17% Organic Net Revenue Growth

Raises Full Year Sales Growth, Reaffirms Full Year EBITDA and EPS Guidance

Hostess Brands, Inc. (NASDAQ: TWNK) (the “Company”, “we”, “our”) today reported its financial results for the three and six months ended June 30, 2022.

“Hostess Brands’ iconic brands, access to faster growing snacking occasions, broad-based distribution footprint and excellent execution continues to drive growth in a volatile environment. During the second quarter, our top-line momentum continued as we posted the 10th straight quarter of double-digit growth. I am proud of our team’s timely actions to address the ongoing supply-chain fragility and higher inflation which pressured our margins in the quarter,” commented Andy Callahan, the Company’s President and Chief Executive Officer.

He continued, “Our year-to-date results are tracking ahead of our initial expectations and our long-term growth targets, enabling us to raise our full-year net revenue guidance to at least 15% growth while maintaining our full-year EBITDA and EPS guidance.”

Second Quarter 2022 Financial Highlights¹

• Net revenue of $340.5 million increased 16.8% from the same period last year as higher prices and favorable product mix accounted for 13.8% of the quarterly growth, with remaining growth attributed to higher volumes.
• Gross profit increased 7.2% to $112.7 million, or 33.1% of net revenues, while on an adjusted basis, gross profit increased 7.1% to $112.8 million, or 33.1% of net revenue. As expected, second quarter gross margins declined by 295 basis points, 299 basis points on an adjusted basis, from year-ago levels as favorable price/mix was more than offset by 20% inflation and inefficiencies caused by supply-chain fragility.
• Net income was $30.5 million or $0.22 per diluted share, a slight increase from the prior year period. Adjusted net income and adjusted EPS of $30.5 million, and $0.22, respectively, decreased modestly from the prior year period.
• Adjusted EBITDA increased 0.7% to $68.9 million. Adjusted EBITDA margin of 20.2% declined from 23.5% in the prior year period due to lower gross margins and higher operating expenses.
• Cash and cash equivalents and short-term investments were $227.7 million, as of June 30, 2022, reflecting a net leverage ratio of 3.0x.
• Capital expenditures increased to $41.9 million from $22.2 million in the prior-year period. The Company continues to expect capital expenditures to be in the $120 - $140 million range in 2022.
• Raising full year 2022 net revenue guidance to at least 15% growth, while maintaining full year adjusted EBITDA guidance towards the higher end of $280 - $290 million and adjusted EPS guidance of $0.93 - $0.98.

Other Highlights

• The Company’s Sweet Baked Goods point-of-sale (“POS”) increased 15.6%, maintaining its share of category dollar sales at 21.7%.
• Voortman® branded POS grew 25.0% and its share of the Cookie category increased by 20 basis points driven in parts by the ongoing momentum in the faster-growing sugar-free sub-segment.
• Full year inflation is currently expected to be in the high teens for the full year, in-line with previous estimates.
• Repurchased $48.5 million of shares year-to-date, the majority of which were under the previously announced $150 million share repurchase program.

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

Second Quarter 2022 Compared to Second Quarter 2021

Net revenue was $340.5 million, an increase of 16.8%, or $49.0 million, from the prior-year period. Contribution from previously taken pricing actions and product mix provided 13.8% of the growth, while higher volumes accounted for 3.0% of the quarterly growth. Compared to the same period last year, sweet baked goods net revenue of $303.5 million increased 15.6% or $41.0 million, while cookies net revenue of $37.0 million increased 27.6% or $8.0 million.

Gross profit was $112.7 million or 33.1% of net revenue, compared to 36.1% for the same period last year. Gross margin declined 295 basis points, 299 basis points on an adjusted basis, as favorable price/mix and productivity benefits were more than offset by inflation and inefficiencies caused by supply-chain fragility. Adjusted gross profit increased 7.1% on pricing actions and higher volume.

Operating income was $51.0 million, a decrease of 4.0% from the prior-year period. Adjusted operating income of $51.7 million decreased 4.6% from the same period last year, as higher gross profit was offset by higher advertising expense, greater workforce investments as well as higher depreciation and share-based compensation expense.

Adjusted EBITDA of $68.9 million, or 20.2% of net revenue, increased 0.7% from the same period last year as higher gross profit was partially offset by higher operating expenses.

The Company’s effective tax rate was 27.0% compared to 28.2% in the prior year. The current year effective tax rate, excluding certain immaterial discrete items, was 27.2% compared to 27.3% in the prior-year period.

Net income was $30.5 million, a slight increase from $29.8 million from the prior-year period. Adjusted net income of $30.5 million decreased 5.3% from the same period last year. Diluted EPS was $0.22 compared to $0.21 in the prior-year period. Adjusted EPS was $0.22 compared to $0.23 in the prior-year period due to the changes in adjusted net income.

Operating cash flows for the six months ended June 30, 2022 were $87.2 million, relatively unchanged as compared to $87.3 million for the same period last year.

Conference Call and Webcast

The Company will host a conference call and webcast with an accompanying presentation today, August 3, 2022 at 4:30 p.m. ET to discuss the results for the second quarter. Investors interested in participating in the live call can dial 877-451-6152 from the U.S. and 201-389-0879 internationally. A telephone replay will be available approximately two hours after the call concludes through August 17, 2022, by dialing 844-512-2921 from the U.S., or 412-317-6671 internationally, and entering confirmation code 13730838. The simultaneous, live webcast and presentation will be available on the Investor Relations section of the Company’s website at www.hostessbrands.com. The webcast will be archived for 30 days.

About Hostess Brands, Inc.

Hostess Brands, Inc. (NASDAQ: TWNK) is a snacking powerhouse with a portfolio of iconic brands and a mission to inspire moments of joy by putting our heart into everything we do. Hostess Brands is proud to make America’s No. 1 cupcake, mini donut and sugar-free cookie brands. With annual sales exceeding $1.1 billion and employing approximately 2,600 dedicated team members, Hostess Brands produces new and classic snacks, including Hostess® Donettes®, Twinkies®, CupCakes, Ding Dongs® and Zingers®, as well as a variety of Voortman® cookies and wafers. For more information about Hostess Brands please visit hostessbrands.com.

Forward-Looking Statements

This press release contains statements reflecting the Company’s views about its future performance that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Forward-looking statements are generally identified through the inclusion of words such as “believes,” “expects,” “intends,” “estimates,” “projects,” “anticipates,” “will,” “plan,” “may,” “should,” or similar language. Statements addressing the Company’s future operating performance and statements addressing events and developments that the Company expects or anticipates will occur are also considered as forward-looking statements. All forward-looking statements included herein are made only as of the date hereof. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

These statements inherently involve risks and uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements. These risks and uncertainties include, but are not limited to, maintaining, extending and expanding the Company’s reputation and brand image; protecting intellectual property rights; leveraging the Company’s brand value to compete against lower-priced alternative brands; correctly predicting, identifying and interpreting changes in consumer preferences and demand and offering new products to meet those changes; operating in a highly competitive industry; the continued ability to produce and successfully market products with extended shelf life; the ability to pass cost increases on to our customers; the ability to maintain or add additional shelf or retail space for the Company’s products; our ability to identify or complete strategic acquisitions, alliances, divestitures or joint ventures; our ability to successfully integrate, achieve expected synergies and manage our acquired businesses and brands; the ability to drive revenue growth in key products or add products that are faster-growing and more profitable; adverse impact or disruption to our business caused by COVID-19 or future outbreaks of highly infectious or contagious diseases; volatility in commodity, energy, and other input prices and the ability to adjust pricing to cover increased costs; significant changes in the availability and pricing of transportation; dependence on major customers; increased labor and employee related costs; strikes or work stoppages; product liability claims, product recalls, or regulatory enforcement actions; dependence on third parties for significant services; unanticipated business disruptions; geographic focus could make the Company particularly vulnerable to economic and other events and trends in North America; consolidation of retail customers; unsuccessful implementation of business strategies to reduce costs; increased costs to comply with governmental regulation; failures, unavailability, or disruptions of the Company’s information technology systems; dependence on key personnel or a highly skilled and diverse workforce; the Company’s ability to finance indebtedness on terms favorable to the Company; and other risks as set forth from time to time in the Company’s Securities and Exchange Commission filings.

As a result of a number of known and unknown risks and uncertainties, the Company’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Risks and uncertainties are identified and discussed in Item 1A-Risk Factors in the Company’s Annual Report on Form 10-K for 2021. All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company’s behalf are expressly qualified in their entirety by these risk factors. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

HOSTESS BRANDS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

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

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

The Company defines adjusted EBITDA as net income adjusted to exclude (i) interest expense, net, (ii) depreciation and amortization (iii) income taxes and (iv) share-based compensation, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of its ongoing operating performance. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of the Company’s results as reported under GAAP. For example, adjusted EBITDA:

• does not reflect the Company’s capital expenditures, future requirements for capital expenditures or contractual commitments;
• does not reflect changes in, or cash requirements for, the Company’s working capital needs;
• does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on the Company’s debt; and
• does not reflect payments related to income taxes or the tax receivable agreement.

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