorded other expenses of $1.3 million which primarily consisted of legal and professional fees related to a secondary public offering of common stock which was completed in April 2017 and the registration of certain privately held warrants which was completed in June 2017. For the nine months ended September 30, 2016, historical and pro forma other expense of $2.3 million was attributed to professional fees incurred in the pursuit of a potential acquisition that was subsequently abandoned, and other special projects.

~~Income Taxes~~

The income tax expense of $31.6 million for the nine months ended September 30, 2017 includes an adjustment to our deferred tax liability of approximately $2.2 million caused by a change to a state tax rate. The remaining tax expense of $29.4 million represents an effective tax rate of 29.4% giving effect to the non-controlling interest, a partnership for income tax purposes. There was no historical income tax expense until the acquisition of Superior in May 2016, as the Company was a partnership for income tax purposes prior to the Business Combination.

~~Adjusted EBITDA~~

Adjusted EBITDA was $172.4 million for the nine months ended September 30, 2017, an increase of $9.9 million, or 6.1%, compared to pro forma adjusted EBITDA of $162.5 million for the nine months ended September 30, 2016. As a percentage of net revenue, adjusted EBITDA was 29.7% for the first nine months of 2017, which was comparable to pro forma adjusted EBITDA of 29.6% of net revenues in the same period last year.

~~Segments~~

We have two reportable segments: “Sweet Baked Goods” and “Other”. Sweet Baked Goods consists of sweet baked goods that are sold under the Hostess® and Dolly Madison® brands. Other consists of Hostess® branded bread and buns, which we launched in April 2015, frozen retail (which consists of deep-fried Twinkies®, launched in August 2016) and “In-Store Bakery,” or “ISB” (which consists of Superior, which we purchased in May 2016, and manufactures and distributes eclairs, madeleines, brownies, and iced cookies in the ISB section of retailers), and licensing.

~~We evaluate performance and allocate resources based on net revenue and gross profit. Information regarding the operations of these reportable segments is as follows:~~

Unaudited Segment Financial Data
(In thousands) Nine Months
Ended September 30,
2017 Nine Months
Ended September 30,
2016

(Successor) (Predecessor)
Net revenue:

Sweet Baked Goods $ 524,731
$ 508,288

Other 55,236
40,469

Net revenue $ 579,967
$ 548,757

Gross profit:
Sweet Baked Goods $ 230,217
$ 227,322

Other 15,889
12,008

Gross profit $ 246,106
$ 239,330

Capital expenditures (1):

Sweet Baked Goods $ 24,772
$ 25,701

Other
643
211

Capital expenditures $ 25,415
$ 25,912


~~(1)~~	Capital expenditures consists of purchases of property and equipment and acquisition and development of software assets paid in cash or acquired through accounts payable during the nine months ended September 30, 2017 (Successor) and 2016 (Predecessor).

~~The Company has one customer that accounted for 10% or more of the Company’s total net revenue. The percentage of total net revenues for this customer is presented below by segment:~~

Unaudited Segment Data
Nine Months Ended
(% of Consolidated Net Revenues)
September 30, 2017 September 30, 2016
(Successor) (Predecessor)
Sweet Baked Goods 18.9 % 20.3 %
Other 0.8 % 1.5 %
Total 19.7 % 21.8 %

Liquidity and Capital Resources

Our primary sources of liquidity are from ~~the~~ cash on ~~the balance sheet,~~hand, future cash flow generated from operations, and availability under our revolving credit agreement (“Revolver”). We believe that cash flows from operations and the current cash and cash equivalents on the balance sheet will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for at least the next 12 months. Our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive and other factors beyond our control. In addition, our future ~~capital expenditures~~acquisitions and other cash requirements could be higher than we currently expect as a result of various factors, including any expansion of our business that we undertake, including acquisitions. We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

We had working capital, excluding cash, as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 of ~~$30.3~~$8.4 million and ~~$20.6~~$8.1 million, respectively. We have the ability to borrow under ~~our~~the Revolver to meet obligations as they come due. As of September 30, ~~2017,~~2020, we had approximately ~~$96.1~~$94.5 million available for borrowing, net of letters of credit, under ~~our~~the Revolver.

Cash Flows from Operating Activities

Cash flows provided by operating activities for the nine months ended September 30, ~~2017 (Successor)~~2020 and 2019 were ~~$117.8~~$108.0 million and ~~for~~$107.4 million, respectively. Operating cash flow benefited from the ~~nine months ended September 30, 2016 (Predecessor) were $89.5 million.~~incremental profits generated by Voortman as well as higher sales volume and profits from core Hostess® branded products. The increase ~~in cash flows provided~~was also driven by ~~operating activities between the two periods is~~a reduction of net working capital due to ~~an increase in income before taxes and~~ the ~~timing~~transition of ~~vendor payments processed through accounts payable~~Voortman to our warehouse distribution model. This was offset by ~~higher inventory~~cash used to fund Voortman’s transaction expenses and ~~prepaid expense balances.~~non-capitalizable warehouse transition costs.

Cash Flows from Investing Activities

Cash ~~flows~~ used in investing activities for the nine months ended September 30, ~~2017 (Successor)~~2020 and ~~2016 (Predecessor)~~2019 were ~~$24.4~~$354.4 million and ~~$71.7~~$30.6 million, respectively. During the nine months ended September 30, 2020, we funded the CAD $423 million purchase price of Voortman with cash on hand and the proceeds from an incremental term loan on our existing credit facility. Cash ~~outflows from investing activities decreased from 2016 due to the acquisition~~used for purchase of ~~Superior in 2016.~~

~~Our~~ property and equipment ~~capital expenditures primarily consisted of strategic growth initiatives, maintenance~~reflects planned investments in our bakeries, including Voortman, and ~~productivity improvements. We expect that~~ our ~~cash outflows for capital expenditures will be approximately $5.0 million to $15.0 million during the remainder of 2017.~~

centralized distribution center.

Cash Flows from Financing Activities

Cash flows ~~used in~~from financing activities were ~~$19.1~~an inflow of $113.9 million for the nine months ended September 30, ~~2017 (Successor)~~2020 and ~~$18.1~~an outflow of $17.5 million for the nine months ended September 30, ~~2016 (Predecessor). In both periods, financing activities~~2019. During 2020, cash proceeds of $140.0 million from the incremental term loan used to finance the purchase of Voortman were ~~primarily attributed~~offset by related charges of $3.1 million. Tax receivable agreement payments increased in the current-year period due to timing of the scheduled ~~principal payments on long term debt and distributions to partners/non-controlling interest in respect of their tax liability.~~annual payment.

Long-Term Debt

We had no outstanding borrowings under our Revolver as of September 30, ~~2017.~~2020.

In January 2020, we entered into $140.0 million of incremental term loans through an amendment to our existing credit agreement. The proceeds, together with cash on hand were used to settle a forward purchase contract for Canadian Dollars utilized to finance the CAD $425 million purchase of Voortman.

As of September 30, ~~2017, $993.8~~2020, $1,105.6 million aggregate principal amount of the ~~Second Amended First Lien~~ Term Loan was outstanding and ~~$3.9~~letters of credit worth up to $5.5 million aggregate principal amount ~~of letters of credit,~~were available, reducing the amount available under the Revolver. We had no outstanding borrowings under our Revolver ~~were outstanding. See Note 14 -- “Commitments and Contingencies” to the consolidated financial statements in Part 1, Item 1~~as of ~~this Quarterly Report on Form 10-Q for information regarding the letters of credits.~~

September 30, 2020. As of September 30, ~~2017, the Company was~~2020, we were in compliance with the covenants under the ~~Second Amended First Lien~~ Term Loan and the Revolver.

~~Commitments~~Share Repurchase Program

In November 2020 our Board of Directors approved a stock repurchase authorization of up to $100 million in shares of our Class A common stock. The actual timing, number and ~~Contingencies~~value of shares to be purchased under the program will be determined at our discretion and will depend on a number of factors, including the performance of the Company's stock price, general market and other conditions, applicable legal requirements, and compliance with the terms of our outstanding indebtedness.

AsContractual Obligations and Commitments

There were no material changes, outside the ordinary course of ~~September 30, 2017, the Company has commitments~~business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and ~~contingencies for tax receivable arrangements, debt, operating leases,~~Analysis of Financial Condition and ~~advance purchase commitments. Refer to Note 14--“Commitments and Contingencies” to the consolidated financial statements included~~Results of Operations” in ~~Part I, Item 1 of this Quarterly~~our Annual Report on Form ~~10-Q.~~

Contractual Commitments as of September 30, 2017 Total Committed Commitments within 1 year Commitments beyond 1 year
(In thousands)
Tax receivable agreement $ 175,487
$ —
$ 175,487
Second Amended First Term Loan 993,763
9,963
983,800
Interest payments on Term Loan 180,924
36,928
143,996
Distribution Center (Shorewood, IL) 2,656
1,763
893
Corporate office lease (Kansas City, MO) 426
243
183
Corporate office lease (Dallas, TX) 6
6
—
Superior capital lease 683
200
483
Ingredient procurement 82,400
69,200
13,200
Packaging procurement 44,300
39,100
5,200
$ 1,480,645
$ 157,403
$ 1,323,242

~~Tax receivable agreement~~

~~The tax receivable agreement entered into in connection with the Business Combination (the “Tax Receivable Agreement”) generally provides~~10-K for the payment by the Company to the Legacy Hostess Equityholders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the closing of the Business Combination (which periods may extend, unless the Tax Receivable Agreement is terminated early in accordance with its terms, for more than 15 years following any exchange of Class B units of Hostess Holdings for shares of the Company’s Class A common stock or the cash equivalent thereof) as a result of (i) certain increases in tax basis resulting from the Business Combination; (ii) certain tax attributes of Hostess Holdings and its subsidiaries existing prior to the Business Combination and prior to subsequent exchanges of Class B units; (iii) certain increases in tax basis resulting from exchanges of Class B units; (iv) imputed interest deemed to be paid by the Company as a result of payments it makes under the Tax Receivable Agreement; and (v) certain increases in tax basis resulting from payments the Company makes under the Tax Receivable Agreement. The Company will retain the benefit of the remaining 15% of these cash savings. Certain payments under the Tax Receivable Agreement will be made to Legacy Hostess Equityholders in accordance with specified percentages, regardless of the source of the applicable tax attribute. The most significant estimate utilized by management to calculate the corresponding liability is the Company’s future cash tax savings rates, which are projected based on current tax laws and the Company’s historical and projected future tax profile.year ended December 31, 2019.

During the three months ended September 30, 2017, we recognized approximately $1.6 million of expense to adjust the tax receivable agreement to reflect an increase to the estimated future cash tax savings rate attributed to a state tax law change. We recognized a corresponding loss on the consolidated statement of operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~We are exposed to interest rate~~For quantitative and qualitative disclosures about market ~~risk.~~

risk, see Item 7A “Quantitative and Qualitative Disclosures About Market ~~risk~~Risk” of our Annual Report on ~~variable-rate financial instruments~~

~~Our Second Amended First Lien Term Loan and Revolver each bear interest on outstanding borrowings thereunder at variable interest rates. The rate in effect at September 30, 2017~~Form 10-K for the outstanding Second Amended First Lien Term Loan was a LIBOR-based rate of 3.74% per annum. At September 30, 2017, the subsidiary borrower had an aggregate principal balance of $993.8 million outstanding under the Second Amended First Lien Term Loan.At September 30, 2017, the subsidiary borrower had $96.1 million available for borrowing, net of letters of credit of $3.9 million, under its Revolver. Increases inyear ended December 31, 2019. Our exposures to market ~~interest rates would cause interest expense to increase and earnings before income taxes to decrease.~~risk have not changed materially since December 31, 2019.

To manage the risk related to our variable rate debt, we have entered into an interest rate swap contract with a counter party to make a series of payments based on a fixed interest rate of 1.78% and receive a series of payments based on the greater of LIBOR or 0.75%. Both the fixed and floating payment streams are based on a notional amount of $500 million at the inception of the contract and will be reduced by $100 million each year of the five year contract.

The change in interest expense and earnings before income taxes resulting from a change in market interest rates would be dependent upon the weighted average outstanding borrowings and the portion of those borrowings that are hedged by our swap contract during the reporting period following an increase in market interest rates. An increase or decrease in applicable interest rates of 1% would result in an increase or decrease in interest payable of approximately $1.3 million and $3.3 million for the three and nine months ended September 30, 2017, respectively, after accounting for the impact of our swap contract.


Item 4.	~~Controls and Procedures~~

E~~valuation of Disclosure~~ Controls and Procedures

~~As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under~~Under the supervision and with the participation of our management, including our ~~principal executive officer~~Chief Executive Officer and ~~principal financial officer,~~our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) ~~and 15d-15(e)~~) under the Securities and Exchange Act of 1934, as amended (the Exchange Act)) as of September 30, 2020, the end of the ~~three months~~period covered by this ~~Quarterly Report on Form 10-Q.~~report. Based on ~~such~~that evaluation, ~~our principal executive officer~~the Chief Executive Officer and ~~principal financial officer have~~Chief Financial Officer concluded that ~~as of such date,~~ our disclosure controls and procedures were ~~effective. Our disclosure controls and procedures are designed~~effective as of September 30, 2020 to ~~provide reasonable assurance~~ensure that ~~the~~ information required to be disclosed ~~by us~~ in our reports ~~that we file~~filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the ~~SEC.~~Securities and Exchange Commission, and that information relating to the Company is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

~~Changes in Internal Control over Financial Reporting~~

~~As of~~During the nine months ended September 30, ~~2017 we continue to engage~~2020, there was no change in ~~the process of the design and implementation of~~ our internal control over financial reporting (as defined in ~~a manner commensurate with~~Rule 13a-15(f) under the ~~scale of our operations subsequent to the November 4, 2016 Business Combination. We have hired a third-party consultant to assist us with this effort.~~

~~Except as disclosed above related to design and implementation, there were no changes in the Company’s internal control over financial reporting during the nine months ended September 30, 2017~~Exchange Act) that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

We are involved from time to time in lawsuits, claims and proceedings arising in the ordinary course of business. These matters typically involve personnel and employment issues, personal injury, contract and other proceedings arising in the ordinary course of ~~business, which have not resulted in any material losses to date.~~business. Although we do not expect the outcome of these ~~proceedings~~matters to have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, we could incur judgments, or enter into settlements or be subject to claims that could materially impact our results.

The information required to be furnished by us under this Part II, Item 1 (Legal Proceedings) is incorporated by reference to the information contained in Note 14.--Commitments and Contingencies to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

Our risk factors are set forth in the “Risk Factors” section of our Annual Report on Form 10-K filed on ~~March 14, 2017. There~~February 26, 2020. Other than as noted below, there have been no material changes to our risk factors since the filing of the Form 10-K.

The current COVID-19 pandemic, or the future outbreak of other highly infectious or contagious diseases, could adversely impact or cause disruption to our business, financial condition, results of operations and cash flows. Further, the COVID-19 pandemic has caused severe disruptions in the U.S. and global economy, may further disrupt financial markets and could potentially create widespread business continuity issues.

With novel coronavirus (“COVID-19”) infections reported throughout the world, certain governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of the pandemic. Additional, more restrictive proclamations and/or directives may be issued in the future. As a food producer, we are an essential service and the majority of our employees continue to work within our production and distribution facilities. However, we have had increased labor costs resulting from the payment of overtime to certain of our employees while other employees have been on paid sick leave or unpaid leaves of absence. We have also incurred expenses related to additional sanitization and safety measures we have instituted throughout our facilities. Although the temporary reductions in production at our facilities to enable sanitization and implementation of our other safety and employee welfare programs have not materially affected our operations, other food producers have experienced

significant shutdowns of production. We cannot assure you that our health and safety measures will prevent a widespread outbreak of COVID-19 at our facilities. Such an outbreak could lead to a suspension of production or increased labor and other costs, each of which could have a material adverse effect on our business, financial condition and results of operations.

We are also actively monitoring the potential impact of the pandemic on our supply chain, operations and distribution. Our products are manufactured in North America and we source the significant majority of our ingredients, raw materials and packaging within North America. However, global supply may become constrained, which may cause the price of certain ingredients, raw materials and packaging used in our products to increase, such ingredients may become unavailable and/or we may experience disruptions to our operations. While we do not expect that the virus will have a material adverse effect on our business or financial results at this time, we are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the severity of the disease, the duration of the outbreak, the economic impact on our customers, and actions that may be taken by governmental authorities. We also cannot predict the effects of another wave of COVID-19 or any future outbreak of other highly infectious or contagious diseases.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.

Description

~~Exhibit No.~~

~~Description~~

31.1

~~10.1~~

HB Key Executive Severance Benefit Plan, dated as of September 12, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 18, 2017)

~~31.1~~

Certification of Chief Executive Officer Pursuant to Section 302 of the ~~Sarbanes‑Oxley~~Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the ~~Sarbanes‑Oxley~~Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the ~~Sarbanes‑Oxley~~Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the ~~Sarbanes‑Oxley~~Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Lenexa, Kansas ~~City, Missouri~~ on November ~~8, 2017.~~5, 2020.


HOSTESS BRANDS, INC.

~~HOSTESS BRANDS, INC.~~By		/s/ Brian T. Purcell

By	~~/s/ Thomas Peterson~~
	~~Thomas Peterson~~Brian T. Purcell Executive Vice President, Chief Financial Officer



(Mark One)
x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the three months ended
			September 30, ~~2017~~2020
			OR
o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to



Delaware		47-4168492
~~Delaware~~ (State or other jurisdiction of incorporation or organization)		~~47‑4168492~~ (I.R.S. Employer Identification No.)
~~1 East Armour Boulevard~~ ~~Kansas City, MO~~ 7905 Quivira Road		66215
Lenexa,	KS	(Zip Code)
(Address of principal executive offices)		~~64111~~ ~~(Zip Code)~~


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
Warrants, each exercisable for a half share of Class A Common Stock	TWNKW	The Nasdaq Stock Market LLC


								September 30,		December 31,
	September 30,			December 31,				2020		2019
ASSETS	2017			2016			ASSETS
	(Successor)			(Successor)
Current assets:							Current assets:
Cash and cash equivalents	$	101,171		$	26,855		Cash and cash equivalents	$	152,297	$	285,087
Accounts receivable, net	100,733			89,237			Accounts receivable, net	136,930		104,892
Inventories	33,812			30,444			Inventories	47,710		47,608

Prepaids and other current assets	6,791			4,827			Prepaids and other current assets	20,116		15,569
Total current assets	242,507			151,363			Total current assets	357,053		453,156
Property and equipment, net	166,931			153,224			Property and equipment, net	284,118		242,384
Intangible assets, net	1,929,082			1,946,943			Intangible assets, net	1,974,081		1,853,315
Goodwill	580,349			588,460			Goodwill	707,132		535,853
Other assets, net	7,804			7,902			Other assets, net	17,459		12,993
Total assets	$	2,926,673		$	2,847,892		Total assets	$	3,339,843	$	3,097,701

LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:							Current liabilities:
Long-term debt and capital lease obligation payable within one year	$	11,357		$	11,496
Long-term debt and lease obligations payable within one year							Long-term debt and lease obligations payable within one year	$	13,097	$	11,883
Tax receivable agreement payments payable within one year							Tax receivable agreement payments payable within one year	9,100		12,100
Accounts payable	53,451			34,083			Accounts payable	60,096		68,566
Customer trade allowances	35,150			36,691			Customer trade allowances	57,059		45,715
Accrued expenses and other current liabilities	11,051			21,656			Accrued expenses and other current liabilities	57,020		21,661

Total current liabilities	111,009			103,926			Total current liabilities	196,372		159,925
Long-term debt and capital lease obligation	988,476			993,374
Tax receivable agreement	175,487			165,384
Long-term debt and lease obligations							Long-term debt and lease obligations	1,106,374		975,405
Tax receivable agreement obligations							Tax receivable agreement obligations	128,355		126,096
Deferred tax liability	366,457			353,797			Deferred tax liability	298,387		256,051
Other long-term liabilities							Other long-term liabilities	1,340		0
Total liabilities	1,641,429			1,616,481			Total liabilities	1,730,828		1,517,477
Commitments and Contingencies (Note 14)
Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 99,992,183 and 98,250,917 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	10			10
Class B common stock, $0.0001 par value, 50,000,000 shares authorized, 30,398,777 and 31,704,988 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	3			3

Commitments and Contingencies (Note 13)							Commitments and Contingencies (Note 13)

Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 125,149,257 and 122,108,086 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively							Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 125,149,257 and 122,108,086 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	12		12
Class B common stock, $0.0001 par value, 50,000,000 shares authorized, 5,622,149 and 8,409,834 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively							Class B common stock, $0.0001 par value, 50,000,000 shares authorized, 5,622,149 and 8,409,834 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	1		1
Additional paid in capital	923,739			912,824			Additional paid in capital	1,185,003		1,152,055
Accumulated other comprehensive loss	(43		)	—			Accumulated other comprehensive loss	(11,004)		(756)
Retained earnings (accumulated deficit)	28,593			(15,618		)
Retained earnings							Retained earnings	375,603		334,480
Stockholders’ equity	952,302			897,219			Stockholders’ equity	1,549,615		1,485,792
Non-controlling interest	332,942			334,192			Non-controlling interest	59,400		94,432
Total liabilities and stockholders’ equity	$	2,926,673		$	2,847,892		Total liabilities and stockholders’ equity	$	3,339,843	$	3,097,701


	Three Months Ended				Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019

Net income	$	23,973	$	10,729	$	43,983	$	54,010
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate swap contracts designated as cash flow hedges	155		(741)		(14,462)		(5,912)
Tax benefit (expense)	(39)		172		3,611		1,255
Comprehensive income	24,089		10,160		33,132		49,353
Less: Comprehensive income attributed to non-controlling interest	1,375		1,858		2,034		11,447
Comprehensive income attributed to Class A stockholders	$	22,714	$	8,302	$	31,098	$	37,906



	Page
PART I - Financial Information
Item 1.		Consolidated Financial Statements
		Consolidated Balance Sheets (Unaudited)	4
		Consolidated Statements of Operations (Unaudited)	65
		Consolidated Statements of Comprehensive Income (Unaudited)	76
		Consolidated Statements of Stockholders’ Equity (Unaudited)	87
		Consolidated Statements of Cash Flows (Unaudited)	9
		Notes to ~~Unaudited~~ Consolidated Financial Statements (Unaudited)	10
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2622
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	4727
Item 4.		Controls and Procedures	4727
PART II - Other Information
Item 1.		Legal Proceedings	4827
Item 1A.		Risk Factors	4827
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	4828
Item 3.		Default Upon Senior Securities	4928
Item 4.		Mine Safety Disclosures	4928
Item 5.		Other Information	4928
Item 6.		Exhibits	4929



	Three Months Ended					Nine Months Ended
	September 30, 2017		September 30, 2016			September 30, 2017		September 30, 2016
	(Successor)		(Predecessor)			(Successor)		(Predecessor)
Net revenue	$	192,250	$	196,197		$	579,967	$	548,757
Cost of goods sold	113,885		113,618			333,861		309,427
Gross profit	78,365		82,579			246,106		239,330
Operating costs and expenses:
Advertising and marketing	8,871		10,381			24,304		27,529
Selling expense	7,606		8,271			24,418		23,175
General and administrative	14,494		10,784			43,416		32,015
Amortization of customer relationships	5,994		156			17,860		468
Business combination transaction costs	—		4,049			—		7,065
Impairment of property and equipment	1,003		—			1,003		7,267
Related party expenses	92		1,058			284		3,431
Tax receivable agreement liability remeasurement	1,589		—			1,589		—
Recall and other costs (recoveries)	—		(3,787		)	—		473
Total operating costs and expenses	39,649		30,912			112,874		101,423
Operating income	38,716		51,667			133,232		137,907
Other expense:
Interest expense, net	9,966		18,004			29,831		53,746
Loss on modification of debt	2,122		—			1,948		—
Other expense	182		173			1,309		2,344
Total other expense	12,270		18,177			33,088		56,090
Income before income taxes	26,446		33,490			100,144		81,817
Income tax expense (benefit)	10,316		(23		)	31,608		294
Net income	16,130		33,513			68,536		81,523
Less: Net income attributable to the non-controlling interest	6,581		2,329			24,325		4,110
Net income attributable to Class A shareholders/partners	$	9,549	$	31,184		$	44,211	$	77,413

Earnings per Class A share:
Basic	$	0.10				$	0.45
Diluted	$	0.09				$	0.42
Weighted-average shares outstanding:
Basic	99,557,183					98,920,808
Diluted	105,418,566					105,840,673


	Class A Voting Common Stock			Class B Voting Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity		Non-controlling Interest
	Shares	Amount		Shares	Amount
Balance–December 31, 2019	122,108,086	$	12	8,409,834	$	1	$	1,152,055	$	(756)	$	334,480	$	1,485,792	$	94,432
Comprehensive income (loss)	—	—		—	—		—		(8,810)		2,348		(6,462)		(437)
Share-based compensation, including income taxes of $103	106,770	—		—	—		2,180		—		—		2,180		—
Exchanges	969,247	—		(969.247)	—		11,819		(17)		—		11,802		(11,802)
Distributions	—	—		—	—		—		—		—		—		(1,613)
Exercise of employee stock options and warrants	2,205	—		—	—		155		—		—		155		—
Payment of taxes for employee stock awards	—	—		—	—		(1,004)		—		—		(1,004)		—
Tax receivable agreement arising from exchanges, net of income taxes of $1,341	—	—		—	—		(1,942)		—		—		(1,942)		—
Balance–March 31, 2020	123,186,308	12		7,440,587	1		1,163,263		(9,583)		336,828		1,490,521		80,580
Comprehensive income (loss)	—	—		—	—		—		(1,324)		16,170		14,846		1,096
Share-based compensation, net of income taxes of $496	46,304	—		—	—		1,929		—		—		1,929		—
Exchanges	1,139,302	—		(1,139,302)	—		13,803		(127)		—		13,676		(13,676)
Distributions	—	—		—	—		—		—		—		—		(365)
Exercise of employee stock options and warrants	36,700	—		—	—		408		—		—		408		—
Payment of taxes for employee stock awards	—	—		—	—		(32)		—		—		(32)		—
Tax receivable agreement arising from exchanges, net of income taxes of $952		—		—	—		(2,556)		—		—		(2,556)		—
Balance–June 30, 2020	124,408,614	12		6,301,285	1		1,176,815		(11,034)		352,998		1,518,792		67,635
Comprehensive income (loss)	—	—		—	—		—		109		22,605		22,714		1,375
Share-based compensation, net of income taxes of $361	60,781	—		—	—		1,720		—		—		1,720		—
Exchanges	679,136	—		(679,136)	—		8,244		(79)		—		8,165		(8,165)
Distributions	—	—		—	—		—		—		—		—		(1,445)
Exercise of employee stock options and warrants	726	—		—	—		2		—		—		2		—
Payment of taxes for employee stock awards	—	—		—	—		(347)		—		—		(347)		—
Tax receivable agreement arising from exchanges, net of income taxes of $754	—	—		—	—		(1,431)		—		—		(1,431)		—
Balance–September 30, 2020	125,149,257	$	12	5,622,149	$	1	$	1,185,003	$	(11,004)	$	375,603	$	1,549,615	$	59,400



Partners’ Equity (Deficit) Hostess Holdings, LP (Predecessor)
	Class A			Class C			Total Partners’ Equity (Deficit)			Non-controlling Interest
Balance – December 31, 2015	$	(276,084	)	$	(346,046	)	$	(622,130	)	$	(37,991	)
Distributions to partners	(2,439		)	(8,134		)	(10,573		)	(555		)
Unit based compensation	345			344			689			—
Net income	38,707			38,706			77,413			4,110
Balance – September 30, 2016	$	(239,471	)	$	(315,130	)	$	(554,601	)	$	(34,436	)



Stockholders’ Equity
Hostess Brands, Inc. (Successor)
	Class A Voting Common Stock			Class B Voting Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Losses / Retained Earnings			Total Stockholders’ Equity			Non-controlling Interest
	Shares	Amount		Shares		Amount
Balance–December 31, 2016	98,250,917	$	10	31,704,988		$	3	$	912,824		$	—		$	(15,618	)	$	897,219		$	334,192
Comprehensive income	—	—		—		—		—			(43		)	44,211			44,168			24,299
Share-based compensation	435,000	—		—		—		7,990			—			—			7,990			—
Exchanges	1,306,211	—		(1,306,211	)	—		12,609			—			—			12,609			(12,609		)
Distributions	—	—		—		—		—			—			—			—			(12,940		)
Exercise of public warrants	55	—		—		—		1			—			—			1			—
Tax receivable agreement arising from exchanges, net of income taxes of $1,845	—	—		—		—		(9,685		)	—			—			(9,685		)	—
Balance–September 30, 2017	99,992,183	$	10	30,398,777		$	3	$	923,739		$	(43	)	$	28,593		$	952,302		$	332,942



			Nine Months Ended
Operating activities			September 30, 2020		September 30, 2019

	Net income		43,983		$	54,010
	Depreciation and amortization		40,999		32,678
	Impairment of property, goodwill and intangibles		0		1,005
	Debt discount (premium) amortization		977		(803)
	Tax receivable agreement remeasurement		610		1,296
	Non-cash fees on disposal of assets		0		1,414
	Unrealized foreign exchange losses		1,392		0
	Non-cash lease expense		358		0
	Share-based compensation		6,583		7,157

	Deferred taxes		8,575		9,519
	Loss on sale of assets		317		471
	Change in operating assets and liabilities, net of acquisitions and dispositions:
		Accounts receivable	(7,106)		(13,536)
		Inventories	7,462		(3,451)
		Prepaids and other current assets	(4,334)		(3,793)

		Accounts payable and accrued expenses	2,186		18,305
		Customer trade allowances	5,989		3,080

	Net cash provided by operating activities		107,991		107,352

Investing activities
	Purchases of property and equipment		(33,382)		(28,421)
	Acquisition of business, net of cash acquired		(316,013)		0
	Proceeds from sale of business, net of cash		0		63,353
	Acquisition and development of software assets		(4,994)		(4,298)
	Net cash provided by (used in) investing activities		(354,389)		30,634

Financing activities
	Repayments of long-term debt and lease obligations		(8,375)		(7,470)


	Proceeds from long-term debt origination, net of fees paid		136,888		0
	Distributions to non-controlling interest		(3,423)		(6,659)
	Tax payments related to issuance of shares to employees		(1,383)		(607)
	Cash received from exercise of options and warrants		565		23
	Payments on tax receivable agreement		(10,327)		(2,779)

	Net cash provided by (used in) financing activities		113,945		(17,492)
	Effect of exchange rate changes on cash and cash equivalents		(337)		0
Net increase (decrease) in cash and cash equivalents			(132,790)		120,494
Cash and cash equivalents at beginning of period			285,087		146,377
Cash and cash equivalents at end of period			$	152,297	$	266,871


Supplemental Disclosures of Cash Flow Information:	Supplemental Disclosures of Cash Flow Information:					Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
	Interest	$	35,085	$	50,799		Interest	$	31,883	$	33,602
	Taxes paid	$	12,902	$	—		Net taxes paid	$	5,403	$	2,416
Supplemental disclosure of non-cash investing:	Supplemental disclosure of non-cash investing:					Supplemental disclosure of non-cash investing:
	Purchases of property and equipment funded by accounts payable	$	932	$	2,072		Accrued capital expenditures	$	3,124	$	1,468



(In thousands)	September 30, 2017		December 31, 2016
	(Successor)		(Successor)
Ingredients and packaging	$	14,474	$	12,712
Finished goods	16,441		14,229
Inventory in transit to customers	2,897		3,503
	$	33,812	$	30,444


(In thousands)	September 30, 2020		December 31, 2019

Ingredients and packaging	$	23,937	$	21,439
Finished goods	21,043		22,513
Inventory in transit to customers	2,730		3,656
	$	47,710	$	47,608


	Three Months Ended September 30, 2020
(In thousands)	Sweet Baked Goods		In-Store Bakery		Cookies		Total
United States	$	234,103	$	0	$	22,328	$	256,431
Canada	0		0		4,424		4,424
	$	234,103	$	0	$	26,752	$	260,855


(In thousands)	Severance		Contract Termination		Total
Charges recorded	$	4,290	$	8,278	$	12,568
Payments made	(3,560)		(7,617)		(11,177)
Impact of change in exchange rates on CAD denominated liability	(89)		(365)		(454)
Reserve balance as of September 30, 2020	$	641	$	296	$	937



	Restricted Stock Units		Weighted Average Grant Date Fair Value
Unvested units as of December 31, 2016 (Successor)	—		$	—
Total Granted	1,425,790		15.77
Forfeited	(79,543	)	15.78
Vested	—		—
Unvested as of September 30, 2017 (Successor)	1,346,247		$	15.77


(In thousands)	September 30, 2020		December 31, 2019

Land and buildings	$	58,778	$	53,683
Right of use assets, operating	21,711		23,771
Machinery and equipment	245,941		209,382
Construction in progress	18,754		5,878
	345,184		292,714
Less accumulated depreciation and amortization	(61,066)		(50,330)
	$	284,118	$	242,384



	~~Nine Months~~ ~~Ended~~ ~~September 30, 2017~~
~~Expected volatility~~ ⁽¹⁾	~~27.53%~~
~~Expected dividend yield~~ ⁽²⁾	—%
~~Expected option term~~ ⁽³⁾	~~6.25 years~~
~~Risk-free rate~~ ⁽⁴⁾	~~2.1%~~


	Three Months Ended September 30, 2019
(In thousands)	Sweet Baked Goods		In-Store Bakery		Cookies		Total
United States	$	220,156	$	7,055	$	0	$	227,211
Canada	0		0		0		0
	$	220,156	$	7,055	$	0	$	227,211


	Nine Months Ended September 30, 2020
(In thousands)	Sweet Baked Goods		In-Store Bakery		Cookies		Total
United States	$	693,085	$	0	$	56,094	$	749,179
Canada	0		0		11,387		11,387
	$	693,085	$	0	$	67,481	$	760,566


	Nine Months Ended September 30, 2019
(In thousands)	Sweet Baked Goods		In-Store Bakery		Cookies		Total
United States	$	662,307	$	28,702	$	0	$	691,009
Canada	0		0		0		0
	$	662,307	$	28,702	$	0	$	691,009


	Three Months Ended				Nine Months Ended
(% of Consolidated Net Revenues)	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019

Snacking	19.7	%	22.3	%	21.0	%	23.0	%
In-Store Bakery	0.0	%	0.3	%	0.0	%	0.5	%
Total	19.7	%	22.6	%	21.0	%	23.5	%


(In thousands)
Cash	$	1,639
Accounts receivable	24,848
Inventory	7,564
Income tax receivable	7,522
Other current assets	420
Property and equipment	32,028
Customer relationships	11,100
Trade names	130,000
Goodwill	171,279
Other non-current assets	1,320
Accounts payable and accrued expenses	(6,173)
Customer trade allowances	(5,428)
Lease liabilities	(6,420)
Deferred taxes	(39,665)
Other non-current liabilities	(1,320)
Assets acquired and liabilities assumed	$	328,714



	Shares of Restricted Stock	Weighted Average Grant Date Fair Value
Unvested units as of December 31, 2016 (Successor)	—	$	—
Granted	435,000	15.78
Forfeited	—	—
Vested	—	—
Unvested as of September 30, 2017 (Successor)	435,000	$	15.78


~~(1)~~	~~The expected volatility assumption was calculated based on a peer group analysis of stock price volatility with a look back period based on the expected term and ending on the grant date.~~


~~(2)~~	As of September 30, 2017, we have not paid any dividends on our common stock. As of the stock option grant date, we did not anticipate paying any dividends on our common stock over the term of the stock options. Option holders have no right to dividends prior to the exercise of the options.


~~(3)~~	We utilized the simplified method to determine the expected term of the stock options since we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.


~~(4)~~	~~The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant which corresponds to the expected term of the stock options.~~



	Number of Options		Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2016 (Successor)	—		—	$	—	$	—
Granted	1,155,788		5.77	15.85		5.03
Exercised	—		—	—		—
Forfeited	(44,371	)	5.75	15.78		5.03
Outstanding as of September 30, 2017 (Successor)	1,111,417		5.77	$	15.85	$	5.03
Exercisable as of September 30, 2017 (Successor)	—		—	—		—



(In thousands)	Three Months Ended September 30, 2017		Three Months Ended September 30, 2016		Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
	(Successor)		(Predecessor)		(Successor)		(Predecessor)
Net revenue:
Sweet Baked Goods	$	173,552	$	174,473	$	524,731	$	508,288
Other	18,698		21,724		55,236		40,469
Net revenue	$	192,250	$	196,197	$	579,967	$	548,757

Depreciation and amortization:
Sweet Baked Goods	$	8,703	$	2,585	$	25,587	$	8,119
Other	1,019		583		2,989		935
Depreciation and amortization	$	9,722	$	3,168	$	28,576	$	9,054

Gross profit:
Sweet Baked Goods	$	72,965	$	76,777	$	230,217	$	227,322
Other	5,400		5,802		15,889		12,008
Gross profit	$	78,365	$	82,579	$	246,106	$	239,330

Capital expenditures (1):
Sweet Baked Goods	$	9,109	$	9,312	$	24,772	$	25,701
Other	205		161		643		211
Capital expenditures	$	9,314	$	9,473	$	25,415	$	25,912


~~(1)~~	(1)Capital expenditures consists of purchases of property and equipment and acquisition and development of software ~~assets paid in cash or acquired through accounts payable during the three and nine months ended September 30, 2017 (Successor) and 2016 (Predecessor).~~


(In thousands)	Snacking
Balance as of December 31, 2019	$	535,853
Acquisition of Voortman	171,279

Balance as of September 30, 2020	$	707,132



(In thousands)
Remainder of 2017	$	5,994
2018	23,977
2019	23,977
2020	23,977
2021	23,977
2022 and thereafter	418,332



(In thousands)	September 30, 2017			December 31, 2016
	(Successor)			(Successor)
Second Amended First Lien Term Loan (3.7% as of September 30, 2017)
Principal	$	993,763		$	—
Unamortized debt premium and issuance costs	5,462			—
	999,225			—
New First Lien Term Loan (4.0%)
Principal	—			998,750
Unamortized debt premium and issuance costs	—			5,396
	—			1,004,146
Capital lease obligation (6.8%)	608			724
Total debt and capital lease obligation	999,833			1,004,870
Less: Amounts due within one year	(11,357		)	(11,496		)
Long-term portion	$	988,476		$	993,374


(In thousands)
2020	$	2,792
2021	11,167
2022	11,167
2023	11,167
2024	11,167
2025	1,058,095



(In thousands)
Remainder of 2017	$	2,491
2018	9,963
2019	9,963
2020	9,963
2021	9,963
2022 and thereafter	951,420



	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
	(Successor)		(Successor)
Numerator:
Net income attributable to Class A shareholders (in thousands)	$	9,549	$	44,211
Denominator:
Weighted-average Class A shares outstanding - basic (excluding non-vested restricted stock awards)	99,557,183		98,920,808
Dilutive effect of warrants	5,717,416		6,844,613
Dilutive effect of restricted stock awards and RSUs	143,967		75,252
Weighted-average shares outstanding - diluted	105,418,566		105,840,673

Net income per Class A share - basic	$	0.10	$	0.45

Net income per Class A share - dilutive	$	0.09	$	0.42


(In thousands)
Balance December 31, 2019	$	138,196
Exchange of Class B units for Class A shares	8,976
Remeasurement due to tax law change	610

Payments	(10,327)
Balance September 30, 2020	$	137,455