wing-20240629

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 001-37425

WINGSTOP INC.

(Exact name of registrant as specified in its charter)


Delaware						47-3494862
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)


15505 Wright Brothers Drive
Addison, Texas						75001
(Address of principal executive offices)						(Zip Code)

(972) 686-6500

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	WING	NASDAQ Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No

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

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

On July 30, 2024 there were 29,304,401 shares of common stock outstanding.

TABLE OF CONTENTS


		Page
PART I	Financial Information	4
Item 1.	Financial Statements	4
	Consolidated Balance Sheets - June 29 , 2024 (Unaudited) and December 30, 2023	4
	Consolidated Statements of Comprehensive Income (Unaudited) - Thirteen and Twenty-six Weeks Ended June 29, 2024 and July 1, 2023	5

	Consolidated Statements of Stockholders’ Deficit (Unaudited) - Thirteen and Twenty-six Weeks Ended June 29, 2024 and J uly 1, 2023	6
	Consolidated Statements of Cash Flows (Unaudited) - Twenty -s ix Weeks Ended June 29, 2024 and July 1, 2023	8
	Notes to Consolidated Financial Statements (Unaudited)	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28

PART II	Other Information	29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
	Signatures	31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(amounts in thousands, except share and par value amounts)


	June 29, 2024		December 30, 2023
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	96,749	$	90,216
Restricted cash	11,444		11,444
Accounts receivable, net	16,059		12,408
Prepaid expenses and other current assets	6,768		4,948
Advertising fund assets, restricted	31,768		25,328
Total current assets	162,788		144,344
Property and equipment, net	107,738		91,292
Operating lease assets	55,379		19,092
Goodwill	68,733		67,708
Trademarks	32,700		32,700
Customer relationships, net	7,108		7,740
Other non-current assets	17,375		14,949
Total assets	$	451,821	$	377,825
Liabilities and stockholders' deficit
Current liabilities
Accounts payable	$	5,752	$	4,725
Current portion of operating lease liabilities	4,061		2,380
Other current liabilities	42,955		38,571

Advertising fund liabilities	31,768		25,328
Total current liabilities	84,536		71,004
Long-term debt, net	713,258		712,327
Operating lease liabilities	53,943		17,807
Deferred revenues, net of current	32,928		30,145
Deferred income tax liabilities, net	4,626		3,721
Other non-current liabilities	71		187
Total liabilities	889,362		835,191
Commitments and contingencies (see Note 7)
Stockholders' deficit
Common stock, $0.01 par value; 100,000,000 shares authorized; 29,304,401 and 29,337,920 shares issued and outstanding as of June 29, 2024 and December 30, 2023, respectively	293		293
Additional paid-in-capital	1,869		2,676

Retained deficit	(439,326)		(459,994)
Accumulated other comprehensive loss	(377)		(341)
Total stockholders' deficit	(437,541)		(457,366)
Total liabilities and stockholders' deficit	$	451,821	$	377,825

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(amounts in thousands, except per share data)

(Unaudited)


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Revenue:
Royalty revenue, franchise fees and other	$	71,160	$	47,984	$	138,257	$	96,172
Advertising fees	54,654		36,596		104,803		74,059
Company-owned restaurant sales	29,885		22,593		58,428		45,663
Total revenue	155,699		107,173		301,488		215,894
Costs and expenses:
Cost of sales (1)	22,673		16,642		43,944		33,337
Advertising expenses	58,548		38,729		111,740		78,372
Selling, general and administrative	28,097		22,128		53,275		45,773
Depreciation and amortization	5,161		3,218		8,571		6,207
Loss on disposal of assets	—		—		—		77
Total costs and expenses	114,479		80,717		217,530		163,766
Operating income	41,220		26,456		83,958		52,128
Interest expense, net	5,200		4,244		9,744		8,817

Other (income) expense	(471)		(46)		(774)		142
Income before income tax expense	36,491		22,258		74,988		43,169
Income tax expense	9,006		6,077		18,756		11,319
Net income	$	27,485	$	16,181	$	56,232	$	31,850

Earnings per share
Basic	$	0.94	$	0.54	$	1.92	$	1.06
Diluted	$	0.93	$	0.54	$	1.91	$	1.06

Weighted average shares outstanding
Basic	29,343		29,972		29,346		29,959
Diluted	29,457		30,049		29,468		30,043

Dividends per share	$	0.22	$	0.19	$	0.44	$	0.38

Other comprehensive income (loss)
Currency translation adjustment	$	(12)	$	128	$	(36)	$	276
Other comprehensive income (loss)	(12)		128		(36)		276
Comprehensive income	$	27,473	$	16,309	$	56,196	$	32,126

(1) Cost of sales includes all operating expenses of company-owned restaurants, including advertising expenses, and excludes depreciation and amortization, which are presented separately.

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Deficit

For the Twenty-Six Weeks Ended July 1, 2023

(amounts in thousands, except share data)

(Unaudited)


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Retained Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Deficit
Balance at December 31, 2022	29,932,668	$	300	$	2,797	$	(393,321)	$	(637)	$	(390,861)

Net income	—	—		—		15,669		—		15,669
Shares issued under stock plans	49,817	—		111		—		—		111
Tax payments for restricted stock upon vesting	(13,613)	—		—		(2,292)		—		(2,292)
Stock-based compensation expense, net of forfeitures	—	—		3,345		—		—		3,345
Dividends declared on common stock and equivalents	—	—		(5,444)		(465)		—		(5,909)
Currency translation adjustment	—	—		—		—		147		147
Balance at April 1, 2023	29,968,872	300		809		(380,409)		(490)		(379,790)
Net income	—	—		—		16,181		—		16,181
Shares issued under stock plans	9,084	—		362		—		—		362
Tax payments for restricted stock upon vesting	(342)	—		—		(69)		—		(69)
Stock-based compensation expense, net of forfeitures	—	—		3,546		—		—		3,546
Dividends declared on common stock and equivalents	—	—		(2,679)		(3,030)		—		(5,709)
Currency translation adjustment	—	—		—		—		128		128
Balance at July 1, 2023	29,977,614	$	300	$	2,038	$	(367,327)	$	(362)	$	(365,351)

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Deficit

For the Twenty-Six Weeks Ended June 29, 2024

(amounts in thousands, except share data)

(Unaudited)


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Retained Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Deficit
Balance at December 30, 2023	29,337,920	$	293	$	2,676	$	(459,994)	$	(341)	$	(457,366)
Net income	—	—		—		28,747		—		28,747
Shares issued under stock plans	42,918	1		707		—		—		708
Tax payments for restricted stock upon vesting	(10,860)	—		—		(3,717)		—		(3,717)
Stock-based compensation expense, net of forfeitures	—	—		3,812		—		—		3,812
Dividends declared on common stock and equivalents	—	—		(6,277)		(262)		—		(6,539)
Currency translation adjustment	—	—		—		—		(24)		(24)
Balance at March 30, 2024	29,369,978	294		918		(435,226)		(365)		(434,379)
Net income	—	—		—		27,485		—		27,485
Shares issued under stock plans	11,323	—		546		—		—		546
Purchases of common stock	(75,862)	(1)		(4,304)		(24,915)		—		(29,220)
Tax payments for restricted stock upon vesting	(1,038)	—		—		(401)		—		(401)
Stock-based compensation expense, net of forfeitures	—	—		4,926		—		—		4,926
Dividends declared on common stock and equivalents	—	—		(217)		(6,269)		—		(6,486)
Currency translation adjustment	—	—		—		—		(12)		(12)
Balance at June 29, 2024	29,304,401	$	293	$	1,869	$	(439,326)	$	(377)	$	(437,541)

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(amounts in thousands)

(Unaudited)


	Twenty-Six Weeks Ended
	June 29, 2024		July 1, 2023

Operating activities
Net income	$	56,232	$	31,850
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	8,571		6,207
Deferred income taxes	905		(1,030)
Stock-based compensation expense	8,738		6,891
Loss on disposal of assets	—		77
Amortization of debt issuance costs	1,037		1,021

Changes in operating assets and liabilities:
Accounts receivable	(3,341)		(1,286)
Prepaid expenses and other assets	(3,040)		(4)
Advertising fund assets and liabilities, net	3,892		6,235
Accounts payable and other current liabilities	3,157		(3,528)
Deferred revenue	3,274		1,442
Other non-current liabilities	1,412		92
Cash provided by operating activities	80,837		47,967

Investing activities
Purchases of property and equipment	(21,459)		(17,002)
Acquisition of restaurants from franchisee	(3,292)		(4,396)

Payments for investments	(500)		(808)
Cash used in investing activities	(25,251)		(22,206)

Financing activities


Proceeds from exercise of stock options	1,254		473
Repayments of long-term debt	—		(3,650)

Purchases of common stock	(29,220)		—
Tax payments for restricted stock upon vesting	(4,118)		(2,361)
Dividends paid	(13,077)		(11,836)
Cash used in financing activities	(45,161)		(17,374)

Net increase in cash, cash equivalents, and restricted cash	10,425		8,387
Cash, cash equivalents, and restricted cash at beginning of period	119,676		205,715
Cash, cash equivalents, and restricted cash at end of period	$	130,101	$	214,102

Supplemental information:
Accrued capital expenditures	$	3,946	$	4,179

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1) Basis of Presentation and Update to Significant Accounting Policies

Nature of operations. Wingstop Inc., together with its consolidated subsidiaries (collectively, “Wingstop” or the “Company”), is in the business of franchising and operating Wingstop restaurants. As of June 29, 2024, the Company had a total of 2,352 restaurants system-wide. The Company’s restaurant base is approximately 98% franchised, with 2,300 franchised locations (including 312 restaurants in international locations and U.S. territories) and 52 company-owned restaurants as of June 29, 2024.

Basis of presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Consequently, financial information and disclosures normally included in financial statements prepared annually in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. Balance sheet amounts are as of June 29, 2024 and December 30, 2023, and operating results are for the thirteen and twenty-six weeks ended June 29, 2024 and July 1, 2023.

Certain prior period information on the Consolidated Balance Sheets have been reclassified to conform to the current presentation.

In the Company’s opinion, all necessary adjustments have been made for the fair presentation of the results of the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023.

Fiscal year. The Company uses a 52- or 53-week fiscal year that ends on the last Saturday of the calendar year. Fiscal years 2024 and 2023 each have 52 weeks.

Cash, Cash Equivalents, and Restricted Cash. Cash, cash equivalents, and restricted cash within the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows as of June 29, 2024 and December 30, 2023 were as follows (in thousands):


	June 29, 2024		December 30, 2023
Cash and cash equivalents	$	96,749	$	90,216
Restricted cash	11,444		11,444
Restricted cash, included in Advertising fund assets, restricted	21,908		18,016
Total cash, cash equivalents, and restricted cash	$	130,101	$	119,676

Recently issued accounting pronouncements. We reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our consolidated financial statements. There have been no changes to the recently issued accounting pronouncements not yet adopted disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023.

(2) Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities convertible into, or other contracts to issue, common stock were exercised or converted into common stock. For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of the exercise and vesting of stock options and service-based and performance-based restricted stock units, respectively, as determined using the treasury stock method.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands):


	Thirteen Weeks Ended		Twenty-Six Weeks Ended
	June 29, 2024	July 1, 2023	June 29, 2024	July 1, 2023
Basic weighted average shares outstanding	29,343	29,972	29,346	29,959
Dilutive shares	114	77	122	84
Diluted weighted average shares outstanding	29,457	30,049	29,468	30,043

For the thirteen weeks ended June 29, 2024 and July 1, 2023, equity awards representing approximately 0 and 1,000 shares, respectively, were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive.

For the twenty-six weeks ended June 29, 2024 and July 1, 2023, equity awards representing approximately 28,000 and 3,000 shares, respectively, were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive.

(3) Stockholders’ Deficit

Dividends

In connection with the Company’s regular dividend program, in each of the first two quarters of 2024, our Board of Directors declared a quarterly dividend of $0.22 per share of common stock, which, in aggregate, totaled $12.9 million, or $0.44 per share of common stock, and which was paid during the twenty-six weeks ended June 29, 2024.

Subsequent to the second quarter, on July 30, 2024, our Board of Directors declared a quarterly dividend of $0.27 per share of common stock for stockholders of record as of August 16, 2024. The regular quarterly dividend is to be paid on September 6, 2024, totaling approximately $7.9 million.

Share Repurchase Program

On August 17, 2023, the Company announced a share repurchase program with authorization to purchase up to $250.0 million of its outstanding shares of common stock (the “Share Repurchase Program”). During the thirteen weeks ended June 29, 2024, the Company repurchased and retired 75,862 shares of its common stock at an average price of $381.29 per share. As of June 29, 2024, $96.1 million remained available under the Share Repurchase Program.

(4) Fair Value Measurements

Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. Assets and liabilities are classified using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value as follows:

Level 1 — Unadjusted quoted prices for identical instruments traded in active markets.

Level 2 — Observable market-based inputs or unobservable inputs corroborated by market data.

Level 3 — Unobservable inputs reflecting management’s estimates and assumptions.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short-term nature. Fair value of debt and the investment in bonds issued by the Company’s United Kingdom master franchisee, Lemon Pepper Holdings Ltd. (“LPH”), are determined on a non-recurring basis, which results are summarized as follows (in thousands):


	Fair Value Hierarchy	June 29, 2024				December 30, 2023
		Carrying Value		Fair Value		Carrying Value		Fair Value
Securitized Financing Facility:
2020-1 Class A-2 Senior Secured Notes (1)	Level 2	$	472,800	$	429,548	$	472,800	$	423,823
2022-1 Class A-2 Senior Secured Notes (1)	Level 2	$	248,125	$	222,370	$	248,125	$	222,370
Investments in bonds of LPH (2)	Level 3	$	3,624	$	4,367	$	3,557	$	4,306

(1) The fair value of the 2020-1 and 2022-1 Class A-2 Senior Secured Notes was estimated using available market information.

(2) The fair value approximates discounted cash flows using current market rates for debt investments with similar maturities and credit risk.

The Company also measures certain non-financial assets (primarily long-lived assets, intangible assets, and goodwill) at fair value on a non-recurring basis in connection with its periodic evaluations of such assets for potential impairment.

(5) Income Taxes

Income tax expense and the effective tax rate were $9.0 million and 24.7%, respectively, for the thirteen weeks ended June 29, 2024, and $6.1 million and 27.3%, respectively, for the thirteen weeks ended July 1, 2023. Income tax expense and the effective tax rate were $18.8 million and 25.0%, respectively, for the twenty-six weeks ended June 29, 2024, and $11.3 million and 26.2%, respectively, for the twenty-six weeks ended July 1, 2023. The decrease in the effective tax rate is primarily related to an increase in excess tax benefits recognized from stock-based compensation in income tax expense as compared to the prior fiscal period.

(6) Debt Obligations

Long-term debt consisted of the following components (in thousands):


	June 29, 2024		December 30, 2023
2020-1 Class A-2 Senior Secured Notes	$	472,800	$	472,800
2022-1 Class A-2 Senior Secured Notes	248,125		248,125
Debt issuance costs, net of amortization	(7,667)		(8,598)
Total debt	713,258		712,327

The Company’s outstanding debt was issued by Wingstop Funding LLC, a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of Wingstop Inc. and consists of (i) Series 2020-1 2.84% Fixed Rate Senior Secured Notes, Class A-2 (the “2020 Class A-2 Notes”), (ii) Series 2022-1 3.734% Fixed Rate Senior Secured Notes, Class A-2 (the “2022 Class A-2 Notes”), and (iii) a revolving financing facility of Series 2022-1 Variable Funding Senior Notes, Class A-1 (the “2022 Variable Funding Notes,” and together with the 2022 Class A-2 Notes, the “2022 Notes”), which permits borrowings of up to a maximum principal amount of $200 million, subject to certain borrowing conditions, a portion of which may be used to issue letters of credit.

No borrowings were outstanding under the 2022 Variable Funding Notes as of June 29, 2024 and December 30, 2023.

As of June 29, 2024, the Company’s leverage ratio under the 2020 Class A-2 Notes and the 2022 Class A-2 Notes was less than 5.0x. Per the terms of the Company’s debt agreements, principal payments can be suspended at the borrower’s election until the repayment date, as long as the Company maintains a leverage ratio of less than 5.0x. Accordingly, the Company elected to suspend payments following the principal payment made in the second quarter of 2023, and the entire outstanding balance of $720.9 million of the 2020 Class A-2 Notes and the 2022 Class A-2 Notes has been classified as long-term debt due after fiscal year 2026.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The 2020 Class A-2 Notes and 2022 Notes were issued in securitization transactions, and are guaranteed by certain limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiaries of the Company and secured by a security interest in substantially all of their assets, including certain domestic and foreign revenue-generating assets, consisting principally of franchise-related agreements, intellectual property, and vendor rebate contracts.

(7) Commitments and Contingencies

The Company is subject to legal proceedings, claims, and liabilities, including claims and actions resulting from employment-related and franchise-related matters, which arise in the ordinary course of business and are generally covered by insurance. In the opinion of management, the amount of ultimate liability with respect to such actions is not likely to have a material adverse impact on the Company’s financial position, results of operations, or cash flows.

(8) Leases

The Company has operating leases for retail store locations, office space, and equipment. The Company determines whether an arrangement is a lease at inception. The Company's leases have remaining terms of 0.3 years to 13.7 years, some of which include options to extend the lease term for up to ten years. The years remaining on the Company’s lease terms may include years that may be added to the lease terms by the exercise of options to renew when it is reasonably certain that the Company will exercise such options.

During the first fiscal quarter 2024, the Company executed a lease for an office building, which commenced in May 2024. The operating lease has an initial lease term of 13.8 years with undiscounted fixed payments of $66.9 million over the initial term.

Components of lease expense were as follows (in thousands):


	Twenty-Six Weeks Ended
	June 29, 2024	July 1, 2023
Operating lease cost (1)	2,480	1,685
Variable lease cost (2)	370	293
Total lease cost	2,850	1,978

(1) Includes short-term leases, which are immaterial.

(2) Primarily related to adjustments for inflation, common area maintenance, and property tax.

Supplemental cash flow information related to leases is as follows (in thousands):


	Twenty-Six Weeks Ended
	June 29, 2024		July 1, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,564	$	1,629
Right-of-use assets obtained in exchange for new operating lease liabilities	$	37,950	$	1,963

(9) Stock-Based Compensation

During the twenty-six weeks ended June 29, 2024, the Company granted 23,114 restricted stock units (“RSUs”) to certain employees. The RSUs granted to certain employees generally vest in equal annual amounts over a three-year period subsequent to the grant date and had a weighted-average grant-date fair value of $371.17 per unit.

In addition, the Company granted 23,874 performance stock units (“PSUs”) to certain employees during the twenty-six weeks ended June 29, 2024. Of the total PSUs granted, 20,593 PSUs are subject to a service condition and a performance vesting condition based on return on incremental invested capital (“ROI PSUs”). The ROI PSUs are generally eligible to cliff-vest approximately three years from the grant date, and the maximum vesting percentage that could be realized for each of the ROI PSUs is 250% based on the level of performance achieved for the awards. The remaining 3,281 PSUs granted are subject to a service condition and a performance vesting condition based on the number of net new restaurants opened over the performance

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

period (“NNR PSUs”). The NNR PSUs vest in equal annual amounts over a three-year period, and the maximum vesting percentage that could be realized for each of the NNR PSUs is 100% based on the level of performance achieved for the awards. The PSUs had a weighted-average grant-date fair value of $370.95 per unit. Total compensation cost for the PSUs is determined based on the most likely outcome of the performance condition and the number of awards expected to vest based on the outcome.

Total compensation expense related to all share-based awards, net of forfeitures recognized, was $8.7 million and $6.9 million for the twenty-six weeks ended June 29, 2024 and July 1, 2023, respectively, and was included in Selling, general and administrative (“SG&A”) expense in the Consolidated Statements of Comprehensive Income.

(10) Revenue from Contracts with Customers

The following table represents a disaggregation of revenue from contracts with customers for the thirteen and twenty-six weeks ended June 29, 2024 and July 1, 2023 (in thousands):


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Royalty revenue	$	64,201	$	43,271	$	125,393	$	86,785
Advertising fees and related income	54,654		36,596		104,803		74,059
Franchise fees	1,440		1,107		2,682		2,169

Franchise fee, development fee, and international territory fee payments received by the Company are recorded as deferred revenue on the Consolidated Balance Sheets, which represents a contract liability. Deferred revenue is reduced as fees are recognized in revenue over the term of the franchise license for the respective restaurant. As the term of the franchise license is typically ten years, substantially all of the franchise fee revenue recognized in the thirteen and twenty-six weeks ended June 29, 2024 was included in the deferred revenue balance as of December 30, 2023. Approximately $10.3 million and $9.3 million of deferred revenue as of June 29, 2024 and December 30, 2023, respectively, relates to restaurants that have not yet opened, so the fees are not yet being amortized. The weighted average remaining amortization period for deferred franchise and renewal fees related to open restaurants is 7.1 years. The Company did not have any material contract assets as of June 29, 2024.

(11) Acquisitions of Company-owned Restaurants

During the second fiscal quarter ended June 29, 2024, the Company acquired one existing restaurant from a franchisee. The total purchase price was $3.3 million and was funded by cash flow from operations. The following table summarizes the allocations of the purchase price to the estimated fair value of assets acquired and liabilities assumed at the date of the acquisition (in thousands):


	Purchase Price Allocation
Working capital	$	8
Property and equipment	65
Reacquired franchise rights	2,200
Goodwill	1,025


Total purchase price	$	3,298

The excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill and is attributable to the benefits expected as a result of the acquisition, including sales and unit growth opportunities. All of the goodwill from the acquisition is expected to be deductible for federal income tax purposes.

Pro-forma financial information of the combined entities is not presented due to the immaterial impact of the financial results of the acquisition on our consolidated financial statements.

Subsequent to the end of the fiscal second quarter 2024, the Company acquired two existing restaurants from a franchisee. The purchase price, in the aggregate, was $7.0 million, funded by cash flow from operations. The restaurant acquisitions are accounted for as business combinations. The Company is still determining the estimated fair value of assets acquired and liabilities assumed. The excess of the purchase price over the aggregate fair value of assets acquired will be allocated to

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

goodwill. The results of operations of these acquisitions will be included in our Consolidated Statements of Comprehensive Income as of the dates of acquisition.

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

The following discussion and analysis of the financial condition and results of operations of Wingstop Inc. (collectively with its direct and indirect subsidiaries on a consolidated basis, “Wingstop,” the “Company,” “we,” “our,” or “us”) should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (our “Annual Report”). The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Special Note Regarding Forward-Looking Statements,” below and “Risk Factors” beginning on page 11 of our Annual Report. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

We operate on a 52- or 53-week fiscal year ending on the last Saturday of each calendar year. Our fiscal quarters are comprised of 13 weeks, with the exception of the fourth quarter of a 53-week year, which contains 14 weeks. Fiscal years 2024 and 2023 each contain 52 weeks.

Overview

Wingstop is the largest fast casual chicken wings-focused restaurant chain in the world, with over 2,350 locations worldwide. We are dedicated to serving the world flavor through an unparalleled guest experience and offering of classic wings, boneless wings, tenders, and chicken sandwiches, always cooked to order and hand-sauced-and-tossed in 12 bold, distinctive flavors.

The Company is primarily a franchisor, with approximately 98% of Wingstop’s restaurants currently owned and operated by independent franchisees. We believe our asset-light, highly-franchised business model generates strong operating margins and requires low capital expenditures, creating stockholder value through strong and consistent free cash flow and capital-efficient growth.

Second Quarter of 2024 Highlights

•System-wide sales increased 45.2% over the prior fiscal second quarter to $1.2 billion;

•73 net new openings in the fiscal second quarter 2024 for a total of 2,352 worldwide locations;

•Domestic same store sales increased 28.7% over the prior fiscal second quarter;

•Company-owned restaurant same store sales increased 14.1% over the prior fiscal second quarter;

•Digital sales increased to 68.3% of system-wide sales, as compared to 65.2% in the prior fiscal second quarter;

•Domestic AUV increased to $2.0 million;

•Total revenue increased 45.3% over the prior fiscal second quarter to $155.7 million;

•Net income increased 69.9% to $27.5 million, or $0.93 per diluted share, compared to net income of $16.2 million, or $0.54 per diluted share, in the prior fiscal second quarter; and

•Adjusted EBITDA, a non-GAAP measure, increased 50.7% to $51.8 million, compared to adjusted EBITDA of $34.4 million in the prior fiscal second quarter.

Year-to-Date Second Quarter of 2024 Highlights

•System-wide sales increased 41.0% to $2.3 billion;

•138 net new openings in the year-to-date second quarter of 2024;

•Domestic same store sales increased 25.1% over the prior fiscal year-to-date period;

•Total revenue increased 39.6% to $301.5 million over the prior fiscal year-to-date period;

•Net income increased 76.6% to $56.2 million, or $1.91 per diluted share, compared to net income of $31.9 million, or $1.06 per diluted share, in the prior fiscal year-to-date period; and

•Adjusted EBITDA, a non-GAAP measure, increased 48.0% to $102.0 million, compared to adjusted EBITDA of $68.9 million in the prior fiscal year-to-date period.

Key Performance Indicators

Key measures that we use in evaluating our restaurants and assessing our business include the following:

Number of restaurants. Management reviews the number of new restaurants, the number of closed restaurants, and the number of acquisitions and divestitures of restaurants to assess net new restaurant growth.


	Thirteen Weeks Ended		Twenty-Six Weeks Ended
	June 29, 2024	July 1, 2023	June 29, 2024	July 1, 2023
Domestic Franchised Activity:
Beginning of period	1,924	1,710	1,877	1,678
Openings	65	42	112	74
Closures	—	(1)	—	(1)
Acquired by Company	(1)	(2)	(1)	(2)

Restaurants end of period	1,988	1,749	1,988	1,749

Domestic Company-Owned Activity:
Beginning of period	50	43	49	43
Openings	1	—	2	—
Closures	—	—	—	—
Acquired by Company	1	2	1	2

Restaurants end of period	52	45	52	45

Total Domestic Restaurants	2,040	1,794	2,040	1,794

International Franchised Activity(1):
Beginning of period	305	243	288	238
Openings	10	9	27	17
Closures	(3)	—	(3)	(3)

Restaurants end of period	312	252	312	252

Total System-wide Restaurants	2,352	2,046	2,352	2,046

(1) Including U.S. territories.

System-wide sales. System-wide sales represents net sales for all of our company-owned and franchised restaurants, as reported by franchisees. This measure allows management to better assess changes in our royalty revenue, our overall store performance, the health of our brand, and the strength of our market position relative to competitors. Our system-wide sales growth is driven by new restaurant openings as well as increases in same store sales.

Domestic average unit volume (“AUV”). Domestic AUV consists of the average annual sales of all restaurants that have been open for a trailing 52-week period or longer. This measure is calculated by dividing sales during the applicable period for all restaurants being measured by the number of restaurants being measured. Domestic AUV includes revenue from both company-owned and franchised restaurants. Domestic AUV allows management to assess our domestic company-owned and franchised restaurant economics. Changes in domestic AUV growth are primarily driven by increases in same store sales and are also influenced by opening new restaurants.

Domestic same store sales. Domestic same store sales reflects the change in year-over-year sales for the same store restaurant base. We define the same store restaurant base to include those restaurants open for at least 52 full weeks. This measure highlights the performance of existing restaurants, while excluding the impact of new restaurant openings and permanent closures. We review same store sales for domestic company-owned restaurants as well as system-wide domestic restaurants. Domestic same store sales growth is driven by increases in transactions and average transaction size. Transaction size increases are driven by price increases or favorable mix shift from either an increase in items purchased or shifts into higher priced items.

EBITDA and Adjusted EBITDA. We define EBITDA as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization. We define Adjusted EBITDA as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization, with further adjustments for losses on debt extinguishment and financing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, and stock-based compensation expense. Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in methods of calculation. For a reconciliation of net income to EBITDA and Adjusted EBITDA and for further discussion of EBITDA and Adjusted EBITDA as non-GAAP measures and how we utilize them, see footnote 2 below.

The following table sets forth our key performance indicators for the thirteen and twenty-six weeks ended June 29, 2024 and July 1, 2023 (in thousands, except unit data):


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	June 29, 2024			July 1, 2023			June 29, 2024			July 1, 2023
Number of system-wide restaurants open at end of period	2,352			2,046			2,352			2,046
System-wide sales (1)	$	1,175,910		$	809,750		$	2,299,518		$	1,631,359
Domestic restaurant AUV	$	2,032		$	1,704		$	2,032		$	1,704
Domestic same store sales growth	28.7		%	16.8		%	25.1		%	18.4		%
Company-owned domestic same store sales growth	14.1		%	5.7		%	10.1		%	7.9		%
Total revenue	$	155,699		$	107,173		$	301,488		$	215,894
Net income	$	27,485		$	16,181		$	56,232		$	31,850
Adjusted EBITDA

SEC Form 10-Q filed by Wingstop Inc.