What changed in this filing

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Item 1. Financial Statements

2020-07-29 compared with 2020-05-06 · 97 added, 87 removed, 216 unchanged (46% of the section changed)

34 unchanged sentences

100,000,000 shares authorized;

29,583,394 and 29,457,228 shares issued and outstanding as of March 28, 2020 and December 28, 2019, respectively

29,596,347 and 29,457,228 shares issued and outstanding as of June 27, 2020 and December 28, 2019, respectively

Additional paid-in-capital 43 552

7 unchanged sentences

(amounts in thousands, except per share data)

Thirteen Weeks Ended

2020 March 30,

Thirteen Weeks Ended Twenty-Six Weeks Ended

2020 June 29,

2019 June 27,

2020 June 29,

Royalty revenue, franchise fees and other $ 27,858 $ 21,187 $ 52,057 $ 42,515

4 unchanged sentences

Cost of sales (1)

13,387 10,573 24,563 20,303

Advertising expenses 18,589 12,973 33,513 25,707

19 unchanged sentences

Consolidated Statements of Stockholders' Deficit

For the Thirteen Weeks Ended March 30, 2019 and March 28, 2020

For the Twenty-Six Weeks Ended June 29, 2019 and June 27, 2020

(amounts in thousands, except share data)

10 unchanged sentences

Balance at March 30, 2019 29,399,406 294 206 ( 220,978 ) ( 220,478 )

Net income — — — 4,918 4,918

Shares issued under stock plans 45,778 1 147 — 148

Tax payments for restricted stock upon vesting ( 2,456 ) — — ( 226 ) ( 226 )

Stock-based compensation expense — — 1,928 — 1,928

Dividends paid — — ( 1,389 ) ( 1,269 ) ( 2,658 )

Balance at June 29, 2019 29,442,728 $ 295 $ 892 $ ( 217,555 ) $ ( 216,368 )

Shares Amount Additional

7 unchanged sentences

Balance at March 28, 2020 29,583,394 296 219 ( 203,463 ) ( 202,948 )

Net income — — — 11,539 11,539

Shares issued under stock plans 13,057 — 57 — 57

Tax payments for restricted stock upon vesting ( 104 ) — — ( 12 ) ( 12 )

Stock-based compensation expense — — 1,969 — 1,969

Dividends paid — — ( 2,202 ) ( 1,075 ) ( 3,277 )

Balance at June 27, 2020 29,596,347 $ 296 $ 43 $ ( 193,011 ) $ ( 192,672 )

See accompanying notes to consolidated financial statements.

3 unchanged sentences

(amounts in thousands)

Thirteen Weeks Ended

2020 March 30,

Twenty-Six Weeks Ended

2020 June 29,

Operating activities

4 unchanged sentences

Stock-based compensation expense 3,300 2,766

Gain on disposal of assets ( 2,016 ) —

Amortization of debt issuance costs 815 775

9 unchanged sentences

Purchases of property and equipment ( 2,670 ) ( 1,442 )

Proceeds from sales of assets 2,300 —

Cash used in investing activities ( 370 ) ( 1,442 )

6 unchanged sentences

Cash provided by (used in) financing activities 9,021 ( 6,782 )

Net change in cash, cash equivalents, and restricted cash 23,145 5,711

Net increase in cash, cash equivalents, and restricted cash 34,263 2,267

Cash, cash equivalents, and restricted cash at beginning of period 21,175 20,940

4 unchanged sentences

Notes to Consolidated Financial Statements

(1) Basis of Presentation

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

Basis of Presentation

Wingstop Inc., together with its consolidated subsidiaries (collectively, “Wingstop” or the “Company”), is in the business of franchising and operating Wingstop restaurants.

As of March 28, 2020, the Company had 1,221 domestic franchised restaurants, and 160 international franchised restaurants.

As of March 28, 2020, the Company owned and operated 32 restaurants.

As of June 27, 2020, the Company had 1,244 domestic franchised restaurants, and 162 international franchised restaurants.

As of June 27, 2020, the Company owned and operated 30 restaurants.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information.

Consequently, financial information and disclosures normally included in financial statements prepared annually in accordance with accounting principles generally accepted in the United States have been condensed or omitted.

Balance sheet amounts are as of March 28, 2020 and December 28, 2019, and operating results are for the thirteen weeks ended March 28, 2020 and March 30, 2019.

Balance sheet amounts are as of June 27, 2020 and December 28, 2019, and operating results are for the thirteen and twenty-six weeks ended June 27, 2020 and June 29, 2019.

In the Company’s opinion, all necessary adjustments have been made for the fair presentation of the results of the interim periods presented.

4 unchanged sentences

Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash within the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows as of March 28, 2020 and December 28, 2019 were as follows (in thousands):

March 28, 2020 December 28, 2019

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

June 27, 2020 December 28, 2019

Cash and cash equivalents $ 45,766 $ 12,849

2 unchanged sentences

Total cash, cash equivalents, and restricted cash $ 55,438 $ 21,175

Segment Reporting

Historically, the Company had two reporting segments:

franchise operations and company restaurant operations.

In accordance with Accounting Standards Codification 280 “Segment Reporting”, the Company uses the management approach for determining its reportable segments.

The management approach is based upon the way management reviews performance and allocates resources.

Due to changes in how the Company’s chief operating decision maker assesses the Company’s performance and allocates resources, the Company reevaluated its operating segments and has determined it has one operating segment and one reporting segment.

Recently Issued Accounting Pronouncements

4 unchanged sentences

The Company is currently assessing the impact of adopting this standard but does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

(2) Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the reporting period.

Diluted earnings per share reflects the potential dilution that could occur if securities convertible into, or other contracts to issue, common stock were exercised or converted into common stock.

For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of the exercise and vesting of stock options and restricted stock units, respectively, determined using the treasury stock method.

WINGSTOP INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

(2) Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the reporting period.

Diluted earnings per share reflects the potential dilution that could occur if securities convertible into, or other contracts to issue, common stock were exercised or converted into common stock.

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

Thirteen Weeks Ended

2020 March 30,

Thirteen Weeks Ended Twenty-Six Weeks Ended

2020 June 29,

2019 June 27,

2020 June 29,

Basic weighted average shares outstanding 29,588 29,418 29,538 29,377

1 unchanged sentence

Diluted weighted average shares outstanding 29,793 29,667 29,751 29,650

For the thirteen weeks ended March 28, 2020 and March 30, 2019, equity awards representing approximately 4,000 and 40,000 shares, respectively, were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive.

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

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

(3) Dividends

On February 18, 2020, the Company’s Board of Directors declared a quarterly dividend of $ 0.11 per share of common stock for stockholders of record as of March 6, 2020, which was paid on March 20, 2020, totaling $ 3.2 million.

Subsequent to the first quarter, on May 5, 2020, the Company’s Board of Directors declared a quarterly dividend of $ 0.11 per share of common stock for stockholders of record as of June 18, 2020, to be paid on June 25, 2020, totaling approximately $ 3.2 million.

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

Subsequent to the second quarter, on July 28, 2020, the Company’s Board of Directors declared a quarterly dividend of $ 0.14 per share of common stock for stockholders of record as of August 28, 2020, to be paid on September 11, 2020, totaling approximately $ 4.1 million.

(4) Fair Value Measurements

6 unchanged sentences

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

March 28, 2020 December 28, 2019

June 27, 2020 December 28, 2019

Fair Value Carrying

5 unchanged sentences

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

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

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

(5) Income Taxes

Income tax expense and the effective tax rate were $ 1.2 million and 13.2 %, respectively, for the thirteen weeks ended March 28, 2020, and $ 0.8 million and 10.3 %, respectively, for the thirteen weeks ended March 30, 2019.

Income tax expense for the thirteen weeks ended March 28, 2020 and the thirteen weeks ended March 30, 2019 includes $ 1.2 million in tax benefits resulting from the recognition of excess tax benefits from stock-based compensation .

WINGSTOP INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

(5) Income Taxes

Income tax expense and the effective tax rate were $ 3.8 million and 24.7 %, respectively, for the thirteen weeks ended June 27, 2020, and $ 1.1 million and 17.9 %, respectively, for the thirteen weeks ended June 29, 2019.

Income tax expense and the effective tax rate were $ 5.0 million and 20.3 %, respectively, for the twenty-six weeks ended June 27, 2020, and $ 1.8 million and 13.7 %, respectively, for the twenty-six weeks ended June 29, 2019.

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

(6) Debt Obligations

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

March 28, 2020 December 28, 2019

June 27, 2020 December 28, 2019

2018-1 Class A-2 Senior Secured Notes $ 316,800 $ 317,600

5 unchanged sentences

The Company's outstanding debt consists of (i) Series 2018-1 4.97 % Fixed Rate Senior Secured Notes, Class A-2 (the “Class A-2 Notes”) issued by Wingstop Funding LLC (the “Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of Wingstop Inc.

and (ii) Series 2018-1 Variable Funding Senior Notes, Class A-1 (the “Variable Funding Notes”), which permit borrowings of up to a maximum principal amount of $ 20 million, which may be used to borrow amounts on a revolving basis and to issue letters of credit.

As of March 28, 2020, we had $ 316.8 million of Class A-2 Notes outstanding and $ 16.0 million Variable Funding Notes outstanding.

and (ii) Series 2018-1 Variable Funding Senior Notes, Class A-1, which permit borrowings of up to a maximum principal amount of $ 20 million, which may be used to borrow amounts on a revolving basis and to issue letters of credit (the “Variable Funding Notes,” and together with the Class A-2 Notes, the “Notes”).

As of June 27, 2020, we had $ 316.8 million of Class A-2 Notes outstanding and $ 16.0 million of Variable Funding Notes outstanding.

The Variable Funding Notes were issued in the first quarter of 2020 as a precautionary measure to improve the Company's cash position.

The Variable Funding Notes had a weighted average interest rate of 2.72 % as of March 28, 2020 and is classified as current debt.

The Variable Funding Notes had a weighted average interest rate of 2.72 % during the twenty-six weeks ended June 27, 2020 and are classified as current debt.

There were no borrowings outstanding under the Variable Funding Notes as of December 28, 2019.

Further, as of March 28, 2020 and December 28, 2019, $ 4.0 million of letters of credit were outstanding against the Variable Funding Notes, which relate primarily to interest reserves required under the base indenture and related supplemental indenture.

There were no amounts drawn down on the letter of credit as of March 28, 2020 or December 28, 2019.

Further, as of June 27, 2020 and December 28, 2019, $ 4.0 million of letters of credit were outstanding against the Variable Funding Notes, which relate primarily to interest reserves required under the base indenture and related supplemental indenture.

There were no amounts drawn down on the letters of credit as of June 27, 2020 or December 28, 2019.

During the first fiscal quarter of 2020, the Company had a leverage ratio under the Class A-2 Notes of less than 5.0 x.

Per the terms of the Company’s debt agreements, principal payments are not due until the repayment date as long as the Company maintains a leverage ratio of less than 5.0x.

As such, the Company ceased principal payments beginning in the second quarter of 2020.

Per the terms of the Company’s debt agreements, principal payments on the Class A-2 Notes are not due until the repayment date as long as the Company maintains a leverage ratio of less than 5.0x.

As such, the Company ceased making principal payments beginning in the second quarter of 2020.

Accordingly, the entire outstanding balance of the Class A-2 Notes has been classified as long-term debt.

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

WINGSTOP INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(7) Commitments and Contingencies

2 unchanged sentences

(8) Stock-Based Compensation

Stock-based compensation is measured at the date of grant, based on the calculated fair value of the award, and is recognized as expense over the requisite employee service period (generally the vesting period of the grant).

The Company recognized $ 1.3 million in stock-based compensation expense for the thirteen weeks ended March 28, 2020, with a corresponding increase to additional paid-in-capital.

The Company recognized $ 3.3 million in stock-based compensation expense for the twenty-six weeks ended June 27, 2020, with a corresponding increase to additional paid-in-capital.

Stock-based compensation expense is included in selling, general and administrative expense in the Consolidated Statements of Operations.

WINGSTOP INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Stock Options

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

Stock Options Weighted Average Exercise Price Aggregate Intrinsic Value Weighted Average Remaining Term

Stock Options Weighted Average Exercise Price Per Share Aggregate Intrinsic Value Weighted Average Remaining Term

Outstanding - December 28, 2019 134 $ 5.72 $ 10,801 3.8

1 unchanged sentence

Options exercised ( 46 ) 12.12

Outstanding - March 28, 2020 159 $ 34.72 $ 7,223 5.7

The total grant-date fair value of stock options vested during the thirteen weeks ended March 28, 2020 was $ 0.2 million.

The total intrinsic value of stock options exercised during the thirteen weeks ended March 28, 2020 was $ 1.9 million.

As of March 28, 2020, total unrecognized compensation expense related to unvested stock options was $ 1.4 million, which is expected to be recognized over a weighted-average period of 2.9 years.

During the thirteen weeks ended March 28, 2020, there was a modification to certain awards resulting in additional compensation expense of $ 0.4 million.

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

The total grant-date fair value of stock options vested during the twenty-six weeks ended June 27, 2020 was $ 0.2 million.

The total intrinsic value of stock options exercised during the twenty-six weeks ended June 27, 2020 was $ 2.8 million.

As of June 27, 2020, total unrecognized compensation expense related to unvested stock options was $ 1.4 million, which is expected to be recognized over a weighted-average period of 2.7 years.

During the twenty-six weeks ended June 27, 2020, there was a modification to certain awards resulting in additional compensation expense of $ 0.4 million.

Restricted Stock Units and Performance Stock Units

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

Restricted Stock Units Weighted Average Grant Date Fair Value Performance Stock Units Weighted Average Grant Date Fair Value

Restricted Stock Units Weighted Average Grant Date Fair Value Per Share Performance Stock Units Weighted Average Grant Date Fair Value

Outstanding - December 28, 2019 82 $ 52.73 169 $ 55.92

2 unchanged sentences

Units canceled ( 11 ) 63.89 ( 8 ) 66.04

Outstanding - March 28, 2020 56 $ 67.83 150 $ 67.74

Outstanding - June 27, 2020 57 $ 70.82 152 $ 68.49

The fair value of the Company’s RSUs and PSUs is based on the closing market price of the stock on the date of grant.

The RSUs granted during the thirteen weeks ended March 28, 2020 vest over a three-year service period.

As of March 28, 2020, total unrecognized compensation expense related to unvested RSUs was $ 3.6 million, which is expected to be recognized over a weighted-average period of 2.1 years.

The Company granted 41,516 PSUs during the thirteen weeks ended March 28, 2020 that are based on a service condition and a performance vesting condition based on the achievement of certain adjusted EBITDA targets over a performance period of three years .

The RSUs granted during the twenty-six weeks ended June 27, 2020 vest over a three-year service period.

As of June 27, 2020, total unrecognized compensation expense related to unvested RSUs was $ 3.4 million, which is expected to be recognized over a weighted-average period of 1.9 years.

The Company granted 40,529 PSUs during the twenty-six weeks ended June 27, 2020 that are based on a service condition and a performance vesting condition based on the achievement of certain adjusted EBITDA targets over a performance period of three years .

The maximum vesting percentage that could be realized for each of the PSUs is 250 % based on the level of performance achieved for the respective awards, as well as a market vesting condition linked to the level of total stockholder return received by the Company’s stockholders during the performance period measured against the companies in the S&P 600 Restaurant Index (“TSR PSUs”).

The TSR PSUs were valued based on a Monte Carlo simulation model to reflect the impact of the total stockholder return market condition, resulting in a grant-date fair value range of $ 0.00 to $ 157.96 per unit based on the outcome of the performance condition.

The probability of satisfying a market condition is considered in the estimation of the grant-date fair value for TSR PSUs and the compensation cost is not reversed if the market condition is not achieved, provided the requisite service has been provided.

The compensation expense related to these PSUs is recognized over the vesting period when the achievement of the performance conditions becomes probable.

The total compensation cost for the PSUs is determined based on the most likely outcome of the performance condition and the number of awards expected to vest.

As of March 28, 2020, total unrecognized compensation expense related to unvested PSUs was $ 6.4 million.

(9) Business Segments

The Company’s business operates in two segments:

the “Franchise” segment and the “Company” segment.

The Franchise segment consists of domestic and international franchise restaurants, which represent the majority of the Company's system-wide restaurants.

As of March 28, 2020, the Franchise segment consisted of 1,381 restaurants franchised in the United States and international markets, compared to 1,244 franchised restaurants as of March 30, 2019.

Franchise segment revenue consists primarily of franchise royalty revenue, advertising fee revenue, franchise and development fees revenue, and international territory fees.

WINGSTOP INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

As of March 28, 2020, the Company segment consisted of 32 company-owned restaurants located in the United States, compared to 29 company-owned restaurants as of March 30, 2019.

Company segment revenue is comprised of food and beverage sales at company-owned restaurants.

Company segment expenses consist of operating expenses at company-owned restaurants and include food, beverage, labor, benefits, utilities, rent, and other operating costs.

The following table reflects revenue and profit information with respect to each segment and reconciles segment profits to income before taxes (in thousands):

Thirteen Weeks Ended

2020 March 30,

Franchise segment $ 40,213 $ 34,538

Company segment 15,223 13,515

Total segment revenue $ 55,436 $ 48,053

Segment Profit:

Franchise segment $ 10,793 $ 9,255

Company segment 2,678 2,516

Total segment profit 13,471 11,771

Interest expense, net 4,145 4,410

Income before taxes $ 9,326 $ 7,361

outcome of the performance condition.

The compensation expense related to the PSUs is recognized over the vesting period when the achievement of the performance conditions becomes probable.

The total compensation cost for the PSUs is determined based on the most likely outcome of the performance condition and the number of awards expected to vest.

As of June 27, 2020, total unrecognized compensation expense related to unvested PSUs was $ 5.8 million.

(9) Company-owned Restaurant Transactions

During the Company’s fiscal quarter ended June 27, 2020, the Company sold two company-owned restaurants in the Houston market to an existing franchisee for proceeds of $ 2.3 million.

In connection with the sale of the restaurants, the Company recorded a $ 2.0 million pre-tax gain on the sale of the related assets and liabilities, which was net of a $ 28,000 reduction in goodwill.

The net gain on these restaurants was recorded in Selling, general and administrative expense on our Consolidated Statements of Operations.

Subsequent to the end of the Company’s fiscal quarter ended June 27, 2020, the Company completed the sale of five company-owned restaurants in the Kansas City market to an existing franchisee for proceeds of $ 2.5 million.

The total assets associated with these restaurants held for sale totaled $ 1.9 million and were included in Prepaid expenses and other current assets on the Consolidated Balance Sheet as of June 27, 2020.

(10) Revenue from Contracts with Customers

The following table represents a disaggregation of revenue from contracts with customers for the thirteen weeks ended March 28, 2020 and March 30, 2019 (in thousands):

Thirteen Weeks Ended

March 28, 2020 March 30, 2019

The following table represents a disaggregation of revenue from contracts with customers for the thirteen and twenty-six weeks ended June 27, 2020 and June 29, 2019 (in thousands):

Thirteen Weeks Ended Twenty-Six Weeks Ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Royalty revenue $ 25,447 $ 18,437 $ 46,755 $ 36,344

3 unchanged sentences

Deferred revenue is reduced as fees are recognized in revenue over the term of the franchise license for the respective restaurant.

As the term of the franchise license is typically ten years, substantially all of the franchise fee revenue recognized in the thirteen weeks ended March 28, 2020 was included in the deferred revenue balance as of December 28, 2019.

Approximately $ 8.1 million and $ 8.3 million of deferred revenue as of March 28, 2020 and December 28, 2019, respectively, relates to restaurants that have not yet opened, so the fees are not yet being amortized.

As the term of the franchise license is typically ten years, substantially all of the franchise fee revenue recognized in the thirteen and twenty-six weeks ended June 27, 2020 was included in the deferred revenue balance as of December 28, 2019.

Approximately $ 8.3 million and $ 8.3 million of deferred revenue as of June 27, 2020 and December 28, 2019, respectively, relates to restaurants that have not yet opened, so the fees are not yet being amortized.

The weighted average remaining amortization period for deferred franchise and renewal fees related to open restaurants is 7.2 years.

The Company does not have any material contract assets as of March 28, 2020.

(11) Subsequent Events

Subsequent to the end of the Company’s fiscal quarter ended March 28, 2020, the Company entered into two separate arrangements to re-franchise company-owned restaurants, one arrangement is to sell two stores in the Houston market and the other arrangement is to sell five stores in the Kansas City market, for a total purchase price of approximately $ 4.8 million.

These transactions are subject to customary closing conditions, and the Company expects both transactions to close in the second quarter of fiscal year 2020.

The Company does not have any material contract assets as of June 27, 2020.

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 1. Financial Statements