What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-05-04 · 152 added, 72 removed, 235 unchanged (49% of the section changed)

9 unchanged sentences

Wingstop is the largest fast casual chicken wings-focused restaurant chain in the world, with over 1,850 locations worldwide.

We are dedicated to serving the world flavor through an unparalleled guest experience and offering of classic wings and thighs, boneless wings and tenders, always cooked to order and hand-sauced-and-tossed in 11 bold, distinctive flavors.

We are dedicated to serving the world flavor through an unparalleled guest experience and offering of classic wings, boneless wings and tenders, always cooked to order and hand-sauced-and-tossed in 11 bold, distinctive flavors.

The Company is primarily a franchisor, with approximately 98% of Wingstop’s restaurants currently owned and operated by independent franchisees.

We believe our asset-light, highly-franchised business model generates strong operating margins and requires low capital expenditures, creating stockholder value through strong and consistent free cash flow and capital-efficient growth.

The COVID-19 pandemic has continued to have varying degrees of disruption on our business.

Throughout the pandemic, substantially all of our domestic restaurants operated in an off-premise capacity, leveraging our carryout and delivery capabilities.

In March of 2022, we began reopening our dining rooms to dine-in guests.

Our carryout and delivery capabilities positioned us to achieve domestic same store sales growth of 21.9% in the two-year period ended March 26, 2022.

However, our business has been challenged by COVID-19-related labor availability and wage inflation, and while we have not had significant disruptions in our supply chain, we have experienced higher product costs and inflationary pressures, which have been mitigated to some extent by recent deflation in bone-in chicken costs.

While we do not know the future impact COVID-19 and inflationary pressures will have on our business, we expect labor and supply chain challenges to continue in fiscal year 2022.

Although our business has been challenged by COVID-19-related and other inflationary pressures, we were well positioned for the shift in consumer behavior, which allowed us to achieve domestic same store sales growth of 30.7% in the three-year period ended June 25, 2022.

While we have experienced higher product costs in certain categories, these have been mitigated by recent deflation in bone-in chicken costs.

Uncertainties related to COVID-19 and inflation, including fluctuations in costs, wage increases and inflationary pressures on the consumer, make it difficult to predict what impact, if any, these items will have on our business in the future.

Key Performance Indicators

2 unchanged sentences

Management reviews the number of new restaurants, the number of closed restaurants, and the number of acquisitions and divestitures of restaurants to assess net new restaurant growth.

Thirteen Weeks Ended

2022 March 27,

Thirteen Weeks Ended Twenty-Six Weeks Ended

2022 June 26,

2021 June 25,

2022 June 26,

Domestic Franchised Activity:

5 unchanged sentences

Beginning of period 37 33 36 32

Openings 2 1 3 2

Closures — — — —

Restaurants end of period 39 34 39 34

2 unchanged sentences

Beginning of period 203 175 197 179

Openings 16 4 23 6

Closures — (4) (1) (10)

20 unchanged sentences

We define EBITDA as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization.

We define Adjusted EBITDA as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization, with further adjustments for losses on debt extinguishment and

refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and stock-based compensation expense.

We define Adjusted EBITDA as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization, with further adjustments for losses on debt extinguishment and refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and

losses on the disposal of assets, and stock-based compensation expense.

Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in methods of calculation.

4 unchanged sentences

For a reconciliation of net income to Adjusted net income and for further discussion of Adjusted net income and Adjusted earnings per diluted share as non-GAAP measures and how we utilize them, see footnote 3 below.

The following table sets forth our key performance indicators for the thirteen weeks ended March 26, 2022 and March 27, 2021 (in thousands, except unit data):

Thirteen Weeks Ended

March 26, 2022 March 27, 2021

The following table sets forth our key performance indicators for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021 (in thousands, except unit data):

Thirteen Weeks Ended Twenty-Six Weeks Ended

June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021

Number of system-wide restaurants open at end of period 1,858 1,624 1,858 1,624

10 unchanged sentences

$ 13,590 $ 11,312 $ 23,743 $ 24,472

(1) The percentage of system-wide sales attributable to company-owned restaurants was 3.0% and 3.1% for the thirteen weeks ended March 26, 2022 and March 27, 2021, respectively.

(1) The percentage of system-wide sales attributable to company-owned restaurants was 3.0% and 2.8% for the thirteen weeks ended June 25, 2022 and June 26, 2021, respectively, and was 3.0% and 2.9% for the twenty-six weeks ended June 25, 2022 and June 26, 2021, respectively.

The remainder was generated by franchised restaurants, as reported by our franchisees.

24 unchanged sentences

As noted in the table below, Adjusted EBITDA includes adjustments for losses on debt extinguishment and refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and stock-based compensation expense.

It is reasonable to expect that this item will occur in future periods.

It is reasonable to expect that these items will occur in future periods.

However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our restaurants, and complicate comparisons of our internal operating results and operating results of other restaurant companies over time.

Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation table below help management measure our core operating performance over time by removing items that are not related to day-to-day operations.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the thirteen weeks ended March 26, 2022 and March 27, 2021 (in thousands):

Thirteen Weeks Ended

2022 March 27,

The following table reconciles net income to EBITDA and Adjusted EBITDA for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021 (in thousands):

Thirteen Weeks Ended Twenty-Six Weeks Ended

2022 June 26,

2021 June 25,

2022 June 26,

Net income $ 13,307 $ 11,312 $ 21,983 $ 24,472

8 unchanged sentences

Stock-based compensation expense (d)

(1,601) 2,456 590 4,772

Adjusted EBITDA $ 23,667 $ 22,882 $ 45,756 $ 46,796

(a) Represents costs and expenses related to our 2022 securitized financing facility and payment of a special dividend, as well as the extinguishment of our 2020 variable funding note facility;

all transaction costs are included in Loss on debt extinguishment during the thirteen weeks ended March 26, 2022, with the exception of $310,000 that is included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

all transaction costs are included in Loss on debt extinguishment during the twenty-six weeks ended June 25, 2022, with the exception of $310,000 that is included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(b) Represents a loss resulting from the sale of assets to a franchisee pursuant to a multi-unit development agreement executed in the prior fiscal year.

1 unchanged sentence

(c) Represents costs and expenses related to a consulting project to support the Company's strategic initiatives, which are included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(d) Includes non-cash, stock-based compensation.

(d) Includes non-cash, stock-based compensation, net of forfeitures.

(3) Adjusted net income and adjusted earnings per diluted share are supplemental measures of operating performance that do not represent and should not be considered alternatives to net income and earnings per share, as determined by GAAP.

1 unchanged sentence

Management believes adjusted net income and adjusted earnings per diluted share supplement GAAP measures and enable management to more effectively evaluate the Company’s performance period-over-period and relative to competitors.

The following table reconciles net income to Adjusted net income and calculates adjusted earnings per diluted share for the thirteen weeks ended March 26, 2022 and March 27, 2021 (in thousands):

Thirteen Weeks Ended

2022 March 27,

The following table reconciles net income to Adjusted net income and calculates adjusted earnings per diluted share for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021 (in thousands):

Thirteen Weeks Ended Twenty-Six Weeks Ended

2022 June 26,

2021 June 25,

2022 June 26,

Net income $ 13,307 $ 11,312 $ 21,983 $ 24,472

3 unchanged sentences

Tax effect of adjustments (d)

(90) — (556) —

Adjusted net income $ 13,590 $ 11,312 $ 23,743 $ 24,472

2 unchanged sentences

(a) Represents costs and expenses related to our 2022 securitized financing facility and payment of a special dividend, as well as the extinguishment of our 2020 variable funding note facility;

(b) Represents a loss resulting from the sale of assets to a franchisee pursuant to a multi-unit development agreement executed in the prior fiscal year.

1 unchanged sentence

(d) Represents the tax effect of the aforementioned adjustments to reflect corporate income taxes at an assumed effective tax rate of 24% for the thirteen weeks ended March 26, 2022, which includes provisions for U.S.

(d) Represents the tax effect of the aforementioned adjustments to reflect corporate income taxes at an assumed effective tax rate of 24% for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021, which includes provisions for U.S.

federal income taxes, and assumes the respective statutory rates for applicable state and local jurisdictions.

Results of Operations

Thirteen Weeks Ended March 26, 2022 compared to Thirteen Weeks Ended March 27, 2021

The following table sets forth our results of operations for the thirteen weeks ended March 26, 2022 and March 27, 2021 (dollars in thousands):

Thirteen Weeks Ended June 25, 2022 compared to Thirteen Weeks Ended June 26, 2021

The following table sets forth our results of operations for the thirteen weeks ended June 25, 2022 and June 26, 2021 (dollars in thousands):

Thirteen Weeks Ended Increase / (Decrease)

2022 March 27,

2022 June 26,

Royalty revenue, franchise fees and other $ 36,044 $ 33,135 $ 2,909 8.8 %

12 unchanged sentences

Interest expense, net 5,986 3,724 2,262 60.7 %

Loss on debt extinguishment 814 — 814 100.0 %

Other expense 26 — 26 100.0 %

4 unchanged sentences

Total revenue.

During the thirteen weeks ended March 26, 2022, total revenue was $76.2 million, an increase of $5.5 million, or 7.8%, compared to $70.7 million in the comparable period in 2021.

Royalty revenue, franchise fees and other increased $3.5 million primarily due to 208 net franchise restaurant openings since March 27, 2021, as well as domestic same store sales growth of 1.2%.

Advertising fees increased $1.0 million due to the 12.7% increase in system-wide sales in the thirteen weeks ended March 26, 2022 compared to the thirteen weeks ended March 27, 2021.

Company-owned restaurant sales increased $1.0 million due to an increase of $0.7 million related to the addition of four net new company-owned restaurants since the prior year comparable period, and $0.3 million, or 2.1%, company-owned same store sales growth, which was driven by an increase in menu prices, partially offset by a decline in transactions.

During the thirteen weeks ended June 25, 2022, total revenue was $83.8 million, an increase of $9.8 million, or 13.2%, compared to $74.0 million in the comparable period in 2021.

Royalty revenue, franchise fees and other increased $2.9 million primarily due to 229 net franchise restaurant openings since June 26, 2021, partially offset by a decline in domestic same store sales of 3.3%.

Advertising fees increased $6.4 million due to an increase in the national advertising fund contribution rate to 5% from 4% effective the first day of the fiscal second quarter 2022, as well as the 7.5% increase in system-wide sales in the thirteen weeks ended June 25, 2022 compared to the thirteen weeks ended June 26, 2021.

Company-owned restaurant sales increased $0.5 million due to an increase of $1.2 million related to the addition of six net new company-owned restaurants compared to the prior year comparable period, partially offset by a 4.9% decline in company-owned same store sales, which was driven by a decline in transactions.

Cost of sales.

During the thirteen weeks ended March 26, 2022, cost of sales was $15.7 million, an increase of $2.4 million, or 18.0%, compared to $13.3 million in the comparable period in 2021.

Cost of sales as a percentage of company-owned restaurant sales was 84.3% in the thirteen weeks ended March 26, 2022, compared to 75.6% in the comparable period in 2021.

During the thirteen weeks ended June 25, 2022, cost of sales was $14.9 million, an increase of $0.7 million, or 4.9%, compared to $14.2 million in the comparable period in 2021.

Cost of sales as a percentage of company-owned restaurant sales was 79.5% in the thirteen weeks ended June 25, 2022, compared to 77.7% in the comparable period in 2021.

The table below presents the major components of cost of sales (dollars in thousands):

Thirteen Weeks Ended

March 26, 2022 March 27, 2021

June 25, 2022 June 26, 2021

In dollars As a % of company-owned restaurant sales In dollars As a % of company-owned restaurant sales

7 unchanged sentences

Total cost of sales 14,899 79.5 % 14,207 77.7 %

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 42.8% in the thirteen weeks ended March 26, 2022, compared to 41.6% in the comparable period in 2021.

The increase was primarily due to a 14.2% increase in the cost of bone-in chicken wings as compared to the prior year period.

Labor costs as a percentage of company-owned restaurant sales were 25.8% for the thirteen weeks ended March 26, 2022, compared to 21.2% in the comparable period in 2021.

The increase as a percentage of company-owned restaurant sales was primarily due to increases in company-owned restaurant wages and hiring and training costs as a result of the ongoing COVID-19 pandemic and a competitive labor market during the thirteen weeks ended March 26, 2022.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 15.4% for the thirteen weeks ended March 26, 2022, compared to 15.0% in the comparable period in 2021.

The increase as a percentage of company-owned restaurant sales was primarily a result of increases in rent and other costs related to company-owned restaurants in Manhattan, New York, which increases were partially offset by a decrease in advertising fees during the thirteen weeks ended March 26, 2022.

Pre-opening expenses as a percentage of company-owned restaurant sales were 2.4% for the thirteen weeks ended March 26, 2022 due to our investment in opening company-owned restaurants in Manhattan, New York.

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 39.3% in the thirteen weeks ended June 25, 2022, compared to 43.9% in the comparable period in 2021.

The decrease was primarily due to an 18.8% decrease in the cost of bone-in chicken wings as compared to the prior year period.

This decrease was partially offset by inflation in other food costs during the thirteen weeks ended June 25, 2022.

Labor costs as a percentage of company-owned restaurant sales were 23.1% for the thirteen weeks ended June 25, 2022, compared to 20.6% in the comparable period in 2021.

The increase as a percentage of company-owned restaurant sales was primarily due to higher wage rates in the company-owned restaurants recently opened in New York City, as well as increases in company-owned restaurant wages, hiring and training costs as a result of the ongoing competitive labor market during the thirteen weeks ended June 25, 2022.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 18.2% for the thirteen weeks ended June 25, 2022, compared to 15.4% in the comparable period in 2021.

The increase as a percentage of company-owned restaurant sales was primarily a result of higher rent and occupancy costs associated with company-owned restaurants recently opened in New York City during the thirteen weeks ended June 25, 2022.

Pre-opening expenses as a percentage of company-owned restaurant sales were 1.0% for the thirteen weeks ended June 25, 2022 due to our development of the New York City market.

Advertising expenses.

During the thirteen weeks ended March 26, 2022, advertising expenses were $23.2 million, an increase of $1.1 million compared to $22.0 million in the comparable period in 2021.

During the thirteen weeks ended June 25, 2022, advertising expenses were $29.7 million, an increase of $6.4 million compared to $23.3 million in the comparable period in 2021.

Advertising expenses are recognized at the same time the related revenue is recognized, which does not necessarily correlate to the actual timing of the related advertising spend.

Selling, general and administrative (SG&A).

During the thirteen weeks ended March 26, 2022, SG&A expense was $18.1 million, an increase of $4.3 million compared to $13.8 million in the comparable period in 2021.

The increase SG&A expense was primarily due to an increase of $2.0 million in headcount related expenses to support the growth in our business, an increase of $1.1 million in professional fees to support the Company’s strategic initiatives, an increase of $0.7 million in travel expense as compared to the prior year period which was limited due to COVID-19, and approximately $0.3 million in one-time expenses related to our new securitized financing facility and payment of the special dividend.

During the thirteen weeks ended June 25, 2022, SG&A expense was $13.9 million, a decrease of $2.1 million compared to $16.1 million in the comparable period in 2021.

The decrease of SG&A expense was primarily due to a decrease of $4.1 million in stock based compensation expense related to stock awards forfeited during the thirteen weeks ended June 25, 2022.

This was partially offset by an increase of $0.9 million in professional fees to support the Company’s strategic initiatives and an increase of $0.5 million in travel expense as compared to the prior year period.

Depreciation and amortization.

During the thirteen weeks ended March 26, 2022, depreciation expense was $2.2 million, an increase of $0.4 million compared to $1.8 million in the comparable period in 2021.

During the thirteen weeks ended June 25, 2022, depreciation expense was $2.5 million, an increase of $1.0 million compared to $1.5 million in the comparable period in 2021.

The increase in depreciation and amortization was primarily due to capital expenditures related to our corporate headquarters building and investments in technology.

Loss on disposal of assets.

During the thirteen weeks ended March 26, 2022, loss on disposal of assets was $0.4 million related to the sale of restaurant assets to a franchisee.

During the thirteen weeks ended June 25, 2022, loss on disposal of assets was $0.3 million related to the sale of restaurant assets to a franchisee.

Interest expense, net.

During the thirteen weeks ended March 26, 2022, interest expense, net was $4.2 million, an increase of $0.4 million compared to $3.8 million of interest expense, net in the comparable period in 2021.

During the thirteen weeks ended June 25, 2022, interest expense, net was $6.0 million, an increase of $2.3 million compared to $3.7 million of interest expense, net in the comparable period in 2021.

The increase was due to the securitized financing transaction completed on March 9, 2022, which increased our outstanding debt by $250 million.

Income tax expense.

During the thirteen weeks ended June 25, 2022, we recognized income tax expense of $3.1 million yielding an effective tax rate of 18.7%, compared to an effective tax rate of 25.5% in the prior year period.

The decrease in the effective tax rate was primarily due to the impact of stock awards forfeited during the thirteen weeks ended June 25, 2022.

Twenty-Six Weeks Ended June 25, 2022 compared to Twenty-Six Weeks Ended June 26, 2021

The following table sets forth our results of operations for the twenty-six weeks ended June 25, 2022 and June 26, 2021 (dollars in thousands):

Twenty-Six Weeks Ended Increase / (Decrease)

2022 June 26,

Royalty revenue, franchise fees and other $ 71,114 $ 64,741 $ 6,373 9.8 %

Advertising fees 51,526 44,097 7,429 16.8 %

Company-owned restaurant sales 37,342 35,852 1,490 4.2 %

Total revenue 159,982 144,690 15,292 10.6 %

Costs and expenses:

Cost of sales (1)

30,573 27,486 3,087 11.2 %

Advertising expenses 52,852 45,328 7,524 16.6 %

Selling, general and administrative 32,035 29,852 2,183 7.3 %

Depreciation and amortization 4,774 3,318 1,456 43.9 %

Loss on disposal of assets 767 — 767 100.0 %

Total costs and expenses 121,001 105,984 15,017 14.2 %

Operating income 38,981 38,706 275 0.7 %

Interest expense, net 10,178 7,506 2,672 35.6 %

Loss on debt extinguishment 814 — 814 100.0 %

Loss on debt extinguishment was $0.8 million during the thirteen weeks ended March 26, 2022 due to costs and fees associated with the extinguishment of our 2020 Variable Funding Note facility on March 9, 2022.

Other expense 91 — 91 100.0 %

Income before income tax expense 27,898 31,200 (3,302) (10.6) %

Income tax expense 5,915 6,728 (813) (12.1) %

During the thirteen weeks ended March 26, 2022, we recognized income tax expense of $2.9 million yielding an effective tax rate of 24.8%, compared to an effective tax rate of 17.9% in the prior year period.

The increase in the effective tax rate was primarily due to the impact of excess tax benefits associated with stock awards vested in the prior year comparable period.

Net income $ 21,983 $ 24,472 $ (2,489) (10.2) %

(1) Cost of sales includes all operating expenses of company-owned restaurants, including advertising expenses, and excludes depreciation and amortization, which are presented separately.

Total revenue.

During the twenty-six weeks ended June 25, 2022, total revenue was $160.0 million, an increase of $15.3 million, or 10.6%, compared to $144.7 million in the comparable period in 2021.

Royalty revenue, franchise fees and other increased $6.4 million primarily due to 229 net franchise restaurant openings since June 26, 2021, partially offset by a decline in domestic same store sales of 1.1%.

Advertising fees increased $7.4 million due to an increase in the national advertising fund contribution rate to 5% from 4% effective the first day of the fiscal second quarter 2022, as well as the 10.0% increase in system-wide sales in the twenty-six weeks ended June 25, 2022 compared to the twenty-six weeks ended June 26, 2021.

Company-owned restaurant sales increased $1.5 million primarily due to an increase of $1.9 million related to the addition of six net new company-owned restaurants compared to the prior year comparable period.

This increase was partially offset by a decline of 1.5% in company-owned same store sales driven by a decrease in transactions.

Cost of sales.

During the twenty-six weeks ended June 25, 2022, cost of sales was $30.6 million, an increase of $3.1 million, or 11.2%, compared to $27.5 million in the comparable period in 2021.

Cost of sales as a percentage of company-owned restaurant sales was 81.9% in the twenty-six weeks ended June 25, 2022, compared to 76.7% in the comparable period in 2021.

The table below presents the major components of cost of sales (dollars in thousands):

Twenty-Six Weeks Ended

June 25, 2022 June 26, 2021

In dollars As a % of company-owned restaurant sales In dollars As a % of company-owned restaurant sales

Cost of sales:

Food, beverage and packaging costs $ 15,343 41.1 % $ 15,327 42.8 %

Labor costs 9,136 24.5 % 7,502 20.9 %

Other restaurant operating expenses 6,280 16.8 % 5,437 15.2 %

Vendor rebates (819) (2.2) % (791) (2.2) %

Cost of sales (excluding pre-opening expenses) 29,940 80.2 % 27,475 76.6 %

Pre-opening expenses 633 1.7 % 11 — %

Total cost of sales $ 30,573 81.9 % $ 27,486 76.7 %

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 41.1% in the twenty-six weeks ended June 25, 2022, compared to 42.8% in the comparable period in 2021.

The decrease was primarily due to the benefit of menu price increases coupled with a 3.2% decrease in the cost of bone-in chicken wings as compared to the prior year period.

These decreases were partially offset by the inflation in other food costs during the twenty-six weeks ended June 25, 2022.

Labor costs as a percentage of company-owned restaurant sales were 24.5% for the twenty-six weeks ended June 25, 2022, compared to 20.9% in the comparable period in 2021.

The increase as a percentage of company-owned restaurant sales was primarily due to higher wage rates in the restaurants recently opened in New York City, as well as increases in company-owned restaurant wages, hiring and training costs as a result of the ongoing competitive labor market during the twenty-six weeks ended June 25, 2022.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 16.8% for the twenty-six weeks ended June 25, 2022, compared to 15.2% in the comparable period in 2021.

The increase as a percentage of company-owned restaurant sales was primarily a result of higher rent and occupancy costs associated with the opening of company-owned restaurants in New York City for the twenty-six weeks ended June 25, 2022.

Pre-opening expenses as a percentage of company-owned restaurant sales were 1.7% for the twenty-six weeks ended June 25, 2022 due to our development of the New York City market.

Advertising expenses.

During the twenty-six weeks ended June 25, 2022, advertising expenses were $52.9 million, an increase of $7.5 million compared to $45.3 million in the comparable period in 2021.

Advertising expenses are recognized at the same time the related revenue is recognized, which does not necessarily correlate to the actual timing of the related advertising spend.

Selling, general and administrative (SG&A).

During the twenty-six weeks ended June 25, 2022, SG&A expense was $32.0 million, an increase of $2.2 million compared to $29.9 million in the comparable period in 2021.

The increase in SG&A expense was primarily due to an increase of $2.5 million in headcount related expenses to support the growth in our business, an increase of $2.2 million in professional fees to support the Company’s strategic initiatives, and an increase of $1.1 million in travel expense as compared to the prior year period.

These increases were partially offset by a decrease of $4.2 million in stock-based compensation expense related to stock awards forfeited during the twenty-six weeks ended June 25, 2022.

Depreciation and amortization.

During the twenty-six weeks ended June 25, 2022, depreciation expense was $4.8 million, an increase of $1.5 million compared to $3.3 million in the comparable period in 2021.

The increase in depreciation and amortization was primarily due to capital expenditures related to our corporate headquarters building and investments in technology.

Loss on disposal of assets.

During the twenty-six weeks ended June 25, 2022, loss on disposal of assets was $0.8 million related to the sale of restaurant assets to a franchisee.

Interest expense, net.

During the twenty-six weeks ended June 25, 2022, interest expense, net was $10.2 million, an increase of $2.7 million compared to $7.5 million of interest expense, net in the comparable period in 2021.

The increase was due to the securitized financing transaction completed on March 9, 2022, which increased our outstanding debt by $250 million.

Loss on debt extinguishment.

Loss on debt extinguishment was $0.8 million during the twenty-six weeks ended June 25, 2022 due to costs and fees associated with the extinguishment of our 2020 Variable Funding Note facility on March 9, 2022.

Income tax expense.

During the twenty-six weeks ended June 25, 2022, we recognized income tax expense of $5.9 million yielding an effective tax rate of 21.2%, compared to an effective tax rate of 21.6% in the prior year period.

The decrease in the effective tax rate was primarily due to the impact of stock awards forfeited during the twenty-six weeks ended June 25, 2022, partially offset by the impact of excess tax benefits associated with stock options exercised in the prior year comparable period.

Liquidity and Capital Resources

2 unchanged sentences

Historically, we have operated with minimal positive working capital or with negative working capital.

We generally reinvest available cash flows from operations to invest in our business, service our debt obligations, and pay dividends.

Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available borrowings under our 2022 Variable Funding Notes.

As of March 26, 2022, the Company had $309.5 million of cash and restricted cash on its balance sheet.

We generally utilize available cash flows from operations to invest in our business, service our debt obligations, and pay dividends.

Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available borrowings under our 2022 Variable Funding Notes (as defined below).

As of June 25, 2022, the Company had $191.6 million of cash and restricted cash on its balance sheet.

Based upon current levels of operations and anticipated growth, we expect that cash flows from operations, combined with our securitized financing facility including our 2022 Variable Funding Notes, will be sufficient to meet our capital expenditure, working capital and debt service requirements for at least the next twelve months and the foreseeable future.

The following table shows summary cash flows information for the thirteen weeks ended March 26, 2022 and March 27, 2021 (in thousands):

Thirteen Weeks Ended

2022 March 27,

The following table shows summary cash flows information for the twenty-six weeks ended June 25, 2022 and June 26, 2021 (in thousands):

Twenty-Six Weeks Ended

2022 June 26,

Net cash provided by (used in):

7 unchanged sentences

Restaurant-level operating costs at our company-owned restaurants, unearned franchise and development fees, and corporate overhead costs also impact our cash flow from operating activities.

Net cash provided by operating activities was $20.4 million in the thirteen weeks ended March 26, 2022, an increase of $6.6 million from cash provided by operating activities of $13.8 million in the thirteen weeks ended March 27, 2021.

The increase is primarily due to changes in advertising fund cash and cash equivalents, directly related to the timing of payments for expenses incurred for national advertising.

Also contributing to the increase is the change in timing of working capital, which is partially offset by the decrease in operating income.

Net cash provided by operating activities was $29.5 million in the twenty-six weeks ended June 25, 2022, a decrease of $2.1 million from cash provided by operating activities of $31.6 million in the twenty-six weeks ended June 26, 2021.

The decrease is primarily due to the decrease in net income, including non-cash adjustments, totaling $5.9 million, partially offset by the change in timing of working capital.

Investing activities .

Our net cash used in investing activities was $4.8 million in the thirteen weeks ended March 26, 2022, an increase of $2.0 million from cash used in investing activities of $2.8 million in the thirteen weeks ended March 27, 2021.

The increase in cash used in investing activities was primarily due to an increase in capital expenditures related to our investments in technology.

Our net cash used in investing activities was $9.1 million in the twenty-six weeks ended June 25, 2022, a decrease of $3.4 million from cash used in investing activities of $12.4 million in the twenty-six weeks ended June 26, 2021.

The decrease in cash used in investing activities was primarily due to a payment of $4.2 million related to a foreign investment in our United Kingdom franchisee made during the twenty-six weeks ended June 26, 2021, as well as the sale of restaurant assets to a franchisee during the twenty-six weeks ended June 25, 2022.

This was partially offset by an increase in capital expenditures related to our investments in technology as compared to the prior year period.

Financing activities .

Our net cash provided by financing activities was $239.1 million in the thirteen weeks ended March 26, 2022, a change of $245.5 million from cash used in financing activities of $6.4 million in the thirteen weeks ended March 27, 2021.

The change was primarily due to additional borrowings under our 2022 Class A-2 Notes (as defined below) of $250 million, partially offset by deferred financing and other debt related costs incurred of $5.4 million during the thirteen weeks ended March 27, 2021.

Our net cash provided by financing activities was $116.3 million in the twenty-six weeks ended June 25, 2022, a change of $128.1 million from cash used in financing activities of $11.8 million in the twenty-six weeks ended June 26, 2021.

The change was due to additional borrowings under our 2022 Class A-2 Notes (as defined below) of $250 million, partially offset by the payment of a special dividend in connection with the securitized financing transaction totaling $119.5 million, as well as deferred financing and other debt related costs incurred of $5.4 million during the twenty-six weeks ended June 25, 2022

Securitized financing facility .

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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”).

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

We paid a quarterly cash dividend of $0.17 per share of common stock, aggregating $5.1 million, in the first quarter of 2022.

On May 3, 2022, the Company’s Board of Directors approved a dividend of $0.17 per share, to be paid on June 10, 2022 to stockholders of record as of May 20, 2022, totaling approximately $5.1 million.

No borrowings were outstanding under the 2022 Variable Funding Notes as of June 25, 2022.

We paid a quarterly cash dividend of $0.17 per share of common stock in each of the first two quarters of 2022, resulting in aggregate dividend payments of $10.2 million during the twenty-six weeks ended June 25, 2022.

On July 27, 2022, the Company’s Board of Directors approved a dividend of $0.19 per share, to be paid on September 2, 2022 to stockholders of record as of August 12, 2022, totaling approximately $5.7 million.

We do not currently expect the restrictions in our debt instruments to impact our ability to make regular quarterly dividends pursuant to our quarterly dividend program.

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These statements, which involve risks and uncertainties, relate to the discussion of our business strategies and our expectations concerning future operations, margins, profitability, trends, liquidity and capital resources and to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable.

These forward-looking statements can generally by identified by the use of forward-looking terminology, including the terms “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “think,” “estimate,” “seek,” “predict,” “could,” “project,” “potential” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms.

These forward-looking statements can generally by identified by the use of forward-looking terminology, including the terms “may,” “will,” “should,” “expect,” “intend,” “plan,” “outlook,” “anticipate,” “believe,” “think,” “estimate,” “seek,” “predict,” “could,” “project,” “potential” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms.

These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties, risks, and factors relating to our operations and business environments, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by these forward-looking statements.

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New risks and uncertainties arise from time to time, and we cannot predict when they may arise or how they may affect us.

Except as required by law, we assume no obligation to update or revise any forward-looking statements for any reason, or to update the reasons

actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Except as required by law, we assume no obligation to update or revise any forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis