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Edited Transcript of TWNK earnings conference call or presentation 26-Feb-20 9:30pm GMT

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Q4 2019 Hostess Brands Inc Earnings Call KANSAS CITY Mar 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Hostess Brands Inc earnings conference call or presentation Wednesday, February 26, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Andrew P. Callahan Hostess Brands, Inc. - President, CEO & Director * Brian T. Purcell Hostess Brands, Inc. - Executive VP & CFO ================================================================================ Conference Call Participants ================================================================================ * Brian Patrick Holland D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst * David Sterling Palmer Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst * Kenneth B. Goldman JP Morgan Chase & Co, Research Division - Senior Analyst * Pamela Kaufman Morgan Stanley, Research Division - Senior Analyst * Robert Frederick Dickerson Jefferies LLC, Research Division - MD & Senior Research Analyst * Steven A. Strycula UBS Investment Bank, Research Division - Director and Equity Research Analyst * William Bates Chappell SunTrust Robinson Humphrey, Inc., Research Division - MD * Rachel Perkins ICR, LLC - VP ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings, and welcome to the Hostess Brands, Inc. Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to your host, Rachel Perkins from ICR. -------------------------------------------------------------------------------- Rachel Perkins, ICR, LLC - VP [2] -------------------------------------------------------------------------------- Good afternoon, and welcome to Hostess Brands Fourth Quarter and Fiscal 2019 Earnings Conference Call. By now, everyone should have access to the earnings release for the period ended December 31, 2019, that went out this afternoon at approximately 4:05 p.m. Eastern time. The press release and an updated investor presentation are available on Hostess' website at www.hostessbrands.com. This call is being webcast, and a replay will be available on the company's website. Hostess would like to remind you that today's discussion will include a number of forward-looking statements. If you will refer to Hostess' earnings release as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements. Please remember, the company undertakes no obligation to update or revise these forward-looking statements. The company will make a number of references to non-GAAP financial measures. The company believes these measures provide investors with useful perspective on the underlying growth trends of the business and has included in its earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. Now I will turn the call over to Hostess Brands' President and CEO, Andy Callahan. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Rachel. Good afternoon, and thank you for joining us today. I'll begin our discussion by reviewing some key business highlights and a brief overview of our accomplishments in 2019 that are grounded in our pillars for growth and demonstrate achievement of the goals we laid out a year ago. Then Brian Purcell, our new CFO, will provide greater detail on our financial results and 2020 outlook. I would like to formally welcome Brian to the Hostess team as CFO for his first earnings call. Brian is a very talented finance executive with strong accounting, financial planning and analysis expertise with a broad depth of knowledge in the consumer packaged goods industry. We are excited to have him on board working closely with me and the entire Hostess team. 2019 was a transformative year for Hostess. We are excited by the portfolio operational and capability-focused progress our team achieved throughout 2019, and we finished the year strong. The initiatives we advanced have strengthened our foundation and will continue to fuel our sustained profitable growth. A few of the key accomplishments include: driving net revenue growth of 8.7% and EBITDA growth of 11.4% for the year, excluding the In-Store Bakery, or ISB, business sold in August; implementation of additional operational enhancements to drive significant profitability improvements in our Cloverhill business, which continue to be very important to our ongoing breakfast strategy; completion of key changes to our product portfolio, including the disposition of our nonstrategic ISB business, which resulted in a cumulative 38% return on our investment, and the addition of the Voortman business. Voortman will deliver accretive revenue and profit growth in year 1 and expands our strategic footprint beyond sweet baked goods, providing an additional platform for continued consumer packaged goods leading growth. As a reminder, Voortman is a growing portfolio of specialty products offerings, including wafers and sugar-free cookies. The next 2 quarters, as we integrate Voortman, will require significant effort and operational investments as we transition them from direct store delivery to the warehouse distribution model. We have confidence in the team's ability to successfully execute similar to what was accomplished during the Hostess relaunch a few years ago. The shift to the warehouse model will provide expanded distribution opportunities and synergies as we are able to go to market with a more diversified portfolio. We also executed the transition of our primary distribution center to a strategically better geography with increased capacity and improved capabilities. This important move provides better access to labor and trucking lanes as well as the added benefit of state tax incentives, which will help offset the cost of the move over the long term. We advanced the team's skills and abilities through the addition of key new talent as well as the increased utilization of enhanced tools and data analytics to drive better-informed decision-making. And we utilized these key data analytics to successfully execute our first pricing in 6 years, supported by our strong brand strength. At the same time, we continue to implement important enhancements to our bakery operations while gaining market share and growing point of sale well ahead of the SBG category with our Hostess branded core products and breakfast innovation generating higher volumes and increased distribution. These operational and sales efforts resulted in adjusted EBITDA growth of 11.4%, excluding ISB, in line with our expectations for the year and, importantly, generated strong operating cash flow and reduced our leverage more than 1 full turn to 3.4x from the end of 2018. Our team's execution represents an important step on our journey of delighting consumers and building iconic brands as we remain focused on our vision for building a sustainable, profitable growth company. We have demonstrated another quarter of strong consumer-driven demand, broad-based channel growth and enhancements to our capabilities that we will continue to leverage in growing categories. For the fourth quarter, point of sale increased 8.3%, and market share increased 113 basis points to 18.6%, representing growth well ahead of the sweet baked goods category and total food. This strong consumer-driven demand and price realization drove our 6.7% net revenue growth in the quarter when we exclude the revenue of the In-Store Bakery business. Donettes, CupCakes, Danishes, including both core and new innovation, were revenue growth drivers with continued strong distribution and merchandising support across multiple sales channels. Importantly, our Hostess branded products drove 70% of the 6.7% Sweet Baked Goods net revenue growth in the quarter, demonstrating the strong health of our iconic Hostess brand. Additionally, our Dolly Madison branded products continue to post sales volume gains as we leverage our acquired Cloverhill customer relationships, particularly in the club channel. We remain focused on our operational plan to drive sustainable, profitable growth grounded in our 5 pillars. We have made meaningful progress and achieved important accomplishments throughout 2019 to strengthen Hostess' foundation and continue to remain focused on operational improvements, supporting continued growth into 2020. We are demonstrating that the right focus and capabilities, coupled with the breadth and depth of our portfolio, can and will deliver strong financial results. As we continue to grow our core, we are successfully leveraging our Hostess Partner Program to drive profitable growth across key customers. We have come a long way in a short period of time as we sharpen our analytical capabilities and insight. Our team has done a good job leveraging a collaborative set of assets and insights to drive better performance for both the retailer and Hostess. As we progress through 2020, we expect these investments to lead to further distribution in key categories at certain retailers and support an enhanced product mix, driving profitable growth in our core Hostess branded products. Additionally, we have gained valuable insights into our portfolio to more aggressively manage our mix, optimizing our shelf and operating assets. During 2019, we demonstrated our team's ability to effectively partner with our customers to successfully implement a multifaceted price increase across all channels. We will be lapping the price increase in Q1, but we'll continually mine insights developed to react to market conditions in 2020. At Hostess, we are taking our history of growing through innovation to a new level in 2020 and beyond. As you've heard us consistently discuss, the large and growing sweet baked goods category is highly impulsive and expandable. We have highly relevant and contemporary brands, including the Hostess brand, iconic sub-brands such as Twinkies, Ding Dongs and Donettes, and the most recent addition of the growing Voortman brand. 2019 was a significant year for our Hostess CupCakes. Kicking off the year with the Hostess 100th birthday Sweetennial national birthday event and our new birthday cupcakes, followed by mermaid, unicorn and other seasonal cupcakes, which have continued to make Hostess CupCakes the highest-selling cupcake in the United States. In late 2019, we also introduced the Triple Chocolate Brownie to help us capture a disproportionate share of a growing $250 million plus brownie subcategory. We are excited about this innovation for 2020 as we have a full year of contribution with expanding distribution and the resulting incremental revenue it will generate in the future. Our expansion within breakfast is going well, and we continue to see strong opportunities to drive incremental growth through this segment of the market. In 2019, we achieved significant positive revenue growth from our breakfast innovation and increased our segment's share from 16.5% to 17.4%. This was led by the launch of new Hostess branded breakfast items as well as from small but consumer-important changes to core products grounded in consumer insights. Two examples are the success of our Donettes snack packs, which serve a new usage occasion; and the addition of icing to our Danishes, which differentiates them from our competitors and provides a priority delighter for our consumer. We are also excited to expand the distribution in 2020 of the new Hostess Cream Cheese Coffee Cake, which is off to a great start and fills a void in the market for the #2 consumer-preferred flavor. Our insights have never been better. Our pipeline is strong with validated ideas. Our newly formed team is continuing to utilize market insights and knowledge to develop a very strong innovation pipeline that we are confident will deliver sustainable profitable growth into the future. Our consumer engagement plan in 2020 is moving to the next level, leveraging our high-impact, low-cost approach and relevant programming to reach our consumers through highly engaging media online, in stores and through other pop culture channels. Additionally, our ever-changing and on-trend line of products will continue to drive the contemporary relevance of a 100-year young brand. In 2020, we will have a fresh lineup of fun and engaging products to connect with consumers via high-demand flavor and form varieties and extensions as well as exciting usage-driven limited time offerings that will drive incrementality, increased buy rates among existing consumers and bring new consumers to the category. Over the course of 2019, our team achieved significant improvements through agility and efficiency. We completed several operational improvements, including continued efficiency gains in the Cloverhill business and other enhancements at our bakeries to support future growth, including investing in our manufacturing capabilities in the second half of 2019 to improve both quality and efficiency. We were able to reduce reliance on third parties and reduce costs by bringing capabilities in-house, including the blending of some key ingredients and the production of our Totally Nutty wafer bar. The team continuously demonstrated their agility as they were challenged by increased production requirements to meet a rising demand while simultaneously implementing various other efficiency and quality initiatives. Additionally, as previously announced, we relocated our primary distribution center from Illinois to Kansas during the fourth quarter and were fully shipping out of Edgerton, Kansas by January 3, 2020. As you know, this is a massive undertaking, and I am really proud of our team's effort to make this significant move. The new location is closer to our largest bakery and more centrally located in the United States, expanding our capabilities and providing additional capacity to support our future growth. Our transition is going well with our primary objective to properly service our customers as we work towards improving efficiencies. I'm confident we will be at full efficiency by the end of Q1 and be ready to integrate Voortman operations into the Edgerton warehouse in April. During the first half of 2020, we are continuing to invest for the future with additional important operational upgrades underway to unlock additional capacity, enhance and modernize the infrastructure of our facilities and increased redundancy in and across our manufacturing footprint. We are also excited to be moved into our new corporate headquarters and our nearly complete new test kitchen and consumer research center in Kansas. This new center will expand capacity, increase agility and improve efficiency of new product research and development, providing additional capabilities to drive growth. We have thoughtfully planned certain promotional programming and innovation for the second half of the year to accommodate the completion of these key improvements, which will support long-term growth and improved profitability. During 2019, we invested in cultivating talent and capabilities through the addition of key new talent, including several new leadership team members who are helping to shape Hostess for the next phase of growth. We will continue to invest in data and analytics to support our team with consumer-driven insights and enhanced operational capabilities to fuel future growth. We are seeing dividends in our customer partnerships, our category insights and our innovation pipeline that I will share with you later in the year as we prepare to discuss with our customers. We are continuing to leverage our strong cash flow to help fuel our growth, deleverage and support our capital needs. To recap, we generated $144 million in operating cash flow for the year and improved our leverage by over 1 turn to 3.4x at the end of '19. The sale of our In-Store Bakery business midyear helped fuel this improvement. And we also refinanced and extended our term loan and revolving credit agreements at favorable terms, further solidifying our strong financial position for the future. From a capital allocation perspective, we are excited to have completed the acquisition of Voortman, a leading North American wafer and cookie company, for $320 million in January. This acquisition is aligned with our strategic focus and leverages our core competencies, which we believe provides a compelling return for our use of cash and strong cash flow. The integration efforts are going very well. The team has made great progress aligning customers to transition from direct store delivery to the Hostess warehouse distribution model, optimizing the portfolio, making associated manufacturing adjustments and initiating the ERP transition ahead of our distribution conversion beginning in April. We expect most of the shift to be completed by the end of the second quarter as we manage the complexity of our customer warehouse availability around this time. We remain confident there is a meaningful opportunity for growth in the Voortman business as we leverage Hostess' broad-based distribution model, focused and tailored customer approach, innovation and promotion expertise and our scaled merchandising capabilities. I'm even more excited to complete the integration and drive the growth now that we have owned it for a couple of months and begun to dig into the business deeper. We continue to be confident that we will capture the previous announced synergies of at least $15 million in the next 12 to 18 months and achieve targeted deal economics. Following the temporary spike in our leverage ratio following the Voortman acquisition and transition efforts in the first quarter, we will be actively working to deleverage back down to our target of 4x by the end of 2020 while continuing to make disciplined investments in the business to support growth. In the short term, we will use our cash to deleverage quickly and invest in our business. On a longer-term basis, we will continue to use our cash to pursue a range of potential strategic options, including reinvesting in our business, deleveraging our balance sheet and pursuing potential strategic acquisitions while effectively managing our capital structure. Following the relaunch of Hostess under a contemporary business model, we continue to make strategic investments in our capabilities to differentiate us within the industry. We are part of a large, growing and addressable markets, including indulgent snacking, breakfast and now through Voortman, better-for-you product characteristics, in which there is ample room to grow. We have a tested and proven playbook which has driven sustained growth over the last 5 years and are continuing to grow with consumers and customers as we strategically invest in the business to fuel future growth. In 2019, we delivered on our expectations both financially and operationally, positioning us well for our start to 2020. We tackled a large transformation agenda which positions us for continued profitable growth and provides platforms for expansion. We remain confident in our fundamentals, increasing core capabilities and the broad-based growth opportunities we have ahead of us. We are fortunate to benefit from strong consumer demand for our products and fully expect our profitable growth momentum to continue into 2020 and beyond. Now I will turn it over to Brian to go through the details of the quarter's results. -------------------------------------------------------------------------------- Brian T. Purcell, Hostess Brands, Inc. - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thanks, Andy. It's a pleasure to be speaking with all of you today. I've had an exciting and busy couple of months since joining the Hostess team in January. I look forward to meeting many of you from the investment community in the coming weeks and months. Today, I will review our fourth quarter 2019 financial performance, our 2020 guidance and other data from today's release. Net revenue for the quarter was $216.7 million, a 6.7% increase, excluding the impact of the sale of the ISB business in August 2019. This increase was driven primarily by a strong performance of core hosted branded products such as Donettes as well as new core and breakfast innovation across retail channels. Gross profit was $70.8 million for the fourth quarter of 2019, and gross margin was 32.7%. Excluding ISB, gross profit increased 6.7% from the fourth quarter of 2018. From a margin standpoint, gross profit margin improved year-over-year due to higher sales volume and pricing actions as well as continued operating efficiencies, partially offset by higher input costs. Net income increased 44% to $23.6 million and diluted EPS grew 41.7% to $0.17 primarily due to a $7.1 million gain on the valuation of a foreign currency contract to hedge the January 2020 purchase of Voortman in Canadian dollars, partially offset by the transaction and facility transition costs and the sale of ISB. Adjusted EPS was $0.16 compared to $0.17 in the fourth quarter of 2018. The EPS impact -- improved operating performance was offset by the sale of ISB, the dilutive impact of our warrants and increased depreciation and stock compensation expense. Adjusted EBITDA for the quarter was $52.4 million or 24.2% of net revenue compared to $51.4 million or 23.9% of net revenue in the same quarter in 2018. Adjusted EBITDA increased 6.3%, excluding the $2.2 million decline due to the sale of ISB. Our effective tax rate was 20.2% compared to 18.2% in the prior quarter. The increase was due to the Class A for Class B share exchanges during 2019. Subsequent to these exchanges, less income is attributed to the noncontrolling interest, a pass-through entity for tax purposes. We had cash and cash equivalents of $285.1 million and net debt of $689 million as of December 31. Our operating cash flow for 2019 was $144 million, reducing leverage to 3.4x. As we transition Voortman to unlock meaningful distribution expansion in key growth channels, we continue to expect the 2020 financial contribution from the acquisition to be consistent with our initial expectations shared back in December. We expect contributions from Voortman to be more heavily weighted to the back half of the year once we complete the transition to the warehouse distribution model, unlocking their growth potential as we begin to realize the cost synergies achieved with 4 integrated operations. On a consolidated basis for fiscal 2020, we remain confident in our ability to generate organic revenue growth ahead of the SBG category driven by expansion of core products as well as new innovation. We expect the acquisition of Voortman to contribute approximately $90 million of net revenue partially offset by a decline of $29 million due to the sale of ISB. We expect growth to be muted in Q1 with limited contributions from Voortman due to the inventory de-load by distributors in anticipation of the transition to the warehouse model in Q2 as well as shifting of some promotional programming in our Hostess business. As Andy mentioned in his comments, we've made calculated strategic decisions, including selected SKU rationalizations and delays in timing of certain merchandising events, to allow for the successful completion of our key ongoing transformational efforts, including the refinement of our new warehouse operations, the integration of transition of Voortman and the addition of key capacity in our facilities. These actions will result in a slight step back in revenue growth in the first half of the year. However, we are confident they are the right decision to support improved profitability and growth in the long term. Additionally, keep in mind, throughout 2019, we benefited from our well-executed price increases that were sold into the customers beginning in the fourth quarter 2018. We are continuing to monitor the market in 2020 and are evaluating targeted price increases that may be necessary to combat inflationary pressures facing our industry. We expect adjusted EBITDA to be in the range of $225 million to $240 million, an increase of 12.5% to 20% over 2019 when excluding the ISB divestiture. This increase is primarily driven by organic growth, continued operating efficiencies and approximately $20 million from the acquisition of Voortman. The near-term impacts of the completion of strategic initiatives, the lapping of 2019 pricing and continued inflationary pressures are expected to result in a slightly lower rate of growth in our base business in 2020 as compared to the strong 11.4% growth we achieved in 2019. We have taken a balanced approach to mitigate our risk of commodity pricing fluctuations for 2020 on key ingredients, and we'll continue to monitor prices as we progress through the year and evaluate potential inflationary impacts to 2021. Similar to revenue, we expect EBITDA growth to accelerate in the back half of 2020 as we execute the transition of Voortman, complete strategic initiatives and as a result of the timing shifts of certain customer programming. With the combination of the timing of strategic initiatives, the divestiture of ISB and a drag during the Voortman transition, we expect reported Q1 2020 EBITDA to be down mid-single digits from prior year. We expect to see improved growth in Q2 as we realize more meaningful contributions from Voortman, achieve efficiencies at our new distribution center and benefit from other cost savings initiatives currently underway. We are confident these important strategic initiatives will set us up for meaningful growth in the second half of the year and continuing into 2021. Adjusted EPS is expected to be in the range of $0.65 to $0.75 per share, an increase of 7% to 23% from 2019. We anticipate that we will end 2020 with a leverage ratio around 4x with a near-term increase driven by the $140 million of additional debt utilized to finance the Voortman acquisition and then declining over the course of the year supported by our expected strong operational cash flows. Our expected tax rate for 2020 is 24% to 26%. Now I will turn it over to Andy for his closing remarks. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [5] -------------------------------------------------------------------------------- Thanks, Brian. We are pleased with our strong finish to 2019 and the significant accomplishments we achieved throughout the year. We will continue to leverage our sustainable, scalable, profitable operating model to drive strong long-term financial performance in the top quartile of our peers. Across the team, we are working together to further advance our high performance-based culture to consistently win with all stakeholders. Our investments in enhanced capabilities and the continued development of our innovation pipeline will continue to lead the net organic revenue growth above the categories in which we compete. Our strategy and our execution, our robust cash flow and our strong balance sheet will create value for our shareholders for many years to come. With that, Brian and I are available for your questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first set of questions come from the line of Brian Holland of D.A. Davidson. -------------------------------------------------------------------------------- Brian Patrick Holland, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [2] -------------------------------------------------------------------------------- First question about -- just if you could help me with the EBITDA bridge. So I sort of thought that maybe 2020 would be another year of kind of outsized contribution from the Cloverhill bakery as you kind of ramp that up and realize some of the synergies. Maybe I'm missing that. I was kind of thinking closer to $10 million or $15 million bump from that. And if that were the case, you'd obviously be assuming flat EBITDA on the legacy business when you back out Voortman. So can you maybe help me with that? Did you -- did more of that contribution come in 2019? Or is there maybe something else I'm not thinking about here? -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Yes, Brian, thanks for your question. We feel terrific about the Cloverhill integration. I think one of the things you should think about, we bought this for $10 million. Won't go back in it. We transformed it. We made all the transformations within the Chicago bakery. We expanded the Cloverhill acquisition. A lot of those transformations have happened, and we've realized a lot of that in FY '19. We'll continue to grow it and expand it. It's a platform for our Hostess bakery business. It's integrated within our complete distribution center, but a lot of that's spurring a lot of the growth that we're looking at in '19 as well as the organic Hostess business. So we've converted it, it's profitable and it's continuing to grow. It's helping to spur the total Hostess brand organic growth, which we continue to expect to go into 2020 as we integrate Voortman. So a lot of that has been pulled forward and realized to help grow and invest the business for growth in '19. The cost savings are on our target. It spurred growth. It's given revenue out of the portfolio, but it's also integrated within our total business model. -------------------------------------------------------------------------------- Brian Patrick Holland, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [4] -------------------------------------------------------------------------------- Okay. That's helpful color. And then on the top line and specifically the merchandising, you talked about a little bit of a calendar shift there. It sounds to me like that is -- that's on your end, that you're dictating that calendar in so far as you're -- the retailers aren't shifting, you're shifting the calendar. So I want to confirm, one, that that's true. And then as we look ahead to 2020, we talked about in Q3, expand the merchandising at key retailers. So just a quick 2-part question. One, what's your level of visibility on getting that merchandising looking that far out? And as we think about the past 2 years or so obviously, we kind of had a trough year on merchandising in '18. You had more in '19. Where -- do we get more in '20 versus '19? I know maybe getting back to '18 is going to -- or '17 is going to be difficult. But just kind of curious if we're continuing to get more merchandising support each year as we move kind of off that '18 trough. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [5] -------------------------------------------------------------------------------- Yes. So a lot of things in there, Brian. I appreciate the questions. It's all good because we have some noise in our revenue growth. But you said one thing that I want to just make sure I clarify. If you look at our -- obviously, our iconic Hostess brand, you're absolutely right. If you compare -- if you look at the 2-year stack, we continue to grow our business well above the SBG category and one of the leading branded growers in CPG. That's even with the step back in '18 and then the step back up in '19. And we expect to continue to grow the Hostess brand, the organic brand, through -- in 2020 at about that same 2-year rate. So even in '19, we did come back with the merchandising, but that was less than 1/3 of our total Hostess branded growth. We're growing the total business. Now you asked another question, which was the first half, second half. If you step back and look at our strategic value creation pillars, we have a lean and agile operating model. We're making investments to move into Edgerton, which strategically gave us access to the lanes, soft labor to lower cost, and it gives us more capacity to integrate things, and we're also integrating Voortman. All of these are exactly what we said we were going to do and are creating value over time. In the first half, as we do this, we do have some lapping of the revenue price increase, which you'll see a step-down. We're also investing in some capacity things. But for us, executing these and therefore simplifying our portfolio as we move to accelerate in the back half is exactly the right thing to do. We have good visibility to some of these, the pullback in some of the merchandising. And also we have good visibility on some of our larger customers, the POG resets and how our merchandise is supposed to flow through. So I feel really good about that. We're also -- what we're doing when we bought -- you've mentioned Cloverhill earlier. When we blew out distribution across all of the channels and value, if those SKUs are not driving the value for the complexity and the work that it takes and it's not being responded to, then we're focusing on them in the other channels, in the channels where they're working or, in some cases, the stores where they're working. And then in the back half, we'll backfill them with more higher-branded SKUs. So we're seeing the first half getting the larger impact of some of the focus and SKU rationalization and the merchandising as well as the revenue, but it accelerates in the back half. We have good visibility of that. With that being said, still think of the full year as Hostess branded business continuing to grow at more of a 2-year rate as opposed to the slightly higher '19 mostly due to the noise of the merchandising down and up. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Our next questions come from the line of Rob Dickerson of Jefferies. -------------------------------------------------------------------------------- Robert Frederick Dickerson, Jefferies LLC, Research Division - MD & Senior Research Analyst [7] -------------------------------------------------------------------------------- Great. So look, I guess if we look at the midpoint of the implied base business EBITDA growth or where you're guiding for 2020, we are around 6%, right, if we back out the ISB, the $5 million from last year. So a kind of follow-on basically to Mr. Holland's questions. You pointed to EBITDA in Q1 potentially down around mid-single digit. Base business EBITDA for the year, it looks like it's up mid-single digit. So if we go through kind of a different bridge, you're saying given the strategic initiatives, given the pullback in merchandising, which is a timing shift, given efficiencies and potential distribution gains, let's say, in different channels on Voortman's that basically, in the back half that that EBITDA really should be up nicely with Voortman's. But then also what's implied is it seems like it also should be up nicely without Voortman. It's just the base. So I'm just trying to gauge, one, if that differential, which is significant, makes sense given what we need to have something in the back half. And then secondly, just kind of simplistically, just like to get your thoughts on -- do you have too much going on, right, is it with Voortman, with the strategic initiatives, getting back to merchandising, what have you? Do you feel like the organization is centered and visibility on getting to that back half is more than warranted? -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [8] -------------------------------------------------------------------------------- Yes. No, it's a good question, Rob. I appreciate it. Let me start with do we have too much going on. We have a very entrepreneurial, active, energized team. There's absolutely a lot going on. But the team is energized about making it happen. They're energized about continuing to grow the Hostess brand, and they're energized about integrating Voortman into a lean and agile platform. So they get energized about creating value, and we're doing all the things we said we would do. But your point is well-taken about do we simplify and do we focus on things, and that's one of the things we're doing in the first half. Related to your first half, second half, I think you nailed it, and I'll let Brian weigh in if he wants. But we absolutely have -- the Voortman contribution is certainly first half, back half weighted. We've announced that we're integrating into the Edgerton warehouse, which will be ready to go. The efficiencies of the Edgerton warehouse are improving as we get through Q1, where we've seen visibility to that, but that's in the process. And the Voortman, then we have a de-load and with the IDs and the transition of the cost of the IDs and then integrating them into Q2, you certainly see a meaningful jump up in that EBITDA in the back half. And you see the same with Hostess, although Hostess is a little bit more muted. But for sure, the Voortman, you see that plus or minus. If you look at the -- after we get through the transition and the integration, the second half, you can see -- you'll have really good visibility to the value creation. I see it, I have line of sight to it, and it certainly gets me very excited and energized because I could just see the value creation not just over in 2020, but then I can see good line of sight to it as we accelerate the growth into '21 and beyond. -------------------------------------------------------------------------------- Robert Frederick Dickerson, Jefferies LLC, Research Division - MD & Senior Research Analyst [9] -------------------------------------------------------------------------------- Okay. Super. And then just quickly on the overall category. I know your guidance is always to grow hopefully ahead and materially ahead of the category. What's the perspective you could add as to where you think the category growth is now relative to a year or 2 years ago and what the potential of that category could be? Just trying to gauge, if you grow materially ahead of the category, that's great, but I don't know where you expect the category to grow. And then -- that's it. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [10] -------------------------------------------------------------------------------- Yes. I see the category has -- it's fluctuated depending on the timing. I know we had a little bit of noise here compared with a year ago. But I see the category at the 1% plus or minus as it goes -- as it grows up and down. But as I've always said -- and we've seen this not just from us but our competitors, Rob. I believe this category is highly expandable. I just don't view it as sweet baked goods. I view it within indulgent snacking. I view it within breakfast. I view it within -- and now with our Voortman acquisition, within the cookie category and with better-for-you attributes. I believe -- I really like our categories because they have relatively high loyalty, and they also are highly expandable. So -- but I -- we've modeled the category about 1%. And I have good line of sight for us to continue, as I said, about our 2-year trend, being able to be above that category growth. And I -- we're going to make that happen in '20. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Our next questions come from the line of Ken Goldman of JPMorgan. -------------------------------------------------------------------------------- Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [12] -------------------------------------------------------------------------------- I'll beat the dead horse a little bit more just on the guidance part. Just a little bit curious. Some companies, when they do a deal, especially deals that require a big supply chain transition, what like -- I think this one is they'll build in maybe a little bit of a fudge factor just in case something goes awry. So I'm just trying to get a sense, is your guidance for that first quarter, is it sort of right down the fairway where you really think it's going to be? Or are you building in maybe a little bit of prudence just to account for the black swan event, so to speak? -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [13] -------------------------------------------------------------------------------- I think -- let me answer it this way, Ken, if you can -- if I can. I think our guide is very responsible, and I think we have opportunities to potentially get on the high side. I think we have potentially to manage it right down the fairway. But that's not -- as I look at everything that we have in our business, the transition within Voortman, it is a large supply chain transition. But one of the things to just be aware of, it's not just dependent on us. Our Edgerton efficiencies and transition are going very well. As we talked about previously, we're simplifying the portfolio to make sure we increase the probability, and I have really good confidence in the team for the execution. But also it depends on -- it's reliant on our customers because we need -- we're moving from our independent distributors into their warehouse. Now those sell-ins are going very well. We've aligned top customers. We're focused on the right SKUs. The insights I see relative to the consumers and the information we have is highly incremental to those cookie categories. It's highly loyal with our consumers. It plays a specific role within the category. So I feel really good about that, but we're still dependent on those warehouse slots with the customers, which creates some variability that we just don't have 100% line of sight to. So it takes that to be able to get there. The core Hostess business is going to continue to truck along. And then when we get this added on, I do see great value creation over the long term. -------------------------------------------------------------------------------- Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [14] -------------------------------------------------------------------------------- Great. I'll let it go there. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [15] -------------------------------------------------------------------------------- Yes. The range takes that into account. Thanks, Ken. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- Our next questions come from the line of Steven Strycula of UBS. -------------------------------------------------------------------------------- Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [17] -------------------------------------------------------------------------------- So Andy, just want to clarify, a quick question on the revenue outlook for the year. For the first half, are you implying that both the consumption dollars that we tend to track in Nielsen will be negative as you work through some of these merchandising changes throughout your supply chain? And then when should -- or is that true? And then two, is that the same pattern for the sell-in? Should we expect those to be dipping a little bit in the first half and then inflecting positive? Help us understand that cadence, and then I have a follow-up. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [18] -------------------------------------------------------------------------------- Are you talking about specifically within Voortman or within the... -------------------------------------------------------------------------------- Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [19] -------------------------------------------------------------------------------- No, no, no. The organic business, as you know. So just stripping out Voortman's both out of the consumption data and then also for your sell-in for your organic sales calculus. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [20] -------------------------------------------------------------------------------- Yes. Yes. So what we'll see is we expect to see Hostess -- although it'll be a little bit lower in Q1 based just on lapping of some of the merchandising and it also was lapping some of the pricing. We'll see a step-down of Hostess from where we've historically seen it. We will not -- we're not expecting -- we're not guiding or expecting a decline. Expecting Hostess to continue to grow. It'll grow more as we get through the later of the year, and I expect the entire year growth to be ahead of the category and in line with what you would see in the 2-year trends. So think about Hostess like that. That is going to be slightly offset by some of our value nonproductive SKUs that we're lapping, that weren't as productive, the cost of complexity was too expensive. I consider that relative to the value creation, total growth a little bit noisy. But total Hostess manufacturer will still be up, and I expect to be up ahead of the category, even with that step back a little bit from the total Hostess brand. -------------------------------------------------------------------------------- Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [21] -------------------------------------------------------------------------------- Okay. And then Brian, first of all, congratulations and welcome. Welcome to the Hostess party. I wanted to just clarify on the guidance bridge that you laid out there. Do we think about synergies being factored into the calculus for the current year, for fiscal '20? Or is that more conservatism and saying we'll earn them in the first 12 to 18 months, but maybe that's more earmarked for 2021? And does that guidance include some level of reinvestment for this transition period in the business? And can you help us kind of just understand how much that reinvestment might be? -------------------------------------------------------------------------------- Brian T. Purcell, Hostess Brands, Inc. - Executive VP & CFO [22] -------------------------------------------------------------------------------- Sure. Yes, sure. So thanks for the question. We came out and said, from a synergy standpoint, that we're looking to get up to $15 million in synergies over the next 12 to 18 months. Not all of that is in our $20 million number. But -- and the majority of it, we're going to see more in the back half of the year. So we have contemplated synergies in that guide overall in the $20 million from an EBITDA perspective. So we've taken that into account. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [23] -------------------------------------------------------------------------------- A lot of the synergies are dependent on the timing of all the customer warehouse transition because a lot of them are tied up into. And now we have now sat with the customers with a lot of that tied up. As soon as we do that, we expect to capture them and accelerate them as best we can. A lot related to the sales force, a lot being able to get them into the Edgerton and then driving efficiencies of a combined Edgerton warehouse with Hostess and Voortman. It's a step process, but we have a great urgency to do that. But as Brian said, they're contemplated in the back half, but not all of them. -------------------------------------------------------------------------------- Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [24] -------------------------------------------------------------------------------- Got you. And if I could have a quick follow-up to Ken's question. As you're planning and trying to figure out what is conservative guidance versus what is not, for some of the uncertainty related to Voortman's as to how some of those SKUs slot in or do not slot into the warehouse model, when will you -- given that I think planograms are typically laid out in the March period, when will you know whether that breaks your way or does not break favorably your way? -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [25] -------------------------------------------------------------------------------- Yes. So a lot of that -- we're literally working through that now. And it was a process we started with our lead -- our largest customers because we had to then commit to a time internally and then work to grab everybody else within a window. So for some of our largest customers, we're in the process of working through the warehouse slots, which is going well. It's going very well. There are some which we expected and positive and some negative. But then that needs to transition into the planograms. And then once we get the planograms, now in the process of working through the merchandising that offsets some of the planograms. As you know, we do our merchandising -- our shipper program is best-in-class, and we're integrating Voortman in there. So we're in the process of doing it. I expect that to be complete over the next 4 to 6 weeks, and then we're going to be activating it. We're also working on some of our models and our consumer insights to understand the transference and the loyalty of certain SKUs versus the others. We'll know that better when we get it into the shelf but think about it over the next 4 to 6 weeks. But that's why that process is the way it is because we're negotiating slots, and then we're optimizing the shelf back and then we're looking at the incrementality of each SKU and then we're supplementing with merchandising. I expect all this to come out great, but there's this level of uncertainty as we implement this across the entire U.S. customer base as well as the entire Canadian distribution base. So you can imagine the complexity and the timing creates some uncertainty, but it's in the process now. The team's doing a great job. It's going well. Very confident. There's just a timing window we're working through. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Our next questions come from the line of David Palmer of Evercore ISI. -------------------------------------------------------------------------------- David Sterling Palmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [27] -------------------------------------------------------------------------------- Just a clarification. On Cloverhill, did that reach the $20 million to $25 million in EBITDA contribution in 2019, which essentially was earlier than what you had originally expected? -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [28] -------------------------------------------------------------------------------- Yes. Yes. We did. So when we got -- the answer is yes. When we got to the core business, yes, we got the cost savings, we got the revenue. We integrated and launched Hostess. We don't look at the P&L that way. I know I've said that a lot. But when you include the customer acquisitions, the growth that Hostess spurred within our customer base, yes, we hit the acquisition economics. -------------------------------------------------------------------------------- David Sterling Palmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [29] -------------------------------------------------------------------------------- I mean do you see discrete investments that -- so let's say that's $10-plus million more than we would have expected that occurred in that year. And I know everything is blurred together, but do you see discrete investments that you did make discretionary ones that may be setting you up for 2020 that was the offset to that that gives you more confidence in this year? -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [30] -------------------------------------------------------------------------------- Related to Cloverhill? -------------------------------------------------------------------------------- David Sterling Palmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [31] -------------------------------------------------------------------------------- Correct. I mean if you -- if we -- if you were getting those, call it, synergies earlier than expected, were you finding ways to spend that money such that you were setting yourself up for success in 2020? And what were those? -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [32] -------------------------------------------------------------------------------- Well, we invested in -- and we talked about this earlier. We invested in the capabilities of the Cloverhill business. We completed that through the beginning of last year. We had efficiencies that we drove out of the Chicago bakery throughout the year. We launched the Hostess breakfast portfolio out of the back half and also expanded the value business. Some of those SKUs were really profitable. Some of them weren't. We looked at some pricing opportunities that we also built through. The investments we've made in the business were related to our capabilities, which were driving some of our innovation growth. We've invested in MSAs within our channels, which drove a lot of our C-store investment growth. As you know, we've talked about, and we've also talked about on the call, our investment in capacity related to our core Hostess business and capabilities and quality, which are also coming through into Q1. So the support of the growth that we've had over the last year within Hostess of 8%, the investments that we're making are all in the support of growth, of quality, of expanding into the breakfast. So those are the things that we're building the sustainable, profitable business on. -------------------------------------------------------------------------------- David Sterling Palmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [33] -------------------------------------------------------------------------------- Great. And then just one last one on the Voortman's deal. I would assume revenue synergies are really not going to be much of a 2020 thing, although it seems like one of those deals that's made to have those in terms of cross -- even cross-border, but certainly regional distribution upside. Can you talk to maybe where those -- that distribution is and where you see that going? And am I right in assuming that much of these synergies might be a lineup for 2021 and beyond? -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [34] -------------------------------------------------------------------------------- Yes. Well, there's 2 areas of synergies. You're right. And I think there are more revenue synergies that we're beginning to see and I think that have opportunities for as we get to the back half of '20 and certainly '21. So for example, certainly within the channels, looking at new forms and being -- blow this business out across our distribution channel, job one is to convert the distribution that currently exists and get it to our warehouse. Simultaneously, we're looking at certain channels that didn't have distributors. We're looking at capabilities that exist up within the Burlington manufacturing facilities that's helped support innovation or other things under the Hostess brand or otherwise. Do -- can we look at Sweet Baked Goods within Canada and leverage some of the assets and trademarks that we have? So there's certainly opportunities that we're looking at on the revenue side that provide us great opportunities for growth, and that's even before we get our insights and innovation engine working to help accelerate that. The other just revenue synergy, which is kind of built into as we look long term, is just executing our in-store partner merchandising model, shipper model, LTO programs within our core customers, which we are working through in the back half of the year. So it really responds well and integrates well to our go-to-market model, which has driven Hostess growth for many, many years and will continue in '20. We're one-by-one and very urgently pulling those levers and integrating it into that system. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- Our next questions come from the line of Bill Chappell of SunTrust Robinson Humphrey. -------------------------------------------------------------------------------- William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [36] -------------------------------------------------------------------------------- First, a question on Voortman and just kind of what you're expecting on the transition to warehouse. And when -- I guess, when Hostess transition back to -- from DSD to warehouse, the big area where you kind of lost some share -- shelf space was grocery. So -- and I think Voortman is probably more indexed to grocery than the core Hostess legacy business. So just trying to understand what you're expecting as you make that transition. Do you expect to not have as strong of a presence there? Are you going to make that up more in the C-stores and other channels? So how do you think about that over the next 6 months? -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [37] -------------------------------------------------------------------------------- Yes, Bill, thanks for the question. The one thing that's a little bit slightly different in Hostess, Hostess was completely out of the market and then reentered. So then they had to regain some shelf space. So we expect us to -- and we're more in a transition mode of the warehouse as we replug into -- back into existing shelf space. I do -- you are exactly right the way you characterized it. For sure, it's developed and primarily in the grocery channel. That's true in Canada and in the U.S. We are pruning SKUs. So we're not -- if it's going through the warehouse, we're looking at the efficient SKUs. We've done the analysis, and that's some of the work I talked about. We do expect short term to step back from some of the consumption and some of the growth just as we pull down the inventory, put it back in the warehouse, focus on the most profitable SKUs. But I would expect that to, as we get into the back half of the '21 year, then grow beyond that because of the other levers I talked about relative to merchandising very quickly in the back half. But where Voortman was unable to get to, think about our other channels, whether it's all of our -- our drug channels are our smaller customers. We have a large developed C-store business, as you know. Our partnerships with some of the distributors versus directly to the customers, all of those, we're going to connect the dots in mind, and that's going to add incremental revenue to the business that the previous owners just couldn't capture. -------------------------------------------------------------------------------- William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [38] -------------------------------------------------------------------------------- Got it. And then... -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [39] -------------------------------------------------------------------------------- So a slight step back in grocery, but it'll accelerate over time. I don't expect it to be lower. I expect it to grow through with smaller SKUs in the merchandising program. But it'll certainly be a step back in first half and early as we transition. -------------------------------------------------------------------------------- William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [40] -------------------------------------------------------------------------------- Okay. Got it. And then just looking at your market share, certainly, a great 18.6% to end the year up year-over-year. Just trying to understand, how much of that is core snacking? And how much of that is your expansion into breakfast? Just trying to understand, are you gaining share in both areas? Or has it really been with the addition of having breakfast items that's really helping you get the share? And is there more to come, you think, in the breakfast? Where would you be in the breakfast kind of share versus where you think you can go? -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [41] -------------------------------------------------------------------------------- We expect to continue to grow share in breakfast. As you know, we're relatively underdeveloped. It's the largest segment. We grew over 1 share point within breakfast, and we're not done. We're now looking for the next backflow of innovation, which in the back half of the year we'll talk about that. We're also launching Cream Cheese Coffee Cakes and other items that we feel good about. If you look at the de-comp within -- for the full year for contribution, they're both growing. Our breakfast portfolio was -- that growth was, I think, about 1/3 of the total growth, but don't quote me on that. And then the rest of the portfolio was growing extremely high as well. A lot due to the investment in the data that we're mining within C-stores, the well-documented mass channel merchandising comeback and then the continued innovation related to LTOs and some of the innovation launches. But we're growing both on our snack cakes as well as breakfast. Some of our real strong performers, CupCakes had a great year. Donettes had a great year. So we had good growth across the board. But breakfast was certainly a step-up in innovation as we leverage the Cloverhill acquisition for the year. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- Our next questions -- sorry, our final questions come from the line of Pamela Kaufman of Morgan Stanley. -------------------------------------------------------------------------------- Pamela Kaufman, Morgan Stanley, Research Division - Senior Analyst [43] -------------------------------------------------------------------------------- I was just wondering if you can comment a little bit more on the cadence of the $90 million top line contribution from Voortman. How do you expect that to break down over the next 4 quarters? If you can give any color on that that would be helpful. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [44] -------------------------------------------------------------------------------- Yes, we're kind of on a steady state here. We're just looking at the charts right here, Pam. It's a great question. It certainly gets noisy as we get into the de-load and then the load. Brian? -------------------------------------------------------------------------------- Brian T. Purcell, Hostess Brands, Inc. - Executive VP & CFO [45] -------------------------------------------------------------------------------- Yes, it's Brian. If you look at sort of the cadence, right, looking at the warehouse conversion in Q1, it's probably 2/3 back half, 1/3 first half would be a real loose guidance in terms of how to think about it. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [46] -------------------------------------------------------------------------------- And just to build on that, Pam, that's a little bit -- one of those areas we're working hard to pull it up. But we're working to -- when we get that sooner, we could accelerate. There's a little bit of range of the revenue, but that's a pretty good guide. -------------------------------------------------------------------------------- Pamela Kaufman, Morgan Stanley, Research Division - Senior Analyst [47] -------------------------------------------------------------------------------- And then just a question on the gross margin. What was the underlying gross margin performance in the quarter? If you exclude the ISB business last year, were your gross margins up year-over-year? -------------------------------------------------------------------------------- Brian T. Purcell, Hostess Brands, Inc. - Executive VP & CFO [48] -------------------------------------------------------------------------------- Yes. If you look at -- so if you look at Q4 and you back out the impact of ISB, we did see gross margin expansion. We saw gross profit up 5.7%. In terms of what we reported, we were up a little over 40 bps. If you back out ISB, it was about neutral, actually, from a margin expansion standpoint. So we grew gross profit 5.7% excluding it. And then just the absolute margin expansion was neutral. -------------------------------------------------------------------------------- Pamela Kaufman, Morgan Stanley, Research Division - Senior Analyst [49] -------------------------------------------------------------------------------- And so how should we think about the gross margin outlook for 2020 just given the moving parts with Voortman and ISB divestiture? -------------------------------------------------------------------------------- Brian T. Purcell, Hostess Brands, Inc. - Executive VP & CFO [50] -------------------------------------------------------------------------------- Yes. So I think -- so if you look at the base business, I think that we're looking on a full year basis -- we're not guiding margins specifically. But in general, we're looking to modestly expand margins. We are seeing some headwinds from a commodity standpoint, the investments that we're making in the warehouse, et cetera. And we're looking to offset that with productivity and some select pricing initiatives. So if you think about the base business, we're looking at modest margin expansion. And if you -- so ISB will -- if you back them out, obviously, if you look at the Voortman piece, the Voortman side of the equation is going to be slightly margin accretive and ISB would be working the other way. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- We have reached the end of the question-and-answer session. I would now like to turn the call back over to management for any closing remarks. I think your line may be on mute. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [52] -------------------------------------------------------------------------------- So that concludes the call. So I appreciate everybody's energy. I've not -- there's no further questions? -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- No, we have no further questions at this time. -------------------------------------------------------------------------------- Andrew P. Callahan, Hostess Brands, Inc. - President, CEO & Director [54] -------------------------------------------------------------------------------- All right. Great. I appreciate everybody's interest in Hostess. We're activating our value creation model. I feel great about the future we have. We have a big first half to go to continue to transform the company and create value, and the long-term value thesis is very strong. So I appreciate everybody's interest. Have a great afternoon. -------------------------------------------------------------------------------- Operator [55] -------------------------------------------------------------------------------- This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.