Cover
Cover - shares | 3 Months Ended | |
Mar. 31, 2023 | May 05, 2023 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Mar. 31, 2023 | |
Document Transition Report | false | |
Entity File Number | 001-37540 | |
Entity Registrant Name | HOSTESS BRANDS, INC. | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 47-4168492 | |
Entity Address, Address Line One | 7905 Quivira Road | |
Entity Address, City or Town | Lenexa, | |
Entity Address, State or Province | KS | |
Entity Address, Postal Zip Code | 66215 | |
City Area Code | 816 | |
Local Phone Number | 701-4600 | |
Title of 12(b) Security | Class A Common Stock, Par Value of $0.0001 per share | |
Trading Symbol | TWNK | |
Security Exchange Name | NASDAQ | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 132,850,224 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2023 | |
Document Fiscal Period Focus | Q1 | |
Entity Central Index Key | 0001644406 | |
Current Fiscal Year End Date | --12-31 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Mar. 31, 2023 | Dec. 31, 2022 |
Current assets: | ||
Cash and cash equivalents | $ 101,666 | $ 98,584 |
Short-term investments | 0 | 17,914 |
Accounts receivable, net | 189,952 | 168,783 |
Inventories | 67,498 | 65,406 |
Prepaids and other current assets | 11,952 | 16,375 |
Total current assets | 371,068 | 367,062 |
Property and equipment, net | 442,963 | 425,313 |
Intangible assets, net | 1,915,002 | 1,920,880 |
Goodwill | 706,615 | 706,615 |
Other assets, net | 63,382 | 72,329 |
Total assets | 3,499,030 | 3,492,199 |
Current liabilities: | ||
Long-term debt and lease obligations payable within one year | 4,176 | 3,917 |
Tax receivable agreement payments payable within one year | 11,200 | 12,600 |
Accounts payable | 91,771 | 85,667 |
Customer trade allowances | 66,058 | 62,194 |
Accrued expenses and other current liabilities | 33,679 | 59,933 |
Total current liabilities | 206,884 | 224,311 |
Long-term debt and lease obligations | 998,226 | 999,089 |
Tax receivable agreement obligations | 123,134 | 123,092 |
Deferred tax liability | 353,376 | 347,030 |
Other long-term liabilities | 1,623 | 1,593 |
Total liabilities | 1,683,243 | 1,695,115 |
Commitments and Contingencies (Note 9) | ||
Class A common stock, $0.0001 par value, 200,000,000 shares authorized, 143,099,217 shares issued and 133,005,487 shares outstanding as of March 31, 2023 and 142,650,344 shares issued and 133,117,224 shares outstanding as of December 31, 2022 | 14 | 14 |
Additional paid in capital | 1,311,291 | 1,311,629 |
Accumulated other comprehensive income | 29,499 | 35,078 |
Retained earnings | 677,884 | 639,595 |
Treasury stock | (202,901) | (189,232) |
Stockholders’ equity | 1,815,787 | 1,797,084 |
Total liabilities and stockholders’ equity | $ 3,499,030 | $ 3,492,199 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2023 | Dec. 31, 2022 |
Statement of Financial Position [Abstract] | ||
Common stock, par value (in usd per share) | $ 0.0001 | $ 0.0001 |
Common stock, authorized (in shares) | 200,000,000 | 200,000,000 |
Common stock, issued (in shares) | 143,099,217 | 142,650,344 |
Common stock, outstanding (in shares) | 133,005,487 | 133,117,224 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Income Statement [Abstract] | ||
Net revenue | $ 345,403 | $ 332,051 |
Cost of goods sold | 224,686 | 216,427 |
Gross profit | 120,717 | 115,624 |
Operating costs and expenses: | ||
Advertising and marketing | 13,899 | 11,950 |
Selling | 10,649 | 9,777 |
General and administrative | 28,198 | 29,672 |
Amortization of customer relationships | 5,878 | 5,878 |
Total operating costs and expenses | 58,624 | 57,277 |
Operating income | 62,093 | 58,347 |
Other expense | ||
Interest expense, net | 10,185 | 9,666 |
Other expense | 181 | 436 |
Total other expense | 10,366 | 10,102 |
Income before income taxes | 51,727 | 48,245 |
Income tax expense | 13,438 | 13,687 |
Net income | $ 38,289 | $ 34,558 |
Earnings per Class A share: | ||
Basic (in usd per share) | $ 0.29 | $ 0.25 |
Diluted (in usd per share) | $ 0.28 | $ 0.25 |
Weighted-average shares outstanding: | ||
Basic (in shares) | 133,551,603 | 138,602,451 |
Diluted (in shares) | 134,553,122 | 139,565,136 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Statement of Comprehensive Income [Abstract] | ||
Net income | $ 38,289 | $ 34,558 |
Other comprehensive income: | ||
Unrealized gain (loss) on interest rate swap and foreign currency contracts designated as a cash flow hedge | (3,013) | 23,656 |
Reclassification into net income | (4,532) | 1,062 |
Income tax benefit (expense) | 1,966 | (6,492) |
Comprehensive income | $ 32,710 | $ 52,784 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands | Total | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock |
Beginning balance (in shares) at Dec. 31, 2021 | 138,279,000 | |||||
Beginning balance at Dec. 31, 2021 | $ 1,718,990 | $ 14 | $ 1,303,254 | $ (506) | $ 475,400 | $ (59,172) |
Treasury stock, beginning balance (in shares) at Dec. 31, 2021 | 3,753,000 | |||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||
Comprehensive income (loss) | 52,784 | 18,226 | 34,558 | |||
Share-based compensation (in shares) | 350,000 | |||||
Share-based compensation | 2,339 | 2,339 | ||||
Exercise of employee stock options (in shares) | 105,000 | |||||
Exercise of employee stock options | 1,662 | 1,662 | ||||
Payment of taxes for employee stock awards | (5,216) | (5,216) | ||||
Repurchase of common stock (in shares) | (459,000) | (459,000) | ||||
Repurchase of common stock | (9,680) | $ (9,680) | ||||
Ending balance (in shares) at Mar. 31, 2022 | 138,275,000 | |||||
Ending balance at Mar. 31, 2022 | $ 1,760,879 | $ 14 | 1,302,039 | 17,720 | 509,958 | $ (68,852) |
Treasury stock, ending balance (in shares) at Mar. 31, 2022 | 4,212,000 | |||||
Beginning balance (in shares) at Dec. 31, 2022 | 133,117,224 | 133,117,000 | ||||
Beginning balance at Dec. 31, 2022 | $ 1,797,084 | $ 14 | 1,311,629 | 35,078 | 639,595 | $ (189,232) |
Treasury stock, beginning balance (in shares) at Dec. 31, 2022 | 9,533,000 | |||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||
Comprehensive income (loss) | 32,710 | (5,579) | 38,289 | |||
Share-based compensation (in shares) | 324,000 | |||||
Share-based compensation | 3,011 | 3,011 | ||||
Exercise of employee stock options (in shares) | 125,000 | |||||
Exercise of employee stock options | 2,112 | 2,112 | ||||
Payment of taxes for employee stock awards | (5,461) | (5,461) | ||||
Repurchase of common stock (in shares) | (561,000) | (561,000) | ||||
Repurchase of common stock | $ (13,669) | $ (13,669) | ||||
Ending balance (in shares) at Mar. 31, 2023 | 133,005,487 | 133,005,000 | ||||
Ending balance at Mar. 31, 2023 | $ 1,815,787 | $ 14 | $ 1,311,291 | $ 29,499 | $ 677,884 | $ (202,901) |
Treasury stock, ending balance (in shares) at Mar. 31, 2023 | 10,094,000 |
Condensed Consolidated Statem_4
Condensed Consolidated Statements of Cash Flows - USD ($) | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Operating activities | ||
Net income | $ 38,289,000 | $ 34,558,000 |
Depreciation and amortization | 15,327,000 | 13,297,000 |
Debt discount amortization | 264,000 | 308,000 |
Unrealized foreign exchange losses | 52,000 | 317,000 |
Non-cash lease expense | 73,000 | 125,000 |
Share-based compensation | 3,011,000 | 2,339,000 |
Realized and unrealized gains on short-term investments | (86,000) | 0 |
Deferred taxes | 8,312,000 | 7,322,000 |
Change in operating assets and liabilities: | ||
Accounts receivable | (21,167,000) | (44,848,000) |
Inventories | (2,092,000) | (7,054,000) |
Prepaids and other current assets | 5,092,000 | 3,735,000 |
Accounts payable and accrued expenses | (23,016,000) | 10,866,000 |
Customer trade allowances | 3,869,000 | 10,561,000 |
Net cash provided by operating activities | 27,928,000 | 31,526,000 |
Investing activities | ||
Purchases of property and equipment | (23,463,000) | (23,034,000) |
Proceeds from maturity of short-term investments | 18,000,000 | 0 |
Acquisition and development of software assets | (964,000) | (1,825,000) |
Net cash used in investing activities | (6,427,000) | (24,859,000) |
Financing activities | ||
Repayments of long-term debt and lease obligations | 0 | (2,792,000) |
Repurchase of common stock | (13,669,000) | (9,680,000) |
Tax payments related to issuance of shares to employees | (5,461,000) | (5,216,000) |
Cash received from exercise of options and warrants | 2,112,000 | 1,662,000 |
Payments on tax receivable agreement | (1,358,000) | (1,443,000) |
Net cash used in financing activities | (18,376,000) | (17,469,000) |
Effect of exchange rate changes on cash and cash equivalents | (43,000) | 74,000 |
Net increase (decrease) in cash and cash equivalents | 3,082,000 | (10,728,000) |
Cash and cash equivalents at beginning of period | 98,584,000 | 249,159,000 |
Cash and cash equivalents at end of period | 101,666,000 | 238,431,000 |
Cash paid during the period for: | ||
Interest, net of amounts capitalized | 10,096,000 | 9,678,000 |
Net taxes paid (refunded) | 6,416,000 | (514,000) |
Supplemental disclosure of non-cash investing: | ||
Accrued capital expenditures | $ 11,778,000 | $ 5,433,000 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2023 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Descr i ption 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 sweet snacks company focused on developing, manufacturing, marketing, selling and distributing snacks in North America primarily under the Hostess® and Voortman® brands. The Company produces a variety of new and classic treats including iconic Hostess® Donettes®, Twinkies®, CupCakes, Ding Dongs® and Zingers®, as well as a variety of Voortman® branded cookies and wafers. The Hostess® brand dates back to 1919 when the Hostess® CupCake was introduced to the public, followed by Twinkies® in 1930. Basis of Presentation The Company’s operations are conducted through wholly-owned operating 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. For the periods presented, the Company has one reportable segment. Adoption of New Accounting Standards 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 Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. In December 2022, the FASB issued ASU No 2022-06, “Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848”, which extends the optional transition relief to ease the potential burden in accounting for reference rate reform on financial reporting. The transition relief is provided through December 31, 2024 based on the expectation that the London Interbank Offered Rate (LIBOR) will cease to be published as of June 30, 2023. The Company is evaluating the impact the new standard will have on the consolidated financial statements and related disclosures but does not anticipate a material impact. Principles of Consolidation All intercompany balances and transactions related to activity between the Company and its wholly-owned subsidiaries have been eliminated in consolidation. 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. Accounts Receivable Accounts receivable represents amounts invoiced to customers for performance obligations which have been satisfied. As of March 31, 2023 and December 31, 2022, the Company’s accounts receivable were $190.0 million and $168.8 million, respectively, which have been reduced by an allowance for damages occurring during shipment, quality claims and doubtful accounts in the amount of $5.8 million for both periods ended March 31, 2023 and December 31, 2022. 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) March 31, December 31, Ingredients and packaging $ 33,459 $ 35,410 Finished goods 31,253 26,133 Inventory in transit to customers 2,786 3,863 $ 67,498 $ 65,406 Capitalized Interest The Company capitalizes a portion of the interest on its term loan (see Note 4. Debt and Lease Obligations) related to certain property and equipment during its construction period. The capitalized interest is recorded as part of the asset to which it relates and depreciated over the asset’s estimated useful life. The Company capitalized interest of $1.7 million during the three months ended March 31, 2023. No interest was capitalized during the three months ended March 31, 2022. Capitalized interest is included in property and equipment, net on the condensed consolidated balance sheets. Software Costs Capitalized software is included in other assets on the condensed consolidated balance sheets in the amount of $21.0 million and $21.4 million, net of accumulated amortization of $24.0 million and $22.6 million as of March 31, 2023 and December 31, 2022, respectively. Capitalized software costs are amortized over their estimated useful life of up to five years commencing when such assets are ready for their intended use. Software amortization expense included in general and administrative expense on the condensed consolidated statements of operations was $1.4 million for the three months ended March 31, 2023, compared to $1.0 million for the three months ended March 31, 2022, respectively. Disaggregation of Revenue Net revenue consists of sales of packaged food products primarily within the Sweet Baked Goods (“SBG”) category in the United States, as well as in the Cookie category in the United States and Canada. The following tables disaggregate revenue by geographical market and category. Three Months Ended March 31, 2023 ( In thousands ) Sweet Baked Goods Cookies Total United States $ 308,430 $ 32,714 $ 341,144 Canada — 4,259 4,259 $ 308,430 $ 36,973 $ 345,403 Three Months Ended March 31, 2022 ( In thousands ) Sweet Baked Goods Cookies Total United States $ 296,372 $ 30,916 $ 327,288 Canada — 4,763 4,763 $ 296,372 $ 35,679 $ 332,051 Concentrations The Company had one customer (together with its affiliates) that accounted for 18.3% and 20.7% of total net revenue for the three months ended March 31, 2023 and 2022, respectively. |
Property and Equipment
Property and Equipment | 3 Months Ended |
Mar. 31, 2023 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | Property and Equipment Property and equipment consists of the following: (In thousands) March 31, December 31, Land and buildings $ 81,631 $ 81,405 Right of use assets, operating 32,170 32,170 Machinery and equipment 328,110 315,149 Construction in progress 130,607 118,679 572,518 547,403 Less accumulated depreciation and amortization (129,555) (122,090) $ 442,963 $ 425,313 Depreciation expense was $8.0 million and $6.4 million for the three months ended March 31, 2023 and 2022, respectively. |
Accrued Expenses and Other Curr
Accrued Expenses and Other Current Liabilities | 3 Months Ended |
Mar. 31, 2023 | |
Payables and Accruals [Abstract] | |
Accrued Expenses and Other Current Liabilities | Accrued Expenses and Other Current Liabilities Included in accrued expenses and other current liabilities are the following: (In thousands) March 31, December 31, Payroll, vacation and other compensation $ 8,812 $ 6,195 Accrued interest 7,820 7,850 Incentive compensation 5,232 29,045 Other 11,815 16,843 $ 33,679 $ 59,933 |
Debt and Lease Obligations
Debt and Lease Obligations | 3 Months Ended |
Mar. 31, 2023 | |
Debt Disclosure [Abstract] | |
Debt and Lease Obligations | Debt and Lease Obligations A summary of the carrying value of the debt and lease obligations are as follows: (In thousands) March 31, December 31, Term loan (7.1% as of March 31, 2023) Principal $ 983,221 $ 983,221 Unamortized debt premium and issuance costs (2,323) (2,563) 980,898 980,658 Lease obligations 21,504 22,348 Total debt and lease obligations 1,002,402 1,003,006 Less: Current portion of long term debt and lease obligations (4,176) (3,917) Long-term portion $ 998,226 $ 999,089 At March 31, 2023, there are no principal payments due under the Company’s aggregate term loans until maturity on August 3, 2025. Including the impact of the interest rate swap contracts, at March 31, 2023, the Company's aggregate term loans had an effective interest rate of 4.8%. Leases The Company has entered into operating leases for certain properties that expire at various times through 2030. The Company determines if an arrangement is a lease at inception. At March 31, 2023 and December 31, 2022, right of use assets related to operating leases are included in property and equipment, net on the condensed consolidated balance sheets (see Note 2. Property and Equipment). As of March 31, 2023 and December 31, 2022, the Company had 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 sheets. The table below shows the composition of lease expense: Three Months Ended (In thousands) March 31, 2023 March 31, 2022 Operating lease expense $ 1,663 $ 1,603 Short-term lease expense 505 373 Variable lease expense 402 382 $ 2,570 $ 2,358 |
Derivative Instruments
Derivative Instruments | 3 Months Ended |
Mar. 31, 2023 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Instruments | Derivative Instruments Interest Rate Swap and Foreign Currency Contracts The Company entered into interest rate swap contracts with counterparties to make a series of payments based on fixed rates ranging from 1.11% to 2.06% 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 March 31, 2023 notional amount of $700 million, outstanding through the maturity date of the term loan in 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 March 31, 2023, the interest on the Company’s variable rate debt hedged by these contracts is effectively fixed at rates ranging from 3.36% to 4.31%, which includes the term loan margin of 2.25%. To reduce the effect of fluctuations in Canadian dollar (“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 $3.2 million USD for $4.1 million CAD at varying defined settlement dates through June 2023. The Company has designated these contracts as cash flow hedges. A summary of the fair value of interest rate and foreign currency instruments is as follows: (In thousands) March 31, December 31, Asset derivatives Location Interest rate swap contracts (1) Other non-current assets $ 40,087 $ 48,539 Liability derivatives Location Foreign currency contracts (2) Accrued expenses $ 183 $ 423 (1) The fair values of interest rate swap contracts are measured on a recurring basis 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 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 on the condensed consolidated statements of operations is as follows: Three Months Ended (In thousands) March 31, March 31, (Gain ) Loss on derivative contracts designated as cash flow hedges Location Interest rate swap contracts Interest expense, net $ (4,672) $ 1,062 Foreign currency contracts Cost of goods sold 140 — $ (4,532) $ 1,062 |
Earnings per Share
Earnings per Share | 3 Months Ended |
Mar. 31, 2023 | |
Earnings Per Share [Abstract] | |
Earnings per Share | Earnings per Share Basic earnings per share is calculated by dividing net income 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 restricted stock units (“RSUs”), stock options and Employee Stock Purchase Plan (“ESPP”) awards. Below are basic and diluted net income per share: Three Months Ended March 31, 2023 March 31, 2022 Numerator: Net income (in thousands) $ 38,289 $ 34,558 Denominator: Weighted-average Class A shares outstanding - basic 133,551,603 138,602,451 Dilutive effect of RSUs 499,273 484,295 Dilutive effect of stock options and ESPP awards 502,246 478,390 Weighted-average shares outstanding - diluted 134,553,122 139,565,136 Net income per Class A share - basic $ 0.29 $ 0.25 Net income per Class A share - diluted $ 0.28 $ 0.25 |
Income Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2023 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | 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% prior to taking into account any discrete items. |
Tax Receivable Agreement Obliga
Tax Receivable Agreement Obligations | 3 Months Ended |
Mar. 31, 2023 | |
Income Tax Disclosure [Abstract] | |
Tax Receivable Agreement Obligations | Tax Receivable Agreement Obligations The following table summarizes activity related to the tax receivable agreement for the three months ended March 31, 2023: (In thousands) Balance December 31, 2022 $ 135,692 Payments (1,358) Balance March 31, 2023 $ 134,334 |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2023 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 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. In December 2020, the Company asserted claims for indemnification against the sellers under the terms of the Share Purchase Agreement pursuant to which the Company acquired Voortman (the “Agreement”) for damages arising out of alleged breaches by the sellers of certain representations, warranties and covenants contained in such agreement relating to periods prior to the closing of the acquisition. The Company also submitted claims relating to these alleged breaches under the representation and warranty insurance policy (“RWI”) it purchased in connection with the acquisition. In the third quarter of 2022, the RWI insurers paid the Company $42.5 million CAD (the RWI coverage limit) (the “Proceeds”) related to these breaches. Per agreement with the RWI insurers, under no circumstances will the Company be required to return the Proceeds. On November 3, 2022, pursuant to the agreement with the RWI insurer, Voortman brought claims in the Ontario (Canada) Superior Court of Justice (the “Claim”), related to the breaches against certain of the sellers from whom Voortman was acquired. The Claim alleges the seller defendants made certain non-disclosures and misrepresentations to induce the Company to overpay for Voortman. The Company is seeking damages of $109 million CAD representing the amount of the aggregate liability of the sellers for indemnification under the Agreement, $5.0 million CAD in punitive or aggravated damages, interest, proceedings fees and any other relief the presiding court deems appropriate. A portion of any recovery will be shared with the RWI insurers. Although the Company strongly believes that its Claim against the sellers is meritorious, no assurance can be given as to whether the Company will recover all, or any part, of the amounts it is pursuing. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2023 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The Company’s operations are conducted through wholly-owned operating 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. For the periods presented, the Company has one reportable segment. |
Adoption of New Accounting Standards | Adoption of New Accounting Standards 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 Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. In December 2022, the FASB issued ASU No 2022-06, “Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848”, which extends the optional transition relief to ease the potential burden in accounting for reference rate reform on financial reporting. The transition relief is provided through December 31, 2024 based on the expectation that the London Interbank Offered Rate (LIBOR) will cease to be published as of June 30, 2023. The Company is evaluating the impact the new standard will have on the consolidated financial statements and related disclosures but does not anticipate a material impact. |
Principles of Consolidation | Principles of ConsolidationAll intercompany balances and transactions related to activity between the Company and its wholly-owned subsidiaries have been eliminated in consolidation. |
Use of Estimates | Use of EstimatesThe 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. |
Accounts Receivable | Accounts ReceivableAccounts receivable represents amounts invoiced to customers for performance obligations which have been satisfied. |
Inventories | 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. |
Capitalized Interest | Capitalized Interest The Company capitalizes a portion of the interest on its term loan (see Note 4. Debt and Lease Obligations) related to certain property and equipment during its construction period. The capitalized interest is recorded as part of the asset to which it relates and depreciated over the asset’s estimated useful life. The Company capitalized interest of $1.7 million during the three months ended March 31, 2023. No interest was capitalized during the three months ended March 31, 2022. Capitalized interest is included in property and equipment, net on the condensed consolidated balance sheets. |
Software Costs | Software Costs Capitalized software is included in other assets on the condensed consolidated balance sheets in the amount of $21.0 million and $21.4 million, net of accumulated amortization of $24.0 million and $22.6 million as of March 31, 2023 and December 31, 2022, respectively. Capitalized software costs are amortized over their estimated useful life of up to five years commencing when such assets are ready for their intended use. Software amortization expense included in general and administrative expense on the condensed consolidated statements of operations was $1.4 million for the three months ended March 31, 2023, compared to $1.0 million for the three months ended March 31, 2022, respectively. |
Disaggregation of Revenue | Disaggregation of RevenueNet revenue consists of sales of packaged food products primarily within the Sweet Baked Goods (“SBG”) category in the United States, as well as in the Cookie category in the United States and Canada. |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
Accounting Policies [Abstract] | |
Components of Inventories | The components of inventories are as follows : (In thousands) March 31, December 31, Ingredients and packaging $ 33,459 $ 35,410 Finished goods 31,253 26,133 Inventory in transit to customers 2,786 3,863 $ 67,498 $ 65,406 |
Disaggregation of Revenue | The following tables disaggregate revenue by geographical market and category. Three Months Ended March 31, 2023 ( In thousands ) Sweet Baked Goods Cookies Total United States $ 308,430 $ 32,714 $ 341,144 Canada — 4,259 4,259 $ 308,430 $ 36,973 $ 345,403 Three Months Ended March 31, 2022 ( In thousands ) Sweet Baked Goods Cookies Total United States $ 296,372 $ 30,916 $ 327,288 Canada — 4,763 4,763 $ 296,372 $ 35,679 $ 332,051 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property and Equipment | Property and equipment consists of the following: (In thousands) March 31, December 31, Land and buildings $ 81,631 $ 81,405 Right of use assets, operating 32,170 32,170 Machinery and equipment 328,110 315,149 Construction in progress 130,607 118,679 572,518 547,403 Less accumulated depreciation and amortization (129,555) (122,090) $ 442,963 $ 425,313 |
Accrued Expenses and Other Cu_2
Accrued Expenses and Other Current Liabilities (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
Payables and Accruals [Abstract] | |
Schedule of Accrued Expenses and Other Current Liabilities | Included in accrued expenses and other current liabilities are the following: (In thousands) March 31, December 31, Payroll, vacation and other compensation $ 8,812 $ 6,195 Accrued interest 7,820 7,850 Incentive compensation 5,232 29,045 Other 11,815 16,843 $ 33,679 $ 59,933 |
Debt and Lease Obligations (Tab
Debt and Lease Obligations (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
Debt Disclosure [Abstract] | |
Summary of Debt and Lease Obligation | A summary of the carrying value of the debt and lease obligations are as follows: (In thousands) March 31, December 31, Term loan (7.1% as of March 31, 2023) Principal $ 983,221 $ 983,221 Unamortized debt premium and issuance costs (2,323) (2,563) 980,898 980,658 Lease obligations 21,504 22,348 Total debt and lease obligations 1,002,402 1,003,006 Less: Current portion of long term debt and lease obligations (4,176) (3,917) Long-term portion $ 998,226 $ 999,089 |
Composition of Lease Expenses | The table below shows the composition of lease expense: Three Months Ended (In thousands) March 31, 2023 March 31, 2022 Operating lease expense $ 1,663 $ 1,603 Short-term lease expense 505 373 Variable lease expense 402 382 $ 2,570 $ 2,358 |
Derivative Instruments (Tables)
Derivative Instruments (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Summary of the Fair Value of Interest Rate and Foreign Currency Instruments | A summary of the fair value of interest rate and foreign currency instruments is as follows: (In thousands) March 31, December 31, Asset derivatives Location Interest rate swap contracts (1) Other non-current assets $ 40,087 $ 48,539 Liability derivatives Location Foreign currency contracts (2) Accrued expenses $ 183 $ 423 (1) The fair values of interest rate swap contracts are measured on a recurring basis 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 at each reporting period by comparison to available market information on similar contracts (Level 2). |
Summary of the Gains and Losses Related to Interest Rate and Foreign Currency Instruments in the Consolidated Statement of Operations | A summary of the gains and losses related to interest rate and foreign currency instruments on the condensed consolidated statements of operations is as follows: Three Months Ended (In thousands) March 31, March 31, (Gain ) Loss on derivative contracts designated as cash flow hedges Location Interest rate swap contracts Interest expense, net $ (4,672) $ 1,062 Foreign currency contracts Cost of goods sold 140 — $ (4,532) $ 1,062 |
Earnings per Share (Tables)
Earnings per Share (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
Earnings Per Share [Abstract] | |
Basic and Diluted Net Income Per Share | Below are basic and diluted net income per share: Three Months Ended March 31, 2023 March 31, 2022 Numerator: Net income (in thousands) $ 38,289 $ 34,558 Denominator: Weighted-average Class A shares outstanding - basic 133,551,603 138,602,451 Dilutive effect of RSUs 499,273 484,295 Dilutive effect of stock options and ESPP awards 502,246 478,390 Weighted-average shares outstanding - diluted 134,553,122 139,565,136 Net income per Class A share - basic $ 0.29 $ 0.25 Net income per Class A share - diluted $ 0.28 $ 0.25 |
Tax Receivable Agreement Obli_2
Tax Receivable Agreement Obligations (Tables) | 3 Months Ended |
Mar. 31, 2023 | |
Income Tax Disclosure [Abstract] | |
Summary of Tax Receivable Agreement | The following table summarizes activity related to the tax receivable agreement for the three months ended March 31, 2023: (In thousands) Balance December 31, 2022 $ 135,692 Payments (1,358) Balance March 31, 2023 $ 134,334 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies - Basis of Presentation (Details) | 3 Months Ended |
Mar. 31, 2023 segment | |
Accounting Policies [Abstract] | |
Number of reportable segments | 1 |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies - Accounts Receivable (Details) - USD ($) $ in Thousands | Mar. 31, 2023 | Dec. 31, 2022 |
Accounting Policies [Abstract] | ||
Accounts receivable | $ 189,952 | $ 168,783 |
Allowance for damages occurring during shipment, quality claims and doubtful accounts | $ 5,800 | $ 5,800 |
Summary of Significant Accoun_6
Summary of Significant Accounting Policies - Inventories (Details) - USD ($) $ in Thousands | Mar. 31, 2023 | Dec. 31, 2022 |
Accounting Policies [Abstract] | ||
Ingredients and packaging | $ 33,459 | $ 35,410 |
Finished goods | 31,253 | 26,133 |
Inventory in transit to customers | 2,786 | 3,863 |
Inventories | $ 67,498 | $ 65,406 |
Summary of Significant Accoun_7
Summary of Significant Accounting Policies - Capitalized Interest (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Accounting Policies [Abstract] | ||
Interest costs capitalized | $ 1,700,000 | $ 0 |
Summary of Significant Accoun_8
Summary of Significant Accounting Policies - Software Costs (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2023 | Mar. 31, 2022 | Dec. 31, 2022 | |
Accounting Policies [Abstract] | |||
Capitalized software | $ 21 | $ 21.4 | |
Accumulated amortization | $ 24 | $ 22.6 | |
Capitalized software, estimated useful life | 5 years | ||
Software amortization expense | $ 1.4 | $ 1 |
Summary of Significant Accoun_9
Summary of Significant Accounting Policies - Disaggregation of Revenue (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Disaggregation of Revenue [Line Items] | ||
Net revenue | $ 345,403 | $ 332,051 |
United States | ||
Disaggregation of Revenue [Line Items] | ||
Net revenue | 341,144 | 327,288 |
Canada | ||
Disaggregation of Revenue [Line Items] | ||
Net revenue | 4,259 | 4,763 |
Sweet Baked Goods | ||
Disaggregation of Revenue [Line Items] | ||
Net revenue | 308,430 | 296,372 |
Sweet Baked Goods | United States | ||
Disaggregation of Revenue [Line Items] | ||
Net revenue | 308,430 | 296,372 |
Sweet Baked Goods | Canada | ||
Disaggregation of Revenue [Line Items] | ||
Net revenue | 0 | 0 |
Cookies | ||
Disaggregation of Revenue [Line Items] | ||
Net revenue | 36,973 | 35,679 |
Cookies | United States | ||
Disaggregation of Revenue [Line Items] | ||
Net revenue | 32,714 | 30,916 |
Cookies | Canada | ||
Disaggregation of Revenue [Line Items] | ||
Net revenue | $ 4,259 | $ 4,763 |
Summary of Significant Accou_10
Summary of Significant Accounting Policies - Concentrations (Details) | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
One Customer | Customer concentration risk | Consolidated net revenues | ||
Concentration Risk [Line Items] | ||
Percentage of total net revenues for customer | 18.30% | 20.70% |
Property and Equipment (Details
Property and Equipment (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2023 | Mar. 31, 2022 | Dec. 31, 2022 | |
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | $ 572,518 | $ 547,403 | |
Less accumulated depreciation and amortization | (129,555) | (122,090) | |
Property and equipment, net | 442,963 | 425,313 | |
Depreciation expense | 8,000 | $ 6,400 | |
Land and buildings | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | 81,631 | 81,405 | |
Right of use assets, operating | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | 32,170 | 32,170 | |
Machinery and equipment | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | 328,110 | 315,149 | |
Construction in progress | |||
Property, Plant and Equipment [Line Items] | |||
Property and equipment, gross | $ 130,607 | $ 118,679 |
Accrued Expenses and Other Cu_3
Accrued Expenses and Other Current Liabilities (Details) - USD ($) $ in Thousands | Mar. 31, 2023 | Dec. 31, 2022 |
Payables and Accruals [Abstract] | ||
Payroll, vacation and other compensation | $ 8,812 | $ 6,195 |
Accrued interest | 7,820 | 7,850 |
Incentive compensation | 5,232 | 29,045 |
Other | 11,815 | 16,843 |
Accrued expenses and other current liabilities | $ 33,679 | $ 59,933 |
Debt and Lease Obligations - Su
Debt and Lease Obligations - Summary of Debt and Lease Obligation (Details) - USD ($) $ in Thousands | Mar. 31, 2023 | Dec. 31, 2022 |
Debt Instrument [Line Items] | ||
Lease obligations | $ 21,504 | $ 22,348 |
Total debt and lease obligations | $ 1,002,402 | $ 1,003,006 |
Operating Lease, Liability, Current, Statement of Financial Position [Extensible Enumeration] | Less: Current portion of long term debt and lease obligations | Less: Current portion of long term debt and lease obligations |
Less: Current portion of long term debt and lease obligations | $ (4,176) | $ (3,917) |
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible Enumeration] | Long-term portion | Long-term portion |
Long-term portion | $ 998,226 | $ 999,089 |
Term Loan | ||
Debt Instrument [Line Items] | ||
Effective fixed interest rate on long-term debt (as a percent) | 7.10% | |
Principal | $ 983,221 | 983,221 |
Unamortized debt premium and issuance costs | (2,323) | (2,563) |
Long-term debt | $ 980,898 | $ 980,658 |
Debt and Lease Obligations - Na
Debt and Lease Obligations - Narrative (Details) - Term Loan | Mar. 31, 2023 |
Debt Instrument [Line Items] | |
Effective interest rate | 7.10% |
Term Loan and Interest Rate Swap Contracts | |
Debt Instrument [Line Items] | |
Effective interest rate | 4.80% |
Debt and Lease Obligations - Co
Debt and Lease Obligations - Composition of Lease Expenses (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Debt Disclosure [Abstract] | ||
Operating lease expense | $ 1,663 | $ 1,603 |
Short-term lease expense | 505 | 373 |
Variable lease expense | 402 | 382 |
Total lease cost | $ 2,570 | $ 2,358 |
Derivative Instruments - Narrat
Derivative Instruments - Narrative (Details) $ in Millions, $ in Millions | 3 Months Ended | |
Mar. 31, 2023 USD ($) | Mar. 31, 2023 CAD ($) | |
Term Loan | ||
Derivative [Line Items] | ||
Effective fixed interest rate on long-term debt | 2.25% | |
Effective fixed interest rate on long-term debt (as a percent) | 7.10% | 7.10% |
Cash Flow Hedge | ||
Derivative [Line Items] | ||
Maximum contracted sales amount | $ 3.2 | $ 4.1 |
Designated as Hedging Instrument | Interest rate swap contracts | Cash Flow Hedge | ||
Derivative [Line Items] | ||
Notional amount of derivative contracts | $ 700 | |
Designated as Hedging Instrument | Interest rate swap contracts | Cash Flow Hedge | LIBOR | ||
Derivative [Line Items] | ||
Basis spread on variable rate (as a percent) | 0.75% | 0.75% |
Designated as Hedging Instrument | Interest rate swap contracts | Cash Flow Hedge | Minimum | ||
Derivative [Line Items] | ||
Effective fixed interest rate on long-term debt (as a percent) | 3.36% | 3.36% |
Fixed interest rate | 1.11% | 1.11% |
Designated as Hedging Instrument | Interest rate swap contracts | Cash Flow Hedge | Maximum | ||
Derivative [Line Items] | ||
Effective fixed interest rate on long-term debt (as a percent) | 4.31% | 4.31% |
Fixed interest rate | 2.06% | 2.06% |
Derivative Instruments - Summar
Derivative Instruments - Summary of the Fair Value of Interest Rate and Foreign Currency Instruments (Details) - USD ($) $ in Thousands | Mar. 31, 2023 | Dec. 31, 2022 |
Other non-current assets | Interest rate swap contracts | ||
Derivative [Line Items] | ||
Asset derivatives | $ 40,087 | $ 48,539 |
Accrued expenses | Foreign currency contracts | ||
Derivative [Line Items] | ||
Liability derivatives | $ 183 | $ 423 |
Derivative Instruments - Summ_2
Derivative Instruments - Summary of the Gains and Losses Related to Interest Rate and Foreign Currency Instruments in the Consolidated Statement of Operations (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Derivative [Line Items] | ||
(Gain ) Loss on derivative contracts designated as cash flow hedges | $ (4,532) | $ 1,062 |
Interest rate swap contracts | Interest expense, net | ||
Derivative [Line Items] | ||
(Gain ) Loss on derivative contracts designated as cash flow hedges | (4,672) | 1,062 |
Foreign currency contracts | Cost of goods sold | ||
Derivative [Line Items] | ||
(Gain ) Loss on derivative contracts designated as cash flow hedges | $ 140 | $ 0 |
Earnings per Share (Details)
Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |
Mar. 31, 2023 | Mar. 31, 2022 | |
Numerator: | ||
Net income | $ 38,289 | $ 34,558 |
Denominator: | ||
Weighted-average Class A shares outstanding - basic (in shares) | 133,551,603 | 138,602,451 |
Weighted-average shares outstanding - diluted (in shares) | 134,553,122 | 139,565,136 |
Net income per Class A share - basic (in usd per share) | $ 0.29 | $ 0.25 |
Net income per Class A share - dilutive (in usd per share) | $ 0.28 | $ 0.25 |
RSUs | ||
Denominator: | ||
Dilutive effect of share-based payment arrangements (in shares) | 499,273 | 484,295 |
Stock options and ESPP awards | ||
Denominator: | ||
Dilutive effect of share-based payment arrangements (in shares) | 502,246 | 478,390 |
Income Taxes (Details)
Income Taxes (Details) | 12 Months Ended |
Dec. 31, 2023 | |
Forecast | |
Income Tax Disclosure [Line Items] | |
Effective income tax rate (as a percent) | 27% |
Tax Receivable Agreement Obli_3
Tax Receivable Agreement Obligations - Summary of Activity (Details) $ in Thousands | 3 Months Ended |
Mar. 31, 2023 USD ($) | |
Reconciliation Of Tax Receivable Agreement Liability [Roll Forward] | |
Beginning balance | $ 135,692 |
Payments | (1,358) |
Ending balance | $ 134,334 |
Commitments and Contingencies (
Commitments and Contingencies (Details) - CAD ($) $ in Millions | 3 Months Ended | |
Nov. 03, 2022 | Sep. 30, 2022 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Proceeds from legal settlements | $ 42.5 | |
Gain contingency, damages sought, value | $ 109 | |
Gain contingency, punitive or aggravated damages, interest, proceedings fees and any other relief sought, value | $ 5 |