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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-09 · 133 added, 132 removed, 326 unchanged (45% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 1, 2023 (the “Form 10-K”).

There have been no material changes as of July 2, 2023 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.

There have been no material changes as of October 1, 2023 to the application of our critical accounting policies as described in Item 7 of the Form 10-K.

Certain statements we make under this Item 2 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.

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and 32 foreign countries and U.S.

territories as of July 2, 2023.

territories as of October 1, 2023.

Each Wendy’s restaurant offers an extensive menu specializing in hamburger sandwiches and featuring filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of toppings and condiments.

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The Company measures segment profit using segment adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”).

Segment adjusted EBITDA excludes certain unallocated general and administrative expenses and other items that vary from period to period without correlation to the Company’s core operating performance.

Segment adjusted EBITDA excludes certain unallocated general and administrative expenses and other items that vary from period to period without correlation to

the Company’s core operating performance.

See “Results of Operations” below and Note 17 to the Condensed Consolidated Financial Statements contained in Item 1 herein for segment financial information.

The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31.

All three- and six-month periods presented herein contain 13 weeks and 26 weeks, respectively.

All three- and nine-month periods presented herein contain 13 weeks and 39 weeks, respectively.

All references to years, quarters and months relate to fiscal periods rather than calendar periods.

Executive Overview

As of July 2, 2023, the Wendy’s restaurant system was comprised of 7,115 restaurants, with 5,993 Wendy’s restaurants in operation in the U.S.

As of October 1, 2023, the Wendy’s restaurant system was comprised of 7,166 restaurants, with 6,010 Wendy’s restaurants in operation in the U.S.

restaurants, 403 were operated by the Company and 5,607 were operated by a total of 215 franchisees.

In addition, at July 2, 2023, there were 1,122 Wendy’s restaurants in operation in 32 foreign countries and U.S.

In addition, at October 1, 2023, there were 1,156 Wendy’s restaurants in operation in 32 foreign countries and U.S.

Of the international restaurants, 1,144 were operated by a total of 106 franchisees and 12 were operated by the Company in the United Kingdom (the “U.K.”).

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(1) sales at Company-operated restaurants and (2) franchise-related revenues, including royalties, national advertising funds contributions, rents and franchise fees received from Wendy’s franchised restaurants.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of July 2, 2023.

Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of October 1, 2023.

Wendy’s operating results are impacted by a number of external factors, including commodity costs, labor costs, intense price competition, unemployment and consumer spending levels, general economic and market trends and weather.

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Because all companies do not calculate non-GAAP financial measures in the same way, this measure as used by other companies may not be consistent with the way the Company calculates such measure.

Second Quarter Financial Highlights

• Revenue increased 4.4% to $561.6 million in the second quarter of 2023 compared with $537.8 million in the second quarter of 2022;

Third Quarter Financial Highlights

• Revenue increased 3.4% to $550.6 million in the third quarter of 2023 compared with $532.6 million in the third quarter of 2022;

• Global same-restaurant sales increased 2.8%, U.S.

same-restaurant sales increased 4.9% and international same-restaurant sales increased 7.2% compared with the second quarter of 2022.

same-restaurant sales increased 2.2% and international same-restaurant sales increased 7.8% compared with the third quarter of 2022.

On a two-year basis, global same-restaurant sales increased 9.7%;

• Global Company-operated restaurant margin was 16.5% in the second quarter of 2023, an increase of 200 basis points compared with the second quarter of 2022;

• Net income increased 23.7% to $59.6 million in the second quarter of 2023 compared with $48.2 million in the second quarter of 2022.

• Global Company-operated restaurant margin was 15.0% in the third quarter of 2023, an increase of 70 basis points compared with the third quarter of 2022;

• Net income increased 14.9% to $58.0 million in the third quarter of 2023 compared with $50.5 million in the third quarter of 2022.

Year-to-Date Financial Highlights

• Revenue increased 6.2% to $1.1 billion in the first six months of 2023 compared with $1.0 billion in the first six months of 2022;

• Revenue increased 5.3% to $1.64 billion in the first nine months of 2023 compared with $1.56 billion in the first nine months of 2022;

• Global same-restaurant sales increased 5.2%, U.S.

same-restaurant sales increased 6.0% and international same-restaurant sales increased 10.3% compared with the first six months of 2022.

same-restaurant sales increased 4.7% and international same-restaurant sales increased 9.4% compared with the first nine months of 2022.

On a two-year basis, global same-restaurant sales increased 9.6%;

• Global Company-operated restaurant margin was 15.2% in the first six months of 2023, an increase of 210 basis points compared with the first six months of 2022;

• Net income increased 16.2% to $99.5 million in the first six months of 2023 compared with $85.6 million in the first six months of 2022.

• Global Company-operated restaurant margin was 15.1% in the first nine months of 2023, an increase of 160 basis points compared with the first nine months of 2022;

• Net income increased 15.7% to $157.5 million in the first nine months of 2023 compared with $136.1 million in the first nine months of 2022.

Global Same-Restaurant Sales

Wendy’s long-term growth opportunities include driving strong same-restaurant sales momentum across all dayparts through our ownable core products, exciting menu innovation, compelling value offerings and improvements in speed, consistency and accuracy in our restaurants.

Global same-restaurant sales increased 5.1% in the second quarter of 2023 and increased 8.8% on a two-year basis.

Global same-restaurant sales increased 6.5% in the first six months of 2023 and increased 9.6% on a two-year basis.

Global same-restaurant sales increased 2.8% in the third quarter of 2023 and

increased 9.7% on a two-year basis.

Global same-restaurant sales increased 5.2% in the first nine months of 2023 and increased 9.6% on a two-year basis.

Wendy’s long-term growth opportunities include accelerated implementation of consumer-facing digital platforms and technologies.

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During the second quarter of 2023, the Company revised its definition of digital sales to reflect our full digital portfolio by including in-restaurant mobile scans, in addition to our previously included delivery, mobile order and kiosk digital channels.

Under the revised definition, the Company’s digital business represented approximately 12.7% and 10.9% of global systemwide sales during the six months ended July 2, 2023 and July 3, 2022, respectively.

Under the revised definition, the Company’s digital business represented approximately 12.8% and 10.7% of global systemwide sales during the nine months ended October 1, 2023 and October 2, 2022, respectively.

New Restaurant Development

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In addition, the Company has development agreements in place with a number of franchisees that contractually obligate such franchisees to open additional Wendy’s restaurants over a specified timeframe.

During the six months ended July 2, 2023, the Company and its franchisees added 20 net new restaurants across the Wendy’s system.

During the nine months ended October 1, 2023, the Company and its franchisees added 71 net new restaurants across the Wendy’s system.

Organizational Redesign

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The cash expenditures are expected to continue into 2025, with approximately two-thirds of the total cash expenditures occurring in 2023.

Costs related to the Organizational Redesign Plan are recorded to “Reorganization and realignment costs.” During the six months ended July 2, 2023, the Company recognized costs totaling $7.4 million, which primarily included severance and related employee costs and share-based compensation.

Costs related to the Organizational Redesign Plan are recorded to “Reorganization and realignment costs.” During the nine months ended October 1, 2023, the Company recognized costs totaling $8.0 million, which primarily included severance and related employee costs and share-based compensation.

The Company expects to incur additional costs aggregating approximately $3 million to $5 million, comprised of (1) severance and related employee costs of approximately $1.5 million, (2) recruitment and relocation costs of approximately $0.5 million, (3) third-party and other costs of approximately $0.5 million and (4) share-based compensation of approximately $1.5 million.

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Results of Operations

The tables included throughout this Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the second quarter and the first six months of 2023 and 2022.

Second Quarter Six Months

The tables included throughout this Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the third quarter and the first nine months of 2023 and 2022.

Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

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Amortization of cloud computing arrangements 3.8 0.9 2.9 7.7 0.9 6.8

System optimization losses (gains), net — (0.2) 0.2 — (3.7) 3.7

System optimization gains, net (0.1) (0.5) 0.4 (0.1) (4.1) 4.0

Reorganization and realignment costs 0.6 — 0.6 8.1 0.6 7.5

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Net income $ 58.0 $ 50.5 $ 7.5 $ 157.5 $ 136.1 $ 21.4

Second Quarter Six Months

Third Quarter Nine Months

Total Revenues 2022 % of

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$ 550.6 100.0 % $ 532.6 100.0 % $ 1,640.9 100.0 % $ 1,559.0 100.0 %

Second Quarter Six Months

Third Quarter Nine Months

Sales 2022 % of

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Total cost of sales $ 199.5 85.0 % $ 196.2 85.7 % $ 597.1 84.9 % $ 578.5 86.5 %

Second Quarter Six Months

Third Quarter Nine Months

Sales 2022 % of

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The table below presents certain of the Company’s key business measures, which are defined and further discussed in the “Executive Overview” section included herein.

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 2023 2022

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(a) Excludes Argentina due to the impact of that country’s highly inflationary economy.

(b) During the second quarter of 2023 and 2022, global systemwide sales increased 6.9% and 5.6%, respectively, U.S.

(b) During the third quarter of 2023 and 2022, global systemwide sales increased 4.8% and 8.9%, respectively, U.S.

systemwide sales increased 3.6% and 7.7%, respectively, and international systemwide sales increased 13.6% and 18.3%, respectively, on a constant currency basis.

During the first six months of 2023 and 2022, global systemwide sales increased 8.4% and 4.9%, respectively, U.S.

During the first nine months of 2023 and 2022, global systemwide sales increased 7.2% and 6.3%, respectively, U.S.

systemwide sales increased 6.0% and 4.6%, respectively, and international systemwide sales increased 15.6% and 20.1%, respectively, on a constant currency basis.

Second Quarter

Third Quarter

Company-operated U.S.

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Restaurant count:

Restaurant count at April 2, 2023

Restaurant count at July 2, 2023

403 5,590 11 1,111 7,115

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Closed — (10) — (11) (21)

Restaurant count at July 2, 2023

Restaurant count at October 1, 2023

403 5,607 12 1,144 7,166

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Closed (2) (48) (1) (30) (81)

Restaurant count at July 2, 2023

Restaurant count at October 1, 2023

403 5,607 12 1,144 7,166

Sales Second Quarter Six Months

Sales Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Sales $ 234.7 $ 228.8 $ 5.9 $ 703.4 $ 668.9 $ 34.5

The increase in sales during the second quarter and the first six months of 2023 was primarily due to (1) a 3.3% and 5.3% increase in global Company-operated same-restaurant sales of $6.5 million and $21.4 million, respectively, and (2) net new restaurant development of $4.1 million and $8.2 million, respectively.

The increase in sales during the third quarter and the first nine months of 2023 was primarily due to (1) a 1.0% and 3.8% increase in global Company-operated same-restaurant sales of $3.5 million and $25.4 million, respectively, and (2) net new restaurant development of $2.5 million and $10.2 million, respectively.

Company-operated same-restaurant sales increased due to higher average check, partially offset by a decrease in customer count.

Franchise Royalty Revenue and Fees Second Quarter Six Months

Franchise Royalty Revenue and Fees Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

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$ 149.4 $ 141.7 $ 7.7 $ 444.0 $ 414.2 $ 29.8

Franchise royalty revenue during the second quarter of 2023 increased $7.1 million, of which (1) $6.4 million was due to a 5.3% increase in global franchise same-restaurant sales and (2) $2.5 million was due to net new restaurant development.

Franchise royalty revenue during the first six months of 2023 increased $17.5 million, of which (1) $15.3 million was due to a 6.6% increase in global franchise same-restaurant sales and (2) $5.1 million was due to net new restaurant development.

Franchise same-restaurant sales during the second quarter and the first six months of 2023 increased due to higher average check, partially offset by a decrease in customer count.

The increase in franchise fees during the second quarter and the first six months of 2023 was primarily due to (1) an increase in fees as a result of Franchise Flips and other development-related fees of $1.5 million and $1.9 million, respectively, and (2) higher fees for providing information technology services to franchisees of $1.0 million and $1.9 million, respectively.

Franchise Rental Income Second Quarter Six Months

Franchise royalty revenue during the third quarter of 2023 increased $5.6 million, of which (1) $3.2 million was due to net new restaurant development and (2) $2.4 million was due to a 3.0% increase in global franchise same-restaurant sales.

Franchise royalty revenue during the first nine months of 2023 increased $22.9 million, of which (1) $14.8 million was due to a 5.4% increase in global franchise same-restaurant sales and (2) $9.4 million was due to net new restaurant development.

Franchise same-restaurant sales during the third quarter and the first nine months of 2023 increased due to higher average check, partially offset by a decrease in customer count.

The increase in franchise fees during the third quarter of 2023 was primarily due to higher fees for providing information technology services to franchisees of $1.9 million.

The increase in franchise fees during the first nine months of 2023 was primarily due to (1) higher fees for providing information technology services to franchisees of $3.8 million and (2) an increase in fees as a result of Franchise Flips and other miscellaneous fees of $3.0 million.

Franchise Rental Income Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Franchise rental income $ 57.6 $ 58.5 $ (0.9) $ 173.4 $ 174.9 $ (1.5)

The decrease in franchise rental income during the second quarter and the first six months of 2023 was primarily due to the impact of assigning certain leases to franchisees.

Advertising Funds Revenue Second Quarter Six Months

The decrease in franchise rental income during the third quarter and the first nine months of 2023 was primarily due to the impact of assigning certain leases to franchisees, partially offset by an increase in executory costs.

See Note 12 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information.

Advertising Funds Revenue Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Advertising funds revenue $ 108.9 $ 103.6 $ 5.3 $ 320.1 $ 301.0 $ 19.1

The increase in advertising funds revenue during the second quarter and the first six months of 2023 was primarily due to an increase in franchise same-restaurant sales in the U.S.

Cost of Sales, as a Percent of Sales Second Quarter Six Months

The increase in advertising funds revenue during the third quarter and the first nine months of 2023 was primarily due to an increase in franchise same-restaurant sales in the U.S.

Cost of Sales, as a Percent of Sales Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

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85.0 % 85.7 % (0.7) % 84.9 % 86.5 % (1.6) %

The decrease in cost of sales, as a percent of sales, during the second quarter and the first six months of 2023 was primarily due to higher average check.

This impact was partially offset by (1) higher commodity costs, (2) an increase in restaurant labor rates, (3) a decrease in customer count and (4) the impact of the Company’s investments to support the entry into the U.K.

The decrease in cost of sales, as a percent of sales, during the third quarter and the first nine months of 2023 was primarily due to higher average check.

This impact was partially offset by (1) an increase in restaurant labor rates, (2) a decrease in customer count, (3) higher commodity costs and (4) the impact of the Company’s investments to support the entry into the U.K.

market and additional inflationary pressures in the U.K.

Franchise Support and Other Costs Second Quarter Six Months

Franchise Support and Other Costs Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Franchise support and other costs $ 14.8 $ 12.7 $ 2.1 $ 41.9 $ 34.5 $ 7.4

The increase in franchise support and other costs during the second quarter and the first six months of 2023 was primarily due to an increase in costs incurred to provide information technology and other services to franchisees.

Franchise Rental Expense Second Quarter Six Months

The increase in franchise support and other costs during the third quarter and the first nine months of 2023 was primarily due to an increase in costs incurred to provide information technology and other services to franchisees.

Franchise Rental Expense Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Franchise rental expense $ 31.9 $ 31.7 $ 0.2 $ 94.9 $ 92.7 $ 2.2

The increase in franchise rental expense during the second quarter and the first six months of 2023 was primarily due to the impact of assigning fewer leases to franchisees during 2023 compared with 2022.

Advertising Funds Expense Second Quarter Six Months

The increase in franchise rental expense during the third quarter and the first nine months of 2023 was primarily due to an increase in executory costs.

See Note 12 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information.

Advertising Funds Expense Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

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The Company expects advertising funds expense to be lower than advertising funds revenue by approximately $3.0 million for 2023, which includes the amount by which advertising funds expense exceeded advertising funds revenue in prior years (excluding the Company’s funding of incremental advertising) of approximately $5.0 million, partially offset by the Company’s incremental funding of advertising in Canada of approximately $2.0 million.

The decrease in advertising funds expense during the second quarter was due to a decrease in the Company’s funding of incremental advertising, partially offset by an increase in franchise same-restaurant sales in the U.S.

The increase in advertising funds expense during the first six months of 2023 was due to an increase in franchise same-restaurant sales in the U.S.

The decrease in advertising funds expense during the third quarter of 2023 was due to a decrease in the Company’s funding of incremental advertising, partially offset by an increase in franchise same-restaurant sales in the U.S.

The increase in advertising funds expense during the first nine months of 2023 was due to an increase in franchise same-restaurant sales in the U.S.

and Canada, partially offset by a decrease in the Company’s funding of incremental advertising.

General and Administrative Second Quarter Six Months

General and Administrative Third Quarter Nine Months

2023 2022 (a) Change 2023 2022 (a) Change

Incentive compensation $ 7.6 $ 6.7 $ 0.9 $ 15.1 $ 12.9 $ 2.2

Professional fees 14.7 $ 15.0 (0.3) 29.6 28.5 1.1

Employee compensation and benefits 31.2 30.8 0.4 65.0 64.0 1.0

Share-based compensation $ 6.4 $ 5.0 $ 1.4 $ 15.7 $ 17.5 $ (1.8)

Professional fees 13.2 15.7 (2.5) 42.8 44.2 (1.4)

Incentive compensation 5.4 6.4 (1.0) 20.4 19.2 1.2

Other, net 34.3 35.4 (1.1) 105.4 105.6 (0.2)

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(a) Certain reclassifications have been made to the prior year presentation to conform to the current year presentation.

The increase in general and administrative expenses during the second quarter of 2023 was primarily due to an increase in incentive compensation accruals, reflecting higher operating performance as compared to plan in 2023 versus 2022.

The increase in general and administrative expenses during the first six months of 2023 was primarily due to (1) an increase in incentive compensation accruals, reflecting higher operating performance as compared to plan in 2023 versus 2022, (2) higher professional fees, reflecting higher information technology-related costs and (3) higher employee compensation and benefits.

These increases were partially offset by lower share-based compensation.

Depreciation and Amortization (exclusive of amortization of cloud computing arrangements shown separately below) Second Quarter Six Months

The decrease in general and administrative expenses during the third quarter of 2023 was primarily due to a decrease in professional fees, primarily as a result of costs associated with the Company’s enterprise resource planning (“ERP”) system implementation during the third quarter of 2022.

The decrease in general and administrative expenses during the first nine months of 2023 was primarily due to (1) a decrease in share-based compensation and (2) lower professional fees, primarily as a result of costs associated with the Company’s ERP system implementation during the first nine months of 2022.

These decreases were partially offset by an increase in incentive compensation accruals, reflecting higher operating performance as compared to plan in 2023 versus 2022.

Depreciation and Amortization (exclusive of amortization of cloud computing arrangements shown separately below) Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

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$ 34.3 $ 34.3 $ — $ 101.3 $ 100.9 $ 0.4

The increase in depreciation and amortization during the second quarter and the first six months of 2023 was primarily due to depreciation and amortization for technology investments and new restaurant assets, partially offset by assets becoming fully depreciated.

Amortization of Cloud Computing Arrangements Second Quarter Six Months

The increase in depreciation and amortization during the first nine months of 2023 was primarily due to depreciation and amortization for technology investments and new restaurant assets, partially offset by assets becoming fully depreciated.

Amortization of Cloud Computing Arrangements Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Amortization of cloud computing arrangements $ 3.8 $ 0.9 $ 2.9 $ 7.7 $ 0.9 $ 6.8

Amortization of cloud computing arrangements primarily represents amortization of assets associated with the Company’s enterprise resource planning (“ERP”) system implementation completed in the third quarter of 2022.

System Optimization Losses (Gains), Net Second Quarter Six Months

Amortization of cloud computing arrangements primarily represents amortization of assets associated with the Company’s ERP system implementation completed in the third quarter of 2022.

System Optimization Gains, Net Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

System optimization losses (gains), net $ — $ (0.2) $ 0.2 $ — $ (3.7) $ 3.7

System optimization losses (gains), net for the first six months of 2022 were primarily comprised of post-closing adjustments on previous sales of restaurants.

System optimization gains, net $ (0.1) $ (0.5) $ 0.4 $ (0.1) $ (4.1) $ 4.0

System optimization gains, net for the first nine months of 2022 were primarily comprised of post-closing adjustments on previous sales of restaurants.

See Note 3 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information.

Reorganization and Realignment Costs Second Quarter Six Months

Reorganization and Realignment Costs Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

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$ 0.6 $ — $ 0.6 $ 8.1 $ 0.6 $ 7.5

During the first six months ended July 2, 2023, the Company recognized costs totaling $7.4 million under the Organizational Redesign Plan, which primarily included severance and related employee costs of $5.6 million and share-based compensation of $1.0 million.

During the first nine months of 2023, the Company recognized costs totaling $8.0 million under the Organizational Redesign Plan, which primarily included severance and related employee costs of $5.7 million and share-based compensation of $1.1 million.

See Note 4 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information.

Costs incurred under the Company’s other reorganization and realignment plans were not material during the three and six months ended July 2, 2023 and July 3, 2022.

Costs incurred under the Company’s other reorganization and realignment plans were not material during the three and nine months ended October 1, 2023 and October 2, 2022.

The Company does not expect to incur any material additional costs under these plans.

Impairment of Long-Lived Assets Second Quarter Six Months

Impairment of Long-Lived Assets Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Impairment of long-lived assets $ 0.1 $ 0.2 $ (0.1) $ 0.5 $ 2.7 $ (2.2)

The decrease in impairment of long-lived assets during the second quarter and the first six months of 2023 was primarily due to higher impairment charges in the prior year as a result of the deterioration in operating performance of certain Company-operated restaurants.

Other Operating Income, Net Second Quarter Six Months

The decrease in impairment of long-lived assets during the first nine months of 2023 was primarily due to higher impairment charges in the prior year as a result of the deterioration in operating performance of certain Company-operated restaurants.

Other Operating Income, Net Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Gain from insurance recoveries $ — $ (8.6) $ 8.6 $ — $ (8.6) $ 8.6

Lease buyout 0.2 — 0.2 0.2 (2.1) 2.3

Gains on sales-type leases (1.1) (1.7) 0.6 (1.2) (2.2) 1.0

Other, net (3.3) (3.2) (0.1) (9.6) (9.8) 0.2

$ (3.1) $ (11.8) $ 8.7 $ (9.4) $ (20.5) $ 11.1

The decrease in other operating income, net during the second quarter and the first six months of 2023 was primarily due to (1) lower lease buyout activity and (2) lower gains on sales-type leases.

Interest Expense, Net Second Quarter Six Months

The decrease in other operating income, net during the third quarter and the first nine months of 2023 was primarily due to a gain from insurance recoveries during the third quarter of 2022.

Other operating income, net during the first nine months of 2023 also decreased due to prior year lease buyout activity.

Interest Expense, Net Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Interest expense, net $ 31.0 $ 31.9 $ (0.9) $ 93.8 $ 90.4 $ 3.4

The decrease in interest expense, net during the second quarter of 2023 was primarily due to the impact of repurchasing $31.6 million in principal of the Company’s 7% debentures during the first quarter of 2023.

The increase in interest expense, net during the first six months of 2023 was primarily due to the impact of completing a debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022, partially offset by the impact of repurchasing $31.6 million in principal of the Company’s 7% debentures during the first quarter of 2023.

Loss on Early Extinguishment of Debt Second Quarter Six Months

The decrease in interest expense, net during the third quarter of 2023 was primarily due to the impact of repurchasing $39.3 million in principal of the Company’s 7% debentures during the first nine months of 2023.

The increase in interest expense, net during the first nine months of 2023 was primarily due to the impact of completing a debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022, partially offset by the impact of repurchasing $39.3 million in principal of the Company’s 7% debentures during the first nine months of 2023.

Loss on Early Extinguishment of Debt Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Loss on early extinguishment of debt $ 0.3 $ — $ 0.3 $ 1.6 $ — $ 1.6

During the first quarter of 2023, the Company incurred a loss on early extinguishment of debt of $1.3 million due to the repurchase of $31.6 million in principal of the Company’s 7% debentures.

Investment (Loss) Income, Net Second Quarter Six Months

During the first nine months of 2023, the Company incurred a loss on early extinguishment of debt of $1.6 million due to the repurchase of $39.3 million in principal of the Company’s 7% debentures.

Investment (Loss) Income, Net Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Investment (loss) income, net $ — $ — $ — $ (10.4) $ 2.1 $ (12.5)

During the second quarter and the first six months of 2023, the Company recorded a loss of $6.8 million and $10.4 million, respectively, due to impairment charges for the difference between the estimated fair value and the carrying value of an investment in equity securities.

During the first six months of 2022, the Company recognized a gain of $2.1 million on an investment in equity securities as a result of an observable price change.

Other Income, Net Second Quarter Six Months

During the first nine months of 2023, the Company recorded a loss of $10.4 million due to impairment charges for the difference between the estimated fair value and the carrying value of an investment in equity securities.

During the first nine months of 2022, the Company recognized a gain of $2.1 million on an investment in equity securities as a result of an observable price change.

Other Income, Net Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

Other income, net $ 7.7 $ 2.9 $ 4.8 $ 22.5 $ 4.4 $ 18.1

The increase in other income, net during the second quarter and the first six months of 2023 was primarily due to interest income earned on our cash equivalents, which increased as a result of cash received from our debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022.

Provision for Income Taxes Second Quarter Six Months

The increase in other income, net during the third quarter and the first nine months of 2023 was primarily due to interest income earned on our cash equivalents, which increased as a result of cash received from our debt financing transaction under the Company’s securitized financing facility in the first quarter of 2022.

Provision for Income Taxes Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

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25.5 % 26.9 % (1.4) % 25.8 % 26.6 % (0.8) %

Our effective tax rates for the second quarter and the first six months of 2023 and 2022 were impacted by variations in income before income taxes, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items.

The decrease in the effective tax rate for the second quarter of 2023 compared with the second quarter of 2022 was primarily due to a decrease in the tax effects of our foreign operations and additional net income from our national advertising funds which are not subject to tax.

The decrease in the effective tax rate for the first six months of 2023 compared with the first six months of 2022 was primarily due to (1) net income from our national advertising funds not subject to tax, (2) a decrease in the tax effects of our foreign operations and (3) an increase in the benefit from share-based compensation.

These benefits were partially offset by a one-time adjustment to our foreign deferred income taxes related to prior periods.

Our effective tax rates for the third quarter and the first nine months of 2023 and 2022 were impacted by variations in income before income taxes, adjusted for recurring items such as non-deductible expenses and state income taxes, as well as non-recurring discrete items.

The decrease in the effective tax rate for the third quarter of 2023 compared with the third quarter of 2022 was primarily due to (1) a decrease in the tax effects of our foreign operations and (2) additional net income from our national advertising funds, which are not subject to tax.

These decreases were partially offset by an increase in state income taxes, including discrete changes to state deferred income taxes.

The decrease in the effective tax rate for the first nine months of 2023 compared with the first nine months of 2022 was primarily due to additional net income from our advertising funds, which are not subject to tax, partially offset by an increase in the tax effects of our foreign operations.

Segment Information

See Note 17 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information regarding the Company’s segments.

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

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The increase in Wendy’s U.S.

revenues during the second quarter and the first six months of 2023 was primarily due to an increase in same-restaurant sales.

Same-restaurant sales increased during the second quarter and the first six months of 2023 primarily due to higher average check, partially offset by a decrease in customer count.

revenues during the third quarter and the first nine months of 2023 was primarily due to an increase in same-restaurant sales.

Same-restaurant sales increased during the third quarter and the first nine months of 2023 primarily due to higher average check, partially offset by a decrease in customer count.

The increase in Wendy’s U.S.

segment profit during the second quarter and the first six months of 2023 was primarily due to (1) higher revenues, (2) lower cost of sales, as a percent of sales for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales” (excluding the impact of the U.K.

segment profit during the third quarter and the first nine months of 2023 was primarily due to (1) higher revenues, (2) lower cost of sales, as a percent of sales for Company-operated restaurants driven by the same factors as described above for “Cost of Sales, as a Percent of Sales” (excluding the impact of the U.K.

market) and (3) a decrease in the recognition of the Company’s funding of incremental advertising.

Wendy’s International

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

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Segment profit $ 10.8 $ 8.6 $ 2.2 $ 26.8 $ 23.4 $ 3.4

The increase in Wendy’s International revenues during the second quarter and the first six months of 2023 was primarily due to (1) net new restaurant development in the U.K.

The increase in Wendy’s International revenues during the third quarter and the first nine months of 2023 was primarily due to (1) net new restaurant development in the U.K.

and (2) an increase in same-restaurant sales.

Same-restaurant sales increased during the second quarter and the first six months of 2023 due to (1) higher average check and (2) an increase in customer count.

The decrease in Wendy’s International segment profit during the second quarter of 2023 was primarily due to (1) an increase in franchise support and other costs and (2) the Company’s investments to support the entry into the U.K.

market and additional inflationary pressures in the U.K.

These changes were partially offset by higher revenues.

The increase in Wendy’s International segment profit during the first six months of 2023 was primarily due to higher revenues.

This increase was partially offset by (1) higher franchise support and other costs and (2) the Company’s investments to support the entry into the U.K.

market and inflationary pressures in the U.K.

Same-restaurant sales increased during the third quarter and the first nine months of 2023 due to (1) higher average check and (2) an increase in customer count.

The increase in Wendy’s International segment profit during the third quarter and the first nine months of 2023 was primarily due to higher revenues.

This increase was partially offset by (1) higher franchise support and other costs, (2) the Company’s investments to support the entry into the U.K.

market and inflationary pressures in the U.K and (3) other international advertising expenses.

Global Real Estate & Development

Second Quarter Six Months

Third Quarter Nine Months

2023 2022 Change 2023 2022 Change

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Segment profit $ 24.4 $ 25.9 $ (1.5) $ 76.0 $ 80.8 $ (4.8)

The increase in Global Real Estate & Development revenues during the second quarter and the first six months of 2023 was primarily due to higher fees as a result of Franchise Flips and other development-related fees.

The decrease in Global Real Estate & Development segment profit during the second quarter and the first six months of 2023 was primarily due to (1) lower gains on sales-type leases and (2) an increase in franchise rental expense.

These changes were partially offset by higher revenues.

The decrease in Global Real Estate & Development revenues during the third quarter and the first nine months of 2023 was primarily due to the impact of assigning certain leases to franchisees, partially offset by an increase in executory costs.

The decrease in Global Real Estate & Development segment profit during the third quarter and the first nine months of 2023 was primarily due to (1) a decrease in franchise rental income, reflecting the impact of assigning certain leases to franchisees, and (2) lower gains on sales-type leases.

Liquidity and Capital Resources

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• stock repurchases under the Company’s January 2023 Authorization as discussed below in “Stock Repurchases;” and

• debt repurchases of up to $43.4 million as discussed below in “Long-Term Debt, Including Current Portion.”

• debt repurchases under the Company’s February 2023 Authorization as discussed below in “Long-Term Debt, Including Current Portion.”

Based on current levels of operations, the Company expects that available cash and cash flows from operations will provide sufficient liquidity to meet operating cash requirements for the next 12 months.

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However, there can be no assurance that additional liquidity will be readily available or available on terms acceptable to us.

The table below summarizes our cash flows from operating, investing and financing activities for the first six months of 2023 and 2022:

The table below summarizes our cash flows from operating, investing and financing activities for the first nine months of 2023 and 2022:

2023 2022 Change

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Cash provided by operating activities consists primarily of net income, adjusted for non-cash expenses such as depreciation and amortization, deferred income tax and share-based compensation, and the net change in operating assets and liabilities.

Cash provided by operating activities was $141.5 million and $98.2 million in the first six months of 2023 and 2022, respectively.

Cash provided by operating activities was $269.5 million and $182.6 million in the first nine months of 2023 and 2022, respectively.

The change was primarily due to (1) higher net income, adjusted for non-cash expenses, and (2) a decrease in payments for incentive compensation.

These changes were partially offset by an increase in cash paid for income taxes.

Investing Activities

Cash used in investing activities was $28.9 million and $28.8 million in the first six months of 2023 and 2022, respectively.

The change was primarily due to lower proceeds from notes receivable of $1.1 million, partially offset by a decrease in expenditures associated with the Company’s franchise development fund of $0.9 million.

Cash used in investing activities was $55.5 million and $46.1 million in the first nine months of 2023 and 2022, respectively.

The change was primarily due to (1) an increase in capital expenditures of $5.7 million and (2) a decrease in proceeds from dispositions of $3.5 million.

Financing Activities

Cash (used in) provided by financing activities was $(246.3) million and $362.7 million in the first six months of 2023 and 2022, respectively.

The first six months of 2023 was primarily comprised of (1) dividends of $105.7 million, (2) repurchases of common stock of $86.9 million and (3) long-term debt activities of $46.4 million, reflecting the impact of repurchases of the Company’s 7% debentures during the first quarter of 2023.

The first six months of 2022 was primarily comprised of long-term debt activities of $477.6 million, reflecting the impact of the completion of the Company’s debt financing transaction during the first quarter of 2022, partially offset by (1) dividends of $53.5 million and (2) repurchases of common stock of $52.0 million.

Cash (used in) provided by financing activities was $(373.2) million and $324.5 million in the first nine months of 2023 and 2022, respectively.

The first nine months of 2023 was primarily comprised of (1) dividends of $157.9 million, (2) repurchases of common stock of $142.4 million and (3) long-term debt activities of $61.3 million, including the impact of repurchases of the Company’s 7% debentures during the first nine months of 2023.

The first nine months of 2022 was primarily comprised of long-term debt activities of $470.3 million, reflecting the impact of the completion of the Company’s debt financing transaction during the first quarter of 2022, partially offset by (1) dividends of $80.2 million and (2) repurchases of common stock of $52.0 million.

Long-Term Debt, Including Current Portion

During the six months ended July 2, 2023, Wendy’s repurchased $31.6 million in principal of its 7% debentures at par value.

During the nine months ended October 1, 2023, Wendy’s repurchased $39.3 million in principal of its 7% debentures for $39.3 million.

We may from time to time seek to repurchase additional portions of our outstanding long-term debt, including our 7% debentures and/or our senior secured notes, through open market purchases, privately negotiated transactions or otherwise.

In December 2022, our Board of Directors authorized debt repurchases of up to $25.0 million and, in February 2023, our Board of Directors authorized additional debt repurchases of up to $50.0 million through February 2024, resulting in total debt repurchase authorizations of up to $75.0 million.

As of July 2, 2023, the Company had completed the December 2022 debt repurchase authorization and had $43.4 million remaining under the February 2023 authorization.

Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

In December 2022, our Board of Directors authorized debt repurchases of up to $25.0 million and, in February 2023, our Board of Directors authorized additional debt repurchases of up to $50.0 million through February 2024 (the “February 2023 Authorization”), resulting in total debt repurchase authorizations of up to $75.0 million.

As of October 1, 2023, the Company had completed the December 2022 debt repurchase authorization and had $35.7 million remaining under the February 2023 Authorization.

Subsequent to October 1, 2023 through October 26, 2023, the Company repurchased $29.2 million and $1.2 million in principal of its Class A-2 senior secured notes and 7% debentures, respectively, for a total of $26.1 million.

In addition, in October 2023, our Board of Directors approved an increase of $10.0 million to the February 2023 Authorization, which continues to expire in February 2024.

Further repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Whether or not to repurchase any additional debt and the size and timing of any such repurchases will be determined at our discretion.

Except as described above, there were no material changes to the Company’s debt obligations since January 1, 2023.

The Company was in compliance with its debt covenants as of July 2, 2023.

The Company was in compliance with its debt covenants as of October 1, 2023.

See Note 6 to the Condensed Consolidated Financial Statements contained in Item 1 herein for further information related to our long-term debt obligations.

On March 15, 2023 and June 15, 2023, the Company paid quarterly cash dividends per share of $.25, aggregating $105.7 million.

On August 9, 2023, the Company announced a dividend of $.25 per share to be paid on September 15, 2023 to stockholders of record as of September 1, 2023.

If the Company pays regular quarterly cash dividends for the remainder of 2023 at the same rate as declared in the third quarter of 2023, the Company’s total cash requirement for dividends for the remainder of 2023 will be approximately $104.6 million based on the number of shares of its common stock outstanding at August 2, 2023.

On March 15, 2023, June 15, 2023 and September 15, 2023, the Company paid quarterly cash dividends per share of $.25, aggregating $157.9 million.

On November 2, 2023, the Company announced a dividend of $.25 per share to be paid on December 15, 2023 to stockholders of record as of December 1, 2023.

As a result, the Company expects that its total cash requirement for the fourth quarter of 2023 will be approximately $51.6 million based on the number of shares of its common stock outstanding at October 26, 2023.

The Company currently intends to continue to declare and pay quarterly cash dividends;

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In connection with the January 2023 Authorization, the remaining portion of the previous February 2022 authorization for $250.0 million was canceled.

During the six months ended July 2, 2023, the Company repurchased

4.0 million shares under the January 2023 Authorization with an aggregate purchase price of $88.3 million, of which $1.4 million was accrued as of July 2, 2023, and excluding excise tax of $0.7 million and commissions of $0.1 million.

As of July 2, 2023, the Company had $411.7 million of availability remaining under the January 2023 Authorization.

Subsequent to July 2, 2023 through August 2, 2023, the Company repurchased 0.7 million shares under the January 2023 Authorization with an aggregate purchase price of $15.2 million, excluding applicable excise tax and commissions.

During the nine months ended October 1, 2023, the Company repurchased 6.7 million shares under the January 2023 Authorization with an aggregate purchase price of $144.3 million, of which $2.0 million was accrued as of October 1, 2023, and excluding excise tax of $1.3 million and commissions of $0.1 million.

As of October 1, 2023, the Company had $355.7 million of availability remaining under the January 2023 Authorization.

Subsequent to October 1, 2023 through October 26, 2023, the Company repurchased 1.2 million shares under the January 2023 Authorization with an aggregate purchase price of $23.6 million, excluding applicable excise tax and commissions.

Cloud Computing Arrangements

In addition to the anticipated cash requirements for capital expenditures noted above in “Cash Flows,” the Company expects to spend approximately $30.0 million during 2023 on cloud computing arrangements (“CCA”), primarily related to the Company’s human capital management system implementation.

The Company’s cash expenditures related to CCA amounted to $16.8 million during the six months ended July 2, 2023.

The Company’s cash expenditures related to CCA amounted to $25.2 million during the nine months ended October 1, 2023.

General Inflation, Commodities and Changing Prices

Inflationary pressures on labor and commodity price increases directly impacted our consolidated results of operations during the six months ended July 2, 2023, and we expect this to continue throughout the remainder of 2023.

Inflationary pressures on labor and commodity price increases directly impacted our consolidated results of operations during the nine months ended October 1, 2023, and we expect this to continue throughout the remainder of 2023.

We attempt to manage any inflationary costs and commodity price increases through selective menu price increases and product mix.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis