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 ~~27, 2020~~

26, 2021


☐			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.)

~~5501 LBJ Freeway~~15505 Wright Brothers Drive

~~5th Floor~~

~~Dallas~~Addison

Texas

~~75240~~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 ~~28, 2020~~27, 2021 there were ~~29,598,958~~29,745,482 shares of common stock outstanding.

TABLE OF CONTENTS


		Page
PART I	Financial Information	4
Item 1.	Financial Statements	4
	Consolidated Balance Sheets - June ~~27, 2020~~26, 2021 (Unaudited) and December ~~28, 2019~~26, 2020	4
	Consolidated Statements of ~~Operations~~Comprehensive Income (Unaudited) - Thirteen and Twenty-six Weeks Ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020	5

	Consolidated Statement of Stockholders’ Deficit (Unaudited) - ~~Twenty-six~~Thirteen Weeks Ended ~~June~~March 27, ~~2020~~2021 and ~~June 29, 2019~~March 28, 2020	6
	Consolidated Statements of Cash Flows (Unaudited) - ~~Twenty-six~~Thirteen Weeks Ended ~~June~~March 27, ~~2020~~2021 and ~~June 29, 2019~~March 28, 2020	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2526
Item 4.	Controls and Procedures	2627

PART II	Other Information	2728
Item 1.	Legal Proceedings	2728
Item 1A.	Risk Factors	2728
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
	Signatures	30

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 27,
2020 December 28,
2019
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 45,766 $ 12,849
Restricted cash 4,132 4,790
Accounts receivable, net 5,580 5,175
Prepaid expenses and other current assets 4,118 2,449
Advertising fund assets, restricted 7,860 4,927
Total current assets 67,456 30,190
Property and equipment, net 27,220 27,842
Goodwill 50,160 50,188
Trademarks 32,700 32,700
Customer relationships, net 12,255 12,910
Other non-current assets 11,323 12,283
Total assets $ 201,114 $ 166,113
Liabilities and stockholders' deficit
Current liabilities
Accounts payable $ 2,890 $ 3,348
Other current liabilities 20,829 21,454
Current portion of debt 16,000 3,200
Advertising fund liabilities 7,860 4,927
Total current liabilities 47,579 32,929
Long-term debt, net 310,846 307,669
Deferred revenues, net of current 22,280 22,343
Deferred income tax liabilities, net 6,043 4,485
Other non-current liabilities 7,038 8,115
Total liabilities 393,786 375,541
Commitments and contingencies (see Note 7)
Stockholders' deficit
Common stock, $0.01 par value; 100,000,000 shares authorized; 29,596,347 and 29,457,228 shares issued and outstanding as of June 27, 2020 and December 28, 2019, respectively 296 295
Additional paid-in-capital 43 552
Accumulated deficit (193,011) (210,275)
Total stockholders' deficit (192,672) (209,428)
Total liabilities and stockholders' deficit $ 201,114 $ 166,113


	June 26, 2021		December 26, 2020
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	43,504	$	40,858
Restricted cash	4,657		4,815
Accounts receivable, net	5,854		4,929
Prepaid expenses and other current assets	9,132		5,532
Advertising fund assets, restricted	21,561		16,486
Total current assets	84,708		72,620
Property and equipment, net	39,598		27,948
Goodwill	53,690		53,690
Trademarks	32,700		32,700
Customer relationships, net	10,951		11,600
Other non-current assets	12,617		13,007
Total assets	$	234,264	$	211,565
Liabilities and stockholders' deficit
Current liabilities
Accounts payable	$	3,812	$	3,658
Other current liabilities	25,072		26,729
Current portion of debt	1,200		3,600
Advertising fund liabilities	21,561		16,486
Total current liabilities	51,645		50,473
Long-term debt, net	468,774		466,933
Deferred revenues, net of current	26,156		24,962
Deferred income tax liabilities, net	5,416		4,480
Other non-current liabilities	4,516		6,027
Total liabilities	556,507		552,875
Commitments and contingencies (see Note 8)	0		0
Stockholders' deficit
Common stock, $0.01 par value; 100,000,000 shares authorized; 29,743,375 and 29,687,123 shares issued and outstanding as of June 26, 2021 and December 26, 2020, respectively	298		297
Additional paid-in-capital	594		421
Retained deficit	(323,026)		(342,028)
Accumulated other comprehensive loss	(109)		0
Total stockholders' deficit	(322,243)		(341,310)
Total liabilities and stockholders' deficit	$	234,264	$	211,565

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Statements of ~~Operations~~Comprehensive Income

(amounts in thousands, except per share data)

(Unaudited)

Thirteen Weeks Ended Twenty-Six Weeks Ended
June 27,
2020 June 29,
2019 June 27,
2020 June 29,
2019
Revenue:
Royalty revenue, franchise fees and other $ 27,858 $ 21,187 $ 52,057 $ 42,515
Advertising fees and related income 19,923 13,487 35,937 26,697
Company-owned restaurant sales 18,324 13,888 33,547 27,403
Total revenue 66,105 48,562 121,541 96,615
Costs and expenses:
Cost of sales ⁽¹⁾
13,387 10,573 24,563 20,303
Advertising expenses 18,589 12,973 33,513 25,707
Selling, general and administrative 13,194 13,394 27,504 25,936
Depreciation and amortization 1,398 1,335 2,953 2,611
Total costs and expenses 46,568 38,275 88,533 74,557
Operating income 19,537 10,287 33,008 22,058
Interest expense, net 4,214 4,299 8,359 8,709
Income before income tax expense 15,323 5,988 24,649 13,349
Income tax expense 3,784 1,070 5,014 1,825
Net income $ 11,539 $ 4,918 $ 19,635 $ 11,524
Earnings per share
Basic $ 0.39 $ 0.17 $ 0.66 $ 0.39
Diluted $ 0.39 $ 0.17 $ 0.66 $ 0.39
Weighted average shares outstanding
Basic 29,588 29,418 29,538 29,377
Diluted 29,793 29,667 29,751 29,650
Dividends per share $ 0.11 $ 0.09 $ 0.22 $ 0.18


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Revenue:
Royalty revenue, franchise fees and other	$	33,135	$	27,858	$	64,741	$	52,057
Advertising fees	22,577		19,923		44,097		35,937
Company-owned restaurant sales	18,288		18,324		35,852		33,547
Total revenue	74,000		66,105		144,690		121,541
Costs and expenses:
Cost of sales (1)	14,207		13,387		27,486		24,563
Advertising expenses	23,301		20,424		45,328		37,420
Selling, general and administrative	16,066		13,375		29,852		25,613
Depreciation and amortization	1,523		1,398		3,318		2,953
Gain on sale of restaurants and other expenses, net	0		(2,016)		0		(2,016)
Total costs and expenses	55,097		46,568		105,984		88,533
Operating income	18,903		19,537		38,706		33,008
Interest expense, net	3,724		4,214		7,506		8,359

Income before income tax expense	15,179		15,323		31,200		24,649
Income tax expense	3,867		3,784		6,728		5,014
Net income	$	11,312	$	11,539	$	24,472	$	19,635

Earnings per share
Basic	$	0.38	$	0.39	$	0.82	$	0.66
Diluted	$	0.38	$	0.39	$	0.82	$	0.66

Weighted average shares outstanding
Basic	29,739		29,588		29,722		29,538
Diluted	29,873		29,793		29,859		29,751

Dividends per share	$	0.14	$	0.11	$	0.28	$	0.22

Other comprehensive income (loss)
Currency translation adjustment	$	(109)	$	0	$	(109)	$	0
Other comprehensive income (loss)	(109)		0		(109)		0
Comprehensive income	$	11,203	$	11,539	$	24,363	$	19,635

⁽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 June ~~29, 2019~~27, 2020 and June ~~27, 2020~~26, 2021

(amounts in thousands, except share data)

(Unaudited)

Common Stock
Shares Amount
Additional
Paid-In Capital
Accumulated Deficit Total Stockholders’ Deficit
Balance at December 29, 2018 29,296,939 $ 293 $ 1,036 $ (226,159) $ (224,830)
Adjustment for ASC 842 adoption — — — 154 154
Net income — — — 6,606 6,606
Shares issued under stock plans 114,936 1 157 — 158
Tax payments for restricted stock upon vesting (12,469) — — (833) (833)
Stock-based compensation expense — — 838 — 838
Dividends paid — — (1,825) (746) (2,571)
Balance at March 30, 2019 29,399,406 294 206 (220,978) (220,478)
Net income — — — 4,918 4,918
Shares issued under stock plans 45,778 1 147 — 148
Tax payments for restricted stock upon vesting (2,456) — — (226) (226)
Stock-based compensation expense — — 1,928 — 1,928
Dividends paid — — (1,389) (1,269) (2,658)
Balance at June 29, 2019 29,442,728 $ 295 $ 892 $ (217,555) $ (216,368)


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Retained Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Deficit
Balance at December 28, 2019	29,457,228	$	295	$	552	$	(210,275)	$	0	$	(209,428)

Net income	—	—		—		8,096		—		8,096
Shares issued under stock plans	128,585	1		504		—		—		505
Tax payments for restricted stock upon vesting	(2,419)	—		—		(229)		—		(229)
Stock-based compensation expense	—	—		1,331		—		—		1,331
Dividends declared on common stock and equivalents	—	—		(2,168)		(1,055)		—		(3,223)
Balance at March 28, 2020	29,583,394	296		219		(203,463)		0		(202,948)
Net income	—	—		—		11,539		—		11,539
Shares issued under stock plans	13,057	0		57		—		—		57
Tax payments for restricted stock upon vesting	(104)	—		—		(12)		—		(12)
Stock-based compensation expense	—	—		1,969		—		—		1,969
Dividends declared on common stock and equivalents	—	—		(2,202)		(1,075)		—		(3,277)
Balance at June 27, 2020	29,596,347	$	296	$	43	$	(193,011)	$	0	(192,672)

Common Stock
Shares Amount Additional
Paid-In Capital Accumulated Deficit Total Stockholders’ Deficit
Balance at December 28, 2019 29,457,228 $ 295 $ 552 $ (210,275) $ (209,428)
Net income — — — 8,096 8,096
Shares issued under stock plans 128,585 1 504 — 505
Tax payments for restricted stock upon vesting (2,419) — — (229) (229)
Stock-based compensation expense — — 1,331 — 1,331
Dividends paid — — (2,168) (1,055) (3,223)
Balance at March 28, 2020 29,583,394 296 219 (203,463) (202,948)
Net income — — — 11,539 11,539
Shares issued under stock plans 13,057 — 57 — 57
Tax payments for restricted stock upon vesting (104) — — (12) (12)
Stock-based compensation expense — — 1,969 — 1,969
Dividends paid — — (2,202) (1,075) (3,277)
Balance at June 27, 2020 29,596,347 $ 296 $ 43 $ (193,011) $ (192,672)


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Retained Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Deficit
Balance at December 26, 2020	29,687,123	$	297	$	421	$	(342,028)	$	0	$	(341,310)
Net income	—	—		—		13,160		—		13,160
Shares issued under stock plans	60,958	1		155		—		—		156
Tax payments for restricted stock upon vesting	(11,243)	—		—		(1,862)		—		(1,862)
Stock-based compensation expense	—	—		2,316		—		—		2,316
Dividends declared on common stock and equivalents	—	—		(2,866)		(1,322)		—		(4,188)
Balance at March 27, 2021	29,736,838	298		26		(332,052)		0		(331,728)
Net income	—	—		—		11,312		—		11,312
Shares issued under stock plans	6,613	—		0		—		—		0
Tax payments for restricted stock upon vesting	(76)	—		—		(11)		—		(11)
Stock-based compensation expense	—	—		2,456		—		—		2,456
Dividends declared on common stock and equivalents	—	—		(1,888)		(2,275)		—		(4,163)
Currency translation adjustment	—	—		—		—		(109)		(109)
Balance at June 26, 2021	29,743,375	$	298	$	594	$	(323,026)	$	(109)	(322,243)

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 27,
2020 June 29,
2019
Operating activities
Net income $ 19,635 $ 11,524
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 2,953 2,611
Deferred income taxes 1,720 (687)
Stock-based compensation expense 3,300 2,766
Gain on disposal of assets (2,016) —
Amortization of debt issuance costs 815 775
Changes in operating assets and liabilities:
Accounts receivable (405) 123
Prepaid expenses and other assets (652) (678)
Advertising fund assets and liabilities, net 2,004 (2,664)
Accounts payable and other current liabilities (675) (3,503)
Deferred revenue 10 (258)
Other non-current liabilities (1,077) 482
Cash provided by operating activities 25,612 10,491
Investing activities
Purchases of property and equipment (2,670) (1,442)
Proceeds from sales of assets 2,300 —
Cash used in investing activities (370) (1,442)
Financing activities
Proceeds from exercise of stock options 562 306
Borrowings of long-term debt 16,000 —
Repayments of long-term debt (800) (800)
Tax payments for restricted stock upon vesting (241) (1,059)
Dividends paid (6,500) (5,229)
Cash provided by (used in) financing activities 9,021 (6,782)
Net increase in cash, cash equivalents, and restricted cash 34,263 2,267
Cash, cash equivalents, and restricted cash at beginning of period 21,175 20,940
Cash, cash equivalents, and restricted cash at end of period $ 55,438 $ 23,207


	Twenty-Six Weeks Ended
	June 26, 2021		June 27, 2020

Operating activities
Net income	$	24,472	$	19,635
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	3,318		2,953
Deferred income taxes	936		1,720
Stock-based compensation expense	4,772		3,300
(Gain)/Loss on disposal of assets	0		(2,016)
Amortization of debt issuance costs	711		815
Changes in operating assets and liabilities:
Accounts receivable	(925)		(405)
Prepaid expenses and other assets	(2,217)		(652)
Advertising fund assets and liabilities, net	4,897		2,004
Accounts payable and other current liabilities	(5,231)		(675)
Deferred revenue	1,315		10
Other non-current liabilities	(436)		(1,077)
Cash provided by operating activities	31,612		25,612

Investing activities
Purchases of property and equipment	(8,258)		(2,670)

Proceeds from sales of assets	0		2,300
Payments for investments (Note 6)	(4,163)		0
Cash used in investing activities	(12,421)		(370)

Financing activities

Proceeds from exercise of stock options	156		562
Borrowings of long-term debt	0		16,000
Repayments of long-term debt	(1,200)		(800)

Tax payments for restricted stock upon vesting	(1,873)		(241)
Dividends paid	(8,889)		(6,500)
Cash provided by (used in) financing activities	(11,806)		9,021

Net increase in cash, cash equivalents, and restricted cash	7,385		34,263
Cash, cash equivalents, and restricted cash at beginning of period	59,270		21,175
Cash, cash equivalents, and restricted cash at end of period	$	66,655	$	55,438

Supplemental information:
Accrued capital expenditures	$	6,325	$	0

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

~~Basis~~Nature of ~~Presentation~~

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 ~~27, 2020,~~26, 2021, the Company had ~~1,244~~1,415 domestic franchised restaurants and ~~162~~175 international franchised restaurants. As of June ~~27, 2020,~~26, 2021, the Company owned and operated 3034 restaurants.

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 ~~27, 2020~~26, 2021 and December ~~28, 2019,~~26, 2020, and operating results are for the thirteen and twenty-six weeks ended June ~~27, 2020~~26, 2021 and June ~~29, 2019.~~27, 2020.

The foreign currency translation adjustment included in the Consolidated Statements of Comprehensive Income represents the unrealized impact of translating our foreign investment. This amount is not included in Net Income and would only be realized upon disposition of our investment. The related Accumulated other comprehensive loss is presented in the Consolidated Balance Sheets.

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 ~~28, 2019.~~26, 2020.

Fiscal year.The Company uses a 52/53-week fiscal year that ends on the last Saturday of the calendar year. Fiscal years ~~2020~~2021 and ~~2019~~2020 each have 52 weeks.

Cash, Cash Equivalents, and Restricted ~~Cash~~

Cash. Cash, cash equivalents, and restricted cash within the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows as of June ~~27, 2020~~26, 2021 and December ~~28, 2019~~26, 2020 were as follows (in thousands):

June 27, 2020 December 28, 2019
Cash and cash equivalents $ 45,766 $ 12,849
Restricted cash 4,132 4,790
Restricted cash, included in Advertising fund assets, restricted 5,540 3,536
Total cash, cash equivalents, and restricted cash $ 55,438 $ 21,175

~~Segment Reporting~~

Historically, the Company had two reporting segments: franchise operations and company restaurant operations. In accordance with Accounting Standards Codification 280 “Segment Reporting”, the Company uses the management approach for determining its reportable segments. The management approach is based upon the way management reviews performance and allocates resources. Due to changes in how the Company’s chief operating decision maker assesses the Company’s performance and allocates resources, the Company reevaluated its operating segments and has determined it has one operating segment and one reporting segment.

~~Recently Issued Accounting Pronouncements~~


	June 26, 2021		December 26, 2020
Cash and cash equivalents	$	43,504	$	40,858
Restricted cash	4,657		4,815
Restricted cash, included in Advertising fund assets, restricted	18,494		13,597
Total cash, cash equivalents, and restricted cash	$	66,655	$	59,270

~~In December 2019,~~Change in presentation. Beginning in the ~~Financial Accounting Standards Board~~first quarter of 2021, headcount related expenses that support our national advertising fund are presented within “Advertising expenses” on the Consolidated Statements of Comprehensive Income. Prior to the first quarter of 2021, these expenses were presented within “Selling, general and administrative expenses.” Prior period amounts have been reclassified to conform to the current presentation. This reclassification had no impact on operating income, balance sheets or statements of cash flows. Headcount related expenses associated with the national advertising fund were $1.9 million and $1.8 million for the thirteen weeks ended June 26, 2021 and June 27, 2020, respectively, and were $4.0 million and $3.9 million for the twenty-six weeks ended June 26, 2021 and June 27, 2020, respectively.

Recently issued ~~Accounting Standard Update No. 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~accounting pronouncements. ~~("ASU 2019-12"). ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including~~We reviewed all recently issued accounting pronouncements and concluded that they were either not applicable ~~interim periods. The Company is currently assessing the impact of adopting this standard but does~~or not ~~expect the adoption of this guidance~~expected to have a ~~material~~significant impact on ~~its~~our consolidated financial statements.

~~WINGSTOP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

(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

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

of the exercise and vesting of stock options and restricted stock units, respectively, as determined using the treasury stock method.

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


		Thirteen Weeks Ended			Twenty-Six Weeks Ended				Thirteen Weeks Ended		Twenty-Six Weeks Ended
		June 27, 2020	June 29, 2019	June 27, 2020	June 29, 2019		June 26, 2021	June 27, 2020	June 26, 2021	June 27, 2020
Basic weighted average shares outstanding	Basic weighted average shares outstanding	29,588	29,418	29,538	29,377	Basic weighted average shares outstanding	29,739	29,588	29,722	29,538
Dilutive shares	Dilutive shares	205	249	213	273	Dilutive shares	134	205	137	213
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	29,793	29,667	29,751	29,650	Diluted weighted average shares outstanding	29,873	29,793	29,859	29,751

For the thirteen weeks ended June ~~27, 2020~~26, 2021 and June ~~29, 2019,~~27, 2020, equity awards representing approximately ~~1,000~~8,000 and ~~6,000~~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 ~~27, 2020~~26, 2021 and June ~~29, 2019,~~27, 2020, equity awards representing approximately ~~1,000~~7,000 and ~~18,000~~1,000 shares, respectively, were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive.

(3) Dividends

In each of the first two quarters of 2020, the Company’s Board of Directors declared a quarterly dividend of $0.11 per share of common stock, which, in the aggregate, totaled $6.5 million, or $0.22 per share of common stock, and which was paid during the twenty-six weeks ended June 27, 2020.

~~Subsequent to the second quarter, on July 28, 2020,~~2021, the Company’s Board of Directors declared a quarterly dividend of $0.14 per share of common stock, which, in the aggregate, totaled $8.4 million, or $0.28 per share of common stock, and which was paid during the twenty-six weeks ended June 26, 2021.

Subsequent to the second quarter, on July 27, 2021, the Company’s Board of Directors declared a quarterly dividend of $0.17 per share of common stock for stockholders of record as of August ~~28, 2020,~~13, 2021. The regular quarterly dividend is to be paid on September ~~11, 2020,~~3, 2021, totaling approximately ~~$4.1~~$5.1 million.

(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.

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 is determined on a non-recurring basis, which results are summarized as follows (in thousands):

Fair Value
Hierarchy
June 27, 2020 December 28, 2019

Carrying
Value
Fair Value
Carrying
Value
Fair Value
Securitized Financing Facility:
2018-1 Class A-2 Senior Secured Notes ⁽¹⁾
Level 2 $ 316,800 $ 314,395 $ 317,600 $ 331,247
2018-1 Class A-1 Variable Funding Senior Notes ⁽²⁾
Level 2 $ 16,000 $ 16,000 $ — $ —


	Fair Value Hierarchy	June 26, 2021				December 26, 2020
		Carrying Value		Fair Value		Carrying Value		Fair Value
Securitized Financing Facility:
2020-1 Class A-2 Senior Secured Notes (1)	Level 2	$	478,800	$	488,826	$	480,000	$	483,365

⁽¹⁾ The fair value of the ~~2018-1~~2020-1 Class A-2 Senior Secured Notes was estimated using available market information.

~~WINGSTOP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

⁽²⁾ The fair value of the 2018-1 Class A-1 Variable Funding Senior Notes was estimated based on the borrowing rates currently available for variable rate loans obtained from third-party lending institutions and approximated the book value of such 2018-1 Class A-1 Variable Funding Senior Notes.

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.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(5) Income Taxes

Income tax expense and the effective tax rate were $3.9 million and 25.5%, respectively, for the thirteen weeks ended June 26, 2021, and $3.8 million and 24.7%, respectively, for the thirteen weeks ended June 27, ~~2020, and $1.1 million and 17.9%, respectively, for the thirteen weeks ended June 29, 2019.~~2020. Income tax expense and the effective tax rate were $6.7 million and 21.6%, respectively, for the twenty-six weeks ended June 26, 2021, and $5.0 million and 20.3%, respectively, for the twenty-six weeks ended June 27, ~~2020, and $1.8 million and 13.7%, respectively, for the twenty-six weeks ended June 29, 2019.~~2020.

Income tax expense for the thirteen and twenty-six weeks ended June ~~27, 2020~~26, 2021 included ~~$0.2~~$0.1 million and $1.5 million, respectively, in tax benefits resulting from the recognition of excess tax benefits from stock-based compensation, as compared to ~~$0.6~~$0.2 million and ~~$1.8~~$1.5 million in tax benefits for the thirteen and twenty-six weeks ended June ~~29, 2019,~~27, 2020, respectively.

(6) Investments

~~(6)~~In the second quarter of 2021, a wholly-owned subsidiary of the Company acquired a 20% non-controlling interest in Wingstop’s United Kingdom master franchisee, Lemon Pepper Holdings Ltd., (“LPH”) for an aggregate amount of $4.2 million. Substantially all of the investment consisted of bonds issued by a subsidiary of LPH, which do not have a readily determinable fair value and are recorded at cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairments within long-term other assets in the Company’s consolidated balance sheet. In addition, the Company received 20% of the outstanding stock, which will be accounted for using the equity method of accounting, under which the Company’s share of the income (loss) of the investee will be recorded in our results of operations in “Other operating income, net.” The Company did not record any adjustments to the carrying amount of $4.2 million in the second quarter ended June 26, 2021.

(7) Debt Obligations

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

June 27, 2020 December 28, 2019
2018-1 Class A-2 Senior Secured Notes $ 316,800 $ 317,600
2018-1 Class A-1 Variable Funding Senior Notes 16,000 —
Debt issuance costs, net of amortization (5,954) (6,731)
Total debt 326,846 310,869
Less: current portion of debt (16,000) (3,200)
Long-term debt, net $ 310,846 $ 307,669


	June 26, 2021		December 26, 2020
2020-1 Class A-2 Senior Secured Notes	$	478,800	$	480,000

Debt issuance costs, net of amortization	(8,826)		(9,467)
Total debt	469,974		470,533
Less: current portion of debt	(1,200)		(3,600)
Long-term debt, net	$	468,774	$	466,933

The ~~Company's~~Company’s outstanding debt consists of (i) Series ~~2018-1 4.97%~~2020-1 2.84% Fixed Rate Senior Secured Notes, Class A-2 (the ~~“Class~~“2020 Class A-2 Notes”) issued by Wingstop Funding LLC (the “Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of Wingstop Inc. and (ii) Series ~~2018-1~~2020-1 Variable Funding Senior Notes, Class A-1 (the “2020 Variable Funding Notes” and together with the Class A-2 Notes, the “2020 Notes”), which permit borrowings of up to a maximum principal amount of ~~$20~~$50 million which may be used to borrow amounts on a revolving basis and to issue letters of ~~credit (the “Variable Funding Notes,” and together with the Class A-2 Notes, the “Notes”).~~credit.

As of June ~~27,~~26, 2021 and December 26, 2020, wethe Company had ~~$316.8~~$478.8 million and $480.0 million of 2020 Class A-2 Notes outstanding, and $16.0 million of Variable Funding Notes outstanding. The Variable Funding Notes were issued in the first quarter of 2020 as a precautionary measure to improve the Company's cash position. The Variable Funding Notes had a weighted average interest rate of 2.72% during the twenty-six weeks ended June 27, 2020 and are classified as current debt.respectively. There were no0 borrowings outstanding under the 2020 Variable Funding Notes as of June 26, 2021 and December ~~28, 2019.~~26, 2020. Further, as of June ~~27, 2020~~26, 2021 and December ~~28, 2019, $4.0~~26, 2020, $3.5 million and $4.9 million, respectively, of letters of credit were outstanding against the 2020 Variable Funding Notes, which relate primarily to interest reserves required under the base indenture and related supplemental indenture. There were no0 amounts drawn down on the letters of credit as of June ~~27, 2020~~26, 2021 or December ~~28, 2019.~~26, 2020.

~~During~~As of June 26, 2021, the ~~first fiscal quarter of 2020, the Company had a~~Company’s leverage ratio under the Class A-2 Notes ofwas less than 5.0x. Per the terms of the Company’s debt agreements, principal payments oncan be suspended at the ~~Class A-2 Notes are not due~~borrower’s election until the repayment date as long as the Company maintains a leverage ratio of less than 5.0x. ~~As such,~~Accordingly, the Company ~~ceased making~~expects to suspend payments following the principal ~~payments beginning~~payment due in the ~~second~~third quarter, ~~of 2020. Accordingly,~~and the ~~entire~~remaining outstanding balance of the Class A-2 ~~Notes~~notes has been classified as long-term debt.

The ~~Class A-2~~2020 Notes ~~and the Variable Funding Notes~~ were ~~each~~ issued in a securitization transaction pursuant to which certain of the Company’s domestic and foreign revenue-generating assets, consisting principally of franchise-related agreements and intellectual property, were contributed or otherwise transferred to the Issuer and certain other limited-purpose, bankruptcy-remote, wholly owned indirect subsidiaries of the Company that act as guarantors of the Notes and that have pledged substantially all of their assets.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

~~(7)~~(8) Commitments and Contingencies

The Company is subject to legal proceedings, claims, and liabilities, such as employment-related claims and premises-liability cases, 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)~~(9) Stock-Based Compensation

Stock-based compensation is measured at the date of grant, based on the calculated fair value of the award, and is recognized as expense over the requisite employee service period (generally the vesting period of the award). The Company recognized $3.3 million in stock-based compensation expense forDuring the twenty-six weeks ended June ~~27, 2020,~~26, 2021, the Company granted stock options to purchase 42,703 shares of common stock and 19,967 restricted stock units (“RSUs”) to certain employees. The stock options vest in equal annual amounts over a three-year period subsequent to the grant date, and have a maximum contractual term of ten years. The stock options were granted with a ~~corresponding increase to additional paid-in-capital. Stock-based compensation expense is included in selling, general and administrative expense in the Consolidated Statements~~weighted-average exercise price of ~~Operations.~~

~~Stock Options~~

~~The following table summarizes stock option activity (in thousands, except term and~~$129.11 per share ~~data):~~

Stock Options Weighted Average Exercise Price Per Share Aggregate Intrinsic Value Weighted Average Remaining Term
Outstanding - December 28, 2019 134 $ 5.72 $ 10,801 3.8
Options granted 67 84.41
Options exercised (46) 12.12
Outstanding - June 27, 2020 155 $ 38.02 $ 15,086 5.6

~~The total~~and had a weighted-average grant-date fair value of $42.51 per share. 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 $130.16 per unit.

In addition, the Company granted 31,564 performance stock ~~options vested~~units (“PSUs”) to certain employees during the twenty-six weeks ended June ~~27, 2020 was $0.2 million. The~~26, 2021. Of the total ~~intrinsic value of stock options exercised during the twenty-six weeks ended June 27, 2020 was $2.8 million. As of June 27, 2020, total unrecognized compensation expense related~~PSUs granted, 25,623 PSUs are subject to unvested stock options was $1.4 million, which is expected to be recognized over a weighted-average period of 2.7 years. During the twenty-six weeks ended June 27, 2020, there was a modification to certain awards resulting in additional compensation expense of $0.4 million.

~~Restricted Stock Units and Performance Stock Units~~

~~The following table summarizes activity related to restricted stock units (“RSUs”) and performance stock units (“PSUs”) (in thousands, except per share data):~~

Restricted Stock Units Weighted Average Grant Date Fair Value Per Share Performance Stock Units Weighted Average Grant Date Fair Value
Outstanding - December 28, 2019 82 $ 52.73 169 $ 55.92
Units granted 24 87.72 43 84.37
Units vested (38) 44.57 (52) 41.54
Units canceled (11) 63.89 (8) 66.04
Outstanding - June 27, 2020 57 $ 70.82 152 $ 68.49

The fair value of the Company’s RSUs and PSUs is based on the closing market price of the stock on the date of grant. The RSUs granted during the twenty-six weeks ended June 27, 2020 vest over a three-year service period. As of June 27, 2020, total unrecognized compensation expense related to unvested RSUs was $3.4 million, which is expected to be recognized over a weighted-average period of 1.9 years.

~~The Company granted 40,529 PSUs during the twenty-six weeks ended June 27, 2020 that are based on~~ 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 ~~achievement of certain adjusted EBITDA targets over a performance period of three years. 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 ~~respective awards, as well as~~awards. The remaining 5,941 PSUs granted are subject to a ~~market~~service condition and a performance vesting condition ~~linked to~~based on the number of net new restaurants opened over the performance 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 ~~total stockholder return received by~~performance achieved for the ~~Company’s stockholders during the performance period measured against the companies in the S&P 600 Restaurant Index (“TSR PSUs”).~~awards. The ~~TSR~~ PSUs ~~were valued based on~~had a ~~Monte Carlo simulation model to reflect the impact of the total stockholder return market condition, resulting in a~~weighted-average grant-date fair value ~~range~~ of ~~$0.00 to $157.96~~$129.77 per ~~unit based on the~~

~~WINGSTOP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

outcome of the performance condition. The probability of satisfying a market condition is considered in the estimation of the grant-date fair value for TSR PSUs and the compensation cost is not reversed if the market condition is not achieved, provided the requisite service has been provided. The compensation expense related to the PSUs is recognized over the vesting period when the achievement of the performance conditions becomes probable. The totalunit. 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. As of June 27, 2020, total unrecognized~~vest based on the outcome.

Total compensation expense related to ~~unvested PSUs~~all share-based awards was ~~$5.8 million.~~

~~(9) Company-owned Restaurant Transactions~~

~~During~~$4.8 million and $3.3 million for the ~~Company’s fiscal quarter~~twenty-six weeks ended June 26, 2021 and June 27, 2020, the Company sold two company-owned restaurants in the Houston market to an existing franchisee for proceeds of $2.3 million. In connection with the sale of the restaurants, the Company recorded a $2.0 million pre-tax gain on the sale of the related assetsrespectively, and ~~liabilities, which~~ was ~~net of a $28,000 reduction in goodwill. The net gain on these restaurants was recorded~~included in Selling, general and administrative (“SG&A”) expense ~~on our~~in the Consolidated Statements of ~~Operations.~~

Subsequent to the end of the Company’s fiscal quarter ended June 27, 2020, the Company completed the sale of 5 company-owned restaurants in the Kansas City market to an existing franchisee for proceeds of $2.5 million. The total assets associated with these restaurants held for sale totaled $1.9 million and were included in Prepaid expenses and other current assets on the Consolidated Balance Sheet as of June 27, 2020.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 ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020 (in thousands):


		Thirteen Weeks Ended						Twenty-Six Weeks Ended							Thirteen Weeks Ended				Twenty-Six Weeks Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Royalty revenue	Royalty revenue	$	25,447	$	18,437	$	46,755	$	36,344	Royalty revenue	$	30,414	$	25,447	$	59,223	$	46,755
Advertising fees and related income	Advertising fees and related income	19,923		13,487		35,937		26,697		Advertising fees and related income	22,577		19,923		44,097		35,937
Franchise fees	Franchise fees	881		939		1,763		2,521		Franchise fees	864		881		2,060		1,763

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 ~~27, 2020~~26, 2021 was included in the deferred revenue balance as of December ~~28, 2019.~~26, 2020. Approximately ~~$8.3~~$9.9 million and ~~$8.3~~$9.8 million of deferred revenue as of June ~~27, 2020~~26, 2021 and December ~~28, 2019,~~26, 2020, 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 7.2 years. The Company ~~does~~did not have any material contract assets as of June ~~27, 2020.~~26, 2021.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(11) Acquisitions and Refranchising of Company-owned Restaurants

During the first fiscal quarter 2021, the Company entered into an arrangement to re-franchise 6 company-owned restaurants in the Colorado market for a total purchase price of approximately $6.7 million. This transaction is subject to customary closing conditions, and the Company expects the transaction to close in the third fiscal quarter 2021. The assets associated with these restaurants held for sale totaled $4.5 million and were included in Prepaid expenses and other current assets on the Consolidated Balance Sheet as of June 26, 2021.

Subsequent to the end of second fiscal quarter 2021, the company acquired 2 existing restaurants from franchisees. The total purchase price was $3.9 million and was funded by cash flow from operations. The restaurant acquisitions will be 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 goodwill. The results of operations of these locations will be included in our Consolidated Statements of Comprehensive Income as of the respective 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 ~~28, 2019~~26, 2020 (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” on page 1011 of our Annual ~~Report and in Part II, Item 1A of this Quarterly~~ 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~~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~~53-week year, which contains 14 weeks. Fiscal years ~~2020~~2021 and ~~2019~~2020 each contain 52 weeks.

Overview

Wingstop is the largest fast casual chicken wings-focused restaurant chain in the world, with over ~~1,400~~1,600 locations worldwide. We are dedicated to serving the world flavor through an unparalleled guest experience and offering of classic wings and thighs, boneless wings and tenders, always cooked to order and hand-sauced-and-tossed in 11 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.

Historically, the Company had two reporting segments: franchise operations and company restaurant operations. In accordance with Accounting Standards Codification 280 “Segment Reporting”, the Company uses the management approach for determining its reportable segments. The management approach is based upon the way management reviews performance and allocates resources. Due to changesChange in how the Company’s chief operating decision maker assesses the Company’s performance and allocates resources, the Company reevaluated its operating segments and has determined it has one operating segment and one reporting segment.presentation

~~Impact of COVID-19~~

In March 2020, the novel coronavirus ("COVID-19") outbreak was declared a pandemic by the World Health Organization, significantly changing consumer behaviors as individuals are being encouraged to practice social distancing. This has also led to restaurants reducing restaurant seating capacity, and in some cases restaurant closures, due to various restrictions mandated by governments around the world. As of March 16, 2020, we made the decision to close our domestic dining rooms and limit our service to carryout and delivery only. Several of our international markets also closed their dining rooms as a result of the outbreak. As of the end of the second quarter, approximately eight of our international restaurants and six domestic restaurants were temporarily closed. While we cannot predict the extent to which COVID-19 will impact our business or the global economy, we believe our business is well-positioned for the transition to largely off-premise dining that has resulted from the outbreak. Prior to the COVID-19 outbreak, carry-out and delivery represented approximately 80% of our domestic sales mix and our digital sales mix was just over 40%. As a result of the required changes to consumer behavior to largely off-premise dining, as well as promotional activities associated with delivery, we have seen an increase in domestic same store sales growth through the end of the second quarter. Our international markets, which have historically had a higher mix of dine-in sales, have seen an overall decline in same store sales growth due to the required closure of dining rooms and in some cases temporary restaurant closures. We did not experience difficulties with our supply chain as a result of COVID-19 during the first or second quarter of 2020; however, there can be no assurances that we will not experience supply chain challenges in the future. Lastly, to further secure our liquidity position and provide financial flexibility in light of uncertain market conditions, we borrowed $16 million under our Variable Funding Notes (as defined below)Beginning in the first quarter of ~~2020, providing~~2021, headcount related expenses that support our national advertising fund are presented within “Advertising expenses” on the ~~Company with an unrestricted~~Consolidated Statements of Comprehensive Income. Prior to the first quarter of 2021, these expenses were presented within “Selling, general and administrative expenses.” Prior period amounts have been reclassified to conform to the current presentation. This reclassification had no impact on operating income, balance sheets or statements of cash ~~balance of approximately $45.8 million as of June 27, 2020. See~~ ~~"Liquidity and Capital Resources"~~ ~~below for further details.~~flows.

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				Thirteen Weeks Ended		Twenty-Six Weeks Ended
		June 27, 2020	June 29, 2019	June 27, 2020	June 29, 2019		June 26, 2021	June 27, 2020	June 26, 2021	June 27, 2020
Domestic Franchised Activity:	Domestic Franchised Activity:					Domestic Franchised Activity:
Beginning of period	Beginning of period	1,221	1,112	1,200	1,095	Beginning of period	1,371	1,221	1,327	1,200
Openings	Openings	23	29	45	49	Openings	44	23	88	45
Closures	Closures	(2)	(2)	(3)	(5)	Closures	—	(2)	—	(3)

Re-franchised by Company	Re-franchised by Company	2	—	2	—	Re-franchised by Company	—	2	—	2
Restaurants end of period	Restaurants end of period	1,244	1,139	1,244	1,139	Restaurants end of period	1,415	1,244	1,415	1,244

Domestic Company-Owned Activity:	Domestic Company-Owned Activity:					Domestic Company-Owned Activity:
Beginning of period	Beginning of period	32	29	31	29	Beginning of period	33	32	32	31
Openings	Openings	—	—	1	—	Openings	1	—	2	1
Closures	Closures	—	—	—	—	Closures	—	—	—	—

Re-franchised to franchisees	Re-franchised to franchisees	(2)	—	(2)	—	Re-franchised to franchisees	—	(2)	—	(2)
Restaurants end of period	Restaurants end of period	30	29	30	29	Restaurants end of period	34	30	34	30

Total Domestic Restaurants	Total Domestic Restaurants	1,274	1,168	1,274	1,168	Total Domestic Restaurants	1,449	1,274	1,449	1,274

International Franchised Activity:	International Franchised Activity:					International Franchised Activity:
Beginning of period	Beginning of period	160	132	154	128	Beginning of period	175	160	179	154
Openings	Openings	2	5	8	11	Openings	4	2	6	8
Closures	Closures	—	(2)	—	(4)	Closures	(4)	—	(10)	—

Restaurants end of period	Restaurants end of period	162	135	162	135	Restaurants end of period	175	162	175	162

Total System-wide Restaurants	Total System-wide Restaurants	1,436	1,303	1,436	1,303	Total System-wide Restaurants	1,624	1,436	1,624	1,436

System-wide sales. System-wide sales represents net sales for all of our company-owned and franchised restaurants, with franchised restaurant sales reported by franchisees. While we do not record franchised restaurant sales as revenue, our royalty revenue is calculated based on a percentage of franchised restaurant sales, which generally ranges from 5.0% to 6.0% of gross sales, net of discounts.restaurants. 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.

~~Average~~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 company-owned and franchised restaurant economics. ~~Changes in~~Our domestic AUV ~~are~~growth is primarily driven by increases in same store sales and ~~are~~is also influenced by opening new restaurants.

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

EBITDA and Adjusted EBITDA. We define EBITDA as net income before interest expense, net, income tax expense, and depreciation and amortization. We define Adjusted EBITDA as ~~EBITDA~~net income before interest expense, net, income tax expense, and depreciation and amortization, with further ~~adjusted~~adjustments for losses on debt extinguishment and refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and stock-based compensation expense. ~~EBITDA and~~ Adjusted EBITDA may not be comparable to other similarly titled ~~measures~~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.

Adjusted Net Income and Adjusted Earnings Per Diluted Share. We define Adjusted net income as net income adjusted for losses on debt extinguishment and refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and related tax adjustments. We define Adjusted earnings per diluted share as Adjusted net income divided by weighted average diluted share count. For a reconciliation of net income to Adjusted net income and for further discussion of Adjusted net income and Adjusted earnings per diluted share as non-GAAP measures and how we utilize them, see footnote 3 below.

The following table sets forth our key performance indicators ~~as well as our total revenue and net income,~~ for the thirteen and twenty-six weeks ended June 26, 2021 and June 27, 2020 ~~and June 29, 2019 (dollars in thousands)~~(in thousands, except unit data):

Thirteen Weeks Ended Twenty-Six Weeks Ended
June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019
Number of system-wide restaurants open at end of period 1,436 1,303 1,436 1,303
System-wide sales ⁽¹⁾
$ 509,045 $ 371,505 $ 938,952 $ 733,865
Domestic restaurant AUV $ 1,366 $ 1,189 $ 1,366 $ 1,189
Domestic same store sales growth 31.9 % 12.8 % 21.0 % 9.9 %
Company-owned domestic same store sales growth 24.7 % 13.8 % 15.7 % 9.1 %
Total revenue $ 66,105 $ 48,562 $ 121,541 $ 96,615
Net income $ 11,539 $ 4,918 $ 19,635 $ 11,524
Adjusted EBITDA ⁽²⁾
$ 20,888 $ 13,549 $ 37,245 $ 27,435


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	June 26, 2021			June 27, 2020			June 26, 2021			June 27, 2020
Number of system-wide restaurants open at end of period	1,624			1,436			1,624			1,436
System-wide sales (1)	$	589,665		$	509,045		$	1,148,534		$	938,952
Domestic restaurant AUV	$	1,556		$	1,366		$	1,556		$	1,366
Domestic same store sales growth	2.1		%	31.9		%	10.4		%	21.0		%
Company-owned domestic same store sales growth	(3.1)		%	24.7		%	4.3		%	15.7		%
Total revenue	$	74,000		$	66,105		$	144,690		$	121,541
Net income	$	11,312		$	11,539		$	24,472		$	19,635
Adjusted EBITDA (2)	$	22,882		$	20,888		$	46,796		$	37,245
Adjusted net income (3)	$	11,312		$	10,006		$	24,472		$	18,102

(1) The percentage of system-wide sales attributable to company-owned restaurants was ~~3.3%~~2.8% and ~~3.7%~~3.3% for the thirteen weeks ended June ~~27, 2020~~26, 2021 and June ~~29, 2019,~~27, 2020, respectively, and was ~~3.2%~~2.9% and ~~3.7%~~3.2% for the twenty-six weeks ended June ~~27, 2020~~26, 2021 and June ~~29, 2019,~~27, 2020, respectively. The remainder was generated by franchised restaurants, as reported by our franchisees.

(2) EBITDA and Adjusted EBITDA are supplemental measures of our performance that are not required by, or presented in accordance with, ~~accounting principles generally accepted in the United States (“GAAP”).~~GAAP. EBITDA and Adjusted EBITDA should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash ~~flows~~flow from operating activities as a measure of our liquidity.

We caution investors that amounts presented in accordance with our definitions of EBITDA and Adjusted EBITDA may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate EBITDA and Adjusted EBITDA in the same manner. We present EBITDA and Adjusted EBITDA because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in understanding the performance of our business by comparing our results from ongoing operations on a period-over-period basis and would ordinarily add back non-cash expenses such as depreciation and amortization, as well as items that are not part of normal day-to-day operations of our business.

Management uses EBITDA and Adjusted EBITDA:

•as a measurement of operating performance because they assist us in comparing the operating performance of our restaurants on a consistent basis, as they remove the impact of items not directly resulting from our core operations;

•for planning purposes, including the preparation of our internal annual operating budget and financial projections;

•to evaluate the performance and effectiveness of our operational strategies;

•to evaluate our capacity to fund capital expenditures and expand our business; and

•to calculate incentive compensation payments for our employees, including assessing performance under our annual incentive compensation plan and determining the vesting of performance-based equity awards.

By providing these non-GAAP financial measures, together with a reconciliation to the most comparable GAAP measure, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. In addition, the instruments governing our

indebtedness use EBITDA (with additional adjustments) to measure our compliance with covenants, such as our fixed charge coverage, lease adjusted leverage, and debt incurrence. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation, or as an alternative to, or a substitute for net income or other financial statement data presented in our consolidated financial statements as indicators of financial performance. Some of the limitations are:

•such measures do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

•such measures do not reflect changes in, or cash requirements for, our working capital needs;

•such measures do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

•such measures do not reflect our tax expense or the cash requirements to pay our taxes;

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and

•other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.

Due to these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments for transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and stock-based compensation expense. It is reasonable to expect that this item will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our restaurants, and complicate comparisons of our internal operating results and operating results of other restaurant companies over time. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation table below help management measure our core operating performance over time by removing items that are not related to day-to-day operations.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the thirteen and twenty-six weeks ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020 (in thousands):


		Thirteen Weeks Ended						Twenty-Six Weeks Ended							Thirteen Weeks Ended				Twenty-Six Weeks Ended
		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019			June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Net income	Net income	$	11,539	$	4,918	$	19,635	$	11,524	Net income	$	11,312	$	11,539	$	24,472	$	19,635
Interest expense, net	Interest expense, net	4,214		4,299		8,359		8,709		Interest expense, net	3,724		4,214		7,506		8,359
Income tax expense	Income tax expense	3,784		1,070		5,014		1,825		Income tax expense	3,867		3,784		6,728		5,014
Depreciation and amortization	Depreciation and amortization	1,398		1,335		2,953		2,611		Depreciation and amortization	1,523		1,398		3,318		2,953
EBITDA	EBITDA	$	20,935	$	11,622	$	35,961	$	24,669	EBITDA	$	20,426	$	20,935	$	42,024	$	35,961
Additional adjustments:	Additional adjustments:									Additional adjustments:

Gain on disposal of assets ^(a)	Gain on disposal of assets ^(a)	(2,016)		—		(2,016)		—		Gain on disposal of assets (a)	—		(2,016)		—		(2,016)
Stock-based compensation expense ^(b)	Stock-based compensation expense ^(b)	1,969		1,927		3,300		2,766		Stock-based compensation expense (b)	2,456		1,969		4,772		3,300
Adjusted EBITDA	Adjusted EBITDA	$	20,888	$	13,549	$	37,245	$	27,435	Adjusted EBITDA	$	22,882	$	20,888	$	46,796	$	37,245

^(a)Represents a gain resulting from the re-franchise of company-owned restaurants to a franchisee which is included in ~~Selling, general~~Gain on sale of restaurants and ~~administrative expense~~other expenses, net in the Consolidated Statements of ~~Operations.~~Comprehensive Income.

^(b)Includes non-cash, stock-based compensation.

(3) Adjusted net income and adjusted earnings per diluted share are supplemental measures of operating performance that do not represent and should not be considered alternatives to net income and earnings per share, as determined by GAAP. These measures have not been prepared in accordance with Article 11 of Regulation S-X promulgated under the Securities Act. Management believes adjusted net income and adjusted earnings per diluted share supplement GAAP measures and enable management to more effectively evaluate the Company’s performance period-over-period and relative to competitors.

The following table reconciles net income to Adjusted net income and calculates adjusted earnings per diluted share for the thirteen and twenty-six weeks ended June 26, 2021 and June 27, 2020 (in thousands):


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Numerator:
Net income	$	11,312	$	11,539	$	24,472	$	19,635
Adjustments:

Gain on disposal of assets, net (a)	—		(2,016)		—		(2,016)
Tax effect of adjustments (b)	—		483		—		483
Adjusted net income	$	11,312	$	10,006	$	24,472	$	18,102

Denominator:
Weighted-average shares outstanding - diluted	29,873		29,793		29,859		29,751

Adjusted earnings per diluted share	$	0.38	$	0.34	$	0.82	$	0.61

(a) Represents a gain resulting from the re-franchise of company-owned restaurants to a franchisee which is included in Gain on sale of restaurants and other expenses, net in the Consolidated Statements of Comprehensive Income.

(b) Represents the tax effect of the aforementioned adjustments to reflect corporate income taxes at an assumed effective tax rate of 24% for the thirteen and twenty-six weeks ended June 26, 2021 and June 27, 2020, which includes provisions for U.S. federal income taxes, and assumes the respective statutory rates for applicable state and local jurisdictions.

Results of Operations

Thirteen Weeks Ended June ~~27, 2020~~26, 2021 compared to Thirteen Weeks Ended June ~~29, 2019~~27, 2020

The following table sets forth our results of operations for the thirteen weeks ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020 (dollars in thousands):

Thirteen Weeks Ended Increase / (Decrease)
June 27,
2020 June 29,
2019 $ %
Revenue:
Royalty revenue, franchise fees and other $ 27,858 $ 21,187 $ 6,671 31.5 %
Advertising fees and related income 19,923 13,487 6,436 47.7 %
Company-owned restaurant sales 18,324 13,888 4,436 31.9 %
Total revenue 66,105 48,562 17,543 36.1 %
Costs and expenses:
Cost of sales ⁽¹⁾
13,387 10,573 2,814 26.6 %
Advertising expenses 18,589 12,973 5,616 43.3 %
Selling, general and administrative 13,194 13,394 (200) (1.5) %
Depreciation and amortization 1,398 1,335 63 4.7 %
Total costs and expenses 46,568 38,275 8,293 21.7 %
Operating income 19,537 10,287 9,250 89.9 %
Interest expense, net 4,214 4,299 (85) (2.0) %
Income before income tax expense 15,323 5,988 9,335 155.9 %
Income tax expense 3,784 1,070 2,714 253.6 %
Net income $ 11,539 $ 4,918 $ 6,621 134.6 %


	Thirteen Weeks Ended				Increase / (Decrease)
	June 26, 2021		June 27, 2020		$		%
Revenue:
Royalty revenue, franchise fees and other	$	33,135	$	27,858	$	5,277	18.9	%
Advertising fees	22,577		19,923		2,654		13.3	%
Company-owned restaurant sales	18,288		18,324		(36)		(0.2)	%
Total revenue	74,000		66,105		7,895		11.9	%
Costs and expenses:
Cost of sales (1)	14,207		13,387		820		6.1	%
Advertising expenses	23,301		20,424		2,877		14.1	%
Selling, general and administrative	16,066		13,375		2,691		20.1	%
Depreciation and amortization	1,523		1,398		125		8.9	%
Gain on sale of restaurants and other expenses, net	—		(2,016)		2,016		(100.0)	%
Total costs and expenses	55,097		46,568		8,529		18.3	%
Operating income	18,903		19,537		(634)		(3.2)	%
Interest expense, net	3,724		4,214		(490)		(11.6)	%

Income before income tax expense	15,179		15,323		(144)		(0.9)	%
Income tax expense	3,867		3,784		83		2.2	%
Net income	$	11,312	$	11,539	$	(227)	(2.0)	%

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

Total revenue. During the thirteen weeks ended June ~~27, 2020,~~26, 2021, total revenue was ~~$66.1~~$74.0 million, an increase of ~~$17.5~~$7.9 million, or ~~36.1%~~11.9%, compared to ~~$48.6~~$66.1 million in the comparable period in ~~2019.~~

2020. Royalty revenue, franchise fees and ~~other.~~ other~~During the thirteen weeks ended June 27, 2020, royalty revenue, franchise fees and other was $27.9~~increased $5.3 million ~~an increase of $6.7 million, or 31.5%, compared to $21.2 million in the comparable period in 2019. Royalty revenue increased~~ primarily due to domestic same store sales growth of ~~31.9%~~2.1% as well as ~~132~~184 net franchise restaurant openings since June ~~29, 2019.~~

~~Advertising fees and related income.~~ ~~During the thirteen weeks ended June~~ 27, ~~2020, advertising fees and related income was $19.9 million, an increase of $6.4 million, compared to $13.5 million in the comparable period in 2019.~~2020. Advertising fees increased ~~primarily~~$2.7 million due to the ~~37.0%~~15.8% increase in system-wide sales in the thirteen weeks ended June ~~27, 2020~~26, 2021 compared to the thirteen weeks ended June ~~29, 2019.~~

27, 2020. Company-owned restaurant ~~sales.~~ ~~During the thirteen weeks ended June 27, 2020, company-owned restaurant~~ sales ~~were $18.3 million, an increase of $4.4 million, or 31.9%, compared to $13.9 million in the comparable period in 2019. The increase was~~decreased slightly primarily due to a decline in company-owned same store sales ~~growth~~ of ~~24.7%~~3.1%, which was driven by both ~~an increase~~a decrease in ~~transactions~~transaction size and ~~transaction size. Also contributing to the increase~~transactions. The decrease was partially offset by the acquisition of one franchised restaurant in the fourth quarter of the prior year and the opening of two company-owned restaurants ~~since~~in the ~~prior~~current fiscal year, ~~comparable period,~~ resulting in additional ~~company-owned restaurant~~ sales of ~~$1.1~~$0.6 million.

Cost of sales. During the thirteen weeks ended June ~~27, 2020,~~26, 2021, cost of sales was ~~$13.4~~$14.2 million, an increase of ~~$2.8~~$0.8 million, or ~~26.6%~~6.1%, compared to ~~$10.6~~$13.4 million in the comparable period in ~~2019.~~2020. Cost of sales as a percentage of company-owned restaurant sales was ~~73.1%~~77.7% in the thirteen weeks ended June ~~27, 2020,~~26, 2021, compared to ~~76.1%~~73.1% in the comparable period in ~~2019.~~2020.

1718

The table below presents the major components of cost of sales (dollars in thousands):

Thirteen Weeks Ended
June 27, 2020 June 29, 2019
In dollars As a % of company-owned restaurant sales In dollars As a % of company-owned restaurant sales
Cost of sales:
Food, beverage and packaging costs $ 5,954 32.5 % $ 5,205 37.5 %
Labor costs 4,687 25.6 % 3,193 23.0 %
Other restaurant operating expenses 3,086 16.8 % 2,556 18.4 %
Vendor rebates (340) (1.9) % (381) (2.7) %
Total cost of sales $ 13,387 73.1 % $ 10,573 76.1 %


	Thirteen Weeks Ended
	June 26, 2021				June 27, 2020
	In dollars		As a % of company-owned restaurant sales		In dollars		As a % of company-owned restaurant sales
Cost of sales:
Food, beverage and packaging costs	$	8,023	43.9	%	$	5,954	32.5	%
Labor costs	3,774		20.6	%	4,687		25.6	%
Other restaurant operating expenses	2,820		15.4	%	3,086		16.8	%
Vendor rebates	(410)		(2.2)	%	(340)		(1.9)	%
Total cost of sales	$	14,207	77.7	%	$	13,387	73.1	%

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were ~~32.5%~~43.9% in the thirteen weeks ended June ~~27, 2020,~~26, 2021, compared to ~~37.5%~~32.5% in the comparable period in ~~2019.~~2020. The ~~decrease~~increase was primarily due to a ~~22.7% decrease~~64.8% increase in the cost of bone-in chicken wings as compared to the prior year ~~period.~~period, in which we experienced unusually significant deflation in the cost of bone-in chicken wings.

Labor costs as a percentage of company-owned restaurant sales were ~~25.6%~~20.6% for the thirteen weeks ended June ~~27, 2020,~~26, 2021, compared to ~~23.0%~~25.6% in the comparable period in ~~2019.~~2020. The ~~increase~~decrease as a percentage of company-owned restaurant sales was primarily due to ~~additional~~a decrease in incentive pay provided to team members in response to the COVID-19 pandemic during the ~~COVID-19 pandemic. This increase was partially offset by our ability to leverage costs due to the increase in company-owned same store sales of 24.7%.~~prior year period.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were ~~16.8%~~15.4% for the thirteen weeks ended June ~~27, 2020,~~26, 2021, compared to ~~18.4%~~16.8% in the comparable period in ~~2019.~~2020. The decrease as a percentage of company-owned restaurant sales was ~~due to our ability to leverage costs due~~primarily a result of a decline in delivery fees as compared to the ~~increase in company-owned same store sales of 24.7%.~~prior year period.

Advertising expenses. During the thirteen weeks ended June ~~27, 2020,~~26, 2021, advertising expenses were ~~$18.6~~$23.3 million, an increase of ~~$5.6~~$2.9 million compared to ~~$13.0~~$20.4 million in the comparable period in ~~2019.~~2020. Advertising expenses are recognized at the same time the related revenue is recognized, which does not necessarily correlate to the actual timing of the related advertising spend.

Selling, general and administrative ~~("SG&A")~~(SG&A). During the thirteen weeks ended June ~~27, 2020,~~26, 2021, SG&A expense was ~~$13.2~~$16.1 million, ~~a decrease~~an increase of ~~$0.2~~$2.7 million compared to $13.4 million in the comparable period in ~~2019.~~2020. The ~~decrease~~increase in SG&A expense was primarily due to ~~a gain~~an increase of $2.0 million ~~recognized due~~in headcount related expenses to support the ~~re-franchising~~growth in our business, an increase of ~~two company-owned restaurants, which was~~$0.5 million in stock-based compensation expense, and an increase of $1.0 million in professional fees to support the Company’s strategic initiatives. These increases were partially offset by a ~~one-time~~decrease of $1.0 million related to a donation made in the prior year period to the National Restaurant Employee Relief Fund ~~of $1.0 million~~ to support restaurant workers in times of need, $0.6 million in COVID-19 related expenses and support provided to international franchisees, and $0.3 million associated with additional expenses to support our national advertising campaign which has an equal and offsetting contribution in revenue.need.

Depreciation and amortization. During the thirteen weeks ended June ~~27, 2020,~~26, 2021, depreciation expense was ~~$1.4~~$1.5 million, an increase of $0.1 million compared to ~~$1.3~~$1.4 million in the comparable period in ~~2019. The increase in depreciation and amortization was primarily due to additional capital expenditures related to investments in technology.~~2020.

Interest expense, net. During the thirteen weeks ended June ~~27, 2020,~~26, 2021, interest expense, net was ~~$4.2~~$3.7 million, ~~which was comparable~~a decrease of $0.5 million compared to ~~the $4.3~~$4.2 million of interest expense, net in the comparable period in ~~2019.~~2020. The decrease was due to the refinancing of our securitized financing facility on October 30, 2020, which increased our outstanding debt by $162.4 million and reduced our interest rate from 4.97% to 2.84%.

Income tax expense. ~~Income tax expense was $3.8 million in~~During the thirteen weeks ended June ~~27, 2020,~~26, 2021, we recognized income tax expense of $3.9 million yielding an effective tax rate of ~~24.7%~~25.5%, compared to an effective tax rate of ~~17.9%~~24.7% in the prior year period. The slight increase in the effective tax rate was primarily due to the impact of ~~excess tax benefits associated with~~certain stock ~~options on~~awards issued during the ~~effective rate.~~period.

1819

Twenty-Six Weeks Ended June ~~27, 2020~~26, 2021 compared to Twenty-Six Weeks Ended June ~~29, 2019~~27, 2020

The following table sets forth our results of operations for the twenty-six weeks ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020 (dollars in thousands):

Twenty-Six Weeks Ended Increase / (Decrease)
June 27,
2020 June 29,
2019 $ %
Revenue:
Royalty revenue, franchise fees and other $ 52,057 $ 42,515 $ 9,542 22.4 %
Advertising fees and related income 35,937 26,697 9,240 34.6 %
Company-owned restaurant sales 33,547 27,403 6,144 22.4 %
Total revenue 121,541 96,615 24,926 25.8 %
Costs and expenses:
Cost of sales ⁽¹⁾
24,563 20,303 4,260 21.0 %
Advertising expenses 33,513 25,707 7,806 30.4 %
Selling, general and administrative 27,504 25,936 1,568 6.0 %
Depreciation and amortization 2,953 2,611 342 13.1 %
Total costs and expenses 88,533 74,557 13,976 18.7 %
Operating income 33,008 22,058 10,950 49.6 %
Interest expense, net 8,359 8,709 (350) (4.0) %
Income before income tax expense 24,649 13,349 11,300 84.7 %
Income tax expense 5,014 1,825 3,189 174.7 %
Net income $ 19,635 $ 11,524 $ 8,111 70.4 %


	Twenty-Six Weeks Ended				Increase / (Decrease)
	June 26, 2021		June 27, 2020		$		%
Revenue:
Royalty revenue, franchise fees and other	$	64,741	$	52,057	$	12,684	24.4	%
Advertising fees	44,097		35,937		8,160		22.7	%
Company-owned restaurant sales	35,852		33,547		2,305		6.9	%
Total revenue	144,690		121,541		23,149		19.0	%
Costs and expenses:
Cost of sales (1)	27,486		24,563		2,923		11.9	%
Advertising expenses	45,328		37,420		7,908		21.1	%
Selling, general and administrative	29,852		25,613		4,239		16.6	%
Depreciation and amortization	3,318		2,953		365		12.4	%
Gain on sale of restaurants and other expenses, net	—		(2,016)		2,016		(100.0)	%
Total costs and expenses	105,984		88,533		17,451		19.7	%
Operating income	38,706		33,008		5,698		17.3	%
Interest expense, net	7,506		8,359		(853)		(10.2)	%

Income before income tax expense	31,200		24,649		6,551		26.6	%
Income tax expense	6,728		5,014		1,714		34.2	%
Net income	$	24,472	$	19,635	$	4,837	24.6	%

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

Total revenue. During the twenty-six weeks ended June ~~27, 2020,~~26, 2021, total revenue was ~~$121.5~~$144.7 million, an increase of ~~$24.9~~$23.1 million, or ~~25.8%~~19.0%, compared to ~~$96.6~~$121.5 million in the comparable period in ~~2019.~~

2020. Royalty revenue, franchise fees and ~~other.~~ ~~During the twenty-six weeks ended June 27, 2020, royalty revenue, franchise fees and~~ other ~~was $52.1~~increased $12.7 million ~~an increase of $9.5 million, or 22.4%, compared to $42.5 million in the comparable period in 2019. Royalty revenue increased~~primarily due to ~~132~~domestic same store sales growth of 10.4% as well as 184 net franchise restaurant openings since June ~~29, 2019 and domestic same store sales growth of 21.0%.~~

~~Advertising fees and related income.~~ ~~During the twenty-six weeks ended June~~ 27, ~~2020, advertising fees and related income was $35.9 million, an increase of $9.2 million, or 34.6%, compared to $26.7 million in the comparable period in 2019.~~2020. Advertising fees increased ~~primarily~~$8.2 million due to the ~~27.9%~~22.3% increase in system-wide sales in the twenty-six weeks ended June ~~27, 2020~~26, 2021 compared to the twenty-six weeks ended June ~~29, 2019.~~

27, 2020. Company-owned restaurant ~~sales.~~ ~~During the twenty-six weeks ended June 27, 2020, company-owned restaurant~~ sales ~~were $33.5~~increased $2.3 million ~~an increase of $6.1 million, or 22.4%, compared to $27.4 million in the comparable period in 2019. The increase was~~ primarily due ~~an increase in~~to company-owned same store sales growth of ~~15.7%~~4.3%, which was driven by both an increase in ~~transactions~~transaction size and ~~transaction size.~~an increase in transactions. Also contributing to the increase was the acquisition of one franchised restaurant in the fourth quarter of the prior year and the opening of two company-owned restaurants ~~since~~in the ~~prior~~current fiscal year, ~~comparable period,~~ resulting in additional sales of ~~$2.0~~$1.0 million.

Cost of sales. During the twenty-six weeks ended June ~~27, 2020,~~26, 2021, cost of sales was ~~$24.6~~$27.5 million, an increase of ~~$4.3~~$2.9 million, or ~~21.0%~~11.9%, compared to ~~$20.3~~$24.6 million in the comparable period in ~~2019.~~2020. Cost of sales as a percentage of company-owned restaurant sales was ~~73.2%~~76.7% in the twenty-six weeks ended June ~~27, 2020~~26, 2021, compared to ~~74.1%~~73.2% in the ~~prior year period.~~comparable period in 2020.

1920

The table below presents the major components of cost of sales (dollars in thousands):

Twenty-Six Weeks Ended
June 27, 2020 June 29, 2019
In dollars As a % of company-owned restaurant sales In dollars As a % of company-owned restaurant sales
Cost of sales:
Food, beverage and packaging costs $ 11,431 34.1 % $ 10,022 36.6 %
Labor costs 8,211 24.5 % 6,217 22.7 %
Other restaurant operating expenses 5,652 16.8 % 4,833 17.6 %
Vendor rebates (731) (2.2) % (769) (2.8) %
Total cost of sales $ 24,563 73.2 % $ 20,303 74.1 %


	Twenty-Six Weeks Ended
	June 26, 2021				June 27, 2020
	In dollars		As a % of company-owned restaurant sales		In dollars		As a % of company-owned restaurant sales
Cost of sales:
Food, beverage and packaging costs	$	15,327	42.8	%	$	11,431	34.1	%
Labor costs	7,502		20.9	%	8,211		24.5	%
Other restaurant operating expenses	5,448		15.2	%	5,652		16.8	%
Vendor rebates	(791)		(2.2)	%	(731)		(2.2)	%
Total cost of sales	$	27,486	76.7	%	$	24,563	73.2	%

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were ~~34.1%~~42.8% in the twenty-six weeks ended June ~~27, 2020,~~26, 2021, compared to ~~36.6%~~34.1% in the comparable period in ~~2019.~~2020. The ~~decrease~~increase was primarily due to a ~~14.5% decrease~~44.9% increase in the cost of bone-in chicken wings as compared to the prior year ~~period.~~period, in which we experienced unusually significant deflation in the cost of bone-in chicken wings.

Labor costs as a percentage of company-owned restaurant sales were ~~24.5%~~20.9% for the twenty-six weeks ended June ~~27, 2020,~~26, 2021, compared to ~~22.7%~~24.5% in the comparable period in ~~2019.~~2020. The ~~increase~~decrease as a percentage of company-owned restaurant sales was primarily due to ~~additional~~a decrease in incentive pay provided to team members in response to the COVID-19 pandemic during the ~~COVID-19 pandemic. These increases were partially offset by~~prior year period, as well as our ability to leverage costs due to the increase in company-owned same store sales of ~~15.7%~~4.3%.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were ~~16.8%~~15.2% for the twenty-six weeks ended June ~~27, 2020,~~26, 2021, compared to ~~17.6%~~16.8% in the comparable period in ~~2019.~~2020. The decrease as a percentage of company-owned restaurant sales was ~~due to sales leverage achieved as~~primarily a result of our ability to leverage costs due to the increase in company-owned same store sales of ~~15.7%~~4.3%. This decrease was slightly offset by an increase in delivery fees payable to third-party delivery providers due to the growth in delivery mix as a percent of total sales during the twenty-six weeks ended June 27, 2020.

Advertising expenses. During the twenty-six weeks ended June ~~27, 2020,~~26, 2021, advertising expenses were ~~$33.5~~$45.3 million, an increase of ~~$7.8~~$7.9 million ~~or 30.4%,~~ compared to ~~$25.7~~$37.4 million in the comparable period in ~~2019.~~2020. Advertising expenses are recognized at the same time the related revenue is recognized, which does not necessarily correlate to the actual timing of the related advertising spend.

Selling, general and ~~administrative.~~administrative (SG&A). During the twenty-six weeks ended June ~~27, 2020,~~26, 2021, SG&A expense was ~~$27.5~~$29.9 million, an increase of ~~$1.6~~$4.2 million ~~or 6.0%,~~ compared to ~~$25.9~~$25.6 million in the comparable period in ~~2019.~~2020. The increase in SG&A expense was primarily due to a ~~one-time~~an increase of $1.9 million in headcount related expenses to support the growth in our business, an increase of $1.5 million in stock-based compensation expense, and an increase of $1.2 million in professional fees to support the Company’s strategic initiatives. These increases were partially offset by a decrease of $1.0 million related to a donation made in the prior year period to the National Restaurant Employee Relief Fund ~~of $1.0 million~~ to support restaurant workers in times of need. Also contributing to the increase was an increase of $0.7 million associated with additional expenses to support our national advertising campaign which has an equal and offsetting contribution in revenue, an increase of $0.7 million of charges associated with certain organizational changes, expenses of $0.7 million related to COVID-19 and support provided to international franchisees, and an increase of $0.5 million in stock-based compensation expense. These increases were partially offset by a gain of $2.0 million recognized due to the re-franchising of two company-owned restaurants.

Depreciation and amortization. During the twenty-six weeks ended June ~~27, 2020,~~26, 2021, depreciation ~~and amortization~~ expense was ~~$3.0~~$3.3 million, an increase of $0.3 million ~~or 13.1%,~~ compared to ~~$2.6~~$3.0 million in the comparable period in ~~2019.~~2020. The increase in depreciation and amortization ~~expense~~ was primarily due to additional capital expenditures related to investments in technology.

Interest expense, net. During the twenty-six weeks ended June ~~27, 2020,~~26, 2021, interest expense, net was ~~$8.4~~$7.5 million, a decrease of ~~$0.4~~$0.9 million ~~or 4.0%,~~ compared to ~~$8.7~~$8.4 million of interest expense, net in the comparable period in ~~2019.~~2020. The decrease in interest expense, net was ~~primarily~~ due to ~~a lower average~~the refinancing of our securitized financing facility on October 30, 2020, which increased our outstanding debt ~~balance~~by $162.4 million and reduced our interest rate from ~~the prior year comparable period.~~4.97% to 2.84%.

Income tax expense. ~~Income tax expense was $5.0 million in~~During the twenty-six weeks ended June ~~27, 2020,~~26, 2021, we recognized income tax expense of $6.7 million yielding an effective tax rate of ~~20.3%~~21.6%, compared to an effective tax rate of ~~13.7%~~20.3% in the prior year period. The slight increase in the effective tax rate was primarily due to the impact of ~~excess tax benefits associated with~~certain stock ~~options on~~awards issued during the ~~effective rate.~~period.

2021

Liquidity and Capital Resources

General. Our primary sources of liquidity and capital resources are cash provided from operating activities, cash and cash equivalents on hand, and proceeds from the incurrence of debt. Our primary requirements for liquidity and capital are working capital and general corporate needs. Historically, we have operated with minimal positive working capital or with negative working capital. We have in the past, and may in the future, refinance our existing indebtedness with new debt arrangements and/or equity issuances and utilize a portion of funds to return capital to our stockholders. We believe our sources of liquidity and capital will be sufficient to finance our continued operations and growth strategy for at least the next twelve months.

The following table shows summary cash flows information for the twenty-six weeks ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020 (in thousands):


		Twenty-Six Weeks Ended							Twenty-Six Weeks Ended
		June 27, 2020		June 29, 2019			June 26, 2021		June 27, 2020
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	25,612	$	10,491	Operating activities	$	31,612	$	25,612
Investing activities	Investing activities	(370)		(1,442)		Investing activities	(12,421)		(370)
Financing activities	Financing activities	9,021		(6,782)		Financing activities	(11,806)		9,021
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	34,263	$	2,267	Net change in cash and cash equivalents	$	7,385	$	34,263

Operating activities. Our cash ~~flows~~flow from operating activities are principally driven by sales at both franchise restaurants and company-owned restaurants, as well as franchise and development fees. We collect franchise royalties from our franchise owners on a weekly basis. Restaurant-level operating costs at our company-owned restaurants, unearned franchise and development fees, and corporate overhead costs also impact our cash ~~flows~~flow from operating activities.

Net cash provided by operating activities was $31.6 million in the twenty-six weeks ended June 26, 2021, an increase of $6.0 million from cash provided by operating activities of $25.6 million in the twenty-six weeks ended June 27, ~~2020, an increase of $15.1 million from cash provided by operating activities of $10.5 million in the twenty-six weeks ended June 29, 2019.~~2020. The increase is the result of increased operating income associated with the increased sales over the prior period, ~~coupled with~~partially offset by the ~~increase~~timing of changes in working ~~capital due to timing of payments associated with our national advertising campaign and taxes.~~capital.

Investing activities. Our net cash used in investing activities was $12.4 million in the twenty-six weeks ended June 26, 2021, an increase of $12.1 million from cash used in investing activities of $0.4 million in the twenty-six weeks ended June 27, ~~2020, a decrease of $1.1 million from cash used in investing activities of $1.4 million in the twenty-six weeks ended June 29, 2019.~~2020. The ~~decrease~~increase in cash used in investing activities was primarily due to ~~proceeds received from the sale of two company-owned restaurants during the fiscal quarter ended June 27, 2020, which offset increased~~an increase in capital expenditures ~~associated with~~related to our investments in technology and the ~~opening~~remodel of our corporate headquarters building, as well as a ~~new company-owned restaurant.~~payment of $4.2 million related to a foreign investment in LPH (see Note 6 in the notes to our unaudited consolidated financial statements included elsewhere in this Quarterly Report).

Financing activities. Our net cash used in financing activities was $11.8 million in the twenty-six weeks ended June 26, 2021, a change of $20.8 million from cash provided by financing activities ~~was~~of $9.0 million in the twenty-six weeks ended June 27, ~~2020, an increase of $15.8 million from cash used in financing activities of $6.8 million in 2019.~~2020. The ~~increase~~change was primarily due to ~~additional~~ borrowings under our 2018 Variable Funding Notes (as defined below) of $16.0 million in the twenty-six weeks ended June 27, 2020, which is partially offset by an increase in the amount of our regular ~~dividend.~~dividend in June 2020.

Securitized financing facility. On ~~November 14, 2018, we~~October 30, 2020, the Company completed a transaction to refinance its existing securitized financing facility with a new securitized financing facility, pursuant to which Wingstop Funding LLC (the “Issuer”), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of the Company, issued $480.0 million of its Series 2020-1 2.84% Fixed Rate Senior Notes, Class A-2 (the “2020 Class A-2 Notes”). The Issuer also entered into a ~~securitized~~revolving financing facility ~~comprised~~ of ~~$320~~Series 2020-1 Variable Funding Senior Notes, Class A-1 (the “2020 Variable Funding Notes,” and together with the 2020 Class A-2 Notes, the “2020 Notes”) which permits borrowings of up to a maximum principal amount of $50.0 million, which may be used to issue letters of credit. A portion of the proceeds of the 2020 Class A-2 Notes was used to repay the $332.8 million of principal outstanding on the existing Series 2018-1 4.97% Fixed Rate Senior Secured Notes, Class A-2 ~~(the “Class A-2 Notes”) as well as a variable funding note facility of~~and Series 2018-1 Variable Funding Senior Secured Notes, Class A-1 ~~which allow us to borrow up to $20 million as needed on a revolving basis~~(the “2018 Variable Funding Notes”) and to ~~issue letters~~pay a special cash dividend of ~~credit (the “Variable Funding Notes” and, together with the Class A-2 Notes, the “Notes”). As of June 27, 2020, we had $16.0~~approximately $148.4 million outstanding borrowings under the Variable Funding Notes, with $4.0 million letters of credit outstanding, and $316.8 million outstanding under the Class A-2 Notes. There were no amounts drawn down on the letters of credit as of June 27,to our stockholders in December 2020.

The 2020 Class A-2 Notes are generally subject to 1% annual amortization, bear interest at a fixed rate of ~~4.97%~~2.84% per annum, and have an anticipated repayment date of December 2023. During the first fiscal quarter of 2020, the Company had a leverage ratio under the Class A-2 Notes of less than 5.0x. Per the terms of the Company’s debt agreements, principal payments are not due until the repayment date as long as the Company maintains a leverage ratio of less than 5.0x. As such, the Company ceased making principal payments beginning in the second quarter of 2020.2027.

2122

Borrowings under the Variable Funding Notes accrue interest at a variable rate based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the London interbank offered rate for U.S. Dollars or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin, as more fully set forth in the Variable Funding Note Purchase Agreement, dated November 14, 2018. Interest payments on the Notes are payable on a quarterly basis.

Dividends. We paid a quarterly cash dividend of ~~$0.11~~$0.14 per share of common stock in each of the first two quarters of ~~2020,~~2021, resulting in aggregate dividend payments of ~~$6.5~~$8.4 million during the twenty-six weeks ended June ~~27, 2020.~~26, 2021. On July ~~28, 2020,~~27, 2021, the Company’s Board of Directors approved a dividend of ~~$0.14~~$0.17 per share, to be paid on September ~~11, 2020~~3, 2021 to stockholders of record as of August ~~28, 2020,~~13, 2021, totaling approximately ~~$4.1~~$5.1 million.

We do not currently expect the restrictions in our debt instruments to impact our ability to make ~~regularly~~regular quarterly dividends pursuant to our quarterly dividend program. However, any future declarations of dividends, as well as the amount and timing of such dividends, are subject to capital availability and the discretion of our Board of Directors, which must evaluate, among other things, whether cash dividends are in the best interest of our stockholders.

Contractual Obligations

~~There have been~~During the thirteen weeks ended June 26, 2021, there were no material changes to our contractual obligations disclosed in the contractual obligations section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report. For additional information regarding our long-term debt and our commitments and contingencies, see Note 10, Debt Obligations and Note 12, Commitments and Contingencies in our Annual Report and the corresponding Notes 67 and 78 in the notes to our unaudited consolidated financial statements included elsewhere in this Quarterly Report.

Off-Balance Sheet Arrangements

The Company is required to provide standby letters of credit related to our securitized financing facility. Although the letters of credit are off-balance sheet, the obligations to which they relate are reflected as liabilities in the Consolidated Balance Sheet. Outstanding letters of credit totaled ~~$4.0~~$3.5 million at June ~~27, 2020.~~26, 2021. We do not believe these arrangements have or are likely to have a material effect on our results of operations, financial condition, revenues or expenses, capital expenditures or liquidity.

Critical Accounting Policies and Estimates

Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Critical accounting estimates are those that require application of management’s most difficult, subjective, or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. Our critical accounting policies and estimates are identified and described in our annual consolidated financial statements and the related notes included in our Annual Report, and there have been no material changes since the filing of our Annual Report.

Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

Special Note Regarding Forward-Looking Statements

This report includes statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are intended to come within the safe harbor protection provided by those sections. These statements, which involve risks and uncertainties, relate to the discussion of our business strategies and our expectations concerning future operations, margins, profitability, trends, liquidity and capital resources and to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These forward-looking statements can generally by identified by the use of forward-looking terminology, including the terms “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “think,” “estimate,” “seek,” ~~“expect,”~~ “predict,” “could,” “project,” “potential” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties, risks, and factors relating to our operations and business environments, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by these forward-looking statements.

Such risks and other factors include those listed ~~in Item 1A., “Risk Factors,”~~below and elsewhere in this report, ~~including the following factors~~ that could cause actual results or outcomes to differ from the results expressed or implied by forward-looking statements:

•the impacts of the novel coronavirus (COVID-19) pandemic on our business;

•the response of governments and of our Company to the pandemic;

•our ability to effectively implement our growth strategy;

•risks associated with changes in food and supply costs;

•risks associated with the availability and cost of labor;

•our relationships with, and the performance of, our franchisees, as well as actions by franchisees that could harm our business;

•our ability to identify, recruit and contract with a sufficient number of qualified franchisees;

•risks associated with food safety, food-borne illness and other health concerns;

•our ability to successfully expand into new markets;

•our ability to effectively compete within our industry;

•risks associated with interruptions in our supply chain, including availability of food products;

•risks associated with our future performance and operating results falling below the expectations of securities analysts and investors;

•risks associated with data privacy, cyber security and the use and implementation of information technology;

•risks associated with our increasing dependence on digital commerce platforms and third-party delivery service providers;

•uncertainty in the law with respect to the assignment of liabilities in the franchise business model;

•risks associated with litigation against us or our franchisees;

•our ability to successfully advertise and market our business;

•risks associated with changes in customer preferences and perceptions;

•our ability to comply with government regulations relating to food products and franchising, including increased costs associated with new or changing regulations;

•risks associated with the geographic concentration of our business;

•our ability to maintain adequate insurance coverage for our business;

•risks associated with damage to our reputation or lack of acceptance of our brand in existing or new markets;

•risks associated with our expansion into international markets and foreign government restrictions on operations;

•our ability to comply with the terms of our securitized debt financing and generate sufficient cash flows to satisfy our significant debt service obligations thereunder;

•our ability to attract and retain our executive officers and other key employees; and

•our ability to protect our intellectual property, including trademarks and trade secrets.

The above list of factors is not exhaustive. Some of these and other factors are discussed in more detail under “Risk Factors” in our Annual ~~Report and Part II, Item 1A in this Quarterly~~ Report. When considering forward-looking statements in this report or that we make in other reports or statements, you should keep in mind the cautionary statements in this report and future reports we file with the SEC. New risks and uncertainties arise from time to time, and we cannot predict when they may arise or how they may affect us. Except as required by law, we assume no obligation to update or revise any forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

2425

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Impact of Inflation.~~The primary inflationary factors affecting our and our franchisees’ operations are food and beverage costs, labor costs, energy costs and the costs and materials used in the construction of new restaurants. Our restaurant operations are subject to federal and state minimum wage laws governing such matters as working conditions, overtime and tip credits. Significant numbers of our and our franchisees’ restaurant personnel are paid at rates related to the federal and/or state minimum wage and, accordingly, increases in the minimum wage increase our and our franchisees’ labor costs. To the extent permitted by competition and the economy, we have mitigated increased costs by increasing menu prices and may continue to do so if deemed necessary in future years. Substantial increases in costs and expenses could impact our operating results to the extent such increases cannot be passed through to our customers. Historically, inflation has not had a material effect on our results of operations. Severe increases in inflation, however, could affect the global and U.S. economies and could have an adverse impact on our business, financial condition and results of operations.

Commodity Price Risk. We are exposed to market risks from changes in commodity prices. Many of the food products purchased by us are affected by weather, production, availability and other factors outside our control. Although we attempt to minimize the effect of price volatility by negotiating fixed price contracts for the supply of key ingredients, there are no established fixed price markets for fresh bone-in chicken wings, so we are subject to prevailing market conditions. Bone-in chicken wings accounted for approximately ~~25.4%~~34.8% and ~~28.1%~~25.4% of our company-owned restaurant cost of sales during the twenty-six weeks ended June 26, 2021 and June 27, 2020, respectively. We anticipate that the increased demand and ~~June 29, 2019, respectively.~~cost of bone-in chicken wings will continue throughout fiscal year 2021 due to several challenges, such as labor shortages, which currently impact the poultry industry. A hypothetical 10% increase in the bone-in chicken wing costs would have increased costs of sales by approximately ~~$0.6~~$1.0 million during the twenty-six weeks ended June ~~27, 2020.~~26, 2021. We do not engage in speculative financial transactions nor do we hold or issue financial instruments for trading purposes. ~~In instances when we use fixed pricing arrangements with our suppliers, these arrangements cover our physical commodity needs, are not net-settled, and are accounted for as normal purchases.~~

Interest Rate Risk. ~~As discussed in “Item 2. Management’s Discussion and Analysis~~Our long-term debt, including current portion, consisted entirely of ~~Financial Condition and Results of Operation” under “Liquidity and Capital Resources,”~~ the ~~Company entered into a securitized financing facility on November 14, 2018, issuing $320~~$478.8 million ~~of Class A-2 Notes. The proceeds from the Class A-2 Notes were used to repay all amounts outstanding~~incurred under the Company's previous senior secured credit facility, to pay transaction costs, for general corporate purposes, and for the payment of a special dividend. Concurrently, the Company issued the Variable Funding Notes, which permit borrowings of up to $20 million and may be used to issue letters of credit. The final legal maturity date of the Notes is in 2048; however, the anticipated repayment date of the Notes is December 2023.

~~The Company is exposed to interest rate risk on borrowings under the Variable Funding Notes. As of June 27,~~ 2020 the Company had borrowings of $16.0 million under the Variable Funding Notes and $4.0 million of letters of credit outstanding. A hypothetical increase or decrease of 100 basis points on our existing variable rate under the Variable Funding Notes would not materially affect our results of operations or cash flows.

~~The majority of our long-term debt consisted of the $316.8 million outstanding under the Class A-2~~ Notes as of June ~~27, 2020~~26, 2021 (excluding unamortized debt issuance ~~costs and the effect of purchase accounting adjustments)~~costs). The Company’s ~~fixed~~predominantly fixed-rate debt structure has reduced its exposure to interest rate ~~securitized debt exposes~~increases that could adversely affect its earnings and cash flows, but the Company remains exposed to changes in market interest rates reflected in the fair value of the debt and to the risk that the Company may need to refinance maturing debt with new debt at a higher rate.

The Company is exposed to interest rate increases under the 2020 Variable Funding Notes; however, the Company had no outstanding borrowings under its 2020 Variable Funding Notes as of June 26, 2021, net of letters of credit issued of $3.5 million.

2526

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June ~~27, 2020,~~26, 2021, pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 26, 2021, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no ~~significant~~ changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2627

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may be involved in claims and legal actions that arise in the ordinary course of business. To our knowledge, there are no material pending legal proceedings to which we are a party or of which any of our property is the subject.

Item 1A. Risk Factors

~~The Company is providing this additional risk factor to supplement~~A description of the risk factors associated with our business is contained in ~~Item 1A.~~the “Risk Factors” section of our Annual Report.

~~Public health epidemics or outbreaks, such as COVID-19, could materially and adversely impact our business.~~

The pandemic novel coronavirus (COVID-19) outbreak, federal, state and local government responses to COVID-19 and our Company’s response to the outbreak have all disrupted and will continue to disrupt our business. In the United States and throughout much of the world, individuals are being encouraged to practice social distancing, restricted from gathering in groups and, in some areas, placed on complete restriction from non-essential movements outside of their homes. In response to the COVID-19 outbreak and these changing conditions, we closed the dining rooms in all of our domestic, which at the time represented approximately 20% of our domestic system sales, and also closed the dining rooms in some of our international restaurants in the first quarter.We have also incurred additional operating expenses at our company-owned restaurants due to the payment of increased incentive compensation to our full-time team members in light of COVID-19. The COVID-19 outbreak and these responses to date have affected and will continue to adversely affect our guest traffic, international sales, and operating costs and we cannot predict how long the outbreak will last or what other government responses may occur.

The early impact of the COVID-19 outbreak adversely affected our ability to open new restaurants during the months of March and April of 2020. Social distancing and stay-at-home or shelter-in-place orders and mandates as well as construction restrictions related to COVID-19 caused an initial slowdown in planned openings and in construction related processes such as onsite inspections, permitting, and construction completion in some jurisdictions. These changes adversely affected, our ability to grow our business during this time period, and may continue to affect our ability to open new restaurants if stay-at-home or shelter-in-place orders are reinstated.

Disruptions in operations for a significant amount of time due to COVID-19-related social distancing, or other movement restricting policies put in place in an effort to slow the spread of COVID-19, could impact our revenues or result in our providing payment relief or other forms of support to franchisees, and may materially adversely affect our business and results of operations. Restaurant operations could be further disrupted if any employees are diagnosed with COVID-19 since this could require some or all of a restaurant’s employees to be quarantined and restaurant facilities to be closed to disinfect. If a significant percentage of the workforce is unable to work, whether because of illness, quarantine, limitations on travel, or other government restrictions in connection with COVID-19, operations may be negatively impacted, potentially adversely affecting our liquidity, financial condition or results of operations. In addition, any report or publicity linking our facilities to instances of coronavirus exposure could adversely impact our brand and reputation as well as our revenue and profits.

In addition, our suppliers could be adversely impacted by the COVID-19 outbreak. If our suppliers’ employees are unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, we could face shortages of food items or other supplies at our or our franchisees' restaurants, and our and our franchisees' operations and sales could be adversely impacted by such supply interruptions.

If the business interruptions caused by COVID-19 last longer than we expect, we or our franchisees may need to seek other sources of liquidity. The COVID-19 outbreak is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity, whether through the credit markets or government programs, will be readily available or available on favorable terms, especially the longer the COVID-19 outbreak lasts.

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic, and reduced operations. Both franchised restaurants and company-owned restaurants, across all geographies, have been impacted, and management expects that they will continue to be impacted

~~to some degree, but the significance of the impact of the COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults ~~upon~~Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Index to Exhibits


Exhibit No.			Description
3.1*3.1			Amended and Restated Certificate of Incorporation of Wingstop Inc., as amended through June 15, ~~2020.~~2020, filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 27, 2020 (File No. 001-37425) and incorporated by reference herein.
3.2			Amended and Restated Bylaws of Wingstop Inc., filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K (File No. 001-37425) for the fiscal year ended December 30, 2017 and incorporated herein by reference.






31.1*			Certification of Principal Executive Officer under Section 302 of the Sarbanes–Oxley Act of 2002.
31.2*			Certification of Principal Financial Officer under Section 302 of the Sarbanes–Oxley Act of 2002.
32.1**			Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
32.2**			Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
101 INS*			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101 SCH*			Inline XBRL Taxonomy Extension Schema Document
101 CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101 DEF*			Inline XBRL Taxonomy Extension Definition Linkbase Document
101 LAB*			Inline XBRL Taxonomy Extension Label Linkbase Document
101 PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*			Cover Page Interactive Data File (formatted as Inline XBRL and Contained in Exhibit 101)

* Filed herewith.

** Furnished, not filed.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Wingstop Inc.

(Registrant)

Date:

July ~~29, 2020~~28, 2021

By:

/s/ Charles R. Morrison

Chairman and Chief Executive Officer

(Principal Executive Officer)

Date:

July ~~29, 2020~~28, 2021

By:

/s/ Michael J. Skipworth

Chief Financial Officer

(Principal Financial and Accounting Officer)


	June 27, 2020		December 28, 2019
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	45,766	$	12,849
Restricted cash	4,132		4,790
Accounts receivable, net	5,580		5,175
Prepaid expenses and other current assets	4,118		2,449
Advertising fund assets, restricted	7,860		4,927
Total current assets	67,456		30,190
Property and equipment, net	27,220		27,842
Goodwill	50,160		50,188
Trademarks	32,700		32,700
Customer relationships, net	12,255		12,910
Other non-current assets	11,323		12,283
Total assets	$	201,114	$	166,113
Liabilities and stockholders' deficit
Current liabilities
Accounts payable	$	2,890	$	3,348
Other current liabilities	20,829		21,454
Current portion of debt	16,000		3,200
Advertising fund liabilities	7,860		4,927
Total current liabilities	47,579		32,929
Long-term debt, net	310,846		307,669
Deferred revenues, net of current	22,280		22,343
Deferred income tax liabilities, net	6,043		4,485
Other non-current liabilities	7,038		8,115
Total liabilities	393,786		375,541
Commitments and contingencies (see Note 7)
Stockholders' deficit
Common stock, $0.01 par value; 100,000,000 shares authorized; 29,596,347 and 29,457,228 shares issued and outstanding as of June 27, 2020 and December 28, 2019, respectively	296		295
Additional paid-in-capital	43		552
Accumulated deficit	(193,011)		(210,275)
Total stockholders' deficit	(192,672)		(209,428)
Total liabilities and stockholders' deficit	$	201,114	$	166,113


	June 27, 2020		December 28, 2019
Cash and cash equivalents	$	45,766	$	12,849
Restricted cash	4,132		4,790
Restricted cash, included in Advertising fund assets, restricted	5,540		3,536
Total cash, cash equivalents, and restricted cash	$	55,438	$	21,175


	June 27, 2020		December 28, 2019
2018-1 Class A-2 Senior Secured Notes	$	316,800	$	317,600
2018-1 Class A-1 Variable Funding Senior Notes	16,000		—
Debt issuance costs, net of amortization	(5,954)		(6,731)
Total debt	326,846		310,869
Less: current portion of debt	(16,000)		(3,200)
Long-term debt, net	$	310,846	$	307,669


	Stock Options	Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value		Weighted Average Remaining Term
Outstanding - December 28, 2019	134	$	5.72	$	10,801	3.8
Options granted	67	84.41
Options exercised	(46)	12.12

Outstanding - June 27, 2020	155	$	38.02	$	15,086	5.6


	Restricted Stock Units	Weighted Average Grant Date Fair Value Per Share		Performance Stock Units	Weighted Average Grant Date Fair Value
Outstanding - December 28, 2019	82	$	52.73	169	$	55.92
Units granted	24	87.72		43	84.37
Units vested	(38)	44.57		(52)	41.54
Units canceled	(11)	63.89		(8)	66.04
Outstanding - June 27, 2020	57	$	70.82	152	$	68.49