10-Q 1 wen-20240331.htm 10-Q wen-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024

or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission file number: 1-2207
THE WENDY’S COMPANY
(Exact name of registrant as specified in its charter)
Delaware38-0471180
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
One Dave Thomas Blvd.
Dublin,
Ohio43017
(Address of principal executive offices)(Zip Code)

(614) 764-3100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.10 par valueWENThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

There were 205,133,491 shares of The Wendy’s Company common stock outstanding as of April 25, 2024.



THE WENDY’S COMPANY AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.
THE WENDY’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Par Value)
March 31,
2024
December 31,
2023
ASSETS(Unaudited)
Current assets:
Cash and cash equivalents$498,333 $516,037 
Restricted cash36,058 35,848 
Accounts and notes receivable, net125,546 121,683 
Inventories6,110 6,690 
Prepaid expenses and other current assets39,075 39,640 
Advertising funds restricted assets162,406 117,755 
Total current assets867,528 837,653 
Properties890,667 891,080 
Finance lease assets227,547 228,936 
Operating lease assets696,944 705,615 
Goodwill773,077 773,727 
Other intangible assets1,210,124 1,219,129 
Investments33,230 34,445 
Net investment in sales-type and direct financing leases306,908 313,664 
Other assets183,745 178,577 
Total assets$5,189,770 $5,182,826 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities:  
Current portion of long-term debt$29,250 $29,250 
Current portion of finance lease liabilities20,730 20,250 
Current portion of operating lease liabilities49,848 49,353 
Accounts payable26,175 27,370 
Accrued expenses and other current liabilities144,211 135,149 
Advertising funds restricted liabilities155,235 120,558 
Total current liabilities425,449 381,930 
Long-term debt2,727,371 2,732,814 
Long-term finance lease liabilities563,955 568,767 
Long-term operating lease liabilities729,086 739,340 
Deferred income taxes270,875 270,353 
Deferred franchise fees89,331 90,132 
Other liabilities90,049 89,711 
Total liabilities4,896,116 4,873,047 
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.10 par value; 1,500,000 shares authorized;
     470,424 shares issued; 205,325 and 205,397 shares outstanding, respectively
47,042 47,042 
Additional paid-in capital2,962,241 2,960,035 
Retained earnings400,465 409,863 
Common stock held in treasury, at cost; 265,099 and 265,027 shares, respectively
(3,053,133)(3,048,786)
Accumulated other comprehensive loss(62,961)(58,375)
Total stockholders’ equity293,654 309,779 
Total liabilities and stockholders’ equity$5,189,770 $5,182,826 

See accompanying notes to condensed consolidated financial statements.
4

THE WENDY’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)

Three Months Ended
March 31,
2024
April 2,
2023
(Unaudited)
Revenues:
Sales$225,323 $227,949 
Franchise royalty revenue and fees146,500 141,677 
Franchise rental income57,986 57,807 
Advertising funds revenue104,944 101,374 
534,753 528,807 
Costs and expenses:
Cost of sales192,113 196,536 
Franchise support and other costs14,742 13,260 
Franchise rental expense31,778 30,629 
Advertising funds expense107,374 101,661 
General and administrative63,757 62,276 
Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below)35,518 33,472 
Amortization of cloud computing arrangements3,542 1,582 
System optimization losses (gains), net127 (5)
Reorganization and realignment costs5,673 6,808 
Impairment of long-lived assets2,006 376 
Other operating income, net(3,033)(2,266)
453,597 444,329 
Operating profit81,156 84,478 
Interest expense, net(30,535)(31,705)
Loss on early extinguishment of debt (1,266)
Investment loss, net (3,562)
Other income, net6,836 7,336 
Income before income taxes57,457 55,281 
Provision for income taxes(15,464)(15,460)
Net income$41,993 $39,821 
Basic and diluted net income per share$.20 $.19 

See accompanying notes to condensed consolidated financial statements.
5

THE WENDY’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)

Three Months Ended
March 31,
2024
April 2,
2023
(Unaudited)
Net income$41,993 $39,821 
Other comprehensive (loss) income:
Foreign currency translation adjustment(4,586)158 
Other comprehensive (loss) income(4,586)158 
Comprehensive income $37,407 $39,979 

See accompanying notes to condensed consolidated financial statements.
6

THE WENDY’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands)

Common
Stock
Additional
Paid-In
Capital
Retained EarningsCommon Stock Held in TreasuryAccumulated Other Comprehensive LossTotal
(Unaudited)
Balance at December 31, 2023$47,042 $2,960,035 $409,863 $(3,048,786)$(58,375)$309,779 
Net income  41,993   41,993 
Other comprehensive loss    (4,586)(4,586)
Cash dividends  (51,374)  (51,374)
Repurchases of common stock   (7,216) (7,216)
Share-based compensation 5,853    5,853 
Common stock issued upon exercises of stock options
 179  1,036  1,215 
Common stock issued upon vesting of restricted shares
 (3,855) 1,778  (2,077)
Other 29 (17)55  67 
Balance at March 31, 2024$47,042 $2,962,241 $400,465 $(3,053,133)$(62,961)$293,654 

Balance at January 1, 2023$47,042 $2,937,885 $414,749 $(2,869,780)$(64,176)$465,720 
Net income  39,821   39,821 
Other comprehensive income    158 158 
Cash dividends  (53,103)  (53,103)
Repurchases of common stock   (38,810) (38,810)
Share-based compensation 4,609    4,609 
Common stock issued upon exercises of stock options
 808  1,808  2,616 
Common stock issued upon vesting of restricted shares
 (2,222) 678  (1,544)
Other 58 (22)54  90 
Balance at April 2, 2023$47,042 $2,941,138 $401,445 $(2,906,050)$(64,018)$419,557 

See accompanying notes to condensed consolidated financial statements.
7

THE WENDY’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
2024
April 2,
2023
(Unaudited)
Cash flows from operating activities:
Net income$41,993 $39,821 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (exclusive of amortization of
cloud computing arrangements shown separately below)
35,518 33,472 
Amortization of cloud computing arrangements3,542 1,582 
Share-based compensation5,853 4,609 
Impairment of long-lived assets2,006 376 
Deferred income tax603 2,302 
Non-cash rental expense, net10,974 9,012 
Change in operating lease liabilities(12,112)(11,718)
Net receipt (recognition) of deferred vendor incentives8,584 (1,197)
System optimization losses (gains), net127 (5)
Distributions received from joint ventures, net of equity in earnings430 394 
Long-term debt-related activities, net1,870 3,419 
Cloud computing arrangements expenditures(2,865)(6,643)
Changes in operating assets and liabilities and other, net3,464 (22,449)
Net cash provided by operating activities99,987 52,975 
Cash flows from investing activities:  
Capital expenditures(17,354)(12,240)
Franchise development fund(4,741)(218)
Dispositions26 287 
Notes receivable, net1,256 110 
Net cash used in investing activities(20,813)(12,061)
Cash flows from financing activities:  
Repayments of long-term debt(7,313)(39,122)
Repayments of finance lease liabilities(5,465)(4,398)
Repurchases of common stock(7,295)(36,727)
Dividends(51,374)(53,103)
Proceeds from stock option exercises932 2,881 
Payments related to tax withholding for share-based compensation(2,115)(1,809)
Net cash used in financing activities(72,630)(132,278)
Net cash provided by (used in) operations before effect of exchange rate changes on cash6,544 (91,364)
Effect of exchange rate changes on cash(2,274)129 
Net increase (decrease) in cash, cash equivalents and restricted cash4,270 (91,235)
Cash, cash equivalents and restricted cash at beginning of period588,816 831,801 
Cash, cash equivalents and restricted cash at end of period$593,086 $740,566 

See accompanying notes to condensed consolidated financial statements.
8

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all information and footnotes required by GAAP for complete financial statements. In our opinion, the Financial Statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position as of March 31, 2024, the results of our operations for the three months ended March 31, 2024 and April 2, 2023 and cash flows for the three months ended March 31, 2024 and April 2, 2023. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full 2024 fiscal year. The Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K”).

The principal 100% owned subsidiary of the Company is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). The Company manages and internally reports its business in the following segments: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. See Note 16 for further information.

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to or on December 31. All three-month periods presented herein contain 13 weeks. All references to years, quarters and months relate to fiscal periods rather than calendar periods.

Our significant interim accounting policies include the recognition of advertising funds expense in proportion to advertising funds revenue.

(2) Revenue

Disaggregation of Revenue

The following tables disaggregate revenue by segment and source:
Wendy’s U.S.Wendy’s InternationalGlobal Real Estate & DevelopmentTotal
Three Months Ended March 31, 2024
Sales at Company-operated restaurants$219,468 $5,855 $ $225,323 
Franchise royalty revenue108,853 16,827  125,680 
Franchise fees17,826 1,889 1,105 20,820 
Franchise rental income  57,986 57,986 
Advertising funds revenue96,700 8,244  104,944 
Total revenues$442,847 $32,815 $59,091 $534,753 
Three Months Ended April 2, 2023
Sales at Company-operated restaurants$222,632 $5,317 $ $227,949 
Franchise royalty revenue106,339 15,811  122,150 
Franchise fees17,272 1,523 732 19,527 
Franchise rental income  57,807 57,807 
Advertising funds revenue94,745 6,629  101,374 
Total revenues$440,988 $29,280 $58,539 $528,807 

9

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


Contract Balances

The following table provides information about receivables and contract liabilities (deferred franchise fees) from contracts with customers:
March 31, 2024 (a)December 31, 2023 (a)
Receivables, which are included in “Accounts and notes receivable, net” (b)
$62,000 $55,293 
Receivables, which are included in “Advertising funds restricted assets”
74,614 76,838 
Deferred franchise fees (c)100,264 100,805 
_______________

(a)Excludes funds collected from the sale of gift cards, which are primarily reimbursed to franchisees upon redemption at franchised restaurants and do not ultimately result in the recognition of revenue in the Company’s condensed consolidated statements of operations.

(b)Includes receivables related to “Sales” and “Franchise royalty revenue and fees.”

(c)Deferred franchise fees are included in “Accrued expenses and other current liabilities” and “Deferred franchise fees” and totaled $10,933 and $89,331, respectively, as of March 31, 2024, and $10,673 and $90,132, respectively, as of December 31, 2023.

Significant changes in deferred franchise fees are as follows:
Three Months Ended
March 31,
2024
April 2,
2023
Deferred franchise fees at beginning of period$100,805 $99,208 
Revenue recognized during the period
(2,804)(2,814)
New deferrals due to cash received and other2,263 1,300 
Deferred franchise fees at end of period$100,264 $97,694 

Anticipated Future Recognition of Deferred Franchise Fees

The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period:
Estimate for fiscal year:
2024 (a)$9,345 
20256,526 
20266,390 
20276,290 
20286,169 
Thereafter65,544 
$100,264 
_______________

(a)Represents franchise fees expected to be recognized for the remainder of 2024, which includes development-related franchise fees expected to be recognized over a duration of one year or less.

10

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


(3) System Optimization Losses (Gains), Net

The Company’s system optimization initiative included a shift from Company-operated restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”). As of March 31, 2024, Company-operated restaurant ownership was approximately 5% of the total system. While the Company has no plans to move its ownership away from approximately 5% of the total system, the Company expects to continue to optimize the Wendy’s system through Franchise Flips, as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of Company-operated restaurants to existing and new franchisees, to further strengthen the franchisee base, drive new restaurant development and accelerate reimages. During the three months ended March 31, 2024, the Company facilitated 11 Franchise Flips. During the three months ended April 2, 2023, the Company did not facilitate any Franchise Flips. No Company-operated restaurants were sold to or purchased from franchisees during the three months ended March 31, 2024 or April 2, 2023.

Gains and losses recognized on dispositions are recorded to “System optimization losses (gains), net” in our condensed consolidated statements of operations. Costs related to acquisitions and dispositions under our system optimization initiative are recorded to “Reorganization and realignment costs,” which are further described in Note 4. All other costs incurred related to facilitating Franchise Flips are recorded to “Franchise support and other costs.”

As part of our system optimization initiative, the Company recorded a (loss) gain on sales of surplus and other properties of $(127) and $5 during the three months ended March 31, 2024 and April 2, 2023, respectively. The Company received net cash proceeds from the sales of $26 and $287 during the three months ended March 31, 2024 and April 2, 2023, respectively.

Assets Held for Sale

As of March 31, 2024 and December 31, 2023, the Company had assets held for sale of $2,678 and $2,689, respectively, primarily consisting of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.”

(4) Reorganization and Realignment Costs

The following is a summary of the initiatives included in “Reorganization and realignment costs:”
Three Months Ended
March 31,
2024
April 2,
2023
Organizational redesign$5,622 $6,737 
Other reorganization and realignment plans51 71 
Reorganization and realignment costs$5,673 $6,808 

Organizational Redesign

In February 2023, the Board of Directors approved a plan to redesign the Company’s organizational structure to better support the execution of the Company’s long-term growth strategy by maximizing organizational efficiency and streamlining decision making (the “Organizational Redesign Plan”). As a result of the Organizational Redesign Plan, the Company held its general and administrative expense in 2023 relatively flat compared with 2022. Additionally, in January 2024, the Board of Directors announced the appointment of Kirk Tanner as the Company’s new President and Chief Executive Officer, effective February 5, 2024. Mr. Tanner succeeded Todd A. Penegor, the Company’s previous President and Chief Executive Officer, who departed from the Company in February 2024. The Company expects to incur total costs of approximately $17,000 to $19,000 related to the Organizational Redesign Plan, including costs related to the succession of the President and Chief Executive Officer role. During the three months ended March 31, 2024 and April 2, 2023, the Company recognized costs totaling $5,622 and $6,737, respectively, which primarily included severance and related employee costs. The Company expects to incur additional costs aggregating approximately $2,500 to $4,500, comprised of (1) severance and related employee costs of approximately $2,000, (2) recruitment and relocation costs of approximately $200 and (3) share-based compensation of approximately $1,500. The Company expects costs related to the Organizational Redesign Plan to continue into 2026.

11

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


The following is a summary of the costs recorded as a result of the Organizational Redesign Plan:
Three Months Ended
March 31,
2024
April 2,
2023
Total Incurred Since Inception
Severance and related employee costs$5,362 $5,539 $11,605 
Recruitment and relocation costs82 78 636 
Third-party and other costs50 345 1,046 
5,494 5,962 13,287 
Share-based compensation (a)128 775 1,399 
Total organizational redesign$5,622 $6,737 $14,686 
_______________

(a)Primarily represents the accelerated recognition of share-based compensation resulting from the termination of employees under the Organizational Redesign Plan.

As of March 31, 2024, the accruals for the Organizational Redesign Plan are included in “Accrued expenses and other current liabilities” and “Other liabilities” and totaled $3,816 and $2,261, respectively. The tables below present a rollforward of our accruals for the Organizational Redesign Plan.

Balance
December 31,
2023
ChargesPayments
Balance
March 31,
2024
Severance and related employee costs$1,692 $5,362 $(977)$6,077 
Recruitment and relocation costs 82 (82) 
Third-party and other costs 50 (50) 
$1,692 $5,494 $(1,109)$6,077 

Balance
January 1,
2023
ChargesPaymentsBalance
April 2,
2023
Severance and related employee costs$ $5,539 $(741)$4,798 
Recruitment and relocation costs 78 (78) 
Third-party and other costs 345 (62)283 
$ $5,962 $(881)$5,081 

Other Reorganization and Realignment Plans

Costs incurred under the Company’s other reorganization and realignment plans were not material during the three months ended March 31, 2024 and April 2, 2023. The Company does not expect to incur any material additional costs under these plans.

(5) Investments

The following is a summary of the carrying value of our investments:
March 31,
2024
December 31,
2023
Equity method investments$31,512 $32,727 
Other investments in equity securities1,718 1,718 
$33,230 $34,445 
12

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



Equity Method Investments

Wendy’s has a 50% share in a partnership in a Canadian restaurant real estate joint venture (“TimWen”) with a subsidiary of Restaurant Brands International Inc., a quick-service restaurant company that owns the Tim Hortons® brand (Tim Hortons is a registered trademark of Tim Hortons USA Inc.). The Company has significant influence over this investee. Such investment is accounted for using the equity method, under which our results of operations include our share of the income of the investee in “Other operating income, net.”

Presented below is activity related to our investment in TimWen included in our condensed consolidated financial statements:
Three Months Ended
March 31,
2024
April 2,
2023
Balance at beginning of period$32,727 $33,921 
Equity in earnings for the period3,151 2,783 
Amortization of purchase price adjustments (a)(629)(684)
2,522 2,099 
Distributions received(2,952)(2,493)
Foreign currency translation adjustment included in “Other comprehensive (loss) income”
(785)10 
Balance at end of period$31,512 $33,537 
_______________

(a)Purchase price adjustments that impacted the carrying value of the Company’s investment in TimWen are being amortized over the average original aggregate life of 21 years.

Other Investments in Equity Securities

During the three months ended April 2, 2023, the Company recorded an impairment charge of $3,562 for the difference between the estimated fair value and the carrying value of an investment in equity securities.

(6) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques under the accounting guidance related to fair value measurements are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. These inputs are classified into the following hierarchy:

Level 1 Inputs - Quoted prices for identical assets or liabilities in active markets.

Level 2 Inputs - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs - Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation.

13

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments:
March 31,
2024
December 31,
2023
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Fair Value
Measurements
Financial assets
Cash equivalents$339,779 $339,779 $365,901 $365,901 Level 1
Other investments in equity securities (a)1,718 1,718 1,718 1,718 Level 2
Financial liabilities (b)
Series 2022-1 Class A-2-I Notes98,250 93,449 98,500 92,289 Level 2
Series 2022-1 Class A-2-II Notes389,134 354,571 390,134 370,577 Level 2
Series 2021-1 Class A-2-I Notes422,144 367,544 423,269 362,572 Level 2
Series 2021-1 Class A-2-II Notes631,905 530,592 633,530 530,581 Level 2
Series 2019-1 Class A-2-I Notes356,673 341,960 357,673 341,606 Level 2
Series 2019-1 Class A-2-II Notes401,998 376,793 403,123 374,058 Level 2
Series 2018-1 Class A-2-II Notes439,912 415,457 441,099 412,754 Level 2
7% debentures, due in 2025
48,405 49,813 48,237 49,431 Level 2
_______________

(a)The fair value of our other investments in equity securities is based on our review of information provided by the investment manager, which is based on observable price changes in orderly transactions for a similar investment of the same issuer.

(b)The fair values were based on quoted market prices in markets that are not considered active markets.

The carrying amounts of cash, accounts payable and accrued expenses approximate fair value due to the short-term nature of those items. The carrying amounts of accounts and notes receivable, net (both current and non-current) approximate fair value due to the effect of the related allowance for doubtful accounts. Our cash equivalents are the only financial assets measured and recorded at fair value on a recurring basis.

14

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


Non-Recurring Fair Value Measurements

Assets and liabilities remeasured to fair value on a non-recurring basis resulted in impairment that we have recorded to “Impairment of long-lived assets” in our condensed consolidated statements of operations.

Total impairment losses may reflect the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements, favorable lease assets and right-of-use assets) to fair value as a result of (1) the deterioration in operating performance of certain Company-operated restaurants and (2) the Company’s decision to lease and/or sublease the land and/or buildings to franchisees in connection with the sale or anticipated sale of restaurants, including any subsequent lease modifications. The fair values of long-lived assets held and used presented in the tables below represent the remaining carrying value and were estimated based on either discounted cash flows of future anticipated lease and sublease income or discounted cash flows of future anticipated Company-operated restaurant performance. Total impairment losses may also include the impact of remeasuring long-lived assets held for sale. The fair values of long-lived assets held for sale presented in the tables below represent the remaining carrying value and were estimated based on current market values. See Note 7 for further information on impairment of our long-lived assets.
Fair Value Measurements
March 31,
2024
Level 1Level 2Level 3
Held and used$1,635 $ $ $1,635 
Held for sale    
Total$1,635 $ $ $1,635 
Fair Value Measurements
December 31,
2023
Level 1Level 2Level 3
Held and used$1,212 $ $ $1,212 
Held for sale1,044   1,044 
Total$2,256 $ $ $2,256 

(7) Impairment of Long-Lived Assets

The Company records impairment charges as a result of (1) the deterioration in operating performance of certain Company-operated restaurants, (2) the Company’s decision to lease and/or sublease properties to franchisees in connection with the sale or anticipated sale of Company-operated restaurants, including any subsequent lease modifications and (3) classifying surplus properties as held for sale.

The following is a summary of impairment losses recorded, which represent the excess of the carrying amount over the fair value of the affected assets and are included in “Impairment of long-lived assets:”
Three Months Ended
March 31,
2024
April 2,
2023
Company-operated restaurants$1,775 $350 
Surplus properties231 26 
$2,006 $376 

(8) Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2024 and April 2, 2023 was 26.9% and 28.0%, respectively. The Company’s effective tax rate varied from the U.S. federal statutory rate of 21% for the three months ended March 31, 2024 primarily due to state income taxes and the tax effects of our foreign operations.

15

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


There were no significant changes to the unrecognized tax benefits or related interest and penalties for the three months ended March 31, 2024. During the next twelve months, we believe it is reasonably possible the Company will reduce unrecognized tax benefits by up to $220 due to lapses of statutes of limitations.

The current portion of refundable income taxes was $6,830 and $5,284 as of March 31, 2024 and December 31, 2023, respectively, and is included in “Accounts and notes receivable, net.” There were no long-term refundable income taxes as of March 31, 2024 or December 31, 2023.

(9) Net Income Per Share

The calculation of basic and diluted net income per share was as follows:
Three Months Ended
March 31,
2024
April 2,
2023
Net income$41,993 $39,821 
Common stock:
Weighted average basic shares outstanding205,372 212,547 
Dilutive effect of stock options and restricted shares
1,599 2,482 
Weighted average diluted shares outstanding206,971 215,029 
Basic and diluted net income per share$.20 $.19 

Basic net income per share for the three months ended March 31, 2024 and April 2, 2023 was computed by dividing net income amounts by the weighted average number of shares of common stock outstanding. Diluted net income per share was computed by dividing net income by the weighted average number of basic shares outstanding plus the potential common share effect of dilutive stock options and restricted shares. We excluded potential common shares of 6,789 and 4,532 for the three months ended March 31, 2024 and April 2, 2023, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects.

(10) Stockholders’ Equity

Dividends

During both the first quarter of 2024 and the first quarter of 2023, the Company paid dividends per share of $.25.

Repurchases of Common Stock

In January 2023, our Board of Directors authorized a repurchase program for up to $500,000 of our common stock through February 28, 2027, when and if market conditions warrant and to the extent legally permissible (the “January 2023 Authorization”). During the three months ended March 31, 2024, the Company repurchased 392 shares under the January 2023 Authorization with an aggregate purchase price of $7,187, of which $470 was accrued as of March 31, 2024, and excluding excise tax of $24 and commissions of $5. As of March 31, 2024, the Company had $302,813 of availability remaining under the January 2023 Authorization. Subsequent to March 31, 2024 through April 25, 2024, the Company repurchased 229 shares under the January 2023 Authorization with an aggregate purchase price of $4,316, excluding applicable excise tax and commissions.

During the three months ended April 2, 2023, the Company repurchased 1,794 shares under the January 2023 Authorization with an aggregate purchase price of $38,785, of which $2,083 was accrued as of April 2, 2023, and excluding commissions of $25.

16

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


Accumulated Other Comprehensive Loss

The following table provides a rollforward of accumulated other comprehensive loss, which is entirely comprised of foreign currency translation:
Three Months Ended
March 31,
2024
April 2,
2023
Balance at beginning of period$(58,375)$(64,176)
Foreign currency translation
(4,586)158 
Balance at end of period$(62,961)$(64,018)

(11) Leases

Nature of Leases

The Company operates restaurants that are located on sites owned by us and sites leased by us from third parties. In addition, the Company owns sites and leases sites from third parties, which it leases and/or subleases to franchisees. The Company also leases restaurant, office and transportation equipment. As of March 31, 2024, the nature of restaurants operated by the Company and its franchisees was as follows:
March 31,
2024
Company-operated restaurants:
Owned land and building155
Owned building and held long-term land leases144
Leased land and building112
Total Company-operated restaurants411
Franchisee-operated restaurants:
Company-owned properties leased to franchisees493
Company-leased properties subleased to franchisees1,176
Other franchisee-operated restaurants5,168
Total franchisee-operated restaurants6,837
Total Company-operated and franchisee-operated restaurants7,248
17

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



Company as Lessee

The components of lease cost are as follows:
Three Months Ended
March 31,
2024
April 2,
2023
Finance lease cost:
Amortization of finance lease assets$4,297 $4,063 
Interest on finance lease liabilities10,658 10,750 
14,955 14,813 
Operating lease cost21,701 21,449 
Variable lease cost (a)16,488 16,081 
Short-term lease cost1,394 1,506 
Total operating lease cost (b)39,583 39,036 
Total lease cost$54,538 $53,849 
_______________

(a)Includes expenses for executory costs of $10,221 and $9,848 for the three months ended March 31, 2024 and April 2, 2023, respectively, for which the Company is reimbursed by sublessees.

(b)Includes $31,718 and $30,598 for the three months ended March 31, 2024 and April 2, 2023, respectively, recorded to “Franchise rental expense” for leased properties that are subsequently leased to franchisees. Also includes $7,388 and $7,865 for the three months ended March 31, 2024 and April 2, 2023, respectively, recorded to “Cost of sales” for leases for Company-operated restaurants.

Company as Lessor

The components of lease income are as follows:
Three Months Ended
March 31,
2024
April 2,
2023
Sales-type and direct-financing leases:
Selling (loss) profit$(16)$129 
Interest income (a)7,719 7,862 
Operating lease income41,497 42,156 
Variable lease income16,489 15,651 
Franchise rental income (b)$57,986 $57,807 
_______________

(a)Included in “Interest expense, net.”

(b)Includes sublease income of $42,783 and $42,951 recognized during the three months ended March 31, 2024 and April 2, 2023, respectively. Sublease income includes lessees’ variable payments to the Company for executory costs of $10,089 and $9,778 for the three months ended March 31, 2024 and April 2, 2023, respectively.

18

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


(12) Supplemental Cash Flow Information

The following table includes supplemental non-cash investing and financing activities:
Three Months Ended
March 31,
2024
April 2,
2023
Supplemental non-cash investing and financing activities:
Capital expenditures included in accounts payable$9,161 $9,119 
Finance leases3,749 333 

The following table includes a reconciliation of cash, cash equivalents and restricted cash:
March 31,
2024
December 31,
2023
Reconciliation of cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents$498,333 $516,037 
Restricted cash36,058 35,848 
Restricted cash, included in Advertising funds restricted assets58,695 36,931 
Total cash, cash equivalents and restricted cash$593,086 $588,816 

(13) Transactions with Related Parties

Except as described below, the Company did not have any significant changes in or transactions with its related parties during the current fiscal period since those reported in the Form 10-K.

TimWen Lease and Management Fee Payments

A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen, which are then subleased to franchisees for the operation of Wendy’s/Tim Hortons combo units in Canada. Wendy’s paid TimWen $5,030 and $4,673 under these lease agreements during the three months ended March 31, 2024 and April 2, 2023, respectively, which is recorded to “Franchise rental expense.” In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $60 during both the three months ended March 31, 2024 and the three months ended April 2, 2023, which is included as a reduction to “General and administrative.”

Transactions with QSCC

Wendy’s has a purchasing co-op relationship structure with its franchisees that establishes Quality Supply Chain Co-op, Inc. (“QSCC”). QSCC manages, for the Wendy’s system in the U.S. and Canada, contracts for the purchase and distribution of food, proprietary paper, operating supplies and equipment under national agreements with pricing based upon total system volume. QSCC’s supply chain management facilitates continuity of supply and provides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s supply chain in the U.S. and Canada.

Wendy’s and its franchisees pay sourcing fees to third-party vendors on certain products sourced by QSCC. Such sourcing fees are remitted by these vendors to QSCC and are the primary means of funding QSCC’s operations. In addition, QSCC collects certain rebates, price variance and other recoveries, technology fees, convention fees and other funding from third-party vendors as part of the administration and management of the Wendy’s supply chain in the U.S. and Canada. Should QSCC’s sourcing fees exceed its expected needs, QSCC’s board of directors may return some or all of the excess to its members in the form of a patronage dividend. Wendy’s recorded its share of patronage dividends of $3,096 during the three months ended March 31, 2024, of which $2,909 is included in “Other operating income, net” and $187 is included as a reduction of “Cost of sales.” There were no patronage dividends recorded during the three months ended April 2, 2023.
19

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



Transactions with Yellow Cab

Certain family members and/or affiliates of Mr. Nelson Peltz, our Chairman, Mr. Peter May, our Senior Vice Chairman, and Mr. Matthew Peltz, our Vice Chairman, hold minority ownership interests in Yellow Cab Holdings, LLC (“Yellow Cab”), a Wendy’s franchisee, that as of March 31, 2024 owns and operates 85 Wendy’s restaurants, and/or certain of the operating companies managed by Yellow Cab. During the three months ended March 31, 2024 and April 2, 2023, the Company recognized $3,612 and $3,610, respectively, in royalty, advertising fund, lease and other income from Yellow Cab and related entities. In all transactions involving Yellow Cab, the Company’s standard franchisee recruiting and approval processes were followed, no modifications were made to the Company’s standard franchise agreements or related documents, and all deal terms and transaction documents were negotiated and executed on an arm’s-length basis, consistent with the Company’s comparable franchise transactions and relationships. As of March 31, 2024 and December 31, 2023, $1,191 and $1,153, respectively, was due from Yellow Cab for such income, which is included in “Accounts and notes receivable, net” and “Advertising funds restricted assets.”

Transactions with AMC

In February 2023, Ms. Kristin Dolan, a director of the Company, was appointed as the Chief Executive Officer of AMC Networks Inc. (“AMC”). During the three months ended March 31, 2024 and April 2, 2023, the Company purchased approximately $500 and $419, respectively, of advertising time from a subsidiary of AMC. The Company’s advertising spend with AMC was made in the ordinary course of business and approved on an arm’s-length basis, consistent with the Company’s comparable advertising decisions. As of March 31, 2024 and December 31, 2023, approximately $50 and $584, respectively, was due to AMC for such advertising time, which is included in “Advertising funds restricted liabilities.”

(14) Guarantees and Other Commitments and Contingencies

Except as described below, the Company did not have any significant changes in guarantees and other commitments and contingencies during the current fiscal period since those reported in the Form 10-K. Refer to the Form 10-K for further information regarding the Company’s additional commitments and obligations.

Lease Guarantees

Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former Company-operated restaurant locations now operated by franchisees, amounting to $93,979 as of March 31, 2024. These leases extend through 2045. We have had no judgments against us as guarantor of these leases as of March 31, 2024. In the event of default by a franchise owner where Wendy’s is called upon to perform under its guarantee, Wendy’s has the ability to pursue repayment from the franchise owner. The liability recorded for our probable exposure associated with these lease guarantees was not material as of March 31, 2024.

Letters of Credit

As of March 31, 2024, the Company had outstanding letters of credit with various parties totaling $28,842. Substantially all of the outstanding letters of credit include amounts outstanding against the 2021-1 Variable Funding Senior Secured Notes, Class A-1. We do not expect any material loss to result from these letters of credit.

20

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


(15) Legal and Environmental Matters

The Company is involved in litigation and claims incidental to our business. We provide accruals for such litigation and claims when we determine it is probable that a liability has been incurred and the loss is reasonably estimable. The Company believes it has adequate accruals for all of our legal and environmental matters. We cannot estimate the aggregate possible range of loss for our existing litigation and claims due to various reasons, including, but not limited to, many proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur and significant factual matters unresolved. In addition, most cases seek an indeterminate amount of damages and many involve multiple parties. Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently difficult and future developments could cause these actions or claims, individually or in aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period.

(16) Segment Information

Revenues by segment are as follows:
Three Months Ended
March 31,
2024
April 2,
2023
Wendy’s U.S.$442,847 $440,988 
Wendy’s International32,815 29,280 
Global Real Estate & Development59,091 58,539 
Total revenues$534,753 $528,807 

The following table reconciles profit by segment to the Company’s consolidated income before income taxes:
Three Months Ended
March 31,
2024
April 2,
2023
Wendy’s U.S. (a)$125,824 $125,230 
Wendy’s International (b)10,690 7,446 
Global Real Estate & Development24,061 25,068 
Total segment profit160,575 157,744 
Unallocated franchise support and other costs(26) 
Advertising funds deficit207 1,106 
Unallocated general and administrative (c)(33,390)(32,161)
Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below)(35,518)(33,472)
Amortization of cloud computing arrangements(3,542)(1,582)
System optimization (losses) gains, net(127)5 
Reorganization and realignment costs(5,673)(6,808)
Impairment of long-lived assets(2,006)(376)
Unallocated other operating income, net656 22 
Interest expense, net(30,535)(31,705)
Loss on early extinguishment of debt (1,266)
Investment loss, net (3,562)
Other income, net6,836 7,336 
Income before income taxes$57,457 $55,281 
_______________

21

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


(a)Wendy’s U.S. includes advertising funds expense of $2,325 for the three months ended March 31, 2024 related to the Company’s funding of incremental advertising.

(b)Wendy’s International includes advertising funds expense of $162 and $548 for the three months ended March 31, 2024 and April 2, 2023, respectively, related to the Company’s funding of incremental advertising in Canada. In addition, Wendy’s International includes other international-related advertising deficit of $150 and $845 for the three months ended March 31, 2024 and April 2, 2023, respectively.

(c)Includes corporate overhead costs, such as employee compensation and related benefits.

(17) New Accounting Standards

New Accounting Standard Adopted

Common-Control Lease Arrangements

In March 2023, the Financial Accounting Standards Board (“FASB”) issued an update to amend certain lease accounting guidance that applies to arrangements between related parties under common control. The amendment requires a lessee in a common-control lease arrangement to amortize leasehold improvements that it owns over the useful life of the improvements to the common-control group, regardless of the lease term, if the lessee continues to control the use of the underlying asset through a lease. The Company adopted this amendment during the first quarter of 2024. The adoption of this amendment did not have a material impact on our condensed consolidated financial statements.
22


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us,” or “our”) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included elsewhere within this report and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K”). There have been no material changes as of March 31, 2024 to the application of our critical accounting policies as described in Item 7 of the Form 10-K. Certain statements we make under this Item 2 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part II. Other Information” of this report. You should consider our forward-looking statements in light of the risks discussed in “Item 1A. Risk Factors” in “Part II. Other Information” of this report and our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this report, the Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”).

The Wendy’s Company is the parent company of its 100% owned subsidiary holding company, Wendy’s Restaurants, LLC (“Wendy’s Restaurants”). Wendy’s Restaurants is the parent company of Wendy’s International, LLC (formerly known as Wendy’s International, Inc). Wendy’s International, LLC is the indirect parent company of (1) Quality Is Our Recipe, LLC (“Quality”), which is the owner and franchisor of the Wendy’s restaurant system in the United States (the “U.S.”) and all international jurisdictions except for Canada, and (2) Wendy’s Restaurants of Canada Inc., which is the owner and franchisor of the Wendy’s restaurant system in Canada. As used herein, unless the context requires otherwise, the term “Company” refers to The Wendy’s Company and its direct and indirect subsidiaries, and “Wendy’s” refers to Quality when the context relates to the ownership or franchising of the Wendy’s restaurant system and to Wendy’s International, LLC when the context refers to the Wendy’s brand.

Wendy’s is primarily engaged in the business of operating, developing and franchising a system of distinctive quick-service restaurants serving high quality food. Wendy’s opened its first restaurant in Columbus, Ohio in 1969. Today, Wendy’s is the second largest quick-service restaurant company in the hamburger sandwich segment in the U.S. based on traffic and dollar share, and the third largest globally with 7,248 restaurants in the U.S. and 32 foreign countries and U.S. territories as of March 31, 2024.

Each Wendy’s restaurant offers an extensive menu specializing in hamburger sandwiches and featuring filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of toppings and condiments. Wendy’s menu also includes chicken nuggets, chili, french fries, baked potatoes, freshly prepared salads, soft drinks, Frosty® desserts and kids’ meals. In addition, Wendy’s restaurants sell a variety of promotional products on a limited time basis. Wendy’s also offers breakfast across the U.S. system and in Canada. Wendy’s breakfast menu features a variety of breakfast sandwiches such as the Breakfast Baconator® and sides such as seasoned potatoes.

The Company is comprised of the following segments: (1) Wendy’s U.S., (2) Wendy’s International and (3) Global Real Estate & Development. Wendy’s U.S. includes the operation and franchising of Wendy’s restaurants in the U.S. and derives its revenues from sales at Company-operated restaurants and royalties, fees and advertising fund collections from franchised restaurants. Wendy’s International includes the operation and franchising of Wendy’s restaurants in countries and territories other than the U.S. and derives its revenues from sales at Company-operated restaurants and royalties, fees and advertising fund collections from franchised restaurants. Global Real Estate & Development includes real estate activity for owned sites and sites leased from third parties, which are leased and/or subleased to franchisees, and also includes our share of the income of our TimWen real estate joint venture. In addition, Global Real Estate & Development earns fees from facilitating franchisee-to-franchisee restaurant transfers (“Franchise Flips”) and providing other development-related services to franchisees. In this “Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company reports on the segment profit for each of the three segments described above. The Company measures segment profit using segment adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”). Segment adjusted EBITDA excludes certain unallocated general and administrative expenses and other items that vary from period to period without correlation to
23


the Company’s core operating performance. See “Results of Operations” below and Note 16 to the Condensed Consolidated Financial Statements contained in Item 1 herein for segment financial information.

The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to December 31. All three-month periods presented herein contain 13 weeks. All references to years, quarters and months relate to fiscal periods rather than calendar periods.

Executive Overview

Our Business

As of March 31, 2024, the Wendy’s restaurant system was comprised of 7,248 restaurants, with 6,028 Wendy’s restaurants in operation in the U.S. Of the U.S. restaurants, 399 were operated by the Company and 5,629 were operated by a total of 208 franchisees. In addition, at March 31, 2024, there were 1,220 Wendy’s restaurants in operation in 32 foreign countries and U.S. territories. Of the international restaurants, 1,208 were operated by a total of 106 franchisees and 12 were operated by the Company in the United Kingdom (the “U.K.”).

The revenues from our restaurant business are derived from two principal sources: (1) sales at Company-operated restaurants and (2) franchise-related revenues, including royalties, national advertising funds contributions, rents and franchise fees received from Wendy’s franchised restaurants. Company-operated restaurants comprised approximately 5% of the total Wendy’s system as of March 31, 2024.

Wendy’s operating results are impacted by a number of external factors, including commodity costs, labor costs, intense price competition, unemployment and consumer spending levels, general economic and market trends and weather.

Wendy’s long-term growth opportunities include delivering accelerated global growth through (1) driving same-restaurant sales momentum across all dayparts, (2) accelerating our consumer-facing digital platforms and technologies and (3) expanding the Company’s footprint across the globe.

Key Business Measures

We track our results of operations and manage our business using the following key business measures, which includes a non-GAAP financial measure:

Same-Restaurant Sales - We report same-restaurant sales commencing after new restaurants have been open for 15 continuous months and as soon as reimaged restaurants reopen. Restaurants temporarily closed for more than one week are excluded from same-restaurant sales. This methodology is consistent with the metric used by our management for internal reporting and analysis. The table summarizing same-restaurant sales below in “Results of Operations” provides the same-restaurant sales percent changes.

Company-Operated Restaurant Margin - We define Company-operated restaurant margin as sales from Company-operated restaurants less cost of sales divided by sales from Company-operated restaurants. Cost of sales includes food and paper, restaurant labor and occupancy, advertising and other operating costs. Cost of sales excludes certain costs that support restaurant operations that are not allocated to individual restaurants, which are included in “General and administrative.” Cost of sales also excludes depreciation and amortization expense and impairment of long-lived assets. Therefore, as Company-operated restaurant margin as presented excludes certain costs as described above, its usefulness may be limited and may not be comparable to other similarly titled measures of other companies in our industry.

Company-operated restaurant margin is influenced by factors such as price increases, the effectiveness of our advertising and marketing initiatives, featured products, product mix, fluctuations in food and labor costs, restaurant openings, remodels and closures and the level of our fixed and semi-variable costs.

Systemwide Sales - Systemwide sales is a non-GAAP financial measure, which includes sales by both Company-operated restaurants and franchised restaurants. Franchised restaurants’ sales are reported by our franchisees and represent their revenues from sales at franchised Wendy’s restaurants. The Company’s consolidated financial statements do not include sales by franchised restaurants to their customers. The Company’s royalty and advertising
24


funds revenues are computed as percentages of sales made by Wendy’s franchisees. As a result, sales by Wendy’s franchisees have a direct effect on the Company’s royalty and advertising funds revenues and profitability.

The Company calculates same-restaurant sales and systemwide sales growth on a constant currency basis. Constant currency results exclude the impact of foreign currency translation and are derived by translating current year results at prior year average exchange rates. The Company believes excluding the impact of foreign currency translation provides better year over year comparability.

Same-restaurant sales and systemwide sales exclude sales from Argentina due to that country’s highly inflationary economy. The Company considers economies that have had cumulative inflation in excess of 100% over a three-year period as highly inflationary.

The Company believes its presentation of same-restaurant sales, Company-operated restaurant margin and systemwide sales provide a meaningful perspective of the underlying operating performance of the Company’s current business and enables investors to better understand and evaluate the Company’s historical and prospective operating performance. The Company believes that these metrics are important supplemental measures of operating performance because they highlight trends in the Company’s business that may not otherwise be apparent when relying solely on GAAP financial measures. The Company believes investors, analysts and other interested parties use these metrics in evaluating issuers and that the presentation of these measures facilitates a comparative assessment of the Company’s operating performance. With respect to same-restaurant sales and systemwide sales, the Company also believes that the data is useful in assessing consumer demand for the Company’s products and the overall success of the Wendy’s brand.

The non-GAAP financial measure discussed above does not replace the presentation of the Company’s financial results in accordance with GAAP. Because all companies do not calculate non-GAAP financial measures in the same way, this measure as used by other companies may not be consistent with the way the Company calculates such measure.

First Quarter Financial Highlights

Revenue increased 1.1% to $534.8 million in the first quarter of 2024 compared with $528.8 million in the first quarter of 2023;

Global same-restaurant sales increased 0.9%, U.S. same-restaurant sales increased 0.6% and international same-restaurant sales increased 3.2% compared with the first quarter of 2023. On a two-year basis, global same-restaurant sales increased 8.9%;

Global Company-operated restaurant margin was 14.7% in the first quarter of 2024, an increase of 90 basis points compared with the first quarter of 2023; and

Net income increased 5.5% to $42.0 million in the first quarter of 2024 compared with $39.8 million in the first quarter of 2023.

Global Same-Restaurant Sales

Wendy’s long-term growth opportunities include driving same-restaurant sales across all dayparts through quality differentiation, exciting menu innovation and compelling value offerings. Global same-restaurant sales increased 0.9% in the first quarter of 2024 and increased 8.9% on a two-year basis. To drive same-restaurant sales across the breakfast daypart, the Company plans to fund approximately $27.0 million of incremental breakfast advertising in 2024.
25



Digital

Wendy’s long-term growth opportunities include accelerating consumer-facing digital platforms and technologies to drive global systemwide sales. Over the past several years, the Company has invested significant resources to focus on consumer-facing technology, including activating mobile ordering via Wendy’s mobile app, launching the Wendy’s Rewards loyalty program in the U.S. and Canada and establishing delivery agreements with third-party vendors. The Company is also continuing to make digital investments and is partnering with key technology providers to help execute our digital, restaurant technology and enterprise technology initiatives and support our technology innovation and growth. During the second quarter of 2023, the Company revised its definition of digital sales to reflect our full digital portfolio by including in-restaurant mobile scans, in addition to our previously included delivery, mobile order and kiosk digital channels. The Company’s digital business has continued to grow and, under the revised definition, digital sales as a percent of global systemwide sales increased from approximately 13.0% during the first quarter of 2023 to approximately 16.8% during the first quarter of 2024.

New Restaurant Development

Wendy’s long-term growth opportunities include expanding the Company’s footprint across the globe. To promote new restaurant development, the Company has provided franchisees with certain incentive programs for qualifying new restaurants, in addition to our build to suit development fund. In February 2023, the Company announced a new restaurant development incentive program in the U.S. and Canada that provides for waivers of royalty, national advertising and technical assistance fees for up to the first three years of operation for qualifying new restaurants. In addition, the Company has development agreements in place with a number of franchisees that contractually obligate such franchisees to open additional Wendy’s restaurants over a specified timeframe. During the three months ended March 31, 2024, the Company and its franchisees added eight net new restaurants across the Wendy’s system.

Organizational Redesign

In February 2023, the Board of Directors approved a plan to redesign the Company’s organizational structure to better support the execution of the Company’s long-term growth strategy by maximizing organizational efficiency and streamlining decision making (the “Organizational Redesign Plan”). As a result of the Organizational Redesign Plan, the Company held its general and administrative expense in 2023 relatively flat compared with 2022. Additionally, in January 2024, the Board of Directors announced the appointment of Kirk Tanner as the Company’s new President and Chief Executive Officer, effective February 5, 2024. Mr. Tanner succeeded Todd A. Penegor, the Company’s previous President and Chief Executive Officer, who departed from the Company in February 2024. The Company expects to incur total costs of approximately $17 million to $19 million related to the Organizational Redesign Plan, including costs related to the succession of the President and Chief Executive Officer role. Of the total costs, approximately $15 million to $17 million will be cash expenditures expected through 2026. Costs related to the Organizational Redesign Plan are recorded to “Reorganization and realignment costs.” During the three months ended March 31, 2024, the Company recognized costs totaling $5.6 million, which primarily included severance and related employee costs. The Company expects to incur additional costs aggregating approximately $2.5 million to $4.5 million, comprised of (1) severance and related employee costs of approximately $2.0 million, (2) recruitment and relocation costs of approximately $0.2 million and (3) share-based compensation of approximately $1.5 million. The Company expects costs related to the Organizational Redesign Plan to continue into 2026.

26


Results of Operations

The tables included throughout this Results of Operations set forth in millions the Company’s condensed consolidated results of operations for the first quarter of 2024 and 2023.
First Quarter
 20242023Change
Revenues:   
Sales$225.3 $227.9 $(2.6)
Franchise royalty revenue and fees146.6 141.7 4.9 
Franchise rental income58.0 57.8 0.2 
Advertising funds revenue104.9 101.4 3.5 
 534.8 528.8 6.0 
Costs and expenses: 
Cost of sales192.1 196.5 (4.4)
Franchise support and other costs14.7 13.3 1.4 
Franchise rental expense31.8 30.6 1.2 
Advertising funds expense107.4 101.7 5.7 
General and administrative63.8 62.3 1.5 
Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below)35.5 33.5 2.0 
Amortization of cloud computing arrangements3.5 1.6 1.9 
System optimization losses (gains), net0.1 — 0.1 
Reorganization and realignment costs5.7 6.8 (1.1)
Impairment of long-lived assets2.0 0.4 1.6 
Other operating income, net(3.0)(2.4)(0.6)
 453.6 444.3 9.3 
Operating profit81.2 84.5 (3.3)
Interest expense, net(30.5)(31.7)1.2 
Loss on early extinguishment of debt— (1.3)1.3 
Investment loss, net— (3.6)3.6 
Other income, net6.8 7.4 (0.6)
Income before income taxes57.5 55.3 2.2 
Provision for income taxes(15.5)(15.5)— 
Net income$42.0 $39.8 $2.2 
27


First Quarter
2024% of
Total Revenues
2023% of
Total Revenues
Revenues:    
Sales$225.3 42.1 %$227.9 43.1 %
Franchise royalty revenue and fees:
Franchise royalty revenue125.7 23.5 %122.2 23.1 %
Franchise fees20.9 3.9 %19.5 3.7 %
Total franchise royalty revenue and fees146.6 27.4 %141.7 26.8 %
Franchise rental income
58.0 10.8 %57.8 10.9 %
Advertising funds revenue
104.9 19.7 %101.4 19.2 %
Total revenues
$534.8 100.0 %$528.8 100.0 %
First Quarter
2024% of 
Sales
2023% of 
Sales
Cost of sales:
Food and paper$69.1 30.7 %$73.8 32.4 %
Restaurant labor73.6 32.7 %73.6 32.3 %
Occupancy, advertising and other operating costs
49.4 21.9 %49.1 21.5 %
Total cost of sales$192.1 85.3 %$196.5 86.2 %

First Quarter
2024% of
Sales
2023% of
Sales
Company-operated restaurant margin:
U.S.$33.5 15.3 %$32.7 14.7 %
Global33.2 14.7 %31.4 13.8 %

28


The table below presents certain of the Company’s key business measures, which are defined and further discussed in the “Executive Overview” section included herein.
First Quarter
20242023
Key business measures:
U.S. same-restaurant sales:
Company-operated(0.8)%7.4 %
Franchised0.7 %7.2 %
Systemwide
0.6 %7.2 %
International same-restaurant sales (a)3.2 %13.9 %
Global same-restaurant sales:
Company-operated(0.9)%7.4 %
Franchised (a)1.1 %8.0 %
Systemwide (a)0.9 %8.0 %
Systemwide sales (b):
U.S. Company-operated$219.5 $222.6 
U.S. franchised2,774.5 2,722.2 
U.S. systemwide