UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)



x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 30,~~September 28, 2019



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 001-37425

WINGSTOP INC.

(Exact name of registrant as specified in its charter)



Delaware		47-3494862
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

5501 LBJ Freeway
5th Floor
Dallas
Texas		75240
(Address of principal executive offices)		(Zip Code)

~~(972)~~ (972) 686-6500

(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	WING	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨☐
		Emerging growth company	¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨☐ Yes x No

On ~~May 8,~~October 29, 2019 there were ~~29,399,276~~29,453,374 shares of common stock outstanding.

TABLE OF CONTENTS



		Page
PART I	Financial Information	4
Item 1.	Financial Statements	4
	Consolidated Balance Sheets - ~~March 30,~~September 28, 2019 (Unaudited) and December 29, 2018	4
	Consolidated Statements of Operations (Unaudited) - Thirteen and Thirty-Nine Weeks Ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018	5
	Consolidated Statement of Stockholders’ Deficit (Unaudited) - ~~Thirteen~~Thirty-Nine Weeks Ended ~~March 31,~~September 28, 2019 and September 29, 2018 ~~and March 30, 2019~~	6
	Consolidated Statements of Cash Flows (Unaudited) - ~~Thirteen~~Thirty-Nine Weeks Ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018	7
	~~Notes to Consolidated Financial Statements (Unaudited)~~	8
	Notes to Consolidated Financial Statements (Unaudited)	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1618
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2632
Item 4.	Controls and Procedures	2733

PART II	Other Information	2834
Item 1.	Legal Proceedings	2834
Item 1A.	Risk Factors	2834
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2834
Item 3.	Defaults Upon Senior Securities	2834
Item 4.	Mine Safety Disclosures	2834
Item 5.	Other Information	2834
Item 6.	Exhibits	2935
	Signatures	3036

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(amounts in thousands, except share and per share amounts)


	March 30, 2019			December 29, 2018			September 28, 2019			December 29, 2018
	(Unaudited)						(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	13,625		$	12,493		$	9,472		$	12,493
Restricted cash	4,824			4,462			4,842			4,462
Accounts receivable, net	4,918			5,764			5,859			5,764
Prepaid expenses and other current assets	1,641			2,056			3,540			2,056
Advertising fund assets, restricted	9,407			5,131			8,470			5,131
Total current assets	34,415			29,906			32,183			29,906
Property and equipment, net	8,299			8,338			27,291			8,338
Goodwill	49,655			49,655			50,172			49,655
Trademarks	32,700			32,700			32,700			32,700
Customer relationships, net	13,902			14,233			13,241			14,233
Other non-current assets	12,479			4,917			12,480			4,917
Total assets	$	151,450		$	139,749		$	168,067		$	139,749
Liabilities and stockholders' deficit
Current liabilities
Accounts payable	$	2,190		$	2,750		$	2,359		$	2,750
Other current liabilities	14,222			16,201			17,962			16,201
Current portion of debt	3,200			2,400			8,200			2,400
Advertising fund liabilities	9,407			5,131			8,470			5,131
Total current liabilities	29,019			26,482			36,991			26,482
Long-term debt, net	308,931			309,374			308,081			309,374
Deferred revenues, net of current	21,188			21,885			22,058			21,885
Deferred income tax liabilities, net	4,652			4,866			4,355			4,866
Other non-current liabilities	8,138			1,972			8,157			1,972
Total liabilities	371,928			364,579			379,642			364,579
Commitments and contingencies (see Note 8)
Commitments and contingencies (see Note 9)
Stockholders' deficit
Common stock, $0.01 par value; 100,000,000 shares authorized; 29,399,276 and 29,296,939 shares issued and outstanding as of March 30, 2019 and December 29, 2018, respectively	294			293
Common stock, $0.01 par value; 100,000,000 shares authorized; 29,453,374 and 29,296,939 shares issued and outstanding as of September 28, 2019 and December 29, 2018, respectively							295			293
Additional paid-in-capital	206			1,036			337			1,036
Accumulated deficit	(220,978		)	(226,159		)	(212,207		)	(226,159		)
Total stockholders' deficit	(220,478		)	(224,830		)	(211,575		)	(224,830		)
Total liabilities and stockholders' deficit	$	151,450		$	139,749		$	168,067		$	139,749

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(amounts in thousands, except per share data)

(Unaudited)


	Thirteen Weeks Ended				Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	March 30, 2019		March 31, 2018		September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Revenue:
Royalty revenue, franchise fees and other	$	21,328	$	17,781	$	21,876	$	17,787	$	64,391	$	52,772
Advertising fees and related income	13,210		8,605		14,056		8,614		40,753		25,574
Company-owned restaurant sales	13,515		11,003		13,943		11,845		41,346		34,326
Total revenue	48,053		37,389		49,875		38,246		146,490		112,672
Costs and expenses:
Cost of sales ⁽¹⁾	9,730		7,397		10,339		8,040		30,642		23,182
Advertising expenses	12,734		8,643		12,652		8,431		38,359		25,283
Selling, general and administrative	12,542		10,833		13,527		10,285		39,463		31,196
Depreciation and amortization	1,276		950		1,408		1,134		4,019		3,163
Total costs and expenses	36,282		27,823		37,926		27,890		112,483		82,824
Operating income	11,771		9,566		11,949		10,356		34,007		29,848
Interest expense, net	4,410		1,736		4,243		2,545		12,952		6,623
Income before income tax expense	7,361		7,830		7,706		7,811		21,055		23,225
Income tax expense	755		1,662		1,801		1,518		3,626		3,925
Net income	$	6,606	$	6,168	$	5,905	$	6,293	$	17,429	$	19,300

Earnings per share
Basic	$	0.23	$	0.21	$	0.20	$	0.21	$	0.59	$	0.66
Diluted	$	0.22	$	0.21	$	0.20	$	0.21	$	0.59	$	0.65

Weighted average shares outstanding
Basic	29,337		29,116		29,449		29,284		29,401		29,210
Diluted	29,637		29,503		29,696		29,584		29,667		29,561

Dividends per share	$	0.09	$	3.24	$	0.11	$	0.09	$	0.29	$	3.40

⁽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.

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Deficit

For the ~~Thirteen~~Thirty-Nine Weeks ~~ended March 31,~~Ended September 29, 2018~~and March 30, 2019~~

(amounts in thousands, except share data)

(Unaudited)


	Common Stock													Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Total Stockholders’ Deficit			Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Total Stockholders’ Deficit
Balance at December 30, 2017	29,092,669		291		262			(58,971		)	(58,418		)	29,092,669		$	291	$	262		$	(58,971	)	$	(58,418	)
Net income	—		—		—			6,168			6,168			—		—		—			6,168			6,168
Issuance of common stock, net	41,159		1		(1		)	—			—
Issuance of common stock														41,159		1		(1		)	—			—
Exercise of stock options	25,182		—		165			—			165			25,182		—		165			—			165
Tax payments for restricted stock upon vesting	(3,187	)	—		—			(142		)	(142		)	(3,187	)	—		—			(142		)	(142		)
Stock-based compensation expense	—		—		514			—			514			—		—		514			—			514
Dividends paid	—		—		(895		)	(93,902		)	(94,797		)	—		—		(895		)	(93,902		)	(94,797		)
Balance at March 31, 2018	29,155,823		$	292	$	45		$	(146,847	)	$	(146,510	)	29,155,823		292		45			(146,847		)	(146,510		)

	Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Total Stockholders’ Deficit
Balance at December 29, 2018	29,296,939		$	293	$	1,036		$	(226,159	)	$	(224,830	)
Adjustment for ASC 842 adoption	—		—		—			154			154
Net income	—		—		—			6,606			6,606			—		—		—			6,839			6,839
Issuance of common stock, net	60,553		1		(1		)	—			—
Issuance of common stock														5,105		—		—			—			—
Exercise of stock options														110,615		1		289			—			290
Stock-based compensation expense														—		—		742			—			742
Dividends paid														—		—		(1,038		)	(1,020		)	(2,058		)
Balance at June 30, 2018														29,271,543		293		38			(141,028		)	(140,697		)
Net income														—		—		—			6,293			6,293
Issuance of common stock														4,178		—		—			—			—
Exercise of stock options	54,253		—		158			—			158			21,130		—		51			—			51
Tax payments for restricted stock upon vesting	(12,469	)	—		—			(833		)	(833		)	(804	)	—		—			(40		)	(40		)
Stock-based compensation expense	—		—		838			—			838			—		—		756			—			756
Dividends paid	—		—		(1,825		)	(746		)	(2,571		)	—		—		(745		)	(1,877		)	(2,622		)
Balance at March 30, 2019	29,399,276		$	294	$	206		$	(220,978	)	$	(220,478	)
Balance at September 29, 2018														29,296,047		$	293	$	100		$	(136,652	)	$	(136,259	)

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Deficit

For the Thirty-Nine Weeks Ended September 28, 2019

(amounts in thousands, except share data)

(Unaudited)



	Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Total Stockholders’ Deficit
Balance at December 29, 2018	29,296,939		$	293	$	1,036		$	(226,159	)	$	(224,830	)
Adjustment for ASC 842 adoption	—		—		—			154			154
Net income	—		—		—			6,606			6,606
Issuance of common stock	60,683		1		(1		)	—			—
Exercise of stock options	54,253		—		158			—			158
Tax payments for restricted stock upon vesting	(12,469	)	—		—			(833		)	(833		)
Stock-based compensation expense	—		—		838			—			838
Dividends paid	—		—		(1,825		)	(746		)	(2,571		)
Balance at March 30, 2019	29,399,406		294		206			(220,978		)	(220,478		)
Net income	—		—		—			4,918			4,918
Issuance of common stock	12,339		—		—			—			—
Exercise of stock options	33,439		1		147			—			148
Tax payments for restricted stock upon vesting	(2,456	)	—		—			(226		)	(226		)
Stock-based compensation expense	—		—		1,928			—			1,928
Dividends paid	—		—		(1,389		)	(1,269		)	(2,658		)
Balance at June 29, 2019	29,442,728		295		892			(217,555		)	(216,368		)
Net income	—		—		—			5,905			5,905
Issuance of common stock	2,733		—		—			—			—
Exercise of stock options	8,827		—		174			—			174
Tax payments for restricted stock upon vesting	(914	)	—		—			(84		)	(84		)
Stock-based compensation expense	—		—		2,043			—			2,043
Dividends paid	—		—		(2,772		)	(473		)	(3,245		)
Balance at September 28, 2019	29,453,374		$	295	$	337		$	(212,207	)	$	(211,575	)

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(amounts in thousands)

(Unaudited)


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	March 30, 2019			March 31, 2018			September 28, 2019			September 29, 2018

Operating activities
Net income	$	6,606		$	6,168		$	17,429		$	19,300
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	1,276			950			4,019			3,163
Deferred income taxes	(258		)	38			(555		)	(278		)
Stock-based compensation expense	838			514			4,809			2,012
Amortization of debt issuance costs	376			85			1,179			265
Changes in operating assets and liabilities:
Accounts receivable	846			707			(188		)	649
Prepaid expenses and other assets	1,107			327			(979		)	(280		)
Advertising fund assets and liabilities, net	4,217			1,398			3,164			4,457
Accounts payable and other current liabilities	(4,480		)	(703		)	(1,014		)	587
Deferred revenue	(507		)	14			528			877
Other non-current liabilities	(423		)	(42		)	194			(129		)
Cash provided by operating activities	9,598			9,456			28,586			30,623

Investing activities
Purchases of property and equipment	(641		)	(426		)	(21,082		)	(2,883		)
Acquisition of restaurant from franchisee	—			(1,900		)	(1,229		)	(5,996		)
Cash used in investing activities	(641		)	(2,326		)	(22,311		)	(8,879		)

Financing activities
Proceeds from exercise of stock options	158			165			480			506
Borrowings of long-term debt	—			229,108			5,000			231,108
Repayments of long-term debt	—			(139,500		)	(1,600		)	(149,500		)
Payment of deferred financing costs	—			(782		)	(15		)	(782		)
Tax payments for restricted stock upon vesting	(833		)	(142		)	(1,143		)	(182		)
Dividends paid	(2,571		)	(94,796		)	(8,474		)	(99,476		)
Cash used in financing activities	(3,246		)	(5,947		)	(5,752		)	(18,326		)

Net change in cash, cash equivalents, and restricted cash	5,711			1,183			523			3,418
Cash, cash equivalents, and restricted cash at beginning of period	20,940			6,392			20,940			6,392
Cash, cash equivalents, and restricted cash at end of period	$	26,651		$	7,575		$	21,463		$	9,810

See accompanying notes to consolidated financial statements.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1) Basis of Presentation

Basis of Presentation

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 30,~~September 28, 2019, ~~1,112~~1,169 franchised restaurants were in operation domestically, and ~~132~~141 franchised restaurants were in operation internationally. As of ~~March 30,~~September 28, 2019, the Company owned and operated 2930 restaurants.

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 have been condensed or omitted. Balance sheet amounts are as of ~~March 30,~~September 28, 2019 and December 29, 2018, and operating results are for the thirteen and thirty-nine weeks ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018.

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 29, 2018.

The Company uses a 52/53-week fiscal year that ends on the last Saturday of the calendar year. Fiscal years 2019 and 2018 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 30,~~September 28, 2019 and December 29, 2018 were as follows (in thousands):



	September 28, 2019		December 29, 2018
Cash and cash equivalents	$	9,472	$	12,493
Restricted cash	4,842		4,462
Restricted cash, included in Advertising fund assets, restricted	7,149		3,985
Total cash, cash equivalents, and restricted cash	$	21,463	$	20,940

March 30, 2019 December 29, 2018
Cash and cash equivalents $ 13,625
$ 12,493
Restricted cash 4,824
4,462
Restricted cash, included in Advertising fund assets, restricted 8,202
3,985
Total cash, cash equivalents, and restricted cash $ 26,651
$ 20,940

Advertising Fund

The Company administers the Wingstop Restaurants Advertising Fund (“Ad Fund”), for which a percentage of gross sales is collected from Wingstop restaurant franchisees and company-owned restaurants to be used for various forms of advertising for the Wingstop brand. Beginning in fiscal year 2019, the Ad Fund contribution collected from domestic Wingstop restaurant franchisees and company-owned restaurants increased from 3% to 4% of gross sales.

The Company consolidates and reports all assets and liabilities of the Ad Fund as restricted assets and ~~restricted~~ liabilities of the Ad Fund within current assets and current liabilities, respectively, in the Consolidated Balance Sheets. Ad Fund contributions, which were equal to 4% of gross sales for the thirty-nine weeks ended September 28, 2019 and 3% of gross sales for the thirty-nine weeks ended September 29, 2018, and Ad Fund expenditures are reported on a gross basis in the Consolidated Statements of Operations, which are largely offsetting and therefore do not impact our reported net income. Company-operated restaurants’ Ad Fund contributions ~~which were equal to 4% of gross sales for the thirteen weeks ended March 30, 2019 and 3% of gross sales for the thirteen weeks ended March 31, 2018,~~ are included in cost of sales in the Consolidated Statements of Operations.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new guidance also requires additional disclosures about leases. The Company adopted the requirements of the new standard as of the

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

first day of fiscal year 2019 using the modified retrospective approach without restating comparative periods. As part of our

~~WINGSTOP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

adoption, we elected the package of practical expedients, as well as the hindsight practical expedient, permitted under the new guidance, which, among other things, allowed the Company to continue utilizing historical classification of leases. In addition, we elected not to separate non-lease components for our real estate leases.

The adoption of the new standard resulted in the recording of a right-of-use asset of approximately $8.5 million and lease liabilities of approximately $10.3 million, and had an immaterial impact toon retained earnings as of the beginning of fiscal year 2019. The standard did not materially impact our Consolidated Statements of Operations and had no impact on cash flows.

(2) Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares 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, determined using the treasury stock method.

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



	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	September 28, 2019	September 29, 2018	September 28, 2019	September 29, 2018
Basic weighted average shares outstanding	29,449	29,284	29,401	29,210
Dilutive shares	247	300	266	351
Diluted weighted average shares outstanding	29,696	29,584	29,667	29,561

Thirteen Weeks Ended
March 30,
2019 March 31,
2018
Basic weighted average shares outstanding 29,337
29,116
Dilutive shares 300
387
Diluted weighted average shares outstanding 29,637
29,503

For the thirteen weeks ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018, equity awards representing approximately ~~40,000~~100 and ~~57,000~~1,000 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 28, 2019 and September 29, 2018, equity awards representing approximately 2,000 and 4,000 shares, respectively, were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive.

(3) Dividends

~~On February 26, 2019, the~~The Company’s Board of Directors declared a quarterly dividend of $0.09 per share of common stock ~~for stockholders~~in each of ~~record as~~the first two quarters, and a quarterly dividend of ~~March 13, 2019, which was~~$0.11 per share of common stock in the third quarter, resulting in aggregate dividends of $8.5 million, or $0.29 per share of common stock, being paid ~~on March 27, 2019, totaling $2.6 million.~~during the thirty-nine weeks ended September 28, 2019.

Subsequent to the ~~first~~end of the third quarter, on ~~May 6,~~October 29, 2019, the Company’s Board of Directors declared a quarterly dividend of ~~$0.09~~$0.11 per share of common stock for stockholders of record as of ~~June 7,~~November 29, 2019, to be paid on ~~June 21,~~December 13, 2019, totaling approximately ~~$2.7~~$3.2 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.

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


	Fair Value Hierarchy	March 30, 2019				December 29, 2018				Fair Value Hierarchy	September 28, 2019				December 29, 2018
	Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value		Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
Securitized Financing Facility:
2018-1 Class A-2 Senior Secured Notes ⁽¹⁾	Level 2	$	320,000	$	328,474	$	320,000	$	320,000	Level 2	$	318,400	$	334,629	$	320,000	$	320,000
2018-1 Class A-1 Variable Funding Senior Notes ⁽²⁾										Level 2	$	5,000	$	5,000	$	—	$	—

~~WINGSTOP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

⁽¹⁾ The fair value of ~~long-term debt~~the 2018-1 Class A-2 Senior Secured Notes was estimated using available market information.

⁽²⁾ The fair value of the 2018-1 Class A-1 Variable Funding Senior Notes was estimated based on the borrowing rates currently available for variable rate loans obtained from third party lending institutions and approximated the book value of such 2018-1 Class A-1 Variable Funding Senior Notes.

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) Property and Equipment

On June 19, 2019, the Company entered into an agreement to purchase an office building for a purchase price of $18.3 million, which closed in the third quarter of 2019 and was funded with cash on hand. The building will be used for the Company’s headquarters and is in Addison, Texas.

The building is included in construction in process within Property and equipment, net on the Consolidated Balance Sheet and will begin depreciating when the build out of the headquarters is complete and the assets are ready for their intended use, which we currently estimate to be at the beginning of fiscal year 2021.

(6)Income Taxes

Income tax expense and the effective tax rate were ~~$0.8~~$1.8 million and ~~10.3%~~23.4%, respectively, for the thirteen weeks ended ~~March 30,~~September 28, 2019, and ~~$1.7~~$1.5 million and ~~21.2%~~19.4%, respectively, for the thirteen weeks ended ~~March 31,~~September 29, 2018. Income tax expense and the effective tax rate were $3.6 million and 17.2%, respectively, for the thirty-nine weeks ended September 28, 2019, and $3.9 million and 16.9%, respectively, for the thirty-nine weeks ended September 29, 2018.

Income tax expense for the thirteen and thirty-nine weeks ended ~~March 30,~~September 28, 2019 includes ~~$1.2~~$0.1 million and $1.9 million, respectively, in tax benefits resulting from the recognition of excess tax benefits from stock-based compensation, compared to ~~$0.4~~$0.3 million and $1.8 million of tax benefits recognized in the thirteen and thirty-nine weeks ended ~~March 31, 2018.~~September 29, 2018, respectively.

~~(6)~~(7)Debt Obligations

On November 14, 2018, Wingstop Funding LLC (the “Issuer”), a limited-purpose, bankruptcy-remote, wholly owned indirect subsidiary of Wingstop Inc., issued $320 million of its Series 2018-1 ~~4.970%~~4.97% Fixed Rate Senior Secured Notes, Class A-2 (the “Class A-2 Notes”). Interest and principal are payable on a quarterly basis, and the Class A-2 Notes have an anticipated repayment date of December 2023.

In addition, the Issuer issued Series 2018-1 Variable Funding Senior Notes, Class A-1 (the “Variable Funding Notes”), which permit borrowings of up to a maximum principal amount of $20 million, which may be used to borrow amounts on a revolving basis and to issue letters of credit. As of ~~March 30,~~September 28, 2019, there were borrowings of $5.0 million under the Variable Funding Notes, which were used for general corporate purposes. There were no borrowings outstanding under the Variable Funding Notes as of December 29, 2018. Further, as of September 28, 2019 and December 29, 2018, $4.0 million of letters of credit were outstanding against the Variable Funding Notes, which relate primarily to interest reserves required under the base indenture and related supplemental indenture. There were no amounts drawn down on the letter of credit as of ~~March 30,~~September 28, 2019 or December 29, 2018.

Borrowings under the Variable Funding Notes accrue interest at a variable rate based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the London interbank offered rate for U.S. Dollars or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin, as more fully set forth in the Variable Funding Note Purchase Agreement, dated November 14,

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

2018. There is a commitment fee on the unused portion of the Variable Funding Notes facility, which is 50 basis points, based on the utilization under the Variable Funding Notes facility. Interest is payable on a quarterly basis and accrues on a weekly basis. The weighted average interest rate for the Variable Funding Notes was 4.35% as of September 28, 2019.

The Class A-2 Notes and the Variable Funding Notes are referred to collectively as the “Notes” and were issued in a securitization transaction pursuant to which certain of the Company’s domestic and foreign revenue-generating assets, consisting principally of franchise-related agreements and intellectual property, were contributed or otherwise transferred to the Issuer and certain other limited-purpose, bankruptcy-remote, wholly owned indirect subsidiaries of the Company that act as guarantors of the Notes and that have pledged substantially all of their assets as collateral securing the Notes.

The Notes are subject to a series of financial and non-financial covenants and restrictions. As of ~~March 30,~~September 28, 2019, the Company was in compliance with all such financial covenants.

As of ~~March 30,~~September 28, 2019, the scheduled principal payments on ~~debt~~the Class A-2 Notes were as follows (in thousands):



Remainder of fiscal year 2019	$	5,800
Fiscal year 2020	3,200
Fiscal year 2021	3,200
Fiscal year 2022	3,200
Fiscal year 2023	308,000
Total	$	323,400

Remainder of fiscal year 2019 $ 2,400
Fiscal year 2020 3,200
Fiscal year 2021 3,200
Fiscal year 2022 3,200
Fiscal year 2023 308,000
Total $ 320,000

~~(7)~~(8)Leases

The Company determines whether an arrangement is a lease at inception. The Company has operating leases for office and retail space, as well as equipment. Our leases have remaining terms of one year to eight years, some of which include options to extend the lease term for up to ten years. Lease terms may include options to renew when it is reasonably certain that the Company will exercise that option. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We have lease agreements that contain both lease and non-lease components. For real estate leases, we account for lease components together with non-lease components (e.g., common-area maintenance).

~~WINGSTOP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Components of lease expense are as follows (in thousands):


	Thirteen Weeks Ended		Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	March 30, 2019		September 28, 2019		September 28, 2019
Operating lease cost ^(a)	$	502	$	532	$	1,561
Variable lease cost ^(b)	125		127		378
Total lease cost	$	627	$	659	$	1,939

^(a) Includes short-term leases, which are immaterial.

^(b) Primarily related to adjustments for inflation, common area maintenance, and property tax.

Supplemental cash flow information related to leases is as follows (dollar amounts in thousands):



	Thirty-Nine Weeks Ended
	September 28, 2019
Operating cash flow information:
Cash paid for amounts included in the measurement of lease liabilities	$	1,658
Non-cash activity:
Right-of-use assets obtained in exchange for new operating lease liabilities	$	832

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Thirteen Weeks Ended
March 30,
2019
Operating cash flow information:
Cash paid for amounts included in the measurement of lease liabilities $ 545

Supplemental balance sheet information related to our operating leases is as follows:



	Balance Sheet Classification	September 28, 2019
Right-of-use assets	Other non-current assets	$	8,137
Current lease liabilities	Other current liabilities	1,933
Non-current lease liabilities	Other non-current liabilities	7,910

Thirteen Weeks Ended
Balance Sheet Classification March 30,
2019
Right-of-use assets Other non-current assets $ 8,170
Current lease liabilities Other current liabilities 1,751
Non-current lease liabilities Other non-current liabilities 8,138

Weighted average lease term and discount rate information related to leases is as follows:



	~~Thirteen~~Thirty-Nine Weeks Ended
	~~March 30,~~ September 28, 2019
Weighted average remaining lease term of operating leases	~~5.6~~5.3 years
Weighted average discount rate of operating leases	~~4.97~~4.82	%

Maturities of lease liabilities by fiscal year are as follows (in thousands):



Remainder of fiscal year 2019	$	586
Fiscal year 2020	2,351
Fiscal year 2021	2,145
Fiscal year 2022	1,943
Fiscal year 2023	1,666
Thereafter	2,447
Total lease payments	11,138
Less: imputed interest	(1,295		)
Present value of lease liabilities	$	9,843

Fiscal year 2019 $ 1,636
Fiscal year 2020 2,213
Fiscal year 2021 2,003
Fiscal year 2022 1,798
Fiscal year 2023 1,520
Thereafter 2,140
Total lease payments 11,310
Less: imputed interest (1,421 )
Present value of lease liabilities $ 9,889

~~WINGSTOP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

As of December 29, 2018, minimum lease payments under non-cancelable operating leases by period were expected to be as follows (in thousands):



Fiscal year 2019	$	2,181
Fiscal year 2020	2,214
Fiscal year 2021	2,005
Fiscal year 2022	1,800
Fiscal year 2023	1,523
Thereafter	2,145
Total	$	11,868

~~(8)~~(9) Commitments and Contingencies

The Company is subject to legal proceedings, claims, and liabilities, such as employment-related claims and premises-liability cases, 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.

~~(9)~~

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(10)Stock-Based Compensation

Stock-based compensation is measured at the date of grant, based on the calculated fair value of the award, and is recognized as expense over the requisite employee service period (generally the vesting period of the grant). The Company recognized ~~$0.8~~$4.8 million in stock-based compensation expense for the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, with a corresponding increase to additional paid-in-capital. Stock-based compensation expense is included in selling, general and administrative expense in the Consolidated Statements of Operations.

Stock Options

The following table summarizes stock option activity (in thousands, except term and per share data):



	Stock Options		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Term
Outstanding - December 29, 2018	236		$	6.04	$	13,848	4.8
Options granted	—		—
Options exercised	(97	)	4.97
Options canceled	(4	)	26.21
Outstanding - September 28, 2019	135		$	5.78	$	10,979	4.0

Stock Options Weighted Average Exercise Price Aggregate Intrinsic Value Weighted Average Remaining Term
Outstanding - December 29, 2018 236
$ 6.04
$ 13,848
4.8
Options granted —
—

Options exercised (54 ) 2.92

Options canceled (1 ) 40.98

Outstanding - March 30, 2019 181
$ 6.43
$ 12,526
4.7

The total grant-date fair value of stock options vested during the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019 was ~~$0.2~~$0.5 million. The total intrinsic value of stock options exercised during the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019 was ~~$3.5~~$6.7 million. As of ~~March 30,~~September 28, 2019, total unrecognized compensation expense related to unvested stock options was $0.1 million, which is expected to be recognized over a weighted-average period of ~~1.1~~0.4 years.

~~WINGSTOP INC. AND SUBSIDIARIES~~

~~Notes~~ During the thirty-nine weeks ended September 28, 2019, there was a modification to ~~Consolidated Financial Statements~~

~~(Unaudited)~~

certain awards resulting in additional compensation expense of $0.2 million.

Restricted Stock Units and Performance Stock Units

The following table summarizes activity related to restricted stock units (“RSUs”) and performance stock units (“PSUs”) (in thousands, except per share data):



	Restricted Stock Units		Weighted Average Grant Date Fair Value		Performance Stock Units		Weighted Average Grant Date Fair Value
Outstanding - December 29, 2018	103		$	36.18	130		$	40.46
Units granted	47		68.40		46		67.96
Units vested	(45	)	39.61		(26	)	44.15
Units canceled	(22	)	47.70		(21	)	50.48
Outstanding - September 28, 2019	83		$	52.78	129		$	50.01

Restricted Stock Units Weighted Average Grant Date Fair Value Performance Stock Units Weighted Average Grant Date Fair Value
Outstanding - December 29, 2018 103
$ 36.18
130
$ 40.46
Units granted 43
65.86
44
65.86
Units vested (40 ) 34.02
(21 ) 36.10
Units canceled (10 ) 35.68
(8 ) 35.21
Outstanding - March 30, 2019 96
$ 51.05
145
$ 49.46

The fair value of the Company’s RSUs and PSUs is based on the closing market price of the stock on the date of grant. The RSUs granted during the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019 vest over a three-year service period. As of ~~March 30,~~September 28, 2019, total unrecognized compensation expense related to unvested RSUs was ~~$4.7~~$3.3 million, which is expected to be recognized over a weighted-average period of ~~2.2~~1.7 years.

The PSUs vest based on the outcome of certain performance criteria. For the PSUs granted during the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, the amount of units that can be earned range from 0% to 100% of the number of PSUs granted based on a service condition and a performance vesting condition based on the achievement of certain adjusted EBITDA targets, as defined by the ~~plan,~~Company’s Omnibus Incentive Compensation Plan, over a performance period of one to three years. The compensation expense related to these PSUs is recognized over the vesting period when the achievement of the performance conditions becomes probable. The 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. As of ~~March 30,~~September 28, 2019, total unrecognized compensation expense related to unvested PSUs was ~~$5.3~~$3.9 million. During the thirty-nine weeks ended September 28, 2019, there was a modification to certain awards resulting in additional compensation expense of $0.7 million.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Restricted Stock Awards

The fair value of the unvested restricted stock awards is based on the closing price of the Company’s common stock on the date of grant. As of ~~March 30,~~September 28, 2019, total unrecognized compensation expense related to unvested restricted stock awards was ~~$0.3~~$0.6 million, which will be recognized over a weighted average period of approximately ~~1.4~~1.6 years.

~~(10)~~(11)Business Segments

The Company’s business operates in two segments: the “Franchise” segment and the “Company” segment. The Franchise segment consists of domestic and international franchise restaurants, which represent the majority of our system-wide restaurants. As of ~~March 30,~~September 28, 2019, the Franchise segment consisted of ~~1,244~~1,310 restaurants operated by Wingstop franchisees in the United States and international markets, compared to ~~1,133~~1,189 franchised restaurants in operation as of ~~March 31,~~September 29, 2018. Franchise segment revenue consists primarily of franchise royalty revenue, advertising fee revenue, franchise and development fees revenue, and international territory fees.

As of ~~March 30,~~September 28, 2019, the Company segment consisted of 2930 company-owned restaurants located in the United States, compared to 2426 company-owned restaurants as of ~~March 31,~~September 29, 2018. Company segment revenue is comprised of food and beverage sales at company-owned restaurants. Company segment expenses consist of operating expenses at company-owned restaurants and include food, beverage, labor, benefits, utilities, rent, and other operating costs.

~~WINGSTOP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The following table reflects revenue and profit information with respect to each segment and reconciles segment profits to income before taxes (in thousands):


	Thirteen Weeks Ended				Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	March 30, 2019		March 31, 2018		September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Revenue:
Franchise segment	$	34,538	$	26,386	$	35,932	$	26,401	$	105,144	$	78,346
Company segment	13,515		11,003		13,943		11,845		41,346		34,326
Total segment revenue	$	48,053	$	37,389	$	49,875	$	38,246	$	146,490	$	112,672

Segment Profit:
Franchise segment	$	9,255	$	8,387	$	9,631	$	7,663	$	27,107	$	23,418
Company segment	2,516		2,641		2,318		2,693		6,900		7,892
Total segment profit	11,771		11,028		11,949		10,356		34,007		31,310
Corporate and other⁽¹⁾	—		1,462		—		—		—		1,462
Interest expense, net	4,410		1,736		4,243		2,545		12,952		6,623
Income before taxes	$	7,361	$	7,830	$	7,706	$	7,811	$	21,055	$	23,225

⁽¹⁾ Corporate and other includes corporate related items not allocated to reportable segments and consists primarily of transaction costs associated with the refinancings of our credit agreement and payment of a special dividend.

~~(11)~~(12) Restaurant Acquisition

On August 22, 2019, the Company acquired one existing restaurant from a franchisee. The total purchase price was $1.2 million, which was funded by cash flows from operations.

WINGSTOP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the preliminary allocations of the purchase price to the estimated fair value of assets acquired and liabilities assumed at the date of the acquisition (in thousands):



	Purchase Price Allocation
Working capital	$	3
Property and equipment	99
Reacquired franchise rights	610
Goodwill	517
Total purchase price	$	1,229

The estimates of fair value are preliminary, and are therefore subject to further refinement. The excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill and is attributable to the benefits expected as a result of the acquisition, including sales and unit growth opportunities. As of September 28, 2019, $0.5 million of the goodwill from the acquisition is expected to be deductible for federal income tax purposes.

Pro-forma financial information of the combined entities is not presented due to the immaterial impact of the financial results of the acquired restaurant on our consolidated financial statements.

The fair value measurement of tangible and intangible assets and liabilities as of the acquisition date is based on significant inputs not observed in the market and thus represents a Level 3 fair value measurement. Fair value measurements for reacquired franchise rights were determined using the income approach. Fair value measurements for property and equipment were determined using the cost approach.

(13) Revenue from Contracts with Customers

Revenue from contracts with customers consists primarily of royalties, Ad Fund contributions, initial and renewal franchise fees, and upfront fees from development agreements and international territory agreements. The performance obligations under franchise agreements consist of (a) a franchise license, (b) pre-opening services, such as training, and (c) ongoing services, such as management of the Ad Fund, development of training materials and menu items, and restaurant monitoring. These performance obligations are highly interrelated, so they are not considered to be individually distinct and therefore are accounted for as a single performance obligation, which is satisfied by providing a right to use our intellectual property over the term of each franchise agreement.

Royalties and franchisee contributions to the Ad Fund, are calculated as a percentage of franchise restaurant sales over the term of the franchise agreement. Initial and renewal franchise fees are payable by the franchisee prior to the restaurant opening or at the time of a renewal of an existing franchise agreement. Franchise agreement royalties and Ad Fund contributions represent sales-based royalties that are related entirely to the performance obligation under the franchise agreement and are recognized as franchise sales occur. Additionally, initial and renewal franchise fees are recognized as revenue on a straight-line basis over the term of the respective agreement. The performance obligation under development agreements and international territory agreements generally consists of an obligation to grant exclusive development rights over a stated term. These development rights are not distinct from franchise agreements, so upfront fees paid by franchisees for development rights are deferred and apportioned to each franchise restaurant opened by the franchisee. The pro rata amount apportioned to each restaurant is accounted for as an initial franchise fee.

The following table represents a disaggregation of revenue from contracts with customers for the thirteen and thirty-nine weeks ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018 (in thousands):


	Thirteen Weeks Ended				Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	March 30, 2019		March 31, 2018		September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Royalty revenue	$	17,907	$	15,386	$	19,065	$	15,461	$	55,409	$	45,797
Advertising fees and related income	13,210		8,605		14,056		8,614		40,753		25,574
Franchise fees	1,582		685		875		656		3,396		1,959

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 ~~March 30,~~September 28, 2019 was included in the deferred revenue balance as of December 29, 2018. Approximately ~~$8.0~~$8.5 million and $9.2 million of deferred revenue as of ~~March 30,~~September 28, 2019 and December 29, 2018, 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~~7.3 years. The Company does not have any material contract assets as of ~~March 30,~~September 28, 2019.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of operations of Wingstop Inc. (collectively with its direct and indirect subsidiaries on a consolidated basis, “Wingstop,” the “Company,” “we,” “our,” or “us”) should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018 (our “Annual Report”). The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity, and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Special Note Regarding Forward-Looking Statements,” below and “Risk Factors” on page 14 of our Annual Report. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

We operate on a 52 or 53 week fiscal year ending on the last Saturday of each calendar year. 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 years 2019 and 2018 each contain 52 weeks.

Overview

Wingstop is a high-growth franchisor and operator of restaurants that offer cooked-to-order, hand-sauced and tossed chicken wings.

We believe we pioneered the concept of wings as a “center-of-the-plate” item for all of our meal occasions. While other concepts include wings as add-on menu items or focus on wings in a bar or sports-centric setting, we are focused on wings, fries, and sides, which generate approximately 93% of our system-wide sales.

We offer our guests 11 bold, distinctive and craveable flavors on our bone-in and boneless chicken wings and tenders that are always cooked to order and paired with our fresh-cut, seasoned fries and ~~made-from-scratch Ranch~~freshly-made ranch and ~~Bleu Cheese~~bleu cheese dips. Our menu is highly-customizable for different dining occasions, and we believe it delivers a compelling value proposition for groups, families, and individuals. We have broad and growing consumer appeal anchored by a sought after core demographic of 18-34 year old Millennials, which we believe is a loyal consumer group that dines at fast casual restaurants more frequently than other consumer groups.

Wingstop is the largest fast casual chicken wings-focused restaurant chain in the world and has demonstrated strong, consistent growth. As of ~~March 30,~~September 28, 2019, we had a total of ~~1,273~~1,340 restaurants in our ~~global~~ system. Our restaurant base is 98% franchised, with ~~1,244~~1,310 franchised locations (including ~~132~~141 international locations) and 2930 company-owned restaurants as of ~~March 30,~~September 28, 2019.

Key Performance Indicators

Key measures that we use in evaluating our restaurants and assessing our business include the following:

Number of restaurants. 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				Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	March 30, 2019		March 31, 2018		September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Domestic Franchised Activity:
Beginning of period	1,095		1,004		1,139		1,040		1,095		1,004
Openings	20		22		31		21		80		64
Closures	(3	)	(4	)	—		(2	)	(5	)	(6	)
Acquired by Company	—		(1	)	(1	)	—		(1	)	(3	)
Restaurants end of period	1,112		1,021		1,169		1,059		1,169		1,059

Domestic Company-Owned Activity:
Beginning of period	29		23		29		26		29		23
Openings	—		—		—		—		—		—
Closures	—		—		—		—		—		—
Acquired from franchisees	—		1		1		—		1		3
Restaurants end of period	29		24		30		26		30		26

Total Domestic Restaurants	1,141		1,045		1,199		1,085		1,199		1,085

International Franchised Activity:
Beginning of period	128		106		135		122		128		106
Openings	6		6		7		8		18		24
Closures	(2	)	—		(1	)	—		(5	)	—
Restaurants end of period	132		112		141		130		141		130

Total System-wide Restaurants	1,273		1,157		1,340		1,215		1,340		1,215

System-wide sales. System-wide sales represents net sales for all of our company-owned and franchised restaurants, with franchised restaurant sales reported by franchisees. While we do not record franchised restaurant sales as revenue, our royalty revenue is calculated based on a percentage of franchised restaurant sales, which generally ranges from 5.0% to 6.0% of gross sales, net of discounts. This measure allows management to better assess changes in our royalty revenue, our overall store performance, the health of our brand, and the strength of our market position relative to competitors. Our system-wide sales growth is driven by new restaurant openings as well as increases in same store sales.

Average unit volume (“AUV”). AUV consists of the average annual sales of all restaurants that have been open for a trailing 52-week period or longer. This measure is calculated by dividing sales during the applicable period for all restaurants being measured by the number of restaurants being measured. Domestic AUV includes revenue from both company-owned and franchised restaurants. AUV allows management to assess our company-owned and franchised restaurant economics. Changes in AUV are primarily driven by increases in same store sales and are also influenced by opening new restaurants.

Same store sales. Same store sales reflects the change in year-over-year sales for the same store base. We define the same store base to include those restaurants open for at least 52 full weeks. This measure highlights theperformance of existing restaurants, while excluding the impact of new restaurant openings and closures. We reviewsame store sales for company-owned restaurants as well as franchised restaurants. Same store sales aredriven by changes in transactions and average transaction size. Transaction size changes are driven by price changes or product mix shifts from either a change in the number of items purchased or shifts into higher or lower priced categories of items.

EBITDA and Adjusted EBITDA. We define EBITDA as net income before interest expense, net, income tax expense, and depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted for transaction costs, gains and losses on the disposal of assets, and stock-based compensation expense. EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies due to differences in methods of calculation. For a reconciliation of net income to EBITDA and Adjusted EBITDA and for further discussion of EBITDA and Adjusted EBITDA as non-GAAP measures and how we utilize them, see footnote 2 below.

The following table sets forth our key performance indicators as well as our total revenue and net income for the thirteen and thirty-nine weeks ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018 (dollars in thousands):


	Thirteen Weeks Ended						Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	March 30, 2019			March 31, 2018			September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Number of system-wide restaurants open at end of period	1,273			1,157			1,340			1,215			1,340			1,215
System-wide sales ⁽¹⁾	$	362,369		$	312,981		$	383,469		$	315,312		$	1,117,341		$	933,250
Domestic restaurant AUV	$	1,156		$	1,120		$	1,219		$	1,131		$	1,219		$	1,131
System-wide domestic same store sales growth	7.1		%	9.5		%
Domestic same store sales growth							12.3		%	6.3		%	10.7		%	6.7		%
Company-owned domestic same store sales growth	4.7		%	12.5		%	11.9		%	5.0		%	10.1		%	6.8		%
Total revenue	$	48,053		$	37,389		$	49,875		$	38,246		$	146,490		$	112,672
Net income	$	6,606		$	6,168		$	5,905		$	6,293		$	17,429		$	19,300
Adjusted EBITDA ⁽²⁾	$	13,885		$	12,492		$	15,400		$	12,246		$	42,835		$	36,485

(1) The percentage of system-wide sales attributable to company-owned restaurants was 3.7% and ~~3.5%~~3.8% for the thirteen weeks ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018, respectively, and was 3.8% and 3.7% for the thirty-nine weeks ended September 28, 2019 and September 29, 2018, respectively. The remainder was generated by franchised restaurants, as reported by our franchisees.

(2) EBITDA and Adjusted EBITDA are supplemental measures of our performance that are not required by, or presented in accordance with, accounting principles generally accepted in the United States (“GAAP”). EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of our liquidity.

We define “EBITDA” as net income before interest expense, net, income tax expense, and depreciation and amortization. We define “Adjusted EBITDA” as EBITDA further adjusted for transaction costs, gains and losses on the disposal of assets, and stock-based compensation expense. There were no gains or losses on disposal of assets during the thirteen and thirty-nine weeks ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018. We caution investors that amounts presented in accordance with our definitions of EBITDA and Adjusted EBITDA may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate EBITDA and Adjusted EBITDA in the same manner. 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. 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.

Management uses EBITDA and Adjusted EBITDA:

as a measurement of operating performance because they assist us in comparing the operating performance of our restaurants on a consistent basis, as they remove the impact of items not directly resulting from our core operations;

for planning purposes, including the preparation of our internal annual operating budget and financial projections;

to evaluate the performance and effectiveness of our operational strategies;

to evaluate our capacity to fund capital expenditures and expand our business; and

to calculate incentive compensation payments for our employees, including assessing performance under our annual incentive compensation plan and determining the vesting of performance-based equity awards.

By providing these non-GAAP financial measures, together with a reconciliation to the most comparable GAAP measure, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. In addition, the instruments governing our indebtedness use EBITDA (with additional adjustments) to measure our compliance with covenants, such as our fixed charge coverage, lease adjusted leverage, and debt incurrence. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation, or as an alternative to, or a substitute for net income or other financial statement data presented in our consolidated financial statements as indicators of financial performance. Some of the limitations are:

such measures do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

such measures do not reflect changes in, or cash requirements for, our working capital needs;

such measures do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

such measures do not reflect our tax expense or the cash requirements to pay our taxes;

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and

other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures.

Due to these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments for transaction costs ~~gains and losses on disposal of assets,~~ and stock-based compensation expense. It is reasonable to expect that these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our restaurants, and complicate comparisons of our internal operating results and operating results of other restaurant companies over time. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation table below help management measure our core operating performance over time by removing items that are not related to day-to-day operations.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the thirteen and thirty-nine weeks ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018 (in thousands):


	Thirteen Weeks Ended				Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	March 30, 2019		March 31, 2018		September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Net income	$	6,606	$	6,168	$	5,905	$	6,293	$	17,429	$	19,300
Interest expense, net	4,410		1,736		4,243		2,545		12,952		6,623
Income tax expense	755		1,662		1,801		1,518		3,626		3,925
Depreciation and amortization	1,276		950		1,408		1,134		4,019		3,163
EBITDA	$	13,047	$	10,516	$	13,357	$	11,490	$	38,026	$	33,011
Additional adjustments:
Transaction costs ^(a)	—		1,462		—		—		—		1,462
Stock-based compensation expense ^(b)	838		514		2,043		756		4,809		2,012
Adjusted EBITDA	$	13,885	$	12,492	$	15,400	$	12,246	$	42,835	$	36,485

(a) Represents costs and expenses related to the refinancing of the senior secured credit facility dated June 30, 2016 and payment of a special dividend; all transaction costs are included in selling, general and administrative expenses (“SG&A”).

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

Results of Operations

Thirteen Weeks Ended ~~March 30,~~September 28, 2019 compared to Thirteen Weeks Ended ~~March 31,~~September 29, 2018

The following table sets forth our results of operations for the thirteen weeks ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018 (dollars in thousands):


	Thirteen Weeks Ended				Increase / (Decrease)					Thirteen Weeks Ended				Increase / (Decrease)
	March 30, 2019		March 31, 2018		$			%		September 28, 2019		September 29, 2018		$			%
Revenue:
Royalty revenue, franchise fees and other	$	21,328	$	17,781	$	3,547		19.9	%	$	21,876	$	17,787	$	4,089		23.0	%
Advertising fees and related income	13,210		8,605		4,605			53.5	%	14,056		8,614		5,442			63.2	%
Company-owned restaurant sales	13,515		11,003		2,512			22.8	%	13,943		11,845		2,098			17.7	%
Total revenue	48,053		37,389		10,664			28.5	%	49,875		38,246		11,629			30.4	%
Costs and expenses:
Cost of sales ⁽¹⁾	9,730		7,397		2,333			31.5	%	10,339		8,040		2,299			28.6	%
Advertising expenses	12,734		8,643		4,091			47.3	%	12,652		8,431		4,221			50.1	%
Selling, general and administrative	12,542		10,833		1,709			15.8	%	13,527		10,285		3,242			31.5	%
Depreciation and amortization	1,276		950		326			34.3	%	1,408		1,134		274			24.2	%
Total costs and expenses	36,282		27,823		8,459			30.4	%	37,926		27,890		10,036			36.0	%
Operating income	11,771		9,566		2,205			23.1	%	11,949		10,356		1,593			15.4	%
Interest expense, net	4,410		1,736		2,674			154.0	%	4,243		2,545		1,698			66.7	%
Income before income tax expense	7,361		7,830		(469		)	(6.0	)%	7,706		7,811		(105		)	(1.3	)%
Income tax expense	755		1,662		(907		)	(54.6	)%	1,801		1,518		283			18.6	%
Net income	$	6,606	$	6,168	$	438		7.1	%	$	5,905	$	6,293	$	(388	)	(6.2	)%

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

Total revenue. During the thirteen weeks ended ~~March 30,~~September 28, 2019, total revenue was ~~$48.1~~$49.9 million, an increase of ~~$10.7~~$11.6 million, or ~~28.5%~~30.4%, compared to ~~$37.4~~$38.2 million in the comparable period in 2018.

Royalty revenue, franchise fees and other. During the thirteen weeks ended ~~March 30,~~September 28, 2019, royalty revenue, franchise fees and other was ~~$21.3~~$21.9 million, an increase of ~~$3.5~~$4.1 million, or ~~19.9%~~23.0%, compared to $17.8 million in the comparable period in 2018. Royalty revenue increased due to ~~111~~121 net franchise restaurant openings since ~~March 31,~~September 29, 2018and domestic same store sales growth of ~~7.1%~~12.3%. ~~Franchise fees increased $0.9 million due to higher termination fees recognized in the current period.~~

Advertising fees and related income. During the thirteen weeks ended ~~March 30,~~September 28, 2019, advertising fees and related income was ~~$13.2~~$14.1 million, an increase of ~~$4.6~~$5.4 million, ~~or 53.5%,~~ compared to $8.6 million in the comparable period in 2018. Advertising fees increased primarily due to the increase in the Ad Fund ~~contributions~~contribution rate from 3% to 4% of gross sales beginning in fiscal year 2019 as well as the ~~15.8%~~21.6% increase in system-wide sales in the thirteen weeks ended ~~March 30,~~September 28, 2019 compared to the thirteen weeks ended ~~March 31,~~September 29, 2018.

Company-owned restaurant sales. During the thirteen weeks ended ~~March 30,~~September 28, 2019, company-owned restaurant sales were ~~$13.5~~$13.9 million, an increase of ~~$2.5~~$2.1 million, or ~~22.8%~~17.7%, compared to ~~$11.0~~$11.8 million in the comparable period in 2018. The increase was primarily due to company-owned same store sales growth of 11.9%, which was primarily driven by an increase in transactions, and the acquisition of ~~five~~four franchised restaurants since the prior year comparable period, resulting in additional sales of ~~$1.6 million and company-owned domestic same store sales growth of 4.7%, which was primarily driven by an increase in transactions.~~$0.7 million.

Cost of sales. During the thirteen weeks ended ~~March 30,~~September 28, 2019, cost of sales was ~~$9.7~~$10.3 million, an increase of $2.3 million, or ~~31.5%~~28.6%, compared to ~~$7.4~~$8.0 million in the comparable period in 2018. Cost of sales as a percentage of company-owned restaurant sales was ~~72.0%~~74.2% in the thirteen weeks ended ~~March 30,~~September 28, 2019, compared to ~~67.2%~~67.9% in the comparable period in 2018.

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

Thirteen Weeks Ended
March 30,
2019 As a % of company-owned restaurant sales March 31,
2018 As a % of company-owned restaurant sales

Cost of sales:
Food, beverage and packaging costs $ 4,816
35.6 % $ 3,684
33.5 %
Labor costs 3,024
22.4 % 2,385
21.7 %
Other restaurant operating expenses 2,277
16.8 % 1,606
14.6 %
Vendor rebates (387 ) (2.9 )% (278 ) (2.5 )%
Total cost of sales $ 9,730
72.0 % $ 7,397
67.2 %



	Thirteen Weeks Ended
	September 28, 2019					September 29, 2018
	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	$	5,162		37.0	%	$	3,926		33.1	%
Labor costs	3,098			22.2	%	2,621			22.1	%
Other restaurant operating expenses	2,456			17.6	%	1,795			15.2	%
Vendor rebates	(377		)	(2.7	)%	(302		)	(2.5	)%
Total cost of sales	$	10,339		74.2	%	$	8,040		67.9	%

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were ~~35.6%~~37.0% in the thirteen weeks ended ~~March 30,~~September 28, 2019, compared to ~~33.5%~~33.1% in the comparable period in 2018. The increase was primarily due to a ~~10.0%~~22.7% increase in the cost of bone-in chicken wings as compared to the prior year period.

Labor costs as a percentage of company-owned restaurant sales were ~~22.4%~~22.2% for the thirteen weeks ended ~~March 30,~~September 28, 2019, compared to ~~21.7%~~22.1% in the comparable period in 2018. The increase as a percentage of company-owned restaurant sales was due primarily to labor associated with the three franchised restaurants that we acquired in the fiscal fourth quarter of 2018 as these newer restaurants operate at lower AUVs than our other company-owned restaurants. This increase was largely offset by the increase in company-owned same store sales of 11.9%.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 17.6% for the thirteen weeks ended September 28, 2019, compared to 15.2% in the comparable period in 2018. The increase as a percentage of company-owned restaurant sales was due to an increase in the Ad Fund contribution rate from 3% to 4% of gross sales beginning in fiscal year 2019, an increase in third-party delivery fees due to the completion of the launch of delivery at all company-owned restaurants in the second quarter of 2019, as well as other restaurant operating expenses associated with the three franchised restaurants that we acquired in the fiscal fourth quarter of 2018 as these newer restaurants operate at lower AUVs than our other company-owned restaurants. This increase was slightly offset by the increase in company-owned same store sales of 11.9%.

Advertising expenses. During the thirteen weeks ended September 28, 2019, advertising expenses were $12.7 million, an increase of $4.2 million compared to $8.4 million in the comparable period in 2018, primarily due to the Ad Fund contribution rate increasing from 3% to 4% of gross sales beginning in fiscal year 2019. 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. During the thirteen weeks ended September 28, 2019, SG&A expense was $13.5 million, an increase of $3.2 million compared to $10.3 million in the comparable period in 2018. The increase in SG&A expense was due to approximately $1.4 million associated with additional expenses to support our continued investment in our national advertising campaign, which was offset by advertising contributions recorded in advertising fees and related income, as well as $1.3 million in additional stock-based compensation which was recognized due to the Company’s year-to-date performance.

Depreciation and amortization. During the thirteen weeks ended September 28, 2019, depreciation expense was $1.4 million, an increase of $0.3 million compared to $1.1 million in the comparable period in 2018. The increase in depreciation and amortization was primarily due to additional capital expenditures related to investments in technology.

Interest expense, net. During the thirteen weeks ended September 28, 2019, interest expense was $4.2 million, an increase of $1.7 million compared to $2.5 million in the comparable period in 2018. The increase was primarily due to a higher average outstanding debt balance and applicable interest rate related to our securitized debt facility.

Income tax expense. Income tax expense was $1.8 million in the thirteen weeks ended September 28, 2019, yielding an effective tax rate of 23.4%, compared to an effective tax rate of 19.4% in the prior year. The increase in the effective tax rate was due to $0.1 million in tax benefits resulting from the recognition of excess tax benefits from stock-based compensation in income tax expense in the current fiscal quarter compared to $0.3 million of excess tax benefits in the prior year period.

Segment results. The following table sets forth our revenue and operating profit for each of our segments for the period presented (dollars in thousands):



	Thirteen Weeks Ended				Increase / (Decrease)
	September 28, 2019		September 29, 2018		$			%
Revenue:
Franchise segment	$	35,932	$	26,401	$	9,531		36.1	%
Company segment	13,943		11,845		2,098			17.7	%
Total segment revenue	$	49,875	$	38,246	$	11,629		30.4	%

Segment Profit:
Franchise segment	$	9,631	$	7,663	$	1,968		25.7	%
Company segment	2,318		2,693		(375		)	(13.9	)%
Total segment profit	$	11,949	$	10,356	$	1,593		15.4	%

Franchise segment. During the thirteen weeks ended September 28, 2019, franchise segment revenue was $35.9 million, an increase of $9.5 million, or 36.1%, compared to $26.4 million in the comparable period in 2018. Royalty revenue increased $3.6 million due to 121 net franchise restaurant openings since September 29, 2018 and domestic same store sales growth of 12.3%. Advertising fees and related income increased $5.4 million primarily due to the increase in the Ad Fund contribution rate from 3% to 4% of gross sales beginning in fiscal year 2019 as well as the increase in system-wide sales in the thirteen weeks ended September 28, 2019 compared to the thirteen weeks ended September 29, 2018.

During the thirteen weeks ended September 28, 2019, franchise segment profit was $9.6 million, an increase of $2.0 million, or 25.7%, compared to $7.7 million in the comparable period in 2018, primarily due to the growth in franchise segment revenue of $9.5 million, which was offset by an increase of $4.2 million in advertising expenses and an increase of $3.2 million in SG&A expenses related to investments to support our national advertising campaign and increased stock-based compensation due to the Company’s year-to-date performance.

Company segment. During the thirteen weeks ended September 28, 2019, company-owned restaurant sales were $13.9 million, an increase of $2.1 million, or 17.7%, compared to $11.8 million in the comparable period in 2018. The increase was primarily due to an increase in company-owned same store sales of 11.9%, which was primarily driven by an increase in transactions, and the acquisition of four franchised restaurants since the prior year comparable period, resulting in additional sales of $0.7 million.

During the thirteen weeks ended September 28, 2019, company segment profit was $2.3 million, a decrease of $0.4 million, or 13.9%, compared to $2.7 million in the comparable period in 2018. The decrease was primarily due to a 22.7% increase in the cost of bone-in chicken wings, an increase in the Ad Fund contribution rate from 3% to 4% of gross sales beginning in fiscal year 2019, and an increase in third-party delivery fees.

Thirty-Nine Weeks Ended September 28, 2019 compared to Thirty-Nine Weeks Ended September 29, 2018

The following table sets forth our results of operations for the thirty-nine weeks ended September 28, 2019 and September 29, 2018 (dollars in thousands):



	Thirty-Nine Weeks Ended				Increase / (Decrease)
	September 28, 2019		September 29, 2018		$			%
Revenue:
Royalty revenue, franchise fees and other	$	64,391	$	52,772	$	11,619		22.0	%
Advertising fees and related income	40,753		25,574		15,179			59.4	%
Company-owned restaurant sales	41,346		34,326		7,020			20.5	%
Total revenue	146,490		112,672		33,818			30.0	%
Costs and expenses:
Cost of sales ⁽¹⁾	30,642		23,182		7,460			32.2	%
Advertising expenses	38,359		25,283		13,076			51.7	%
Selling, general and administrative	39,463		31,196		8,267			26.5	%
Depreciation and amortization	4,019		3,163		856			27.1	%
Total costs and expenses	112,483		82,824		29,659			35.8	%
Operating income	34,007		29,848		4,159			13.9	%
Interest expense, net	12,952		6,623		6,329			95.6	%
Income before income tax expense	21,055		23,225		(2,170		)	(9.3	)%
Income tax expense	3,626		3,925		(299		)	(7.6	)%
Net income	$	17,429	$	19,300	$	(1,871	)	(9.7	)%

⁽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 28, 2019, total revenue was $146.5 million, an increase of $33.8 million, or 30.0%, compared to $112.7 million in the comparable period in 2018.

Royalty revenue, franchise fees and other. During the thirty-nine weeks ended September 28, 2019, royalty revenue, franchise fees and other was $64.4 million, an increase of $11.6 million, or 22.0%, compared to $52.8 million in the comparable period in 2018. Royalty revenue increased due to 121 net franchise restaurant openings since September 29, 2018 and domestic same store sales growth of 10.7%. Franchise fees increased $1.4 million primarily due to higher termination fees recognized in the first fiscal quarter of 2019.

Advertising fees and related income. During the thirty-nine weeks ended September 28, 2019, advertising fees and related income was $40.8 million, an increase of $15.2 million, compared to $25.6 million in the comparable period in 2018. Advertising fees increased primarily due to the increase in the Ad Fund contribution rate from 3% to 4% of gross sales beginning in fiscal year 2019 as well as the 19.7% increase in system-wide sales in the thirty-nine weeks ended September 28, 2019 compared to the thirty-nine weeks ended September 29, 2018.

Company-owned restaurant sales. During the thirty-nine weeks ended September 28, 2019, company-owned restaurant sales were $41.3 million, an increase of $7.0 million, compared to $34.3 million in the comparable period in 2018. The increase was primarily due to the acquisition of six franchised restaurants since the prior year comparable period resulting in additional sales of $3.4 million, as well as an increase in company-owned same store sales of 10.1%, which was primarily driven by an increase in transactions.

Cost of sales. During the thirty-nine weeks ended September 28, 2019, cost of sales was $30.6 million, an increase of $7.5 million, or 32.2%, compared to $23.2 million in the comparable period in 2018. Cost of sales as a percentage of company-owned restaurant sales was 74.1% in the thirty-nine weeks ended September 28, 2019 compared to 67.5% in the prior year period.

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



	Thirty-Nine Weeks Ended
	September 28, 2019					September 29, 2018
	In dollars			As a % of company-owned restaurant sales		In dollars			As a % of company-owned restaurant sales
Cost of sales:
Food, beverage and packaging costs	$	15,184		36.7	%	$	11,306		32.9	%
Labor costs	9,314			22.5	%	7,555			22.0	%
Other restaurant operating expenses	7,289			17.6	%	5,190			15.1	%
Vendor rebates	(1,145		)	(2.8	)%	(869		)	(2.5	)%
Total cost of sales	$	30,642		74.1	%	$	23,182		67.5	%

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 36.7% in the thirty-nine weeks ended September 28, 2019, compared to 32.9% in the comparable period in 2018. The increase was primarily due to a 21.1% increase in the cost of bone-in chicken wings as compared to the prior year period.

Labor costs as a percentage of company-owned restaurant sales were 22.5% for the thirty-nine weeks ended September 28, 2019, compared to 22.0% in the comparable period in 2018. The increase was primarily due to investment in labor as well as training associated with the three franchised restaurants that we acquired in the fiscal fourth quarter of 2018 as we make investments to prepare these restaurants to be refranchised in a future period. This increase iswas offset ~~slightly~~ by the increase in company-owned domestic same store sales of ~~4.7%~~10.1%.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were ~~16.8%~~17.6% for the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, compared to ~~14.6%~~15.1% in the comparable period in 2018. The increase as a percentage of company-owned restaurant sales was ~~primarily~~ due to an increase in the Ad Fund ~~contributions~~contribution rate from 3% to 4% of gross sales beginning in fiscal year 2019 and an increase in the amount of third-party delivery fees due to the completion of the launch of delivery at all company-owned restaurants in the second quarter of 2019, as well as investments ~~in repairs and maintenance~~ associated with the three franchised restaurants that we acquired in the fiscal fourth quarter of 2018 as we ~~make investments to~~ prepare these restaurants to be refranchised in a future period. ~~This increase was~~These increases were slightly offset by the increase in company-owned domestic same store sales of ~~4.7%~~10.1%.

Advertising expenses. During the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, advertising expenses were ~~$12.7~~$38.4 million, an increase of ~~$4.1~~$13.1 million compared to ~~$8.6~~$25.3 million in the comparable period in ~~2018.~~2018 primarily due to the Ad Fund ~~contributions increased~~contribution rate increasing from 3% to 4% of gross sales beginning in fiscal year ~~2019 and advertising~~2019. 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. During the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, SG&A expense was ~~$12.5~~$39.5 million, an increase of ~~$1.7~~$8.3 million compared to ~~$10.8~~$31.2 million in the comparable period in 2018. The increase in SG&A expense was primarily due to an increase of ~~$1.6~~$2.8 million in ~~headcount related expenses~~stock-based compensation due to the modification of certain awards in the second fiscal quarter as ~~we make investments~~well as additional compensation due to ~~support our strategic initiatives.~~the Company’s year-to-date performance. Also contributing to the increase ~~is $0.6~~was approximately $2.4 million associated with additional expenses to support our continued investment in our national advertising ~~campaign. The remaining increases were~~campaign, $1.5 million in ~~various SG&A items~~professional fees and $2.0 million in headcount related expenses to support ~~investments in technology and other initiatives.~~the growth of our business. These ~~year over year~~year-over-year increases were offset by nonrecurring costs of $1.5 million incurred in the first quarter of 2018 related to our debt refinancing and payment of a special dividend.

Depreciation and amortization. During the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, depreciation expense was ~~$1.3~~$4.0 million, an increase of ~~$0.3~~$0.9 million, compared to ~~$1.0~~$3.2 million in the comparable period in 2018. The increase in depreciation and amortization was primarily due to additional ~~amortization associated with reacquired franchise rights resulting from the acquisition of franchised restaurants.~~capital expenditures related to investments in technology.

Interest expense, net. During the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, interest expense was ~~$4.4~~$13.0 million, an increase of ~~$2.7~~$6.3 million compared to ~~$1.7~~$6.6 million in the comparable period in 2018. The increase was primarily due to a higher average outstanding debt balance and applicable interest rate related to our securitized debt facility.

Income tax expense. Income tax expense was ~~$0.8~~$3.6 million in the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, yielding an effective tax rate of ~~10.3%~~17.2%, ~~compared~~which was comparable to an effective tax rate of 21.2% in the prior year. The decrease in the effective tax rate was due to $1.2 million in tax benefits resulting from the recognition of excess tax benefits from stock-based compensation in income tax expense compared to $0.4 million of excess tax benefits16.9% in the prior year period.

Segment results. The following table sets forth our revenue and operating profit for each of our segments for the period presented (dollars in thousands):


	Thirteen Weeks Ended				Increase / (Decrease)					Thirty-Nine Weeks Ended				Increase / (Decrease)
	March 30, 2019		March 31, 2018		$			%		September 28, 2019		September 29, 2018		$			%
Revenue:
Franchise segment	$	34,538	$	26,386	$	8,152		30.9	%	$	105,144	$	78,346	$	26,798		34.2	%
Company segment	13,515		11,003		2,512			22.8	%	41,346		34,326		7,020			20.5	%
Total segment revenue	$	48,053	$	37,389	$	10,664		28.5	%	$	146,490	$	112,672	$	33,818		30.0	%

Segment Profit:
Franchise segment	$	9,255	$	8,387	$	868		10.3	%	$	27,107	$	23,418	$	3,689		15.8	%
Company segment	2,516		2,641		(125		)	(4.7	)%	6,900		7,892		(992		)	(12.6	)%
Total segment profit	$	11,771	$	11,028	$	743		6.7	%	$	34,007	$	31,310	$	2,697		8.6	%

Franchise segment. During the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, franchise segment revenue was ~~$34.5~~$105.1 million, an increase of ~~$8.2~~$26.8 million, or ~~30.9%~~34.2%, compared to ~~$26.4~~$78.3 million in the comparable period in 2018. Royalty revenue increased ~~$2.5~~$9.6 million, primarily due to ~~111~~121 net franchise restaurant openings since ~~March 31,~~September 29, 2018 and domestic same store sales growth of ~~7.1%~~10.7%. Advertising fees and related income increased ~~$4.6~~$15.2 million primarily due to the increase in the Ad Fund ~~contributions~~contribution rate from 3% to 4% of gross sales beginning in fiscal year 2019 as well as the 19.7% increase in system-wide sales in the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019 compared to the ~~thirteen~~thirty-nine weeks ended ~~March 31,~~September 29, 2018. Franchise fees increased ~~$0.9~~$1.4 million primarily due to higher termination fees recognized in the ~~current period.~~first thirteen weeks of fiscal year 2019.

During the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, franchise segment profit was ~~$9.3~~$27.1 million, an increase of ~~$0.9~~$3.7 million, or ~~10.3%~~15.8%, compared to ~~$8.4~~$23.4 million in the comparable period in 2018, primarily due to the growth in franchise segment ~~revenue.~~revenue, which was offset by an increase of $13.1 million in advertising expenses and an increase of $9.8 million in SG&A expenses related to increased stock-based compensation and investments to support our strategic initiatives and our national advertising campaign, which were offset by non-recurring costs of $1.5 million incurred in the first quarter of 2018.

Company segment. During the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, company-owned restaurant sales were ~~$13.5~~$41.3 million, an increase of ~~$2.5~~$7.0 million, ~~or 22.8%,~~ compared to ~~$11.0~~$34.3 million in the comparable period in 2018. The increase was primarily due to the acquisition of ~~five~~six franchised restaurants since the prior year comparable period resulting in additional sales of ~~$1.6~~$3.4 million and an increase in company-owned ~~domestic~~ same store sales of ~~4.7%~~10.1%, which was primarily driven by an increase in transactions.

During the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, company segment profit was ~~$2.5~~$6.9 million, a decrease of ~~$0.1~~$1.0 million, or ~~4.7%~~12.6%, compared to ~~$2.6~~$7.9 million in the comparable period in 2018. The decrease was primarily due to a ~~10.0%~~21.1% increase in the cost of bone-in chicken wings, ~~as well as~~ an increase in third-party delivery fees, and an increase in the Ad Fund ~~contributions~~contribution rate from 3% to 4% of gross sales beginning in fiscal year 2019. Also contributing to the increase was an increase in labor and other restaurant operating expenses associated with the three franchised restaurants that we acquired in the fiscal fourth quarter of 2018 as we make investments to prepare these restaurants to be refranchised in a future period. The decrease was offset slightly by an increase in company-owned domestic same store sales of 4.7%, which was primarily driven by an increase in transactions.

Liquidity and Capital Resources

General. Our primary sources of liquidity and capital resources are cash provided from operating activities, cash and cash equivalents on hand, and proceeds from the incurrence of debt. Our primary requirements for liquidity and capital are working capital and general corporate needs. Historically, we have operated with minimal positive working capital or negative working capital. We believe that our sources of liquidity and capital will be sufficient to finance our continued operations and growth strategy for at least the next twelve months.

The following table shows summary cash flows information for the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018 (in thousands):


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	March 30, 2019			March 31, 2018			September 28, 2019			September 29, 2018
Net cash provided by (used in):
Operating activities	$	9,598		$	9,456		$	28,586		$	30,623
Investing activities	(641		)	(2,326		)	(22,311		)	(8,879		)
Financing activities	(3,246		)	(5,947		)	(5,752		)	(18,326		)
Net change in cash and cash equivalents	$	5,711		$	1,183		$	523		$	3,418

Operating activities. Our cash flows from operating activities are principally driven by sales at both franchise restaurants and company-owned restaurants, as well as franchise and development fees. We collect franchise royalties from our franchise owners on a weekly basis. Restaurant-level operating costs at our company-owned restaurants, unearned franchise and development fees, and corporate overhead costs also impact our cash flows from operating activities.

Net cash provided by operating activities was ~~$9.6~~$28.6 million in the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, ~~which was relatively consistent with net~~a decrease of $2.0 million from cash provided by ~~operating activities~~operations of ~~$9.5~~$30.6 million in the thirty-nine weeks ended September 29, 2018. The decrease was primarily due to the timing of changes in working capital.

Investing activities. Our net cash used in investing activities was ~~$0.6~~$22.3 million in the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, ~~a decrease~~an increase of ~~$1.7~~$13.4 million from ~~$2.3~~$8.9 million used in investing activities in the comparable period in 2018. The ~~decrease~~increase was primarily due to ~~an acquisition~~the purchase of a ~~restaurant from a franchisee~~new corporate headquarters building for $18.3 million during the ~~thirteen~~thirty-nine weeks ended ~~March 31, 2018.~~September 28, 2019, offset by a decrease in cash used for restaurant acquisitions of $4.8 million.

Financing activities. Our net cash used in financing activities was ~~$3.2~~$5.8 million in the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019, a decrease of ~~$2.7~~$12.6 million from cash used in financing activities of ~~$5.9~~$18.3 million in 2018. The decrease was due to the payment of a special dividend ~~paid~~ in the first quarter of 2018 totaling $92.7 million, offset by net borrowings of ~~long-term debt of $89.6~~$81.6 million in the comparable period in 2018. These decreases were offset by an increase in the amount of our regular dividend, and principal payments associated with our securitized financing facility, offset by additional borrowings under our Variable Funding Notes (as defined below) of $5.0 million in the thirty-nine weeks ended September 28, 2019.

Securitized financing facility. On November 14, 2018, we entered into a securitized financing facility comprised of $320 million of Series 2018-1 4.97% Fixed Rate Senior Secured Notes, Class A-2 (the “Class A-2 Notes”) as well as a variable funding note facility of Series 2018-1 Variable Funding Senior Notes, Class A-1 (the “Variable Funding Notes” and, together with the Class A-2 Notes, the “Notes”), which ~~will~~ allow us to borrow up to $20 million as needed on a revolving basis. ~~We utilized approximately $314~~As of September 28, 2019, we had $5.0 million outstanding borrowings under the Variable Funding Notes, with $4.0 million letters of ~~proceeds from the Class A-2 Notes to repay the approximately $215 million of indebtedness under our 2018 senior secured~~ credit ~~facility (the “2018 Facility”) and to pay a special cash dividend of approximately $89.7 million to our stockholders.~~outstanding.

The Class A-2 Notes are subject to 1% annual amortization, bear interest at a fixed rate of 4.97% per annum, and have an anticipated repayment date of December 2023. Interest and principal payments on the Notes are payable on a quarterly basis.

~~Dividends.~~ ~~We paid~~Borrowings under the Variable Funding Notes accrue interest at a variable rate based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the London interbank offered rate for U.S. Dollars or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin, as more fully set forth in the Variable Funding Note Purchase Agreement, dated November 14, 2018. Interest is payable on a quarterly ~~cash~~basis.

Dividends. The Company’s Board of Directors declared a quarterly dividend of $0.09 per share of common stock ~~aggregating $2.6~~in each of the first two quarters, and a quarterly dividend of to $0.11 per share of common stock in the third quarter, resulting in aggregate dividends of $8.5 million, or $0.29 per share of common stock, being paid during the ~~first~~thirty-nine weeks ended September 28, 2019.

Subsequent to the end of the third quarter, ~~of 2019. On May 6,~~on October 29, 2019, the Company’s Board of Directors ~~approved~~declared a quarterly dividend of ~~$0.09~~$0.11 per share of common stock for stockholders of record as of November 29, 2019, to be paid on ~~June 21,~~December 13, 2019, totaling approximately ~~$2.7~~$3.2 million.

We do not currently expect the restrictions in our debt instruments to impact our ability to make regularly quarterly dividends pursuant to our quarterly dividend program. However, any future declarations of dividends, as well as the amount and timing of such dividends, isare subject to capital availability and the discretion of our ~~board~~Board of ~~directors,~~Directors, which must evaluate, among other things, whether cash dividends are in the best interest of our stockholders.

Contractual Obligations

There have been no material changes to our contractual obligations disclosed in the contractual obligations section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report. For additional information regarding our long-term debt and our commitments and contingencies, see Note 10, Debt Obligations and Note 11, Commitments and Contingencies in the Annual Report and the corresponding Notes 67 and 89 in the notes to our unaudited consolidated financial statements included elsewhere in this Quarterly Report.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or obligations as of ~~March 30,~~September 28, 2019.

Critical Accounting Policies and Estimates

Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Critical accounting estimates are those that require application of management’s most difficult, subjective, or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. Our critical accounting policies and estimates are identified and described in our annual consolidated financial statements and the related notes included in our Annual Report, and there have been no material changes since the filing of our Annual Report.

Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements, Basis of Presentation, for a summary of recent accounting pronouncements.

Special Note Regarding Forward-Looking Statements

This report includes statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are intended to come within the safe harbor protection provided by those sections. These statements, which involve risks and uncertainties, relate to the discussion of our business strategies and our expectations concerning future operations, margins, profitability, trends, liquidity and capital resources and to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These forward-looking statements can generally by identified by the use of forward-looking terminology, including the terms “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “think,” “estimate,” “seek,” “expect,” “predict,” “could,” “project,” “potential” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties, risks, and factors relating to our operations and business environments, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by these forward-looking statements.

Such risks and other factors include those listed in Item 1A., “Risk Factors,” and elsewhere in this report, including the following factors that could cause actual results or outcomes to differ from the results expressed or implied by forward-looking statements:

our ability to effectively implement our growth strategy;

risks associated with changes in food and supply costs;

our relationships with, and the performance of, our franchisees, as well as actions by franchisees that could harm our business;

our ability to identify, recruit and contract with a sufficient number of qualified franchisees;

risks associated with food safety, food-borne illness and other health concerns;

our ability to successfully expand into new markets;

our ability to effectively compete within our industry;

risks associated with interruptions in our supply chain;

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 our increasing dependence on digital commerce ~~platforms;~~platforms and third-party delivery service providers;

uncertainty in the law with respect to the assignment of liabilities in the franchise business model;

risks associated with litigation against us or our franchisees;

our ability to successfully advertise and market our business;

risks associated with changes in customer preferences and perceptions;

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

risks associated with the geographic concentration of our business;

our ability to maintain adequate insurance coverage for our business;

risks associated with damage to our reputation or lack of acceptance of our brand in existing or new markets;

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; and

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

The above list of factors is not exhaustive. Some of these and other factors are discussed in more detail under “Risk Factors” in our Annual Report. When considering forward-looking statements in this report or that we make in other reports or statements, you should keep in mind the cautionary statements in this report and future reports we file with the SEC. New risks and uncertainties arise from time to time, and we cannot predict when they may arise or how they may affect us. Except as required by law, we assume no obligation to update or revise any forward-looking statements for any reason, or to update the reasons actual results

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Impact of Inflation.The primary inflationary factors affecting our and our franchisees’ operations are food and beverage costs, labor costs, energy costs and the costs and materials used in the construction of new restaurants. Our restaurant operations are subject to federal and state minimum wage laws governing such matters as working conditions, overtime and tip credits. Significant numbers of our and our franchisees’ restaurant personnel are paid at rates related to the federal and/or state minimum wage and, accordingly, increases in the minimum wage increase our and our franchisees’ labor costs. To the extent permitted by competition and the economy, we have mitigated increased costs by increasing menu prices and may continue to do so if deemed necessary in future years. Substantial increases in costs and expenses could impact our operating results to the extent such increases cannot be passed through to our customers. Historically, inflation has not had a material effect on our results of operations. Severe increases in inflation, however, could affect the global and U.S. economies and could have an adverse impact on our business, financial condition and results of operations.

Commodity Price Risk. We are exposed to market risks from changes in commodity prices. Many of the food products purchased by us are affected by weather, production, availability and other factors outside our control. Although we attempt to minimize the effect of price volatility by negotiating fixed price contracts for the supply of key ingredients, there are no established fixed price markets for fresh bone-in chicken wings, so we are subject to prevailing market conditions. Bone-in chicken wings accounted for approximately ~~28.0%~~28.4% and ~~27.2%~~25.6% of our company-owned restaurant cost of sales during the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018, respectively. A hypothetical 10% increase in the bone-in chicken wing costs would have increased costs of sales by approximately ~~$0.3~~$0.9 million during the ~~thirteen~~thirty-nine weeks ended ~~March 30,~~September 28, 2019. We do not engage in speculative financial transactions nor do we hold or issue financial instruments for trading purposes. In instances when we use fixed pricing arrangements with our suppliers, these arrangements cover our physical commodity needs, are not net-settled, and are accounted for as normal purchases.

Interest Rate Risk. As discussed in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation” under “Liquidity and Capital Resources,” the Company entered into a securitized financing facility on November 14, 2018, issuing ~~$320.0~~$320 million of Class A-2 Notes. The proceeds from the Class A-2 Notes were used to repay all amounts outstanding on the 2018 Facility, to pay transaction costs, for general corporate purposes, and for the payment of a special dividend. Concurrently, the Company ~~entered into a revolving financing facility~~issued the Variable Funding Notes, which ~~allows for the drawing~~permit borrowings of up to ~~$20.0~~$20 million ~~using various credit instruments, including a letter~~and may be used to issue letters of ~~credit facility.~~credit. The final legal maturity date of the Notes is in 2048; however, the anticipated repayment date of the Notes is December 2023. The 2018 Facility was canceled upon repayment of all outstanding amounts thereunder in connection with the closing of our securitized financing transaction.

~~Our~~The Company is exposed to interest rate risk on borrowings under the Variable Funding Notes. As of September 28, 2019, the Company had borrowings of $5.0 million under the Variable Funding Notes and $4.0 million of letters of credit outstanding. A hypothetical increase or decrease of 100 basis points on our existing variable rate under the Variable Funding Notes would not materially affect our results of operations or cash flows.

The majority of our long-term debt, including the related current portion, consisted ~~entirely~~ of the ~~$320.0~~$318.4 million ~~incurred~~outstanding under the Class A-2 Notes as of ~~March 30,~~September 28, 2019 (excluding unamortized debt issuance costs and the effect of purchase accounting adjustments). The Company’s ~~predominantly fixed-rate~~fixed rate securitized debt ~~structure has reduced~~exposes the ~~Company’s exposure to interest rate increases that could adversely affect its earnings and cash flows, but the~~ Company ~~remains exposed~~ to changes in market interest rates reflected in the fair value of the debt and to the risk that the Company may ~~in the future~~ need to refinance maturing debt with new debt at a higher rate. The Company is exposed to interest rate increases under the Variable Funding Notes; however, the Company had no outstanding borrowings under its Variable Funding Notes, with $5.0 million of letters of credit outstanding, as of March 30, 2019.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~March 30,~~September 28, 2019, pursuant to Rule 13a-15 under the ~~Securities~~ Exchange ~~Act of 1934, as amended (the “Exchange Act”).~~Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may be involved in claims and legal actions that arise in the ordinary course of business. To our knowledge, there are no material pending legal proceedings to which we are a party or of which any of our property is the subject.

Item 1A. Risk Factors

A description of the risk factors associated with our business is contained in the “Risk Factors” section of our Annual Report.

There have been no material changes to our Risk Factors as previously reported.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Index to Exhibits



Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of Wingstop Inc., filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1/A (Registration No. 333-203891) on June 2, 2015 and incorporated herein by reference.
3.2	Amended and Restated Bylaws of Wingstop Inc., filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K (File No. 001-37425) for the fiscal year ended December 30, 2017 and incorporated herein by reference.
~~10.1†~~	Wingstop Inc. Executive Severance Plan, effective as of January 1, 2019, filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K (File No 0001-37425) for the fiscal year ended December 29, 2018 and incorporated herein by reference.
~~10.2†~~	Form of Wingstop Inc. Executive Severance Plan Participation Agreement, filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K (File No 0001-37425) for the fiscal year ended December 29, 2018 and incorporated herein by reference.
~~10.3†~~	Wingstop Inc. Amended and Restated Executive Severance Plan, effective as of February 26, 2019, filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K (File No 0001-37425) for the fiscal year ended December 29, 2018 and incorporated herein by reference.
~~10.4*†~~	~~Wingstop Inc. Employee Stock Purchase Plan.~~
31.1*	Certification of Principal Executive Officer under Section 302 of the Sarbanes–Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer under Section 302 of the Sarbanes–Oxley Act of 2002.
32.1**	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
32.2**	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
101 INS*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101 SCH*	Inline XBRL Taxonomy Extension Schema Document
101 CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101 DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101 LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101 PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*	Cover Page Interactive Data File (formatted as Inline XBRL and Contained in Exhibit 101)

* Filed herewith.

** Furnished, not filed.

~~† Indicates management agreement.~~

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			Wingstop Inc.
			(Registrant)

Date:	~~May 8,~~October 30, 2019	By:	/s/ Charles R. Morrison
			Chairman and Chief Executive Officer
			(Principal Executive Officer)

Date:	~~May 8,~~October 30, 2019	By:	/s/ Michael J. Skipworth
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

3036



Fiscal year 2019	$	1,636
Fiscal year 2020	2,213
Fiscal year 2021	2,003
Fiscal year 2022	1,798
Fiscal year 2023	1,520
Thereafter	2,140
Total lease payments	11,310
Less: imputed interest	(1,421		)
Present value of lease liabilities	$	9,889