Wingstop Inc. 10-Q

Item 1. Financial Statements WINGSTOP INC. AND SUBSIDIARIES Consolidated Balance Sheets (amounts in thousands, except share and par value amounts) March 29, 2025 December 28, 2024 (Unaudited) Assets Current assets Cash and cash equivalents $ 251,382 $ 315,910 Restricted cash 25,994 20,868 Accounts receivable, net 18,452 19,661 Prepaid expenses and other current assets 6,688 6,520 Advertising fund assets, restricted 21,740 32,659 Total current assets 324,256 395,618 Property and equipment, net 107,554 125,953 Operating lease assets 47,879 49,046 Goodwill 74,718 74,718 Trademarks 32,700 32,700 Investments 76,116 8,511 Other non-current assets 33,581 29,700 Total assets $ 696,804 $ 716,246 Liabilities and stockholders' deficit Current liabilities Accounts payable $ 7,904 $ 6,943 Current portion of operating lease liabilities 2,988 1,059 Other current liabilities 58,374 46,782 Advertising fund liabilities 21,740 32,659 Total current liabilities 91,006 87,443 Long-term debt, net 1,206,911 1,206,201 Operating lease liabilities 57,897 58,169 Deferred revenues, net of current 41,505 38,877 Deferred income tax liabilities, net 14,405 1,085 Other non-current liabilities 62 57 Total liabilities 1,411,786 1,391,832 Commitments and contingencies (see Note 7) Stockholders' deficit Common stock, $ 0.01 par value; 100,000,000 shares authorized; 27,902,888 and 28,662,614 shares issued and outstanding as of March 29, 2025 and December 28, 2024, respectively 279 287 Additional paid-in-capital 1,291 1,568 Retained deficit ( 719,310 ) ( 676,940 ) Accumulated other comprehensive loss 2,758 ( 501 ) Total stockholders' deficit ( 714,982 ) ( 675,586 ) Total liabilities and stockholders' deficit $ 696,804 $ 716,246 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 March 29, 2025 March 30, 2024 Revenue: Royalty revenue, franchise fees and other $ 78,775 $ 67,097 Advertising fees 62,272 50,149 Company-owned restaurant sales 30,047 28,543 Total revenue 171,094 145,789 Costs and expenses: Cost of sales (1) 22,835 21,271 Advertising expenses 65,795 53,192 Selling, general and administrative 31,440 25,178 Depreciation and amortization 6,228 3,410 Loss on disposal of assets 6,535 — Total costs and expenses 132,833 103,051 Operating income 38,261 42,738 Interest expense, net 8,910 4,544 Investment income, net ( 93,839 ) ( 303 ) Income before income tax expense 123,190 38,497 Income tax expense 30,925 9,750 Net income $ 92,265 $ 28,747 Earnings per share Basic $ 3.25 $ 0.98 Diluted $ 3.24 $ 0.98 Other comprehensive income (loss) Currency translation adjustment $ 3,259 $ ( 24 ) Other comprehensive income (loss) 3,259 ( 24 ) Comprehensive income $ 95,524 $ 28,723 (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 Thirteen Weeks Ended March 30, 2024 and March 29, 2025 (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 30, 2023 29,337,920 $ 293 $ 2,676 $ ( 459,994 ) $ ( 341 ) $ ( 457,366 ) Net income — — — 28,747 — 28,747 Shares issued under stock plans 42,918 1 707 — — 708 Tax payments for restricted stock upon vesting ( 10,860 ) — — ( 3,717 ) — ( 3,717 ) Stock-based compensation expense, net of forfeitures — — 3,812 — — 3,812 Dividends declared on common stock and equivalents — — ( 6,277 ) ( 262 ) — ( 6,539 ) Currency translation adjustment — — — — ( 24 ) ( 24 ) Balance at March 30, 2024 29,369,978 $ 294 $ 918 $ ( 435,226 ) $ ( 365 ) $ ( 434,379 ) Common Stock Shares Amount Additional Paid-In Capital Retained Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Deficit Balance at December 28, 2024 28,662,614 $ 287 $ 1,568 $ ( 676,940 ) $ ( 501 ) $ ( 675,586 ) Net income — — — 92,265 — 92,265 Shares issued under stock plans 109,964 1 ( 1 ) — — — Purchases of common stock ( 830,012 ) ( 8 ) ( 5,179 ) ( 115,582 ) — ( 120,769 ) Tax payments for restricted stock upon vesting ( 39,678 ) ( 1 ) — ( 11,596 ) — ( 11,597 ) Stock-based compensation expense, net of forfeitures — — 5,312 — — 5,312 Dividends declared on common stock and equivalents — — ( 409 ) ( 7,457 ) — ( 7,866 ) Currency translation adjustment — — — — 3,259 3,259 Balance at March 29, 2025 27,902,888 $ 279 $ 1,291 $ ( 719,310 ) $ 2,758 $ ( 714,982 ) See accompanying notes to consolidated financial statements. 6 WINGSTOP INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (amounts in thousands) (Unaudited) Thirteen Weeks Ended March 29, 2025 March 30, 2024 Operating activities Net income $ 92,265 $ 28,747 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 6,228 3,410 Deferred income taxes 13,320 1,913 Stock-based compensation expense 5,312 3,812 Loss on disposal of assets 6,535 — Gain on sale of investment ( 92,485 ) — Amortization of debt issuance costs 769 516 Changes in operating assets and liabilities: Accounts receivable 1,209 ( 1,235 ) Prepaid expenses and other assets ( 8,269 ) 391 Advertising fund assets and liabilities, net ( 15,223 ) 5,297 Accounts payable and other current liabilities 12,223 ( 127 ) Deferred revenue 2,515 1,922 Other non-current liabilities 895 13 Cash provided by operating activities 25,294 44,659 Investing activities Purchases of property and equipment ( 8,022 ) ( 11,158 ) Proceeds from sales of assets 17,330 — Payments for investments ( 76,513 ) ( 500 ) Proceeds from sale of investments 107,700 — Cash (used in) provided by investing activities 40,495 ( 11,658 ) Financing activities Proceeds from exercise of stock options — 708 Purchases of common stock ( 120,772 ) — Tax payments for restricted stock upon vesting ( 11,597 ) ( 3,717 ) Dividends paid ( 8,046 ) ( 6,606 ) Cash used in financing activities ( 140,415 ) ( 9,615 ) Net increase in cash, cash equivalents, and restricted cash ( 74,626 ) 23,386 Cash, cash equivalents, and restricted cash at beginning of period 359,574 119,676 Cash, cash equivalents, and restricted cash at end of period $ 284,948 $ 143,062 Supplemental information: Accrued capital expenditures $ 6,689 $ 2,531 See accompanying notes to consolidated financial statements. 7 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 March 29, 2025, the Company had a total of 2,689 restaurants system-wide. The Company’s restaurant base is approximately 98 % franchised, with 2,638 franchised locations (including 388 restaurants in international locations and U.S. territories) and 51 company-owned restaurants as of March 29, 2025. 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 March 29, 2025 and December 28, 2024, and operating results are for the thirteen weeks ended March 29, 2025 and March 30, 2024. Certain prior period information on the Consolidated Balance Sheets have been reclassified to conform to the current presentation. 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 28, 2024 (the “Annual Report”). Fiscal year. The Company uses a 52- or 53-week fiscal year that ends on the last Saturday of the calendar year. Fiscal years 2025 and 2024 each have 52 weeks. Cash, Cash Equivalents, and Restricted Cash. Cash, cash equivalents, and restricted cash within the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows as of March 29, 2025 and December 28, 2024 were as follows (in thousands): March 29, 2025 December 28, 2024 Cash and cash equivalents $ 251,382 $ 315,910 Restricted cash 25,994 20,868 Restricted cash, included in Advertising fund assets, restricted 7,572 22,796 Total cash, cash equivalents, and restricted cash $ 284,948 $ 359,574 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. There have been no changes to the recently issued accounting pronouncements not yet adopted that were previously disclosed in the Annual Report. (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 service-based and performance-based restricted stock units, respectively, as determined using the treasury stock method. 8 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 March 29, 2025 March 30, 2024 Basic weighted average shares outstanding 28,385 29,349 Dilutive shares 124 129 Diluted weighted average shares outstanding 28,509 29,478 For the thirteen weeks ended March 29, 2025 and March 30, 2024, equity awards representing approximately 8,000 and 12,000 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, our Board of Directors declared a quarterly dividend of $ 0.27 per share of common stock in the first quarter of 2025, resulting in a total dividend payment of approximately $ 7.6 million. Subsequent to the first quarter, on April 29, 2025, our Board of Directors declared a regular quarterly dividend of $ 0.27 per share of common stock for stockholders of record as of May 16, 2025. The regular quarterly dividend is to be paid on June 6, 2025, totaling approximately $ 7.5 million. Share Repurchase Program In August 2023, the Company initially announced a share repurchase program, authorizing the repurchase of up to $ 250.0 million of its outstanding shares of common stock. On December 5, 2024, the Company’s Board of Directors authorized the purchase of an additional $ 500.0 million of its outstanding shares of common stock under (collectively, the “Share Repurchase Program”), following the substantial completion of repurchases under the original share repurchase program. On December 9, 2024, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) with a third-party financial institution to repurchase $ 250.0 million of the Company’s common stock under its Share Repurchase Program. Pursuant to the terms of the ASR Agreement, the Company paid the financial institution $ 250.0 million and, on December 9, 2024, the Company received and retired 551,325 shares of its common stock. The final settlement under the ASR Agreement occurred on February 20, 2025, and the Company received and retired an additional 317,202 shares of common stock. In connection with the ASR Agreement, the Company received and retired a total of 868,527 shares of common stock at an average price of $ 287.84 per share. The total number of shares repurchased under the ASR Agreement was based on a daily volume-weighted average share price during the valuation period specified in the ASR Agreement, less a discount and subject to adjustments. During the thirteen weeks ended March 29, 2025, in addition to the settlement of the ASR Agreement, the Company repurchased and retired 512,810 shares of its common stock at an average price of $ 233.54 per share. As of March 29, 2025, $ 191.3 million remained available under the Share Repurchase Program. (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. 9 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 March 29, 2025 December 28, 2024 Carrying Value Fair Value Carrying Value Fair Value Securitized Financing Facility: 2020-1 Class A-2 Senior Secured Notes (1) Level 2 $ 472,800 $ 444,337 $ 472,800 $ 439,846 2022-1 Class A-2 Senior Secured Notes (1) Level 2 $ 248,125 $ 233,709 $ 248,125 $ 230,905 2024-1 Class A-2 Senior Secured Notes (1) Level 2 $ 500,000 $ 507,550 $ 500,000 $ 496,050 Investments in debt securities (2) Level 3 $ 79,925 $ 79,925 $ 3,699 $ 4,560 (1) The fair value of the 2020-1, 2022-1, and 2024-1 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. Refer to Note 9 for additional information regarding the Company’s investments. 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 $ 30.9 million and 25.1 %, respectively, for the thirteen weeks ended March 29, 2025, and $ 9.8 million and 25.3 %, respectively, for the thirteen weeks ended March 30, 2024. The current period effective tax rate was comparable to the prior fiscal year period. The increase in total tax expense is primarily related to the increase in Investment income, net as a result of the gain on sale of our investment in LPH during the fiscal first quarter 2025. (6) Debt Obligations Long-term debt consisted of the following components (in thousands): March 29, 2025 December 28, 2024 2020-1 Class A-2 Senior Secured Notes $ 472,800 $ 472,800 2022-1 Class A-2 Senior Secured Notes 248,125 248,125 2024-1 Class A-2 Senior Secured Notes 500,000 500,000 Debt issuance costs, net of amortization ( 14,014 ) ( 14,724 ) Total debt 1,206,911 1,206,201 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”), (iii) Series 2024-1 5.858 % Fixed Rate Senior Secured Notes, Class A-2 (the “2024 Class A-2 Notes”), and (iv) a revolving financing facility of Series 2022-1 Variable Funding Senior Notes, Class A-1 (the “Variable Funding Notes”), which permits borrowings of up to a maximum principal amount of $ 300 million, subject to certain borrowing conditions, a portion of which may be used to issue letters of credit. No borrowings were outstanding under the Variable Funding Notes as of March 29, 2025 and December 28, 2024. As of March 29, 2025, the Company’s leverage ratio under the 2020 Class A-2 Notes, the 2022 Class A-2 Notes, and 2024 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, and the entire outstanding balance of $ 1.2 billion of the 2020 Class A-2 Notes, the 2022 Class A-2 Notes, and the 2024 Class A-2 Notes has been classified as long-term debt due after fiscal year 2026. 10 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The 2020 Class A-2 Notes, 2022 Class A-2 Notes, and 2024 Class A-2 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 thirteen weeks ended March 29, 2025, the Company granted 45,791 restricted stock units (“RSUs”) to certain employees. The RSUs granted generally vest ratably over a three-year period subsequent to the grant date and had a weighted-average grant-date fair value of $ 223.59 per unit. In addition, the Company granted 46,591 performance stock units (“PSUs”) to certain employees during the thirteen weeks ended March 29, 2025. Of the total PSUs granted, 41,510 PSUs are subject to a service condition and a performance vesting condition based on return on incremental invested capital (“ROIIC PSUs”). The ROIIC 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 ROIIC PSUs is 250 % based on the level of performance achieved for the awards. The remaining 5,081 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 ratably 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 $ 219.62 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 $ 5.3 million and $ 3.8 million for the thirteen weeks ended March 29, 2025 and March 30, 2024, respectively, and was included in Selling, general and administrative (“SG&A”) expense in the Consolidated Statements of Comprehensive Income. (9) Investments In the first fiscal quarter of 2025, LPH, which is an unconsolidated equity method investment of the Company, completed a transaction to sell all its outstanding equity to a third party. The Company received proceeds of $ 107.7 million in the fiscal first quarter 2025 and recognized a gain of $ 97.2 million in “Investment income, net” on the Consolidated Statements of Comprehensive Income. The Company reinvested $ 75.4 million in the newly formed entity for an 18.75 % non-controlling equity interest. Substantially all of the reinvestment in the newly formed entity consisted of preference shares, which will be accounted for as held-to-maturity debt securities, recorded on an amortized cost basis. Interest income related to the securities will be recognized using the effective interest method in “Interest expense, net” on the Consolidated Statements of Comprehensive Income. The fair value of the debt securities approximates the current carrying value and was determined using Level 3 inputs. Held-to-maturity debt securities are evaluated for credit losses on a quarterly basis under the current expected credit loss (“CECL”) methodology with an allowance recorded in “Investments” on the Consolidated Balance Sheets for expected lifetime credit losses. When evaluating an investment for its current expected credit losses, the Company reviews factors such as credit ratings, term and macroeconomic trends, including current conditions and forecasts to the extent they are reasonable and supportable. In connection with the investment in preference shares during the fiscal first quarter 2025, the Company recorded a provision for credit losses of $ 4.7 million in “Investment income, net” on the Consolidated Statements of Comprehensive Income. In addition, the Company received 18.75 % of the outstanding common shares, which will be accounted for using the equity method of accounting, under which the Company’s share of the income of the investee will be recorded in “Investment income” on the Consolidated Statements of Comprehensive Income. 11 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (10) Revenue from Contracts with Customers The following table represents a disaggregation of revenue from contracts with customers for the thirteen weeks ended March 29, 2025 and March 30, 2024 (in thousands): Thirteen Weeks Ended March 29, 2025 March 30, 2024 Royalty revenue $ 71,947 $ 61,192 Advertising fees and related income 62,272 50,149 Franchise fees 1,399 1,242 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 weeks ended March 29, 2025 was included in the deferred revenue balance as of December 28, 2024. Approximately $ 13.7 million and $ 13.5 million of deferred revenue as of March 29, 2025 and December 28, 2024, 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 7.4 years. The Company did not have any material contract assets as of March 29, 2025. 12 WINGSTOP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (11) Segment Information The Company has one reportable segment, and the measure of restaurant segment assets is reported as Total assets on the Consolidated Balance Sheets. Financial information for the Company’s reportable segment is as follows (in thousands): Thirteen Weeks Ended March 29, 2025 March 30, 2024 Revenue: Royalty revenue, franchise fees and other $ 78,775 $ 67,097 Advertising fees 62,272 50,149 Company-owned restaurant sales 30,047 28,543 Total revenue 171,094 145,789 Cost of sales: Food, beverage and packaging costs 11,241 9,903 Labor 7,153 6,675 Other operating costs 5,191 5,410 Vendor rebates ( 750 ) ( 717 ) Total cost of sales 22,835 21,271 Advertising expenses 65,795 53,192 Selling, general & administrative: Transaction costs 497 — System implementation costs 1,311 — Stock-based compensation expense 5,312 3,812 Other segment expense (1) 24,320 21,366 Total selling, general and administrative 31,440 25,178 Depreciation and amortization 6,228 3,410 Loss on disposal of assets 6,535 — Interest expense, net 8,910 4,544 Investment income, net ( 93,839 ) ( 303 ) Income tax expense 30,925 9,750 Net income $ 92,265 $ 28,747 (1) Other segment expense consists primarily of corporate related items such as headcount-related expenses, office rent expense, and other overhead costs. (12) Subsequent Event Subsequent to the end of the fiscal first quarter 2025, the Company acquired three existing restaurants from a franchisee. The total purchase price was $ 9.3 million, funded by cash on hand. The restaurant acquisitions are accounted for as a business combination. The Company is still determining the estimated fair value of assets acquired and liabilities assumed. The excess of the purchase price over the aggregate fair value of assets acquired will be allocated to goodwill. The results of operations of these locations will be included in our Consolidated Statements of Comprehensive Income as of the date of acquisition. 13