What changed in this filing

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Item 1. Financial Statements

2022-05-04 compared with 2021-11-03 · 90 added, 132 removed, 201 unchanged (52% of the section changed)

4 unchanged sentences

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

September 25,

2022 December 25,

15 unchanged sentences

Accounts payable $ 4,931 $ 5,414

Dividends payable 120,149 300

Other current liabilities 24,512 27,770

11 unchanged sentences

100,000,000 shares authorized;

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

29,876,820 and 29,837,454 shares issued and outstanding as of March 26, 2022 and December 25, 2021, respectively

Additional paid-in-capital 409 463

8 unchanged sentences

(amounts in thousands, except per share data)

Thirteen Weeks Ended Thirty-Nine Weeks Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Thirteen Weeks Ended

2022 March 27,

Royalty revenue, franchise fees and other $ 35,070 $ 31,606

8 unchanged sentences

Depreciation and amortization 2,227 1,795

Gain on sale of restaurants and other expenses, net ( 3,567 ) ( 1,233 ) ( 3,567 ) ( 3,249 )

Loss on disposal of assets 444 —

Total costs and expenses 59,598 50,887

1 unchanged sentence

Interest expense, net 4,192 3,782

Other income ( 22 ) — ( 22 ) —

Loss on debt extinguishment 814 —

Other expense 65 —

Income before income tax expense 11,536 16,021

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

Income tax expense 2,860 2,861

Net income $ 8,676 $ 13,160

15 unchanged sentences

Consolidated Statements of Stockholders' Deficit

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

For the Thirteen Weeks Ended March 27, 2021 and March 26, 2022

(amounts in thousands, except share data)

9 unchanged sentences

Balance at March 27, 2021 29,736,838 298 26 ( 332,052 ) — ( 331,728 )

Net income — — — 11,539 — 11,539

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

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

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

Dividends declared on common stock and equivalents — — ( 2,202 ) ( 1,075 ) — ( 3,277 )

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

Net income — — — 10,081 — 10,081

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

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

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

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

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

Shares Amount Additional

6 unchanged sentences

Dividends declared on common stock and equivalents — — ( 2,370 ) ( 122,960 ) — ( 125,330 )

Balance at March 27, 2021 29,736,838 298 26 ( 332,052 ) — ( 331,728 )

Net income — — — 11,312 — 11,312

Shares issued under stock plans 6,613 — — — — —

Tax payments for restricted stock upon vesting ( 76 ) — — ( 11 ) — ( 11 )

Stock-based compensation expense — — 2,456 — — 2,456

Dividends declared on common stock and equivalents — — ( 1,888 ) ( 2,275 ) — ( 4,163 )

Currency translation adjustment — — — — ( 66 ) ( 66 )

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

Net income — — — 11,290 — 11,290

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

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

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

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

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

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

Balance at March 26, 2022 29,876,820 299 409 ( 424,613 ) ( 322 ) ( 424,227 )

See accompanying notes to consolidated financial statements.

3 unchanged sentences

(amounts in thousands)

Thirty-Nine Weeks Ended

September 25,

2021 September 26,

Thirteen Weeks Ended

2022 March 27,

Operating activities

4 unchanged sentences

Stock-based compensation expense 2,191 2,316

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

Loss on disposal of assets 444 —

Amortization of debt issuance costs 373 358

Loss on debt extinguishment 814 —

Changes in operating assets and liabilities:

8 unchanged sentences

Purchases of property and equipment ( 6,293 ) ( 2,841 )

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

Proceeds from sales of assets 1,479 —

Payments for investments (Note 6) ( 4,163 ) —

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

2 unchanged sentences

Borrowings of long-term debt 250,000 —

Repayments of long-term debt ( 2,400 ) ( 800 )

Payment of deferred financing costs and other debt-related costs ( 5,442 ) —

Tax payments for restricted stock upon vesting ( 298 ) ( 1,862 )

13 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 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.

As of March 26, 2022, the Company had a total of 1,791 restaurants in its system.

The Company's restaurant base is approximately 98 % franchised, with 1,754 franchised locations (including 203 international locations) and 37 company-owned restaurants as of March 26, 2022.

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 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.

This amount is not included in Net income and would only be realized upon disposition of our investment.

The related Accumulated other comprehensive loss is presented in the Consolidated Balance Sheets.

Balance sheet amounts are as of March 26, 2022 and December 25, 2021, and operating results are for the thirteen weeks ended March 26, 2022 and March 27, 2021.

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

2 unchanged sentences

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 .

Fiscal years 2022 and 2021 have 53- and 52-weeks, respectively .

Cash, Cash Equivalents, and Restricted Cash.

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

September 25, 2021 December 26, 2020

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

March 26, 2022 December 25, 2021

Cash and cash equivalents $ 287,013 $ 48,583

2 unchanged sentences

Total cash, cash equivalents, and restricted cash $ 309,549 $ 54,906

Change in presentation.

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

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

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

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

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

Recently issued accounting pronouncements.

3 unchanged sentences

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

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, as determined using the treasury stock method.

WINGSTOP INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

of the exercise and vesting of stock options and restricted stock units, respectively, as determined using the treasury stock method.

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Thirteen Weeks Ended

2022 March 27,

Basic weighted average shares outstanding 29,851 29,706

1 unchanged sentence

Diluted weighted average shares outstanding 29,974 29,844

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.

For the thirteen weeks ended March 26, 2022 and March 27, 2021, equity awards representing approximately 8,000 and 5,000 shares, respectively, were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive.

(3) Dividends

The Company’s 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.

In connection with the Company's regular dividend program, on February 15, 2022, our Board of Directors declared a quarterly dividend of $ 0.17 per share of common stock, resulting in a total dividend of approximately $ 5.1 million.

This dividend was paid on March 25, 2022 to stockholders of record as of March 11, 2022.

Subsequent to the first quarter, on May 3, 2022, the Company’s Board of Directors declared a quarterly dividend of $ 0.17 per share of common stock for stockholders of record as of May 20, 2022.

The regular quarterly dividend is to be paid on June 10, 2022, totaling approximately $ 5.1 million.

Separate from the Company’s regular dividend program, on March 9, 2022, the Company’s Board of Directors declared a special dividend of $ 4.00 per share of common stock, resulting in a total dividend of approximately $ 119.5 million.

This dividend was paid on April 7, 2022 to stockholders of record as of March 24, 2022.

(4) Fair Value Measurements

4 unchanged sentences

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

WINGSTOP INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short-term nature.

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

September 25, 2021 December 26, 2020

Fair value of debt and the investment in bonds held by the Company’s United Kingdom master franchisee, Lemon Pepper Holdings Ltd., (“LPH”) are determined on a non-recurring basis, which results are summarized as follows (in thousands):

March 26, 2022 December 25, 2021

Fair Value Carrying

2 unchanged sentences

Level 2 $ 477,600 $ 455,167 $ 477,600 $ 480,676

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

2022-1 Class A-2 Senior Secured Notes (1)

Level 2 $ 250,000 $ 250,000 $ — $ —

Investment in bonds of LPH (2)

Level 2 $ 4,020 $ 4,020 $ 4,151 $ 4,151

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

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

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

WINGSTOP INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(5) Income Taxes

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 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.

Income tax expense and the effective tax rate were $ 2.9 million and 24.8 %, respectively, for the thirteen weeks ended March 26, 2022, and $ 2.9 million and 17.9 %, respectively, for the thirteen weeks ended March 27, 2021.

Income tax expense for the thirteen weeks ended March 26, 2022 included $ 0.2 million in tax benefits resulting from the recognition of excess tax benefits from stock-based compensation, as compared to $ 1.3 million in tax benefits for the thirteen weeks ended March 27, 2021, respectively.

(6) Debt Obligations

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

September 25, 2021 December 26, 2020

March 26, 2022 December 25, 2021

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

2022-1 Class A-2 Senior Secured Notes 250,000 —

Debt issuance costs, net of amortization ( 11,832 ) ( 8,206 )

2 unchanged sentences

Long-term debt, net $ 710,918 $ 469,394

The Company’s outstanding debt consists of (i) Series 2020-1 2.84 % Fixed Rate Senior Secured Notes, Class A-2 (the “2020 Class A-2 Notes”) issued by Wingstop Funding LLC (the “Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of Wingstop Inc.

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

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

There were no borrowings outstanding under the 2020 Variable Funding Notes as 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 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.

On March 9, 2022, the Company completed a securitized financing transaction, in which Wingstop Funding LLC, a limited purpose, bankruptcy-remote, indirect wholly owned subsidiary of the Company (the “Issuer”), issued $ 250 million of its Series 2022-1 3.734 % Fixed Rate Senior Secured Notes, Class A-2 (the "2022 Class A-2 Notes").

The Issuer also entered into a revolving financing facility of Series 2022-1 Variable Funding Senior Notes, Class A-1 (the “2022 Variable Funding Notes,” and together with the 2022 Class A-2 Notes, the “2022 Notes”), which permits borrowings of up to a maximum principal amount of $ 200 million, subject to certain borrowing conditions, a portion of which may be used to issue letters of credit.

The proceeds from the securitized financing transaction were used to pay related transaction fees and expenses, strengthen the Company's liquidity position and for general corporate purposes, which included a return of capital to the Company’s stockholders.

In addition to the 2022 Notes, the Company’s outstanding debt consists of its existing Series 2020-1 2.84 % Fixed Rate Senior Secured Notes, Class A-2 (the “2020 Notes”).

The Company’s existing revolving financing facility of Series 2020-1 Class A-1 Notes (“the 2020 Variable Funding Notes”) was terminated in connection with the transaction.

As of December 25, 2021, $ 3.5 million of letters of credit were outstanding against the 2020 Variable Funding Notes, which related primarily to required

WINGSTOP INC.

1 unchanged sentence

Notes to Consolidated Financial Statements

interest reserves, and there were no amounts drawn down on the letters of credit as of December 25, 2021.

No borrowings were outstanding under the 2022 Variable Funding Notes as of March 26, 2022.

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

The 2022 Notes were issued pursuant to a base indenture and related supplemental indentures (collectively, the “Indenture”).

Interest and principal payments on the 2022 Class A-2 Notes are payable on a quarterly basis.

The requirement to make such quarterly principal payments on the 2022 Class A-2 Notes is subject to certain financial conditions set forth in the Indenture.

The legal final maturity date of the 2022 Notes is in March of 2052, but, unless earlier prepaid to the extent permitted under the Indenture, the anticipated repayment date of the 2022 Class A-2 Notes is March 2029.

If the Issuer has not repaid or refinanced the 2022 Class A-2 Notes prior to the anticipated repayment date, additional interest will accrue on the Notes.

The 2022 Variable Funding Notes accrue interest at a variable rate based on (i) the prime rate, (ii) the overnight federal funds rates, (iii) the secured overnight financing rate, or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin, as more fully set forth in the 2022 Variable Funding Note Purchase Agreement, dated March 9, 2022, and the indenture supplement.

Commitment fees and other usage fees apply to the 2022 Variable Funding Notes facility depending on the type of borrowing requested.

There is a 60 -basis points draw fee on borrowings requested pursuant to the terms of the 2022 Variable Fund Notes.

Additionally, during a commitment availability period, there is a 30 -basis point commitment fee on the committed portion of the 2022 Variable Funding Notes.

There were no amounts drawn down on the letters of credit as of March 26, 2022.

The 2022 Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Issuer maintains specified reserve accounts to be used to make required payments in respect of the 2022 Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the 2022 Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, that the assets pledged as collateral for the 2022 Notes are in stated ways defective or ineffective, and (iv) covenants relating to recordkeeping, access to information, and similar matters.

The 2022 Class A-2 Notes are also subject to customary rapid amortization events provided for in the indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of global gross sales for specified restaurants being below certain levels on certain measurement dates, certain change of control and manager termination events, an event of default, and the failure to repay or refinance the 2022 Class A-2 Notes on the applicable scheduled maturity date.

The 2022 Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to the 2022 Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments.

As of March 26, 2022, the Company was in compliance with all financial covenants.

During the first quarter of 2022, as a result of the termination of the 2020 Variable Funding Notes, the Company recorded a loss on debt extinguishment of $ 0.8 million related to the write-off of previously capitalized financing costs.

Total debt issuance costs incurred and capitalized in connection with the issuance of the 2022 Notes were $ 5.5 million.

As of December 25, 2021, the Company’s leverage ratio was less than 5.0 x, and accordingly, per the terms of the applicable debt agreements, the Company elected to suspend principal payments and classified the balance of the 2020 Notes as long-term debt.

Subsequent to the closing of the 2022 Notes, the Company had a leverage ratio of greater than 5.0 x and, accordingly, the Company will resume making scheduled amortization payments on the notes in the third quarter of 2022.

The 2020 Class A-2 Notes and the 2022 Class A-2 Notes are generally subject to 1 % annual amortization.

(7) Commitments and Contingencies

1 unchanged sentence

In the opinion of management, the amount of ultimate liability with respect to such actions is not likely to have a material adverse impact on the Company’s financial position, results of operations, or cash flows.

WINGSTOP INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(8) Stock-Based Compensation

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.

During the thirteen weeks ended March 26, 2022, the Company granted stock options to purchase 37,787 shares of common stock and 26,431 restricted stock units (“RSUs”) to certain employees.

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

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 $ 144.27 per unit.

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”).

The ROI PSUs are generally eligible to cliff-vest approximately three years from the grant date, and the maximum vesting percentage that could be realized for each of the ROI PSUs is 250 % based on the level of performance achieved for the awards.

The remaining 7,110 PSUs granted are subject to a service condition and a performance vesting condition based on the number of net new restaurants opened over the performance period (“NNR PSUs”).

The NNR PSUs vest in equal annual amounts over a three-year period, and the maximum vesting percentage that could be realized for each of the NNR PSUs is 100 % based on the level of performance achieved for the awards.

In addition, the Company granted 30,209 performance stock units (“PSUs”) to certain employees during the thirteen weeks ended March 26, 2022.

The PSUs cliff-vest at the end of a three year service period or vest in equal annual amounts over a three year period.

Vested amounts may range from 0 % to a maximum of 250 % of targeted amounts depending on the achievement of performance measures at the end of each vesting period.

Such performance measures are based on the Company meeting certain return on incremental investment targets or unit development targets for the vesting period.

The PSUs had a weighted-average grant-date fair value of $ 144.35 per unit.

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

Total compensation expense related to all share-based awards was $ 6.8 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.

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

(9) Revenue from Contracts with Customers

The following table represents a disaggregation of revenue from contracts with customers for the thirteen and thirty-nine weeks ended September 25, 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

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

Thirteen Weeks Ended

March 26, 2022 March 27, 2021

Royalty revenue $ 32,204 $ 28,809

Advertising fees and related income 15,575 19,653 59,672 55,590

Advertising fees 22,539 21,520

Franchise fees 960 1,195

1 unchanged sentence

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

As the term of the franchise license is typically ten years , substantially all of the franchise fee revenue recognized in the thirteen and thirty-nine weeks ended September 25, 2021 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.

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 26, 2022 was included in the deferred revenue balance as of December 25, 2021.

Approximately $ 9.4 million and $ 10.4 million of deferred revenue as of March 26, 2022 and December 25, 2021, 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 7.5 years.

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

WINGSTOP INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(11) Acquisitions and Refranchising of Company-owned Restaurants

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.

The Company did not have any material contract assets as of March 26, 2022.

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