Welcome to the Wingstop Inc. Fiscal Third Quarter 2016 Earnings Conference. [Operator Instructions]. On the call we have Charlie Morrison, President and Chief Executive Officer; and Mike Mravle, Chief Financial Officer. I would now like to turn the conference over to Mike. Please go ahead.

Thank you, operator, and good afternoon. By now everyone should have access to our fiscal third quarter 2016 earnings release. If not, it can be found at www.wingstop.com under the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance and, therefore, one should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Lastly, during today's call, we will discuss certain non-GAAP financial measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release. With that I'd like to turn the call over to Charlie.

Thank you, Mike. Welcome to our call. We appreciate all of you being with us this afternoon to talk about our third quarter performance. We had another strong quarter for development which is a core long term strategy for our business. We added 35 net new restaurants ending with 949 restaurants across 40 states and five countries. This represents a unit growth rate of nearly 18% over the prior year period. In the U.S. we opened restaurants in 18 states expanding and deepening our domestic footprint. We opened our first restaurant involved in the Boston, Massachusetts area and are pleased with its early performance. We also have four international restaurant openings in four countries, Mexico, Philippines, Indonesia and the United Arab Emirates showcasing the strength of our emerging international business. Year-to-date we have opened 104 net new locations and they are tracking well in relation to our targets. Third quarter revenue growth of 14% included domestic same store sales growth of 4.1%, the top line growth yielded adjusted EBITDA and adjusted net income growth of 27.1% and 17.6% respectively inclusive of the recapitalization we completed at the beginning of the third quarter. The success of our long term growth strategy is predicated on new restaurant openings and we remain confident in our ability to execute that strategy because of our development pipeline. Our strong unit economic growth enables us to attract highly qualified franchisees and extend our relationship with existing successful Wingstop franchisees eager to continue growing with us. Wingstop's unit economic model includes AUVs exceeding $1.1 million, a best in class sales to investment ratio of three times and targeted new unit unlevered cash on cash returns between 35% and 40% in the second year of operation. We are pleased to be raising expectations for unit growth to between…

Thanks Charlie. Let's now review our quarterly results for the 13 week period ended September 24, 2016 and then I will update our annual guidance. Total revenues increased 14% to 21.8 million for the third quarter 2016 from $19.1 million last year. Given that we are in 98% franchise system the majority of our revenues consist of royalties and franchise fees, together these increased 17.9% to $13.7 million for the third quarter compared to $11.6 million last year. As Charlie mentioned we opened 35 net new restaurants during the third quarter. We ended the quarter with 949 systemwide restaurants which represents a unit growth rate of 17.6% compared to the year ago period. In addition to restaurant development revenue growth was also driven domestic same store sales growth of 4.1%, our company owned restaurant revenue increased to $8.2 million from $7.5 million in the prior year driven mostly by 4.8% growth in same store sales along with contributions from one additional company operated restaurants that opened during the second quarter. Cost of sales increased 14.3% to $6.1 million from 5.3 million in the prior year. As a percentage of company owned restaurant sales, cost of sales increased $400 basis points to 74.7% from 70.7%. The increase was driven by two primary factors, first, you are making investments in our company operated restaurants to maintain our best in class performance. This includes investments in roster sizes and staffing as well as costs associated with our current remodel program that are not capitalized. Secondly our margins were impacted as our new restaurant opened in the second quarter ramps up to normal efficiency. In addition to these investments, in the fourth quarter we are opening an additional corporate restaurant and expect year-over-year inflation bone-in-chicken wings of approximately 10% based on current [indiscernible] cost.…

Thank you, Mike. As you can see we're having a great year at Wingstop, executing against our strategies and seen all of our stakeholders benefit from those efforts. We’re excited to fulfill our mission to serve the world flavor and it is rewarding to see that the Wingstop brand resonates so well across this country and around the world. Our future is full of possibility and we intend to take this category of one brand to even higher levels of success. Thanks again for joining us this afternoon. We appreciate your interest in Wingstop and would be happy to answer any questions that you may have. Operator please open the line for questions.

[Operator Instructions]. Our first question comes from the line of John Glass with Morgan Stanley. Please state your question.

Charlie, maybe could talk a little bit about early thoughts for '17 for unit development and do you can't or aren't willing to talk about that maybe just talk about do you feel like any of the acceleration unit growth this year has been at all expense '17 or is this -- you can still do whatever you thought you can do in '18 even with these increased numbers?

First and foremost no we aren't prepared to talk about 2017 numbers specifically or any guidance there, [Technical Difficulty]. I will tell you that we do not expect that any of the openings that are happening this year are going to take away from next year's pipeline. In fact we feel very confident in our pipeline for 2017 openings much of that pipeline is already been established in the form of leases and projects that are already in construction. So, no I don't believe it will have any impact.

Just one more for me, on the international side that seems to be ramping up a little bit. How do you think about approaching some of the larger markets you talked about some market you identified already but there is significant large markets you know whether it's some of the BRIC countries or some of the larger developed markets in the world. How are you thinking about approaching some of those both put in terms of timing and which ones are more attractive than others at this early stage?

\ Sure. And I would I would say that you know although Colombia and Panama might be example of a smaller market it does represent continued investment from one of our existing partners already and continued growth. So therefore the confidence they have in that Wingstop model internationally. We continue to search for the best possible partners in all of the markets that we've outlined previously that we think are targets, large markets primarily certainly markets with high chicken consumption per capita. So I don't have any specific timing as to when certain of these large markets would come about. I will say that I think the last two deals we've done one in Saudi Arabia which does represent a very large opportunity for us at a 100 stores for development, our examples were when we align with the best possible partner we will put those deals together very quickly. So it also helps demonstrate that we are gaining a lot of confidence in our international model in validating that model under Larry Kruguer's leadership.

Our next question comes from the line of David Tarantino with Robert W. Baird. Please state your question.

Charlie, just a similar question to the first one here on the unit growth outlook. It seems like the pipeline is picking up or at least the momentum is picking up quite substantially versus where you guys at the beginning of the year. So just wondering if you could talk at a high level what you think the growth rate for the system unit growth might look like over the next couple years. Is it possible to maintain this mid to high teens type growth rate relative to what you're seeing in the pipeline and I guess how does international play into that?

Well I certainly think international has the potential to assist in the overall rate of growth worldwide for Wingstop in terms of helping drive that percentage. Certainly as we get bigger, David as you know the percentages would be expected to come down over time surely based on the size of the denominator as we get bigger especially with the number of units that we're growing each year and as you noted in our updated guidance we've increased that for this year. We feel very confident in the pipeline. As we entered this year we had over 500 restaurants committed for development in our pipeline domestically. We've maintained a pace to keep that very consistent going into the 2017 fiscal year. So I would expect that we are able to maintain the pace of growth that we've seen but let me reflect itself in a different percentage and therefore our long term guidance has consistently been 10% unit growth and I think I would stick to that long term guidance and you know sort of growing our way into that type of expectation.

And then just this one quick one on the unit development being so robust, are you seeing any signs of cannibalization and in the same store sales space as you start to penetrate some of these markets if there's any estimate you’ve for that would be hat interesting.

No not yet, not at this point, a lot of there's still a lot of whitespace territory for the brand out there and I think we noted earlier that we opened restaurants in 18 different states in the third quarter so that represents a lot of our open territories continuing to see development happening and so it's not pressuring us in any way to fill in markets that perhaps have more density of restaurants and so we expect to see that continue, don't expect a cannibalization necessarily other than maybe in some of our core larger markets but that's not where the lion's share of the development is anyway right.

Our next question comes from the line of Jeff Farmer with Wells Fargo. Please state your question.

So the first half of the 3Q earnings season that the list of sector demand headwinds and a lot of these companies have been talking about have got longer and now including mounting healthcare costs in addition to consumer discussion about the high promotional environment, persistent food and home inflation, just a laundry list of things that are pressuring the consumer from my perspective actually I'm curious how are you guys thinking about this in your discussions with your franchises, your same store sales are strong but when you do have your conversations with the franchisees are they bringing up any of these demand headwinds that a lot of your peers have been discussing over the last couple of quarters?

I can't tell you that I've heard any specific headwinds like that demonstrated to us from our franchisees. As you mentioned we've maintained fairly strong comps especially as compared to our peers set in the industry we're very proud of that and I think a lot of that just is associated with the strength of our brand and the strength of the offering and the uniqueness of our positioning in the category. Certainly those things do represent challenges for all of us to overcome, there are other headwinds that folks have talked about and certainly we take into consideration things like the declining NFL viewership and things like that that are factored in but so far we have been able to maintain very strong performance. I would also say that you know as we look beyond this year and into 2017 we work our way into a national advertising platform that we believe can help us offset any of those macro headwinds that might exist in the market.

And just a final unrelated question on international, so international potentially becomes a larger percentage of that net unit development. How should we be thinking about this or the resulting impact on your average unit volumes moving forward? So you did touch on it but in terms of again getting a lot of restaurants open outside of the U.S. would that weigh on those volumes sort of have a non-impact potentially benefit them how should we think about that?

I think because of the maturity of the U.S. system compared to the international business and that traditionally and typical ramp up that we see in our unit volumes even if you look at our new stores in the U.S. They tend to ramp from a strong position coming out of the gate and then grow we don't have that honeymoon, international would behave the same. So it's certainly with faster development could have some waiting on the overall AUV and at that point when it becomes material enough I would expect that we would separate those two to give you clarity as to how that would impact.

Our next question comes from the line of Matt Kirschner with Guggenheim Securities. Please state your question.

Gentlemen I heard you say something about the cost of wings -- bone-in wings being up about 10% or so and I think also you guys or at least the franchisees have taken up some price in the last couple of weeks. Can you tell us some I guess the sort of the anatomy of a 4.1 comp how much was price or at least it seems like it ended the quarter with more price than it began with, so would you be running at a higher comp trend is that correct to presume?

Yes I would suggest that where there was any price taken it was very isolated in the market specific, I wouldn't characterize it as anything that was necessarily domestic chain wide. So if franchisees elect to take some price they usually do that either because of the timing of the opportunity or because of some of the Wing inflation I will say the Wing inflation that we have outlined here, much of that has already been experienced in that the [indiscernible] price for wings jumped very aggressively early in the quarter and has flattened out and we have not seen an increase on particular day or week for a number of weeks now. I would expect that the hopefully the whole. So that 10% increase is already in but I don't think that that should have any meaningful impact on the overall comp for the quarter at all. So I guess you're not expecting a response from franchisees to take a meaningful increase they would have already taken it or that’s evident in the 401 already.

Yes, I think anything that there is -- I'm not sure that’s necessarily evident in the 401 simply because a lot of the increase in the price swings happen later in the quarter and so in some cases there may be some reactions to it. Our franchisees I will say are very conditioned to the idea that it's this time of the year wing prices increase and so many of their pricing decisions take into consideration the average price throughout the year and if you look at the wing market over the past three years for the most part it's followed a very typical seasonal pattern, this fourth quarter spike was a bit unique and early compared to the past but as long as it holds and maintain itself into the first quarter it would end up being something that would be consistent with seasonality that we usually see.

I guess also I know you don't like to necessarily be categorized as simply a football fan viewership place but did you see any sensitivity or around the game days any correlation with the negative -- the down Nielsen TV ratings at home viewership. Did that correlate or have any relation to your sales on game days?

Not much nothing that I would say significant or meaningful, the only thing I would maybe call out is that the scheduling of the Thursday football games has been pretty poor at this point and so that diminishes viewership and so if there could be better scheduled game on Thursday you know that might help but I don't think that's meaningful because the vast majority of our business is done Friday through Sunday. So all in all then it's just up to the relative timing of who's playing on what day and at what time -- that all seems to balance itself out year-end and year-out.

And then last question Mike, I guess regarding the G&A breakout there. It looks like probably maybe 2.1 million of the base for '16 of G&A probably is not considered reoccurring for '17 is that correct??

Yes, that's correct.

Our next question comes from the line of Andrew Charles with Cowen and Company. Please state your question.

Just looking at the comp guidance for the year, appreciate the specificity around 3.5 to 4, you know the math would suggest that it's about a 2% to 4% comp in 4Q, so I just want to confirm that first and just the cadence is a little bit softer than it had been running and just kind of curious if there's -- I understand respect the fact you guys don’t like to talk about quarter day comps but is there something we should be aware of [indiscernible] skittishness around the election, I mentioned that -- I know you mentioned that also the NFL viewership obviously has a material impact but say anything around that because just seen a little bit out of trend.

I think certainly there is some cautious optimism for the quarter but we're talking right now before the election and any time you have an election or a major event like this it can have an effect on the business, so I would say the range was built in such a way to accommodate what could happen but so far we feel very proud of the results we've already delivered. I mean I think one thing to keep in mind too is for Wingstop this will be our 13th consecutive year positive same store sales growth. So certainly the backdrop is challenging right now in terms of all the things that have been outlined and discussed this headwind. So I think our guidance is really just in reference to the caution around the things that could affect our business that are out of our control

And my other question is just around the flavor profile that you did this quarter on a Spicy Korean Q, and you previously mentioned it was about 5% mix when you first ran it last year. Are you seeing a similar mix this year? I mean you’re seeing how the results been for Korean Q relative to what it did last year.

Yes actually it's been very well received marginally better than what it was previously so just over five. It's a fan favorite and so I don't know it's one that we got to decide how we how we react to that flavor because I think a lot of fans would like to see it stay with us. So we've been talking with our franchisees about what the long term outlook is for that product but it's been a winner for us.

Our next question comes from the line of Jake Bartlett with SunTrust Robinson Humphrey. Please state your question.

My question was around the national advertising and what your initial views guesses or what it could mean for new unit volumes, you know as franchisees open there's much higher brand awareness.

Yes. I don't have any specifics that I would share obviously until we get it in place but I do think any market where our overall awareness is quite low which would be many of the markets up and down the Eastern Seaboard and even in some cases the upper Midwest certainly those restaurants are going to see a benefit but that doesn't mean we don't do anything for those stores because right now we do a lot of local activation activity and some digital marketing around those new restaurants. So it certainly has the potential to have a meaningful impact on those restaurants and certainly any market that is not on TV today. We're with the heavy up digital spend that we expect in our national approach. We could make a big difference to those markets.

Is any evidence you've seen or just franchisees looking forward to that and possibly increasing the space of unit growth is that part of a driver of what we're seeing this acceleration?

Yes I wouldn't say that it is definitely tied to the acceleration and the pace of growth, I think that's just natural based on the demand we have had from our franchisees and many of these restaurants that are opening are already been in the pipeline for quite some time. So we made a decision to go national in April. In many cases the restaurants that are opening in the fourth quarter are already in the pipeline before that. So I think certainly one we have a strong unit economic model out of the gate as it is today and so that's fueling our growth. So national advertising can only help that, but you know if we execute on this the way we would expect it to that then it certainly could have an impact on not only the brand new stores that are coming on board but the existing stores that might be in those markets and helping support all of those restaurants in those emerging market.

And then on the shift to digital sales, it looks like just given how you exit the quarter there was a an acceleration there maybe confirm that towards the back half of -- the end of the quarter and maybe what drove that -- what measures you're taking to increase that on that mix specifically right now?

Yes. So the third quarter does have a little bit of seasonality as it relates to the pace of digital ordering for the first couple months of the quarter tend to be a little flatter year over year. They are growing at this consistent pace that we've seen every quarter a lot, while that’s the softness in digital and orders turned into the summer. Since we have footballed in that pace acceleration that usually follows suit with our advertising and how we deploy our advertising. So it is expected and hence why we noted that we exited the quarter at 19 and again I think that we haven't done anything substantially different as it relates to how we promote it and we've been fairly stubborn about the idea that we want to get our point of sale system fully deployed by the end of the year and as I mentioned earlier 90% plus of the restaurants will have this new point of sale system which connects everything together digitally and that's when we can really start to get a little more aggressive in terms of how we promote it. So you know this is a good consistent pace of upwards of 3 to 4 points of increase year-over-year has been you know the sale of Wingstops growth in digital and I would expect that to continue as we go forward.

Last question, if you can help us out on modeling unit growth for international just in 2016. I think in the past you recently said it could be similar to '15, I was wondering if you could be a little more specific for fourth quarter?

I think we're still think it's going to be similar to prior year that the international growth is a bit back loaded this year obviously if you looking at the year-to-date openings and so have a good pipeline, we’re expecting a good fourth quarter in terms of openings internationally.

Our next question comes from the line of Jeffrey Bernstein with Barclays Capital. Please state your question.

This is [indiscernible] on for Jeff. Just had a question on the 3Q comps, any sequential trends to call out? I know a lot of your industry peers have been talking about a very choppy and volatile sales environment and if there were anything to call out in terms of regional trends that be great. Thank you.

Sure. We did not see anything that we would call out as regional or choppy or otherwise I think if you may recall we exited Q2 with one known impact of the quarter but we carried a very consistent momentum that we had been experiencing in two and threw, the third quarter, so it's about right where we expected it to be and I wouldn't call it anything significant beyond that.

And if I could just follow with one more in terms of delivery I know on prior call you had mentioned that there were no near term plans to really implemented but you know it's been a hot topic in the industry and I'm just wondering if you had any seen any evidence of consumers asking for it or are franchisees actually allowed to test it if they wanted to. Thanks.

Nothing different than what we've talked about before, we remain focused on not allowing third party delivery into our restaurants simply because of the risk of food quality degradation as I’ve mentioned before we hand cut everything potato in our restaurants to make our fresh cut season fries and we know that they're best delivered to the customer via the customer. So they get to take them home and that's been a staple of our business model and what has driven our success over the years. The risk is the third party delivery companies will carry those around for as much as an hour or more and then we do when we do get infiltrated by such delivery companies we do tend to get very disturbed and unfortunately with us so we maintain a very consistent posture on this that although the technology appears interesting the delivery to the guest is one of the biggest challenges.

Our next question comes from the line of Karen Holthouse with Goldman Sachs. Please state your question.

Yet another one on the strength in the unit growth that we're seeing. Is there anything that you would call out regionally sort of by area of the country or differences in more developed versus some of the newer markets that's driving that strength?

No, again I think it's fairly consistent with where we have the opportunity for development and as we have said before it's fairly balanced between our core strong markets that we had out there versus the emerging and new markets in terms of what our potential is. I think consistently across the board we've mentioned this brand is very portable I think we not only demonstrated that by the success of our concept in these new emerging markets also demonstrated by the success of our concept internationally the wings are fan favorite, people love our flavors and that transcends just about anywhere you go and so you know I think the key for us is to continue to scale up and increase the awareness in these newer emerging markets to see the development continue. So nothing different than anything we've discussed before.

And then we're starting to I think see some early signs of success of oil to program at Domino's and there's probably more similarities with the wings as a category we see to them pretty much anything else given the high degree of takeout the opportunity to move people towards digital ordering and just curious if there's anything sort of fundamental in terms of customer frequency or order size or something like that would suggest to you couldn't necessarily the idea of a loyalty program might not be as portable as the idea of digital ordering and some of the other similarities.

I think you know certainly step one is the advancement of digital ordering, as you know we still have roughly 60% of our guests coming in to us over the phone. So we want to migrate as much of that towards digital as we can. As it relates to loyalty programs as a key driver, I think we would call that more of a CRM type platform right really engaging with the guests knowing what their order patterns are, understanding what their preferences are perhaps engaging with them at a deeper level than we do today and I think that’s an advancement that’s planned for the future for our brand but today really step one integrate the POS system so that the order process is seamless, step two make sure that we're fully prepared at the front counter to handle our online order guests with the efficiency that they expect from us which comes in our new look and feel that we've already been deploying into our business and then down the road further engagement and with them in order to maintain the level of loyalty that we already have for them. So I would not call it necessarily a discount oriented loyalty program but I would call it one where we're just much more deeply engaged with the guests as we move forward.

Our next question comes from the line of David Carlson with KeyBanc Capital Markets. Please state your question.

I’ve got a couple of questions for you guys really into the national ad fund. Charlie, having seen some of the commercials Wingstops running, some of the more efficacy you would called in TV efficient markets. Do you plan to have a similar message when you launch national advertising next year or will there be a more specific call to action for consumers?

I think it depends on which commercial you saw, the most recent one that's out there is promoting the Spicy Korean Q product, prior to that you may have seen something that was really aimed at talking about the core attributes of our brand and what we're all about and the focus of that message is that we're all about wings as the Wing experts as we call ourselves and for good reason we would maintain that consistency so that people who have not experienced Wingstop would get a clear message about this brand, the attributes about what makes us great and a lot of cues on the quality, the freshness, the preparation, the craft and the crave that we deliver. So that will be the key to our messaging strategy coming out of the gates and national advertising. I think that's much better than some of the cheesy promotional other types of advertising we're not going to try to inject a lot of humor, it'll be a very straightforward message to the consumer that if you're looking for wings by far in a way this is the best option you could even consider.

And my follow-up to that is in the past some chains migrating to the national ad [indiscernible] really struggled to have their message resonate with guests and I guess really simply put how confident are you that your message will resonate with consumers. I'm very confident and we have gone in as part of this. We've tested this message with consumers, we have also tested it with our franchisees they're very excited about it. So look I think it's a very straightforward message, it's right down the middle. It's exactly what you want to do when you start something like this is make sure people are well educated on your brand and what you're all about.

Our next question comes from Nick Setyan with Wedbush Securities. Please state your question.

You kind of touched on the traditional ramp up of the stores, the stores -- have you kind of seen I know those numbers are based on a few years ago, have you seen any change in terms of the three year ramp, are the stores may be starting a little bit high and maybe the ramp is still the same or maybe it's a little bit higher or lower?

Yes. I think the data that we talked about previously through the road show another venue has had a consistent ramp up and I will say that over time that curve shifts and has shifted but I'd say that the class that includes most of 2015 into 2016 that gives us a look at a fully years data has been very consistent if not slightly above what that data would have suggested. So yes we feel very confident that they're maintaining and if anything growing a little bit from that level.

And would you be able to share the food and labor and other restaurant operating costs just to break out of that?

Sure. I guess we don't have it in here.

Yes it is in the Q, I got them here. So for the third quarter food cost is 36%, labor is 23.7%, other is 17.6% and the vendor rebates were a credit of 2.6.

That does conclude our Q&A session. Ladies and gentlemen this also concludes our conference. Thank you for your participation. You may disconnect your lines at this time.