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 ~~September 25, 2021~~March 26, 2022


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

For the transition period from _____ to _____

Commission File No. 001-37425

WINGSTOP INC.

(Exact name of registrant as specified in its charter)


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


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

(972) 686-6500

(Registrant’s telephone number, including area code)


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

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

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

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

On ~~November 2, 2021~~May 3, 2022 there were ~~29,825,763~~29,876,820 shares of common stock outstanding.

TABLE OF CONTENTS


		Page
PART I	Financial Information	4
Item 1.	Financial Statements	4
	Consolidated Balance Sheets - ~~September 25, 2021~~March 26, 2022 (Unaudited) and December ~~26, 2020~~25, 2021	4
	Consolidated Statements of Comprehensive Income (Unaudited) - Thirteen ~~and Thirty-nine~~ Weeks Ended ~~September 25, 2021~~March 2 6 , 202 2 and ~~September 26, 2020~~March 2 7 , 20 21	5

	Consolidated Statements of Stockholders’ Deficit (Unaudited) - Thirteen ~~and Thirty-nine~~ Weeks Ended ~~September 25,~~March 26, 2022 and March 27, 2021 ~~and September 26, 2020~~	6
	Consolidated Statements of Cash Flows (Unaudited) - ~~Thirty-nine~~Thirt een Weeks Ended ~~September 25,~~March 26, 2022 and March 27, 2021 ~~and September 26, 2020~~	87
	Notes to Consolidated Financial Statements (Unaudited)	98
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1413
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2724
Item 4.	Controls and Procedures	2825

PART II	Other Information	2926
Item 1.	Legal Proceedings	2926
Item 1A.	Risk Factors	2926
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2926
Item 3.	Defaults Upon Senior Securities	2926
Item 4.	Mine Safety Disclosures	2926
Item 5.	Other Information	2926
Item 6.	Exhibits	3027
	Signatures	3128

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Balance Sheets

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


		September 25, 2021		December 26, 2020			March 26, 2022		December 25, 2021
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	50,125	$	40,858	Cash and cash equivalents	$	287,013	$	48,583
Restricted cash	Restricted cash	3,456		4,815		Restricted cash	10,257		3,448
Accounts receivable, net	Accounts receivable, net	6,052		4,929		Accounts receivable, net	6,385		6,993
Prepaid expenses and other current assets	Prepaid expenses and other current assets	4,156		5,532		Prepaid expenses and other current assets	3,652		4,928
Advertising fund assets, restricted	Advertising fund assets, restricted	25,013		16,486		Advertising fund assets, restricted	16,926		6,197
Total current assets	Total current assets	88,802		72,620		Total current assets	324,233		70,149
Property and equipment, net	Property and equipment, net	49,151		27,948		Property and equipment, net	57,314		54,503
Goodwill	Goodwill	56,877		53,690		Goodwill	56,877		56,877
Trademarks	Trademarks	32,700		32,700		Trademarks	32,700		32,700
Customer relationships, net	Customer relationships, net	10,626		11,600		Customer relationships, net	9,981		10,302
Other non-current assets	Other non-current assets	22,243		13,007		Other non-current assets	26,191		24,672
Total assets	Total assets	$	260,399	$	211,565	Total assets	$	507,296	$	249,203
Liabilities and stockholders' deficit	Liabilities and stockholders' deficit					Liabilities and stockholders' deficit
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	4,382	$	3,658	Accounts payable	$	4,931	$	5,414
Dividends payable						Dividends payable	120,149		300
Other current liabilities	Other current liabilities	29,914		26,729		Other current liabilities	24,512		27,770
Current portion of debt	Current portion of debt	—		3,600		Current portion of debt	4,850		—
Advertising fund liabilities	Advertising fund liabilities	25,013		16,486		Advertising fund liabilities	16,926		6,197
Total current liabilities	Total current liabilities	59,309		50,473		Total current liabilities	171,368		39,681
Long-term debt, net	Long-term debt, net	469,084		466,933		Long-term debt, net	710,918		469,394
Deferred revenues, net of current	Deferred revenues, net of current	27,154		24,962		Deferred revenues, net of current	26,893		28,024
Deferred income tax liabilities, net	Deferred income tax liabilities, net	6,475		4,480		Deferred income tax liabilities, net	6,942		7,432
Other non-current liabilities	Other non-current liabilities	12,509		6,027		Other non-current liabilities	15,402		14,197
Total liabilities	Total liabilities	574,531		552,875		Total liabilities	931,523		558,728
Commitments and contingencies (see Note 8)		0		0
Commitments and contingencies (see Note 7)						Commitments and contingencies (see Note 7)	0		0
Stockholders' deficit	Stockholders' deficit					Stockholders' deficit
Common stock, $0.01 par value; 100,000,000 shares authorized; 29,825,763 and 29,687,123 shares issued and outstanding as of September 25, 2021 and December 26, 2020, respectively		299		297
Common stock, $0.01 par value; 100,000,000 shares authorized; 29,876,820 and 29,837,454 shares issued and outstanding as of March 26, 2022 and December 25, 2021, respectively						Common stock, $0.01 par value; 100,000,000 shares authorized; 29,876,820 and 29,837,454 shares issued and outstanding as of March 26, 2022 and December 25, 2021, respectively	299		299
Additional paid-in-capital	Additional paid-in-capital	1,067		421		Additional paid-in-capital	409		463
Retained deficit	Retained deficit	(315,326)		(342,028)		Retained deficit	(424,613)		(310,031)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(172)		—		Accumulated other comprehensive loss	(322)		(256)
Total stockholders' deficit	Total stockholders' deficit	(314,132)		(341,310)		Total stockholders' deficit	(424,227)		(309,525)
Total liabilities and stockholders' deficit	Total liabilities and stockholders' deficit	$	260,399	$	211,565	Total liabilities and stockholders' deficit	$	507,296	$	249,203

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(amounts in thousands, except per share data)

(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 25,
2021 September 26,
2020 September 25,
2021 September 26,
2020
Revenue:
Royalty revenue, franchise fees and other $ 32,829 $ 28,806 $ 97,570 $ 80,863
Advertising fees 15,575 19,653 59,672 55,590
Company-owned restaurant sales 17,380 15,529 53,232 49,076
Total revenue 65,784 63,988 210,474 185,529
Costs and expenses:
Cost of sales (1)
15,206 11,804 42,692 36,367
Advertising expenses 16,232 20,240 61,560 57,660
Selling, general and administrative 15,020 16,542 44,872 42,155
Depreciation and amortization 2,061 2,334 5,379 5,287
Gain on sale of restaurants and other expenses, net (3,567) (1,233) (3,567) (3,249)
Total costs and expenses 44,952 49,687 150,936 138,220
Operating income 20,832 14,301 59,538 47,309
Interest expense, net 3,724 4,405 11,230 12,764
Other income (22) — (22) —
Income before income tax expense 17,130 9,896 48,330 34,545
Income tax expense (benefit) 5,840 (185) 12,568 4,829
Net income $ 11,290 $ 10,081 $ 35,762 $ 29,716
Earnings per share
Basic $ 0.38 $ 0.34 $ 1.20 $ 1.00
Diluted $ 0.38 $ 0.34 $ 1.19 $ 1.00
Weighted average shares outstanding
Basic 29,799 29,642 29,748 29,572
Diluted 29,963 29,854 29,936 29,791
Dividends per share $ 0.17 $ 0.14 $ 0.45 $ 0.36
Other comprehensive income (loss)
Currency translation adjustment $ (63) $ — $ (172) $ —
Other comprehensive income (loss) (63) — (172) —
Comprehensive income $ 11,227 $ 10,081 $ 35,590 $ 29,716


	Thirteen Weeks Ended
	March 26, 2022		March 27, 2021
Revenue:
Royalty revenue, franchise fees and other	$	35,070	$	31,606
Advertising fees	22,539		21,520
Company-owned restaurant sales	18,596		17,564
Total revenue	76,205		70,690
Costs and expenses:
Cost of sales (1)	15,674		13,279
Advertising expenses	23,167		22,027
Selling, general and administrative	18,086		13,786
Depreciation and amortization	2,227		1,795
Loss on disposal of assets	444		—
Total costs and expenses	59,598		50,887
Operating income	16,607		19,803
Interest expense, net	4,192		3,782
Loss on debt extinguishment	814		—
Other expense	65		—
Income before income tax expense	11,536		16,021
Income tax expense	2,860		2,861
Net income	$	8,676	$	13,160

Earnings per share
Basic	$	0.29	$	0.44
Diluted	$	0.29	$	0.44

Weighted average shares outstanding
Basic	29,851		29,706
Diluted	29,974		29,844

Dividends per share	$	4.17	$	0.14

Other comprehensive income (loss)
Currency translation adjustment	$	(66)	$	—
Other comprehensive income (loss)	(66)		—
Comprehensive income	$	8,610	$	13,160

(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 ~~Thirty-Nine~~Thirteen Weeks Ended ~~September~~March 27, 2021 and March 26, ~~2020 and September 25, 2021~~2022

(amounts in thousands, except share data)

(Unaudited)


		Common Stock												Common Stock
		Shares	Amount		Additional Paid-In Capital		Retained Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Deficit			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)	$	—	$	(209,428)
Balance at December 26, 2020													Balance at December 26, 2020	29,687,123	$	297	$	421	$	(342,028)	$	—	$	(341,310)

Net income	Net income	—	—		—		8,096		—		8,096		Net income	—	—		—		13,160		—		13,160
Shares issued under stock plans	Shares issued under stock plans	128,585	1		504		—		—		505		Shares issued under stock plans	60,958	1		155		—		—		156
Tax payments for restricted stock upon vesting	Tax payments for restricted stock upon vesting	(2,419)	—		—		(229)		—		(229)		Tax payments for restricted stock upon vesting	(11,243)	—		—		(1,862)		—		(1,862)
Stock-based compensation expense	Stock-based compensation expense	—	—		1,331		—		—		1,331		Stock-based compensation expense	—	—		2,316		—		—		2,316
Dividends declared on common stock and equivalents	Dividends declared on common stock and equivalents	—	—		(2,168)		(1,055)		—		(3,223)		Dividends declared on common stock and equivalents	—	—		(2,866)		(1,322)		—		(4,188)
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 declared on common stock and equivalents		—	—		(2,202)		(1,075)		—		(3,277)
Balance at June 27, 2020		29,596,347	296		43		(193,011)		—		(192,672)
Net income		—	—		—		10,081		—		10,081
Shares issued under stock plans		87,751	1		328		—		—		329
Tax payments for restricted stock upon vesting		(633)	—		—		(99)		—		(99)
Stock-based compensation expense		—	—		3,007		—		—		3,007
Dividends declared on common stock and equivalents		—	—		(2,882)		(1,301)		—		(4,183)
Balance at September 26, 2020		29,683,465	$	297	$	496	$	(184,330)	$	—	$	(183,537)
Balance at March 27, 2021													Balance at March 27, 2021	29,736,838	298		26		(332,052)		—		(331,728)


		Common Stock												Common Stock
		Shares	Amount		Additional Paid-In Capital		Retained Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Deficit			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)	$	—	$	(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)		—		(331,728)
Balance at December 25, 2021													Balance at December 25, 2021	29,837,454	$	299	$	463	$	(310,031)	$	(256)	$	(309,525)
Net income	Net income	—	—		—		11,312		—		11,312		Net income	—	—		—		8,676		—		8,676
Shares issued under stock plans	Shares issued under stock plans	6,613	—		—		—		—		—		Shares issued under stock plans	41,289	—		125		—		—		125
Tax payments for restricted stock upon vesting	Tax payments for restricted stock upon vesting	(76)	—		—		(11)		—		(11)		Tax payments for restricted stock upon vesting	(1,923)	—		—		(298)		—		(298)
Stock-based compensation expense	Stock-based compensation expense	—	—		2,456		—		—		2,456		Stock-based compensation expense	—	—		2,191		—		—		2,191
Dividends declared on common stock and equivalents	Dividends declared on common stock and equivalents	—	—		(1,888)		(2,275)		—		(4,163)		Dividends declared on common stock and equivalents	—	—		(2,370)		(122,960)		—		(125,330)
Currency translation adjustment	Currency translation adjustment	—	—		—		—		(109)		(109)		Currency translation adjustment	—	—		—		—		(66)		(66)
Balance at June 26, 2021		29,743,375	298		594		(323,026)		(109)		(322,243)
Net income		—	—		—		11,290		—		11,290
Shares issued under stock plans		82,553	1		500		—		—		501
Tax payments for restricted stock upon vesting		(165)	—		—		(28)		—		(28)
Stock-based compensation expense		—	—		2,051		—		—		2,051
Dividends declared on common stock and equivalents		—	—		(2,078)		(3,562)		—		(5,640)
Currency translation adjustment		—	—		—		—		(63)		(63)
Balance at September 25, 2021		29,825,763	$	299	$	1,067	$	(315,326)	$	(172)	$	(314,132)
Balance at March 26, 2022													Balance at March 26, 2022	29,876,820	299		409		(424,613)		(322)		(424,227)

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(amounts in thousands)

(Unaudited)


		Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021

Operating activities	Operating activities					Operating activities
Net income	Net income	$	35,762	$	29,716	Net income	$	8,676	$	13,160
Adjustments to reconcile net income to cash provided by operating activities:	Adjustments to reconcile net income to cash provided by operating activities:					Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	5,379		5,287		Depreciation and amortization	2,227		1,795
Deferred income taxes	Deferred income taxes	2,167		377		Deferred income taxes	(490)		897
Stock-based compensation expense	Stock-based compensation expense	6,823		6,307		Stock-based compensation expense	2,191		2,316
Gain on disposal of assets		(3,567)		(3,247)
Loss on disposal of assets						Loss on disposal of assets	444		—
Amortization of debt issuance costs	Amortization of debt issuance costs	1,056		1,228		Amortization of debt issuance costs	373		358
Loss on debt extinguishment						Loss on debt extinguishment	814		—
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(1,123)		(203)		Accounts receivable	608		(1,021)
Prepaid expenses and other assets	Prepaid expenses and other assets	(689)		668		Prepaid expenses and other assets	263		(904)
Advertising fund assets and liabilities, net	Advertising fund assets and liabilities, net	9,426		12,578		Advertising fund assets and liabilities, net	9,403		5,592
Accounts payable and other current liabilities	Accounts payable and other current liabilities	(2,224)		(4,165)		Accounts payable and other current liabilities	(2,931)		(8,433)
Deferred revenue	Deferred revenue	2,318		958		Deferred revenue	(1,125)		358
Other non-current liabilities	Other non-current liabilities	(1,283)		(2,725)		Other non-current liabilities	(87)		(330)
Cash provided by operating activities	Cash provided by operating activities	54,045		46,779		Cash provided by operating activities	20,366		13,788

Investing activities	Investing activities					Investing activities
Purchases of property and equipment	Purchases of property and equipment	(16,543)		(3,729)		Purchases of property and equipment	(6,293)		(2,841)
Acquisitions of restaurants from franchisees		(4,876)		(5,635)

Proceeds from sales of assets	Proceeds from sales of assets	7,207		4,800		Proceeds from sales of assets	1,479		—
Payments for investments (Note 6)		(4,163)		—

Cash used in investing activities	Cash used in investing activities	(18,375)		(4,564)		Cash used in investing activities	(4,814)		(2,841)

Financing activities	Financing activities					Financing activities

Proceeds from exercise of stock options	Proceeds from exercise of stock options	657		891		Proceeds from exercise of stock options	125		156
Borrowings of long-term debt	Borrowings of long-term debt	—		16,000		Borrowings of long-term debt	250,000		—
Repayments of long-term debt		(2,400)		(800)

Payment of deferred financing costs and other debt-related costs						Payment of deferred financing costs and other debt-related costs	(5,442)		—
Tax payments for restricted stock upon vesting	Tax payments for restricted stock upon vesting	(1,901)		(340)		Tax payments for restricted stock upon vesting	(298)		(1,862)
Dividends paid	Dividends paid	(14,690)		(10,683)		Dividends paid	(5,294)		(4,662)
Cash provided by (used in) financing activities	Cash provided by (used in) financing activities	(18,334)		5,068		Cash provided by (used in) financing activities	239,091		(6,368)

Net increase in cash, cash equivalents, and restricted cash	Net increase in cash, cash equivalents, and restricted cash	17,336		47,283		Net increase in cash, cash equivalents, and restricted cash	254,643		4,579
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	59,270		21,175		Cash, cash equivalents, and restricted cash at beginning of period	54,906		59,270
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	76,606	$	68,458	Cash, cash equivalents, and restricted cash at end of period	$	309,549	$	63,849

Supplemental information:	Supplemental information:					Supplemental information:
Accrued capital expenditures	Accrued capital expenditures	$	8,943	$	—	Accrued capital expenditures	$	5,189	$	—

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

Nature of operations. Wingstop Inc., together with its consolidated subsidiaries (collectively, “Wingstop” or the “Company”), is in the business of franchising and operating Wingstop restaurants. As of ~~September 25, 2021,~~March 26, 2022, the Company had ~~1,461 domestic~~a total of 1,791 restaurants in its system. The Company's restaurant base is approximately 98% franchised, with 1,754 franchised locations (including 203 international locations) and 37 company-owned restaurants ~~and 180 international franchised restaurants. As~~as of ~~September 25, 2021, the Company owned and operated 32 restaurants.~~March 26, 2022.

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 ~~September~~March 26, 2022 and December 25, 2021, ~~and December 26, 2020,~~ and operating results are for the thirteen ~~and thirty-nine~~ weeks ended ~~September 25, 2021~~March 26, 2022 and ~~September 26, 2020.~~March 27, 2021.

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 ~~26, 2020.~~25, 2021.

Fiscal year. The Company uses a 52- or 53-week fiscal year that ends on the last Saturday of the calendar year. Fiscal years 2022 and 2021 have 53- and ~~2020 each have 52 weeks.~~52-weeks, respectively.

Cash, Cash Equivalents, and Restricted Cash. Cash, cash equivalents, and restricted cash within the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows as of ~~September~~March 26, 2022 and December 25, 2021 ~~and December 26, 2020~~ were as follows (in thousands):

September 25, 2021 December 26, 2020
Cash and cash equivalents $ 50,125 $ 40,858
Restricted cash 3,456 4,815
Restricted cash, included in Advertising fund assets, restricted 23,025 13,597
Total cash, cash equivalents, and restricted cash $ 76,606 $ 59,270

~~Change in presentation.~~ Beginning in the 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 $2.0 million for each of the thirteen weeks ended September 25, 2021 and September 26, 2020, and were $5.9 million for each of the thirty-nine weeks ended September 25, 2021 and September 26, 2020.


	March 26, 2022		December 25, 2021
Cash and cash equivalents	$	287,013	$	48,583
Restricted cash	10,257		3,448
Restricted cash, included in Advertising fund assets, restricted	12,279		2,875
Total cash, cash equivalents, and restricted cash	$	309,549	$	54,906

Recently issued accounting pronouncements. We reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our consolidated financial statements.

(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.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


		Thirteen Weeks Ended		Thirty-Nine Weeks Ended			Thirteen Weeks Ended
		September 25, 2021	September 26, 2020	September 25, 2021	September 26, 2020		March 26, 2022	March 27, 2021
Basic weighted average shares outstanding	Basic weighted average shares outstanding	29,799	29,642	29,748	29,572	Basic weighted average shares outstanding	29,851	29,706
Dilutive shares	Dilutive shares	164	212	188	219	Dilutive shares	123	139
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	29,963	29,854	29,936	29,791	Diluted weighted average shares outstanding	29,974	29,844

For ~~each of~~ the thirteen weeks ended ~~September 25,~~March 26, 2022 and March 27, 2021, ~~and September 26, 2020,~~ equity awards representing approximately ~~400 shares were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive.~~

~~For the thirty-nine weeks ended September 25, 2021~~8,000 and ~~September 26, 2020, equity awards representing approximately 4,000 and 400~~5,000 shares, respectively, were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive.

(3) Dividends

~~The Company’s~~In connection with the Company's regular dividend program, on February 15, 2022, our Board of Directors declared ~~a quarterly dividend of $0.14 per share of common stock in each of the first two quarters, and~~ a quarterly dividend of $0.17 per share of common stock, ~~in the third quarter,~~ resulting in ~~aggregate~~a total dividend ~~payments~~ of ~~$13.4 million, or $0.45 per share~~approximately $5.1 million. This dividend was paid on March 25, 2022 to stockholders of ~~common stock, during the thirty-nine weeks ended September 25, 2021.~~record as of March 11, 2022.

Subsequent to the ~~third~~first quarter, on ~~November 2, 2021,~~May 3, 2022, the Company’s Board of Directors declared a quarterly dividend of $0.17 per share of common stock for stockholders of record as of ~~November 19, 2021.~~May 20, 2022. The regular quarterly dividend is to be paid on ~~December~~June 10, ~~2021,~~2022, totaling approximately $5.1 million.

Separate from the Company’s regular dividend program, on March 9, 2022, the Company’s Board of Directors declared a special dividend of $4.00 per share of common stock, resulting in a total dividend of approximately $119.5 million. This dividend was paid on April 7, 2022 to stockholders of record as of March 24, 2022.

(4) Fair Value Measurements

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

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

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

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

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


		Fair Value Hierarchy	September 25, 2021				December 26, 2020					Fair Value Hierarchy	March 26, 2022				December 25, 2021
			Carrying Value		Fair Value		Carrying Value		Fair Value				Carrying Value		Fair Value		Carrying Value		Fair Value
Securitized Financing Facility:	Securitized Financing Facility:										Securitized Financing Facility:
2020-1 Class A-2 Senior Secured Notes (1)	2020-1 Class A-2 Senior Secured Notes (1)	Level 2	$	477,600	$	486,187	$	480,000	$	483,365	2020-1 Class A-2 Senior Secured Notes (1)	Level 2	$	477,600	$	455,167	$	477,600	$	480,676

2022-1 Class A-2 Senior Secured Notes (1)											2022-1 Class A-2 Senior Secured Notes (1)	Level 2	$	250,000	$	250,000	$	—	$	—
Investment in bonds of LPH (2)											Investment in bonds of LPH (2)	Level 2	$	4,020	$	4,020	$	4,151	$	4,151

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

(2) The fair value is based on a discounted cash flow analysis using current market rates for debt investments with similar maturities and credit risk.

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

~~WINGSTOP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

(5) Income Taxes

Income tax expense ~~(benefit)~~ and the effective tax rate were ~~$5.8~~$2.9 million and ~~34.1%~~24.8%, respectively, for the thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, and ~~$(0.2)~~$2.9 million and ~~(1.9)%~~17.9%, respectively, for the thirteen weeks ended September 26, 2020. Income tax expense and the effective tax rate were $12.6 million and 26.0%, respectively, for the thirty-nine weeks ended September 25, 2021, and $4.8 million and 14.0%, respectively, for the thirty-nine weeks ended September 26, 2020.March 27, 2021.

Income tax expense ~~(benefit)~~ for the thirteen ~~and thirty-nine~~ weeks ended ~~September 25, 2021~~March 26, 2022 included ~~$0.1~~$0.2 million ~~and $0.6 million, respectively,~~ in tax benefits resulting from the recognition of excess tax benefits from stock-based compensation, as compared to ~~$2.9 million and $4.4~~$1.3 million in tax benefits for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2020,~~March 27, 2021, respectively.

(6) ~~Investments~~

~~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 are recorded on an amortized cost basis. The fair value of the bonds approximates the current carrying value and was determined using level 3 inputs. 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 of the investee will be recorded in Other income on the Consolidated Statements of Comprehensive Income.

~~(7)~~ Debt Obligations

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


		September 25, 2021		December 26, 2020			March 26, 2022		December 25, 2021
2020-1 Class A-2 Senior Secured Notes	2020-1 Class A-2 Senior Secured Notes	$	477,600	$	480,000	2020-1 Class A-2 Senior Secured Notes	$	477,600	$	477,600

2022-1 Class A-2 Senior Secured Notes						2022-1 Class A-2 Senior Secured Notes	250,000		—
Debt issuance costs, net of amortization	Debt issuance costs, net of amortization	(8,516)		(9,467)		Debt issuance costs, net of amortization	(11,832)		(8,206)
Total debt	Total debt	469,084		470,533		Total debt	715,768		469,394
Less: current portion of debt	Less: current portion of debt	—		(3,600)		Less: current portion of debt	(4,850)		—
Long-term debt, net	Long-term debt, net	$	469,084	$	466,933	Long-term debt, net	$	710,918	$	469,394

On March 9, 2022, the Company completed a securitized financing transaction, in which Wingstop Funding LLC, a limited purpose, bankruptcy-remote, indirect wholly owned subsidiary of the Company (the “Issuer”), issued $250 million of its Series 2022-1 3.734% Fixed Rate Senior Secured Notes, Class A-2 (the "2022 Class A-2 Notes"). The Issuer also entered into a revolving financing facility of Series 2022-1 Variable Funding Senior Notes, Class A-1 (the “2022 Variable Funding Notes,” and together with the 2022 Class A-2 Notes, the “2022 Notes”), which permits borrowings of up to a maximum principal amount of $200 million, subject to certain borrowing conditions, a portion of which may be used to issue letters of credit. The proceeds from the securitized financing transaction were used to pay related transaction fees and expenses, strengthen the Company's liquidity position and for general corporate purposes, which included a return of capital to the Company’s stockholders.

In addition to the 2022 Notes, the Company’s outstanding debt consists of ~~(i)~~its existing Series 2020-1 2.84% Fixed Rate Senior Secured Notes, Class A-2 (the “2020 ~~Class A-2~~ Notes”) ~~issued by Wingstop Funding LLC (the “Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary~~. The Company’s existing revolving financing facility of ~~Wingstop Inc. and (ii)~~ Series 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 $50 million which may be used to borrow amounts on a revolving basis and to issue letters of credit.~~

~~As of September 25, 2021 and December 26, 2020, the Company had $477.6 million and $480.0 million of 2020 Class A-2 Notes outstanding, respectively. There were no borrowings outstanding under~~ (“the 2020 Variable Funding ~~Notes as~~Notes”) was terminated in connection with the transaction. As of ~~September~~December 25, 2021, ~~and December 26, 2020. Further, as of September 25, 2021 and December 26, 2020,~~ $3.5 million ~~and $4.9 million, respectively,~~ of letters of credit were outstanding against the 2020 Variable Funding Notes, which ~~relate~~related primarily to ~~interest reserves~~ required ~~under the base indenture and related supplemental indenture. There were no amounts drawn down on the letters of credit as of September 25, 2021 or December 26, 2020.~~

As of September 25, 2021, the Company’s leverage ratio under the Class A-2 Notes was less than 5.0x. Per the terms of the Company’s debt agreements, principal payments can be suspended at the borrower’s election until the repayment date as long as the Company maintains a leverage ratio of less than 5.0x. Accordingly, the Company has elected to suspend payments following the principal payment made in the third quarter, and the entire outstanding balance of the Class A-2 notes has been classified as long-term debt.

The 2020 Notes were 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.

1110

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

~~(8)~~interest reserves, and there were no amounts drawn down on the letters of credit as of December 25, 2021. No borrowings were outstanding under the 2022 Variable Funding Notes as of March 26, 2022.

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

The 2022 Notes were issued pursuant to a base indenture and related supplemental indentures (collectively, the “Indenture”). Interest and principal payments on the 2022 Class A-2 Notes are payable on a quarterly basis. The requirement to make such quarterly principal payments on the 2022 Class A-2 Notes is subject to certain financial conditions set forth in the Indenture. The legal final maturity date of the 2022 Notes is in March of 2052, but, unless earlier prepaid to the extent permitted under the Indenture, the anticipated repayment date of the 2022 Class A-2 Notes is March 2029. If the Issuer has not repaid or refinanced the 2022 Class A-2 Notes prior to the anticipated repayment date, additional interest will accrue on the Notes.

The 2022 Variable Funding Notes accrue interest at a variable rate based on (i) the prime rate, (ii) the overnight federal funds rates, (iii) the secured overnight financing rate, 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 2022 Variable Funding Note Purchase Agreement, dated March 9, 2022, and the indenture supplement. Commitment fees and other usage fees apply to the 2022 Variable Funding Notes facility depending on the type of borrowing requested. There is a 60-basis points draw fee on borrowings requested pursuant to the terms of the 2022 Variable Fund Notes. Additionally, during a commitment availability period, there is a 30-basis point commitment fee on the committed portion of the 2022 Variable Funding Notes. There were no amounts drawn down on the letters of credit as of March 26, 2022.

The 2022 Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Issuer maintains specified reserve accounts to be used to make required payments in respect of the 2022 Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the 2022 Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, that the assets pledged as collateral for the 2022 Notes are in stated ways defective or ineffective, and (iv) covenants relating to recordkeeping, access to information, and similar matters. The 2022 Class A-2 Notes are also subject to customary rapid amortization events provided for in the indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of global gross sales for specified restaurants being below certain levels on certain measurement dates, certain change of control and manager termination events, an event of default, and the failure to repay or refinance the 2022 Class A-2 Notes on the applicable scheduled maturity date. The 2022 Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to the 2022 Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments. As of March 26, 2022, the Company was in compliance with all financial covenants.

During the first quarter of 2022, as a result of the termination of the 2020 Variable Funding Notes, the Company recorded a loss on debt extinguishment of $0.8 million related to the write-off of previously capitalized financing costs. Total debt issuance costs incurred and capitalized in connection with the issuance of the 2022 Notes were $5.5 million.

As of December 25, 2021, the Company’s leverage ratio was less than 5.0x, and accordingly, per the terms of the applicable debt agreements, the Company elected to suspend principal payments and classified the balance of the 2020 Notes as long-term debt.Subsequent to the closing of the 2022 Notes, the Company had a leverage ratio of greater than 5.0x and, accordingly, the Company will resume making scheduled amortization payments on the notes in the third quarter of 2022. The 2020 Class A-2 Notes and the 2022 Class A-2 Notes are generally subject to 1% annual amortization.

(7) 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.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

~~(9)~~(8) Stock-Based Compensation

During the ~~thirty-nine~~thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, the Company granted stock options to purchase ~~42,703~~37,787 shares of common stock and ~~23,191~~26,431 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 weighted-average exercise price of ~~$129.11~~$144.94 per share and had a weighted-average grant-date fair value of ~~$42.51~~$49.10 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 ~~$135.51~~$144.27 per unit.

In addition, the Company granted ~~32,733~~30,209 performance stock units (“PSUs”) to certain employees during the ~~thirty-nine~~thirteen weeks ended ~~September 25, 2021. Of~~March 26, 2022. The PSUs cliff-vest at the ~~total PSUs granted, 25,623 PSUs are subject to~~end of a three year service condition and a performance vesting condition based on return on incremental invested capital (“ROI PSUs”). The ROI PSUs are generally eligible to cliff-vest approximately three years from the grant date, and the maximum vesting percentage that could be realized for each of the ROI PSUs is 250% based on the level of performance achieved for the awards. The remaining 7,110 PSUs granted are subject to a service condition and a performance vesting condition based on the number of net new restaurants opened over the performance period ~~(“NNR PSUs”). The NNR PSUs~~or vest in equal annual amounts over a ~~three-year period, and~~three year period. Vested amounts may range from 0% to a maximum of 250% of targeted amounts depending on the ~~maximum~~achievement of performance measures at the end of each vesting ~~percentage that could be realized for each of the NNR PSUs is 100%~~period. Such performance measures are based on the ~~level of performance achieved~~Company meeting certain return on incremental investment targets or unit development targets for the ~~awards.~~vesting period. The PSUs had a weighted-average grant-date fair value of ~~$131.16~~$144.35 per unit. Total compensation cost for the PSUs is determined based on the most likely outcome of the performance condition and the number of awards expected to vest based on the outcome.

Total compensation expense related to all share-based awards was ~~$6.8~~$2.2 million and ~~$6.3~~$2.3 million for the ~~thirty-nine~~thirteen weeks ended ~~September 25,~~March 26, 2022 and March 27, 2021, ~~and September 26, 2020,~~ respectively, and was included in Selling, general and administrative (“SG&A”) expense in the Consolidated Statements of Comprehensive Income.

~~(10)~~(9) Revenue from Contracts with Customers

The following table represents a disaggregation of revenue from contracts with customers for the thirteen ~~and thirty-nine~~ weeks ended ~~September 25,~~March 26, 2022 and March 27, 2021 ~~and September 26, 2020~~ (in thousands):


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Royalty revenue	Royalty revenue	$	30,039	$	26,007	$	89,262	$	72,761	Royalty revenue	$	32,204	$	28,809
Advertising fees and related income		15,575		19,653		59,672		55,590
Advertising fees										Advertising fees	22,539		21,520
Franchise fees	Franchise fees	902		1,151		2,961		2,914		Franchise fees	960		1,195

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 thirty-nine~~ weeks ended ~~September 25, 2021~~March 26, 2022 was included in the deferred revenue balance as of December ~~26, 2020.~~25, 2021. Approximately ~~$10.3~~$9.4 million and ~~$9.8~~$10.4 million of deferred revenue as of ~~September~~March 26, 2022 and December 25, 2021, ~~and December 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 ~~7.3~~7.5 years. The Company did not have any material contract assets as of ~~September 25, 2021.~~March 26, 2022.

~~WINGSTOP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~(11) Acquisitions and Refranchising of Company-owned Restaurants~~

During the third fiscal quarter 2021, the Company completed the sale of 6 company-owned restaurants in the Colorado market to an existing franchisee for aggregate proceeds of $7.2 million. In connection with the sale of the restaurants, the Company recorded a $3.6 million pre-tax gain on the sale of the related assets and liabilities, which was net of an $80,000 reduction in goodwill. The net gain on these store sales was recorded in Gain on sale of restaurants and other expenses, net in the Company’s Consolidated Statements of Comprehensive Income as of September 25, 2021.

In the third fiscal quarter 2021, the company acquired 3 existing restaurants from franchisees. The combined purchase price was $4.9 million and was funded by cash flow from operations. The following table summarizes the preliminary allocations of the purchase price to the estimated fair value of assets acquired and liabilities assumed at the date of the acquisition (in thousands):


	~~Purchase Price Allocation~~
~~Working capital~~	$	61
~~Property and equipment~~	~~148~~
~~Reacquired franchise rights~~	~~1,400~~
~~Goodwill~~	~~3,267~~
~~Operating lease right-of-use assets~~	~~1,526~~
~~Operating lease liabilities~~	~~(1,526)~~
~~Total purchase price~~	$	~~4,876~~

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

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

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 ~~26, 2020~~25, 2021 (our “Annual Report”). The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Special Note Regarding Forward-Looking Statements,” below and “Risk Factors” beginning on page 11 of our Annual Report. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

We operate on a 52- or 53-week fiscal year ending on the last Saturday of each calendar year. Our fiscal quarters are comprised of 13 weeks, with the exception of the fourth quarter of a 53-week year, which contains 14 weeks. Fiscal ~~years~~year 2022 contains 53 weeks, while fiscal year 2021 ~~and 2020 each contain~~contains 52 weeks.

Overview

Wingstop is the largest fast casual chicken wings-focused restaurant chain in the world, with over ~~1,600~~1,700 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.

~~Change~~The COVID-19 pandemic has continued to have varying degrees of disruption on our business. Throughout the pandemic, substantially all of our domestic restaurants operated in ~~presentation~~an off-premise capacity, leveraging our carryout and delivery capabilities. In March of 2022, we began reopening our dining rooms to dine-in guests.

~~Beginning~~Our carryout and delivery capabilities positioned us to achieve domestic same store sales growth of 21.9% in the ~~first quarter of 2021, headcount-related expenses that support~~two-year period ended March 26, 2022. However, 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 SG&A expenses. Prior period amountsbusiness has been challenged by COVID-19-related labor availability and wage inflation, and while we have not had significant disruptions in our supply chain, we have experienced higher product costs and inflationary pressures, which have been ~~reclassified~~mitigated to ~~conform~~some extent by recent deflation in bone-in chicken costs. While we do not know the future impact COVID-19 and inflationary pressures will have on our business, we expect labor and supply chain challenges to ~~the current presentation. This reclassification had no impact on operating income, balance sheets or statements of cash flows.~~continue in fiscal year 2022.

1413

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		Thirty-Nine Weeks Ended			Thirteen Weeks Ended
		September 25, 2021	September 26, 2020	September 25, 2021	September 26, 2020		March 26, 2022	March 27, 2021
Domestic Franchised Activity:	Domestic Franchised Activity:					Domestic Franchised Activity:
Beginning of period	Beginning of period	1,415	1,244	1,327	1,200	Beginning of period	1,498	1,327
Openings	Openings	44	34	132	79	Openings	56	44
Closures	Closures	(1)	(1)	(1)	(4)	Closures	(3)	—
Acquired by Company		(3)	(5)	(3)	(5)
Re-franchised by Company		6	5	6	7

Restaurants end of period	Restaurants end of period	1,461	1,277	1,461	1,277	Restaurants end of period	1,551	1,371

Domestic Company-Owned Activity:	Domestic Company-Owned Activity:					Domestic Company-Owned Activity:
Beginning of period	Beginning of period	34	30	32	31	Beginning of period	36	32
Openings	Openings	1	1	3	2	Openings	1	1
Closures	Closures	—	—	—	—	Closures	—	—
Acquired by Company		3	5	3	5
Re-franchised to franchisees		(6)	(5)	(6)	(7)

Restaurants end of period	Restaurants end of period	32	31	32	31	Restaurants end of period	37	33

Total Domestic Restaurants	Total Domestic Restaurants	1,493	1,308	1,493	1,308	Total Domestic Restaurants	1,588	1,404

International Franchised Activity:	International Franchised Activity:					International Franchised Activity:
Beginning of period	Beginning of period	175	162	179	154	Beginning of period	197	179
Openings	Openings	10	10	16	18	Openings	7	2
Closures	Closures	(5)	(1)	(15)	(1)	Closures	(1)	(6)

Restaurants end of period	Restaurants end of period	180	171	180	171	Restaurants end of period	203	175

Total System-wide Restaurants	Total System-wide Restaurants	1,673	1,479	1,673	1,479	Total System-wide Restaurants	1,791	1,579

System-wide sales. System-wide sales represents net sales for all of our company-owned and franchised 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.

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. Our domestic AUV growth is primarily driven by increases in same store sales and is also influenced by opening new restaurants.

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

EBITDA and Adjusted EBITDA. We define EBITDA as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization. We define Adjusted EBITDA as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization, with further adjustments for losses on debt extinguishment and

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. Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in methods of calculation. For a reconciliation of net income to EBITDA and Adjusted EBITDA and for further discussion of EBITDA and Adjusted EBITDA as non-GAAP measures and how we utilize them, see footnote 2 below.

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 for the thirteen ~~and thirty-nine~~ weeks ended ~~September 25,~~March 26, 2022 and March 27, 2021 ~~and September 26, 2020~~ (in thousands, except unit data):


		Thirteen Weeks Ended						Thirty-Nine Weeks Ended							Thirteen Weeks Ended
		September 25, 2021			September 26, 2020			September 25, 2021			September 26, 2020				March 26, 2022			March 27, 2021
Number of system-wide restaurants open at end of period	Number of system-wide restaurants open at end of period	1,673			1,479			1,673			1,479			Number of system-wide restaurants open at end of period	1,791			1,579
System-wide sales (1)	System-wide sales (1)	$	594,300		$	509,155		$	1,742,829		$	1,448,108		System-wide sales (1)	$	630,007		$	558,869
Domestic restaurant AUV	Domestic restaurant AUV	$	1,579		$	1,435		$	1,579		$	1,435		Domestic restaurant AUV	$	1,602		$	1,547
Domestic same store sales growth	Domestic same store sales growth	3.9		%	25.4		%	8.1		%	22.5		%	Domestic same store sales growth	1.2		%	20.7		%
Company-owned domestic same store sales growth	Company-owned domestic same store sales growth	(0.2)		%	15.2		%	2.9		%	15.3		%	Company-owned domestic same store sales growth	2.1		%	13.4		%
Total revenue	Total revenue	$	65,784		$	63,988		$	210,474		$	185,529		Total revenue	$	76,205		$	70,690
Net income	Net income	$	11,290		$	10,081		$	35,762		$	29,716		Net income	$	8,676		$	13,160
Adjusted EBITDA (2)	Adjusted EBITDA (2)	$	21,399		$	18,409		$	68,195		$	55,654		Adjusted EBITDA (2)	$	22,089		$	23,914
Adjusted net income (3)	Adjusted net income (3)	$	8,579		$	9,144		$	33,051		$	27,247		Adjusted net income (3)	$	10,153		$	13,160

(1) The percentage of system-wide sales attributable to company-owned restaurants was ~~2.9%~~3.0% and ~~3.2%~~3.1% for the thirteen weeks ended ~~September 25,~~March 26, 2022 and March 27, 2021, ~~and September 26, 2020, respectively, and was 3.1% and 3.4% for the thirty-nine weeks ended September 25, 2021 and September 26, 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, 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 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 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. 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 thirty-nine~~ weeks ended ~~September 25,~~March 26, 2022 and March 27, 2021 ~~and September 26, 2020~~ (in thousands):


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Net income	Net income	$	11,290	$	10,081	$	35,762	$	29,716	Net income	$	8,676	$	13,160
Interest expense, net	Interest expense, net	3,724		4,405		11,230		12,764		Interest expense, net	4,192		3,782
Income tax expense (benefit)	Income tax expense (benefit)	5,840		(185)		12,568		4,829		Income tax expense (benefit)	2,860		2,861
Depreciation and amortization	Depreciation and amortization	2,061		2,334		5,379		5,287		Depreciation and amortization	2,227		1,795
EBITDA	EBITDA	$	22,915	$	16,635	$	64,939	$	52,596	EBITDA	$	17,955	$	21,598
Additional adjustments:	Additional adjustments:									Additional adjustments:
Loss on debt extinguishment and financing transaction costs (a)										Loss on debt extinguishment and financing transaction costs (a)	1,124		—

Gain on disposal of assets (a)		(3,567)		(1,233)		(3,567)		(3,249)
Stock-based compensation expense (b)		2,051		3,007		6,823		6,307
Loss on disposal of assets (b)										Loss on disposal of assets (b)	444		—
Consulting fees (c)										Consulting fees (c)	375		—
Stock-based compensation expense (d)										Stock-based compensation expense (d)	2,191		2,316
Adjusted EBITDA	Adjusted EBITDA	$	21,399	$	18,409	$	68,195	$	55,654	Adjusted EBITDA	$	22,089	$	23,914

(a) Represents costs and expenses related to our 2022 securitized financing facility and payment of a ~~gain~~special dividend, as well as the extinguishment of our 2020 variable funding note facility; all transaction costs are included in Loss on debt extinguishment during the thirteen weeks ended March 26, 2022, with the exception of $310,000 that is included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(b) Represents a loss resulting from the ~~re-franchise~~sale of ~~company-owned restaurants~~assets to a franchisee ~~which~~pursuant to a multi-unit development agreement executed in the prior fiscal year. This loss is included in ~~Gain~~Loss on ~~sale~~disposal of ~~restaurants and other expenses, net~~assets in the Consolidated Statements of Comprehensive Income.

~~(b)~~(c) Represents costs and expenses related to a consulting project to support the Company's strategic initiatives, which are included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(d) 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 thirty-nine~~ weeks ended ~~September 25,~~March 26, 2022 and March 27, 2021 ~~and September 26, 2020~~ (in thousands):


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020			March 26, 2022		March 27, 2021
Numerator:	Numerator:									Numerator:
Net income	Net income	$	11,290	$	10,081	$	35,762	$	29,716	Net income	$	8,676	$	13,160
Adjustments:	Adjustments:									Adjustments:

Gain on disposal of assets, net (a)		(3,567)		(1,233)		(3,567)		(3,249)
Tax effect of adjustments (b)		856		296		856		780
Loss on debt extinguishment and financing transactions (a)										Loss on debt extinguishment and financing transactions (a)	1,124		—
Loss on disposal of assets (b)										Loss on disposal of assets (b)	444		—
Consulting fees (c)										Consulting fees (c)	375		—
Tax effect of adjustments (d)										Tax effect of adjustments (d)	(466)		—
Adjusted net income	Adjusted net income	$	8,579	$	9,144	$	33,051	$	27,247	Adjusted net income	$	10,153	$	13,160

Denominator:	Denominator:									Denominator:
Weighted-average shares outstanding - diluted	Weighted-average shares outstanding - diluted	29,963		29,854		29,936		29,791		Weighted-average shares outstanding - diluted	29,974		29,844

Adjusted earnings per diluted share	Adjusted earnings per diluted share	$	0.29	$	0.31	$	1.10	$	0.91	Adjusted earnings per diluted share	$	0.34	$	0.44

(d) 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 thirty-nine~~ weeks ended ~~September 25, 2021 and September~~March 26, ~~2020,~~2022, which includes provisions for U.S. federal income taxes, and assumes the respective statutory rates for applicable state and local jurisdictions.

1817

Results of Operations

Thirteen Weeks Ended ~~September 25, 2021~~March 26, 2022 compared to Thirteen Weeks Ended ~~September 26, 2020~~March 27, 2021

The following table sets forth our results of operations for the thirteen weeks ended ~~September 25,~~March 26, 2022 and March 27, 2021 ~~and September 26, 2020~~ (dollars in thousands):


		Thirteen Weeks Ended				Increase / (Decrease)					Thirteen Weeks Ended				Increase / (Decrease)
		September 25, 2021		September 26, 2020		$		%			March 26, 2022		March 27, 2021		$		%
Revenue:	Revenue:									Revenue:
Royalty revenue, franchise fees and other	Royalty revenue, franchise fees and other	$	32,829	$	28,806	$	4,023	14.0	%	Royalty revenue, franchise fees and other	$	35,070	$	31,606	$	3,464	11.0	%
Advertising fees	Advertising fees	15,575		19,653		(4,078)		(20.8)	%	Advertising fees	22,539		21,520		1,019		4.7	%
Company-owned restaurant sales	Company-owned restaurant sales	17,380		15,529		1,851		11.9	%	Company-owned restaurant sales	18,596		17,564		1,032		5.9	%
Total revenue	Total revenue	65,784		63,988		1,796		2.8	%	Total revenue	76,205		70,690		5,515		7.8	%
Costs and expenses:	Costs and expenses:									Costs and expenses:
Cost of sales (1)	Cost of sales (1)	15,206		11,804		3,402		28.8	%	Cost of sales (1)	15,674		13,279		2,395		18.0	%
Advertising expenses	Advertising expenses	16,232		20,240		(4,008)		(19.8)	%	Advertising expenses	23,167		22,027		1,140		5.2	%
Selling, general and administrative	Selling, general and administrative	15,020		16,542		(1,522)		(9.2)	%	Selling, general and administrative	18,086		13,786		4,300		31.2	%
Depreciation and amortization	Depreciation and amortization	2,061		2,334		(273)		(11.7)	%	Depreciation and amortization	2,227		1,795		432		24.1	%
Gain on sale of restaurants and other expenses, net		(3,567)		(1,233)		(2,334)		189.3	%
Loss on disposal of assets										Loss on disposal of assets	444		—		444		100.0	%
Total costs and expenses	Total costs and expenses	44,952		49,687		(4,735)		(9.5)	%	Total costs and expenses	59,598		50,887		8,711		17.1	%
Operating income	Operating income	20,832		14,301		6,531		45.7	%	Operating income	16,607		19,803		(3,196)		(16.1)	%
Interest expense, net	Interest expense, net	3,724		4,405		(681)		(15.5)	%	Interest expense, net	4,192		3,782		410		10.8	%
Other income		(22)		—		(22)		100.0	%
Loss on debt extinguishment										Loss on debt extinguishment	814		—		814		100.0	%
Other expense										Other expense	65		—		65		100.0	%
Income before income tax expense	Income before income tax expense	17,130		9,896		7,234		73.1	%	Income before income tax expense	11,536		16,021		(4,485)		(28.0)	%
Income tax expense (benefit)		5,840		(185)		6,025		(3,256.8)	%
Income tax expense										Income tax expense	2,860		2,861		(1)		—	%
Net income	Net income	$	11,290	$	10,081	$	1,209	12.0	%	Net income	$	8,676	$	13,160	$	(4,484)	(34.1)	%

(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 ~~September 25, 2021,~~March 26, 2022, total revenue was ~~$65.8~~$76.2 million, an increase of ~~$1.8~~$5.5 million, or ~~2.8%~~7.8%, compared to ~~$64.0~~$70.7 million in the comparable period in ~~2020.~~2021. Royalty revenue, franchise fees and other increased ~~$4.0~~$3.5 million primarily due to 208 net franchise restaurant openings since March 27, 2021, as well as domestic same store sales growth of ~~3.9% as well as 193 net franchise restaurant openings since September 26, 2020.~~1.2%. Advertising fees ~~decreased~~increased $~~4.1~~1.0 million due to ~~a $6.9 million rebate of advertising surplus that was returned to franchisees during~~ the ~~third quarter of 2021 in an effort to mitigate increased food and labor costs. This was partially offset by an increase in advertising fees related to the 16.7%~~12.7% increase in system-wide sales in the thirteen weeks ended ~~September 25, 2021~~March 26, 2022 compared to the thirteen weeks ended ~~September 26, 2020.~~March 27, 2021. Company-owned restaurant sales increased ~~$1.9~~$1.0 million ~~primarily~~ due to an increase of $0.7 million related to the ~~acquisition~~addition of ~~three franchised restaurants in the third quarter of 2021 and the opening of three~~four net new company-owned restaurants since the prior year comparable ~~period.~~period, and $0.3 million, or 2.1%, company-owned same store sales growth, which was driven by an increase in menu prices, partially offset by a decline in transactions.

Cost of sales. During the thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, cost of sales was ~~$15.2~~$15.7 million, an increase of ~~$3.4~~$2.4 million, or ~~28.8%~~18.0%, compared to ~~$11.8~~$13.3 million in the comparable period in ~~2020.~~2021. Cost of sales as a percentage of company-owned restaurant sales was ~~87.5%~~84.3% in the thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, compared to ~~76.0%~~75.6% in the comparable period in ~~2020.~~2021.

1918

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


		Thirteen Weeks Ended									Thirteen Weeks Ended
		September 25, 2021				September 26, 2020					March 26, 2022			March 27, 2021
		In dollars		As a % of company-owned restaurant sales		In dollars		As a % of company-owned restaurant sales			In dollars	As a % of company-owned restaurant sales		In dollars	As a % of company-owned restaurant sales
Cost of sales:	Cost of sales:									Cost of sales:
Food, beverage and packaging costs	Food, beverage and packaging costs	$	8,353	48.1	%	$	5,655	36.4	%	Food, beverage and packaging costs	7,967	42.8	%	7,304	41.6	%
Labor costs	Labor costs	4,269		24.6	%	3,944		25.4	%	Labor costs	4,807	25.8	%	3,728	21.2	%
Other restaurant operating expenses	Other restaurant operating expenses	2,980		17.1	%	2,512		16.2	%	Other restaurant operating expenses	2,862	15.4	%	2,627	15.0	%
Vendor rebates	Vendor rebates	(396)		(2.3)	%	(307)		(2.0)	%	Vendor rebates	(407)	(2.2)	%	(380)	(2.2)	%
Cost of sales (excluding pre-opening expenses)										Cost of sales (excluding pre-opening expenses)	15,229	81.9	%	13,279	75.6	%
Pre-opening expenses										Pre-opening expenses	445	2.4	%	—	—	%
Total cost of sales	Total cost of sales	$	15,206	87.5	%	$	11,804	76.0	%	Total cost of sales	15,674	84.3	%	13,279	75.6	%

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were ~~48.1%~~42.8% in the thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, compared to ~~36.4%~~41.6% in the comparable period in ~~2020.~~2021. The increase was primarily due to a ~~48.9%~~14.2% increase in the cost of bone-in chicken wings as compared to the prior year ~~period, in which we experienced unusually significant deflation in the cost of bone-in chicken wings.~~period.

Labor costs as a percentage of company-owned restaurant sales were ~~24.6%~~25.8% for the thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, compared to ~~25.4%~~21.2% in the comparable period in ~~2020.~~2021. The ~~decrease~~increase as a percentage of company-owned restaurant sales was primarily due to ~~incentive pay provided to team members in response to the COVID-19 pandemic during the prior year period. This was partially offset by a highly competitive labor market that resulted in~~ increases in company-owned restaurant wages and hiring and training costs as a result of the ongoing COVID-19 pandemic and a competitive labor market during the thirteen weeks ended ~~September 25, 2021.~~March 26, 2022.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were ~~17.1%~~15.4% for the thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, compared to ~~16.2%~~15.0% in the comparable period in ~~2020.~~2021. The increase as a percentage of company-owned restaurant sales was primarily a result of ~~pre-opening~~increases in rent and other costs related to company-owned restaurants in Manhattan, New York, which increases were partially offset by a decrease in advertising fees during the thirteen weeks ended March 26, 2022.

Pre-opening expenses ~~related~~as a percentage of company-owned restaurant sales were 2.4% for the thirteen weeks ended March 26, 2022 due to our investment in opening company-owned restaurants in Manhattan, as well as repairs and maintenance in our company-owned restaurants. These increases were partially offset by a decrease in advertising contributions, due to a rebate of national advertising surplus received during the thirteen weeks ended September 25, 2021.New York.

Advertising expenses. During the thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, advertising expenses were ~~$16.2~~$23.2 million, ~~a decrease~~an increase of ~~$4.0~~$1.1 million compared to ~~$20.2~~$22.0 million in the comparable period in ~~2020.~~2021. 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). During the thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, SG&A expense was ~~$15.0~~$18.1 million, ~~a decrease~~an increase of ~~$1.5~~$4.3 million compared to ~~$16.5~~$13.8 million in the comparable period in ~~2020.~~2021. The ~~decrease in~~increase SG&A expense was primarily due to ~~a decrease~~an increase of ~~$3.4~~$2.0 million in ~~variable-based compensation expense, inclusive of stock-based compensation expense, and $0.5 million~~headcount related ~~to COVID-19 and support provided to international franchisees in the prior year comparable period. These decreases were partially offset by an increase in headcount-related~~ expenses ~~of $1.2 million~~ to support the growth in our business, ~~as well as~~ an increase of ~~$0.8~~$1.1 million in professional fees to support the Company’s strategic initiatives, an increase of $0.7 million in travel ~~expenses.~~expense as compared to the prior year period which was limited due to COVID-19, and approximately $0.3 million in one-time expenses related to our new securitized financing facility and payment of the special dividend.

Depreciation and amortization. During the thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, depreciation expense was ~~$2.1~~$2.2 million, ~~a decrease~~an increase of ~~$0.3~~$0.4 million compared to ~~$2.3~~$1.8 million in the comparable period in ~~2020.~~2021.

Loss on disposal of assets. During the thirteen weeks ended March 26, 2022, loss on disposal of assets was $0.4 million related to the sale of restaurant assets to a franchisee.

Interest expense, net. During the thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, interest expense, net was ~~$3.7~~$4.2 million, ~~a decrease~~an increase of ~~$0.7~~$0.4 million compared to ~~$4.4~~$3.8 million of interest expense, net in the comparable period in ~~2020.~~2021. The ~~decrease~~increase was due to the ~~refinancing of our~~ securitized financing ~~facility~~transaction completed on ~~October 30, 2020,~~March 9, 2022, which increased our outstanding debt by ~~$162.4~~$250 million.

Loss on debt extinguishment. Loss on debt extinguishment was $0.8 million during the thirteen weeks ended March 26, 2022 due to costs and ~~reduced~~fees associated with the extinguishment of our ~~interest rate from 4.97% to 2.84%.~~2020 Variable Funding Note facility on March 9, 2022.

Income tax expense. During the thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, we recognized income tax expense of ~~$5.8~~$2.9 million yielding an effective tax rate of ~~34.1%~~24.8%, compared to an effective tax rate of ~~(1.9)%~~17.9% in the prior year period. The increase in the effective tax rate was primarily due to the impact of ~~nondeductible expenses for executive compensation, as well as the impact of~~ excess tax benefits associated with stock ~~options exercised~~awards vested in the prior year comparable period.

~~Thirty-Nine Weeks Ended September 25, 2021 compared to Thirty-Nine Weeks Ended September 26, 2020~~

~~The following table sets forth our results of operations for the thirty-nine weeks ended September 25, 2021 and September 26, 2020 (dollars in thousands):~~

Thirty-Nine Weeks Ended Increase / (Decrease)
September 25,
2021 September 26,
2020 $ %
Revenue:
Royalty revenue, franchise fees and other $ 97,570 $ 80,863 $ 16,707 20.7 %
Advertising fees 59,672 55,590 4,082 7.3 %
Company-owned restaurant sales 53,232 49,076 4,156 8.5 %
Total revenue 210,474 185,529 24,945 13.4 %
Costs and expenses:
Cost of sales (1)
42,692 36,367 6,325 17.4 %
Advertising expenses 61,560 57,660 3,900 6.8 %
Selling, general and administrative 44,872 42,155 2,717 6.4 %
Depreciation and amortization 5,379 5,287 92 1.7 %
Gain on sale of restaurants and other expenses, net (3,567) (3,249) (318) 9.8 %
Total costs and expenses 150,936 138,220 12,716 9.2 %
Operating income 59,538 47,309 12,229 25.8 %
Interest expense, net 11,230 12,764 (1,534) (12.0) %
Other income (22) — (22) 100.0 %
Income before income tax expense 48,330 34,545 13,785 39.9 %
Income tax expense 12,568 4,829 7,739 160.3 %
Net income $ 35,762 $ 29,716 $ 6,046 20.3 %

~~(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 thirty-nine weeks ended September 25, 2021, total revenue was $210.5 million, an increase of $24.9 million, or 13.4%, compared to $185.5 million in the comparable period in 2020. Royalty revenue, franchise fees and other increased $16.7 million primarily due to domestic same store sales growth of 8.1% as well as 193 net franchise restaurant openings since September 26, 2020. Advertising fees increased $4.1 million due to the 20.4% increase in system-wide sales in the thirty-nine weeks ended September 25, 2021 compared to the thirty-nine weeks ended September 26, 2020. This was partially offset by a $6.9 million rebate of advertising surplus that was returned to franchisees during the third quarter of 2021 in an effort to mitigate increased food and labor costs. Company-owned restaurant sales increased $4.2 million primarily due to company-owned same store sales growth of 2.9%, which was driven by an increase in transaction size. Also contributing to the increase was the acquisition of three franchised restaurants in the third quarter of the current year and the opening of three new company-owned restaurants since the prior year comparable period, resulting in additional sales of $2.4 million.

~~Cost of sales.~~ During the thirty-nine weeks ended September 25, 2021, cost of sales was $42.7 million, an increase of $6.3 million, or 17.4%, compared to $36.4 million in the comparable period in 2020. Cost of sales as a percentage of company-owned restaurant sales was 80.2% in the thirty-nine weeks ended September 25, 2021, compared to 74.1% in the comparable period in 2020.

~~The table below presents the major components of cost of sales (dollars in thousands):~~
Thirty-Nine Weeks Ended
September 25, 2021 September 26, 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 $ 23,680 44.5 % $ 17,085 34.8 %
Labor costs 11,771 22.1 % 12,156 24.8 %
Other restaurant operating expenses 8,428 15.8 % 8,164 16.6 %
Vendor rebates (1,187) (2.2) % (1,038) (2.1) %
Total cost of sales $ 42,692 80.2 % $ 36,367 74.1 %

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 44.5% in the thirty-nine weeks ended September 25, 2021, compared to 34.8% in the comparable period in 2020. The increase was primarily due to a 46.4% increase in the cost of bone-in chicken wings as compared to the prior year 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 22.1% for the thirty-nine weeks ended September 25, 2021, compared to 24.8% in the comparable period in 2020. The decrease as a percentage of company-owned restaurant sales was primarily due to incentive pay provided to team members in response to the COVID-19 pandemic during the prior year period, partially offset by a highly competitive labor market that resulted in increases in company-owned restaurant wages and hiring and training costs during the thirty-nine weeks ended September 25, 2021.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 15.8% for the thirty-nine weeks ended September 25, 2021, compared to 16.6% in the comparable period in 2020. The decrease as a percentage of company-owned restaurant sales was primarily due to a decrease in delivery fees and security fees, partially offset by an increase in pre-opening expenses related to our investment in opening company-owned restaurants in Manhattan.

~~Advertising expenses.~~ During the thirty-nine weeks ended September 25, 2021, advertising expenses were $61.6 million, an increase of $3.9 million compared to $57.7 million in the comparable period in 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).~~ During the thirty-nine weeks ended September 25, 2021, SG&A expense was $44.9 million, an increase of $2.7 million compared to $42.2 million in the comparable period in 2020. The increase in SG&A expense was primarily due to an increase of $3.2 million in headcount related expenses to support the growth in our business, inclusive of stock-based compensation expense, an increase of $2.1 million in professional fees to support the Company’s strategic initiatives, and an increase of $0.6 million in travel expense. These increases were partially offset by a decrease of $1.7 million in variable-based compensation expense, $1.0 million related to a donation made in the prior year period to the National Restaurant Employee Relief Fund to support restaurant workers in times of need, and $0.5 million related to COVID-19 and support provided to international franchisees in the prior year comparable period.

~~Depreciation and amortization.~~ ~~During the thirty-nine weeks ended September 25, 2021, depreciation expense was $5.4 million, an increase of $0.1 million compared to $5.3 million in the comparable period in 2020.~~

~~Interest expense, net.~~ During the thirty-nine weeks ended September 25, 2021, interest expense, net was $11.2 million, a decrease of $1.5 million compared to $12.8 million of interest expense, net in the comparable period in 2020. The decrease in interest expense, net 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.~~ During the thirty-nine weeks ended September 25, 2021, we recognized income tax expense of $12.6 million yielding an effective tax rate of 26.0%, compared to an effective tax rate of 14.0% in the prior year period. The increase in the effective tax rate was primarily due to the impact of nondeductible expenses for executive compensation, as well as the impact of excess tax benefits associated with stock options exercised in the prior year comparable period.

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.~~borrowings available under our securitized financing facility. Our primary requirements for liquidity and capital are working capital, ~~and~~ general corporate ~~needs.~~needs, capital expenditures, income tax payments, debt service requirements, and dividend payments. Historically, we have operated with minimal positive working capital or with negative working capital. We ~~have~~generally reinvest available cash flows from operations to invest in ~~the past,~~our business, service our debt obligations, 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~~pay dividends.

Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and ~~capital~~available borrowings under our 2022 Variable Funding Notes. As of March 26, 2022, the Company had $309.5 million of cash and restricted cash on its balance sheet.

Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with our securitized financing facility including our 2022 Variable Funding Notes, will be sufficient to ~~finance~~meet our ~~continued operations~~capital expenditure, working capital and ~~growth strategy~~debt service requirements for at least the next twelve ~~months.~~months and the foreseeable future.

The following table shows summary cash flows information for the ~~thirty-nine~~thirteen weeks ended ~~September 25,~~March 26, 2022 and March 27, 2021 ~~and September 26, 2020~~ (in thousands):


		Thirty-Nine Weeks Ended				Thirteen Weeks Ended
		September 25, 2021		September 26, 2020				March 26, 2022		March 27, 2021
Net cash provided by (used in):	Net cash provided by (used in):						Net cash provided by (used in):
Operating activities	Operating activities	$	54,045	$	46,779		Operating activities	$	20,366	$	13,788
Investing activities	Investing activities	(18,375)		(4,564)			Investing activities	(4,814)		(2,841)
Financing activities	Financing activities	(18,334)		5,068			Financing activities	239,091		(6,368)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	17,336	$	47,283		Net change in cash and cash equivalents	$	254,643	$	4,579

Operating activities. Our cash 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 flow from operating activities.

Net cash provided by operating activities was ~~$54.0~~$20.4 million in the ~~thirty-nine~~thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, an increase of ~~$7.3~~$6.6 million from cash provided by operating activities of ~~$46.8~~$13.8 million in the ~~thirty-nine~~thirteen weeks ended ~~September 26, 2020.~~March 27, 2021. The increase is primarily due to changes in advertising fund cash and cash equivalents, directly related to the ~~result~~timing of ~~increased operating income associated with~~payments for expenses incurred for national advertising. Also contributing to the ~~increased sales over~~increase is the ~~prior period,~~change in timing of working capital, which is partially offset by the ~~timing of changes~~decrease in ~~working capital.~~operating income.

Investing activities. Our net cash used in investing activities was ~~$18.4~~$4.8 million in the ~~thirty-nine~~thirteen weeks ended ~~September 25, 2021,~~March 26, 2022, an increase of ~~$13.8~~$2.0 million from cash used in investing activities of ~~$4.6~~$2.8 million in the ~~thirty-nine~~thirteen weeks ended ~~September 26, 2020.~~March 27, 2021. The increase in cash used in investing activities was primarily due to an increase in capital expenditures related to our investments in technology and the remodel of our corporate headquarters building, as well as a payment of $4.2 million related to a foreign investment in LPH (see Note 6 in the accompanying notes to our unaudited consolidated financial statements included elsewhere in this Quarterly Report).technology.

Financing activities. Our net cash provided by financing activities was $239.1 million in the thirteen weeks ended March 26, 2022, a change of $245.5 million from cash used in financing activities ~~was $18.3~~of $6.4 million in the ~~thirty-nine~~thirteen weeks ended ~~September 25, 2021, a change of $23.4 million from cash provided by financing activities of $5.1 million in the thirty-nine weeks ended September 26, 2020.~~March 27, 2021. The change was primarily due to additional borrowings under our ~~2018 Variable Funding~~2022 Class A-2 Notes (as defined below) of ~~$16.0~~$250 million, ~~in the thirty-nine weeks ended September 26, 2020, which is~~ partially offset by ~~an increase in~~deferred financing and other debt related costs incurred of $5.4 million during the ~~amount of dividends paid as compared to the prior year period.~~thirteen weeks ended March 27, 2021.

Securitized financing facility. On ~~October 30, 2020,~~March 9, 2022, the Company completed a ~~transaction to refinance its existing~~ securitized financing ~~facility with a new securitized financing facility,~~transaction, pursuant to which Wingstop Funding LLC (the “Issuer”), a ~~limited-purpose,~~limited purpose, bankruptcy-remote, ~~wholly-owned~~ indirect wholly owned subsidiary of the Company, issued ~~$480.0~~$250 million of its Series ~~2020-1 2.84%~~2022-1 3.734% Fixed Rate Senior Secured Notes, Class A-2 (the ~~“2020~~"2022 Class A-2 ~~Notes”~~Notes"). The Issuer also entered into a revolving financing facility of Series ~~2020-1~~2022-1 Variable Funding Senior Notes, Class A-1 (the ~~“2020~~“2022 Variable Funding Notes,” and together with the ~~2020~~2022 Class A-2 Notes, the ~~“2020~~“2022 Notes”), which permits borrowings of up to a maximum principal amount of ~~$50.0~~$200 million, subject to certain borrowing conditions, a portion of which may be used to issue letters of credit. ~~A portion~~The Company’s existing revolving financing facility of ~~the proceeds of the 2020~~Series 2020-1 Class ~~A-2~~A-1 Notes was terminated in connection with the transaction. The proceeds from the securitized financing transaction were used to ~~repay~~pay related transaction fees and expenses, strengthen the ~~$332.8 million~~Company's liquidity position and for general corporate purposes, which included a return of ~~principal~~capital to the Company’s stockholders.

In addition to the 2022 Notes, the Company’s outstanding ~~on the~~debt consists of its existing Series ~~2018-1 4.97%~~2020-1 2.84% Fixed Rate Senior Secured Notes, Class A-2 ~~and Series 2018-1~~(the “2020 Notes”). No borrowings were outstanding under the 2022 Variable Funding ~~Senior Secured~~ Notes ~~Class A-1 (the “2018 Variable Funding Notes”) and to pay a special cash dividend~~as of ~~approximately $148.4 million 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 2.84% per annum, and have an anticipated repayment date of December 2027. During the third fiscal quarter of 2021, 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. Accordingly, the Company has elected to suspend payments following the principal payment made in the third quarter of 2021.March 26, 2022.

Dividends. We paid ~~a quarterly cash dividend of $0.14 per share of common stock in each of the first two quarters of 2021, and~~ a quarterly cash dividend of $0.17 per share of common stock, aggregating $5.1 million, in the ~~third~~first quarter of ~~2021, resulting in aggregate dividend payments of $13.4 million, or $0.45 per share of common stock, during the thirty-nine weeks ended September 25, 2021.~~2022. On ~~November 2, 2021,~~May 3, 2022, the Company’s Board of Directors approved a dividend of $0.17 per share, to be paid on ~~December~~June 10, ~~2021~~2022 to stockholders of record as of ~~November 19, 2021,~~May 20, 2022, totaling approximately $5.1 million.

We do not currently expect the restrictions in our debt instruments to impact our ability to make 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 the Company and our stockholders.

~~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 $3.5 million at September 25, 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~~For a description 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~~Company’s critical accounting policies and estimates, ~~are identified~~refer to “Part II—Item 7—Management’s Discussion and ~~described in our annual consolidated financial statements~~Analysis of Financial Condition and ~~the related notes included~~Results of Operations” in our Annual ~~Report,~~Report. The Company considers its significant accounting policy over revenue recognition to be particularly important to the portrayal and ~~there~~understanding of our financial position and results of operations. There have been no material changes to the Company’s critical accounting policies and estimates since ~~the filing of our Annual Report.~~December 25, 2021.

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,” “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 below and elsewhere in this report and our Annual Report, 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 the availability and cost of labor;

•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 or allocation 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;

•risks associated with the geographic concentration of our business;

•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. 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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, including inflation as compared to the prior year period.~~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 ~~35.1%~~30.3% and ~~26.2%~~33.8% of our company-owned restaurant cost of sales during the ~~thirty-nine~~thirteen weeks ended ~~September 25,~~March 26, 2022 and March 27, 2021, ~~and September 26, 2020,~~ respectively. We anticipate that the increased demand and 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 ~~$1.5~~$0.5 million during the ~~thirty-nine~~thirteen weeks ended ~~September 25, 2021.~~March 26, 2022. We do not engage in speculative financial transactions nor do we hold or issue financial instruments for trading purposes.

Interest Rate Risk. Our long-term debt, including current portion, consisted entirely of the ~~$477.6~~$727.6 million incurred under the 2022 Notes and 2020 Notes as of ~~September 25, 2021~~March 26, 2022 (excluding unamortized debt issuance costs). The Company’s predominantly fixed-rate debt structure has reduced its exposure to interest rate 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~~2022 Variable Funding Notes; however, the Company had no outstanding borrowings under its ~~2020~~2022 Variable Funding Notes as of ~~September 25, 2021, net of letters of credit issued of $3.5 million.~~March 26, 2022.

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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 ~~September 25, 2021,~~March 26, 2022, 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 ~~September 25, 2021,~~March 26, 2022, 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 SEC, 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 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.

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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

A description of the risk factors associated with our business is contained in the “Risk Factors” section of our Annual Report.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Index to Exhibits


Exhibit No.			Description
3.1			Amended and Restated Certificate of Incorporation of Wingstop Inc., as amended through June 15, 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.
4.1			Second Amended and Restated Base Indenture, dated as of March 9, 2022, by and between Wingstop Funding LLC, as Issuer, and Citibank, N.A., as Trustee and Securities Intermediary, filed as Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. 001-37425) on March 10, 2022 and incorporated herein by reference.
4.2			Series 2022-1 Supplement to Base Indenture, dated as of March 9, 2022, by and between Wingstop Funding LLC, as Issuer of the Series 2022-1 fixed rate senior secured notes, Class A-2, and Series 2022-1 variable funding senior secured notes, Class A-1, and Citibank, N.A., as Trustee and Series 2022-1 Securities Intermediary, filed as Exhibit 4.2 to the Company's Current Report on Form 8-K (File No. 001-37425) on March 10, 2022 and incorporated herein by reference.
10.1			Purchase Agreement, dated as of March 2, 2022, by and among the Company, certain indirect subsidiaries of the Company party thereto and Morgan Stanley & CO, LLC, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-37425) on March 3, 2022 and incorporated herein by reference.
10.2

			Class A-1 Note Purchase Agreement, dated as of March 9, 2022, by and among Wingstop Funding LLC, as Issuer, each of Wingstop Guarantor LLC and Wingstop Franchising LLC, as Guarantor, Wingstop Restaurants Inc., as Manager, the conduit investors party thereto, the financial institutions party thereto, certain funding agents, Morgan Stanley Asset Funding Inc., as Administrative Agent, and Morgan Stanley Bank, N.A., as L/C Provider, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-37425) on March 10, 2022 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.

3027

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:

~~November 3, 2021~~May 4, 2022

By:

/s/ ~~Charles R. Morrison~~Michael J. Skipworth

~~Chairman~~President and Chief Executive Officer

(Principal Executive Officer)

Date:

~~November 3, 2021~~May 4, 2022

By:

/s/ Alex R. Kaleida

Chief Financial Officer

(Principal Financial and Accounting Officer)

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