What changed in this filing

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Item 1. Financial Statements

2021-11-03 compared with 2021-07-28 · 88 added, 58 removed, 245 unchanged (37% of the section changed)

4 unchanged sentences

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

September 25,

2021 December 26,

28 unchanged sentences

100,000,000 shares authorized;

29,743,375 and 29,687,123 shares issued and outstanding as of June 26, 2021 and December 26, 2020, respectively

29,825,763 and 29,687,123 shares issued and outstanding as of September 25, 2021 and December 26, 2020, respectively

Additional paid-in-capital 1,067 421

8 unchanged sentences

(amounts in thousands, except per share data)

Thirteen Weeks Ended Twenty-Six Weeks Ended

2021 June 27,

2020 June 26,

2021 June 27,

Thirteen Weeks Ended Thirty-Nine Weeks Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Royalty revenue, franchise fees and other $ 32,829 $ 28,806 $ 97,570 $ 80,863

12 unchanged sentences

Interest expense, net 3,724 4,405 11,230 12,764

Other income ( 22 ) — ( 22 ) —

Income before income tax expense 17,130 9,896 48,330 34,545

Income tax expense 3,867 3,784 6,728 5,014

Income tax expense (benefit) 5,840 ( 185 ) 12,568 4,829

Net income $ 11,290 $ 10,081 $ 35,762 $ 29,716

15 unchanged sentences

Consolidated Statements of Stockholders' Deficit

For the Twenty-Six Weeks Ended June 27, 2020 and June 26, 2021

For the Thirty-Nine Weeks Ended September 26, 2020 and September 25, 2021

(amounts in thousands, except share data)

15 unchanged sentences

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

Net income — — — 10,081 — 10,081

Shares issued under stock plans 87,751 1 328 — — 329

Tax payments for restricted stock upon vesting ( 633 ) — — ( 99 ) — ( 99 )

Stock-based compensation expense — — 3,007 — — 3,007

Dividends declared on common stock and equivalents — — ( 2,882 ) ( 1,301 ) — ( 4,183 )

Balance at September 26, 2020 29,683,465 $ 297 $ 496 $ ( 184,330 ) $ — $ ( 183,537 )

Shares Amount Additional

14 unchanged sentences

Balance at June 26, 2021 29,743,375 298 594 ( 323,026 ) ( 109 ) ( 322,243 )

Net income — — — 11,290 — 11,290

Shares issued under stock plans 82,553 1 500 — — 501

Tax payments for restricted stock upon vesting ( 165 ) — — ( 28 ) — ( 28 )

Stock-based compensation expense — — 2,051 — — 2,051

Dividends declared on common stock and equivalents — — ( 2,078 ) ( 3,562 ) — ( 5,640 )

Currency translation adjustment — — — — ( 63 ) ( 63 )

Balance at September 25, 2021 29,825,763 $ 299 $ 1,067 $ ( 315,326 ) $ ( 172 ) $ ( 314,132 )

See accompanying notes to consolidated financial statements.

3 unchanged sentences

(amounts in thousands)

Twenty-Six Weeks Ended

2021 June 27,

Thirty-Nine Weeks Ended

September 25,

2021 September 26,

Operating activities

4 unchanged sentences

Stock-based compensation expense 6,823 6,307

(Gain)/Loss on disposal of assets — ( 2,016 )

Gain on disposal of assets ( 3,567 ) ( 3,247 )

Amortization of debt issuance costs 1,056 1,228

9 unchanged sentences

Purchases of property and equipment ( 16,543 ) ( 3,729 )

Acquisitions of restaurants from franchisees ( 4,876 ) ( 5,635 )

Proceeds from sales of assets 7,207 4,800

20 unchanged sentences

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

As of June 26, 2021, the Company had 1,415 domestic franchised restaurants and 175 international franchised restaurants.

As of June 26, 2021, the Company owned and operated 34 restaurants.

As of September 25, 2021, the Company had 1,461 domestic franchised restaurants and 180 international franchised restaurants.

As of September 25, 2021, the Company owned and operated 32 restaurants.

Basis of presentation.

1 unchanged sentence

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

Balance sheet amounts are as of June 26, 2021 and December 26, 2020, and operating results are for the thirteen and twenty-six weeks ended June 26, 2021 and June 27, 2020.

Balance sheet amounts are as of September 25, 2021 and December 26, 2020, and operating results are for the thirteen and thirty-nine weeks ended September 25, 2021 and September 26, 2020.

The foreign currency translation adjustment included in the Consolidated Statements of Comprehensive Income represents the unrealized impact of translating our foreign investment.

4 unchanged sentences

The accompanying interim unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2020.

The Company uses a 52/53-week fiscal year that ends on the last Saturday of the calendar year.

The Company uses a 52- or 53-week fiscal year that ends on the last Saturday of the calendar year.

Fiscal years 2021 and 2020 each have 52 weeks .

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 June 26, 2021 and December 26, 2020 were as follows (in thousands):

June 26, 2021 December 26, 2020

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

September 25, 2021 December 26, 2020

Cash and cash equivalents $ 50,125 $ 40,858

4 unchanged sentences

Beginning in the first quarter of 2021, headcount-related expenses that support our national advertising fund are presented within Advertising expenses on the Consolidated Statements of Comprehensive Income.

Prior to the first quarter of 2021, these expenses were presented within “Selling, general and administrative expenses.” Prior period amounts have been reclassified to conform to the current presentation.

Prior to the first quarter of 2021, these expenses were presented within Selling, general and administrative expenses.

Prior period amounts have been reclassified to conform to the current presentation.

This reclassification had no impact on operating income, balance sheets or statements of cash flows.

Headcount related expenses associated with the national advertising fund were $ 1.9 million and $ 1.8 million for the thirteen weeks ended June 26, 2021 and June 27, 2020, respectively, and were $ 4.0 million and $ 3.9 million for the twenty-six weeks ended June 26, 2021 and June 27, 2020, respectively.

Headcount related expenses associated with the national advertising fund were $ 2.0 million for each of the thirteen weeks ended September 25, 2021 and September 26, 2020, and were $ 5.9 million for each of the thirty-nine weeks ended September 25, 2021 and September 26, 2020.

Recently issued accounting pronouncements.

9 unchanged sentences

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

Thirteen Weeks Ended Twenty-Six Weeks Ended

2021 June 27,

2020 June 26,

2021 June 27,

Thirteen Weeks Ended Thirty-Nine Weeks Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Basic weighted average shares outstanding 29,799 29,642 29,748 29,572

1 unchanged sentence

Diluted weighted average shares outstanding 29,963 29,854 29,936 29,791

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

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

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

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

(3) Dividends

In each of the first two quarters of 2021, the Company’s Board of Directors declared a quarterly dividend of $ 0.14 per share of common stock, which, in the aggregate, totaled $ 8.4 million, or $ 0.28 per share of common stock, and which was paid during the twenty-six weeks ended June 26, 2021.

Subsequent to the second quarter, on July 27, 2021, the Company’s Board of Directors declared a quarterly dividend of $ 0.17 per share of common stock for stockholders of record as of August 13, 2021.

The regular quarterly dividend is to be paid on September 3, 2021, totaling approximately $ 5.1 million.

The Company’s Board of Directors declared a quarterly dividend of $ 0.14 per share of common stock in each of the first two quarters, and a quarterly dividend of $ 0.17 per share of common stock in the third quarter, resulting in aggregate dividend payments of $ 13.4 million, or $ 0.45 per share of common stock, during the thirty-nine weeks ended September 25, 2021.

Subsequent to the third quarter, on November 2, 2021, the Company’s Board of Directors declared a quarterly dividend of $ 0.17 per share of common stock for stockholders of record as of November 19, 2021.

The regular quarterly dividend is to be paid on December 10, 2021, totaling approximately $ 5.1 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):

June 26, 2021 December 26, 2020

September 25, 2021 December 26, 2020

Fair Value Carrying

8 unchanged sentences

(5) Income Taxes

Income tax expense and the effective tax rate were $ 3.9 million and 25.5 %, respectively, for the thirteen weeks ended June 26, 2021, and $ 3.8 million and 24.7 %, respectively, for the thirteen weeks ended June 27, 2020.

Income tax expense and the effective tax rate were $ 6.7 million and 21.6 %, respectively, for the twenty-six weeks ended June 26, 2021, and $ 5.0 million and 20.3 %, respectively, for the twenty-six weeks ended June 27, 2020.

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

Income tax expense (benefit) and the effective tax rate were $ 5.8 million and 34.1 %, respectively, for the thirteen weeks ended September 25, 2021, and $( 0.2 ) million and ( 1.9 )%, respectively, for the thirteen weeks ended September 26, 2020.

Income tax expense and the effective tax rate were $ 12.6 million and 26.0 %, respectively, for the thirty-nine weeks ended September 25, 2021, and $ 4.8 million and 14.0 %, respectively, for the thirty-nine weeks ended September 26, 2020.

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

(6) Investments

In the second quarter of 2021, a wholly-owned subsidiary of the Company acquired a 20 % non-controlling interest in Wingstop’s United Kingdom master franchisee, Lemon Pepper Holdings Ltd., (“LPH”) for an aggregate amount of $ 4.2 million.

Substantially all of the investment consisted of bonds issued by a subsidiary of LPH, which do not have a readily determinable fair value and are recorded at cost with adjustments for observable changes in prices resulting from orderly transactions for the identical or a similar investment of the same issuer or impairments within long-term other assets in the Company’s consolidated balance sheet.

In addition, the Company received 20 % of the outstanding stock, which will be accounted for using the equity method of accounting, under which the Company’s share of the income (loss) of the investee will be recorded in our results of operations in “Other operating income, net.” The Company did not record any adjustments to the carrying amount of $ 4.2 million in the second quarter ended June 26, 2021 .

Substantially all of the investment consisted of bonds issued by a subsidiary of LPH, which are recorded on an amortized cost basis.

The fair value of the bonds approximates the current carrying value and was determined using level 3 inputs.

In addition, the Company received 20 % of the outstanding stock, which will be accounted for using the equity method of accounting, under which the Company’s share of the income of the investee will be recorded in Other income on the Consolidated Statements of Comprehensive Income.

(7) Debt Obligations

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

June 26, 2021 December 26, 2020

September 25, 2021 December 26, 2020

2020-1 Class A-2 Senior Secured Notes $ 477,600 $ 480,000

5 unchanged sentences

and (ii) Series 2020-1 Variable Funding Senior Notes, Class A-1 (the “2020 Variable Funding Notes” and together with the Class A-2 Notes, the “2020 Notes”), which permit borrowings of up to a maximum principal amount of $ 50 million which may be used to borrow amounts on a revolving basis and to issue letters of credit.

As of June 26, 2021 and December 26, 2020, the Company had $ 478.8 million and $ 480.0 million of 2020 Class A-2 Notes outstanding, respectively.

There were no borrowings outstanding under the 2020 Variable Funding Notes as of June 26, 2021 and December 26, 2020.

Further, as of June 26, 2021 and December 26, 2020, $ 3.5 million and $ 4.9 million, respectively, of letters of credit were outstanding against the 2020 Variable Funding Notes, which relate 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 26, 2021 or December 26, 2020.

As of June 26, 2021, the Company’s leverage ratio under the Class A-2 Notes was less than 5.0 x.

As of September 25, 2021 and December 26, 2020, the Company had $ 477.6 million and $ 480.0 million of 2020 Class A-2 Notes outstanding, respectively.

There were no borrowings outstanding under the 2020 Variable Funding Notes as of September 25, 2021 and December 26, 2020.

Further, as of September 25, 2021 and December 26, 2020, $ 3.5 million and $ 4.9 million, respectively, of letters of credit were outstanding against the 2020 Variable Funding Notes, which relate primarily to interest reserves required under the base indenture and related supplemental indenture.

There were no amounts drawn down on the letters of credit as of September 25, 2021 or December 26, 2020.

As of September 25, 2021, the Company’s leverage ratio under the Class A-2 Notes was less than 5.0 x.

Per the terms of the Company’s debt agreements, principal payments can be suspended at the borrower’s election until the repayment date as long as the Company maintains a leverage ratio of less than 5.0 x.

Accordingly, the Company expects to suspend payments following the principal payment due in the third quarter, and the remaining outstanding balance of the Class A-2 notes has been classified as long-term debt.

Accordingly, the Company has elected to suspend payments following the principal payment made in the third quarter, and the entire outstanding balance of the Class A-2 notes has been classified as long-term debt.

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

6 unchanged sentences

(9) Stock-Based Compensation

During the twenty-six weeks ended June 26, 2021, the Company granted stock options to purchase 42,703 shares of common stock and 19,967 restricted stock units (“RSUs”) to certain employees.

During the thirty-nine weeks ended September 25, 2021, the Company granted stock options to purchase 42,703 shares of common stock and 23,191 restricted stock units (“RSUs”) to certain employees.

The stock options vest in equal annual amounts over a three-year period subsequent to the grant date, and have a maximum contractual term of ten years .

1 unchanged sentence

The RSUs granted to certain employees generally vest in equal annual amounts over a three-year period, subsequent to the grant date and had a weighted-average grant-date fair value of $ 135.51 per unit.

In addition, the Company granted 31,564 performance stock units (“PSUs”) to certain employees during the twenty-six weeks ended June 26, 2021.

In addition, the Company granted 32,733 performance stock units (“PSUs”) to certain employees during the thirty-nine weeks ended September 25, 2021.

Of the total PSUs granted, 25,623 PSUs are subject to a service condition and a performance vesting condition based on return on incremental invested capital (“ROI PSUs”).

4 unchanged sentences

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

Total compensation expense related to all share-based awards was $ 4.8 million and $ 3.3 million for the twenty-six weeks ended June 26, 2021 and June 27, 2020, respectively, and was included in Selling, general and administrative (“SG&A”) expense in the Consolidated Statements of Comprehensive Income.

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

(10) Revenue from Contracts with Customers

The following table represents a disaggregation of revenue from contracts with customers for the thirteen and twenty-six weeks ended June 26, 2021 and June 27, 2020 (in thousands):

Thirteen Weeks Ended Twenty-Six Weeks Ended

June 26, 2021 June 27, 2020 June 26, 2021 June 27, 2020

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

September 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020

Royalty revenue $ 30,039 $ 26,007 $ 89,262 $ 72,761

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 and twenty-six weeks ended June 26, 2021 was included in the deferred revenue balance as of December 26, 2020.

Approximately $ 9.9 million and $ 9.8 million of deferred revenue as of June 26, 2021 and December 26, 2020, 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 thirty-nine weeks ended September 25, 2021 was included in the deferred revenue balance as of December 26, 2020.

Approximately $ 10.3 million and $ 9.8 million of deferred revenue as of September 25, 2021 and December 26, 2020, respectively, relates to restaurants that have not yet opened, so the fees are not yet being amortized.

The weighted average remaining amortization period for deferred franchise and renewal fees related to open restaurants is 7.3 years.

The Company did not have any material contract assets as of June 26, 2021.

The Company did not have any material contract assets as of September 25, 2021.

WINGSTOP INC.

2 unchanged sentences

(11) Acquisitions and Refranchising of Company-owned Restaurants

During the first fiscal quarter 2021, the Company entered into an arrangement to re-franchise six company-owned restaurants in the Colorado market for a total purchase price of approximately $ 6.7 million.

This transaction is subject to customary closing conditions, and the Company expects the transaction to close in the third fiscal quarter 2021.

The assets associated with these restaurants held for sale totaled $ 4.5 million and were included in Prepaid expenses and other current assets on the Consolidated Balance Sheet as of June 26, 2021.

Subsequent to the end of second fiscal quarter 2021, the company acquired two existing restaurants from franchisees.

The total purchase price was $ 3.9 million and was funded by cash flow from operations.

The restaurant acquisitions will be accounted for as business combinations.

The Company is still determining the estimated fair value of assets acquired and liabilities assumed.

The excess of the purchase price over the aggregate fair value of assets acquired will be allocated to goodwill.

The results of operations of these locations will be included in our Consolidated Statements of Comprehensive Income as of the respective dates of acquisition.

During the third fiscal quarter 2021, the Company completed the sale of six company-owned restaurants in the Colorado market to an existing franchisee for aggregate proceeds of $ 7.2 million.

In connection with the sale of the restaurants, the Company recorded a $ 3.6 million pre-tax gain on the sale of the related assets and liabilities, which was net of an $ 80,000 reduction in goodwill.

The net gain on these store sales was recorded in Gain on sale of restaurants and other expenses, net in the Company’s Consolidated Statements of Comprehensive Income as of September 25, 2021.

In the third fiscal quarter 2021, the company acquired three existing restaurants from franchisees.

The combined purchase price was $ 4.9 million and was funded by cash flow from operations.

The following table summarizes the preliminary allocations of the purchase price to the estimated fair value of assets acquired and liabilities assumed at the date of the acquisition (in thousands):

Purchase Price Allocation

Working capital $ 61

Property and equipment 148

Reacquired franchise rights 1,400

Goodwill 3,267

Operating lease right-of-use assets 1,526

Operating lease liabilities ( 1,526 )

Total purchase price $ 4,876

The estimates of fair value are preliminary, and are therefore subject to further refinement.

The excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill and is attributable to the benefits expected as a result of the acquisition, including sales and unit growth opportunities.

All of the goodwill from the acquisition is expected to be deductible for federal income tax purposes.

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

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