Wingstop Inc. (WING) FY 2022 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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.
| Year Ended | ||||
|---|---|---|---|---|
| December 31, 2022 | December 25, 2021 | |||
| Domestic Franchised Activity: | ||||
| Beginning of period | 1,498 | 1,327 | ||
| Openings | 187 | 170 | ||
| Closures | (4) | (2) | ||
| Acquired by Company | (3) | (3) | ||
| Re-franchised by Company | — | 6 | ||
| Restaurants end of period | 1,678 | 1,498 | ||
| Domestic Company-Owned Activity: | ||||
| Beginning of period | 36 | 32 | ||
| Openings | 5 | 7 | ||
| Closures | (1) | — | ||
| Acquired from franchisees | 3 | 3 | ||
| Re-franchised to franchisees | — | (6) | ||
| Restaurants end of period | 43 | 36 | ||
| Total Domestic Restaurants | 1,721 | 1,534 | ||
| International Franchised Activity: | ||||
| Beginning of period | 197 | 179 | ||
| Openings | 45 | 34 | ||
| Closures | (4) | (16) | ||
| Restaurants end of period | 238 | 197 | ||
| Total System-wide Restaurants | 1,959 | 1,731 |
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):
| Year ended | ||||||
|---|---|---|---|---|---|---|
| December 31, 2022 | December 25, 2021 | |||||
| Number of system-wide restaurants at period end | 1,959 | 1,731 | ||||
| System-wide sales(1) | $ | 2,738,920 | $ | 2,344,728 | ||
| Domestic AUV | $ | 1,606 | $ | 1,592 | ||
| Domestic same store sales growth(2) | 3.4 | % | 8.0 | % | ||
| Company-owned domestic same store sales growth(2) | 1.0 | % | 3.4 | % | ||
| Total revenue | $ | 357,521 | $ | 282,502 | ||
| Net income | $ | 52,947 | $ | 42,658 | ||
| Adjusted EBITDA(3) | $ | 108,808 | $ | 88,393 | ||
| Adjusted net income(4) | $ | 55,351 | $ | 40,323 |
(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):
| Year ended | ||||||
|---|---|---|---|---|---|---|
| December 31, 2022 | December 25, 2021 | |||||
| Net income | $ | 52,947 | $ | 42,658 | ||
| Interest expense, net | 21,230 | 14,984 | ||||
| Income tax expense | 16,369 | 16,249 | ||||
| Depreciation and amortization | 10,899 | 7,943 | ||||
| EBITDA | $ | 101,445 | $ | 81,834 | ||
| Additional adjustments: | ||||||
| Loss on debt extinguishment and financing transactions (a) | 1,124 | — | ||||
| Loss (gain) on disposal of assets (b) | 1,164 | (3,497) | ||||
| Consulting fees (c) | 875 | 425 | ||||
| Stock-based compensation expense (d) | 4,200 | 9,631 | ||||
| Adjusted EBITDA | $ | 108,808 | $ | 88,393 |
(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):
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| December 31, 2022 | December 25, 2021 | |||||
| Numerator: | ||||||
| Net income | $ | 52,947 | $ | 42,658 | ||
| Adjustments: | ||||||
| Loss on debt extinguishment and financing transactions (a) | 1,124 | — | ||||
| Loss (gain) on disposal of assets (b) | 1,164 | (3,497) | ||||
| Consulting fees (c) | 875 | 425 | ||||
| Tax effect of adjustments (d) | (759) | 737 | ||||
| Adjusted net income | $ | 55,351 | $ | 40,323 | ||
| Denominator: | ||||||
| Weighted-average shares outstanding - diluted | 29,963 | 29,944 | ||||
| Adjusted earnings per diluted share | $ | 1.85 | $ | 1.35 |
(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):
| Year ended | Increase / (Decrease) | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2022 | December 25, 2021 | $ | % | |||||||||||
| Revenue: | ||||||||||||||
| Royalty revenue, franchise fees and other | $ | 158,614 | $ | 130,676 | $ | 27,938 | 21.4 | % | ||||||
| Advertising fees | 119,011 | 81,529 | 37,482 | 46.0 | % | |||||||||
| Company-owned restaurant sales | 79,896 | 70,297 | 9,599 | 13.7 | % | |||||||||
| Total revenue | 357,521 | 282,502 | 75,019 | 26.6 | % | |||||||||
| Costs and expenses: | ||||||||||||||
| Cost of sales (1) | 63,395 | 57,416 | 5,979 | 10.4 | % | |||||||||
| Advertising expenses | 123,069 | 83,989 | 39,080 | 46.5 | % | |||||||||
| Selling, general and administrative | 67,061 | 62,895 | 4,166 | 6.6 | % | |||||||||
| Depreciation and amortization | 10,899 | 7,943 | 2,956 | 37.2 | % | |||||||||
| Loss (gain) on disposal of assets | 1,164 | (3,497) | 4,661 | (133.3) | % | |||||||||
| Total costs and expenses | 265,588 | 208,746 | 56,842 | 27.2 | % | |||||||||
| Operating income | 91,933 | 73,756 | 18,177 | 24.6 | % | |||||||||
| Interest expense, net | 21,230 | 14,984 | 6,246 | 41.7 | % | |||||||||
| Loss on debt extinguishment and financing transactions | 814 | — | 814 | 100.0 | % | |||||||||
| Other (income) expense | 573 | (135) | 708 | (524.4) | % | |||||||||
| Income before income tax expense | 69,316 | 58,907 | 10,409 | 17.7 | % | |||||||||
| Income tax expense | 16,369 | 16,249 | 120 | 0.7 | % | |||||||||
| Net income | $ | 52,947 | $ | 42,658 | $ | 10,289 | 24.1 | % |
| Column 1 | Column 2 |
|---|---|
| (1) | Cost of sales includes all operating expenses of company-owned restaurants, including advertising expenses, and excludes depreciation and amortization, which are presented separately. |
Total Revenue. During 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):
| Year ended | As a % of company-owned restaurant sales | Year ended | As a % of company-owned restaurant sales | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2022 | December 25, 2021 | ||||||||||||
| Cost of sales: | |||||||||||||
| Food, beverage and packaging costs | $ | 30,579 | 38.3 | % | $ | 31,496 | 44.8 | % | |||||
| Labor costs | 19,234 | 24.1 | % | 16,022 | 22.8 | % | |||||||
| Other restaurant operating expenses | 15,380 | 19.3 | % | 11,457 | 16.3 | % | |||||||
| Vendor rebates | (1,798) | (2.3) | % | (1,559) | (2.2) | % | |||||||
| Total cost of sales | 63,395 | 79.3 | % | 57,416 | 81.7 | % | |||||||
| Pre-opening expenses (1) | 935 | 1.2 | % | 484 | 0.7 | % | |||||||
| Cost of sales (excluding pre-opening expenses) | $ | 62,460 | 78.2 | % | $ | 56,932 | 81.0 | % |
| Column 1 | Column 2 |
|---|---|
| (1) | Pre-opening expenses are incurred in conjunction with the opening of a new restaurant and are included within Other restaurant operating expenses in the table above. |
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):
| Year ended | ||||||
|---|---|---|---|---|---|---|
| December 31, 2022 | December 25, 2021 | |||||
| Net cash provided by (used in): | ||||||
| Operating activities | $ | 76,238 | $ | 48,878 | ||
| Investing activities | (28,683) | (29,853) | ||||
| Financing activities | 103,254 | (23,389) | ||||
| Net change in cash, cash equivalents and restricted cash | $ | 150,809 | $ | (4,364) |
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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