Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Wingstop Inc. Fiscal Third Quarter 2023 Earnings Conference Call. After today's presentation, there will be an opportunity to ask questions. Please note that this conference is being recorded today, Wednesday, November 1, 2023. On the call today are Michael Skipworth, President and Chief Executive Officer; and Alex Kaleida, Senior Vice President and Chief Financial Officer. I would now like to turn the conference over to Alex. Please go ahead.

Thank you, and welcome to the Fiscal Third Quarter 2023 Earnings Conference Call for Wingstop. Our results were published earlier this morning and are available on our Investor Relations 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 session, we ask that you each keep to one question and a follow-up to allow as many participants as possible to ask a question. With that, I would like to turn the call over to Michael.

Good morning, and thank you for joining our call. It is an exciting time at Wingstop, and I'm honored to be leading such a talented team who delivered industry-leading results year after year. Our average unit volumes (AUVs) now average $1.8 million, and we are on track for our 20th consecutive year of same-store sales growth. Wingstop continues to see double-digit transaction growth, a true sign of the underlying health and momentum of our brand. In fact, we exited the quarter with more momentum than when we started. This growth we are seeing is consistent across all vintages of restaurants, and our new restaurants are opening even stronger. We are achieving record levels of new guest acquisition across all channels. Our core guests continue to engage with us, and we are seeing an increase in our average frequency. Our team has been laser-focused on operational excellence within the four walls of the restaurant, and we are seeing that show up in our guest scores. Our supply chain strategy is working, translating into industry-leading unit economics, and we are on pace for a record year for development. We recently held our annual brand partner convention. While it provided an opportunity to reflect on the exceptional results in our business, we and our brand partners are focused on the road ahead for Wingstop, which is even more exciting than our accomplishments to date. The visibility we have into 2024 and beyond gives us confidence to deliver against our strategies of sustaining same-store sales growth, maintaining best-in-class returns, and accelerating growth. Wingstop is truly in a category of one, and our results demonstrate that year after year. In the third quarter of last year, we expanded our delivery platform to add Uber Eats nationally, and we also launched the Wingstop chicken sandwich, or technically, 12 chicken sandwiches. These two sales growth strategies brought a lot of new guests into the brand during the second half of 2022, and this momentum has clearly continued into 2023. Throughout this year, we have explained how these sales growth strategies that we are executing against are multi-year drivers, giving us confidence to increase AUVs well north of $2 million. We believe this was showcased in the third quarter as we lapped the launch of both Uber Eats and our Chicken Sandwich, delivering 15.3% same-store sales growth, almost entirely driven by transaction. To further the point, we acquired more new guests this past quarter than we did during our incredibly successful launch of Chicken Sandwich in Q3 of 2022. We are unique in the industry, an industry that has experienced significant price inflation contributing to transaction loss for many brands. But that is not Wingstop. As lower-income consumers pull back from those higher-frequency QSR occasions or even as higher-income consumers trade down into dining visits, Wingstop is uniquely positioned to gain more new guests and introduce them to that indulgent, high-quality occasion that our core consumers have come to appreciate over the years. The momentum we are seeing in our business leads us to increase our outlook to approximately 16% domestic same-store sales growth for 2023. Wingstop is at an exciting inflection point as a brand. Our strategies are working and have staying power, positioning us well on our path to grow AUVs in excess of $2 million. We are achieving record levels in brand health metrics. Our advertising fund is four times the size it was in 2018, our first year as a national advertiser, giving us the fuel to continue acquiring new guests and driving top-of-mind consideration. While we are making great progress on building awareness, our opportunity remains significant to reach the awareness levels of other scaled national restaurant brands. Our media strategy is proving highly effective, along with new breakthrough creative launched in September. Many consumers are experiencing our flavors for the first time, and they're returning for more. With a year under our belt with the Chicken Sandwich, we are learning a lot about these new guests. About half of our new chicken sandwich guests purchase only a sandwich on their first visit, but we are seeing the majority of them in their second visit navigate the rest of our menu and purchase other proteins. The Chicken Sandwich has helped create a halo effect around our brand and is positioning us to win more of these guest occasions. The acquisition of these new guests is translating into stronger new guest retention and increasing frequency. There’s plenty of runway ahead of us as we look to gain our fair share of the 2.8 billion servings of chicken sandwiches annually in the U.S. These new guests we are attracting tend to be Gen Z or Millennial, middle income, and are less likely to have kids in their households than our existing guests. Their average ticket and boneless mix are higher than our existing guests, and they tend to engage with us through our digital ordering platform. This consumer is right in the sweet spot for our brand. But it is not just with our new chicken sandwich. We are seeing strong new guest acquisition across all channels. We continue to see growth in average weekly transactions with DoorDash. Since the launch of Uber Eats, we have sustained Uber Eats delivery transactions at a level that's double the initial launch last year. We see the delivery channel as another opportunity to build awareness for Wingstop, and we are nowhere close to a point of maturity. While these strategies are supporting our path to $2 million-plus AUVs, we are also excited about the progress we are making to continue to scale our best-in-class digital platform, which we believe will help protect the moat around our category of one position. During the third quarter, our digital sales mix achieved a new record at 67%, and we remain focused on our aspirational goal to digitize every transaction. We took a step three years ago to begin investing $50 million to build our proprietary tech platform. This investment serves two purposes: to protect our digital business that has quickly scaled to $2 billion in system-wide sales and to unlock new capabilities that tap into our digital database of more than 35 million users to enable further AUV growth. Our proprietary tech stack will deploy an increased level of hyper-personalization that we believe will improve conversion, retention rates, and ultimately drive frequency. We built a platform with the most modern technology within our tech stack. I'm thrilled to share that we are now in a pilot phase testing our platform in restaurants, which positions us for our anticipated launch in Q2 of 2024. We are just scratching the surface on personalization, and we see this as a key part of our strategy for sustaining same-store sales growth. The strength of our AUVs and unit economics are translating into accelerated growth in our development pipeline. The visibility we have into our construction pipeline at this time positions us to deliver on our 2023 guidance of 240 to 250 net new units, which would be a record year for Wingstop. We expect to exit 2023 at our highest level of development agreements ever. Our supply chain strategy is proving to be highly effective, and we have clear line of sight into our food costs for 2024 that align with our target of the mid-30% range, delivering predictability for our brand partners. Our corporate restaurants are a great example of the impact this strategy is having, with margins in the mid-20% range for 2023. At its system AUV of $1.8 million, food comps in the mid-30% range, and based on an initial investment in the mid-$400,000 range, brand partners are seeing an industry-leading payback of less than two years. We've set a target for over 7,000 global restaurants, more than three times our current footprint. A big part of our growth story is our international business. Not dissimilar from the U.S., our international markets are experiencing double-digit comps driven by transaction growth. They're executing a similar playbook to the U.S. In our UK market, our first restaurant that opened five years ago is hitting record sales volume. New restaurants are opening stronger, including in new markets such as Canada and Korea that are building awareness. We expect our newly signed markets, Netherlands and Puerto Rico, to open within the next two quarters, and our business development pipeline of potential new brand partners is strong. I continue to believe our international business is supercharged for growth. With this incredible growth in our business comes responsibility. A core tenet of our ESG strategy is giving back to the communities in which we serve through Wingstop Charities. I'm proud of what the team has accomplished this past year. Wingstop Charities awarded over $1.3 million in grants so far in 2023, an increase of over 400% from the prior year. In the third quarter, Wingstop Charities was able to support a tremendous cause, where 100% of contributions made through the roundup program in the months of August and September went to the No Kid Hungry organization. No Kid Hungry's mission is to end child hunger and to help ensure every single child in America has the food they need to grow up healthy and strong. The contributions provided to No Kid Hungry will provide three million meals to our youth. This is just one of the many ways Wingstop Charities is helping support the communities we serve. As I mentioned at the start of the call, I couldn't be more excited about the momentum we have in our brand right now. Wingstop is in a category of one, and our strategies are positioning us well for our next phase of growth. Our highly franchised asset-light model generates strong free cash flow and allows us to provide what we believe are industry-leading shareholder returns. Since our IPO, we have delivered a total shareholder return in excess of 950%. This past quarter, we announced our inaugural $250 million share repurchase program, which we believe further demonstrates our commitment to enhancing shareholder returns. We have great momentum heading into 2024 with a brand that's on the offense. The underlying health of our brand is the strongest it's been, with same-store sales being fueled by transaction growth and continued strengthening in our best-in-class unit economics. I want to thank our team members, brand partners, and supplier partners for their dedication and hard work to deliver these industry-leading results. With that, I'd like to turn the call over to Alex.

Thank you, Michael, and good morning. The third quarter is a clear reflection of the multi-year benefits our strategies are designed to achieve. Total revenue increased to $117.1 million from $92.7 million in the prior year fiscal third quarter. Royalty revenues, franchise fees, and other revenue increased by $12.8 million in Q3, primarily due to $3.8 million from franchise restaurant openings and a 15.3% increase in domestic same-store sales, which was driven almost entirely by transaction growth. As a result of the strength in our same-store sales growth, we are increasing our guidance from 10% to 12% to approximately 16% in 2023. Company-owned restaurant sales totaled $24 million in Q3, an increase of $3.8 million, primarily due to a 6% increase in company-owned same-store sales, driven almost entirely by transaction growth in four net new restaurants versus the prior year comparable period. Company-owned restaurant margins were 26.4% for the quarter, showcasing the strength of our unit economic model. Cost of sales as a percentage of company-owned restaurant sales improved by 440 basis points compared to the prior year, mainly driven by a reduction in food, beverage, and packaging costs, which included a 13.5% decrease in the cost of bone-in wings. We are on track to deliver a full year cost of sales of approximately 75%, consistent with the prior outlook we shared earlier this year. We continue to make progress executing our supply chain strategy to mitigate volatility in our food costs. At our recent brand partner convention, we generated quite a bit of excitement with the visibility we shared into our 2024 food costs, which for company-owned restaurants would translate to approximately 35% food cost. Our strategy is supported by the progress we are making on increasing our boneless mix, now at a record level of 44% for the system. This compares to a low 30% boneless mix just a few years ago. We believe a boneless mix in excess of 50% could yield a structural change in our food cost target to a low 30% level, further enhancing our best-in-class returns for our brand partners, which we believe will continue to fuel record development for new restaurants. In the third quarter, SG&A totaled $23 million, an increase of $6.4 million versus the prior year comparable period. The current quarter included an increase in performance-based stock and short-term incentive compensation as a result of our performance, as well as investments in headcount and strategic projects to support the long-term growth of the business. As we scale, we anticipate seeing greater leverage in our SG&A investments and are continuing to target a long-term SG&A as a percentage of system-wide sales in the 2% to 2.5% range. Adjusted EBITDA, a non-GAAP measure, was $38.5 million during the quarter, an increase of 36.7% against the prior year, which is building on top of adjusted EBITDA growth of 33% in the prior year period. Adjusting for non-recurring items, we delivered adjusted earnings per diluted share, a non-GAAP measure, of $0.69, a 53% increase versus the prior year. In August, we announced that our Board of Directors authorized our inaugural $250 million share repurchase program. Since our IPO, total shareholder returns have exceeded 950%, demonstrating our commitment to returning capital to shareholders. To further demonstrate this commitment, we entered into an accelerated share repurchase agreement to repurchase $125 million of Wingstop common stock. Under this ASR agreement as of September 30, 2023, the company retired 567,000 shares of its common stock, representing an estimated 75% of the total shares expected to be delivered. The delivery of any remaining shares will occur at the final settlement of the transaction, which is scheduled in the fourth quarter. The total remaining authorized amount for share repurchases is approximately $125 million at the end of Q3. Another component of our return of capital strategy is our regular quarterly dividend, which is targeted at approximately 40% of free cash flow. On October 31, 2023, our Board of Directors approved a quarterly dividend of $0.22 per share of common stock, resulting in a total dividend of $6.5 million. This dividend will be paid on December 8, 2023, to stockholders of record as of November 17, 2023. Our regular dividend program combined with our new share repurchase program underscores the strength of our highly franchised asset-light model in our ability to enhance shareholder returns while preserving financial flexibility on our balance sheet to support our strategic growth initiatives. Moving to our outlook for 2023. Based on the visibility we have in our construction pipeline, we are reiterating our development outlook of 240 to 250 net new units, which represents a unit growth rate of 12.5% at the midpoint of our range. SG&A guidance is estimated to be between $94.5 million and $95.5 million from prior guidance of $91 million to $93 million, including $5.2 million in nonrecurring consulting projects to support our strategic initiatives, an increase in our short-term incentive accrual based on the performance of our business, and an estimated $14 million to $15 million of stock-based compensation expense, which is unchanged from prior quarter guidance. I want to echo Michael's sentiment earlier. It is truly an exciting time to be at Wingstop. We are building brand awareness, scaling the brand globally, and increasing frequency among our guests against what could be considered a challenging macro backdrop, showcasing Wingstop's category of one position. Our strategies have staying power and give us the confidence to continue to deliver industry-leading results. Thank you to all our team members, brand partners, and supplier partners for their tireless efforts to serve the world our flavor. With that, I'd like to now turn to Q&A. Operator, please open the line for questions.

We will now begin the question-and-answer session. The first question today comes from Jeff Bernstein with Barclays. Please go ahead.

Hi, good morning. This is Pratik on for Jeff. I guess I can start off with a question on the comp. You've had another very strong quarter despite seemingly a growing number of consumer headwinds with higher interest rates, rent costs, student loan payments, and pricing is obviously being lapped as well. Your fourth quarter guidance implies another quarter of double-digit growth, and you seem to be unique among your peers driving your results mostly with transaction growth. Just, what do you attribute all the strength to? And how do you kind of sustain such momentum despite the seemingly growing headwinds? Thanks. And I have a follow-up.

Good morning and thank you for the question. I think it's a handful of things that I would call out. There's no question, as we look at industry data, we can clearly see that there's pressure on the consumer. But I think what you're really seeing in our business and what is making Wingstop unique is just the effectiveness of our growth strategies. We're acquiring more new guests than ever. Obviously, we're winning a lot of new occasions with chicken sandwiches, as well as delivery. But as we said in our prepared remarks, we're seeing more of those guests come back and navigate the rest of our menu, winning more of their occasions, which is yielding an uptick in frequency for our brand, which we're really excited about. I think we've talked about over the years, and it's really showcased in the fact that we've delivered 19 consecutive years of same-store sales growth, and we're on pace for our 20th this year. When there is pressure on the consumer, particularly that lower-income consumer, they tend to pull back on more high-frequency occasions. Where Wingstop plays well and where we win is we see those guests almost save up and want to treat themselves or indulge, and that's where Wingstop shows up in a really good way. We were able to over the years retain those indulgent quality occasions, and what's really interesting in our business and something we saw in Q3 was we actually saw a slight uptick in frequency with that low-income consumer, which we're pretty excited about. At the same time, we're seeing that higher-income consumer potentially pull back on dining out occasions, dining at home more. And we're winning those occasions as well. I think all of that is supported by an effective advertising strategy, one that we believe is really working. We have an elevated amount of ad fund investment to deploy, growing consistently with our system sales growth of roughly 30%. That's allowing us to show up in more premium placements like live sports. We've shown up in the NFL in a big way and we're showing up in NBA right now. Coupled with our new breakthrough creative, which we're really excited about, we’re seeing some of the highest levels of purchase intent associated with that new creative. One of the top things that consumers share with us when they see that new creative is it makes them hungry. We think that food-forward showing the enjoyment of our food on national TV is really driving our business with transaction growth. As we mentioned, we saw that strengthen as we progress through the quarter and that gives us a lot of confidence in how we'll finish 2023, which will be another record year for Wingstop.

That's very helpful. I appreciate that. Shifting to unit growth, your demand has obviously been consistent all along. I know you're not going to give any guidance today, but any qualitative comments on the outlook for 2024? Are you seeing any stress among potential developers in terms of just slowing macro, higher borrowing costs? Just any color on what you're kind of seeing right now for 2024.

Yes, absolutely. I think we hit on this in the prepared remarks, but we're pretty excited about the momentum we have in development. This year is playing out exactly how we anticipated, and we're right on track and excited about the sights that are in our pipeline and where they are in the construction cycle, which supports our reiteration of our outlook for this year of 240 to 250 net new restaurants, which will be a record year for Wingstop. Our development pipeline, any metric we look at like development agreements or number of approved sites as we go into 2024, are on pace for record levels. That shows to us, obviously, we have a lot of demand supported by the strength of our unit economics. We still support a pretty low initial investment in the mid-$400,000 range, and when our brand partners are seeing paybacks on that initial investment of less than two years, we don't see a lot of headwinds from some of these macro elements that you called out. A lot of our brand partners in our system, quite frankly, are funding growth with existing cash flow, so there's not a high degree of leverage in our system that this current interest rate environment might impact. We're encouraged by how our pipeline is shaping up as we close out 2023.

It’s very helpful. I appreciate it. Thank you.

The next question is from David Tarantino with Baird. Please go ahead.

Hi. Good morning. Congratulations on such strong results. Michael, I wanted to approach the unit growth outlook question from a different angle. The strength in the business over the past few years has significantly improved unit economics, which were difficult to envision during your last long-term growth outlook presentation. I'm curious if you're viewing the U.S. unit growth opportunity any differently now, considering the new customer attraction strength you’re experiencing. Do you have any insights on what the long-term opportunity might look like based on this year or recent years?

Good morning, David. Thanks for the question. Obviously, we remain extremely confident in the opportunity we see for our brand in the U.S. We've previously identified that opportunity as over 4,000 restaurants that we see the potential to expand Wingstop here in the U.S. As you mentioned, with the strengthening of our unit economics, there's a significant amount of demand for that growth. As we continue to build out some of our original or more mature markets like the Dallas-Fort Worth market or even Los Angeles, we continue to see a really strong pace of development in those markets, and we see those restaurants opening up stronger, those paybacks continuing to improve. While we do see the overall opportunity to lean in on that 4,000 target, we're extremely confident in being able to deliver on that long-term objective. The business, as we mentioned, outside of the U.S. is strengthening quite well. The markets that we are in are on track, and we're really encouraged by how the brand is expanding outside of the U.S., which, when combined with what we have here in the U.S., translates into an opportunity for us to over triple the size of the brand as we sit here today, which is pretty exciting.

Great. Thank you very much.

The next question is from Sara Senatore with Bank of America. Please go ahead.

Hi. Thank you very much. I have a question and a quick follow-up. I'm curious about the food costs you mentioned. I know you've managed well with callers and hedging. However, I've noticed that prices for inputs like chicken wings and breasts have risen significantly. I'm trying to gauge your confidence for 2024. Is it related to a shift towards boneless options, suggesting a structural change? Or do you think it's more of a timing issue where 2024 appears stable, but once some of the hedging contracts expire, we could start seeing the effects of the recent rise in input prices? I also have a follow-up question as I mentioned.

Hi. Good morning, Sara. This is Alex. It's really a combination of the factors you mentioned. The size and scale of our buy year-in and year-out and our increased boneless mix allowed us to enter into different pricing conversations with our suppliers. For the first time, we have visibility into our 2024 food costs, which we shared in our prepared remarks today. It's something our brand partners are really excited about. We've seen volatility before when the Urner Barry has moved. It’s still today below the five-year average, well below the five-year average of wing prices. The price arrangements we have in place have moved our buy off the spot market, giving us that visibility into this year as well as next year.

Got it. Thank you. On the topic of you having taken very little price, we've heard some about the promotional environment getting more intense. Is that something that you've observed as well? Other companies or concepts that have taken less price just seem to be doing better. I'm trying to understand if it's more about the relative value that has accumulated, given how much less price you've taken, or if there is something going on in the promotional environment.

Hey, Sara. I think for us, it plays a little bit into this category of one positioning in that we don't really feel like we have to compete in that competitive value or promotional landscape with other national brands because of the uniqueness of our offering and the differentiation of our cook-to-order and high-quality products. For us, we think that consumers are rewarding us for that indulgent occasion, that quality—the two components that are highest in guest feedback. We're able to deliver that within an offer that we believe provides great value to guests. Quarter-on-quarter, we continue to measure improvements in our value scores with guests. We think that's a combination of our offering and the improvements we've been making within the four walls of the restaurants on delivering a great guest occasion. We are seeing record levels for the brand right now in guest scores. The combination of those two things allows us to continue lean into strategies that are working. If you look at our Q3 results, a 15.3% comp driven by transaction growth significantly supports what we're saying here.

Okay. Thank you so much.

The next question is from Andy Barish with Jefferies. Please go ahead.

Hey, guys. I wanted to get a little bit of clarification on the tech stack and just understanding what's being piloted in restaurants now that's different as you look forward to a 2024 launch. If you could provide us a little bit more color on that, it would be helpful.

Yeah, Andy, we're really excited about the progress we've made and where we are today with our proprietary tech stack. This encompasses the entire consumer journey and something we've built, as we mentioned earlier, leveraging the most modern technology. We believe it will be a significant step change or even an unlock as we advance our digital transformation and expand our digital business. This will allow us to really lean into personalization, leverage that database that's over 35 million users strong, and engage in hyper-personalization, using AI that we believe will ultimately improve conversion and frequency. We are very excited to be in pilot in restaurants and start moving towards that broader scale rollout, which we said would be in Q2 of 2024.

Great. One follow-up on customer acquisition. You provided a little bit more detail on the programs over the last year. Is that something new coming from your tech investment? Or were those studies you were doing recently on your guests leading to this information? Just trying to get a bit more color on that.

Yes, absolutely. As we see our digital business grow to a record level of 67%, that's allowed us to gather more data on our guests and learn more about them, where they dine, and how they engage with our brand. Having a year under our belt with the Chicken Sandwich, we brought a lot of new guests in, shedding light on how they engage with our brand and their return rate. This, in turn, provides what we've called a halo effect for our overall business. The new guests we mentioned tend to be Gen Z or Millennials, more middle income, and are less likely to have kids at home compared to our core guests. Their average ticket is higher, and their boneless mix is higher, which is helping support continued growth in that area, ultimately enhancing our unit economics.

Great. Thank you for taking my question. When we think about the opportunity to drive the boneless mix above the 50% threshold, can you share any strategies or learnings you've seen in stores that have been driving this? What has been successful for getting that level of awareness up, or just the frequency and engagement with that boneless category higher?

Hi, Josh. I appreciate the question. Several restaurants in our system have a boneless mix well above 50%. These restaurants are the basis for our statement that driving a boneless mix higher could lead to a structural change in our food cost targets. Those restaurants today enjoy food costs that are 300 to 400 basis points lower than the system average. We think as we bring more new guests in and continue to win more of these occasions, it's not just boneless or just sandwiches. There's tenders, as well. We have considerable opportunities to capture more guest occasions, with a clear line of sight to driving that boneless mix above 50%, which is exciting for us and our brand partners because it will enhance the best-in-class unit economics further fueling demand for development.

Thank you for that. As a follow-up, regarding your commentary about driving awareness across different channels, you specifically called out the strength in delivery. I'm curious what you've seen in terms of the brand journey, depending on the channel the customers come to you from. Is there an opportunity? How have you navigated that to bring customers from third-party delivery onto your own Wingstop-branded platform over time?

Yes, absolutely. It has been really exciting for us to see the growth in the delivery channel. We have seen growth in all channels, which we think is healthy for our brand. This shows that our advertising strategy is effective and that our restaurant execution is on point. Continuing to win more occasions, we want to tie back to our investments in e-commerce. We believe this is going to unlock our ability to customize the customer journey in a way that allows us to capture more of their occasions and move them to wingstop.com or our app for engagement with our brand. As we advance this pilot towards our national launch in Q2 of 2024, we see that as an exciting unlock for our brand.

The next question is from Brian Harbour with Morgan Stanley. Please go ahead.

Yes, thank you. Maybe first just one quick question. Was there a certain pricing assumption when you talk about where you think food costs will run next year?

No, I think our comments around food costs are centered around the progress we've made against our supply chain strategy. We continue to be committed to that disciplined approach to pricing that we've had over the years, which is one to two points of price taken over two windows each year.

Thanks. I think it's clear that your larger advertising budget and what you've done with media has been successful in driving awareness. Where do you think you want to be in terms of ad placements a year or two from now? Do you think that the new creative campaign in September drove the momentum you saw exiting the quarter?

Brian, thanks for the question. Our ad fund has grown significantly since we initially launched national advertising as a brand in 2018. It has allowed us to show up in premium placements like the NFL and NBA. Nevertheless, we are still only airing in a couple of spots per game. There's an enormous amount of runway within linear TV for us to continue showing up more and driving brand awareness. We have a significant opportunity to scale our brand awareness, ultimately leveling up to where other more mature national brands are. As our ad fund continues to grow with system sales, we'll show up more. Digital-forward brand strategies will leverage first-party data, allowing us to show up in the right channels with precise messaging. The new creative definitely had an impact on the results we saw in Q3, especially as we exited the quarter. However, it's an aggregate of all the elements we are working in concert that contribute to these industry-leading transactions that are unique right now in the industry.

The next question is from Andrew Charles with TD Cowen. Please go ahead.

Great. Thank you. Clearly, there is very encouraging commentary on Q3 comps and how the business is shaping up in Q4. I know we'll get the 2024 guidance next quarter, but is there anything that gives you concern about your ability to reach medium-term guidance of mid-single digits next year? I also have a follow-up.

Andrew, thanks for the question. We were really excited and pleased with the results we saw in Q3. One crucial point we wanted to highlight is our growth strategies, whether it's winning more occasions, bringing in new guests via chicken sandwiches, expanding our brand awareness in the delivery channel, or scaling our national advertising resulting in record levels for brand awareness. Those strategies are all multi-year drivers for our business. As we approach 2024, we are confident in our ability to continue to drive average unit volumes and advance the targets we have over $2 million, which will enhance the best-in-class unit economics.

Excellent. Okay. Great. And then Alex, looking ahead what's the philosophy of the balance sheet and use of cash? I recognize we're close to four times leverage versus the six to seven times target. Is the plan to use free cash flow for stock buyback? I know you have the $125 million still authorized, but looking beyond that, is the plan to use free cash flow for stock buyback until conditions become more favorable for pursuing leverage recap?

Good morning, Andrew. Yes, I think we are sensitive to the current backdrop we're operating in. Last year, we were opportunistic in the last debt transaction made to position our flexibility on our balance sheet to navigate uncertainty. This includes using the strong free cash flow generation of our asset-light model, which allows us to deleverage fairly quickly. We can allocate free cash flow to support our growth initiatives or return of capital strategies, which include not just share repurchases, but a regular dividend targeted at approximately 40% of free cash flow. We believe we have ample flexibility and liquidity available to support those growth strategies.

The next question is from Jon Tower with Citi. Please go ahead.

Hi, it's actually Karen Holthouse on for John today. Thinking about the new technology platform that you're hoping to roll out to stores in the second quarter, it sounds like there's customer-facing and also analytical or operational pieces to it. If you could maybe expand on the new capabilities? Other companies have talked about recouping investments in digital capabilities through per-order fees or other fees to franchisees. How do you philosophically think about that as a service to your franchisees—that's part of just already being a Wingstop franchisee—or something that replaces third parties that you should get paid for?

Hey, Karen, good morning. We're really excited about what we're calling My Wingstop, this tech platform we've built. We believe it will advance the consumer experience, specifically digital ordering, allowing us to win more digital occasions. It will improve conversion rates, and we believe will impact frequency. We also provide restaurant partners with additional insights and visibility, which helps them improve profitability. As we deploy this, we expect to displace costs on their P&L today. The ongoing operating expense associated with operating My Wingstop will be structured to be cost neutral on our P&L, covered by brand partners. We see this as a right approach since it enhances their unit economics long-term.

The next question is from Andrew Strelzik with BMO. Please go ahead.

This is Daniel Gold on for Andrew Strelzik. Thanks for taking my question. Regarding your supply chain initiatives, you've noted moving the buy off spot. Have you completely disconnected the model from spot-linked prices? Is there still some link? Can you provide texture on how that link is structured?

Yeah. Good morning. We're excited about the progress we've made in our supply chain strategy. This strategy minimizes volatility in food costs. As Alex referenced, we've made significant progress over the past year, giving us visibility into our expected food costs for 2024, which is very exciting for our brand partners. We will continue to enhance this strategy with our suppliers, as it is beneficial for both sides. We will also move more of our buys away from the spot market, ensuring that we reduce volatility in our food costs. Additionally, as Alex mentioned, driving the boneless mix to over 50% could correlate with a structural change in food costs to that low-30% range, which currently sits in the mid-30s. This would further enhance the unit economics our brand partners enjoy today.

Great. Can you give us an update on your delivery mix and how you're looking to drive growth in that channel? I understand that there's some pressure on delivery in this environment. Are additional partners a factor in driving growth?

We're encouraged by the growth we've seen in delivery. We've mentioned that we've seen growth in both DoorDash and Uber Eats and we believe there is significant upside potential remaining. The mix is consistent with last quarter, maybe even ticked up slightly. While we're seeing growth in those channels, we also see growth in all other channels, whether it’s digital carryout or non-digital carryout. That consistent mix indicates strong overall brand health, which is a positive sign.

Thanks. Good morning. Michael, I wanted to follow up on your comment about gaining more new customers this quarter than you did when you first launched the chicken sandwich. It's impressive. Can you elaborate on how you're reaching these new customers for the first time? How do you maintain that momentum? Is it just the national TV campaigns or what other levers can you pull in 2024 and beyond to keep gaining new customers?

Yes, we are very excited about the statistic we mentioned earlier. The effectiveness of our growth strategies has proven successful. Continued brand expansion and awareness is a significant catalyst. As more consumers come to know Wingstop and are seeking that indulgent, quality occasion during these challenging dining trends, we believe it positions us uniquely to navigate this environment and continue improving our customer base while enhancing their dining experience.

Hey, good morning, Michael. This is Alex. We expect international to continue to stair-step, which is a function of how we construct our development agreements. U.S. domestic agreements tend to be for three to five years with smaller commitments, while international agreements tend to be for ten years and start slower, but ramp up as they gain momentum—like our UK market did. As we open our markets, such as Canada and Korea, they are realizing similar development rates. We foresee this being a robust aspect of our growth story.

Thank you. Operator, please go ahead.

The next question is from Peter Saleh with BTIG. Please go ahead.

Great. Thanks for taking the question. I want to come back to the balance sheet conversation. This environment of higher interest rates and uncertainty makes me wonder, is your intention to be more patient until rates come down a little bit before adding more leverage? Should we still expect movements on additional leverage over the next 12 months? Should we think about your target being lower now?

I'll start and then Alex can jump in. We mentioned in our last refinancing that we are positioned favorably to have options and flexibility. We've added a significant cash reserve to our balance sheet to provide optionality moving forward. We entered into a variable funding note, achieving rates that were quite competitive compared to current market conditions. We have ample cash and free cash flow to enable us to continue executing against our return strategy. We remain comfortable with our leverage target rate. We believe we are well-positioned, combining strong EBITDA growth with effective free cash flow management.

Yes, Peter. To add to Michael's point— we generate a healthy amount of free cash flow from our asset-light model, which allows us to rapidly reduce leverage. We'll continue to pursue strategic approaches with our cash flow to support initiatives. We balance enough flexibility to navigate our growth strategies.

The next question is from Jake Bartlett with Truist. Please go ahead.

Great. I appreciate it. The first question is on G&A. The G&A guidance has gone up about 15% from the initial guidance. I want to confirm what's driving that and what this means for 2024. I assume there's a lot of incentive compensation accrued, reflecting 2023 might not recur in 2024.

Sure, Jake. Two driving factors impact our guidance increase from the prior quarter: one is the investment in consulting fees in Q3 of $1.3 million, and the other relates to increased accruals for our short-term incentive-based compensation due to our company performance. We have about $5.2 million of non-recurring consulting fee investments that will lapse. The short-term incentives will also reset next year, so I would expect G&A to normalize next year as a percentage of system sales to be consistent with what we see in 2023.

Great. A quick question about the GLP-1 and its potential impact going forward. I know it's tough to quantify, but how are you considering this? Have you identified any impacts in certain markets?

Sure. We're not seeing an impact on our business today, supported by the strong results delivered in Q3. There are still many unknowns regarding GLP-1, including affordability and sustainable adoption levels. As we consider our target guests in these occasions, we believe we are well-positioned. We will maintain our focus on the long-term growth strategies we've been executing against while advancing forward.

This concludes our question-and-answer session. The conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.