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 accessed 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 please 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.…

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 cost from incentive pay associated with COVID-19 for our restaurant team members. The incentive pay is a non-recurring investment to support our…

[Operator Instructions] Our first question comes from Andrew Charles with Cowen. Please go ahead.

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 site 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 for wall cash flow and great cash-on-cash returns for our brand partners, we call it our franchisees 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 in 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 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 and 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. We - 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 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 a valued supplier partners , pricing mechanism that mitigates 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 able - 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 call affectionately our brand partners are recognizing the strength of this brand it's willing, 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 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 be 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?

Well, I think from a mathematical perspective, you could certainly recognize that there would be sales opportunity by reopening the dining rooms. However, our focus, first and foremost is the safety of our guests and the safety of our team members in our restaurants. As we've seen a recent uptick in COVID-19 infections, I think it demonstrates that our strategy, we affectionately call [faiello] to close our dining rooms and last to open, is a demonstration that not only are we making sure that we're running great carryout in digital and off-premise business for our guests, but at the same time we're respecting the importance of safety. It's a difficult operating environment that all of us understand and to be able to demonstrate that kind of performance, we are without having to reopen our dining rooms, I think is just another great demonstration of the resiliency of our model and the satisfaction our guests have with both delivery and carryout as their primary option 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 dialog 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 - 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 request 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 ship 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 clear 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 - 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 - 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 a 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.

This is Brian Harbour on for John, maybe just a quick one on company store margins, appreciate the kind of - on 4Q will look like there, just curious beyond that, if you think, this new pricing or the new wing pricing mechanism, could that make the impact on margins? Or come down over time, then kind of on the labor side, we've obviously had more incentive compensation related to COVID. Do you think that would come down over time? Just curious how you think margins can kind of trend as we look into next year, perhaps.

Yes, look, there are couple of things there. Number 1, would we see cost of goods diminished, because of the wing pricing mechanism. At a minimum, they will hold flat to where we are, because the price of chicken wings was rising fairly rapidly during the third quarter. And so we did put in efforts to mitigate that, which could hold them flat, but again that's still within what we would call our sweet spot for long-term sustainable growth. Labor, it depends, we are going to do what it takes to make sure that our team members are taken care of in our company-owned restaurants and we believe that most if not all of our brand partners are following suit on retentive mechanisms to keep people in our restaurants. It's been difficult, we've hired as many as 9,000 people during this pandemic timeframe. And so it's a demonstration that with our growth, we need to make sure we retain our team, and it's a very important investment, we're making to provide them with that incentive compensation, some of which would be driven by any further stimulus plans that might come forward.

One more, just on the investment in the Denver market, do you think are there a lot of other opportunities to do that around the country? Just curious on kind of the magnitude of that opportunity.

Yes, I think, given the environment we're in and the opportunity to accelerate development through these strategic investments like we demonstrated in the Kansas City market, we believe that a market like Denver presents not only opportunity to buy restaurants, but also to add new restaurants to our portfolio. And then ultimately over time re-franchise those if we feel that's right, it's a great way to stimulate investment amongst existing and or net new franchisees to our system. There are other markets in the country. We are looking at to do that with, and from time to time we will opportunistically invest in those markets by way of acquisition of existing restaurants and or development of new restaurants in territories where we believe there is ample opportunity to grow quickly.

Our next question comes from Chris O'Cull with Stifel. Please go ahead.

Michael, you mentioned restaurant margin of fourth quarter should be similar to the third. But can you explain the puts and takes that would allow that to be similar, at a similar level?

Yes, no, I think it's going to be the - the pricing mechanism that you heard us talk about earlier that's going to allow us to mitigate any sort of continued inflation in the urban area. And then all things kind of remain consistent with what we saw in Q3. Obviously there is a little bit around the incentive pay at the restaurant level whether not that continues, but as of right now we planned for it to. So I would expect to see just similar margins overall.

Is the seasonality in the business, about the same in terms of sales volumes?

Yes, there's not a lot of seasonality in our business. If you look at it from quarter-to-quarter, so nothing to call out there.

And then, Michael, the Company is clearly investing, and its infrastructure to support growth and I appreciate the guidance for 2020. But can you help frame up some expectations for '21? Or at least provide what cost in '20 may not occur and reoccur in '21?

Yes, Chris, obviously we're not - we're not at a spot today to give '21 guidance, but what I would say, and what we tried to call out is due to the Company's strong performance, particularly when you think about a same-store sales growth metric north of 20%, you think about our ability to what we believe will be to deliver a unit growth number that still align with our long-term target of 10% plus. And then obviously seeing the great leverage on our asset-light model flowing through to, as we sit here today, year-to-date 30% - over 30% adjusted EBITDA growth year-over-year. And so those metrics have led to and those results have led to some additional variable incentive comp that we highlighted in the MD&A and as well as the release in the third quarter, one element of that is in stock comp expense as well. And so those are not the type of charges, I would expect to model out and see recurring year-over-year.

Our next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.

A couple of modeling questions. So first up, with the recapitalization, what are you guys looking for, for interest expense in both the 4Q '20 and 2021 for the full year?

Yes, I would say, just to kind of anchoring around the annual savings for 2021 and forward, Jeff, we would expect that to be about $2 million in savings on interest expense. And that's obviously taken our debt, up from $325 million to the $480 million, just really highlights how strong of the deal, it was, we were able to execute in the record-setting rate, we were able to obtain which we're really excited about.

And then I might have missed this, but you were asked about this on the last call as well, but in terms of what's driving that rather large and growing spread between Company-owned and franchise restaurant same-store sales right now? Any color you can provide on that?

Yes. There's nothing I'd really - I'd really call out, Jeff, I mean, we're talking about 30 restaurants. So it's a pretty small sample, but you know it's - these are, on average 15-year-old restaurants and are still comping double digits something we're extremely proud of, to see that AUV at $2.2 million dollars is - is really strong and it actually is, similar to other restaurants of that same vintage. So you can think about the great four-wall economics our brand partners are enjoying there as well.

Our next question comes from comes from Jon Tower with Wells Fargo. 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 a long-term sustainable growth globally.

Then the thinking about that, would there be a mechanism in place such that you're paid back over time from the larger global pizza players, do you get paid for online transactions that their franchisees do? Is that something that's contemplated today or not part of the equation?

Well I definitely think there is a payback on that investment and what I would do is remind you of what we've done over the past four or five years to develop what we believe is best-in-class in terms of the tech stack for our U.S. business, and the best way to demonstrate that return on investment is our performance this year, we were very well positioned going into, what we didn't expect was a pandemic, but certainly what it has done is accelerated for us two years' worth of what we anticipated in growth in our digital business which fuels top line. That top line growth helps support our brand partners, so that they can invest in new restaurants. It also helps us in driving same-store sales and sustaining our performance. All of that is paid back to us in the form of royalty increases in dollars, not percentages, but in dollars that help fuel growth in EBITDA. So we believe that making this position and pivoting towards a global outlook for our technology platform will create long-term sustainable advantages for the brand, and create growth.

And if I may one more, just thinking about the - one of your, well, there has been an introduction of a virtual brand during this summer and into the fall period. And I'm curious, perhaps you could talk about, how your stores in the markets, where the brand overlaps with it's just wings, how those stores perhaps perform maybe initially, and how they're sitting today or even through the third quarter? Was there much of an impact on your business as that business ramps up?

Yes, we don't see any impact associated with that brand, which I think you're referring to Chili's. We - they have locations all over the country, we know that. They're leveraging their kitchens wisely during a very difficult for their business. So I applaud the fact that they are working hard to try and do everything they can to support their own locations, but it - the only impact, we're seeing it have, as I mentioned earlier is that they are really acquiring a lot of the frozen wings stock out of the market that normally is available this time of year and utilizing that for this virtual brand, effectively their virtual brand is operating the same as ours is, operating virtually quite well. And in fact, as we mentioned, we're already on pace to generate over a $1 billion of digital sales through selling wings this year out of our total performance. So we don't see that as an impact to our business at all.

Our next question comes from Michael Tamas with Oppenheimer & Company. Please go ahead.

Thanks for voting. Well, you mentioned a few times that you're dining rooms historically were 20% of sales and have still closed, but - economics, even with them closed you're still fantastic, so that causing you and your franchisees to think about what Wingstop look like going forward, could you drive even faster growth, if you didn't have dining rooms or even like upside to your relative long-term targets. Thanks.

We are having a lot of discussions about this. And it depends market by market as to what the right answer is strategically for the brand and maybe even trade area by trade area, we have been and are investing in ghost kitchens as an opportunity. We believe this brand is well positioned for, we want to understand them very carefully the unit economics and how they work, because it isn't always this panacea people believe in virtual brands and certainly in ghost kitchens. There is a necessity to understand how they behave in different markets, which is what we're working on right now. We believe those have application, both here in the U.S. as well as overseas and we've invested in them in both markets. And so more to come on that but there are a lot of markets where it is necessary for us to have dining rooms, because that's what our guests expect of us. And so we aren't going to make a material pivot but you certainly can see that the advent of these dark kitchens can help us look for ways to grow the market - grow the brand and markets we may not have gone into with a traditional retail location.

And then just a follow-up on the Denver transaction and that sort of strategy as a whole. Can you talk about maybe what are the growth prospects of Denver look like before this transaction? And what it could look like coming out the other side, maybe through to re-franchise. I'm just trying to understand how impactful some of these - these strategies can be relative to what your growth is now? Thanks.

Sure. I think, Denver has been a great market for us for a long time. We have some very long-term well sustained brand partners in that market, but it also represents for us a market that's at about 50% or so of its capacity for growth. So, our acquisition offers us an opportunity to build some restaurants. But certainly puts into play, the opportunity to continue to expand that market quickly, just like we did in Kansas City, which has really taken off nicely. So where we see markets like that in the future, we'll continue to look at those. There are a few around the country as I mentioned before that we're interested in. And we'll look at those opportunistically as they come about.

Our 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 the variable based compensation.

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

Yes, that was - 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 is still broadly in place or 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 - 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.

This is actually [indiscernible] on for Andrew today. Thanks for taking the questions. I think people look at some of the pizza players and assume a large portion of those gains are temporary, given the current environment. And then maybe sort of extrapolate that sentiment to you guys given the similarities in the business model. But given where awareness started, it does feel like you've gained perhaps a larger portion of new customers during the pandemic. So I guess my question is, are you starting to get a better sense for what stickiness of gains might look like as we trend back towards a more normalized environment? And how would you compare and contrast the gains you've realized with some of those pizza guys?

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. 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 carriers 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, and 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 for the 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 to 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, 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 - to our brand. And those - 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 considered - 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 - 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 - 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 - with our supplier partners. And they know that we're buying wings year round, we're not just jumping in end 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.