Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. Fiscal Third Quarter 2020 Earnings Conference Call. Please note this conference is being recorded today, Monday, November 2, 2020. On the call, we have Charlie Morrison, Chairman and Chief Executive Officer; and Michael Skipworth, Executive Vice President and Chief Financial Officer. I would like to now turn the conference over to Michael. Please go ahead.

Thank you and welcome. Everyone should have access to our fiscal third quarter 2020 earnings release. A copy is posted under the Investor Relations tab on our website at ir.wingstop.com. Our discussion today includes forward-looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect. Our SEC filings describe various risks that could affect our future operating results and financial condition. We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance. Presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are contained in our earnings release. Lastly, for the Q&A, we ask that you each keep to one question and a follow-up question to allow as many participants as possible to ask a question. With that, I would like to turn the call over to Charlie.

Thank you, Michael, and good morning, everyone. We appreciate you joining us for this call this morning and hope everyone is safe and well. COVID-19 continues to impact people and the economy in all markets around the world. At Wingstop, we continue to navigate these difficult times and remain humbled by our continued strong performance. We believe our ability to navigate the pandemic and related economic challenges demonstrates the resiliency of our brand and provides us with confidence in achieving our long-term strategy. The strength we have seen in our performance has enabled us to achieve some key milestones in 2020. This week, we opened our 1,500th Wingstop restaurant. Our domestic average unit volume now exceeds $1.4 million. Digital sales over the last 12 months now represent more than $1 billion and we are on pace for our 17th consecutive year of positive same-store sales growth. These results could not be accomplished without the hard work and highest level of commitment to serve our guests from the more than 25,000 team members across the world, including our franchisees, whom we affectionately refer to as our brand partners, as well as our supplier partners. I'm proud to work alongside all of you and I'm inspired by the results we have achieved together. And while we recognize that we are still navigating this pandemic, we believe our results underscore the strength and resiliency of our brands and allow us to maintain our focus on our long-term outlook. Our vision of building Wingstop into a top 10 global restaurant brand and executing against our strategic pillars of sustaining same-store sales growth, maintaining best-in-class unit economics, and expanding our global footprint. These strategic investments we have made over the years and a commitment to our strategy positioned us well to navigate this difficult time. But we believe our success is a direct result of our culture and our values, which we refer to as the Wingstop way. We remain steadfast in our service-minded attitude, maintaining our authenticity and harnessing our entrepreneurial roots, and we believe our culture and our team members are what differentiate us from every other brand. At the end of the second quarter, we shared how our brand partners quickly began to mobilize and reignite the restaurant development pipeline as the country began to reopen at that time. I am pleased to report that this momentum continued in the third quarter during which we opened 43 net new restaurants. The pipeline has continued to strengthen, pointing to a healthy outlook for new restaurant openings for the balance of the year, leading us to increase our estimate for net new restaurants for fiscal 2020, which we now anticipate to be between 135 and 140 net new restaurants. You may recall that consensus estimates for net new openings for the year for Wingstop was only 95 at the end of Q1. This pace of development demonstrates the strength of our model and the enthusiasm our brand partners have in growing with the brand and in operating more Wingstop restaurants. As a reminder, the average initial investment to open a Wingstop is less than $400,000, and at our current average unit volumes for second-year restaurants, our brand partners are enjoying unlevered cash on cash returns well above 50%, truly best-in-class unit economics. It is these best-in-class economics that have our existing brand partners making up over 80% of our pipeline, expanding their own Wingstop footprint. The momentum we have seen building in our new restaurant development has been fueled by our strong top-line performance which has increased our domestic average unit volume to more than $1.4 million. In fact, restaurants opened at least three years on average have an average unit volume now well above $1.5 million. During the third quarter, our domestic same-store sales growth sustained at double-digit levels of 25.4%, which represents a 37.7% comp on a two-year basis. That's almost 40% growth in same-store sales over the past two years for the brand and a continuation of our streak of more than 16 years of positive same-store sales growth. While we are extremely proud of these results, our focus is not on the quarter-to-quarter or period-to-date same-store sales growth numbers, but rather continuing to execute our long-term strategic growth algorithm of sustaining same-store sales growth, maintaining best-in-class unit economics, and expanding our global footprint. Two key elements of our long-term strategy to sustain industry-leading same-store sales growth have demonstrated their staying power in 2020: the continued expansion of digital sales and the introduction of a delivery channel. In Q3, digital sales were 62% of our total sales and more than double versus Q3 in 2019. As we sit here today, the digital business has now eclipsed $1 billion in sales for the Wingstop system for the trailing 12-month period. This growth has been enabled not only by our world-class digital platform, but also by the expansion of delivery that has doubled in sales mix compared to early 2020 and has brought more new customers to the brand. You may recall that we launched an extremely successful free delivery promotion earlier this year in the March-April time frame. And we're excited about another free delivery promotion that just kicked off this week that will run for a three-week time period and has been funded through our strategic delivery partner, DoorDash. And while we are enjoying a delivery sales mix in the mid-20% range, we believe we can drive that channel mix much higher as we continue to bring new guests into the brand. The growth in our average unit volume has created efficiencies in our restaurant P&L, including the recent increases we have seen in the price of bone-in chicken wings. To provide further relief for our brand partners, we recently negotiated a pricing mechanism with our largest poultry suppliers that mitigates the impact of continued inflation on bone-in chicken wings over the near term. This coupled with continued semi-annual strategic price increases taken by our brand partners have also helped mitigate the impact of inflation on their P&L and has helped us protect our development momentum. We will continue to find more ways to deliver against our long-term strategy to mitigate volatility in food costs, such as the introduction of the new product bone-in thighs, which have been tested in several markets. Bone-in thighs offer the juicy meat and crispy skin like bone-in wings but help us leverage more parts of the bird and can be served and tossed in our 11 bold distinctive flavors. Our research suggests it will be a fan favorite, and we're excited for all Wingstop fans to get to try it soon. Our domestic business is only part of the story, and I'm extremely excited to see that, of the 43 net new restaurants opened in the third quarter, nine net new restaurants were opened in our international business in four different strategic markets. The UK is one I would like to highlight where we opened four new restaurants in the quarter, and we are enjoying average weekly sales consistent with what we have experienced in our domestic business. We are excited to see the strong development against the challenging operating environment. Sales trends continue to improve in the third quarter as each market reopened dining rooms and continued to leverage and grow their off-premise business, which bolsters our confidence in our long-term strategy for our international business. We continue to work alongside our international brand partners to ensure they are financially prepared to emerge stronger and better positioned for continued unit growth. The strength we are seeing in our strategic international markets reinforces our growth strategy that we introduced to you back in January. Part of that strategy included expansion into China. And in October, we kicked off an engagement with BCG to begin to lay the groundwork for our entry strategy. We believe that China represents a market of great potential for us and believe that we could operate over 1,000 restaurants over time. We remain excited about our international potential and will continue to make the necessary strategic investments to position the brand for scale and future growth. Our brand partners across the world are trying to build new restaurants as they leverage cash from operations and continue to have access to capital from excellent banking relationships that reward our brand's strong performance. We believe this great momentum will set up a strong development year in 2021 as we continue to make progress against our goal of 6,000+ global restaurants. We are also using our excess capital to drive growth in the business. As previously mentioned, we are making a strategic investment with BCG to lay the groundwork for the big opportunities we believe we have in China. We also anticipate continued investments in technology as we drive toward our goal of digitizing every transaction and expanding our technology platform globally. We will also continue to use our excess capital to drive unit development. One form this could take is the continued acquisition of restaurants in markets with high growth potential. Our success in refranchising five restaurants in Kansas City and establishing a growth platform for an existing brand partner drove our decision to acquire five restaurants in the Denver market during the third quarter. We are excited about the opportunity that presents as a tool to accelerate growth in key markets around the U.S. We are committed to driving shareholder value, and so that in, capitalizing on an opportunity to refinance our debt and take advantage of the record-low interest rate environment. We are extremely pleased with the outcome of the overwhelming demand from investors and the favorable terms we were able to secure. This record-setting transaction has provided us with the opportunity to return capital to our shareholders. In addition to declaring our quarterly dividend, we are issuing a special dividend totaling approximately $150 million, all while maintaining adequate cash on our balance sheet to fuel continued investments in growth. Since our IPO, we have returned almost $0.5 billion in capital to shareholders, who have enjoyed over 600% total shareholder return. Our track record underscores the strength of our brand and the high cash flow generation of our asset-light model and confidence in our future. At Wingstop, we recognize the responsibility we have to all of the various stakeholders we serve, including our team members, brand partners, supplier partners, shareholders, and the communities in which we operate. I would like to close by again thanking all of them and our guests for their continued support at Wingstop and hope everyone stays safe and well during this difficult time. And with that, I'll turn the call over to Michael.

Thank you, Charlie. As Charlie mentioned, our business continues to prove its resiliency, and the third quarter saw continued strong results across the board. Domestic same-store sales grew by 25.4% in the quarter, which is a 37.7% comp on a two-year basis. We're thrilled to be able to build upon significant transaction gains during 2019, a year that ended with an 11.1% same-store sales growth. There is a lot of excitement in our brand, and despite the challenging circumstances, we opened 43 net new restaurants, resulting in 1,479 system-wide restaurants at the end of the quarter, which represents a 10.4% unit growth rate. We're proud of the hard work of our brand partners and development teams. Our openings have culminated in more than 100 net new restaurants this year, despite losing two to three months of construction time as a result of the pandemic. Royalties, franchise fees and other revenue increased by $6.9 million to $28.8 million for the third quarter, driven primarily by our domestic same-store sales growth and 138 net franchise openings since the year-ago comparable period. Advertising fees and related income increased $5.6 million to $19.7 million due primarily to a 32.8% increase in system sales compared to the third quarter of 2019. Our company-owned restaurant sales increased $1.6 million to $15.5 million for the third quarter. This increase was due primarily to same-store sales growth of 15.2%. With this strong top-line growth, average unit volumes for company-owned restaurants are now approximately $2.2 million. Cost of sales as a percentage of company-owned restaurant sales increased by 180 basis points compared to the third quarter last year. This increase was driven primarily by higher labor costs from incentive pay associated with COVID-19 for our restaurant team members. The incentive pay is a non-recurring investment to support our team members working on the front line in this difficult environment. The increase in labor expense was partially offset by the leverage gained on operating expenses due to the substantial growth in unit volumes. Operating expenses include delivery commission, and with delivery sales more than doubling since last year, the efficiencies in our operating expenses highlight the benefits of our strategic partnership with DoorDash. As a reminder, we partner with an industry leader on strategic menu pricing in our restaurants and continue to leverage this platform to mitigate inflationary pressures on our P&L. We also now have the newly negotiated wing pricing Charlie commented on earlier. We anticipate this will allow us to mitigate some of the rising inflation and hold restaurant level margins for the fourth quarter consistent with what we saw in the third quarter, which were 24% for our company-owned restaurants. While we do enjoy an average unit volume of $2.2 million in our company-owned restaurants, these margins adjusted for royalties are a good indication of the margins our brand partners enjoy at our system average unit volume of $1.4 million and truly demonstrate the strength of our model. In the third quarter, as Charlie mentioned, we completed the acquisition of five restaurants in the Denver market. For modeling purposes, volumes for these restaurants are slightly under our system average, and we anticipate investing in these restaurants to ready them for refranchising as we position that market for accelerated unit development. Similar to our Kansas City market, this is a great example of how we'll use our cash to accelerate development. Advertising expenses increased $5.6 million to $18.3 million in conjunction with the increase in system sales. Also, to remind everyone, advertising expenses are recognized at the same time the related advertising revenue is recognized and does not necessarily correspond to the actual timing of the related advertising. Selling, general and administrative expenses were $17.3 million in the quarter, which is a $3.8 million increase versus the third quarter in 2019. The increase was primarily due to approximately $3.4 million in higher variable days compensation expense, which includes higher stock-based compensation expense associated with the Company's current year performance; $1 million, driven by an investment in talent to support the growth in our business; and $500,000 related to COVID-19 and support provided to our international brand partners. This increase was partially offset by a $1.2 million gain we recognized on refranchising five company-owned restaurants in the Kansas City market. Note, the $1.2 million gain on sale is excluded from adjusted EBITDA. Adjusted EBITDA, a non-GAAP measure, increased 19.5% to $18.4 million for the third quarter. There is a reconciliation table between adjusted EBITDA and net income, its most directly comparable GAAP measure included in our earnings release. We recorded a tax benefit of approximately $200,000 in the third quarter. The decrease in the effective tax rate was driven by excess tax benefit associated with stock options exercised during the quarter and resulted in a $0.09 benefit to diluted EPS. Net income in the third quarter was $10.1 million or $0.34 per diluted share, an increase of 71% versus the third quarter in 2019. At the end of the third quarter, we had $280.5 million in net debt. We ended the third quarter with our net debt to trailing 12-month adjusted EBITDA at 4 times, which is a full turn lower than at the end of the first quarter of 2020, underscoring our ability to quickly delever through a combination of adjusted EBITDA growth and strong free cash flow generation. Subsequent to the end of this quarter, we completed our previously announced recapitalization transaction, which included the issuance of the $480 million of senior secured notes and entered into a $50 million variable funding note facility. Proceeds from this transaction will be used to repay our existing $317 million securitized notes issued in 2018, $16 million in borrowings from our prior variable funding note, and transaction costs. Approximately $13.7 million in transaction-related expenses will be recorded in the other expense line in our P&L in the fourth quarter. We are very pleased with the outcome of this transaction and the favorable debt terms, including an interest rate of 2.84% for a seven-year term, which translates to approximately $2 million in annual interest expense savings. The completion of this transaction puts our pro forma leverage ratio at 6.4 times, which is a level we are comfortable with given our asset-light highly franchise business model and strong cash flow generation. Leveraging the net proceeds from our recapitalization transaction and excess cash on hand, our Board of Directors declared a special dividend of $5 per share of common stock payable to stockholders of record as of November 20, 2020. This special dividend totaling approximately $150 million will be paid on December 3. We also remain committed to returning capital to shareholders through our regular quarterly dividend. Our Board of Directors has also declared a quarterly dividend of $0.14 per share of common stock payable to stockholders of record as of November 20th, 2020. This dividend totaling approximately $4.2 million will be paid on December 10. We are consistently evaluating the best use of capital and believe the return on capital is an important part of our commitment to our shareholders. This return of capital demonstrates our confidence in the long-term outlook for our business. Given the ongoing uncertainty with COVID-19 and the broader impact on the U.S. economy, we are not providing fiscal 2020 guidance for same-store sales growth. However, we are increasing our guidance for net new restaurants to 135 to 140 as a result of our strong development pipeline and the excitement we are seeing from our brand partners to grow with the Wingstop brand. And with more clarity around SG&A for the balance of the year, we are providing guidance for SG&A, which we expect to be between $63.5 million and $64.5 million for fiscal 2020. We have included a reconciliation in our earnings release from reported SG&A through adjusted SG&A, a non-GAAP measure that excludes fees associated with our strategic investments totaling approximately $1.3 million; non-cash stock-based compensation of approximately $9 million; and expenses related to national advertising of approximately $8 million, which had equal and offsetting contributions in revenue and do not impact profitability metrics, and gain on sale due to refranchising of restaurants of $3.2 million. Adjusting for these items, we expect adjusted SG&A for 2020 to be between $48.4 million and $49.44 million. Our Wingstop business model has demonstrated its strength and resiliency as we have navigated this pandemic and are thankful to all of the Wingstop team members and brand partners for their hard work and dedication during these challenging times. We remain focused on our vision of becoming a top 10 global restaurant brand. As we look ahead to the balance of 2020 and beyond, we believe we are well positioned for continued growth, and our long-term strategies remain unchanged, anchored by our three main growth pillars: sustaining same-store sales growth, maintaining best-in-class unit economics, and continuing to expand our global footprint. With that, we're happy to answer your questions. Operator, please open the line for questions.

Our first question comes from Andrew Charles with Cowen. Please proceed.

One clarification, then my real question. Charlie, I know you're choosing not to disclose 4Q quarter-to-date and obviously strong momentum in the third quarter, but is it fair to say that your philosophy is that there is no need to provide an update on sales trends if they're broadly in line with what you saw in 3Q.

Good morning, Andrew. Thank you for the comment. I would say this, that our philosophy centers on looking at the long-term potential of our business. And if I can just cite fundamentals as it relates to running a high-growth restaurant company our comp for the third quarter was 25.4%, that's 37.7% on a two-year basis. Our average unit volume, as we noted, has risen to $1.4 million, which drives exceptional four-wall cash flow and great cash-on-cash returns for our brand partners, which led to strong unit growth during this quarter and an increase in our guide to unit growth for the balance of the year, which we believe fundamentally is what is most important in navigating not only this environment, but for the long-term outlook of our brand. We noted we have a strong pipeline for development going into 2021, and I would reinforce our position as being in a category of one, which we believe really isolates Wingstop from all the other brands out there in terms of performance. And so from a sequential basis, I think that it is our focus as it always has been to provide proper information quarter to quarter but not get hung up on the sequential nature especially on a 25.4% comp.

Then my real question is that. As we think about the impressive 2020 sales performance and the plan to successfully last us in 2021, can you talk about your confidence that delivery can be a positive contributor in 2021? You're assuming that we see a vaccine commercially available next year, spring fever presumably kicks in at some point next year and folks, that would increase mobility with folks throughout the restaurant a little bit more sure.

Sure. I think it's important to note that the way our strategy has been built centers on making sure there are plenty of levers that we can pull in order to grow our business. You mentioned delivery, and certainly this year was our formal launch of delivery. We started that in our national advertising back in February, well-timed, of course, and you can see that the performance has more than doubled from where it was a year ago and continues to be strong for our brand. We do expect to continue to grow the delivery business in our brand in multiple ways, one of which is investments in technology that we believe will continue to yield higher mix levels for delivery. But I'd also keep in mind that during this pandemic and through today, as we sit here today, we still have our dining rooms closed in all of our restaurants. Those dining rooms represented roughly 20% of our total sales volume. So even with the extraordinary same-store sales growth we've seen, that is overcoming the closure of our dining room. So to your comment about the potential of a vaccine or something that would give us comfort to reopen those dining rooms, we believe we have plenty of levers in place to continue to drive sustainable comp store sales growth.

Next question comes from Jeffrey Bernstein with Barclays. Please go ahead.

One question and one follow-up. The question being on the 2021 unit growth outlook, Charlie, I know you mentioned a strong pipeline and I know you typically wait another quarter for actual full year guidance for '21, but would that said, theoretically, is it fair to assume, I mean, it seems like through COVID, we're hearing about increased real estate opportunities, less independent competition, it seems like wing prices perhaps at least stabilizing, labor costs easing, comp momentum like you said, very strong. So I'm just wondering if there's any reason conceptually why '21 wouldn't be an even larger class of new unit openings or maybe what could offset those tailwinds whether there is any franchise pushback or anything along those lines that at least conceptually would limit a further acceleration in the U.S. unit growth, and then I have a follow-up.

Sure. Thank you, Jeff. Good morning. I think your question is well framed, and that all of the right factors are in place for us to have a very strong year next year in unit development. I did mention that our pipeline has strengthened, and of course, we will provide that information at year end. I'll remind us that at the beginning of the year, we had 610 restaurants in our unit development pipeline to enter 2020 and we've consistently seen our brand partners reinvest not only by adding new restaurants but also increasing the size of their development opportunity. So, all of them are working in our favor. Definitely, the real estate market is favorable for Wingstop, given the unfortunate circumstance of this pandemic. However, we are seeing plenty of sites available; our solid banking relationships and generating cash flow from our restaurants is fueling further development, and hence why we increased our guidance for this year. So yes, barring any unforeseen event, which nobody predicted, the pandemic and who knows what next year looks like, everything is lining up for a solid year next year.

Got it. And then just my follow-up, obviously, you talked about the category and your industry leadership. But when you think about wings, I mean, in the past you've talked about how certain restaurant peers maybe jump in and out of the wing segment depending in large part on wing prices. It seems like more recently, many of your peers seem to be jumping into the wing category and talking about our willingness to kind of stay focused on wings regardless, of course, so maybe this is more of a long-term strategic decision to be in wings, obviously, seeing the strong performance perhaps you guys are generating. So while that is flattering, I'm just wondering how you think about the potential impact on your business whether a positive, because it just draws more attention to wings, would you think you guys have the best or whether you see it as a negative because of competitive convergence? How do you think about that as more and more of your competitors focus on the wing category? Thank you.

Sure. Well, I certainly agree with you that we believe we have the best wings, and I think it's demonstrated by the strength of our brand and our performance. I would also call attention to the fact that we use fresh, rarely frozen wings; only during certain cyclical times of the year when we bring those in. And so the impact it's having on us is more about what it does to the price of chicken wings because many of these new and emerging competitors are folks that have sold in before and are really buying up all the frozen product that's in the market. Usually at this time of year, and so we know that a frozen wing is inferior to a fresh, and I think we see that in the quality of the product that's out there. And we also believe that most of these are short-term because at today's current market prices for wings, it would be hard for most newer competitors to sustain. At Wingstop, we've done what Michael and I both mentioned in our commentary is put in place with our long-term valued supplier partners pricing mechanisms that mitigate the impact of today's spot market, which of course is great for our brand because it does help curb any negative impact to the unit economics and drive growth in new restaurants, which fundamentally is the right way to run the business.

Our next question comes from David Tarantino with Baird. Please go ahead.

I have a question just on the sales that you've seen so far through the third quarter, and it does look Charlie like some of the initial strength you saw during that has COVID has tapered off. And I was just wondering, do you have anything in your data that would help to explain that trend? And is that a circumstance where a lot of people may have tried the offering during the - following the delivery launch and you may not be retaining a lot of those customers or you think - you think that something else is going on underneath the surface? And then I have follow-up.

I think it would be necessary for us to apologize for the quarter 3 versus quarter 2 comparison in comp as a slowdown when you're going from a 30% to a 25% and having in Q3, 37.7% two-year comp. So that's rolling over more than 12% comp in the prior year. Those are phenomenal results and all happening while our dining rooms remain closed, which affects 20% of our total business. I'll reinforce that our average unit volume has climbed to $1.4 million which represents what we believe to be best-in-class unit economics that were above our best-in-class performance from even most recent years, which is fueling development and new restaurant growth because our franchisees, whom we have called affectionately our brand partners, are recognizing the strength of this brand, its willingness, its ability to navigate even a global pandemic very effectively. And therefore driving fundamentally what is most important for us to be looking at, which is new unit growth. And I think that there is just a lot of commentary about the sequential nature of comps which drive short-term behavior. At Wingstop, we're going to focus on the long term, and growing our brand and growing it by way of adding new restaurants to it while also living up to our long-term algorithm of mid-single-digit comps, 10% plus unit growth, and continued growth in EBITDA.

Yes, makes sense. And my question wasn't meant to imply that your calls or anything other than spectacular, so I apologize if it came across the wrong way. I guess the next question, I guess, my follow-up question, Charlie, was related to the dining rooms being closed and just wondering if your data would indicate how much you're leaving on the table by having the dining rooms closed. I know you might be getting some replacement transactions off-premise, but anything in your data that would give us a sense of how much you are bypassing by not having the dining rooms open?

From a mathematical perspective, it's clear that reopening the dining rooms would create sales opportunities. However, our top priority is ensuring the safety of our guests and team members in our restaurants. With the recent rise in COVID-19 infections, our strategy to close dining rooms and be the last to open is a reflection of our commitment to providing excellent carryout, digital, and off-premise services for our guests while prioritizing safety. Operating in this challenging environment is understood by all of us, and showcasing our performance without reopening dining rooms illustrates the resilience of our model and the satisfaction our guests find in delivery and carryout as their main options for enjoying Wingstop.

Our next question comes from Nicole Miller with Piper Sandler. Please go ahead.

Turning back to development, I had a quick question on the cadence, if you could help us think that through. I've been listening to this dialogue, and I mean it's heroic. It’s heroic. I have asked in the past about getting these stores open and it's more than we thought, yet you had commented there was a three-month kind of lag in the system naturally with what with the disruption that occurred. So I'm wondering if that actually slowed down something that could show up in the first part of next year where that cadence would be higher than normal. But then I'm also wondering, at the same time, maybe that also slowed down a little bit of the pipeline as you enter next year so it would be more similar. If that makes sense, can you just help us think about the cadence for next year?

Yes. And thank you so much for the development-related question. We believe that it would create an opportunity for a strong Q1 for us because of that lag that you mentioned. So yes, typically we need six to nine months for a restaurant to enter the pipeline and come out as an open restaurant. That's on our best-case scenario, but it follows what it takes to get a site, sign a lease, get your permits, get it built and opened. So I think the sequential strength we've seen from quarter 2 to quarter 3, what's expected for quarter 4 and definitely carrying into next year based on our commentary of an expected strong 2021. As far as the pipeline itself, it is building and growing. And so while we don't have specifics for you today on our pipeline, I can confidently state that our pipeline is building nicely for a strong development into 2021.

And then just a follow-up on that exact point where you just ended, talk to us about how that pipeline is growing. So traditionally, the franchise partners come in and open a few successfully and then do a few more and a few more. Are any larger network partners coming to you with requests at this time?

Yes, most if not all, and usually, this is at least 80% to 90% of our new development is from our existing brand partners and we're seeing much the same. If anything, perhaps a little bit more; they're bullish certainly about the performance of the brand, especially those who operate other businesses beyond Wingstop in the restaurant category, they certainly see the separation of performance between Wingstop and so many others. And so they are making their investments clearly with Wingstop going forward. That investment means demanding more territory and looking for opportunities to get restaurants in the ground and capitalize on the strong performance.

Your next question comes from Andy Barish with Jefferies. Please go ahead.

Hi guys, nice to hear from you, just wondering on the unit side, if we can shift, excuse me, to the international side of things, with a good quarter in the 3Q, could you give us, I guess, a little bit more visibility on how the pipeline is shaping up there? Do you have a little bit clearer sight line? And then I guess when does China kind of enter into that equation, and would you guys be willing to put capital into China initially as well?

Good morning, Andy, and thank you. Yes, we are really, really impressed with the performance of our international business given the reality of this pandemic and what we're dealing with, like a lot of other brands are. We have sustained a big challenge, a much bigger challenge overseas than we have in the U.S., primarily because a lot of our restaurants in the larger markets we're in rely upon dining rooms and shopping malls for their performance, which have been impacted by the pandemic due to minimum or allowed seating capacities to be utilized. And I think if you watch the news, you see that markets like Europe or in Europe are struggling to gain control of the pandemic and in some cases will be shutting down or implementing curfews which could impact our business. But all that said, we opened nine net new restaurants internationally, we only have four temporary closures overseas in our total pipeline of restaurants. That's really best-in-class, we believe. And I think it demonstrates again just like the U.S. the strength and resiliency of our brand and our ability to navigate these difficult times. Many of our openings happened in the UK, which we're very excited about. As it relates to a strategic market that is growing this year. In fact, we opened four restaurants during that timeframe. As we think about China, we mentioned that we have expanded our relationship with BCG to start working on a China entry strategy. We believe over the next two to three years that will create opportunities for growth for us and as we noted, and I would reiterate, we believe that we can open as many as 1,000 restaurants over time in China, but it does require a very thoughtful strategy going in, which could include, as you asked, an investment by Wingstop to get there.

Our next question comes from John Glass with Morgan Stanley. Please go ahead.

I'm just kind of curious to get your thinking around the cash balance. I think you've you're working through the re-fi in the special dividend. You're still going to be sitting on quite a bit of cash at the end of the fourth quarter. And can you help us try and think about your priorities for uses of cash going forward? Obviously, it sounds like there may be some investments in potentially international markets, perhaps some domestic buying opportunities. But we haven't seen anything that large in the past with respect to cash flow outlays. So can you talk about perhaps what we should expect for cash from this point forward?

We do estimate over the next few years to invest quite a bit of cash in a number of things, including what we've already talked about today, which is the opportunistic acquisition and or build-out of restaurants across the U.S., but also an effort that we're working on currently, we've hired a group to come in and help us look at the potential for a scalable infrastructure for our global tech stack that would carry us over the next few years and include not only our U.S. digital business but also a consistent digital presence by way of our website across the globe, which offers us global online ordering capabilities, a standard restaurant technology, and of course a best-in-class business intelligence infrastructure that would help us with scaled data visualization as well as analytics for our business. So there is a desire for us to invest that capital now and over the next couple of years to prepare us for long-term sustainable growth globally.

Your next question comes from Brian Vaccaro with Raymond James. Please go ahead.

Thank you and good morning. Just a couple of questions on the SG&A line. I just wanted to clarify the guidance of $63.5 million to $64.5 million, just wanted to confirm that that embeds reported year-to-date SG&A of around $45 million. So it implies around $19 million for the fourth quarter, Michael.

Yes, no, that's exactly right. That's the reported number.

And as we try to understand sort of the underlying growth in that line, could you help frame how much the variable compensation, is that sort of year-to-date or versus a normal level?

Yes, that's always we attempted to call out in the release. And it's just north of $4 million, that's inclusive of incremental stock-based comp expense as well as variable-based compensation.

Okay. That's in the quarter, year-to-date, do you have that by chance?

Yes, that was kind of, if you will, the year-to-date true up.

I'm sorry. Okay. Got you.

That was recorded in the third quarter. Yes.

And then at the Analyst Day, which seems like a long time ago obviously, but you had spoken to sort of a G&A algorithm, growth algorithm maybe around half of revenue growth plus some international investments, is that algorithm still broadly in place or are some of the investments that you had mentioned previously incremental to what you had in mind at the end of that?

Yes, I would say, Brian, we're probably not here today to kind of reiterate those targets or communicate anything about '21. I think what's important to kind of highlight, and Charlie hit on it a little bit earlier with where we are in the growth base of a Company, we're going to be making the right strategic investments to make sure we're positioning the brand for future growth. And so you could see us similar to what you heard us talk about here today, the incremental investment with BCG as well as an area where we could be making some investments that weren't originally contemplated in some prior guidance.

Our next question comes from Andrew Strelzik with BMO Capital Markets. Please go ahead.

Thanks for taking my question. It seems that people look at some pizza companies and think their gains are temporary due to the current environment. They might extend that view to your company because of similarities in the business model. However, considering how awareness started, it looks like you've gained a larger share of new customers during the pandemic. My question is whether you have a clearer understanding of how lasting these gains might be as we return to a more normal environment. How would you compare your gains to those of the pizza companies?

Well, I think the comparison to a pizza chain is probably only relevant as it relates to having a strong digital presence, which, as you know, we exited the quarter at 62% of our sales is digital which compares right in line with where those chains were a year ago or so. Certainly they've grown because of the pandemic as have we. Set that aside, our strategy going into 2020 was to fuel growth in delivery and continue to expand our digital business. We have invested heavily in technology to make sure that that was seamless as well as to our partnership with DoorDash, which has worked out exceptionally well for us. Both of those were considered long-term ventures for us that would steadily grow new customers and bring them into our business, and our job, of course, is to deliver the same high-quality product and guest experience that our guests are normally used to which we are. And that in and of itself creates a stickiness and retention that we believe carries for a long period of time. The only nuance of the time during the pandemic is we accelerated that by what we estimate to be as much as two years of performance, which is good news, but I don't think there is any indication, otherwise that would suggest these aren't sticky new guests to our business and that's demonstrated by our guest experience metrics that tell us that they are enjoying these occasions as much as anyone did before the pandemic.

And then just one follow-up maybe related to that. I guess I'm just wondering, with a few more months of data under your belt, is there anything interesting you've noted in terms of the demographics of customers you've added? I know last quarter you indicated you were maybe adding more of those heavy QSR users were turning lapsed customers and see an uptick in frequency within the core, so is that still where gains are coming from? And how would you compare contrast the demographics of the new customers you've added over the past seven or eight months with maybe your customer base prior to the pandemic.

I don't think there is a meaningful difference in the demographics of these guests. You are correct in that our goal was to target heavy QSR users that were either light or non-users of Wingstop, but there isn't a real substantial demographic difference there that we've seen. And then the other thing I would add back to delivery is there were guests who are coming into Wingstop now that shows delivery over carryout, and they really don't cross those occasions very often. And so we are seeing new guests coming in that are associated with delivery that adds to that mix.

Our next question comes from Jared Garber with Goldman Sachs. Please go ahead.

Many of mine have obviously been asked and answered, but wanted to focus here on potential for menu innovation. You talked about testing some bone-in chicken thighs in certain markets. Wanted to just get a sense of any color you can share on those tests? How many markets they're in, maybe how the pricing compares to your traditional products, and what the consumer feedback has been?

Absolutely. We just started this test a little over a week ago, so very early in the stage, but over time, over the past couple of years, we have started to test the concept of a thigh product, it's bone-in, has a lot of the characteristics of our existing bone-in chicken wings, and that they cooking about the same amount of time, they develop that crispy skin, but that juiciness if you want in that product that is a good comparison to chicken wings. And we've said for a long time that it is our desire to use more parts of the bird in strategic ways to help mitigate the impact of bone-in wing price inflation, which we believe these have the potential to do. Aside from the fact that they're just really, really good. So that is in test currently as we look into 2021, we are in the works with some flavor innovation that we'd like to bring forward, and so getting back on that rhythm of bringing a new flavor out to our existing core guests as well as some new guests to introduce them to something unique and different, but aside from that - that is probably the entirety of our product development pipeline.

And as a follow-up, could you just give us a little bit of an update on the progress of the speed of service technology and potential time but where you stand today and potential timing of rollout? Thank you.

Yes, well, certainly, the pandemic has changed the behavior of our guests in our restaurants. The necessity for social distancing and the assurances of a clean environment make it difficult for us to execute kiosks and the lockers that we have been working on. So we've set those in pause mode for a period of time, but that doesn't preclude us from continuing to enhance the user experience from our online ordering and other investments in technology that we believe we can accelerate given our experience through this timeframe. So for right now, our focus is safety, cleanliness, an environment where guests can easily get in, grab their food and exit more so than some of the expectations we had previously.

Our next question comes from Jake Bartlett with Truist Securities. Please go ahead.

Great, thanks for taking the question. You're totally. My question is about the performance of stores in markets where restrictions have eased, is it correct to assume that sales would be lower in those markets? And then conversely, as we've seen some restrictions come back saying Illinois, should we expect the sales to improve in those markets, just trying to understand the dynamic, as we see sales accelerate a little bit, just trying to see whether it's really that consumers are kind of returning back to some in-store dining?

Well, there is no doubt that consumers are returning to in-store dining by nature of the fact that dining rooms are opening in other brands and quite frankly, I'm thankful for that for them because we need our industry to continue to thrive. There is no regionality associated with our performance that I would call attention to in terms of markets that have or have not reopened. We're quite confident that reopening is not what is driving our business; we believe it has more to do with ease of access to our brand, quality of our product, and the fact that we're taking strong and very specific measures to protect our guests and our team members. So if we saw any regionality, we would call that out, but quite frankly, our performance has been strongest even in emerging markets, and so we're excited by that, but nothing specific to call out as it relates to dining room reopenings.

And Charlie, in your comment just about the focus of your long-term focus, is it, I'm kind of hearing loud and clear that you expect that you're trying to maintain positive same-store sales. But how confident you - are you that you can maintain positive same-store sales in 2021, as you lapped the initial boost from the business during the COVID crisis, initial phases and you may be answering that? What kind of drivers would give you that positive on the outlook?

Sure. And I'll go back to a comment I made earlier, we have over the years and continue to have a lot of opportunities to pull levers to grow our business. One of the fortunate realities of our strong top-line performance this year at over 25% same-store sales in the third quarter even is that that is fueling a lot more dollars into our national advertising funds. Those funds are increasing at a similar rate, nearly 30% year-over-year, if you include new development, which means that we're going to reinvest that money back into increasing awareness of our brand. And also driving conversion of those guests by way of consideration to our brand. And those are primarily, those heavy QSR users that have not or have limited occasions with Wingstop as we continue to drive awareness. So that's one lever. The second, as I mentioned before, is that we have not opened our dining rooms to this point. That represents about 20% of our total sales. And we believe that that's another great way to pull the lever. We're really thrilled with the partnership we have with DoorDash. In fact, just this last week, we introduced a free delivery promotion that was funded by DoorDash because of their confidence in our business and helping drive theirs. They are investing with us to - or investing in us, I should say, to drive the top line for both businesses. And so as we consider what 2021 looks like, there is no doubt we have some really high hurdles to jump. But what we don't see in our business is a temporary increase here; what we see is a long-term sustainable type of algorithm, and that's been the history of Wingstop for a long time. We're closing in on our 17th consecutive year of positive same-store sales growth. So we do have the confidence to be able to lap even this performance next year.

Our next question comes from Peter Saleh with BTIG. Please go ahead.

Charlie, I think you touched on this in the last response there on the ad fund, clearly you've had a ballooning of the dollars in the advertising fund, are you - so, it does sound like you're able to differ some of the ad dollars that you earn in '21 and 2020 for 2021 spending. If that is the case, can you give us a sense on how much of the dollars you guys are pushing into next year versus spending them in 2020?

Yes, I think it's important to note a couple of things. Number 1, we did not modify our approach to 2020, but we definitely do have increased dollars that we can defer, and in some cases have deferred into 2021. We also make our media buys strategically in the month of September usually, which means we've already made that buy. And as I was mentioning levers, not only do we have the increased dollars, but we also have the benefit of being able to place those dollars at the time of year where we believe we're going to need them the most to be able to accelerate performance. And so as we close the year, we'll talk a little bit more about what that will look like going into 2021, but it is safe to assume that we would redeploy our advertising dollars to the time frames that are most needed.

And then could I just ask on the decision or the - to remove the volatility on the wings, can you just give us a little bit more detail on this? Is this a color agreement that kind of caps the upside and the downside? And did you have to pay upfront to get this any sort of details on that would be helpful. Thank you.

Obviously, we're limited for competitive reasons as to what exactly we can share. But I think the one thing I would point to is this is really more than anything the byproduct of some really long-term strategic relationships with our supplier partners. And they know that we're buying wings year-round; we're not just jumping in and out of the market or buying frozen wings, but we're rewarding us for the long-term relationship we have with them. And so we're encouraged by their level of commitment to Wingstop to be able to offer this type of pricing arrangement for our brand partners and to minimize the impact of inflation, so we're excited about it.

Our next question comes from James Sanderson with Northcoast Research. Please go ahead.

I just wanted to follow up on the free delivery promotion that you highlighted in the initial commentary. Could you remind us who actually pays the delivery fee that customers normally pay? And then if you could perhaps provide some insight on the stickiness that you experienced when you offer this free delivery promotion back in March and April, if you noticed that consumers that trialed it return to more frequently or any type of insight on how this impacted consumer behavior? Thank you.

We just for clarity, the guest pays for the delivery fee typically in this scenario with the free delivery promotion, the offsetting that the cost of that fee, if you will, is being borne by DoorDash. So there is no cost to us or to our brand partners for that; that's a DoorDash-driven initiative. As it relates to stickiness, I think the consistency we've seen in holding our delivery mix since the pandemic started has been the best indicator of the stickiness of the promotion. It's still a little early. You want people to go through a few cycles to demonstrate stickiness, but all of our research would suggest that it's performing quite well.

Charlie, thank you I've got one quick follow-up related to the bone-in chicken thigh test, you mentioned that just started recently, could you give us an idea of the major markets that are being tested right now? We've picked up menu additions in California, Colorado, and Georgia. I'm wondering if it's every market you operate in or just a share?

What we can say is that it is in seven markets across the country.

This concludes our question-and-answer session, as well as today's conference call. Thank you for attending the presentation. You may now disconnect.