Wingstop Inc. 10-Q

Item 1. Financial Statements WINGSTOP INC. AND SUBSIDIARIES Consolidated Balance Sheets (amounts in thousands, except share and par value amounts) September 30, 2023 December 31, 2022 (Unaudited) Assets Current assets Cash and cash equivalents $ 77,983 $ 184,496 Restricted cash 11,444 13,296 Accounts receivable, net 11,951 9,461 Prepaid expenses and other current assets 5,907 4,252 Advertising fund assets, restricted 25,558 15,167 Total current assets 132,843 226,672 Property and equipment, net 84,344 66,851 Goodwill 65,175 62,514 Trademarks 32,700 32,700 Customer relationships, net 8,059 9,015 Other non-current assets 28,555 26,438 Total assets $ 351,676 $ 424,190 Liabilities and stockholders' deficit Current liabilities Accounts payable $ 5,104 $ 5,219 Other current liabilities 36,670 34,726 Current portion of debt — 7,300 Advertising fund liabilities 25,558 15,167 Total current liabilities 67,332 62,412 Long-term debt, net 711,867 706,846 Deferred revenues, net of current 28,769 27,052 Deferred income tax liabilities, net 2,980 4,180 Other non-current liabilities 16,170 14,561 Total liabilities 827,118 815,051 Commitments and contingencies (see Note 7) Stockholders' deficit Common stock, $ 0.01 par value; 100,000,000 shares authorized; 29,414,920 and 29,932,668 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively 294 300 Additional paid-in-capital 1,238 2,797 Retained deficit ( 476,413 ) ( 393,321 ) Accumulated other comprehensive loss ( 561 ) ( 637 ) Total stockholders' deficit ( 475,442 ) ( 390,861 ) Total liabilities and stockholders' deficit $ 351,676 $ 424,190 See accompanying notes to consolidated financial statements. 4 WINGSTOP INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (amounts in thousands, except per share data) (Unaudited) Thirteen Weeks Ended Thirty-Nine Weeks Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Revenue: Royalty revenue, franchise fees and other $ 53,200 $ 40,363 $ 149,372 $ 111,477 Advertising fees 39,951 32,146 114,010 83,672 Company-owned restaurant sales 23,953 20,163 69,616 57,505 Total revenue 117,104 92,672 332,998 252,654 Costs and expenses: Cost of sales (1) 17,622 15,724 50,959 46,297 Advertising expenses 42,381 33,106 120,753 85,958 Selling, general and administrative 23,047 16,686 68,820 48,721 Depreciation and amortization 3,384 2,836 9,591 7,610 Loss on disposal of assets 18 239 95 1,006 Total costs and expenses 86,452 68,591 250,218 189,592 Operating income 30,652 24,081 82,780 63,062 Interest expense, net 4,520 5,742 13,337 15,920 Loss on debt extinguishment — — — 814 Other (income) expense ( 19 ) 290 123 381 Income before income tax expense 26,151 18,049 69,320 45,947 Income tax expense 6,640 4,681 17,959 10,596 Net income $ 19,511 $ 13,368 $ 51,361 $ 35,351 Earnings per share Basic $ 0.66 $ 0.45 $ 1.72 $ 1.18 Diluted $ 0.65 $ 0.45 $ 1.71 $ 1.18 Weighted average shares outstanding Basic 29,750 29,915 29,889 29,882 Diluted 29,818 29,967 29,969 29,951 Dividends per share $ 0.22 $ 0.19 $ 0.60 $ 4.53 Other comprehensive income (loss) Currency translation adjustment $ ( 199 ) $ ( 391 ) $ 76 $ ( 728 ) Other comprehensive income (loss) ( 199 ) ( 391 ) 76 ( 728 ) Comprehensive income $ 19,312 $ 12,977 $ 51,437 $ 34,623 (1) Cost of sales includes all operating expenses of company-owned restaurants, including advertising expenses, and excludes depreciation and amortization, which are presented separately. See accompanying notes to consolidated financial statements. 5 WINGSTOP INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Deficit For the Thirty-Nine Weeks Ended September 24, 2022 (amounts in thousands, except share data) (Unaudited) Common Stock Shares Amount Additional Paid-In Capital Retained Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Deficit Balance at December 25, 2021 29,837,454 $ 299 $ 463 $ ( 310,031 ) $ ( 256 ) $ ( 309,525 ) Net income — — — 8,676 — 8,676 Shares issued under stock plans 41,289 — 125 — — 125 Tax payments for restricted stock upon vesting ( 1,923 ) — — ( 298 ) — ( 298 ) Stock-based compensation expense, net of forfeitures — — 2,191 — — 2,191 Dividends declared on common stock and equivalents — — ( 2,370 ) ( 122,960 ) — ( 125,330 ) Currency translation adjustment — — — — ( 66 ) ( 66 ) Balance at March 26, 2022 29,876,820 299 409 ( 424,613 ) ( 322 ) ( 424,227 ) Net income — — — 13,307 — 13,307 Shares issued under stock plans 37,594 — 1,838 — — 1,838 Tax payments for restricted stock upon vesting ( 46 ) — — ( 4 ) — ( 4 ) Stock-based compensation expense, net of forfeitures — — ( 1,601 ) — — ( 1,601 ) Dividends declared on common stock and equivalents — — — ( 4,512 ) — ( 4,512 ) Currency translation adjustment — — — — ( 271 ) ( 271 ) Balance at June 25, 2022 29,914,368 299 646 ( 415,822 ) ( 593 ) ( 415,470 ) Net income — — — 13,368 — 13,368 Shares issued under stock plans 1,815 — — — — — Stock-based compensation expense, net of forfeitures — — 1,528 — — 1,528 Dividends declared on common stock and equivalents — — ( 1,183 ) ( 4,448 ) — ( 5,631 ) Currency translation adjustment — $ — $ — $ — $ ( 391 ) $ ( 391 ) Balance at September 24, 2022 29,916,183 $ 299 $ 991 $ ( 406,902 ) $ ( 984 ) $ ( 406,596 ) See accompanying notes to consolidated financial statements. 6 WINGSTOP INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Deficit For the Thirty-Nine Weeks Ended September 30, 2023 (amounts in thousands, except share data) (Unaudited) Common Stock Shares Amount Additional Paid-In Capital Retained Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Deficit Balance at December 31, 2022 29,932,668 $ 300 $ 2,797 $ ( 393,321 ) $ ( 637 ) $ ( 390,861 ) Net income — — — 15,669 — 15,669 Shares issued under stock plans 49,817 — 111 — — 111 Tax payments for restricted stock upon vesting ( 13,613 ) — — ( 2,292 ) — ( 2,292 ) Stock-based compensation expense, net of forfeitures — — 3,345 — — 3,345 Dividends declared on common stock and equivalents — — ( 5,444 ) ( 465 ) — ( 5,909 ) Currency translation adjustment — — — — 147 147 Balance at April 1, 2023 29,968,872 300 809 ( 380,409 ) ( 490 ) ( 379,790 ) Net income — — — 16,181 — 16,181 Shares issued under stock plans 9,084 — 362 — — 362 Tax payments for restricted stock upon vesting ( 342 ) — — ( 69 ) — ( 69 ) Stock-based compensation expense, net of forfeitures — — 3,546 — — 3,546 Dividends declared on common stock and equivalents — — ( 2,679 ) ( 3,030 ) — ( 5,709 ) Currency translation adjustment — — — — 128 128 Balance at July 1, 2023 29,977,614 300 2,038 ( 367,327 ) ( 362 ) ( 365,351 ) Net income — — — 19,511 — 19,511 Shares issued under stock plans 4,857 — 270 — — 270 Tax payments for restricted stock upon vesting ( 400 ) — — ( 66 ) — ( 66 ) Stock-based compensation expense, net of forfeitures — — 3,128 — — 3,128 Dividends declared on common stock and equivalents — — ( 3,957 ) ( 2,653 ) — ( 6,610 ) Purchases of common stock ( 567,151 ) ( 6 ) ( 241 ) ( 125,878 ) — ( 126,125 ) Currency translation adjustment — — — — ( 199 ) ( 199 ) Balance at September 30, 2023 29,414,920 $ 294 $ 1,238 $ ( 476,413 ) $ ( 561 ) $ ( 475,442 ) See accompanying notes to consolidated financial statements. 7 WINGSTOP INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (amounts in thousands) (Unaudited) Thirty-Nine Weeks Ended September 30, 2023 September 24, 2022 Operating activities Net income $ 51,361 $ 35,351 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 9,591 7,610 Deferred income taxes ( 1,200 ) ( 675 ) Stock-based compensation expense 10,019 2,118 Loss on disposal of assets 95 1,006 Amortization of debt issuance costs 1,530 1,387 Loss on debt extinguishment — 814 Changes in operating assets and liabilities: Accounts receivable ( 2,490 ) ( 1,836 ) Prepaid expenses and other assets ( 20 ) 12 Advertising fund assets and liabilities, net 9,596 11,291 Accounts payable and other current liabilities 2,992 ( 2,794 ) Deferred revenue 2,054 ( 858 ) Other non-current liabilities 219 ( 268 ) Cash provided by operating activities 83,747 53,158 Investing activities Purchases of property and equipment ( 28,295 ) ( 18,961 ) Acquisition of restaurants from franchisee ( 4,396 ) ( 1,738 ) Proceeds from sales of assets — 4,063 Payments for investments ( 808 ) — Cash used in investing activities ( 33,499 ) ( 16,636 ) Financing activities Borrowings of long-term debt — 250,000 Repayments of long-term debt ( 3,650 ) ( 1,200 ) Payment of deferred financing costs and other debt-related costs — ( 5,442 ) Proceeds from exercise of stock options 743 1,963 Purchases of common stock ( 125,250 ) — Tax payments for restricted stock upon vesting ( 2,427 ) ( 302 ) Dividends paid ( 18,433 ) ( 135,587 ) Cash provided by (used in) financing activities ( 149,017 ) 109,432 Net increase (decrease) in cash, cash equivalents, and restricted cash ( 98,769 ) 145,954 Cash, cash equivalents, and restricted cash at beginning of period 205,715 54,906 Cash, cash equivalents, and restricted cash at end of period $ 106,946 $ 200,860 Supplemental information: Accrued capital expenditures $ 4,622 $ 5,880 See accompanying notes to consolidated financial statements. 8 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (1) Basis of Presentation and Update to Significant Accounting Policies Nature of operations. 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 30, 2023, the Company had a total of 2,099 restaurants in its system. The Company’s restaurant base is approximately 98 % franchised, with 2,053 franchised locations (including 262 international locations) and 46 company-owned restaurants as of September 30, 2023. Basis of presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Consequently, financial information and disclosures normally included in financial statements prepared annually in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. Balance sheet amounts are as of September 30, 2023 and December 31, 2022, and operating results are for the thirteen and thirty-nine weeks ended September 30, 2023 and September 24, 2022. In the Company’s opinion, all necessary adjustments have been made for the fair presentation of the results of the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year. 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 31, 2022. Fiscal year. The Company uses a 52- or 53-week fiscal year that ends on the last Saturday of the calendar year. Fiscal years 2023 and 2022 have 52 and 53 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 30, 2023 and December 31, 2022 were as follows (in thousands): September 30, 2023 December 31, 2022 Cash and cash equivalents $ 77,983 $ 184,496 Restricted cash 11,444 13,296 Restricted cash, included in Advertising fund assets, restricted 17,519 7,923 Total cash, cash equivalents, and restricted cash $ 106,946 $ 205,715 Recently issued accounting pronouncements. We reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our consolidated financial statements. (2) Earnings per Share Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities convertible into, or other contracts to issue, common stock were exercised or converted into common stock. 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. 9 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 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 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Basic weighted average shares outstanding 29,750 29,915 29,889 29,882 Dilutive shares 68 52 80 69 Diluted weighted average shares outstanding 29,818 29,967 29,969 29,951 For the thirteen weeks ended September 30, 2023 and September 24, 2022, equity awards representing approximately 9,000 and 21,000 shares, respectively, were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive. For the thirty-nine weeks ended September 30, 2023 and September 24, 2022, equity awards representing approximately 5,000 and 31,000 shares, respectively, were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive. (3) Stockholders’ Deficit Dividends In connection with the Company’s regular dividend program, the Company’s Board of Directors declared a quarterly dividend of $ 0.19 per share of common stock in each of the first two quarters of 2023, and a quarterly dividend of $ 0.22 per share of common stock in the third quarter of 2023, resulting in aggregate dividend payments of $ 18.0 million, or $ 0.60 per share of common stock, during the thirty-nine weeks ended September 30, 2023. Subsequent to the third quarter, on October 31, 2023, the Company’s Board of Directors declared a quarterly dividend of $ 0.22 per share of common stock for stockholders of record as of November 17, 2023. The regular quarterly dividend is to be paid on December 8, 2023, totaling approximately $ 6.5 million. Share Repurchase Program On August 16, 2023, the Company’s Board of Directors approved a new share repurchase program with authorization to purchase up to $ 250.0 million of its outstanding shares of common stock (the “Share Repurchase Authorization”). On August 23, 2023, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) with a third-party financial institution to repurchase $ 125.0 million of the Company’s common stock as part of the Share Repurchase Authorization. Under the ASR Agreement, the Company made an initial payment to the financial institution of $ 125.0 million in cash and received and retired an initial delivery of 567,151 shares of common stock, representing an estimated 75 % of the total shares expected to be delivered under the ASR Agreement, based on the closing price on the date of initial delivery of $ 165.30 . The delivery of any remaining shares will occur at the final settlement of the the transactions under the ASR Agreement, which is scheduled in the fiscal fourth quarter of 2023. The number of shares to be delivered upon final settlement is based on the daily volume-weighted average share prices during the valuation period specified in the ASR Agreement, less a discount and subject to adjustments. As of September 30, 2023, the Company had a total remaining authorized amount for share repurchases under the program of approximately $ 125.0 million. (4) Fair Value Measurements Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. Assets and liabilities are classified using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value as follows: Level 1 — Unadjusted quoted prices for identical instruments traded in active markets. Level 2 — Observable market-based inputs or unobservable inputs corroborated by market data. Level 3 — Unobservable inputs reflecting management’s estimates and assumptions. 10 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 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 and the investment in bonds issued 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): Fair Value Hierarchy September 30, 2023 December 31, 2022 Carrying Value Fair Value Carrying Value Fair Value Securitized Financing Facility: 2020-1 Class A-2 Senior Secured Notes (1) Level 2 $ 472,800 $ 407,275 $ 475,200 $ 406,462 2022-1 Class A-2 Senior Secured Notes (1) Level 2 $ 248,125 $ 215,075 $ 249,375 $ 215,709 Investments in bonds of LPH (2) Level 3 $ 3,362 $ 4,079 $ 3,196 $ 3,906 (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 approximates discounted cash flows 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. (5) Income Taxes Income tax expense and the effective tax rate were $ 6.6 million and 25.4 %, respectively, for the thirteen weeks ended September 30, 2023, and $ 4.7 million and 25.9 %, respectively, for the thirteen weeks ended September 24, 2022. Income tax expense and the effective tax rate were $ 18.0 million and 25.9 %, respectively, for the thirty-nine weeks ended September 30, 2023, and $ 10.6 million and 23.1 %, respectively, for the thirty-nine weeks ended September 24, 2022. The main component of the increase in effective tax rates during the year-to-date period was the impact of stock awards forfeited during the thirty-nine weeks ended September 24, 2022. (6) Debt Obligations Long-term debt consisted of the following components (in thousands): September 30, 2023 December 31, 2022 2020-1 Class A-2 Senior Secured Notes $ 472,800 $ 475,200 2022-1 Class A-2 Senior Secured Notes 248,125 249,375 Debt issuance costs, net of amortization ( 9,058 ) ( 10,429 ) Total debt 711,867 714,146 Less: current portion of debt — ( 7,300 ) Long-term debt, net $ 711,867 $ 706,846 The Company’s outstanding debt was issued by Wingstop Funding LLC, a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of Wingstop Inc. and consists of (i) Series 2020-1 2.84 % Fixed Rate Senior Secured Notes, Class A-2 (the “2020 Class A-2 Notes”), (ii) Series 2022-1 3.734 % Fixed Rate Senior Secured Notes, Class A-2 (the “2022 Class A-2 Notes”), and (iii) 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. No borrowings were outstanding under the 2022 Variable Funding Notes as of September 30, 2023 and December 31, 2022. As of September 30, 2023, the Company’s leverage ratio under the 2020 Class A-2 Notes and the 2022 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 elected to suspend payments following the principal payment made in the second quarter of 2023, and the entire outstanding balance of 11 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) $ 720.9 million of the 2020 Class A-2 Notes and the 2022 Class A-2 Notes has been classified as long-term debt due after fiscal year 2026. The 2020 Class A-2 Notes and 2022 Notes were issued in securitization transactions, and are 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. (7) Commitments and Contingencies The Company is subject to legal proceedings, claims, and liabilities, including claims and actions resulting from employment-related and franchise-related matters, which arise in the ordinary course of business and are generally covered by insurance. 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. (8) Stock-Based Compensation During the thirty-nine weeks ended September 30, 2023, the Company granted 46,879 restricted stock units (“RSUs”) to certain employees. 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 $ 172.27 per unit. In addition, the Company granted 39,886 performance stock units (“PSUs”) to certain employees during the thirty-nine weeks ended September 30, 2023. Of the total PSUs granted, 32,201 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 7,685 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. The PSUs had a weighted-average grant-date fair value of $ 172.96 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, net of forfeitures recognized, was $ 10.0 million and $ 2.1 million for the thirty-nine weeks ended September 30, 2023 and September 24, 2022, 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 30, 2023 and September 24, 2022 (in thousands): Thirteen Weeks Ended Thirty-Nine Weeks Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Royalty revenue $ 47,546 $ 36,778 $ 134,330 $ 102,020 Advertising fees and related income 39,951 32,146 114,010 83,672 Franchise fees 1,660 1,257 3,828 3,221 12 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Franchise fee, development fee, and international territory fee payments received by the Company are recorded as deferred revenue on the Consolidated Balance Sheets, which represents a contract liability. 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 30, 2023 was included in the deferred revenue balance as of December 31, 2022. Approximately $ 8.8 million and $ 7.7 million of deferred revenue as of September 30, 2023 and December 31, 2022, 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 7.1 years. The Company did not have any material contract assets as of September 30, 2023. (10) Acquisitions of Company-owned Restaurants In the second fiscal quarter 2023, the Company acquired two existing restaurants from a franchisee. The combined purchase price was $ 4.4 million and was funded by cash flow from operations. The following table summarizes the 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 $ 13 Property and equipment 92 Reacquired franchise rights 1,630 Goodwill 2,661 Total purchase price $ 4,396 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 restaurants on our consolidated financial statements. (11) Subsequent Events Subsequent to the end of the third fiscal quarter 2023, the Company acquired one existing restaurant in the Dallas, TX market from a franchisee. The total purchase price was $ 6.5 million, funded by cash on hand. The restaurant acquisition is accounted for as a business combination and 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 this location will be included in our Consolidated Statements of Comprehensive Income as of the date of acquisition. 13