Wendy's Co 10-Q

Item 1. Financial Statements. THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands Except Par Value) June 30, 2024 December 31, 2023 ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 465,489 $ 516,037 Restricted cash 35,718 35,848 Accounts and notes receivable, net 117,671 121,683 Inventories 6,379 6,690 Prepaid expenses and other current assets 40,087 39,640 Advertising funds restricted assets 125,215 117,755 Total current assets 790,559 837,653 Properties 894,586 891,080 Finance lease assets 231,390 228,936 Operating lease assets 687,253 705,615 Goodwill 772,794 773,727 Other intangible assets 1,202,525 1,219,129 Investments 32,181 34,445 Net investment in sales-type and direct financing leases 291,493 313,664 Other assets 185,384 178,577 Total assets $ 5,088,165 $ 5,182,826 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 29,250 $ 29,250 Current portion of finance lease liabilities 21,220 20,250 Current portion of operating lease liabilities 49,931 49,353 Accounts payable 25,767 27,370 Accrued expenses and other current liabilities 116,456 135,149 Advertising funds restricted liabilities 122,239 120,558 Total current liabilities 364,863 381,930 Long-term debt 2,721,927 2,732,814 Long-term finance lease liabilities 567,071 568,767 Long-term operating lease liabilities 714,298 739,340 Deferred income taxes 270,128 270,353 Deferred franchise fees 89,054 90,132 Other liabilities 87,071 89,711 Total liabilities 4,814,412 4,873,047 Commitments and contingencies Stockholders’ equity: Common stock, $ 0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 204,149 and 205,397 shares outstanding, respectively 47,042 47,042 Additional paid-in capital 2,964,479 2,960,035 Retained earnings 403,836 409,863 Common stock held in treasury, at cost; 266,275 and 265,027 shares, respectively ( 3,076,632 ) ( 3,048,786 ) Accumulated other comprehensive loss ( 64,972 ) ( 58,375 ) Total stockholders’ equity 273,753 309,779 Total liabilities and stockholders’ equity $ 5,088,165 $ 5,182,826 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Amounts) Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 (Unaudited) Revenues: Sales $ 237,355 $ 240,688 $ 462,678 $ 468,637 Franchise royalty revenue and fees 157,670 153,048 304,170 294,725 Franchise rental income 60,638 58,033 118,624 115,840 Advertising funds revenue 115,064 109,796 220,008 211,170 570,727 561,565 1,105,480 1,090,372 Costs and expenses: Cost of sales 199,886 201,010 391,999 397,546 Franchise support and other costs 16,222 13,787 30,964 27,047 Franchise rental expense 32,390 32,396 64,168 63,025 Advertising funds expense 120,817 109,618 228,191 211,279 General and administrative 61,496 62,742 125,253 125,018 Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) 37,492 33,498 73,010 66,970 Amortization of cloud computing arrangements 3,519 2,266 7,061 3,848 System optimization (gains) losses, net ( 280 ) 6 ( 153 ) 1 Reorganization and realignment costs 2,452 681 8,125 7,489 Impairment of long-lived assets 689 78 2,695 454 Other operating income, net ( 3,463 ) ( 3,791 ) ( 6,496 ) ( 6,057 ) 471,220 452,291 924,817 896,620 Operating profit 99,507 109,274 180,663 193,752 Interest expense, net ( 30,995 ) ( 31,136 ) ( 61,530 ) ( 62,841 ) Loss on early extinguishment of debt — — — ( 1,266 ) Investment income (loss), net 11 ( 6,827 ) 11 ( 10,389 ) Other income, net 6,300 7,573 13,136 14,909 Income before income taxes 74,823 78,884 132,280 134,165 Provision for income taxes ( 20,180 ) ( 19,252 ) ( 35,644 ) ( 34,712 ) Net income $ 54,643 $ 59,632 $ 96,636 $ 99,453 Net income per share: Basic $ .27 $ .28 $ .47 $ .47 Diluted $ .27 $ .28 $ .47 $ .46 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 (Unaudited) Net income $ 54,643 $ 59,632 $ 96,636 $ 99,453 Other comprehensive (loss) income: Foreign currency translation adjustment ( 2,011 ) 4,949 ( 6,597 ) 5,107 Other comprehensive (loss) income ( 2,011 ) 4,949 ( 6,597 ) 5,107 Comprehensive income $ 52,632 $ 64,581 $ 90,039 $ 104,560 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In Thousands) Common Stock Additional Paid-In Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total (Unaudited) Balance at December 31, 2023 $ 47,042 $ 2,960,035 $ 409,863 $ ( 3,048,786 ) $ ( 58,375 ) $ 309,779 Net income — — 41,993 — — 41,993 Other comprehensive loss — — — — ( 4,586 ) ( 4,586 ) Cash dividends — — ( 51,374 ) — — ( 51,374 ) Repurchases of common stock — — — ( 7,216 ) — ( 7,216 ) Share-based compensation — 5,853 — — — 5,853 Common stock issued upon exercises of stock options — 179 — 1,036 — 1,215 Common stock issued upon vesting of restricted shares — ( 3,855 ) — 1,778 — ( 2,077 ) Other — 29 ( 17 ) 55 — 67 Balance at March 31, 2024 $ 47,042 $ 2,962,241 $ 400,465 $ ( 3,053,133 ) $ ( 62,961 ) $ 293,654 Net income — — 54,643 — — 54,643 Other comprehensive loss — — — — ( 2,011 ) ( 2,011 ) Cash dividends — — ( 51,252 ) — — ( 51,252 ) Repurchases of common stock — — — ( 27,493 ) — ( 27,493 ) Share-based compensation — 5,824 — — — 5,824 Common stock issued upon exercises of stock options — ( 134 ) — 874 — 740 Common stock issued upon vesting of restricted shares — ( 3,484 ) — 3,058 — ( 426 ) Other — 32 ( 20 ) 62 — 74 Balance at June 30, 2024 $ 47,042 $ 2,964,479 $ 403,836 $ ( 3,076,632 ) $ ( 64,972 ) $ 273,753 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—CONTINUED (In Thousands) Common Stock Additional Paid-In Capital Retained Earnings Common Stock Held in Treasury Accumulated Other Comprehensive Loss Total (Unaudited) Balance at January 1, 2023 $ 47,042 $ 2,937,885 $ 414,749 $ ( 2,869,780 ) $ ( 64,176 ) $ 465,720 Net income — — 39,821 — — 39,821 Other comprehensive income — — — — 158 158 Cash dividends — — ( 53,103 ) — — ( 53,103 ) Repurchases of common stock — — — ( 38,810 ) — ( 38,810 ) Share-based compensation — 4,609 — — — 4,609 Common stock issued upon exercises of stock options — 808 — 1,808 — 2,616 Common stock issued upon vesting of restricted shares — ( 2,222 ) — 678 — ( 1,544 ) Other — 58 ( 22 ) 54 — 90 Balance at April 2, 2023 $ 47,042 $ 2,941,138 $ 401,445 $ ( 2,906,050 ) $ ( 64,018 ) $ 419,557 Net income — — 59,632 — — 59,632 Other comprehensive income — — — — 4,949 4,949 Cash dividends — — ( 52,612 ) — — ( 52,612 ) Repurchases of common stock — — — ( 50,183 ) — ( 50,183 ) Share-based compensation — 5,609 — — — 5,609 Common stock issued upon exercises of stock options — 1,136 — 3,829 — 4,965 Common stock issued upon vesting of restricted shares — ( 2,182 ) — 1,283 — ( 899 ) Other — 53 ( 16 ) 60 — 97 Balance at July 2, 2023 $ 47,042 $ 2,945,754 $ 408,449 $ ( 2,951,061 ) $ ( 59,069 ) $ 391,115 See accompanying notes to condensed consolidated financial statements. 8 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Six Months Ended June 30, 2024 July 2, 2023 (Unaudited) Cash flows from operating activities: Net income $ 96,636 $ 99,453 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) 73,010 66,970 Amortization of cloud computing arrangements 7,061 3,848 Share-based compensation 11,677 10,218 Impairment of long-lived assets 2,695 454 Deferred income tax ( 104 ) 4,254 Non-cash rental expense, net 21,120 19,552 Change in operating lease liabilities ( 24,273 ) ( 23,528 ) Net receipt of deferred vendor incentives 5,533 6,881 System optimization (gains) losses, net ( 153 ) 1 Distributions received from joint ventures, net of equity in earnings 1,146 542 Long-term debt-related activities, net 3,738 5,334 Cloud computing arrangements expenditures ( 6,878 ) ( 16,817 ) Changes in operating assets and liabilities and other, net ( 45,745 ) ( 35,658 ) Net cash provided by operating activities 145,463 141,504 Cash flows from investing activities: Capital expenditures ( 34,465 ) ( 30,164 ) Franchise development fund ( 11,477 ) ( 395 ) Dispositions 601 280 Notes receivable, net 1,383 1,335 Net cash used in investing activities ( 43,958 ) ( 28,944 ) Cash flows from financing activities: Repayments of long-term debt ( 14,625 ) ( 46,434 ) Repayments of finance lease liabilities ( 10,336 ) ( 12,336 ) Repurchases of common stock ( 34,248 ) ( 86,930 ) Dividends ( 102,626 ) ( 105,715 ) Proceeds from stock option exercises 2,098 7,847 Payments related to tax withholding for share-based compensation ( 2,645 ) ( 2,708 ) Net cash used in financing activities ( 162,382 ) ( 246,276 ) Net cash used in operations before effect of exchange rate changes on cash ( 60,877 ) ( 133,716 ) Effect of exchange rate changes on cash ( 3,298 ) 2,161 Net decrease in cash, cash equivalents and restricted cash ( 64,175 ) ( 131,555 ) Cash, cash equivalents and restricted cash at beginning of period 588,816 831,801 Cash, cash equivalents and restricted cash at end of period $ 524,641 $ 700,246 See accompanying notes to condensed consolidated financial statements. 9 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all information and footnotes required by GAAP for complete financial statements. In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of June 30, 2024, the results of our operations for the three and six months ended June 30, 2024 and July 2, 2023 and cash flows for the six months ended June 30, 2024 and July 2, 2023. The results of operations for the six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full 2024 fiscal year. The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K”). The principal 100% owned subsidiary of the Company is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). The Company manages and internally reports its business in the following segments: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. See Note 16 for further information. We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to or on December 31. All three- and six-month periods presented herein contain 13 weeks and 26 weeks, respectively. All references to years, quarters and months relate to fiscal periods rather than calendar periods. Our significant interim accounting policies include the recognition of advertising funds expense in proportion to advertising funds revenue. (2) Revenue Disaggregation of Revenue The following tables disaggregate revenue by segment and source: Wendy’s U.S. Wendy’s International Global Real Estate & Development Total Three Months Ended June 30, 2024 Sales at Company-operated restaurants $ 231,151 $ 6,204 $ — $ 237,355 Franchise royalty revenue 117,997 18,321 — 136,318 Franchise fees 17,826 2,389 1,137 21,352 Franchise rental income — — 60,638 60,638 Advertising funds revenue 105,617 9,447 — 115,064 Total revenues $ 472,591 $ 36,361 $ 61,775 $ 570,727 Three Months Ended July 2, 2023 Sales at Company-operated restaurants $ 234,862 $ 5,826 $ — $ 240,688 Franchise royalty revenue 114,921 17,207 — 132,128 Franchise fees 17,461 1,395 2,064 20,920 Franchise rental income — — 58,033 58,033 Advertising funds revenue 101,509 8,287 — 109,796 Total revenues $ 468,753 $ 32,715 $ 60,097 $ 561,565 10 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Wendy’s U.S. Wendy’s International Global Real Estate & Development Total Six Months Ended June 30, 2024 Sales at Company-operated restaurants $ 450,619 $ 12,059 $ — $ 462,678 Franchise royalty revenue 226,850 35,148 — 261,998 Franchise fees 35,652 4,278 2,242 42,172 Franchise rental income — — 118,624 118,624 Advertising funds revenue 202,317 17,691 — 220,008 Total revenues $ 915,438 $ 69,176 $ 120,866 $ 1,105,480 Six Months Ended July 2, 2023 Sales at Company-operated restaurants $ 457,494 $ 11,143 $ — $ 468,637 Franchise royalty revenue 221,260 33,018 — 254,278 Franchise fees 34,733 2,918 2,796 40,447 Franchise rental income — — 115,840 115,840 Advertising funds revenue 196,254 14,916 — 211,170 Total revenues $ 909,741 $ 61,995 $ 118,636 $ 1,090,372 Contract Balances The following table provides information about receivables and contract liabilities (deferred franchise fees) from contracts with customers: June 30, 2024 (a) December 31, 2023 (a) Receivables, which are included in “Accounts and notes receivable, net” (b) $ 63,662 $ 55,293 Receivables, which are included in “Advertising funds restricted assets” 77,075 76,838 Deferred franchise fees (c) 100,008 100,805 _______________ (a) Excludes funds collected from the sale of gift cards, which are primarily reimbursed to franchisees upon redemption at franchised restaurants and do not ultimately result in the recognition of revenue in the Company’s condensed consolidated statements of operations. (b) Includes receivables related to “Sales” and “Franchise royalty revenue and fees.” (c) Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $ 10,954 and $ 89,054 , respectively, as of June 30, 2024, and $ 10,673 and $ 90,132 , respectively, as of December 31, 2023. Significant changes in deferred franchise fees are as follows: Six Months Ended June 30, 2024 July 2, 2023 Deferred franchise fees at beginning of period $ 100,805 $ 99,208 Revenue recognized during the period ( 6,051 ) ( 6,591 ) New deferrals due to cash received and other 5,254 7,622 Deferred franchise fees at end of period $ 100,008 $ 100,239 11 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Anticipated Future Recognition of Deferred Franchise Fees The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period: Estimate for fiscal year: 2024 (a) $ 7,650 2025 6,556 2026 6,418 2027 6,311 2028 6,192 Thereafter 66,881 $ 100,008 _______________ (a) Represents franchise fees expected to be recognized for the remainder of 2024, which includes development-related franchise fees expected to be recognized over a duration of one year or less. (3) System Optimization (Gains) Losses, Net The Company’s system optimization initiative included a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”). As of June 30, 2024, Company-operated restaurant ownership was approximately 5 % of the total system. While the Company has no plans to move its ownership away from approximately 5 % of the total system, the Company expects to continue to optimize the Wendy’s system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, drive new restaurant development and accelerate reimages. During the six months ended June 30, 2024 and July 2, 2023, the Company facilitated 14 and 88 Franchise Flips, respectively. No Company-operated restaurants were sold to or purchased from franchisees during the six months ended June 30, 2024 or July 2, 2023. Gains and losses recognized on dispositions are recorded to “System optimization (gains) losses, net” in our condensed consolidated statements of operations. Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs,” which are further described in Note 4. All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.” The following is a summary of the disposition activity recorded as a result of our system optimization initiative: Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 Post-closing adjustments on sales of restaurants (a) $ 254 $ — $ 254 $ — Gain (loss) on sales of other assets, net (b) 26 ( 6 ) ( 101 ) ( 1 ) System optimization gains (losses), net $ 280 $ ( 6 ) $ 153 $ ( 1 ) _______________ (a) Represents the recognition of deferred gains as a result of the resolution of certain contingencies related to the extension of lease terms for restaurants previously sold to franchisees. (b) During the three and six months ended June 30, 2024, the Company received net cash proceeds of $ 575 and $ 601 , respectively, primarily from the sale of surplus and other properties. During the six months ended July 2, 2023, the Company received net cash proceeds of $ 280 primarily from the sale of surplus and other properties . 12 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Assets Held for Sale As of June 30, 2024 and December 31, 2023, the Company had assets held for sale of $ 2,695 and $ 2,689 , respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.” (4) Reorganization and Realignment Costs The following is a summary of the initiatives included in “Reorganization and realignment costs:” Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 Organizational redesign $ 2,409 $ 670 $ 8,031 $ 7,407 Other reorganization and realignment plans 43 11 94 82 Reorganization and realignment costs $ 2,452 $ 681 $ 8,125 $ 7,489 Organizational Redesign In February 2023, the Board of Directors approved a plan to redesign the Company’s organizational structure to better support the execution of the Company’s long-term growth strategy by maximizing organizational efficiency and streamlining decision making (the “Organizational Redesign Plan”). As a result of the Organizational Redesign Plan, the Company held its general and administrative expense in 2023 relatively flat compared with 2022. Additionally, in January 2024, the Board of Directors announced the appointment of Kirk Tanner as the Company’s new President and Chief Executive Officer, effective February 5, 2024. Mr. Tanner succeeded Todd A. Penegor, the Company’s previous President and Chief Executive Officer, who departed from the Company in February 2024. The Company expects to incur total costs of approximately $ 18,000 related to the Organizational Redesign Plan, including costs related to the succession of the President and Chief Executive Officer role. During the six months ended June 30, 2024 and July 2, 2023, the Company recognized costs totaling $ 8,031 and $ 7,407 , respectively, which primarily included severance and related employee costs. The Company expects to incur additional costs aggregating approximately $ 1,200 , comprised of (1) severance and related employee costs of approximately $ 400 and (2) share-based compensation of approximately $ 800 . The Company expects costs related to the Organizational Redesign Plan to continue into 2026. The following is a summary of the costs recorded as a result of the Organizational Redesign Plan: Three Months Ended Six Months Ended Total Incurred Since Inception June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 Severance and related employee costs $ 1,948 $ 21 $ 7,310 $ 5,560 $ 13,553 Recruitment and relocation costs — 86 82 164 636 Third-party and other costs 14 386 64 731 1,060 1,962 493 7,456 6,455 15,249 Share-based compensation (a) 447 177 575 952 1,846 Total organizational redesign $ 2,409 $ 670 $ 8,031 $ 7,407 $ 17,095 _______________ (a) Primarily represents the accelerated recognition of share-based compensation resulting from the termination of employees under the Organizational Redesign Plan. 13 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) As of June 30, 2024, the accruals for the Organizational Redesign Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $ 4,558 and $ 2,211 , respectively. The tables below present a rollforward of our accruals for the Organizational Redesign Plan. Balance December 31, 2023 Charges Payments Balance June 30, 2024 Severance and related employee costs $ 1,692 $ 7,310 $ ( 2,233 ) $ 6,769 Recruitment and relocation costs — 82 ( 82 ) — Third-party and other costs — 64 ( 64 ) — $ 1,692 $ 7,456 $ ( 2,379 ) $ 6,769 Balance January 1, 2023 Charges Payments Balance July 2, 2023 Severance and related employee costs $ — $ 5,560 $ ( 2,405 ) $ 3,155 Recruitment and relocation costs — 164 ( 164 ) — Third-party and other costs — 731 ( 731 ) — $ — $ 6,455 $ ( 3,300 ) $ 3,155 Other Reorganization and Realignment Plans Costs incurred under the Company’s other reorganization and realignment plans were not material during the six months ended June 30, 2024 and July 2, 2023. The Company does not expect to incur any material additional costs under these plans. (5) Investments The following is a summary of the carrying value of our investments: June 30, 2024 December 31, 2023 Equity method investment $ 30,463 $ 32,727 Other investments in equity securities 1,718 1,718 $ 32,181 $ 34,445 Equity Method Investment Wendy’s has a 50 % share in a partnership in a Canadian restaurant real estate joint venture (“TimWen”) with a subsidiary of Restaurant Brands International Inc., a quick-service restaurant company that owns the Tim Hortons ® brand (Tim Hortons is a registered trademark of Tim Hortons USA Inc.). The Company has significant influence over this investee. Such investment is accounted for using the equity method, under which our results of operations include our share of the income of the investee in “Other operating income, net.” 14 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Presented below is activity related to our investment in TimWen included in our condensed consolidated financial statements: Six Months Ended June 30, 2024 July 2, 2023 Balance at beginning of period $ 32,727 $ 33,921 Equity in earnings for the period 6,797 6,343 Amortization of purchase price adjustments (a) ( 1,248 ) ( 1,373 ) 5,549 4,970 Distributions received ( 6,695 ) ( 5,512 ) Foreign currency translation adjustment included in “Other comprehensive (loss) income” ( 1,118 ) 786 Balance at end of period $ 30,463 $ 34,165 _______________ (a) Purchase price adjustments that impacted the carrying value of the Company’s investment in TimWen are being amortized over the average original aggregate life of 21 years. Other Investments in Equity Securities During the three and six months ended July 2, 2023, the Company recorded impairment charges of $ 6,827 and $ 10,389 , respectively, for the difference between the estimated fair value and the carrying value of an investment in equity securities. (6) Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques under the accounting guidance related to fair value measurements are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. These inputs are classified into the following hierarchy: • Level 1 Inputs - Quoted prices for identical assets or liabilities in active markets. • Level 2 Inputs - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. • Level 3 Inputs - Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation. 15 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Financial Instruments The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments: June 30, 2024 December 31, 2023 Carrying Amount Fair Value Carrying Amount Fair Value Fair Value Measurements Financial assets Cash equivalents $ 321,656 $ 321,656 $ 365,901 $ 365,901 Level 1 Other investments in equity securities (a) 1,718 1,718 1,718 1,718 Level 2 Financial liabilities (b) Series 2022-1 Class A-2-I Notes 98,000 91,863 98,500 92,289 Level 2 Series 2022-1 Class A-2-II Notes 388,134 356,916 390,134 370,577 Level 2 Series 2021-1 Class A-2-I Notes 421,019 367,486 423,269 362,572 Level 2 Series 2021-1 Class A-2-II Notes 630,280 529,044 633,530 530,581 Level 2 Series 2019-1 Class A-2-I Notes 355,673 338,643 357,673 341,606 Level 2 Series 2019-1 Class A-2-II Notes 400,873 374,143 403,123 374,058 Level 2 Series 2018-1 Class A-2-II Notes 438,724 413,155 441,099 412,754 Level 2 7 % debentures, due in 2025 48,574 49,570 48,237 49,431 Level 2 _______________ (a) The fair value of our other investments in equity securities is based on our review of information provided by the investment manager, which is based on observable price changes in orderly transactions for a similar investment of the same issuer. (b) The fair values were based on quoted market prices in markets that are not considered active markets. The carrying amounts of cash, accounts payable and accrued expenses approximate fair value due to the short-term nature of those items. The carrying amounts of accounts and notes receivable, net (both current and non-current) approximate fair value due to the effect of the related allowance for doubtful accounts. Our cash equivalents are the only financial assets measured and recorded at fair value on a recurring basis. 16 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Non-Recurring Fair Value Measurements Assets and liabilities remeasured to fair value on a non-recurring basis resulted in impairment that we have recorded to “Impairment of long-lived assets” in our condensed consolidated statements of operations. Total impairment losses may reflect the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements, favorable lease assets and right-of-use assets) to fair value as a result of (1) the deterioration in operating performance of certain Company-operated restaurants and (2) the Company’s decision to lease and/or sublease the land and/or buildings to franchisees in connection with the sale or anticipated sale of restaurants, including any subsequent lease modifications. The fair values of long-lived assets held and used presented in the tables below represent the remaining carrying value and were estimated based on either discounted cash flows of future anticipated lease and sublease income or discounted cash flows of future anticipated Company-operated restaurant performance. Total impairment losses may also include the impact of remeasuring long-lived assets held for sale. The fair values of long-lived assets held for sale presented in the tables below represent the remaining carrying value and were estimated based on current market values. See Note 7 for further information on impairment of our long-lived assets. Fair Value Measurements June 30, 2024 Level 1 Level 2 Level 3 Held and used $ 2,425 $ — $ — $ 2,425 Held for sale 1,374 — — 1,374 Total $ 3,799 $ — $ — $ 3,799 Fair Value Measurements December 31, 2023 Level 1 Level 2 Level 3 Held and used $ 1,212 $ — $ — $ 1,212 Held for sale 1,044 — — 1,044 Total $ 2,256 $ — $ — $ 2,256 (7) Impairment of Long-Lived Assets The Company records impairment charges as a result of (1) the deterioration in operating performance of certain Company-operated restaurants, (2) the Company’s decision to lease and/or sublease properties to franchisees in connection with the sale or anticipated sale of Company-operated restaurants, including any subsequent lease modifications and (3) classifying surplus properties as held for sale. The following is a summary of impairment losses recorded, which represent the excess of the carrying amount over the fair value of the affected assets and are included in “Impairment of long-lived assets:” Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 Company-operated restaurants $ 644 $ 78 $ 2,418 $ 428 Surplus properties 45 — 277 26 $ 689 $ 78 $ 2,695 $ 454 17 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (8) Income Taxes The Company’s effective tax rate for the three months ended June 30, 2024 and July 2, 2023 was 27.0 % and 24.4 %, respectively. The Company’s effective tax rate varied from the U.S. federal statutory rate of 21 % for the three months ended June 30, 2024 primarily due to state income taxes and the tax effects of our foreign operations. The Company’s effective tax rate for the six months ended June 30, 2024 and July 2, 2023 was 26.9 % and 25.9 %, respectively. The Company’s effective tax rate varied from the U.S. federal statutory rate of 21 % for the six months ended June 30, 2024 primarily due to state income taxes and the tax effects of our foreign operations. There were no significant changes to the unrecognized tax benefits or related interest and penalties for the three and six months ended June 30, 2024. During the next twelve months, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $ 220 due to lapses of statutes of limitations. The current portion of refundable income taxes was $ 12,750 and $ 5,284 as of June 30, 2024 and December 31, 2023, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of June 30, 2024 or December 31, 2023. (9) Net Income Per Share The calculation of basic and diluted net income per share was as follows: Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 Net income $ 54,643 $ 59,632 $ 96,636 $ 99,453 Common stock: Weighted average basic shares outstanding 204,919 210,624 205,145 211,585 Dilutive effect of stock options and restricted shares 1,266 2,304 1,433 2,393 Weighted average diluted shares outstanding 206,185 212,928 206,578 213,978 Net income per share: Basic $ .27 $ .28 $ .47 $ .47 Diluted $ .27 $ .28 $ .47 $ .46 Basic net income per share for the three and six months ended June 30, 2024 and July 2, 2023 was computed by dividing net income amounts by the weighted average number of shares of common stock outstanding. Diluted net income per share was computed by dividing net income by the weighted average number of basic shares outstanding plus the potential common share effect of dilutive stock options and restricted shares. We excluded potential common shares of 7,606 and 7,197 for the three and six months ended June 30, 2024, respectively, and 4,420 and 4,476 for the three and six months ended July 2, 2023, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects. (10) Stockholders’ Equity Dividends During each of the first and second quarters of 2024 and 2023, the Company paid dividends per share of $ .25 . Repurchases of Common Stock In January 2023, our Board of Directors authorized a repurchase program for up to $ 500,000 of our common stock through February 28, 2027, when and if market conditions warrant and to the extent legally permissible (the “January 2023 18 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Authorization”). During the six months ended June 30, 2024, the Company repurchased 1,955 shares under the January 2023 Authorization with an aggregate purchase price of $ 34,448 , of which $ 801 was accrued as of June 30, 2024, and excluding excise tax of $ 233 and commissions of $ 28 . As of June 30, 2024, the Company had $ 275,552 of availability remaining under the January 2023 Authorization. Subsequent to June 30, 2024 through July 25, 2024, the Company repurchased 929 shares under the January 2023 Authorization with an aggregate purchase price of $ 15,552 , excluding applicable excise tax and commissions. During the six months ended July 2, 2023, the Company repurchased 4,023 shares under the January 2023 Authorization with an aggregate purchase price of $ 88,254 , of which $ 1,380 was accrued as of July 2, 2023, and excluding excise tax of $ 683 and commissions of $ 56 . Accumulated Other Comprehensive Loss The following table provides a rollforward of accumulated other comprehensive loss, which is entirely comprised of foreign currency translation: Six Months Ended June 30, 2024 July 2, 2023 Balance at beginning of period $ ( 58,375 ) $ ( 64,176 ) Foreign currency translation ( 6,597 ) 5,107 Balance at end of period $ ( 64,972 ) $ ( 59,069 ) (11) Leases Nature of Leases The Company operates restaurants that are located on sites owned by us and sites leased by us from third parties. In addition, the Company owns sites and leases sites from third parties, which it leases and/or subleases to franchisees. The Company also leases restaurant, office and transportation equipment. As of June 30, 2024, the nature of restaurants operated by the Company and its franchisees was as follows: June 30, 2024 Company-operated restaurants: Owned land and building 155 Owned building and held long-term land leases 145 Leased land and building 111 Total Company-operated restaurants 411 Franchisee-operated restaurants: Company-owned properties leased to franchisees 492 Company-leased properties subleased to franchisees 1,173 Other franchisee-operated restaurants 5,185 Total franchisee-operated restaurants 6,850 Total Company-operated and franchisee-operated restaurants 7,261 19 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Company as Lessee The components of lease cost are as follows: Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 Finance lease cost: Amortization of finance lease assets $ 4,372 $ 4,058 $ 8,669 $ 8,121 Interest on finance lease liabilities 10,699 10,743 21,357 21,493 15,071 14,801 30,026 29,614 Operating lease cost 21,524 21,429 43,225 42,878 Variable lease cost (a) 17,365 17,519 33,853 33,600 Short-term lease cost 1,226 1,461 2,620 2,967 Total operating lease cost (b) 40,115 40,409 79,698 79,445 Total lease cost $ 55,186 $ 55,210 $ 109,724 $ 109,059 _______________ (a) Includes expenses for executory costs of $ 10,033 and $ 10,172 for the three months ended June 30, 2024 and July 2, 2023, respectively, and $ 20,254 and $ 20,020 for the six months ended June 30, 2024 and July 2, 2023, respectively, for which the Company is reimbursed by sublessees. (b) Includes $ 32,355 and $ 32,329 for the three months ended June 30, 2024 and July 2, 2023, respectively, and $ 64,073 and $ 62,927 for the six months ended June 30, 2024 and July 2, 2023, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees. Also includes $ 7,402 and $ 7,546 for the three months ended June 30, 2024 and July 2, 2023, respectively, and $ 14,790 and $ 15,411 for the six months ended June 30, 2024 and July 2, 2023, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants. Company as Lessor The components of lease income are as follows: Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 Sales-type and direct-financing leases: Selling profit $ 88 $ 1,072 $ 72 $ 1,201 Interest income (a) 7,178 7,868 14,897 15,730 Operating lease income 42,950 40,629 84,447 82,785 Variable lease income 17,688 17,404 34,177 33,055 Franchise rental income (b) $ 60,638 $ 58,033 $ 118,624 $ 115,840 _______________ (a) Included in “Interest expense, net.” (b) Includes sublease income of $ 45,049 and $ 42,961 recognized during the three months ended June 30, 2024 and July 2, 2023, respectively, and $ 87,832 and $ 85,912 recognized during the six months ended June 30, 2024 and July 2, 2023, respectively. Sublease income includes lessees’ variable payments to the Company for executory costs of $ 10,155 and $ 10,115 for the three months ended June 30, 2024 and July 2, 2023, respectively, and $ 20,244 and $ 19,893 for the six months ended June 30, 2024 and July 2, 2023, respectively. 20 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (12) Supplemental Cash Flow Information The following table includes supplemental non-cash investing and financing activities: Six Months Ended June 30, 2024 July 2, 2023 Supplemental non-cash investing and financing activities: Capital expenditures included in accounts payable $ 9,968 $ 11,422 Finance leases 13,085 8,257 The following table includes a reconciliation of cash, cash equivalents and restricted cash: June 30, 2024 December 31, 2023 Reconciliation of cash, cash equivalents and restricted cash at end of period: Cash and cash equivalents $ 465,489 $ 516,037 Restricted cash 35,718 35,848 Restricted cash, included in Advertising funds restricted assets 23,434 36,931 Total cash, cash equivalents and restricted cash $ 524,641 $ 588,816 (13) Transactions with Related Parties Except as described below, the Company did not have any significant changes in or transactions with its related parties during the current fiscal period since those reported in the Form 10-K. TimWen Lease and Management Fee Payments A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen, which are then subleased to franchisees for the operation of Wendy’s/Tim Hortons combo units in Canada. Wendy’s paid TimWen $ 10,522 and $ 10,140 under these lease agreements during the six months ended June 30, 2024 and July 2, 2023, respectively, which is recorded to “Franchise rental expense.” In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $ 120 and $ 121 during the six months ended June 30, 2024 and July 2, 2023, respectively, which is included as a reduction to “General and administrative.” Transactions with QSCC Wendy’s has a purchasing co-op relationship structure with its franchisees that establishes Quality Supply Chain Co-op, Inc. (“QSCC”). QSCC manages, for the Wendy’s system in the U.S. and Canada, contracts for the purchase and distribution of food, proprietary paper, operating supplies and equipment under national agreements with pricing based upon total system volume. QSCC’s supply chain management facilitates continuity of supply and provides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s supply chain in the U.S. and Canada. Wendy’s and its franchisees pay sourcing fees to third-party vendors on certain products sourced by QSCC. Such sourcing fees are remitted by these vendors to QSCC and are the primary means of funding QSCC’s operations. In addition, QSCC collects certain rebates, price variance and other recoveries, technology fees, convention fees and other funding from third-party vendors as part of the administration and management of the Wendy’s supply chain in the U.S. and Canada. Should QSCC’s sourcing fees exceed its expected needs, QSCC’s board of directors may return some or all of the excess to its members in the form of a patronage dividend. Wendy’s recorded its share of patronage dividends of $ 3,379 during the six months ended June 30, 2024, of which $ 2,909 is included in “Other operating income, net” and $ 470 is included as a reduction of “Cost of sales.” There were no patronage dividends recorded during the six months ended July 2, 2023. 21 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) Transactions with Yellow Cab Certain family members and/or affiliates of Mr. Nelson Peltz, our Chairman, Mr. Peter May, our Senior Vice Chairman, and Mr. Matthew Peltz, our Vice Chairman, hold minority ownership interests in Yellow Cab Holdings, LLC (“Yellow Cab”), a Wendy’s franchisee, that as of June 30, 2024 owns and operates 86 Wendy’s restaurants, and/or certain of the operating companies managed by Yellow Cab. During the six months ended June 30, 2024 and July 2, 2023, the Company recognized $ 7,543 and $ 7,411 , respectively, in royalty, advertising fund, lease and other income from Yellow Cab and related entities. In all transactions involving Yellow Cab, the Company’s standard franchisee recruiting and approval processes were followed, no modifications were made to the Company’s standard franchise agreements or related documents, and all deal terms and transaction documents were negotiated and executed on an arm’s-length basis, consistent with the Company’s comparable franchise transactions and relationships. As of June 30, 2024 and December 31, 2023, $ 1,134 and $ 1,153 , respectively, was due from Yellow Cab for such income, which is included in “Accounts and notes receivable, net” and “Advertising funds restricted assets.” Transactions with AMC In February 2023, Ms. Kristin Dolan, a director of the Company, was appointed as the Chief Executive Officer of AMC Networks Inc. (“AMC”). During the six months ended June 30, 2024 and July 2, 2023, the Company purchased approximately $ 1,100 and $ 1,200 , respectively, of advertising time from a subsidiary of AMC. The Company’s advertising spend with AMC was made in the ordinary course of business and approved on an arm’s-length basis, consistent with the Company’s comparable advertising decisions. As of December 31, 2023, approximately $ 584 was due to AMC for such advertising time, which is included in “Advertising funds restricted liabilities.” There were no amounts due to AMC as of June 30, 2024. (14) Guarantees and Other Commitments and Contingencies Except as described below, the Company did not have any significant changes in guarantees and other commitments and contingencies during the current fiscal period since those reported in the Form 10-K. Refer to the Form 10-K for further information regarding the Company’s additional commitments and obligations. Franchisee Incentive Programs To promote new restaurant development, Wendy’s has provided franchisees with certain incentive programs for qualifying new restaurants. In July 2024, Wendy’s announced a new development incentive structure in the U.S. that provides for reductions in royalty and national advertising fees for qualifying new restaurants for two, three or four years of operation based on the number of restaurants committed to under the development agreement. Lease Guarantees Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees, amounting to $ 89,111 as of June 30, 2024. These leases extend through 2045. We have had no judgments against us as guarantor of these leases as of June 30, 2024. In the event of default by a franchise owner where Wendy’s is called upon to perform under its guarantee, Wendy’s has the ability to pursue repayment from the franchise owner. The liability recorded for our probable exposure associated with these lease guarantees was not material as of June 30, 2024. Letters of Credit As of June 30, 2024, the Company had outstanding letters of credit with various parties totaling $ 28,840 . Substantially all of the outstanding letters of credit include amounts outstanding against the 2021-1 Variable Funding Senior Secured Notes, Class A-1. We do not expect any material loss to result from these letters of credit. 22 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (15) Legal and Environmental Matters The Company is involved in litigation and claims incidental to our business. We provide accruals for such litigation and claims when we determine it is probable that a liability has been incurred and the loss is reasonably estimable. The Company believes it has adequate accruals for all of our legal and environmental matters. We cannot estimate the aggregate possible range of loss for our existing litigation and claims due to various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and significant factual matters unresolved. In addition, most cases seek an indeterminate amount of damages and many involve multiple parties. Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently difficult and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period. (16) Segment Information Revenues by segment are as follows: Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 Wendy’s U.S. $ 472,591 $ 468,753 $ 915,438 $ 909,741 Wendy’s International 36,361 32,715 69,176 61,995 Global Real Estate & Development 61,775 60,097 120,866 118,636 Total revenues $ 570,727 $ 561,565 $ 1,105,480 $ 1,090,372 The following table reconciles profit by segment to the Company’s consolidated income before income taxes: Three Months Ended Six Months Ended June 30, 2024 July 2, 2023 June 30, 2024 July 2, 2023 Wendy’s U.S. (a) $ 136,709 $ 142,947 $ 262,533 $ 268,177 Wendy’s International (b) 10,675 8,531 21,365 15,977 Global Real Estate & Development 28,182 26,534 52,243 51,602 Total segment profit 175,566 178,012 $ 336,141 $ 335,756 Unallocated franchise support and other costs ( 191 ) 23 ( 217 ) 23 Advertising funds deficit 254 1,315 461 2,421 Unallocated general and administrative (c) ( 32,456 ) ( 33,653 ) ( 65,846 ) ( 65,814 ) Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below) ( 37,492 ) ( 33,498 ) ( 73,010 ) ( 66,970 ) Amortization of cloud computing arrangements ( 3,519 ) ( 2,266 ) ( 7,061 ) ( 3,848 ) System optimization gains (losses), net 280 ( 6 ) 153 ( 1 ) Reorganization and realignment costs ( 2,452 ) ( 681 ) ( 8,125 ) ( 7,489 ) Impairment of long-lived assets ( 689 ) ( 78 ) ( 2,695 ) ( 454 ) Unallocated other operating income, net 206 106 862 128 Interest expense, net ( 30,995 ) ( 31,136 ) ( 61,530 ) ( 62,841 ) Loss on early extinguishment of debt — — — ( 1,266 ) Investment income (loss), net 11 ( 6,827 ) 11 ( 10,389 ) Other income, net 6,300 7,573 13,136 14,909 Income before income taxes $ 74,823 $ 78,884 $ 132,280 $ 134,165 _______________ 23 Table of Contents THE WENDY’S COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Amounts) (a) Wendy’s U.S. includes advertising funds expense of $ 5,084 and $ 7,409 for the three and six months ended June 30, 2024 related to the Company’s funding of incremental advertising. (b) Wendy’s International includes advertising funds expense of $ 603 and $ 765 for the three and six months ended June 30, 2024, respectively, and $ 658 and $ 1,206 for the three and six months ended July 2, 2023, respectively, related to the Company’s funding of incremental advertising in Canada. In addition, Wendy’s International includes other international-related advertising deficit of $ 320 and $ 470 for the three and six months ended June 30, 2024, respectively, and $ 479 and $ 1,324 for the three and six months ended July 2, 2023, respectively. (c) Includes corporate overhead costs, such as employee compensation and related benefits. (17) New Accounting Standards New Accounting Standard Adopted Common-Control Lease Arrangements In March 2023, the Financial Accounting Standards Board (“FASB”) issued an update to amend certain lease accounting guidance that applies to arrangements between related parties under common control. The amendment requires a lessee in a common-control lease arrangement to amortize leasehold improvements that it owns over the useful life of the improvements to the common-control group, regardless of the lease term, if the lessee continues to control the use of the underlying asset through a lease. The Company adopted this amendment during the first quarter of 2024. The adoption of this amendment did not have a material impact on our condensed consolidated financial statements. 24