UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


			(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the three months ended
			~~June~~September 30, 2021
			OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 001-37540

HOSTESS BRANDS, INC.

(Exact name of registrant as specified in its charter)


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

(816) 701-4600

Registrant’s telephone number, including area code

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


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

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

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

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

Large accelerated filer

☒

Accelerated
filer

☐

Non‑accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Shares of Class A common stock outstanding - ~~130,093,017~~138,377,187 shares at ~~August 3,~~November 8, 2021

HOSTESS BRANDS, INC.

FORM 10-Q

For the Three Months Ended ~~June~~September 30, 2021

INDEX


		Page
PART I - Financial Information
Item 1.	~~Consolidated~~C ondensed C onsolidated Financial Statements
	~~Consolidated~~C ondensed C onsolidated Balance Sheets (Unaudited)	4
	~~Consolidated~~C ondensed C onsolidated Statements of Operations (Unaudited)	5
	~~Consolidated~~C ondensed C onsolidated Statements of Comprehensive ~~Incom~~e Income (Loss) (Unaudited)	6
	~~Consolidated~~C ondensed C onsolidated Statements of Stockholders’ Equity (Unaudited)	7
	~~Consolidated~~C ondensed C onsolidated Statements of Cash Flows (Unaudited)	89
	Notes to ~~Consolidated~~C ondensed C onsolidated Financial Statements (Unaudited)	910
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1718
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2122
Item 4.	Controls and Procedures	2122
PART II - Other Information
Item 1.	Legal Proceedings	2123
Item 1A.	Risk Factors	2223
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2223
Item 3.	Default Upon Senior Securities	2223
Item 4.	Mine Safety Disclosures	2223
Item 5.	Other Information	2223
Item 6.	Exhibits	2324

Cautionary Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains statements reflecting our views about our future performance that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. Statements that constitute forward-looking statements are generally identified through the inclusion of words such as “believes,” “expects,” “intends,” “estimates,” “projects,” “anticipates,” “will,” “plan,” “may,” “should,” or similar language. Statements addressing events and developments that we expect or anticipate will occur are also considered forward-looking statements. All forward-looking statements included herein are made only as of the date hereof. It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. Readers of this Quarterly Report are cautioned not to place undue reliance on any such forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Risks and uncertainties are identified under “Risk Factors” in our Annual Report on Form 10-K/A for the year ended December 31, 2020, as updated by subsequent filings. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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


		June 30,		December 31,			September 30,		December 31,
		2021		2020			2021		2020
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	218,807	$	173,034	Cash and cash equivalents	$	228,096	$	173,034
Accounts receivable, net	Accounts receivable, net	148,726		125,550		Accounts receivable, net	156,720		125,550
Inventories	Inventories	52,164		49,348		Inventories	49,309		49,348

Prepaids and other current assets	Prepaids and other current assets	13,150		21,614		Prepaids and other current assets	7,624		21,614
Total current assets	Total current assets	432,847		369,546		Total current assets	441,749		369,546
Property and equipment, net	Property and equipment, net	311,535		303,959		Property and equipment, net	318,492		303,959
Intangible assets, net	Intangible assets, net	1,956,147		1,967,903		Intangible assets, net	1,950,270		1,967,903
Goodwill	Goodwill	706,615		706,615		Goodwill	706,615		706,615
Other assets, net	Other assets, net	17,976		17,446		Other assets, net	17,861		17,446
Total assets	Total assets	$	3,425,120	$	3,365,469	Total assets	$	3,434,987	$	3,365,469

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:	Current liabilities:					Current liabilities:
Long-term debt and lease obligations payable within one year	Long-term debt and lease obligations payable within one year	$	14,103	$	13,811	Long-term debt and lease obligations payable within one year	$	14,171	$	13,811
Tax receivable agreement payments payable within one year	Tax receivable agreement payments payable within one year	10,000		11,800		Tax receivable agreement payments payable within one year	10,000		11,800
Accounts payable	Accounts payable	67,751		61,428		Accounts payable	71,139		61,428
Customer trade allowances	Customer trade allowances	47,620		46,779		Customer trade allowances	55,157		46,779
Warrant liabilities	Warrant liabilities	1,316		861		Warrant liabilities	1,249		861
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	44,514		55,715		Accrued expenses and other current liabilities	46,541		55,715

Total current liabilities	Total current liabilities	185,304		190,394		Total current liabilities	198,257		190,394
Long-term debt and lease obligations	Long-term debt and lease obligations	1,107,021		1,113,037		Long-term debt and lease obligations	1,103,327		1,113,037
Tax receivable agreement obligations	Tax receivable agreement obligations	137,274		144,744		Tax receivable agreement obligations	137,274		144,744
Deferred tax liability	Deferred tax liability	310,992		295,009		Deferred tax liability	315,544		295,009
Other long-term liabilities	Other long-term liabilities	1,585		1,560		Other long-term liabilities	1,595		1,560
Total liabilities	Total liabilities	1,742,176		1,744,744		Total liabilities	1,755,997		1,744,744

Commitments and Contingencies (Note 10)		0		0
Commitments and Contingencies (Note 9)						Commitments and Contingencies (Note 9)	0		0

Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 130,459,939 and 130,347,464 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		13		13
Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 132,741,603 shares issued and 129,170,487 shares outstanding as of September 30, 2021 and 130,791,908 shares issued and 130,347,464 shares outstanding as of December 31, 2020						Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 132,741,603 shares issued and 129,170,487 shares outstanding as of September 30, 2021 and 130,791,908 shares issued and 130,347,464 shares outstanding as of December 31, 2020	13		13

Additional paid in capital	Additional paid in capital	1,297,670		1,281,018		Additional paid in capital	1,300,329		1,281,018
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(4,728)		(10,407)		Accumulated other comprehensive loss	(4,161)		(10,407)
Retained earnings	Retained earnings	412,680		356,101		Retained earnings	438,872		356,101
Treasury stock	Treasury stock	(22,691)		(6,000)		Treasury stock	(56,063)		(6,000)
Stockholders’ equity	Stockholders’ equity	1,682,944		1,620,725		Stockholders’ equity	1,678,990		1,620,725

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	3,425,120	$	3,365,469	Total liabilities and stockholders’ equity	$	3,434,987	$	3,365,469

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020			September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020

Net revenue	Net revenue	$	291,485	$	256,226	$	556,906	$	499,711	Net revenue	$	287,969	$	260,855	$	844,875	$	760,566
Cost of goods sold	Cost of goods sold	186,379		166,852		356,281		331,000		Cost of goods sold	188,990		169,700		545,271		500,700
Gross profit	Gross profit	105,106		89,374		200,625		168,711		Gross profit	98,979		91,155		299,604		259,866
Operating costs and expenses:	Operating costs and expenses:									Operating costs and expenses:
Advertising and marketing	Advertising and marketing	13,144		11,158		24,925		21,221		Advertising and marketing	14,767		11,762		39,692		32,983
Selling expense	Selling expense	9,454		12,378		18,084		30,498		Selling expense	8,166		8,675		26,250		39,173
General and administrative	General and administrative	23,504		24,153		45,689		49,348		General and administrative	23,565		21,913		69,254		71,261
Amortization of customer relationships	Amortization of customer relationships	5,878		7,110		11,756		13,594		Amortization of customer relationships	5,877		6,739		17,633		20,333
Business combination transaction costs	Business combination transaction costs	0		0		0		4,282		Business combination transaction costs	—		—		—		4,282
Other operating expense	Other operating expense	0		0		0		27		Other operating expense	—		729		—		756
Total operating costs and expenses	Total operating costs and expenses	51,980		54,799		100,454		118,970		Total operating costs and expenses	52,375		49,818		152,829		168,788
Operating income	Operating income	53,126		34,575		100,171		49,741		Operating income	46,604		41,337		146,775		91,078
Other expense (income):	Other expense (income):									Other expense (income):
Interest expense, net	Interest expense, net	9,954		10,580		19,971		22,305		Interest expense, net	9,928		10,265		29,899		32,570

Change in fair value of warrant liabilities	Change in fair value of warrant liabilities	531		16,382		455		(62,718)		Change in fair value of warrant liabilities	228		(2,260)		683		(64,978)
Other expense	Other expense	1,067		1,132		1,430		1,685		Other expense	378		818		1,808		2,503
Total other expense (income)	Total other expense (income)	11,552		28,094		21,856		(38,728)		Total other expense (income)	10,534		8,823		32,390		(29,905)
Income before income taxes	Income before income taxes	41,574		6,481		78,315		88,469		Income before income taxes	36,070		32,514		114,385		120,983
Income tax expense	Income tax expense	11,727		5,493		21,736		5,741		Income tax expense	9,878		6,281		31,614		12,022
Net income	Net income	29,847		988		56,579		82,728		Net income	26,192		26,233		82,771		108,961
Less: Net income attributable to the non-controlling interest	Less: Net income attributable to the non-controlling interest	0		1,200		0		1,492		Less: Net income attributable to the non-controlling interest	—		1,368		—		2,860
Net income (loss) attributable to Class A stockholders		$	29,847	$	(212)	$	56,579	$	81,236
Net income attributable to Class A stockholders										Net income attributable to Class A stockholders	$	26,192	$	24,865	$	82,771	$	106,101

Earnings per Class A share:	Earnings per Class A share:									Earnings per Class A share:
Basic	Basic	$	0.23	$	0	$	0.43	$	0.66	Basic	$	0.20	$	0.20	$	0.63	$	0.86
Diluted	Diluted	$	0.21	$	0	$	0.41	$	0.15	Diluted	$	0.19	$	0.18	$	0.60	$	0.33
Weighted-average shares outstanding:	Weighted-average shares outstanding:									Weighted-average shares outstanding:
Basic	Basic	131,354,059		123,638,723		131,096,686		123,381,190		Basic	129,846,551		124,905,538		130,679,974		123,889,306
Diluted	Diluted	138,925,489		123,818,404		138,026,854		125,312,658		Diluted	138,058,866		127,586,881		138,036,371		126,079,472

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, amounts in thousands)


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020			September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020

Net income	Net income	$	29,847	$	988	$	56,579	$	82,728	Net income	$	26,192	$	26,233	$	82,771	$	108,961
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Unrealized gain (loss) on interest rate swap designated as a cash flow hedge		(1,810)		(3,006)		5,251		(15,795)
Unrealized gain (loss) on interest rate swap and foreign currency contracts designated as a cash flow hedge										Unrealized gain (loss) on interest rate swap and foreign currency contracts designated as a cash flow hedge	(192)		(1,197)		5,058		(16,992)
Reclassification into net income	Reclassification into net income	1,152		1,097		2,479		1,178		Reclassification into net income	962		1,352		3,441		2,530
Income tax benefit (expense)	Income tax benefit (expense)	175		481		(2,051)		3,650		Income tax benefit (expense)	(203)		(39)		(2,253)		3,611
Comprehensive income (loss)	Comprehensive income (loss)	29,364		(440)		62,258		71,761		Comprehensive income (loss)	26,759		26,349		89,017		98,110
Less: Comprehensive loss attributed to non-controlling interest	Less: Comprehensive loss attributed to non-controlling interest	0		1,096		0		659		Less: Comprehensive loss attributed to non-controlling interest	—		1,375		—		2,034
Comprehensive income (loss) attributed to Class A stockholders	Comprehensive income (loss) attributed to Class A stockholders	$	29,364	$	(1,536)	$	62,258	$	71,102	Comprehensive income (loss) attributed to Class A stockholders	$	26,759	$	24,974	$	89,017	$	96,076

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, amounts in thousands)


		Class A Voting Common Stock			Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total Stockholders’ Equity				Class A Voting Common Stock								Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)		Retained Earnings			Treasury Stock						Total Stockholders’ Equity
		Shares	Amount									Shares	Amount								Shares		Amount														Shares		Amount
Balance–December 31, 2020	Balance–December 31, 2020	130,347	$	13		$	1,281,018	$	(10,407)	$	356,101	444	$	(6,000)	$	1,620,725			Balance–December 31, 2020		130,347		$	13				$	1,281,018		$	(10,407)		$	356,101		444		$	(6,000)		$	1,620,725
Comprehensive income	Comprehensive income	—	—			—		6,162		26,732		—	—		32,894				Comprehensive income		—		—					—			6,162			26,732			—		—			32,894
Share-based compensation	Share-based compensation	146	—			2,723		—		—		—	—		2,723				Share-based compensation		146		—					2,723			—			—			—		—			2,723

Exercise of employee stock options	Exercise of employee stock options	20	—			262		—		—		—	—		262				Exercise of employee stock options		20		—					262			—			—			—		—			262
Exercise of public warrants	Exercise of public warrants	672	—			7,722		—		—		—	—		7,722				Exercise of public warrants		672		—					7,722			—			—			—		—			7,722
Payment of taxes for employee stock awards	Payment of taxes for employee stock awards	—	—			(843)		—		—		—	—		(843)				Payment of taxes for employee stock awards		—		—					(843)			—			—			—		—			(843)

Balance–March 31, 2021	Balance–March 31, 2021	131,185	$	13		$	1,290,882	$	(4,245)	$	382,833	444	$	(6,000)	$	1,663,483			Balance–March 31, 2021		131,185		$	13				$	1,290,882		$	(4,245)		$	382,833		444		$	(6,000)		$	1,663,483
Comprehensive income (loss)	Comprehensive income (loss)	—	—			—		(483)		29,847		—	—		29,364				Comprehensive income (loss)		—		—					—			(483)			29,847			—		—			29,364
Share-based compensation	Share-based compensation	22	—			1,640		—		—		—	—		1,640				Share-based compensation		22		—					1,640			—			—			—		—			1,640

Exercise of employee stock options	Exercise of employee stock options	220	—			3,135		—		—		—	—		3,135				Exercise of employee stock options		220		—					3,135			—			—			—		—			3,135
Exercise of public warrants	Exercise of public warrants	209	—			2,405		—		—		—	—		2,405				Exercise of public warrants		209		—					2,405			—			—			—		—			2,405
Payment of taxes for employee stock awards	Payment of taxes for employee stock awards	—	—			(392)		—		—		—	—		(392)				Payment of taxes for employee stock awards		—		—					(392)			—			—			—		—			(392)
Repurchase of common stock	Repurchase of common stock	(1,176)	—			—		—		—		1,176	(16,691)		(16,691)				Repurchase of common stock		(1,176)		—					—			—			—			1,176		(16,691)			(16,691)

Balance–June 30, 2021	Balance–June 30, 2021	130,460	$	13		$	1,297,670	$	(4,728)	$	412,680	1,620	$	(22,691)	$	1,682,944			Balance–June 30, 2021		130,460		$	13				$	1,297,670		$	(4,728)		$	412,680		1,620		$	(22,691)		$	1,682,944
Comprehensive income (loss)																		Comprehensive income (loss)		—		—					—			567			26,192			—		—			26,759
Share-based compensation																		Share-based compensation		—		—					2,642			—			—			—		—			2,642

Exercise of employee stock options																		Exercise of employee stock options		19		—					255			—			—			—		—			255
Exercise of public warrants, net of fees of $500																		Exercise of public warrants, net of fees of $500		643		—					(494)			—			—			—		—			(494)
Payment of taxes for employee stock awards																		Payment of taxes for employee stock awards		—		—					(42)			—			—			—		—			(42)
Reclassification of warrants																		Reclassification of warrants		—		—					298			—			—			—		—			298

Repurchase of common stock																		Repurchase of common stock		(1,952)		—					—			—			—			1,952		(33,372)			(33,372)

Balance–September 30, 2021																		Balance–September 30, 2021		129,170		$	13				$	1,300,329		$	(4,161)		$	438,872		3,572		$	(56,063)		$	1,678,990

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 122,107 $ 12 8,411 $ 1 $ 1,123,805 $ (756) $ 251,425 $ 1,374,487 $ 94,432
Comprehensive income (loss) — — — — — (8,810) 81,448 72,638 (437)
Share-based compensation, net of income taxes of $103 106 — — — 2,180 — — 2,180 —
Exchanges 969 — (969) — 11,819 (17) — 11,802 (11,802)
Distributions — — — — — — — — (1,613)
Exercise of employee stock options 2 — — — 153 — — 153 —
Payment of taxes for employee stock awards — — — — (1,004) — — (1,004) —
Exercise of public warrants 1 — — — 2 — — 2 —
Tax receivable agreement arising from exchanges, net of income taxes of $1,341 — — — — (1,942) — — (1,942) —
Balance–March 31, 2020 123,185 $ 12 7,442 $ 1 $ 1,135,013 $ (9,583) $ 332,873 $ 1,458,316 $ 80,580
Comprehensive income (loss) — — — — — (1,324) (212) (1,536) 1,096
Share-based compensation, net of income taxes of $496 46 — — — 1,929 — — 1,929 —
Exchanges 1,140 — (1,140) — 13,803 (127) — 13,676 (13,676)
Distributions — — — — — — — — (365)
Exercise of employee stock options and warrants 37 — — — 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 $ 12 6,302 $ 1 $ 1,148,565 $ (11,034) $ 332,661 $ 1,470,205 $ 67,635


	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	122,107	$	12	8,411	$	1	$	1,123,805	$	(756)	$	251,425	$	1,374,487	$	94,432
Comprehensive income (loss)	—	—		—	—		—		(8,810)		81,448		72,638		(437)
Share-based compensation, including income taxes of $103	106	—		—	—		2,180		—		—		2,180		—
Exchanges	969	—		(969)	—		11,819		(17)		—		11,802		(11,802)
Distributions	—	—		—	—		—		—		—		—		(1,613)
Exercise of employee stock options	2	—		—	—		153		—		—		153		—
Payment of taxes for employee stock awards	—	—		—	—		(1,004)		—		—		(1,004)		—
Exercise of public warrants	1	—		—	—		2		—		—		2		—
Tax receivable agreement arising from exchanges, net of income taxes of $1,341	—	—		—	—		(1,942)		—		—		(1,942)		—
Balance–March 31, 2020	123,185	$	12	7,442	$	1	$	1,135,013	$	(9,583)	$	332,873	$	1,458,316	$	80,580
Comprehensive income (loss)	—	—		—	—		—		(1,324)		(212)		(1,536)		1,096
Share-based compensation, net of income taxes of $496	46	—		—	—		1,929		—		—		1,929		—
Exchanges	1,140	—		(1,140)	—		13,803		(127)		—		13,676		(13,676)
Distributions	—	—		—	—		—		—		—		—		(365)
Exercise of employee stock options and warrants	37	—		—	—		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	$	12	6,302	$	1	$	1,148,565	$	(11,034)	$	332,661	$	1,470,205	$	67,635
Comprehensive income (loss)	—	—		—	—		—		109		24,865		24,974		1,375
Share-based compensation, net of income taxes of $361	60	—		—	—		1,720		—		—		1,720		—
Distributions	—	—		—	—		—		—		—		—		(1,445)
Exercise of employee stock options and warrants	1	—		—	—		2		—		—		2		—
Exchanges	680	—		(680)	—		8,244		(79)		—		8,165		(8,165)
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	$	12	5,622	$	1	$	1,156,753	$	(11,004)	$	357,526	$	1,503,288	$	59,400

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)


				Six Months Ended								Nine Months Ended
				June 30, 2021		June 30, 2020						September 30, 2021			September 30, 2020

Operating activities	Operating activities								Operating activities
		Net income		$	56,579	$	82,728			Net income		$	82,771		$	108,961
		Depreciation and amortization		25,223		26,477				Depreciation and amortization		37,992			40,999

		Debt discount amortization		621		664				Debt discount amortization		931			977
		Change in fair value of warrant liabilities		455		(62,718)				Change in fair value of warrant liabilities		683			(64,978)
								Tax receivable agreement remeasurement			—			610

		Unrealized foreign exchange losses		73		996				Unrealized foreign exchange losses		(177)			1,392
		Non-cash lease expense		659		641				Non-cash lease expense		971			358
		Share-based compensation		4,363		4,503				Share-based compensation		7,005			6,583

		Deferred taxes		13,932		3,973				Deferred taxes		18,280			8,575
		Loss on sale of assets		0		128				Loss on sale of assets		—			317
		Change in operating assets and liabilities, net of acquisitions and dispositions:								Change in operating assets and liabilities, net of acquisitions and dispositions:
			Accounts receivable	(23,194)		(11,320)					Accounts receivable	(31,240)			(7,106)
			Inventories	(2,816)		4,135					Inventories	39			7,462
			Prepaids and other current assets	8,844		(1,091)					Prepaids and other current assets	13,991			(4,334)

			Accounts payable and accrued expenses	1,735		3,323					Accounts payable and accrued expenses	7,949			2,186
			Customer trade allowances	827		8,242					Customer trade allowances	8,441			5,989

		Net cash provided by operating activities		87,301		60,681				Net cash provided by operating activities		147,636			107,991

Investing activities	Investing activities								Investing activities
		Purchases of property and equipment		(20,051)		(23,376)				Purchases of property and equipment		(33,360)			(33,382)
		Acquisition of business, net of cash acquired		0		(318,427)				Acquisition of business, net of cash acquired		—			(316,013)

		Acquisition and development of software assets		(2,129)		(3,402)				Acquisition and development of software assets		(3,330)			(4,994)
		Net cash used in investing activities		(22,180)		(345,205)				Net cash used in investing activities		(36,690)			(354,389)

Financing activities	Financing activities								Financing activities
		Repayments of long-term debt and lease obligations		(5,584)		(5,584)				Repayments of long-term debt and lease obligations		(8,375)			(8,375)

		Proceeds from long-term debt origination, net of fees paid		0		136,888				Proceeds from long-term debt origination, net of fees paid		—			136,888
		Distributions to non-controlling interest		0		(1,977)				Distributions to non-controlling interest		—			(3,423)
		Repurchase of common stock		(16,691)		0				Repurchase of common stock		(50,063)			—
		Tax payments related to issuance of shares to employees		(1,235)		(1,036)				Tax payments related to issuance of shares to employees		(1,277)			(1,383)
		Cash received from exercise of options and warrants		13,524		563				Cash received from exercise of options and warrants, net of fees		13,285			565
		Payments on tax receivable agreement		(9,270)		(1,279)				Payments on tax receivable agreement		(9,270)			(10,327)

		Net cash provided by (used in) financing activities		(19,256)		127,575				Net cash provided by (used in) financing activities		(55,700)			113,945
		Effect of exchange rate changes on cash and cash equivalents		(92)		(359)				Effect of exchange rate changes on cash and cash equivalents		(184)			(337)
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents			45,773		(157,308)			Net increase (decrease) in cash and cash equivalents			55,062			(132,790)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period			173,034		285,087			Cash and cash equivalents at beginning of period			173,034			285,087
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period			$	218,807	$	127,779		Cash and cash equivalents at end of period			$	228,096		$	152,297


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	$	19,451	$	21,885		Interest	$	29,019	$	31,883
		Net taxes refunded	$	(1,506)	$	(577)		Net taxes paid	$	1,568	$	5,403
Supplemental disclosure of non-cash investing:	Supplemental disclosure of non-cash investing:						Supplemental disclosure of non-cash investing:
		Accrued capital expenditures	$	5,046	$	1,542		Accrued capital expenditures	$	5,603	$	3,124

See accompanying notes to the unaudited condensed consolidated financial statements.

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Description of Business

Hostess Brands, Inc. is a Delaware corporation headquartered in Lenexa, Kansas. The condensed consolidated financial statements include the accounts of Hostess Brands, Inc. and its subsidiaries (collectively, the “Company”). The Company is a leading ~~packaged food~~sweet snacks company focused on developing, manufacturing, marketing, selling and distributing ~~snack products,~~snacks in North America under the Hostess® and Voortman® brands. The Company produces a variety of new and classic treats including ~~sweet baked goods,~~iconic Hostess® Donettes®, Twinkies®, CupCakes, Ding Dongs® and Zingers® as well as a variety of Voortman® cookies and ~~wafers in North America. The Hostess® brand dates back to 1919 when Hostess® CupCakes were introduced to the public, followed by Twinkies® in 1930.~~wafers.

Basis of Presentation

The Company’s operations are conducted through wholly-owned operating ~~subsidiaries .~~subsidiaries. The condensed consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The results of operations for any quarter or a partial fiscal year period are not necessarily indicative of the results to be expected for other periods or the full fiscal year. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned ~~majority-owned or controlled subsidiaries, collectively referred to as the Company.~~subsidiaries. For the periods presented, the Company has 1 reportable segment.

Adoption of New Accounting Standards

In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”. This update provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. This update is effective for fiscal years beginning after December 15, 2021. The Company is currently evaluating the effect of this ASU on the Company’s condensed consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. ASU No. 2020-04 is elective and effective as of March 12, 2020 through December 31, 2022. Once elected, this ASU must be applied prospectively for all eligible contract modifications. The Company will adopt Topic 848 when its relevant contracts are modified upon transition to alternative reference rates. The Company does not expect the adoption of Topic 848 to have a material impact on its condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes (Topic 740)”. This ASU simplifies the accounting for certain income tax related items, including intraperiod tax allocations, deferred taxes related to foreign subsidiaries and step-up in tax basis of goodwill. The ASU is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. The Company adopted the standard effective January 1, 2021. Adoption of Topic 740 did not have a material impact on the Company’s condensed consolidated financial statements.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its ~~majority-owned or controlled subsidiaries (including those for which the Company is the primary beneficiary of a variable interest entity).~~wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

910

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and for the reported amounts of revenues and expenses during the reporting period. Management utilizes estimates, including, but not limited to, valuation and useful lives of tangible and intangible assets, valuation of expected future payments under the tax receivable agreement, and reserves for trade and promotional allowances. Actual results could differ from these estimates.

Accounts Receivable

Accounts receivable represents amounts invoiced to customers for performance obligations which have been satisfied. As of ~~June~~September 30, 2021 and December 31, 2020, the Company’s accounts receivable were ~~$148.7~~$156.7 million and $125.6 million, respectively, which have been reduced by an allowance for damages occurring during shipment, quality claims and doubtful accounts in the amount of $2.6 million and $3.5 million ~~at both June~~for the periods ending September 30, 2021 and December 31, ~~2020.~~2020, respectively.

Inventories

Inventories are stated at the lower of cost or net-realizable value on a first-in first-out basis. Abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) are expensed in the period they are incurred.

The components of inventories are as follows:


(In thousands)	(In thousands)	June 30, 2021		December 31, 2020		(In thousands)	September 30, 2021		December 31, 2020

Ingredients and packaging	Ingredients and packaging	$	24,345	$	22,965	Ingredients and packaging	$	22,785	$	22,965
Finished goods	Finished goods	24,012		23,583		Finished goods	23,798		23,583
Inventory in transit to customers	Inventory in transit to customers	3,807		2,800		Inventory in transit to customers	2,726		2,800
		$	52,164	$	49,348		$	49,309	$	49,348

Software Costs

Capitalized software is included in “other assets, net” in the condensed consolidated balance sheets in the amount of ~~$15.0~~$15.1 million and $14.7 million ~~at June~~as of September 30, 2021 and December 31, 2020, respectively. Capitalized software costs are amortized over their estimated useful life of five years commencing when such assets are ready for their intended use. Software amortization expense included in general and administrative operating expense was $1.0 million and ~~$1.9~~$2.9 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~$1.3~~$1.4 million and ~~$2.6~~$4.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively.

Disaggregation of Revenue

Net revenue consists of sales of packaged food products in the United States, primarily within the Sweet Baked Goods category. The Company also sells products in the United States and Canada within the Cookies category.

1011

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables disaggregate revenue by geographical market and category.


		Three Months Ended June 30, 2021				Three Months Ended September 30, 2021
(In thousands)	(In thousands)	Sweet Baked Goods		Cookies			Total		(In thousands)	Sweet Baked Goods		Cookies		Total
United States	United States	$	262,491	$	24,407		$	286,898	United States	$	258,818	$	25,185	$	284,003
Canada	Canada	0		4,587			4,587		Canada	—		3,966		3,966
		$	262,491	$	28,994		$	291,485		$	258,818	$	29,151	$	287,969


		Three Months Ended June 30, 2020				Three Months Ended September 30, 2020
(In thousands)	(In thousands)	Sweet Baked Goods		Cookies			Total		(In thousands)	Sweet Baked Goods		Cookies		Total
United States	United States	$	232,620	$	20,459		$	253,079	United States	$	234,103	$	22,328	$	256,431
Canada	Canada	0		3,147			3,147		Canada	—		4,424		4,424
		$	232,620	$	23,606		$	256,226		$	234,103	$	26,752	$	260,855


		Six Months Ended June 30, 2021							Nine Months Ended September 30, 2021
(In thousands)	(In thousands)	Sweet Baked Goods		Cookies		Total		(In thousands)	Sweet Baked Goods		Cookies		Total
United States	United States	$	500,191	$	48,210	$	548,401	United States	$	759,010	$	73,394	$	832,404
Canada	Canada	0		8,505		8,505		Canada	—		12,471		12,471
		$	500,191	$	56,715	$	556,906		$	759,010	$	85,865	$	844,875


		Six Months Ended June 30, 2020							Nine Months Ended September 30, 2020
(In thousands)	(In thousands)	Sweet Baked Goods		Cookies		Total		(In thousands)	Sweet Baked Goods		Cookies		Total
United States	United States	$	458,982	$	33,766	$	492,748	United States	$	693,085	$	56,094	$	749,179
Canada	Canada	0		6,963		6,963		Canada	—		11,387		11,387
		$	458,982	$	40,729	$	499,711		$	693,085	$	67,481	$	760,566

Concentrations

For the three months ended ~~June~~September 30, 2021 and 2020, the Company has one customer (together with its affiliates) that accounted for ~~18.1%~~18.0% and ~~22.3%~~19.7% of total net revenue, and for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, ~~19.3%~~18.8% and ~~21.7%~~21.0% of total net revenue, respectively.

Foreign Currency Remeasurement

Certain Voortman Cookies Limited (“Voortman”) sales and costs are denominated in the Canadian dollar (“CAD”). CAD transactions have been remeasured into US dollars (“USD”) on the condensed consolidated statement of operations using the average exchange rate for the reporting period. Balances expected to be settled in CAD have been remeasured into USD on the condensed consolidated balance sheet using the exchange rate at the end of the period. During both the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company recognized a gain ~~and loss, respectively,~~ on remeasurement of ~~less than $0.1~~$0.2 million, which is reported within other expense on the condensed consolidated statement of operations. During ~~both~~ the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company recognized ~~a loss~~losses on remeasurement of ~~$0.7~~$0.4 million ~~which is~~and $1.1 million, respectively, reported within other expense on the condensed consolidated statement of operations.

1112

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Property and Equipment

Property and equipment consists of the following:


(In thousands)	(In thousands)	June 30, 2021		December 31, 2020		(In thousands)	September 30, 2021		December 31, 2020

Land and buildings	Land and buildings	$	62,737	$	59,774	Land and buildings	$	64,663	$	59,774
Right of use assets, operating	Right of use assets, operating	32,192		31,354		Right of use assets, operating	32,192		31,354
Machinery and equipment	Machinery and equipment	271,196		255,821		Machinery and equipment	272,971		255,821
Construction in progress	Construction in progress	23,906		25,041		Construction in progress	34,071		25,041
		390,031		371,990			403,897		371,990
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(78,496)		(68,031)		Less accumulated depreciation and amortization	(85,405)		(68,031)
		$	311,535	$	303,959		$	318,492	$	303,959

Depreciation expense was ~~$5.7~~$5.9 million and ~~$11.5~~$17.4 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~$5.2~~$6.3 million and ~~$10.2~~$16.6 million for the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively.

3. Accrued Expenses and Other Current Liabilities

Included in accrued expenses and other current liabilities are the following:


(In thousands)	(In thousands)	June 30, 2021		December 31, 2020		(In thousands)	September 30, 2021		December 31, 2020

Incentive compensation						Incentive compensation	$	14,239	$	16,199
Payroll, vacation and other compensation	Payroll, vacation and other compensation	$	11,659	$	9,886	Payroll, vacation and other compensation	10,447		9,886
Interest rate swap contract		6,253		13,694
Incentive compensation		9,860		16,199
Interest rate swap and foreign currency contracts						Interest rate swap and foreign currency contracts	5,229		13,694
Accrued interest	Accrued interest	4,707		4,815		Accrued interest	4,768		4,815
Other	Other	12,035		11,121		Other	11,858		11,121

		$	44,514	$	55,715		$	46,541	$	55,715

4. Debt and Lease Obligations

A summary of the carrying value of the debt and lease obligations are as follows:


(In thousands)	(In thousands)	June 30, 2021		December 31, 2020		(In thousands)	September 30, 2021		December 31, 2020

Term Loan (3.0% as of June 30, 2021)
Term Loan (3.0% as of September 30, 2021)						Term Loan (3.0% as of September 30, 2021)
Principal	Principal	$	1,097,180	$	1,102,763	Principal	$	1,094,388	$	1,102,763
Unamortized debt premium and issuance costs	Unamortized debt premium and issuance costs	(4,296)		(4,917)		Unamortized debt premium and issuance costs	(3,987)		(4,917)
		1,092,884		1,097,846			1,090,401		1,097,846
Lease obligations	Lease obligations	28,240		29,002		Lease obligations	27,097		29,002
Total debt and lease obligations	Total debt and lease obligations	1,121,124		1,126,848		Total debt and lease obligations	1,117,498		1,126,848
Less: Current portion of long term debt and lease obligations	Less: Current portion of long term debt and lease obligations	(14,103)		(13,811)		Less: Current portion of long term debt and lease obligations	(14,171)		(13,811)
Long-term portion	Long-term portion	$	1,107,021	$	1,113,037	Long-term portion	$	1,103,327	$	1,113,037

1213

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At ~~June~~September 30, 2021, minimum debt repayments under the term loan are due as follows:


(In thousands)	(In thousands)			(In thousands)
2021	2021	$	5,584	2021	$	2,792
2022	2022	11,167		2022	11,167
2023	2023	11,167		2023	11,167
2024	2024	11,167		2024	11,167
2025	2025	1,058,095		2025	1,058,095

Leases

The Company has entered into operating leases for certain properties which expire at various times through 2026. The Company determines if an arrangement is a lease at inception.

At ~~June~~September 30, 2021 and 2020, right of use assets related to operating leases are included in property and equipment, net on the condensed consolidated balance sheet (see Note 2. Property and Equipment). As of ~~June~~September 30, 2021 and 2020, the Company has no outstanding financing leases. Lease liabilities for operating leases are included in the current and non-current portions of long-term debt and lease obligations on the condensed consolidated balance sheet.

The table below shows the composition of lease expense:


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
(In thousands)	(In thousands)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020		(In thousands)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020

Operating lease expense	Operating lease expense	$	1,771	$	1,269	$	3,424	$	3,064	Operating lease expense	$	1,504	$	1,209	$	4,928	$	4,273
Short-term lease expense	Short-term lease expense	379		544		582		1,558		Short-term lease expense	501		456		1,083		2,014
Variable lease expense	Variable lease expense	385		467		742		1,021		Variable lease expense	367		445		1,109		1,466
		$	2,535	$	2,280	$	4,748	$	5,643		$	2,372	$	2,110	$	7,120	$	7,753

5. Derivative Instruments

Warrants

As of ~~June~~September 30, 2021 and December 31, 2020, there were ~~52,176,000~~40,866,087 and 53,936,776 public warrants outstanding, ~~respectively,~~and 419,011 and 541,658 private placement warrants ~~outstanding.~~outstanding, respectively. Each warrant entitles its holder to purchase one-half of one share of Class A common stock at an exercise price of $5.75 per half share, to be exercised only for a whole number of shares of Class A common stock. The warrants expire on November 4, 2021, or earlier upon redemption or liquidation. The Company may call the outstanding public warrants for redemption at a price of $0.01 per warrant, if the last sale price of the Company’s common stock equals or exceeds $24.00 per share for any 20 trading days within a 30-trading day period ending on the third business day before the Company sends the notice of redemption to the warrant holders. The private placement warrants, however, are nonredeemable so long as they are held by Gores Sponsor, LLC or its permitted transferees. The potential resale of the private placement warrants, which would result in a conversion to public warrants, has been registered with the SEC. When sold to the public, the private placement warrants will become public warrants.

In July 2021, the agreement governing the Company’s public and private placement warrants was amended. Subsequent to the amendment, the exercise price for all outstanding warrants is payable through a “cashless exercise” with a premium of $0.25 added to the valuation price of ~~the shares~~each share for purposes of calculating the number of shares issuable upon exercise of the warrants.

1314

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three months ended September 30, 2021, 4,389,288 warrants were exercised on a cashless basis, resulting in the issuance of 642,199 shares of the Company’s Class A common stock, under the terms of the amended warrant agreement.

From October 1, 2021 through the expiration of the warrants on November 4, 2021, an additional 47.2 million warrants were exercised on a cashless basis, resulting in the issuance of 9.2 million shares of the Company’s Class A common stock.

Interest Rate Swap and Foreign Currency Contracts

The Company entered into interest rate swap contracts with counter parties to make a series of payments based on fixed rates ranging from 1.11% to 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 the ~~June~~September 30, 2021 notional amount of $600 million reducing by $100 million each year, until $500 million remains outstanding through August 2025. The Company entered into these transactions to reduce its exposure to changes in cash flows associated with its variable rate debt and has designated these derivatives as cash flow hedges. At ~~June~~September 30, 2021, the ~~effective fixed~~ interest ~~rate~~ on the ~~long-term~~Company’s variable rate debt hedged by these contracts ~~ranged~~is effectively fixed at rates ranging from 3.36% to 4.03%.

To reduce the effect of fluctuations in CAD denominated expenses relative to their U.S. dollar equivalents originating from its Canadian operations, the Company entered into CAD purchase contracts. The contracts provide for the Company to sell a total of ~~$11.1~~$13.8 million USD for ~~$13.9~~$17.3 million CAD at varying defined settlement dates through ~~June~~September 2022. The Company has designated these contracts as cash flow hedges.

In connection with the agreement to purchase Voortman, the Company entered into a deal-contingent foreign currency contract to hedge the $440 million CAD forecasted purchase price and a portion of the subsequent expected conversion costs. The contract was settled in cash following the completion of the purchase on January 3, 2020.

A summary of the fair value of interest rate and foreign currency instruments is as follows:


(In thousands)	(In thousands)		June 30, 2021		December 31, 2020		(In thousands)		September 30, 2021		December 31, 2020
Asset derivatives		Location
Foreign currency contracts (2)		Other current assets	$	288	$	0

Liability derivatives	Liability derivatives	Location					Liability derivatives	Location
Interest rate swap contracts (1)	Interest rate swap contracts (1)	Accrued expenses	$	6,253	$	13,688	Interest rate swap contracts (1)	Accrued expenses	$	4,973	$	13,688
Foreign currency contracts (2)	Foreign currency contracts (2)	Accrued expenses	0		6		Foreign currency contracts (2)	Accrued expenses	256		6
			$	6,253	$	13,694			$	5,229	$	13,694

(1) The fair values of these contracts are measured ~~on a recurring basis~~at each reporting period by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2).

(2) The fair values of foreign currency contracts are measured ~~on a recurring basis~~at each reporting period by comparison to available market information on similar contracts (Level 2).

A summary of the gains and losses related to interest rate and foreign currency instruments in the condensed consolidated statement of operations is as follows:


			Three Months Ended				Six Months Ended						Three Months Ended				Nine Months Ended
(In thousands)	(In thousands)		June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020		(In thousands)		September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Gain on derivative contracts designated as cash flow hedges		Location
Loss on derivative contracts designated as cash flow hedges											Loss on derivative contracts designated as cash flow hedges	Location
Interest rate swap contracts	Interest rate swap contracts	Interest expense, net	$	1,152	$	1,097	$	2,479	$	1,178	Interest rate swap contracts	Interest expense, net	$	962	$	1,352	$	3,441	$	2,530

Loss on other derivative contracts	Loss on other derivative contracts	Location									Loss on other derivative contracts	Location

Foreign currency contracts	Foreign currency contracts	Other expense	$	0	$	0	$	0	$	(255)	Foreign currency contracts	Other expense	$	—	$	—	$	—	$	255

1415

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Earnings per Share

Basic earnings per share is calculated by dividing net income attributable to the Company’s Class A stockholders for the period by the weighted average number of shares of Class A common stock outstanding for the period excluding non-vested share-based awards. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all applicable potentially dilutive share-based awards including RSUs and stock options as well as public and private placement warrants.

Below are basic and diluted net income per share:


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020			September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Numerator:	Numerator:									Numerator:
Net income (loss) attributable to Class A stockholders (in thousands) - basic	Net income (loss) attributable to Class A stockholders (in thousands) - basic	$	29,847	$	(212)	$	56,579	$	81,236	Net income (loss) attributable to Class A stockholders (in thousands) - basic	$	26,192	$	24,865	$	82,771	$	106,101
Less: Change in fair value of warrant liabilities	Less: Change in fair value of warrant liabilities	—		—		—		(62,718)		Less: Change in fair value of warrant liabilities	—		(2,260)		—		(64,978)
Numerator - diluted	Numerator - diluted	29,847		(212)		56,579		18,518		Numerator - diluted	26,192		22,605		82,771		41,123
Denominator:	Denominator:									Denominator:
Weighted-average Class A shares outstanding - basic	Weighted-average Class A shares outstanding - basic	131,354,059		123,638,723		131,096,686		123,381,190		Weighted-average Class A shares outstanding - basic	129,846,551		124,905,538		130,679,974		123,889,306
Dilutive effect of warrants	Dilutive effect of warrants	6,867,024		0		6,319,296		1,744,314		Dilutive effect of warrants	7,462,176		2,394,619		6,700,256		1,938,355
Dilutive effect of RSUs	Dilutive effect of RSUs	555,050		179,681		486,250		187,154		Dilutive effect of RSUs	564,237		286,724		515,334		251,811
Dilutive effect of stock options	Dilutive effect of stock options	149,356		0		124,622		0		Dilutive effect of stock options	185,902		—		140,807		—
Weighted-average shares outstanding - diluted	Weighted-average shares outstanding - diluted	138,925,489		123,818,404		138,026,854		125,312,658		Weighted-average shares outstanding - diluted	138,058,866		127,586,881		138,036,371		126,079,472

Net income per Class A share - basic	Net income per Class A share - basic	$	0.23	$	0	$	0.43	$	0.66	Net income per Class A share - basic	$	0.20	$	0.20	$	0.63	$	0.86

Net income per Class A share - diluted	Net income per Class A share - diluted	$	0.21	$	0	$	0.41	$	0.15	Net income per Class A share - diluted	$	0.19	$	0.18	$	0.60	$	0.33

For warrants that are liability-classified, during periods when the impact would be dilutive, the Company assumes share settlement of the instruments as of the beginning of the reporting period and adjusts the numerator to remove the change in fair value of the warrant liability and adjusts the denominator to include the dilutive shares calculated using the treasury stock method. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, the diluted weighted-average shares outstanding includes the dilutive impact of equity-classified warrants.

Stock options that were excluded from the computation of diluted weighted average shares, because their effect was anti-dilutive, for the three and ~~six~~nine months ended ~~June~~September 30, 2021, were ~~31,051~~1,841 and ~~71,240~~36,451 compared to ~~711,870~~490,557 and ~~600,919~~571,230 for the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively.

7. Income Taxes

The Company is subject to U.S. federal, state and local income taxes as well as Canadian income tax on its controlled foreign subsidiary. The income tax provision is determined based on the estimated full year effective tax rate, adjusted for infrequent or unusual items, which are recognized on a discrete basis in the period they occur. The Company’s estimated annual effective tax rate is 27.5% prior to taking into account any discrete items.

~~The effective tax rate was 28.2% and 84.8% for the three months ended June~~ As of September 30, 2021, and December 31, 2020, ~~respectively. The effective tax rates for the respective periods~~income taxes receivable were ~~impacted by non-taxable losses from the change in fair value of warrant liabilities of $0.5~~$1.4 million and ~~$16.4~~$12.3 million, respectively. The effective rate for the period ended June 30, 2021 was also impacted by the removal of the non-controlling interest. The effective tax rate was 27.8% and 6.5% for the six months ended June 30, 2021 and 2020, respectively. The effective tax rate for the respective periods were impacted by non-taxable losses of $0.5 million and non-taxable gains of $62.7 million from the change in fair value

1516

HOSTESS BRANDS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~of warrant liabilities. As of June 30, 2021, and December 31, 2020, income taxes receivable were $3.5 million and 12.3 million, respectively.~~

8. Tax Receivable Agreement Obligations

The following table summarizes activity related to the ~~Tax Receivable Agreement~~tax receivable agreement for the ~~six~~nine months ended ~~June~~September 30, 2021:


(In thousands)
Balance December 31, 2020	$	156,544



Payments	(9,270)
Balance ~~June~~September 30, 2021	$	147,274

As of ~~June~~September 30, 2021 the future expected payments under the tax receivable agreement are as follows:


(In thousands)
2021	$	2,400
2022	9,000
2023	9,700
2024	9,900
2025	9,800
Thereafter	106,474

9. Commitments and Contingencies

Liabilities related to legal proceedings are recorded when it is probable that a liability has been incurred and the associated amount can be reasonably estimated. Where the estimated amount of loss is within a range of amounts and no amount within the range is a better estimate than any other amount, the minimum amount is accrued. As additional information becomes available, potential liabilities are reassessed and the estimates revised, if necessary. Any accrued liabilities are subject to change in the future based on new developments in each matter, or changes in circumstances, which could have a material effect on the Company’s financial condition and results of operations.

1617

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 condensed 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/A for the year ended December 31, 2020. The terms “our”, “we,” “us,” and “Company” as used herein refer to Hostess Brands, Inc. and its consolidated subsidiaries.

Overview

We are a leading North America ~~packaged food~~sweet snacks company which produces sweet baked goods (“SBG”), as well as cookie and wafer ~~products.~~products under the Hostess® and Voortman® brands. Our direct-to-warehouse (“DTW”) product distribution system allows us to deliver to our customers’ warehouses. Our customers in turn distribute to the retail stores.

Hostess® is the second leading brand by market share within the SBG category, according to Nielsen U.S. total universe. For the 13-week period ended ~~July 3,~~October 2, 2021, our branded SBG ~~products’~~ (which ~~include~~includes Hostess®, Dolly Madison®, Cloverhill® and Big Texas®) market share was ~~21.8%~~21.6% per Nielsen’s U.S. SBG category data.

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. The addition of the Voortman® brand has created growth opportunities provided by a more diverse portfolio of brands and products. Our condensed consolidated statement of operations ~~includes~~reflects the operation of these assets from January 3, 2020 through ~~June~~September 30, 2021.

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 first two quarters of 2020, as consumers prepared for extended stays at home, we experienced an increase in consumption, particularly in our multi-pack products sold through grocery and mass retailer channels. Conversely, during that same time frame, we experienced lower consumption of single-serve products, which are often consumed away from home. During ~~the first two quarters of~~ 2021, we continued to experience strong demand in our multi-pack products, as well as an increase in our immediate consumption single-serve business as mobility ~~increased and certain facets of the economy reopened.~~increased. However, we cannot predict if these trends will sustain or reverse in future periods.

Since the start of the pandemic, our internal task force has monitored the rapidly evolving situation and implemented risk mitigation actions as deemed necessary. As a result, we have not experienced ~~minimal disruption~~significant disruptions to our supply chain and distribution ~~network, including the supply of our ingredients, packaging and other sourced materials.~~network. However, it is possible that significant disruptions could still ~~occur if~~occur. Supply chain constraints seen elsewhere in the ~~COVID-19 pandemic continues~~global economy due to availability of labor, transportation and raw materials could impact ~~markets around the world.~~our ability to source ingredients and packaging for our production facilities or our ability to ship products to our customers. We continue to work closely with all of our vendors, distributors, contract manufacturers, ~~distributors~~ and other external business partners to maintain availability of our products for our ~~customer~~customers and consumers.

~~In addition, we~~We have experienced no significant disruptions to our production and distribution facilities since the start of the pandemic. To protect our employees and ensure continuity of operations, we have implemented additional security and sanitation measures in all of our facilities. We continue to follow protocols that are consistent with, or ~~more stringent than industry best practices and~~ahead of CDC guidelines. As many of our non-production team members, including sales, marketing and corporate employees, return to the office after working remotely for many months, we continue to monitor employee health and safety and adhere to evolving CDC guidelines while supporting our ability to bring products to consumers.

1718

~~As a result of~~Despite the ~~continuing~~ distribution of the COVID-19 vaccines, ~~various federal state and local governments have begun to ease the movement restrictions and initiatives while continuing to require certain social distancing protocols. However,~~ uncertainty continues to exist regarding the ~~severity~~pandemic and its impact on our business, including uncertainty related to, among other things, the duration of the pandemic, ~~treatment developments~~vaccine deployment and ~~deployment,~~acceptance, new variants of COVID-19 and vaccine effectiveness for new variants, and the effect of actions ~~taken or to be taken~~ to contain COVID-19 or treat its effect, ~~among others.~~including the anticipated COVID-19 Vaccine and Testing Emergency Temporary Standard to be issued by Occupational Safety and Health Administration (OSHA).

Under the provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, we were able to defer the payment of $5.6 million of 2020 employer payroll taxes. ~~These payments~~Payments of $2.8 million continue to be deferred as of ~~June~~September 30, 2021. Apart from this deferral and their impact on the general economy, including the labor market and consumer demand, neither the CARES Act, the American Rescue Plan enacted in the first quarter of 2021, nor any other government program intended to address COVID-19 had any material impact on our condensed consolidated financial statements for the three and ~~six~~nine months ended ~~June~~September 30, 2021 or 2020. We continue to monitor any effects that may result from the CARES Act and other stimulus programs.

Operating Results


		Three Months Ended						Six Months Ended							Three Months Ended						Nine Months Ended
(In thousands, except per share data)	(In thousands, except per share data)	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020			(In thousands, except per share data)	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
Net revenue	Net revenue	$	291,485		$	256,226		$	556,906		$	499,711		Net revenue	$	287,969		$	260,855		$	844,875		$	760,566
Gross profit	Gross profit	105,106			89,374			200,625			168,711			Gross profit	98,979			91,155			299,604			259,866
As a % of net revenue	As a % of net revenue	36.1		%	34.9		%	36.0		%	33.8		%	As a % of net revenue	34.4		%	35.0		%	35.5		%	34.2		%

Operating costs and expenses	Operating costs and expenses	51,980			54,799			100,454			118,970			Operating costs and expenses	52,375			49,818			152,829			168,788
Operating income	Operating income	53,126			34,575			100,171			49,741			Operating income	46,604			41,337			146,775			91,078

Other (income) expense	Other (income) expense	11,552			28,094			21,856			(38,728)			Other (income) expense	10,534			8,823			32,390			(29,905)

Income tax expense	Income tax expense	11,727			5,493			21,736			5,741			Income tax expense	9,878			6,281			31,614			12,022
Net income	Net income	29,847			988			56,579			82,728			Net income	26,192			26,233			82,771			108,961

Net income (loss) attributable to Class A stockholders		$	29,847		$	(212)		$	56,579		$	81,236
Net income attributable to Class A stockholders														Net income attributable to Class A stockholders	$	26,192		$	24,865		$	82,771		$	106,101

Earnings per Class A share:	Earnings per Class A share:													Earnings per Class A share:
Basic	Basic	$	0.23		$	—		$	0.43		$	0.66		Basic	$	0.20		$	0.20		$	0.63		$	0.86
Diluted	Diluted	$	0.21		$	—		$	0.41		$	0.15		Diluted	$	0.19		$	0.18		$	0.60		$	0.33

Results of Operations

Net Revenue

Net revenue for the three months ended ~~June~~September 30, 2021 was ~~$291.5~~$288.0 million, an increase of ~~13.8%~~10.4%, or ~~$35.3~~$27.1 million, compared to ~~$256.2~~$260.9 million for the three months ended ~~June~~September 30, 2020. The increase in net revenue was driven by sweet baked goods net revenue, which increased ~~$29.9~~$24.7 million or ~~12.9%. This growth was driven~~10.6%, led by ~~increased sales volume~~gains in the club, dollar, convenience, drug and grocery ~~dollar and convenience~~ channels ~~which included additional sales~~with continued momentum of single-serve products ~~and innovation.~~driving favorable product mix. Cookies net revenue increased ~~$5.4~~$2.4 million or ~~22.8%~~9.0% due to ~~the lapping~~expanded distribution and strong point of ~~last year’s slotting fees paid to customers to support the transition of Voortman to the warehouse distribution model in the second quarter of 2020.~~sale growth.

Net revenue for the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$556.9~~$844.9 million, an increase of ~~11.4%~~11.1%, or ~~$57.2~~$84.3 million, compared to ~~$499.7~~$760.6 million for the ~~six~~nine months ended ~~June~~September 30, 2020. The increase in net revenue was driven by sweet baked goods net revenue, which increased ~~$41.2~~$65.9 million or ~~9.0%~~9.5%. This growth was driven by increased sales volume across multiple channels ~~and~~along with continued momentum of single-serve products driving favorable product mix. Cookies net revenue increased by ~~$16.0~~$18.4 million or ~~39.2%~~27.2% due to the strong demand and expanded distribution of Voortman® branded products following the transition of the Voortman business to the warehouse distribution ~~model.~~model in the second quarter of 2020.

1819

Gross Profit

Gross profit for the three months ended ~~June~~September 30, 2021 was ~~$105.1~~$99.0 million, with gross margin of ~~36.1%~~34.4%, compared to ~~$89.4~~$91.2 million, with gross margin of ~~34.9%~~35.0% for the three months ended ~~June~~September 30, 2020. The ~~increase~~decrease in gross margin was primarily attributed to ~~the lapping of Voortman slotting fees, which~~increased transportation and input cost inflation partially offset ~~the temporary margin benefit of Voortman’s channel fill in 2020. Additionally, higher sales volumes,~~by favorable product mix, pricing actions and productivity ~~initiatives offset input cost inflation.~~initiatives. Gross profit increased on higher volume and expanded distribution.

Gross profit for the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$200.6~~$299.6 million, ~~36.0%~~35.5% of net revenue, compared to ~~$168.7~~$259.9 million, or ~~33.8%~~34.2% of net revenue for the ~~six~~nine months ended ~~June~~September 30, 2020. The increase was driven primarily by ~~higher volume and~~ favorable product ~~mix. Additionally, the increase was driven by the realization of Voortman synergies~~mix, pricing actions and productivity ~~efficiencies~~initiatives as well as lapping Voortman acquisition and facility transition costs in the prior year. These benefits were partially offset by transportation and input cost inflation.

Operating Costs and Expenses

Operating costs and expenses for the three months ended ~~June~~September 30, 2021 were ~~$52.0~~$52.4 million, compared to ~~$54.8~~$49.8 million for the three months ended ~~June~~September 30, 2020. The increase was primarily attributed to increased advertising spend.

Operating costs and expenses for the nine months ended September 30, 2021 were $152.8 million, compared to $168.8 million for the nine months ended September 30, 2020. The decrease was primarily attributed to prior-year expenses incurred for the integration and conversion of Voortman's operations and the realization of operating cost synergies in the current ~~year period.~~year. This was partially offset by additional investment in advertising spend and increased headcount in the current-year period.

Operating costs and expenses for the six months ended June 30, 2021 were $100.5 million, compared to $119.0 million for the six months ended June 30, 2020. The decrease was primarily attributed to prior-year expenses incurred for the integration and conversion of Voortman's operations and the realization of operating cost synergies.

Other (Income) Expense

Other expense for the three months ended ~~June~~September 30, 2021 was ~~$11.6~~$10.5 million compared to other expense of ~~$28.1~~$8.8 million for the three months ended ~~June~~September 30, ~~2020,~~2020. The increase in other expense was primarily as a result of the ~~$16.4~~$2.3 million ~~loss~~gain on change in fair value of our liability-classified warrants in the three months ended ~~June~~September 30, 2020. Interest expense on our term loans was $9.6 million and ~~$10.4~~$10.0 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively. ~~Interest expense on our term loan decreased in the current year due to the fluctuations in LIBOR.~~

Other expense for the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$21.9~~$32.4 million compared to other income of ~~$38.7~~$29.9 million for the ~~six~~nine months ended ~~June~~September 30, ~~2020~~2020. The increase in other expense was primarily as a result of the ~~$62.7~~$65.0 million gain on change in fair value of our liability-classified warrants in the ~~six~~nine months ended ~~June~~September 30, 2020. Interest expense on our term loans was ~~$19.3~~$29.0 million and ~~$21.9~~$31.9 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. Interest expense on our term loan decreased in the current year due to the fluctuations in LIBOR.

Income Taxes

Our effective tax rate for the three months ended ~~June~~September 30, 2021 was ~~28.2%~~27.4% compared to ~~84.8%~~19.3% for the three months ended ~~June~~September 30, 2020. The ~~decrease in~~effective tax ~~rate is primarily attributed to~~rates for the ~~$16.4~~respective periods were impacted by non-taxable losses of $0.2 million and non-taxable gains of $2.3 million from the change in fair value of warrant liabilities, ~~in the prior-year period, which is a non-taxable loss.~~respectively. The effective rate was also impacted by the removal of the non-controlling interest in the current-year period.

Our effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~27.8%~~27.6% compared to ~~6.5%~~9.9% for the ~~six~~nine months ended ~~June~~September 30, 2020. The ~~increase in~~effective tax rate ~~is primarily attributed to~~for the ~~$62.7~~respective periods were impacted by non-taxable losses of $0.7 million and non-taxable ~~gain~~gains of $65.0 million from the change in fair value of warrant ~~liabilities in the prior year. The effective rate was also impacted by the removal of the non-controlling interest in the current-year period.~~liabilities.

1920

Liquidity and Capital Resources

Our primary sources of liquidity are from cash on 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 future cash requirements include, but are not limited to, the purchase commitments for certain raw materials and packaging used in our productions process, scheduled rent on leased facilities, scheduled debt service payments on our term loan and settlements on related interest rate swap contracts, payments on our ~~Tax Receivable Agreement,~~tax receivable agreement, settlements on our outstanding foreign currency contracts and outstanding purchase orders on capital projects.

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 ~~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, such as acquisitions.

We had working capital, excluding cash, as of September 30, 2021 and December 31, 2020 of $15.4 million and $6.1 million, respectively. We have the ability to borrow under the Revolver to meet obligations as they come due. As of September 30, 2021, we had approximately $94.0 million available for borrowing, net of letters of credit, under the Revolver. 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 June 30, 2021 and December 31, 2020 of $28.7 million and $6.1 million, respectively. We have the ability to borrow under the Revolver to meet obligations as they come due. As of June 30, 2021, we had approximately $94.5 million available for borrowing, net of letters of credit, under the Revolver.

Cash Flows from Operating Activities

Cash provided by operating activities for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 were ~~$87.3~~$147.6 million and ~~$60.7~~$108.0 million, respectively. Operating cash flow benefited from current year improvement in profitability as well as lapping prior-year costs related to the integration and conversion of Voortman's operations, partially offset by an increase in working capital.

Cash Flows from Investing Activities

Cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 were ~~$22.2~~$36.7 million and ~~$345.2~~$354.4 million, respectively. During the ~~six~~nine months ended ~~June~~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 used for purchase of property and equipment reflects continued investments in new bakery lines and equipment.

Cash Flows from Financing Activities

Cash outflows ~~from~~for financing activities were ~~$19.3~~$55.7 million for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to cash inflows of ~~$127.6~~$113.9 million for the ~~six~~nine months ended ~~June~~September 30, 2020. The net outflow for the current-year period consisted of cash used to repurchase ~~1.2~~3.1 million shares of our common stock under our existing securities repurchase authorization as well as scheduled payments under the tax receivable agreement and Term Loan offset by cash inflows from the proceeds on exercise of employee stock options and public warrants. The net inflow in the prior-year period reflects proceeds from debt originated to fund the purchase of Voortman, net of a lower payment under the tax receivable agreement due to timing of the related tax filing deadlines and distributions made to the non-controlling interest, which was eliminated in the fourth quarter of 2020.Voortman.

Long-Term Debt

As of ~~June~~September 30, 2021, ~~$1,097.2~~$1,094.4 million aggregate principal amount of the Term Loan was outstanding and letters of credit worth up to ~~$5.5~~$6.0 million aggregate principal amount were available, reducing the amount available under the Revolver. We had no outstanding borrowings under our Revolver as of ~~June~~September 30, 2021. As of ~~June~~September 30, 2021, we were in compliance with the covenants under the Term Loan and the Revolver.

2021

Contractual Obligations and Commitments

There were no material changes, outside the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K/A for the year ended December 31, 2020.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For quantitative and qualitative disclosures about market risk, see Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K/A for the year ended December 31, 2020. Our exposures to market risk have not changed materially since December 31, 2020.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and 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)) under the Securities and Exchange Act of 1934, as amended (the Exchange Act)) as of ~~June~~September 30, 2021, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective due to the material weakness described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

Subsequent to the filing of our annual report filed on February 24, 2021, management identified a material weakness in our internal control over financial reporting related to the accounting for and classification of our warrant agreements, due to the lack of an effectively designed control over the evaluation of the underlying clauses of the warrant agreement, and an insufficient understanding of the warrant agreement and accounting literature to reach a correct conclusion.

~~We are in~~Since the ~~process of remediating~~point at which we identified the material weakness, ~~identified by standardizing~~we have implemented the below changes to our ~~controls and implementing new controls~~processes to improve our internal control over ~~accounting and~~ financial reporting ~~related~~to remediate the control deficiency that gave rise to the material weakness:

•We clarified our understanding of the accounting of contracts that may be settled in the Company’s own stock, such as warrants, as equity of the entity or as an asset or liability as highlighted in the Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) issued by the SEC on April 12, 2021 (the “Staff Statement”).

•We enhanced our accounting for such contracts to be in accordance with U.S. GAAP as clarified by the Staff Statement.

•We have designed and implemented a new control to reassess events that may change the classification of ~~warrants. The elements~~liability – or equity – classified financial instruments consistent with the SEC Statement, which was executed by individuals with sufficient experience and training.

We believe we have remediated this material weakness and will test the operational effectiveness of ~~our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have~~ the ~~intended effects.~~control during the fourth quarter of 2021.

Other than as noted above, during the ~~six~~nine months ended ~~June~~September 30, 2021, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, 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. Although we do not expect the outcome of these 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.

Item 1A. Risk Factors

Our risk factors are set forth in the “Risk Factors” section of our Annual Report on Form 10-K/A filed on May 17, 2021. There have been no material changes to our risk factors since the filing of the Form 10-K/A.

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.

2223

Item 6. Exhibits

Exhibit No.

Description

4.1

Amendment No. 1, dated July 26, 2021, to the Warrant Agreement, dated as of August 13, 2015, by and between the Company and Continental Stock Transfer & Trust Company

31.1

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

31.2

Certification of ~~Chief~~Principal Financial Officer Pursuant to Section 302 of the 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 Act of 2002

32.2

Certification of ~~Chief~~Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the 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 ~~June~~September 30, 2021, 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~~ on ~~August 4,~~November 9, 2021.


HOSTESS BRANDS, INC.

ByBy:			/s/ ~~Brian T. Purcell~~Andrew P. Callahan
			~~Brian T. Purcell~~Andrew P. Callahan President, Chief Executive Officer (Principal Executive Officer)

By:			/s/ Michael J. Gernigin
			Michael J. Gernigin Senior Vice President, Chief Accounting Officer and Interim Chief Financial Officer (Principal Financial Officer)