Wingstop Inc. (WING)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the accompanying audited consolidated financial statements and notes. Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this report and “Item 1A. Risk Factors” for a discussion of these risks and uncertainties.

A comparison of our results of operations and cash flows for fiscal year 2023 compared to fiscal year 2022 can be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023, filed with the SEC on February 21, 2024.

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 2024 and 2023 each contain 52 weeks, while fiscal year 2022 contains 53 weeks.

Overview

Wingstop is the largest fast casual chicken wings-focused restaurant chain in the world and has demonstrated strong, consistent growth. As of December 28, 2024, we had a total of 2,563 restaurants in our system. Our restaurant base is 98% franchised, with 2,513 franchised locations (including 359 international locations) and 50 company-owned restaurants as of December 28, 2024. We generate revenues by charging royalties, advertising fees and franchise fees to our franchisees and by operating a number of our own restaurants.

We plan to grow our business by opening new franchised restaurants and increasing our same store sales, while leveraging our franchise model to create shareholder value. Domestic same store sales have increased for 21 consecutive years beginning in 2004, which includes 3-year cumulative domestic same stores sales growth of 41.6% since the beginning of fiscal year 2022. We believe our asset-light, highly-franchised business model generates strong operating margins and requires low capital expenditures, creating shareholder value through strong and consistent operating cash flow and capital-efficient growth.

Highlights for Fiscal Year 2024 Compared to Fiscal Year 2023

•System-wide sales increased 36.8% over the prior fiscal year to $4.8 billion;

•System-wide restaurant count increased 15.8% over the prior fiscal year to a total of 2,563 worldwide locations, driven by 349 net unit openings;

•Domestic same store sales increased 19.9% over the prior fiscal year;

•Company-owned domestic same store sales increased 7.7% over the prior fiscal year;

•Digital sales increased to 70.3% of system-wide sales;

•Domestic AUV increased to $2.1 million;

•Total revenue increased 36.0% over the prior fiscal year to $625.8 million;

•Net income increased 54.9% over the prior fiscal year to $108.7 million, or $3.70 per diluted share, compared to $70.2 million, or $2.35 per diluted share in the prior fiscal year; and

•Adjusted EBITDA, a non-GAAP measure, increased 44.8% to $212.1 million, compared to adjusted EBITDA of $146.5 million in the prior fiscal year.

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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, system-wide sales, royalty and franchise fee revenue, and company-owned restaurant sales.

(1) Includes U.S. territories.

System-wide sales. System-wide sales represents net sales for all of our company-owned and franchised restaurants (as reported by franchisees). 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.

Domestic average unit volume (“AUV”). Domestic 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. Domestic AUV allows management to assess our domestic company-owned and franchised restaurant economics. Changes in domestic AUV are primarily driven by increases in same store sales and are also influenced by opening new restaurants.

Domestic same store sales. Domestic 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 the performance of existing restaurants, while excluding the impact of new restaurant openings and permanent closures. We review same store sales for domestic company-owned restaurants as well as system-wide domestic restaurants. Domestic same store sales growth is driven by increases in transactions and average transaction size. Transaction size increases are driven by price increases or favorable mix shift from either an increase in items purchased or shifts into higher priced items.

EBITDA and Adjusted EBITDA. We define EBITDA as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization. We define Adjusted EBITDA as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization, with further adjustments for losses on debt extinguishment and financing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, system implementation costs, and stock-based compensation expense. 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.

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The following table sets forth our key performance indicators for the fiscal years ended December 28, 2024 and December 30, 2023 (in thousands, except unit data):

(1) The percentage of system-wide sales attributable to company-owned restaurants was 2.5% and 2.8% for the fiscal years ended December 28, 2024 and December 30, 2023, 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 should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. These should not be viewed as an alternative to cash flows from operating activities as a measure of our liquidity.

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. 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;

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•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 as performance measures and only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments for losses on debt extinguishment and financing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, system implementation costs, and stock-based compensation expense. 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 fiscal years ended December 28, 2024 and December 30, 2023 (in thousands):

(a) Represents costs and expenses related to our 2024 securitized financing facility; all transaction costs are included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(b) Represents non-recurring consulting fees that are not part of our ongoing operations and are incurred to execute discrete, project-based strategic initiatives, which are included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income. Fiscal year 2023 includes approximately $5.2 million in consulting fees relating to a comprehensive review of our long-term growth strategy for our domestic business to explore potential future initiatives, and which review was completed in fiscal year 2023. Given the magnitude and scope of this strategic review initiative that is not expected to recur in the foreseeable future, the Company considers the incremental consulting fees incurred with respect to the initiative not reflective of the ongoing costs to operate its business.

(c) System implementation costs represent non-recurring expenses incurred related to the development and implementation of new enterprise resource planning and human capital management technology, which are included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

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

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Results of Operations

Year ended December 28, 2024 compared to year ended December 30, 2023

The following table sets forth certain income and expense items included in the Consolidated Statements of Comprehensive Income for fiscal year 2024 and fiscal year 2023 (in thousands, except for percentages):

Revenue

During fiscal year 2024, total revenue was $625.8 million, an increase of $165.8 million, or 36.0%, compared to $460.1 million in the prior fiscal year.

Royalty revenue, franchise fees and other increased $81.3 million, of which $36.1 million was due to domestic same store sales growth of 19.9%, and $29.9 million was due to net new franchise development since December 30, 2023. Other revenue increased by $7.2 million primarily due to an increase in vendor rebates.

Advertising fees increased $60.5 million, of which $51.0 million was due to a 36.8% increase in system-wide sales during fiscal year 2024, and $9.5 million was due to an increase in the national advertising fund contribution rate to 5.3% from 5.0% effective the first day of the fiscal second quarter 2024.

Company-owned restaurant sales increased $24.0 million, of which $16.0 million was related to company-owned same store sales growth of 7.7%, driven primarily by an increase in transactions, and $8.0 million was primarily related to company-owned restaurants opened and acquired during fiscal year 2024.

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Cost of sales

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 36.2% in fiscal year 2024 compared to 33.1% in the prior fiscal year. The increase is primarily due to a 43.0% increase in the cost of bone-in chicken wings as compared to the prior year period. Our purchases in the prior fiscal year period were tied primarily to the spot market, which benefited from significant deflation in the cost of bone-in chicken wings. During fiscal year 2024, we were able to move the majority of our purchases of bone-in chicken wings away from the spot market to provide more predictable food cost.

Labor costs as a percentage of company-owned restaurant sales were 23.6% in fiscal year 2024 compared to 24.0% in the prior fiscal year. The decrease is primarily due to sales leverage related to the company-owned domestic same store sales increase of 7.7%, offset by an increase in company-owned restaurant wages.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 19.2% in fiscal year 2024 compared to 19.1% in the prior fiscal year. The increase as a percentage of company-owned restaurant sales was primarily due to an increase in the national advertising fund contribution rate to 5.3% from 5.0% effective the first day of the fiscal second quarter 2024, partially offset by sales leverage related to the company-owned domestic same store sales increase of 7.7%.

Advertising expenses

Advertising expenses were $233.3 million, an increase of $66.7 million, compared to $166.6 million in fiscal year 2023. Advertising expenses are recognized at the same time the related revenue is recognized, which does not necessarily correlate to the actual timing of the related advertising spend.

Selling, general and administrative (“SG&A”)

SG&A was $116.8 million in fiscal year 2024, an increase of $19.9 million, or 20.5%, compared to $96.9 million in the prior fiscal year. The increase in SG&A expense was driven by an increase in headcount-related expenses of $10.2 million to support the growth in our business, an increase in performance-based stock compensation and incentive compensation expense of $7.6 million related primarily to the Company’s performance, and an increase in professional and consulting fees of $1.2 million associated with the Company’s strategic initiatives, including system implementation costs.

Depreciation and amortization

Depreciation and amortization was $19.5 million in fiscal year 2024, an increase of $6.3 million, or 47.2%, compared to $13.2 million in the prior fiscal year. The increase in depreciation and amortization was primarily due to software assets placed into service during fiscal year 2024 that relate to the launch of our proprietary technology platform: MyWingstop.

Interest expense, net

Interest expense, net was $21.3 million in fiscal year 2024, an increase of $3.1 million, or 16.8%, compared to $18.2 million in the prior fiscal year. The increase was primarily driven by less interest income earned during fiscal year 2024 due to higher cash balances during fiscal year 2023.

Income tax expense

The effective tax rate in fiscal year 2024 was 26.1%, compared to an effective tax rate of 25.6% in the prior fiscal year. The increase in the effective tax rate was primarily due to an increase in non-deductible expenses.

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 borrowings available under our securitized financing facility. Our primary requirements for liquidity and capital are working capital, general corporate needs, capital expenditures, income tax payments, debt service requirements,

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and dividend payments. Historically, we have operated with minimal positive working capital or with negative working capital. We generally utilize available cash flows from operations to invest in our business, service our debt obligations, and pay dividends. As of December 28, 2024, the Company had $359.6 million of cash and cash equivalents on its balance sheet, including advertising fund cash and cash equivalents.

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

The following table shows summary cash flows information for fiscal years 2024 and 2023 (in thousands):

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 fees. We collect franchise royalties from our franchise owners on a weekly basis. Restaurant-level operating costs at our company-owned restaurants, unearned franchise fees, and corporate overhead costs also impact our cash flows from operating activities.

Net cash provided by operating activities was $157.6 million in fiscal year 2024, an increase of $36.0 million from cash provided by operating activities of $121.6 million in the prior fiscal year. The increase is primarily due to an increase in operating income, as well as changes in Ad Fund cash and cash equivalents, directly related to the timing of payments for expenses incurred for national advertising.

Investing activities. Our net cash used in investing activities was $62.5 million in fiscal year 2024, an increase of $10.3 million, from $52.2 million in fiscal year 2023. The increase in cash used in investing activities was primarily due to an increase in capital expenditures related to our technology investments, as well as the impact of additional restaurants acquired from franchisees as compared to the prior fiscal year period, partially offset by the sale of seven company-owned restaurants to a franchisee in fiscal year 2024.

Financing activities. Our net cash provided by financing activities was $144.8 million in fiscal year 2024, a change of $300.3 million, from net cash used in financing activities of $155.5 million in fiscal year 2023. The change is primarily related to the net cash provided by additional borrowings under our 2024 Class A-2 Notes (as defined below) of $500 million in fiscal year 2024, partially offset by an increase of $189.3 million in common stock repurchased under our share repurchase program as compared to the prior fiscal year.

Securitized financing facility. On December 3, 2024, the Company completed a securitized financing transaction, in which Wingstop Funding LLC, a limited purpose, bankruptcy-remote, indirect wholly owned subsidiary of the Company (the “Issuer”), issued $500 million of its Series 2024-1 5.858% Fixed Rate Senior Secured Notes, Class A-2 (the “2024 Class A-2 Notes”). The Issuer also increased the capacity of its revolving financing facility of Series 2022-1 Variable Funding Senior Notes, Class A-1 (the “Variable Funding Notes”) from $200 million to $300 million. Following the increase, borrowing capacity under the Variable Funding Notes permits borrowings of up to a maximum principal amount of $300 million, a portion of which may be used to issue letters of credit. The 2024 Class A-2 Notes and the Variable Funding Notes are referred to collectively as the “2024 Notes.” The proceeds from the securitized financing transaction were used to pay related transaction fees and expenses, strengthen the Company's liquidity position and for general corporate purposes, including the repurchase of shares of the Company’s common stock.

In addition to the 2024 Notes, the Company’s outstanding debt consists of its existing Series 2022-1 3.734% Fixed Rate Senior Secured Notes, Class A-2 (the “2022 Notes”) and Series 2020-1 2.84% Fixed Rate Senior Secured Notes, Class A-2 (the “2020 Notes”). No borrowings were outstanding under the Variable Funding Notes as of December 28, 2024.

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Dividends. We paid quarterly cash dividends of $0.22 per share of common stock in each of the first two quarters of 2024, and quarterly cash dividends of $0.27 per share of common stock in both the third and fourth quarters of 2024, resulting in aggregate quarterly dividend payments of $28.7 million in fiscal year 2024. On February 18, 2025, the Company’s board of directors approved a dividend of $0.27 per share, to be paid on March 28, 2025 to stockholders of record as of March 7, 2025, totaling approximately $7.7 million.

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

Share Repurchase Program. On August 17, 2023, the Company’s board of directors approved a new share repurchase program with authorization to repurchase up to $250.0 million of its outstanding shares of common stock (the “August 2023 Authorization”). On August 23, 2023, the Company entered into an accelerated share repurchase agreement (the “2023 ASR Agreement”) with a third-party financial institution to repurchase $125.0 million of the Company’s common stock as part of the August 2023 Authorization. Under the 2023 ASR Agreement, the Company paid the financial institution $125.0 million in cash and received and retired a total of 645,952 shares of common stock at an average share price of $193.51. Final settlement of the ASR Agreement occurred on December 21, 2023.

On December 5, 2024, the Company’s board of directors authorized the purchase of up to an additional $500.0 million of its outstanding shares of common stock under its existing share repurchase program (the “December 2024 Authorization” and together with the August 2023 Authorization, the “Share Repurchase Program”), following the substantial completion of purchases of common stock under the August 2023 Authorization.

On December 9, 2024, the Company entered into an accelerated share repurchase agreement (the “2024 ASR Agreement”) with a third-party financial institution to repurchase $250.0 million of the Company’s common stock under its Share Repurchase Program. Pursuant to the ASR Agreement, during the fiscal fourth quarter of 2024 the Company made an initial payment to the financial institution of $250.0 million in cash and received and retired an initial delivery of 551,325 shares of common stock, representing an estimated 75% of the total shares expected to be delivered under the ASR Agreement, based on the closing price on the date of initial delivery of $328.54. The delivery of any remaining shares will occur at the final settlement of the transactions under the ASR Agreement, which is scheduled to occur in the fiscal first quarter of 2025. The number of shares to be delivered upon final settlement is based on the daily volume-weighted average share prices during the valuation period specified in the ASR Agreement, less a discount and subject to adjustments.

During fiscal year 2024, the Company repurchased and retired 720,804 shares at an average share price of $339.95, inclusive of the shares repurchased under the 2024 ASR Agreement. During fiscal year 2023, the Company repurchased and retired 645,952 shares at an average share price of $193.51 under the 2023 ASR Agreement. As of December 28, 2024, $311.1 million remained available under the Share Repurchase Program. Since the inception of the Company’s share repurchase program in August 2023, the Company has repurchased and retired 1,366,756 shares of its common stock at an average price of $272.89 per share.

Contractual Obligations

Our cash requirements greater than twelve months from contractual obligations and commitments include:

Debt Obligations and Interest Payments. Refer to “Note 11 - Debt Obligations” of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments.

Operating Leases. Refer to “Note 12 - Leases” of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments.

Indemnifications. We are parties to certain indemnification obligations to third parties in the ordinary course of business. We believe the probability of incurring an actual liability under such indemnifications is sufficiently remote so that no liability has been recorded.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates may require application of management’s most

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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 most significant accounting policies and estimates are more fully described in “Note 1 - Basis of Presentation and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements. However, we believe the accounting policies described below are particularly important to the portrayal and understanding of our financial position and results of operations.

Revenue Recognition

Revenues consist primarily of royalties, national advertising fund contributions, initial and renewal franchise fees, and upfront fees from development agreements and international territory agreements. The Company's performance obligations under its franchise agreements consist of (a) a franchise license, (b) pre-opening services, such as training, and (c) ongoing services, such as management of Ad Fund contributions, 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 the Company's intellectual property over the term of each franchise agreement. Franchise fee, development fee and international territory fee payments received by the Company before the restaurant opens are recorded as deferred revenue in the Consolidated Balance Sheets.

Royalties, including 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. The Company's franchise agreement royalties, inclusive of Ad Fund contributions, represent sales-based royalties that are related entirely to the Company's performance obligation under the franchise agreement and are recognized as franchised restaurant sales occur, payable weekly. Additionally, initial and renewal franchise fees are recognized as revenue on a straight-line basis over the term of the respective agreement. The Company's 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 apportioned to each franchised restaurant opened and accounted for as an initial franchise fee.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the accompanying audited consolidated financial statements and notes. Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this report and “Item 1A. Risk Factors” for a discussion of these risks and uncertainties.

A comparison of our results of operations and cash flows for fiscal year 2022 compared to fiscal year 2021 can be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 22, 2023.

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

Overview

Wingstop is the largest fast casual chicken wings-focused restaurant chain in the world and has demonstrated strong, consistent growth. As of December 30, 2023, we had a total of 2,214 restaurants in our system. Our restaurant base is 98% franchised, with 2,165 franchised locations (including 288 international locations) and 49 company-owned restaurants as of December 30, 2023. We generate revenues by charging royalties, advertising fees and franchise fees to our franchisees and by operating a number of our own restaurants.

We plan to grow our business by opening new franchised restaurants and increasing our same store sales, while leveraging our franchise model to create shareholder value. Domestic same store sales have increased for 20 consecutive years beginning in 2004, which includes 5-year cumulative domestic same stores sales growth of 62.2% since the beginning of fiscal year 2019. We believe our asset-light, highly-franchised business model generates strong operating margins and requires low capital expenditures, creating shareholder value through strong and consistent operating cash flow and capital-efficient growth.

Change in Presentation

Beginning in the first quarter of 2023, gains and losses on disposal of assets are no longer presented as an adjustment to EBITDA or Net income in our calculation of Adjusted EBITDA, Adjusted net income, and Adjusted earnings per diluted share. EBITDA, Adjusted EBITDA, Adjusted net income, and Adjusted earnings per diluted share are non-GAAP measures and are defined below. Prior period gains and losses on disposal of assets have been excluded from these measures to conform to the current presentation. This reclassification had no impact on operating income, balance sheets or statements of cash flows.

Highlights for Fiscal Year 2023 Compared to Fiscal Year 2022(1)

•System-wide sales increased 27.1% over the prior fiscal year to $3.5 billion;

•System-wide restaurant count increased 13.0% over the prior fiscal year to a total of 2,214 worldwide locations, driven by 255 net unit openings;

•Domestic same store sales increased 18.3% over the prior fiscal year;

•Company-owned domestic same store sales increased 8.2% over the prior fiscal year;

•Digital sales increased to 67.0% of system-wide sales;

•Domestic AUV increased to $1.8 million;

•Total revenue increased 28.7% over the prior fiscal year to $460.1 million;

•Net income increased 32.5% over the prior fiscal year to $70.2 million, or $2.35 per diluted share, compared to $52.9 million, or $1.77 per diluted share in the prior fiscal year;

•Adjusted net income and adjusted earnings per diluted share, both non-GAAP measures, increased 36.0% to $74.1 million, or $2.48 per diluted share, compared to $54.5 million, or $1.82 per diluted share in the prior fiscal year; and

•Adjusted EBITDA, a non-GAAP measure, increased 36.1% to $146.5 million, compared to adjusted EBITDA of $107.6 million in the prior fiscal year.

(1) The fiscal year ended December 31, 2022 benefited from a 53rd week as compared to fiscal 2023.

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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, system-wide sales, royalty and franchise fee revenue, and company-owned restaurant sales.

(1) Includes U.S. territories.

System-wide sales. System-wide sales represents net sales for all of our company-owned and franchised restaurants (as reported by franchisees). 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.

Domestic average unit volume (“AUV”). Domestic 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. Domestic AUV allows management to assess our domestic company-owned and franchised restaurant economics. Changes in domestic AUV are primarily driven by increases in same store sales and are also influenced by opening new restaurants.

Domestic same store sales. Domestic 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 the performance of existing restaurants, while excluding the impact of new restaurant openings and permanent closures. We review same store sales for domestic company-owned restaurants as well as system-wide domestic restaurants. Domestic same store sales growth is driven by increases in transactions and average transaction size. Transaction size increases are driven by price increases or favorable mix shift from either an increase in items purchased or shifts into higher priced items.

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

Adjusted Net Income and Adjusted Earnings Per Diluted Share. We define Adjusted net income as net income adjusted for losses on debt extinguishment and financing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, and related tax adjustments that management believes are not indicative of the Company’s core operating results or business outlook over the long-term. We define Adjusted earnings per diluted share as Adjusted net income divided by weighted average diluted share count. For a reconciliation of net income to Adjusted net income and for further discussion of Adjusted net income and Adjusted earnings per diluted share as non-GAAP measures and how we utilize them, see footnote 3 below.

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The following table sets forth our key performance indicators for the fiscal years ended December 30, 2023 and December 31, 2022 (in thousands, except unit data):

(1) The percentage of system-wide sales attributable to company-owned restaurants was 2.8% and 2.9% for the fiscal years ended December 30, 2023 and December 31, 2022, respectively. The remainder was generated by franchised restaurants, as reported by our franchisees.

(2) Fiscal 2022 included a 53rd week; same store sales percentages were calculated excluding the 53rd week.

(3) 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 should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. These should not be viewed as an alternative to cash flows from operating activities as a measure of our liquidity.

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. 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;

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•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 as performance measures and only supplementally. As noted in the table below, Adjusted EBITDA includes adjustments for losses on debt extinguishment and financing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, and stock-based compensation expense. We 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 fiscal years ended December 30, 2023 and December 31, 2022 (in thousands):

(a) Represents costs and expenses related to our 2022 securitized financing facility and payment of a special dividend, as well as the extinguishment of our 2020 variable funding note facility; all transaction costs are included in Loss on debt extinguishment and financing transactions during the year ended December 31, 2022, with the exception of $310,000 that is included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(b) Represents non-recurring consulting fees that are not part of our ongoing operations and are incurred to execute discrete, project-based strategic initiatives, which are included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income. Fiscal year 2022 includes approximately $0.5 million of third-party consulting fees incurred relating to a strategic initiative to consider the development of a business plan and financial model for potential vertical integration of a poultry complex, which review was completed in fiscal year 2022. Fiscal years 2023 and 2022 include approximately $5.2 million and $0.4 million, respectively, in consulting fees relating to a comprehensive review of our long-term growth strategy for our domestic business to explore potential future initiatives, and which review was completed in fiscal year 2023. Given the magnitude and scope of these two strategic review initiatives that are not expected to recur in the

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foreseeable future, the Company considers the incremental consulting fees incurred with respect to the initiatives not reflective of the ongoing costs to operate its business.

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

(4) Adjusted net income and adjusted earnings per diluted share are supplemental measures of operating performance that do not represent and should not be considered alternatives to net income and earnings per share, as determined by GAAP. These measures have not been prepared in accordance with Article 11 of Regulation S-X promulgated under the Securities Act. Management believes adjusted net income and adjusted earnings per diluted share supplement GAAP measures and enable management to more effectively evaluate the Company’s performance period-over-period and relative to competitors.

The following table reconciles net income to adjusted net income and calculates adjusted earnings per diluted share for the fiscal years ended December 30, 2023 and December 31, 2022 (in thousands):

(a) Represents costs and expenses related to our 2022 securitized financing facility and payment of a special dividend, as well as the extinguishment of our 2020 variable funding note facility; all transaction costs are included in Loss on debt extinguishment and financing transactions during the year ended December 31, 2022, with the exception of $310,000 that is included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(b) Represents non-recurring consulting fees that are not part of our ongoing operations and are incurred to execute discrete, project-based strategic initiatives, which are included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income. Fiscal year 2022 includes approximately $0.5 million of third-party consulting fees incurred relating to a strategic initiative to consider the development of a business plan and financial model for potential vertical integration of a poultry complex, which review was completed in fiscal year 2022. Fiscal years 2023 and 2022 include approximately $5.2 million and $0.4 million, respectively, in consulting fees relating to a comprehensive review of our long-term growth strategy for our domestic business to explore potential future initiatives, and which review was completed in fiscal year 2023. Given the magnitude and scope of these two strategic review initiatives that are not expected to recur in the foreseeable future, the Company considers the incremental consulting fees incurred with respect to the initiatives not reflective of the ongoing costs to operate its business.

(c) Represents the tax effect of the aforementioned adjustments to reflect corporate income taxes at an assumed effective tax rate of 24% for the periods ended December 30, 2023 and December 31, 2022, which includes provisions for U.S. federal income taxes, and assumes the respective statutory rates for applicable state and local jurisdictions.

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Results of Operations

Year ended December 30, 2023 compared to year ended December 31, 2022

The following table sets forth certain income and expense items included in the Consolidated Statements of Comprehensive Income for fiscal year 2023 and fiscal year 2022 (in thousands, except for percentages):

Revenue

During fiscal year 2023, total revenue was $460.1 million, an increase of $102.5 million, or 28.7%, compared to $357.5 million in the prior fiscal year.

Royalty revenue, franchise fees and other increased $48.5 million, of which $25.6 million was due to domestic same store sales growth of 18.3%, and $16.5 million was due to net new franchise development since December 31, 2022. Other revenue increased by $4.2 million primarily due to an increase in vendor rebates. These increases were partially offset by approximately $3.0 million in royalties from the 53rd week in the prior fiscal year.

Advertising fees increased $38.1 million, of which $34.6 million was due to a 27.1% increase in system-wide sales during fiscal year 2023, and $6.2 million was due to an increase in the national advertising fund contribution rate to 5% from 4% effective the first day of the fiscal second quarter 2022. These increases were partially offset by approximately $2.7 million in advertising fees from the 53rd week in the prior fiscal year.

Company-owned restaurant sales increased $15.9 million primarily due to an increase of $10.3 million related to the increase in the number of company-owned restaurants as compared to the prior fiscal year, as well as an increase of $7.1 million related to company-owned same store sales growth of 8.2%, which was driven by an increase in transactions. These increases were partially offset by approximately $1.5 million in sales from the 53rd week in the prior fiscal year.

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Cost of sales

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 33.1% in fiscal year 2023 compared to 38.3% in the prior fiscal year. The decrease is primarily due to a 27.1% decrease in the cost of bone-in chicken wings as compared to the prior year period.

Labor costs as a percentage of company-owned restaurant sales were 24.0% in fiscal year 2023 compared to 24.1% in the prior fiscal year. The decrease is primarily due to sales leverage related to the company-owned domestic same store sales increase of 8.2%, offset by an increase in company-owned restaurant wages.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 19.1% in fiscal year 2023 compared to 19.3% in the prior fiscal year. The decrease is primarily related to a decrease in pre-opening expenses as compared to the prior year fiscal period, offset by an increase in the national advertising fund contribution rate to 5% from 4% effective the first day of the fiscal second quarter 2022.

Advertising expenses

Advertising expenses were $166.6 million, an increase of $43.5 million, compared to $123.1 million in fiscal year 2022. Advertising expenses are recognized at the same time the related revenue is recognized, which does not necessarily correlate to the actual timing of the related advertising spend.

Selling, general and administrative (“SG&A”)

SG&A was $96.9 million in fiscal year 2023, an increase of $29.8 million, or 44.5%, compared to $67.1 million in the prior fiscal year. The prior fiscal year was impacted by the benefit of $5.4 million in forfeited stock awards, offset by additional expenses of approximately $1.0 million in expenses related to the 53rd week. In fiscal year 2023, incentive compensation and performance-based stock compensation expense increased $9.3 million primarily related to the Company’s current fiscal year performance, professional and consulting fees increased $7.2 million associated with the Company’s strategic initiatives, and headcount related expenses increased $4.1 million to support the growth in our business.

Depreciation and amortization

Depreciation and amortization was $13.2 million in fiscal year 2023, an increase of $2.3 million, or 21.5%, compared to $10.9 million in the prior fiscal year. The increase in depreciation and amortization was primarily due to capital expenditures related to our technology investments, partially offset by an estimated $0.3 million related to the 53rd week in the prior fiscal year.

Interest expense, net

Interest expense, net was $18.2 million in fiscal year 2023, a decrease of $3.0 million, or 14.1%, compared to $21.2 million in the prior fiscal year. The decrease was due to $3.9 million of additional interest income earned during fiscal year 2023, as well as approximately $0.4 million in interest expense related to the 53rd week in the prior fiscal year. These decreases were partially

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offset by an increase in interest expense related to the securitized financing transaction completed on March 9, 2022, which increased our outstanding debt by $250 million.

Loss on debt extinguishment and financing transactions

Loss on debt extinguishment and financing transactions was $0.8 million during fiscal year 2022 due to costs and fees associated with the extinguishment of our 2020 variable funding note facility on March 9, 2022.

Income tax expense

The effective tax rate in fiscal year 2023 was 25.6%, compared to an effective tax rate of 23.6% in the prior fiscal year. The increase in the effective tax rate was primarily due to the impact of tax benefits associated with stock awards forfeited during fiscal year 2022.

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 borrowings available under our securitized financing facility. Our primary requirements for liquidity and capital are working capital, general corporate needs, capital expenditures, income tax payments, debt service requirements, and dividend payments. Historically, we have operated with minimal positive working capital or with negative working capital. We generally utilize available cash flows from operations to invest in our business, service our debt obligations, and pay dividends.

Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available borrowings under our 2022 Variable Funding Notes (defined below). As of December 30, 2023, the Company had $119.7 million of cash and cash equivalents on its balance sheet, including advertising fund cash and cash equivalents.

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

The following table shows summary cash flows information for fiscal years 2023 and 2022 (in thousands):

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 fees. We collect franchise royalties from our franchise owners on a weekly basis. Restaurant-level operating costs at our company-owned restaurants, unearned franchise fees, and corporate overhead costs also impact our cash flows from operating activities.

Net cash provided by operating activities was $121.6 million in fiscal year 2023, an increase of $45.4 million from cash provided by operating activities of $76.2 million in the prior fiscal year. The increase is primarily due to an increase in operating income, as well as changes in Ad Fund cash and cash equivalents, directly related to the timing of payments for expenses incurred for national advertising.

Investing activities. Our net cash used in investing activities was $52.2 million in fiscal year 2023, an increase of $23.5 million, from $28.7 million in fiscal year 2022. The increase in cash used in investing activities was primarily due to an increase in purchases of property and equipment during the current fiscal year, as well as an increase in restaurant acquisition costs as compared to the prior fiscal year.

Financing activities. Our net cash used in financing activities was $155.5 million in fiscal year 2023, primarily related to the repurchase of $125.0 million in common stock under our ASR Agreement, dividend payments of $24.9 million, and repayment of long-term debt of $3.7 million. Cash provided by financing activities of $103.3 million in fiscal year 2022 was primarily

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related to the net cash provided by additional borrowings under our 2022 Class A-2 Notes (as defined below) of $250 million, partially offset by the payment of a special dividend in connection with the securitized financing transaction totaling $119.5 million, as well as deferred financing and other debt related costs incurred of $5.4 million.

Securitized financing facility. On March 9, 2022, the Company completed a securitized financing transaction, pursuant to which Wingstop Funding LLC (the “Issuer”), a limited purpose, bankruptcy-remote, indirect wholly owned subsidiary of the Company, issued $250 million of its Series 2022-1 3.734% Fixed Rate Senior Secured Notes, Class A-2 (the “2022 Class A-2 Notes”). The Issuer also entered into a revolving financing facility of Series 2022-1 Variable Funding Senior Notes, Class A-1 (the “2022 Variable Funding Notes,” and together with the 2022 Class A-2 Notes, the “2022 Notes”), which permits borrowings of up to a maximum principal amount of $200 million, subject to certain borrowing conditions, a portion of which may be used to issue letters of credit. The Company’s existing revolving financing facility of Series 2020-1 Class A-1 Notes was terminated in connection with the transaction. The proceeds from the securitized financing transaction were used to pay related transaction fees and expenses, strengthen the Company's liquidity position and for general corporate purposes, which included a return of capital to the Company’s stockholders.

In addition to the 2022 Notes, the Company’s outstanding debt consists of its existing Series 2020-1 2.84% Fixed Rate Senior Secured Notes, Class A-2 (the “2020 Notes”). No borrowings were outstanding under the 2022 Variable Funding Notes as of December 30, 2023.

Dividends. We paid quarterly cash dividends of $0.19 per share of common stock in each of the first two quarters of 2023, and quarterly cash dividends of $0.22 per share of common stock in both the third and fourth quarters of 2023, resulting in aggregate quarterly dividend payments of $24.4 million in fiscal year 2023. On February 20, 2024, the Company’s board of directors approved a dividend of $0.22 per share, to be paid on March 29, 2024 to stockholders of record as of March 8, 2024, totaling approximately $6.5 million.

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

Share Repurchase Program. On August 16, 2023, the Company’s Board of Directors approved a new share repurchase program with authorization to purchase up to $250.0 million of its outstanding shares of common stock (the “Share Repurchase Authorization”).

On August 23, 2023, the Company entered into the ASR Agreement with a third-party financial institution to repurchase $125.0 million of the Company’s common stock as part of the Share Repurchase Authorization. Under the ASR Agreement, the Company paid the financial institution $125.0 million in cash and received and retired a total of 645,952 shares of common stock at an average share price of $193.51. Final settlement of the ASR Agreement occurred on December 21, 2023. The total number of shares repurchased under the ASR Agreement was based on a daily volume-weighted average share price during the valuation period specified in the ASR Agreement, less a discount and subject to adjustments. As of December 30, 2023, $125.0 million remained available under the Share Repurchase Authorization.

Contractual Obligations

Our cash requirements greater than twelve months from contractual obligations and commitments include:

Debt Obligations and Interest Payments. Refer to “Note 11 - Debt Obligations” of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments.

Operating Leases. Refer to “Note 12 - Leases” of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments.

Indemnifications. We are parties to certain indemnification obligations to third parties in the ordinary course of business. We believe the probability of incurring an actual liability under such indemnifications is sufficiently remote so that no liability has been recorded.

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Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates may 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 most significant accounting policies and estimates are more fully described in “Note 1 - Basis of Presentation and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements. However, we believe the accounting policies described below are particularly important to the portrayal and understanding of our financial position and results of operations.

Revenue Recognition

Revenues consist primarily of royalties, national advertising fund contributions, initial and renewal franchise fees, and upfront fees from development agreements and international territory agreements. The Company's performance obligations under its franchise agreements consist of (a) a franchise license, (b) pre-opening services, such as training, and (c) ongoing services, such as management of Ad Fund contributions, 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 the Company's intellectual property over the term of each franchise agreement. Franchise fee, development fee and international territory fee payments received by the Company before the restaurant opens are recorded as deferred revenue in the Consolidated Balance Sheets.

Royalties, including 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. The Company's franchise agreement royalties, inclusive of Ad Fund contributions, represent sales-based royalties that are related entirely to the Company's performance obligation under the franchise agreement and are recognized as franchised restaurant sales occur, payable weekly. Additionally, initial and renewal franchise fees are recognized as revenue on a straight-line basis over the term of the respective agreement. The Company's 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 apportioned to each franchised restaurant opened and accounted for as an initial franchise fee.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the accompanying audited consolidated financial statements and notes. Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this report and Item 1A. Risk Factors for a discussion of these risks and uncertainties.

A comparison of our results of operations and cash flows for fiscal year 2021 compared to fiscal year 2020 can be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021, filed with the SEC on February 16, 2022.

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 year 2022 contains 53 weeks, while fiscal year 2021 contains 52 weeks.

Overview

Wingstop is the largest fast casual chicken wings-focused restaurant chain in the world and has demonstrated strong, consistent growth. As of December 31, 2022, we had a total 1,959 restaurants in our system. Our restaurant base is 98% franchised, with 1,916 franchised locations (including 238 international locations) and 43 company-owned restaurants as of December 31, 2022. We generate revenues by charging royalties, advertising fees and franchise fees to our franchisees and by operating a number of our own restaurants.

We plan to grow our business by opening new franchised restaurants and increasing our same store sales, while leveraging our franchise model to create shareholder value. Domestic same store sales have increased for 19 consecutive years beginning in 2004, which includes 5-year cumulative domestic same stores sales growth of 50.4% since the beginning of fiscal year 2018. We believe our asset-light, highly-franchised business model generates strong operating margins and requires low capital expenditures, creating shareholder value through strong and consistent operating cash flow and capital-efficient growth.

Highlights for Fiscal Year 2022, which included a 53rd operating week:

•System-wide sales increased 16.8% over the prior fiscal year to $2.7 billion;

•System-wide restaurant count increased 13.2% over the prior fiscal year to a total of 1,959 worldwide locations, driven by 228 net unit openings;

•Domestic same store sales increased 3.4% over the prior fiscal year;

•Company-owned restaurant same store sales increased 1.0% over the prior fiscal year;

•Digital sales continue to exceed 60% of system-wide sales;

•Domestic AUV of $1.6 million;

•Total revenue increased 26.6% over the prior fiscal year to $357.5 million;

•Net income increased 24.1% over the prior fiscal year to $52.9 million, or $1.77 per diluted share, compared to $42.7 million, or $1.42 per diluted share in the prior fiscal year; and

•Adjusted EBITDA, a non-GAAP measure, increased 23.1% to $108.8 million, compared to adjusted EBITDA of $88.4 million in the prior fiscal year.

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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, system-wide sales, royalty and franchise fee revenue, and company-owned restaurant sales.

System-wide sales. System-wide sales represents net sales for all of our company-owned and franchised restaurants (as reported by franchisees). 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.

Domestic average unit volume (“AUV”). Domestic 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. Domestic AUV allows management to assess our domestic company-owned and franchised restaurant economics. Changes in domestic AUV are primarily driven by increases in same store sales and are also influenced by opening new restaurants.

Domestic same store sales. Domestic 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 the performance of existing restaurants, while excluding the impact of new restaurant openings and permanent closures. We review same store sales for domestic company-owned restaurants as well as system-wide domestic restaurants. Domestic same store sales growth is driven by increases in transactions and average transaction size. Transaction size increases are driven by price increases or favorable mix shift from either an increase in items purchased or shifts into higher priced items.

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EBITDA and Adjusted EBITDA. We define EBITDA as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization. We define Adjusted EBITDA as net income before interest expense, net, income tax expense (benefit), and depreciation and amortization, further adjusted for losses on debt extinguishment and financing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and stock-based compensation expense. 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.

Adjusted Net Income and Adjusted Earnings Per Diluted Share. We define Adjusted net income as net income adjusted for losses on debt extinguishment and financing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and related tax adjustments that management believes are not indicative of the Company’s core operating results or business outlook over the long-term. We define Adjusted earnings per diluted share as Adjusted net income divided by weighted average diluted share count. For a reconciliation of net income to Adjusted net income and for further discussion of Adjusted net income and Adjusted earnings per diluted share as non-GAAP measures and how we utilize them, see footnote 3 below.

The following table sets forth our key performance indicators for the fiscal years ended December 31, 2022 and December 25, 2021 (in thousands, except unit data):

(1) The percentage of system-wide sales attributable to company-owned restaurants was 2.9% and 3.0% for the fiscal years ended December 31, 2022 and December 25, 2021, respectively. The remainder was generated by franchised restaurants, as reported by our franchisees.

(2) For fiscal 2022, same store sales percentages were calculated excluding the 53rd week.

(3) 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 should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. These should not be viewed as an alternative to cash flows from operating activities as a measure of our liquidity.

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.

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

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The following table reconciles net income to EBITDA and adjusted EBITDA for the fiscal years ended December 31, 2022 and December 25, 2021 (in thousands):

(a) Represents costs and expenses related to our 2022 securitized financing facility and payment of a special dividend, as well as the extinguishment of our 2020 variable funding note facility; all transaction costs are included in Loss on debt extinguishment and financing transactions during the year ended December 31, 2022, with the exception of $310,000 that is included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(b) Represents a loss (gain) resulting from the sale of assets to a franchisee. The loss (gain) is included in Loss (gain) on disposal of assets on the Consolidated Statements of Comprehensive Income.

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

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

(4) Adjusted net income and adjusted earnings per diluted share are supplemental measures of operating performance that do not represent and should not be considered alternatives to net income and earnings per share, as determined by GAAP. These measures have not been prepared in accordance with Article 11 of Regulation S-X promulgated under the Securities Act. Management believes adjusted net income and adjusted earnings per diluted share supplement GAAP measures and enable management to more effectively evaluate the Company’s performance period-over-period and relative to competitors.

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The following table reconciles net income to adjusted net income and calculates adjusted earnings per diluted share for the fiscal years ended December 31, 2022 and December 25, 2021 (in thousands):

(a) Represents costs and expenses related to our 2022 securitized financing facility and payment of a special dividend, as well as the extinguishment of our 2020 variable funding note facility; all transaction costs are included in Loss on debt extinguishment and financing transactions during the year ended December 31, 2022, with the exception of $310,000 that is included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(b) Represents a loss (gain) resulting from the sale of assets to a franchisee. This loss (gain) is included in Loss (gain) on disposal of assets in the Consolidated Statements of Comprehensive Income.

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

(d) Represents the tax effect of the aforementioned adjustments to reflect corporate income taxes at an assumed effective tax rate of 24% for the periods ended December 31, 2022 and December 25, 2021, which includes provisions for U.S. federal income taxes, and assumes the respective statutory rates for applicable state and local jurisdictions.

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Results of Operations

Year ended December 31, 2022 compared to year ended December 25, 2021

The following table sets forth certain income and expense items included in the Consolidated Statements of Comprehensive Income for fiscal year 2022 and fiscal year 2021 (in thousands, except for percentages):

Total Revenue. During fiscal year 2022, total revenue was $357.5 million, an increase of $75.0 million, or 26.6%, compared to $282.5 million in the prior fiscal year.

Royalty revenue, franchise fees and other increased $27.9 million, of which $8.2 million was due to 221 net franchise restaurant openings since December 25, 2021, $12.3 million was due to domestic same store sales growth of 3.4%, and approximately $3.0 million was due to additional royalties from the 53rd week. Other revenue increased by $4.1 million primarily due to an increase in vendor rebates.

Advertising fees increased $37.5 million, of which $17.0 million was due to a 16.8% increase in system-wide sales during fiscal year 2022, $10.9 million was due to an increase in the national advertising fund contribution rate to 5% from 4% effective the first day of the fiscal second quarter 2022, and approximately $2.7 million was due to additional advertising fees from the 53rd week. Additionally, during the prior year fiscal period, a $6.9 million non-recurring rebate of advertising surplus was returned to franchisees, reducing the revenue recognized.

Company-owned restaurant sales increased $9.6 million, primarily due to an increase of $7.7 million related to the increase in the number of company-owned restaurants compared to the prior year comparable period. Also contributing to the increase was company-owned same store sales growth of 1.0%, which was driven by an increase in average ticket, and approximately $1.5 million of additional sales from the 53rd week.

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Cost of sales. During fiscal year 2022, cost of sales was $63.4 million, an increase of $6.0 million, or 10.4%, compared to $57.4 million in fiscal 2021. Cost of sales as a percentage of company-owned restaurant sales was 79.3% in the current year fiscal period, compared to 81.7% in the prior year fiscal period.

The table below presents the major components of Cost of sales (in thousands, except for percentages):

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 38.3% in fiscal year 2022 compared to 44.8% in the prior fiscal year. The decrease is primarily due to a 26.9% decrease in the cost of bone-in chicken wings as compared to the prior year period.

Labor costs as a percentage of company-owned restaurant sales were 24.1% in fiscal year 2022 compared to 22.8% in the prior fiscal year. The increase as a percentage of company-owned restaurant sales was primarily due to higher wage rates in the restaurants recently opened in New York City, as well as increases in company-owned restaurant wages, hiring and training costs as a result of the ongoing competitive labor market during the current year fiscal period.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 19.3% in fiscal year 2022 compared to 16.3% in the prior fiscal year. The increase as a percentage of company-owned restaurant sales was primarily a result of higher rent and occupancy costs associated with the opening of company-owned restaurants in New York City during the current year fiscal period.

Pre-opening expenses as a percentage of company-owned restaurant sales were 1.2% in fiscal year 2022 driven by our development of the New York City market.

Advertising expenses. Advertising expenses were $123.1 million, an increase of $39.1 million, compared to $84.0 million in fiscal year 2021. Advertising expenses are recognized at the same time the related revenue is recognized, which does not necessarily correlate to the actual timing of the related advertising spend.

Selling, general and administrative (“SG&A”). SG&A was $67.1 million in fiscal year 2022, an increase of $4.2 million, or 6.6%, compared to $62.9 million in the prior fiscal year. The increase in SG&A was primarily due to an increase of $4.0 million in headcount-related expenses to support the growth in our business, an increase of $2.3 million in professional fees to support the Company’s strategic initiatives, an increase of $0.5 million in travel expenses, and approximately $1.0 million related to the 53rd week. These increases were partially offset by a decrease of $5.4 million in stock-based compensation expense primarily related to stock awards forfeited in fiscal year 2022.

Depreciation and amortization. Depreciation and amortization was $10.9 million in fiscal year 2022, an increase of $3.0 million, or 37.2%, compared to $7.9 million in the prior fiscal year. The increase in depreciation and amortization was primarily due to capital expenditures related to our technology investments, as well as an estimated $0.3 million related to the 53rd week.

Interest expense, net. Interest expense, net was $21.2 million in fiscal year 2022, an increase of $6.2 million, or 41.7%, compared to $15.0 million in the prior fiscal year. The increase was due to the securitized financing transaction completed on March 9, 2022, which increased our outstanding debt by $250 million, as well as an estimated $0.4 million related to the 53rd week.

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Loss on debt extinguishment and financing transactions. Loss on debt extinguishment and financing transactions was $0.8 million during fiscal year 2022 due to costs and fees associated with the extinguishment of our 2020 Variable Funding Note on March 9, 2022.

Income tax expense. Income tax expense was $16.4 million in fiscal year 2022, yielding an effective tax rate of 23.6%, compared to an effective tax rate of 27.6% in the prior fiscal year. The decrease in the effective tax rate was primarily due to the impact of tax benefits associated with stock awards forfeited during fiscal year 2022.

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 borrowings available under our securitized financing facility. Our primary requirements for liquidity and capital are working capital, general corporate needs, capital expenditures, income tax payments, debt service requirements, and dividend payments. Historically, we have operated with minimal positive working capital or with negative working capital. We generally utilize available cash flows from operations to invest in our business, service our debt obligations, and pay dividends.

Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available borrowings under our 2022 Variable Funding Notes (defined below). As of December 31, 2022, the Company had $205.7 million of cash and restricted cash on its balance sheet.

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

The following table shows summary cash flows information for fiscal years 2022 and 2021 (in thousands):

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 fees. We collect franchise royalties from our franchise owners on a weekly basis. Restaurant-level operating costs at our company-owned restaurants, unearned franchise fees, and corporate overhead costs also impact our cash flows from operating activities.

Net cash provided by operating activities was $76.2 million in fiscal year 2022, an increase of $27.4 million from cash provided by operating activities of $48.9 million in the prior fiscal year. The increase is primarily due to an increase in operating income, as well as changes in Ad Fund cash and cash equivalents, directly related to the timing of payments for expenses incurred for national advertising.

Investing activities. Our net cash used in investing activities was $28.7 million in fiscal year 2022, a decrease of $1.2 million, from $29.9 million in fiscal year 2021. The decrease in cash used in investing activities was primarily due to an investment in our United Kingdom franchisee made during fiscal year 2021, as well as a decrease in purchases of property and equipment during the current fiscal year, partially offset by changes in cash related to restaurant acquisition and asset disposal transactions as compared to the prior fiscal year.

Financing activities. Our net cash provided by financing activities was $103.3 million in fiscal year 2022, a change of $126.6 million, from cash used in financing activities of $23.4 million in fiscal year 2021. The change was primarily due to additional borrowings under our 2022 Class A-2 Notes (as defined below) of $250 million, partially offset by the payment of a special dividend in connection with the securitized financing transaction totaling $119.5 million, as well as deferred financing and other debt related costs incurred of $5.4 million in fiscal year 2022. The change was also driven by an increase in the regular quarterly dividend, which totaled $21.5 million in fiscal year 2022, compared to $18.5 million in fiscal year 2021.

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Securitized financing facility. On March 9, 2022, the Company completed a securitized financing transaction, pursuant to which Wingstop Funding LLC (the “Issuer”), a limited purpose, bankruptcy-remote, indirect wholly owned subsidiary of the Company, issued $250 million of its Series 2022-1 3.734% Fixed Rate Senior Secured Notes, Class A-2 (the “2022 Class A-2 Notes”). The Issuer also entered into a revolving financing facility of Series 2022-1 Variable Funding Senior Notes, Class A-1 (the “2022 Variable Funding Notes,” and together with the 2022 Class A-2 Notes, the “2022 Notes”), which permits borrowings of up to a maximum principal amount of $200 million, subject to certain borrowing conditions, a portion of which may be used to issue letters of credit. The Company’s existing revolving financing facility of Series 2020-1 Class A-1 Notes was terminated in connection with the transaction. The proceeds from the securitized financing transaction were used to pay related transaction fees and expenses, strengthen the Company's liquidity position and for general corporate purposes, which included a return of capital to the Company’s stockholders.

In addition to the 2022 Notes, the Company’s outstanding debt consists of its existing Series 2020-1 2.84% Fixed Rate Senior Secured Notes, Class A-2 (the “2020 Notes”). No borrowings were outstanding under the 2022 Variable Funding Notes as of December 31, 2022.

Dividends. We paid quarterly cash dividends of $0.17 per share of common stock in each of the first two quarters of 2022, and quarterly cash dividends of $0.19 per share of common stock in both the third and fourth quarters of 2022, resulting in aggregate dividend payments of $21.5 million in fiscal year 2022. On February 21, 2023, the Company’s board of directors approved a dividend of $0.19 per share, to be paid on March 31, 2023 to stockholders of record as of March 10, 2023, totaling approximately $5.7 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, is subject to capital availability and the discretion of our board of directors, which must evaluate, among other things, whether cash dividends are in the best interest of our stockholders.

Contractual Obligations

Our cash requirements greater than twelve months from contractual obligations and commitments include:

Debt Obligations and Interest Payments. Refer to “Note 11 - Debt Obligations” of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments.

Operating Leases. Refer to “Note 12 - Leases” of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments.

Indemnifications. We are parties to certain indemnification obligations to third parties in the ordinary course of business. We believe the probability of incurring an actual liability under such indemnifications is sufficiently remote so that no liability has been recorded.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates 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 more fully described in “Note 1 - Basis of Presentation and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements. However, we believe the accounting policies described below are particularly important to the portrayal and understanding of our financial position and results of operations.

Revenue Recognition

Royalties, including franchisee contributions to the Ad Fund, are calculated as a percentage of franchise restaurant sales over the term of the franchise agreement. The recognition of this revenue is dependent upon the franchise restaurant sales reported by the franchisee through the point of sale system and can require us to make estimates and assumptions.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the accompanying audited consolidated financial statements and notes. Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to "Cautionary Note Regarding Forward-Looking Statements" elsewhere in this report and Item 1A. Risk Factors for a discussion of these risks and uncertainties.

A comparison of our results of operations and cash flows for fiscal year 2020 compared to fiscal year 2019 can be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2020, filed with the SEC on February 17, 2021.

Overview

Wingstop is the largest fast casual chicken wings-focused restaurant chain in the world and has demonstrated strong, consistent growth. As of December 25, 2021, we had a total 1,731 restaurants in our system. Our restaurant base is 98% franchised, with 1,695 franchised locations (including 197 international locations) and 36 company-owned restaurants as of December 25, 2021. We generate revenues by charging royalties, advertising fees and franchise fees to our franchisees and by operating a number of our own restaurants.

We plan to grow our business by opening new franchised restaurants and increasing our same store sales, while leveraging our franchise model to create shareholder value. Domestic same store sales have increased for 18 consecutive years beginning in 2004, which includes 5-year cumulative domestic same stores sales growth of 49.6% since the beginning of fiscal year 2017. We believe our asset-light, highly-franchised business model generates strong operating margins and requires low capital expenditures, creating shareholder value through strong and consistent operating cash flow and capital-efficient growth.

Change in Presentation

Beginning in the first quarter of 2021, headcount related expenses that support our national advertising fund are presented within “Advertising expenses” on the Consolidated Statements of Comprehensive Income. Prior to the first quarter of 2021, these expenses were presented within “Selling, general and administrative.” Prior period amounts have been reclassified to conform to the current presentation. This reclassification had no impact on operating income, balance sheets or statements of cash flows.

Impact of COVID-19

The COVID-19 pandemic has continued to have varying degrees of disruption on our business. Throughout the pandemic, substantially all of our domestic restaurants have remained open, with the majority of our dining rooms closed and locations operating in an off-premise capacity, leveraging our carryout and delivery capabilities.

Our carryout and delivery capabilities have positioned us to continue our strong domestic same store sales growth through the end of the fourth quarter of 2021; however, our business has been challenged by COVID-19-related labor availability and wage inflation, and while we have not had significant disruptions in our supply chain, we have experienced higher product costs and inflationary pressures. While we do not know the future impact COVID-19 will have on our business, we expect labor and supply chain challenges and inflation to continue into at least fiscal year 2022.

Highlights for Fiscal Year 2021:

•System-wide restaurant count increased 12.5% over the prior fiscal year to a total of 1,731 worldwide locations, driven by 193 net unit openings;

•Domestic same store sales increased 8.0% over the prior fiscal year;

•Two-year domestic same store sales increased 29.4%

•Company-owned restaurant same store sales increased 3.4% over the prior fiscal year;

•Digital sales continue to exceed 60%;

•Domestic AUV increased to approximately $1.6 million;

•System-wide sales increased 20.2% over the prior fiscal year to approximately $2.3 billion;

•Total revenue increased 13.5% over the prior fiscal year to $282.5 million;

•Net income increased 83.0% over the prior fiscal year to $42.7 million, or $1.42 per diluted share, compared to $23.3 million, or $0.78 per diluted share in the prior fiscal year; and

•Adjusted EBITDA increased 23.0% over the prior fiscal year to $88.4 million.

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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, system-wide sales, royalty and franchise fee revenue, and company-owned restaurant sales.

System-wide sales. System-wide sales represents net sales for all of our company-owned and franchised restaurants. 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.

Domestic average unit volume (“AUV”). Domestic 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. Domestic AUV allows management to assess our domestic company-owned and franchised restaurant economics. Our domestic AUV growth is primarily driven by increases in same store sales and is also influenced by opening new restaurants.

Domestic same store sales. Domestic 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 the performance of existing restaurants, while excluding the impact of new restaurant openings and closures. We review same store sales for domestic company-owned restaurants as well as system-wide domestic restaurants. Domestic same store sales growth is driven by increases in transactions and average transaction size. Transaction size increases are driven by price increases or favorable mix shift from either an increase in items purchased or shifts into higher priced items.

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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 net income before interest expense, net, income tax expense, and depreciation and amortization, further adjusted for losses on debt extinguishment and refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and stock-based compensation expense. 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.

Adjusted Net Income and Adjusted Earnings Per Diluted Share. We define Adjusted net income as net income adjusted for losses on debt extinguishment and refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and related tax adjustments that management believes are not indicative of the Company’s core operating results or business outlook over the long-term. We define Adjusted earnings per diluted share as Adjusted net income divided by weighted average diluted share count. For a reconciliation of net income to Adjusted net income and for further discussion of Adjusted net income and Adjusted earnings per diluted share as non-GAAP measures and how we utilize them, see footnote 3 below.

The following table sets forth our key performance indicators for the fiscal years ended December 25, 2021 and December 26, 2020 (in thousands, except unit data):

(1) The percentage of system-wide sales attributable to company-owned restaurants was 3.0% and 3.2% for the fiscal years ended December 25, 2021 and December 26, 2020, 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 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 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;

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•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 losses on debt extinguishment and refinancing transactions, transaction costs, costs and fees associated with investments in our strategic initiatives, gains and losses on the disposal of assets, and stock-based compensation expense. It is reasonable to expect that 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.

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The following table reconciles Net income to EBITDA and Adjusted EBITDA for the fiscal years ended December 25, 2021 and December 26, 2020 (in thousands):

(a) Represents costs and expenses related to the refinancing of our securitized financing facility and payment of a special dividend; all transaction costs are included in Loss on debt extinguishment and refinancing transactions on the Consolidated Statements of Comprehensive Income, with the exception of $151,000 during the year ended December 26, 2020 that is included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(b) Represents a gain resulting from the re-franchise of company-owned restaurants to franchisees, which is included in Gain on sale of restaurants and other expenses, net on the Consolidated Statements of Comprehensive Income.

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

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

(3) Adjusted net income and adjusted earnings per diluted share are supplemental measures of operating performance that do not represent and should not be considered alternatives to net income and earnings per share, as determined by GAAP. These measures have not been prepared in accordance with Article 11 of Regulation S-X promulgated under the Securities Act. Management believes adjusted net income and adjusted earnings per diluted share supplement GAAP measures and enable management to more effectively evaluate the Company’s performance period-over-period and relative to competitors.

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The following table reconciles net income to Adjusted net income and calculates adjusted earnings per diluted share for the fiscal years ended December 25, 2021 and December 26, 2020 (in thousands):

(a) Represents costs and expenses related to the refinancing of our securitized financing facility and payment of a special dividend; all transaction costs are included in Loss on debt extinguishment and refinancing transactions with the exception of $151,000 during the year ended December 26, 2020 that is included in Selling, general and administrative on the Consolidated Statements of Comprehensive Income.

(b) Represents a gain resulting from the re-franchise of company-owned restaurants to franchisees which is included in Gain on sale of restaurants and other expenses, net on the Consolidated Statements of Comprehensive Income.

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

(d) Represents the tax effect of the aforementioned adjustments to reflect corporate income taxes at an assumed effective tax rate of 24% for the periods ended December 25, 2021 and December 26, 2020, which includes provisions for U.S. federal income taxes, and assumes the respective statutory rates for applicable state and local jurisdictions.

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Results of Operations

Year ended December 25, 2021 compared to year ended December 26, 2020

The following table sets forth certain income and expense items included in the Consolidated Statements of Comprehensive Income for fiscal year 2021 and fiscal year 2020 (in thousands, except for percentages):

Total Revenue. During fiscal year 2021, total revenue was $282.5 million, an increase of $33.7 million, or 13.5%, compared to $248.8 million in the prior fiscal year.

Royalty revenue, franchise fees and other increased $21.8 million primarily due to domestic same store sales growth of 8.0% as well as 189 net franchise restaurant openings since December 26, 2020.

Advertising fees increased $6.6 million primarily due to the 20.2% increase in system-wide sales during fiscal year 2021. This was partially offset by a $6.9 million rebate of advertising surplus that was returned to franchisees during the third quarter of 2021 in an effort to mitigate record high wing price inflation.

Company-owned restaurant sales increased $5.3 million primarily due to the opening of seven new company-owned restaurants since the prior year comparable period, resulting in additional sales of $2.7 million. Also contributing to the increase was company-owned same store sales growth of 3.4%, which was driven by an increase in average ticket.

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Cost of sales. The table below presents the major components of Cost of sales (in thousands, except for percentages):

Food, beverage and packaging costs as a percentage of company-owned restaurant sales were 44.8% in fiscal year 2021 compared to 35.9% in the prior fiscal year. The increase is primarily due to a 40.9% increase in the cost of bone-in chicken wings, representing record-high wing inflation as compared to the prior fiscal year.

Labor costs as a percentage of company-owned restaurant sales were 22.8% in fiscal year 2021 compared to 24.3% in the prior fiscal year. The decrease as a percentage of company-owned restaurant sales was primarily due to incentive pay provided to team members in response to the COVID-19 pandemic during the prior fiscal year, partially offset by a highly competitive labor market that resulted in increases in company-owned restaurant wages and hiring and training costs during the current fiscal year.

Other restaurant operating expenses as a percentage of company-owned restaurant sales were 15.6% in fiscal year 2021 compared to 16.6% in the prior fiscal year. The decrease as a percentage of company-owned restaurant sales was primarily due to a decrease in delivery fees and other operating expenses.

Pre-opening expenses as a percentage of company-owned restaurant sales were 0.7% in fiscal year 2021 due to our investment in opening company-owned restaurants in Manhattan during the current fiscal year.

Advertising expenses. Advertising expenses were $84.0 million in fiscal year 2021 compared to $77.3 million in the prior fiscal year. Advertising expenses are recognized at the same time the related revenue is recognized, which does not necessarily correlate to the actual timing of the related advertising spend.

Selling, general and administrative ("SG&A"). SG&A was $62.9 million in fiscal year 2021, an increase of $1.8 million, or 3.0%, compared to $61.1 million in the prior fiscal year. The increase in SG&A was primarily due to an increase of $2.9 million in headcount-related expenses to support the growth in our business, inclusive of stock-based compensation expense, an increase of $1.4 million in travel expense, and an increase of $0.9 million in technology expenses. These increases were partially offset by a decrease of $2.5 million related to COVID-19 and support provided to international franchisees in the prior year period, as well as $0.9 million related to strategic investments made in the prior year period.

Depreciation and amortization. Depreciation and amortization was $7.9 million in fiscal year 2021, an increase of $0.4 million, or 5.7%, compared to $7.5 million in the prior fiscal year.

Interest expense, net. Interest expense, net was $15.0 million in fiscal year 2021, a decrease of $1.8 million, or 10.7%, compared to $16.8 million in the prior fiscal year. The decrease was due to the refinancing of our securitized financing facility on October 30, 2020, which increased our outstanding debt by $162.4 million and reduced our interest rate from 4.97% to 2.84%.

Loss on debt extinguishment and refinancing transactions. Loss on debt extinguishment and refinancing transactions was $13.7 million during fiscal year 2020 due to costs and fees associated with the refinancing of our securitized financing facility on October 30, 2020.

Income tax expense. Income tax expense was $16.2 million in fiscal year 2021, yielding an effective tax rate of 27.6%, compared to an effective tax rate of 13.5% in the prior fiscal year. The increase in the effective tax rate was primarily due to the impact of excess tax benefits associated with stock options exercised during fiscal year 2020.

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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 borrowings available under our securitized financing facility. Our primary requirements for liquidity and capital are working capital, general corporate needs, capital expenditures, income tax payments, debt service requirements, and dividend payments. Historically, we have operated with minimal positive working capital or with negative working capital. We generally reinvest available cash flows from operations to invest in our business, service our debt obligations, and pay dividends.

Our primary sources of short-term and long-term liquidity are expected to be cash flows from operations and available borrowings under our Variable Funding Notes. As of December 25, 2021, the Company had $54.9 million of cash and restricted cash on its balance sheet and $46.5 million of borrowing availability under its Variable Funding Notes.

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

The following table shows summary cash flows information for the fiscal years 2021 and 2020 (in thousands):

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 $48.9 million in fiscal year 2021, a decrease of $16.7 million from cash provided by operating activities of $65.5 million in the prior fiscal year. The decrease is primarily due to changes in Ad Fund cash and cash equivalents, directly related to the timing of payments for expenses incurred for national advertising, which is offset by an increase in operating income.

Investing activities. Our net cash used in investing activities was $29.9 million in fiscal year 2021, an increase of $21.9 million, from $8.0 million in fiscal year 2020. The increase in cash used in investing activities was primarily due to an increase in capital expenditures related to our investments in technology and the remodel of our corporate headquarters building, as well as a payment of $4.2 million related to a foreign investment (see Note 10 in the accompanying notes to our consolidated financial statements included elsewhere in this Annual Report).

Financing activities. Our net cash used in financing activities was $23.4 million in fiscal year 2021, an increase of $3.9 million, from cash used in financing activities of $19.4 million in fiscal year 2020. The increase was primarily due to an increase in the regular quarterly dividend, which totaled $18.5 million in fiscal year 2021, compared to $14.8 million in fiscal year 2020. Additionally, in fiscal year 2020, we paid a special dividend in connection with the refinancing of our debt totaling $148.4 million and incurred deferred financing and other debt-related costs of $18.6 million, which were funded by additional net borrowings of $162.4 million.

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Securitized financing facility. On October 30, 2020, the Company completed a transaction to refinance its existing securitized financing facility with a new securitized financing facility, pursuant to which Wingstop Funding LLC (the “Issuer”), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of the Company, issued $480.0 million of its Series 2020-1 2.84% Fixed Rate Senior Notes, Class A-2 (the “2020 Class A-2 Notes”). The Issuer also entered into a revolving financing facility of Series 2020-1 Variable Funding Senior Notes, Class A-1 (the “2020 Variable Funding Notes,” and together with the 2020 Class A-2 Notes, the “2020 Notes”) which permits borrowings of up to a maximum principal amount of $50.0 million, which may be used to issue letters of credit. A portion of the proceeds of the 2020 Class A-2 Notes was used to repay the $332.8 million of principal outstanding on the existing Series 2018-1 4.97% Fixed Rate Senior Secured Notes, Class A-2 and Series 2018-1 Variable Funding Senior Secured Notes, Class A-1 and to pay a special cash dividend of approximately $148.4 million to our stockholders.

The 2020 Class A-2 Notes are generally subject to 1% annual amortization, bear interest at a fixed rate of 2.84% per annum, and have an anticipated repayment date of December 2027.

Dividends. We paid quarterly cash dividends of $0.14 per share of common stock aggregating $8.3 million for the first two quarters of 2021. We paid quarterly cash dividends of $0.17 per share of common stock aggregating $10.1 million for the third and fourth quarters of 2021. On February 15, 2022, the Company’s board of directors approved a dividend of $0.17 per share, to be paid on March 25, 2022 to stockholders of record as of March 11, 2022, totaling approximately $5.1 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, is subject to capital availability and the discretion of our board of directors, which must evaluate, among other things, whether cash dividends are in the best interest of our stockholders.

Contractual Obligations

Our cash requirements greater than twelve months from contractual obligations and commitments include:

Debt Obligations and Interest Payments. Refer to Note 11, Debt Obligations, of the notes to the consolidated financial statements for further information of our obligations and the timing of expected payments.

Operating Leases. Refer to Note 12, Leases, of the notes to the consolidated financial statements for further information of our obligations and the timing of expected payments.

Indemnifications. We are parties to certain indemnifications to third parties in the ordinary course of business. We believe the probability of incurring an actual liability under such indemnifications is sufficiently remote so that no liability has been recorded.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates 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 more fully described in Note 1 to the Consolidated Financial Statements. However, we believe the accounting policies described below are particularly important to the portrayal and understanding of our financial position and results of operations.

Revenue Recognition

Royalties, including franchisee contributions to the Ad Fund, are calculated as a percentage of franchise restaurant sales over the term of the franchise agreement. The recognition of this revenue is dependent upon the franchise restaurant sales reported by the franchisee through the point of sale system and can require us to make estimates and assumptions.

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