What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-01 compared with 2023-11-01 · 89 added, 203 removed, 213 unchanged (58% of the section changed)

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Our fiscal quarters are comprised of 13 weeks, with the exception of the fourth quarter of a 53-week year, which contains 14 weeks.

Fiscal year 2023 contains 52 weeks, while fiscal year 2022 contains 53 weeks.

Fiscal years 2024 and 2023 each contain 52 weeks.

Wingstop is the largest fast casual chicken wings-focused restaurant chain in the world, with over 2,250 locations worldwide.

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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.

Change in Presentation

Beginning in the first quarter of 2023, gains and losses on disposal of assets are no longer presented as an adjustment to EBITDA in our calculation of Adjusted EBITDA.

EBITDA and Adjusted EBITDA are both non-GAAP measures and are defined below.

Prior period gains and losses on disposal of assets have been excluded from EBITDA adjustments to conform to the current presentation.

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

Third Quarter of 2023 Highlights

• System-wide sales increased 26.5% over the prior fiscal third quarter to $885.0 million;

• 53 net new openings in the fiscal third quarter 2023 for a total of 2,099 worldwide locations;

• Domestic same store sales increased 15.3% over the prior fiscal third quarter;

• Company-owned restaurant same store sales increased 6.0% over the prior fiscal third quarter;

• Digital sales increased to 66.9%;

• Domestic restaurant AUVs increased to $1.8 million in the current fiscal third quarter;

• Total revenue increased 26.4% to $117.1 million over the prior fiscal third quarter;

• Net income increased 46.0% to $19.5 million, or $0.65 per diluted share, compared to net income of $13.4 million, or $0.45 per diluted share in the prior fiscal third quarter;

• Adjusted net income and adjusted earnings per diluted share, both non-GAAP measures, increased 53.3% to $20.5 million, or $0.69 per diluted share, compared to $13.4 million, or $0.45 per diluted share in the prior fiscal third quarter;

• Adjusted EBITDA, a non-GAAP measure, increased 36.7% to $38.5 million, compared to adjusted EBITDA of $28.2 million in the prior fiscal third quarter.

Year-to-Date Third Quarter of 2023 Highlights

• System-wide sales increased 28.2% to $2.5 billion;

• 140 net new openings in the year-to-date third quarter of 2023;

• Domestic same store sales increased 17.3% over the prior fiscal year-to-date period;

• Total revenue increased 31.8% to $333.0 million over the prior fiscal year-to-date period;

• Net income increased 45.3% to $51.4 million, or $1.71 per diluted share, compared to net income of $35.4 million, or $1.18 per diluted share in the prior fiscal year-to-date period;

• Adjusted net income and adjusted earnings per diluted share, both non-GAAP measures, increased 51.3% to $55.3 million, or $1.84 per diluted share, compared to $36.5 million, or $1.22 per diluted share in the prior fiscal third quarter;

• Adjusted EBITDA, a non-GAAP measure, increased 46.9% to $107.4 million, compared to adjusted EBITDA of $73.1 million in the prior fiscal year-to-date period.

First Quarter of 2024 Highlights

• System-wide sales increased 36.8% over the prior fiscal first quarter to $1.1 billion;

• 65 net new openings in the fiscal first quarter 2024 for a total of 2,279 worldwide locations;

• Domestic same store sales increased 21.6% over the prior fiscal first quarter;

• Company-owned restaurant same store sales increased 6.2% over the prior fiscal first quarter;

• Digital sales increased to 68.3% of system-wide sales;

• Domestic AUV increased to $1.9 million;

• Total revenue increased 34.1% over the prior fiscal first quarter to $145.8 million;

• Net income increased 83.5% to $28.7 million, or $0.98 per diluted share, compared to net income of $15.7 million, or $0.52 per diluted share in the prior fiscal first quarter;

• Adjusted net income and adjusted earnings per diluted share, both non-GAAP measures, increased 61.8% to $28.7 million, or $0.98 per diluted share, compared to $17.8 million, or $0.59 per diluted share in the prior fiscal first quarter;

• Adjusted EBITDA, a non-GAAP measure, increased 45.3% to $50.3 million, compared to adjusted EBITDA of $34.6 million in the prior fiscal first quarter.

Key Performance Indicators

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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 Thirty-Nine Weeks Ended

September 30,

2023 September 24,

2022 September 30,

2023 September 24,

Thirteen Weeks Ended

2024 April 1,

Domestic Franchised Activity:

1 unchanged sentence

Openings 47 32

Closures — — (1) (3)

Acquired by Company — (1) (2) (1)

Restaurants end of period 1,924 1,710

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Beginning of period 49 43

Openings 1 2 1 5

Closures — — — —

Acquired by Company — 1 2 1

Restaurants end of period 50 43

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Total System-wide Restaurants 2,279 1,996

(1) Including U.S.

System-wide sales.

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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 financing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, 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 financing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, 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.

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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 and thirty-nine weeks ended September 30, 2023 and September 24, 2022 (in thousands, except unit data):

Thirteen Weeks Ended Thirty-Nine Weeks Ended

September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022

The following table sets forth our key performance indicators for the thirteen weeks ended March 30, 2024 and April 1, 2023 (in thousands, except unit data):

Thirteen Weeks Ended

March 30, 2024 April 1, 2023

Number of system-wide restaurants open at end of period 2,279 1,996

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$ 28,747 $ 17,771

(1) The percentage of system-wide sales attributable to company-owned restaurants was 2.7% and 2.9% for the thirteen weeks ended September 30, 2023 and September 24, 2022, respectively, and was 2.8% and 2.9% for the thirty-nine weeks ended September 30, 2023 and September 24, 2022, respectively.

(1) The percentage of system-wide sales attributable to company-owned restaurants was 2.5% and 2.8% for the thirteen weeks ended March 30, 2024 and April 1, 2023, respectively.

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

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We present EBITDA and Adjusted EBITDA because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry.

Management believes that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for

comparing our ongoing results of operations.

Management believes that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations.

Many investors are interested in understanding the performance of our business by comparing our results from ongoing operations on a period-over-period basis and would ordinarily add back non-cash expenses such as depreciation and amortization, as well as items that are not part of normal day-to-day operations of our business.

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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 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,

The following table reconciles net income to EBITDA and Adjusted EBITDA for the thirteen weeks ended March 30, 2024 and April 1, 2023 (in thousands):

Thirteen Weeks Ended

2024 April 1,

Net income $ 28,747 $ 15,669

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Additional adjustments:

Loss on debt extinguishment and financing transaction costs (a)

Consulting fees (b)

1,300 — 5,150 425

Stock-based compensation expense (c)

3,128 1,528 10,019 2,117

Consulting fees (a)

Stock-based compensation expense (b)

Adjusted EBITDA $ 50,263 $ 34,584

(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 and financing transaction costs during the thirty-nine weeks ended September 24, 2022, with the exception of $310,000 that is included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(b) Represents non-recurring consulting fees that are not part of our ongoing operations and are incurred to execute discrete, project-based strategic initiatives, which are included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

The costs incurred in the thirty-nine weeks ended September 24, 2022 include third-party consulting fees incurred relating to a strategic initiative to consider the development of a business plan and financial model for potential vertical integration of a poultry complex, which review was completed in fiscal year 2022.

The costs incurred in the thirteen and thirty-nine weeks ended September 30, 2023 include consulting fees relating to a comprehensive review of our long-term growth strategy for our domestic business to explore potential future initiatives, and which review is expected to be completed in fiscal year 2023.

Given the magnitude and scope of these two strategic review initiatives that are not expected to recur in the foreseeable future, the Company considers the incremental consulting fees incurred with respect to the initiatives not reflective of the ongoing costs to operate its business.

(a) Represents non-recurring consulting fees that are not part of our ongoing operations and are incurred to execute discrete, project-based strategic initiatives, which are included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

The costs incurred in the thirteen weeks ended April 1, 2023 include consulting fees relating to a comprehensive review of our long-term growth strategy for our domestic business to explore potential future initiatives, which review was completed in fiscal year 2023.

Given the magnitude and scope of this strategic review

initiative that is not expected to recur in the foreseeable future, the Company considers the incremental consulting fees incurred with respect to the initiative not reflective of the ongoing costs to operate its business.

(b) 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.

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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 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,

The following table reconciles net income to Adjusted net income and calculates adjusted earnings per diluted share for the thirteen weeks ended March 30, 2024 and April 1, 2023 (in thousands):

Thirteen Weeks Ended

2024 April 1,

Net income $ 28,747 $ 15,669

Loss on debt extinguishment and financing transactions (a)

Consulting fees (b)

1,300 — 5,150 425

Tax effect of adjustments (c)

(312) — (1,236) (372)

Consulting fees (a)

Tax effect of adjustments (b)

Adjusted net income $ 28,747 $ 17,771

1 unchanged sentence

Adjusted earnings per diluted share $ 0.98 $ 0.59

(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 and financing transactions during the thirty-nine weeks ended September 24, 2022, with the exception of $310,000 that is included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(c) 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 thirty-nine weeks ended September 30, 2023 and September 24, 2022, which includes provisions for U.S.

Given the magnitude and scope of this strategic review initiative that is not expected to recur in the foreseeable future, the Company considers the incremental consulting fees incurred with respect to the initiative not reflective of the ongoing costs to operate its business.

(b) 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 April 1, 2023, 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 September 30, 2023 compared to Thirteen Weeks Ended September 24, 2022

The following table sets forth our results of operations for the thirteen weeks ended September 30, 2023 and September 24, 2022 (dollars in thousands):

Thirteen Weeks Ended March 30, 2024 compared to Thirteen Weeks Ended April 1, 2023

The following table sets forth our results of operations for the thirteen weeks ended March 30, 2024 and April 1, 2023 (dollars in thousands):

Thirteen Weeks Ended Increase / (Decrease)

September 30,

2023 September 24,

2024 April 1,

Royalty revenue, franchise fees and other $ 67,097 $ 48,188 $ 18,909 39.2 %

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Net income $ 28,747 $ 15,669 $ 13,078 83.5 %

(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 thirteen weeks ended September 30, 2023, total revenue was $117.1 million, an increase of $24.4 million, or 26.4%, compared to $92.7 million in the comparable period in 2022.

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

During the thirteen weeks ended March 30, 2024, total revenue was $145.8 million, an increase of $37.1 million, or 34.1%, compared to $108.7 million in the comparable period in 2023.

Royalty revenue, franchise fees and other increased $18.9 million, of which $9.4 million was due to domestic same store sales growth of 21.6%, and $7.2 million was due to net new franchise restaurant development.

Other revenue increased by $1.1 million primarily due to an increase in vendor rebates.

Advertising fees increased $7.8 million due to a 26.5% increase in system-wide sales during the fiscal third quarter 2023.

Company-owned restaurant sales increased $3.8 million, due to an increase of $2.1 million related to the addition of four net new company-owned restaurants since the prior fiscal third quarter.

Advertising fees increased $12.7 million due to a 36.8% increase in system-wide sales during the fiscal first quarter 2024.

Company-owned restaurant sales increased $5.5 million, due to an increase of $3.3 million related to the addition of seven net new company-owned restaurants since the prior fiscal first quarter.

The remainder of the increase was due to company-owned same store sales growth of 6.2%, which was driven primarily by an increase in transactions.

Cost of sales

During the thirteen weeks ended September 30, 2023, cost of sales was $17.6 million, an increase of $1.9 million, or 12.1%, compared to $15.7 million in the comparable period in 2022.

Cost of sales as a percentage of company-owned restaurant sales was 73.6% in the thirteen weeks ended September 30, 2023, compared to 78.0% in the comparable period in 2022.

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

Thirteen Weeks Ended

September 30, 2023 September 24, 2022

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 $ 7,910 33.0 % $ 7,504 37.2 %

Labor costs 5,646 23.6 % 4,652 23.1 %

Other restaurant operating expenses 4,645 19.4 % 4,009 19.9 %

Vendor rebates (579) (2.4) % (441) (2.2) %

Total cost of sales $ 17,622 73.6 % $ 15,724 78.0 %

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 33.0% in the thirteen weeks ended September 30, 2023, compared to 37.2% in the comparable period in 2022.

This improvement was primarily due to a 13.5% decrease 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 23.6% for the thirteen weeks ended September 30, 2023, compared to 23.1% in the comparable period in 2022.

The increase as a percentage of company-owned restaurant sales was primarily due to increases in company-owned restaurant wages compared to the prior year, partially offset by sales leverage due to the company-owned domestic same store sales increase of 6.0%.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 19.4% for the thirteen weeks ended September 30, 2023 compared to 19.9% for the thirteen weeks ended September 24, 2022.

The decrease as a percentage of company-owned restaurant sales was primarily due to pre-opening expenses in the prior year period.

Advertising expenses.

During the thirteen weeks ended September 30, 2023, advertising expenses were $42.4 million, an increase of $9.3 million compared to $33.1 million in the comparable period in 2022.

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 September 30, 2023, SG&A expense was $23.0 million, an increase of $6.4 million compared to $16.7 million in the comparable period in 2022.

The increase in SG&A expense was driven by an increase in incentive compensation and performance-based stock compensation expense of $2.8 million primarily related to the Company’s current fiscal year performance, an increase in headcount related expenses of $1.7 million to support the growth in our business, and an increase in consulting fees of $1.3 million associated with the Company’s strategic initiatives.

Depreciation and amortization.

During the thirteen weeks ended September 30, 2023, depreciation expense was $3.4 million, an increase of $0.5 million compared to $2.8 million in the comparable period in 2022.

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

Interest expense, net.

During the thirteen weeks ended September 30, 2023, interest expense, net was $4.5 million, a decrease of $1.2 million compared to $5.7 million of interest expense, net in the comparable period in 2022.

The decrease was driven by $1.0 million in additional interest income earned during the thirteen weeks ended September 30, 2023.

Income tax expense.

During the thirteen weeks ended September 30, 2023, we recognized income tax expense of $6.6 million yielding an effective tax rate of 25.4%, comparable to an effective tax rate of 25.9% in the prior year period.

Thirty-Nine Weeks Ended September 30, 2023 compared to Thirty-Nine Weeks Ended September 24, 2022

The following table sets forth our results of operations for the thirty-nine weeks ended September 30, 2023 and September 24, 2022 (dollars in thousands):

Thirty-Nine Weeks Ended Increase / (Decrease)

September 30,

2023 September 24,

Royalty revenue, franchise fees and other $ 149,372 $ 111,477 $ 37,895 34.0 %

Advertising fees 114,010 83,672 30,338 36.3 %

Company-owned restaurant sales 69,616 57,505 12,111 21.1 %

Total revenue 332,998 252,654 80,344 31.8 %

Costs and expenses:

Cost of sales (1)

50,959 46,297 4,662 10.1 %

Advertising expenses 120,753 85,958 34,795 40.5 %

Selling, general and administrative 68,820 48,721 20,099 41.3 %

Depreciation and amortization 9,591 7,610 1,981 26.0 %

Loss on disposal of assets 95 1,006 (911) (90.6) %

Total costs and expenses 250,218 189,592 60,626 32.0 %

Operating income 82,780 63,062 19,718 31.3 %

Interest expense, net 13,337 15,920 (2,583) (16.2) %

Loss on debt extinguishment — 814 (814) (100.0) %

Other (income) expense 123 381 (258) (67.7) %

Income before income tax expense 69,320 45,947 23,373 50.9 %

Income tax expense 17,959 10,596 7,363 69.5 %

Net income $ 51,361 $ 35,351 $ 16,010 45.3 %

(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 thirty-nine weeks ended September 30, 2023, total revenue was $333.0 million, an increase of $80.3 million, or 31.8%, compared to $252.7 million in the comparable period in 2022.

Royalty revenue, franchise fees and other increased $37.9 million, of which $17.7 million was due to domestic same store sales growth of 17.3%, and $12.1 million was due to net new franchise development.

Other revenue increased by $5.0 million primarily due to an increase in vendor rebates.

Advertising fees increased $30.3 million, of which $24.1 million was due to the 28.2% increase in system-wide sales during the thirty-nine weeks ended September 30, 2023, and $6.2 million was 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.

Company-owned restaurant sales increased $12.1 million primarily due to an increase of $5.1 million related to the addition of four net new company-owned restaurants since the prior year comparable period.

The remainder of the increase was due to company-owned same store sales growth of 7.2%, which was driven by an increase in transactions.

Cost of sales.

During the thirty-nine weeks ended September 30, 2023, cost of sales was $51.0 million, an increase of $4.7 million, or 10.1%, compared to $46.3 million in the comparable period in 2022.

Cost of sales as a percentage of company-owned restaurant sales was 73.2% in the thirty-nine weeks ended September 30, 2023, compared to 80.5% in the comparable period in 2022.

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

Thirty-Nine Weeks Ended

September 30, 2023 September 24, 2022

March 30, 2024 April 1, 2023

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 $ 9,903 34.7 % $ 7,486 32.4 %

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Total cost of sales $ 21,271 74.5 % $ 16,695 72.4 %

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 32.6% in the thirty-nine weeks ended September 30, 2023, compared to 39.7% in the comparable period in 2022.

The decrease was primarily due to a 37.7% decrease 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 24.0% for the thirty-nine weeks ended September 30, 2023, which was comparable to the thirty-nine weeks ended September 24, 2022.

An increase in company-owned restaurant wages as a percentage of sales was offset by sales leverage due to the company-owned domestic same store sales increase of 7.2%.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 19.1% for the thirty-nine weeks ended September 30, 2023, compared to 19.0% for the thirty-nine weeks ended September 24, 2022.

An increase related to the change in the national advertising fund contribution rate to 5% from 4% effective the first day of the fiscal second quarter 2022 was offset by a decrease in pre-opening expenses in the prior year period.

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 34.7% in the thirteen weeks ended March 30, 2024, compared to 32.4% in the comparable period in 2023.

This increase was primarily due to a 34.8% increase in the cost of bone-in chicken wings as compared to the prior year period.

Our purchases in the prior fiscal first quarter were tied primarily to the spot market, which benefited from significant deflation in the cost of bone-in chicken wings.

Labor costs as a percentage of company-owned restaurant sales were 23.4% for the thirteen weeks ended March 30, 2024, compared to 23.9% in the comparable period in 2023.

The decrease as a percentage of company-owned restaurant sales was primarily due to sales leverage as a result of company-owned domestic same store sales growth of 6.2%.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 19.0% for the thirteen weeks ended March 30, 2024 compared to 18.3% for the thirteen weeks ended April 1, 2023.

The increase as a percentage of company-owned restaurant sales was primarily due to increases in restaurant level operating expenses.

Advertising expenses

During the thirty-nine weeks ended September 30, 2023, advertising expenses were $120.8 million, an increase of $34.8 million compared to $86.0 million in the comparable period in 2022.

During the thirteen weeks ended March 30, 2024, advertising expenses were $53.2 million, an increase of $13.5 million compared to $39.6 million in the comparable period in 2023.

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 thirty-nine weeks ended September 30, 2023, SG&A expense was $68.8 million, an increase of $20.1 million compared to $48.7 million in the comparable period in 2022.

The prior year-to-date period was impacted by the benefit of $4.1 million in stock awards forfeited during the second quarter in 2022.

In addition, incentive compensation and performance-based stock compensation expense increased $6.3 million primarily related to the Company’s current fiscal year performance, consulting fees increased $5.2 million associated with the Company’s strategic initiatives, and headcount related expenses increased $3.7 million to support the growth in our business.

During the thirteen weeks ended March 30, 2024, SG&A expense was $25.2 million, an increase of $1.5 million compared to $23.6 million in the comparable period in 2023.

The increase in SG&A expense was driven by an increase in headcount related expenses of $2.1 million to support the growth in our business, professional fees of $1.4 million associated with the Company’s strategic initiatives, and an increase in performance-based stock compensation expense of $0.5 million primarily related to the Company’s prior year performance.

These increases were partially offset by $2.8 million in non-recurring consulting fees incurred in the prior fiscal first quarter.

Depreciation and amortization

During the thirty-nine weeks ended September 30, 2023, depreciation expense was $9.6 million, an increase of $2.0 million compared to $7.6 million in the comparable period in 2022.

During the thirteen weeks ended March 30, 2024, depreciation expense was $3.4 million, an increase of $0.4 million compared to $3.0 million in the comparable period in 2023.

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

Interest expense, net

During the thirty-nine weeks ended September 30, 2023, interest expense, net was $13.3 million, a decrease of $2.6 million compared to $15.9 million of interest expense, net in the comparable period in 2022.

The decrease was due to $4.0 million of additional interest income earned during the thirty-nine weeks ended September 30, 2023, partially offset by an increase of $1.4 million in interest expense related 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 thirty-nine weeks ended September 24, 2022 due to costs and fees associated with the extinguishment of our 2020 Variable Funding Note Facility on March 9, 2022.

During the thirteen weeks ended March 30, 2024, interest expense, net was $4.5 million, which was comparable to the prior year period.

Income tax expense

During the thirty-nine weeks ended September 30, 2023, we recognized income tax expense of $18.0 million yielding an effective tax rate of 25.9%, compared to an effective tax rate of 23.1% in the prior year period.

The increase in the effective tax rate was primarily due to the impact of stock awards forfeited during the thirty-nine weeks ended September 24, 2022.

During the thirteen weeks ended March 30, 2024, we recognized income tax expense of $9.8 million yielding an effective tax rate of 25.3%, comparable to an effective tax rate of 25.1% in the prior year period.

Liquidity and Capital Resources

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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 September 30, 2023, the Company had $78.0 million of cash and cash equivalents on its balance sheet.

As of March 30, 2024, the Company had $108.3 million of cash and cash equivalents 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 thirty-nine weeks ended September 30, 2023 and September 24, 2022 (in thousands):

Thirty-Nine Weeks Ended

September 30,

2023 September 24,

The following table shows summary cash flows information for the thirteen weeks ended March 30, 2024 and April 1, 2023 (in thousands):

Thirteen Weeks Ended

2024 April 1,

Net cash provided by (used in):

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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 $83.7 million in the thirty-nine weeks ended September 30, 2023, an increase of $30.6 million from cash provided by operating activities of $53.2 million in the thirty-nine weeks ended September 24, 2022.

The increase is the result of increased operating income associated with the increased sales over the prior period, as well as the timing of changes in working capital.

Net cash provided by operating activities was $44.7 million in the thirteen weeks ended March 30, 2024, an increase of $9.0 million from cash provided by operating activities of $35.7 million in the thirteen weeks ended April 1, 2023.

The increase is primarily due to an increase in operating income, partially offset by the timing of changes in working capital and changes in Ad Fund cash and cash equivalents, which are directly related to the timing of payments for expenses incurred for national advertising.

Investing activities .

Our net cash used in investing activities was $33.5 million in the thirty-nine weeks ended September 30, 2023, an increase of $16.9 million from cash used in investing activities of $16.6 million in the thirty-nine weeks ended September 24, 2022.

The increase in cash used in investing activities was primarily due to an increase in capital expenditures related to our technology investments, the acquisition of two restaurants from a franchisee during the thirty-nine weeks ended September 30, 2023, and the sale of assets to franchisees during the prior fiscal year period.

Our net cash used in investing activities was $11.7 million in the thirteen weeks ended March 30, 2024, an increase of $7.3 million from cash used in investing activities of $4.3 million in the thirteen weeks ended April 1, 2023.

The increase in cash used in investing activities was primarily due to an increase in capital expenditures related to our technology investments as compared to the prior fiscal year period.

Financing activities .

Our net cash used in financing activities was $149.0 million in the thirty-nine weeks ended September 30, 2023, primarily related to the repurchase of approximately $125.0 million in common stock under our ASR Agreement, dividend payments of $18.4 million and repayment of long-term debt of $3.7 million.

Cash provided by financing activities of $109.4 million in the thirty-nine weeks ended September 24, 2022 was primarily related to the net cash provided by additional borrowings under our 2022 Class A-2 Notes (as defined below) of $250 million in the first quarter of 2022, partially offset by the payment of a special dividend in connection with the securitized financing transaction totaling $119.5 million and deferred financing and other debt related costs incurred of $5.4 million.

Our net cash used in financing activities was $9.6 million in the thirteen weeks ended March 30, 2024, a decrease of $0.5 million from cash used in financing activities of $10.1 million in the thirteen weeks ended April 1, 2023.

The decrease in cash used in financing activities was primarily due to a principal payment made in the prior fiscal year period, partially offset by an increase in taxes paid on stock vesting during the period.

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 Class A-2 Notes”).

No borrowings were outstanding under the 2022 Variable Funding Notes as of September 30, 2023.

During the third fiscal quarter of 2023, the Company continued to have a leverage ratio under the 2020 Class A-2 Notes and the 2022 Class A-2 Notes of less than 5.0x.

No borrowings were outstanding under the 2022 Variable Funding Notes as of March 30, 2024.

During the fiscal first quarter of 2024, the Company continued to have a leverage ratio under the 2020 Class A-2 Notes and the 2022 Class A-2 Notes of less than 5.0x.

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

Accordingly, the entire outstanding balance 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.

We paid a quarterly cash dividend of $0.19 per share of common stock in each of the first two quarters of 2023, and a quarterly cash dividend of $0.22 per share of common stock in the third quarter of 2023, resulting in aggregate dividend payments of $18.0 million in the thirty-nine weeks ended September 30, 2023.

On October 31, 2023 the Company’s Board of Directors approved a dividend of $0.22 per share, to be paid on December 8, 2023 to stockholders of record as of November 17, 2023, totaling approximately $6.5 million.

We paid a quarterly cash dividend of $0.22 per share of common stock, aggregating $6.5 million in the fiscal first quarter of 2024.

On April 30, 2024, the Company’s Board of Directors approved a dividend of $0.22 per share, to be paid on June 7, 2024 to stockholders of record as of May 17, 2024, totaling $6.5 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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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.

On August 23, 2023, the Company entered into 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 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.

On August 17, 2023, the Company announced a share repurchase program with authorization to purchase up to $250.0 million of its outstanding shares of common stock (the “Share Repurchase Program”).

As of March 30, 2024, $125.0 million remained available for repurchase under the Share Repurchase Program.

Critical Accounting Policies and Estimates

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Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

Refer to Note 1, Basis of Presentation , of the notes to the consolidated financial statements.

Special Note Regarding Forward-Looking Statements

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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 be 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 can generally be identified by the use of forward-looking terminology, including the terms “may,” “will,” “should,” “expect,” “intend,” “plan,” “outlook,” “anticipate,” “believe,” “think,” “estimate,” “seek,” “predict,” “can,” “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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• risks associated with food safety, food-borne illness and other health concerns;

• risks associated with changes in food and supply costs;

• our ability to successfully expand into new markets;

• our ability to effectively compete within our industry;

• risks associated with changes in food and supply costs;

• risks associated with interruptions in our supply chain, including availability of food products;

• risks associated with the availability and cost of labor;

• risks associated with our future performance and operating results falling below the expectations of securities analysts and investors;

• risks associated with data privacy, cyber security and the use and implementation of information technology;

• risks associated with data privacy, cybersecurity and the use and implementation of information technology including heightened risks that may arise upon increased adoption of artificial intelligence technologies;

• risks associated with our increasing dependence on digital commerce platforms and third-party delivery service providers;

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• risks associated with litigation against us or our franchisees;

• risks associated with the availability and cost of labor;

• our ability to successfully advertise and market our business;

• risks associated with changes in customer preferences, perceptions and eating habits;

• risks associated with our future performance and operating results falling below the expectations of securities analysts and investors;

• risks associated with the geographic concentration of our business;

• the impact on our business from a pandemic, epidemic or outbreak, such as COVID-19;

• our ability to comply with laws and government regulations relating to food products and franchising, including increased costs associated with new or changing regulations;

• the impact on our business from unexpected events such as international conflict or war and related sanctions, acts of terrorism, civil unrest, epidemics and pandemics and severe weather;

• our ability to comply with laws and government regulations, including those relating to food products, employment and franchising, or increased costs associated with new or changing regulations;

• our ability to maintain adequate insurance coverage for our business;

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• risks associated with our expansion into international markets and foreign government restrictions on operations;

• our ability to comply with the terms of our securitized debt financing and generate sufficient cash flows to satisfy our significant debt service obligations thereunder;

• our ability to attract and retain our executive officers and other key employees;

• our ability to protect our intellectual property, including trademarks and trade secrets;

• the impact on our business from environmental, social and corporate governance matters;

• our ability to comply with the terms of our securitized debt financing and generate sufficient cash flows to satisfy our significant debt service obligations thereunder.

The above list of factors is not exhaustive.

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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