THE WENDY'S COMPANY REPORTS THIRD QUARTER 2022 RESULTS

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Nov 09, 2022, 07:00 ET

DUBLIN, Ohio, Nov. 9, 2022 /PRNewswire/ -- The Wendy's Company (Nasdaq: WEN) today reported unaudited results for the third quarter ended October 2, 2022.

"I am proud of the Wendy's® System for achieving significant one-year global same-restaurant sales acceleration, which allowed us to deliver a fourth consecutive quarter of double digit global same-restaurant sales on a two-year basis," President and Chief Executive Officer Todd Penegor said. "This extends our track record of consistent sales growth while highlighting the strength of our strategic pillars. We expanded our global footprint, held global digital sales mix at approximately 10%, and accelerated our US breakfast daypart over the course of the quarter following our first major menu innovation since launching. Our focus on executing against our priorities, our alignment with the best franchisees in the business, and the continued dedication of our employees give me the confidence that we will achieve our vision of becoming the world's most thriving and beloved restaurant brand."

Third Quarter 2022 Summary
See "Disclosure Regarding Non-GAAP Financial Measures" and the reconciliation tables that accompany this release for a discussion and reconciliation of certain non-GAAP financial measures included in this release.

*Operational Highlights*	Third Quarter		Year-to-Date
	2022	2021	2022	2021

Systemwide Sales Growth⁽¹⁾
U.S.	7.7 %	3.7 %	4.6 %	12.1 %
International⁽²⁾	18.3 %	20.2 %	20.1 %	23.6 %
Global	8.9 %	5.3 %	6.3 %	13.2 %

Same-Restaurant Sales Growth⁽¹⁾
U.S.	6.4 %	2.1 %	3.3 %	10.2 %
International⁽²⁾	10.8 %	14.7 %	13.3 %	17.4 %
Global	6.9 %	3.3 %	4.4 %	10.9 %

Systemwide Sales (In US$ Millions)⁽³⁾
U.S.	$3,006	$2,791	$8,719	$8,336
International⁽²⁾	$413	$362	$1,192	$1,020
Global	$3,419	$3,154	$9,911	$9,356

Restaurant Openings
U.S. - Total / Net	27 / 14	27 / 6	101 / 59	69 / 20
International - Total / Net	31 / 26	21 / 19	97 / 72	60 / 43
Global - Total / Net	58 / 40	48 / 25	198 / 131	129 / 63

Global Reimaging Completion Percentage			77 %	70 %

⁽¹⁾ Systemwide sales growth and same-restaurant sales growth are calculated on a constant currency basis and include sales by both Company-operated and franchise restaurants.
⁽²⁾ Excludes Venezuela and Argentina.
⁽³⁾Systemwide sales include sales at both Company-operated and franchise restaurants.

*Financial Highlights*	Third Quarter			Year-to-Date

	2022	2021	B / (W)	2022	2021	B / (W)

(In Millions Except Per Share Amounts)	(Unaudited)			(Unaudited)

Total Revenues	$ 532.6	$ 470.3	13.3 %	$ 1,559.0	$ 1,423.8	9.5 %
Adjusted Revenues⁽¹⁾	$ 429.0	$ 372.3	15.2 %	$ 1,258.0	$ 1,134.1	10.9 %
Company-Operated Restaurant Margin	14.3 %	14.4 %	(0.1) %	13.5 %	17.4 %	(3.9) %
General and Administrative Expense	$ 62.5	$ 62.8	0.5 %	$ 186.5	$ 178.6	(4.4) %
Operating Profit	$ 98.1	$ 80.2	22.4 %	$ 269.3	$ 290.1	(7.2) %
Net Income	$ 50.5	$ 41.2	22.8 %	$ 136.1	$ 148.3	(8.2) %
Adjusted EBITDA	$ 134.5	$ 112.2	19.9 %	$ 374.3	$ 364.2	2.8 %
Reported Diluted Earnings Per Share	$ 0.24	$ 0.18	33.3 %	$ 0.63	$ 0.66	(4.5) %
Adjusted Earnings Per Share	$ 0.24	$ 0.19	26.3 %	$ 0.65	$ 0.66	(1.5) %
Cash Flows from Operations				$ 182.6	$ 276.7	(34.0) %
Capital Expenditures				$ (50.0)	$ (43.4)	(15.3) %
Free Cash Flow⁽²⁾				$ 167.2	$ 273.7	(38.9) %

⁽¹⁾ Total revenues less advertising funds revenue.
⁽²⁾Cash flows from operations minus capital expenditures, the impact of our advertising funds and cash paid for taxes related to the disposition of the New York market in Q2 2021.

Third Quarter Financial Highlights

Total Revenues
The increase in revenues resulted primarily from higher sales at Company-operated restaurants driven by the favorable impact of the acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021 and higher same-restaurant sales. Revenues also benefited from an increase in franchise royalty revenue and advertising funds revenue, both of which increased largely due to higher same-restaurant sales. These increases were partially offset by a decrease in franchise fees as a result of decreased franchise transaction activity.

Company-Operated Restaurant Margin
The decrease in Company-operated restaurant margin was primarily the result of higher commodity costs, customer count declines, higher labor costs, and the impact of the Company's investments to support the entry into the United Kingdom market. These decreases were partially offset by a higher average check.

General and Administrative Expense
The decrease in general and administrative expense was primarily driven by a lower incentive compensation accrual. This was partially offset by higher salaries and benefits, reflecting investments in resources to support the Company's development and digital organizations, increased travel expenses, and technology costs primarily related to the Company's ERP implementation.

Operating Profit
The increase in operating profit resulted primarily from higher other operating income due to a gain from insurance recoveries, higher franchise royalty revenue, and the favorable impact of the acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021. These increases were partially offset by lower franchise fees.

Net Income
The increase in net income resulted primarily from an increase in operating profit. This was partially offset by higher interest expense as a result of the Company's debt raise completed in the first quarter of 2022.

Adjusted EBITDA
The increase in adjusted EBITDA resulted primarily from higher other operating income, higher franchise royalty revenue, and the favorable impact of the acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter of 2021. These increases were partially offset by lower franchise fees.

Adjusted Earnings Per Share
The increase in adjusted earnings per share was driven by an increase in adjusted EBITDA, fewer shares outstanding as a result of the Company's share repurchase program, and higher interest income. This was partially offset by higher interest expense and a higher tax rate.

Year to Date Free Cash Flow
The decrease in free cash flow resulted primarily from an increase in payments for incentive compensation for the 2021 fiscal year paid in 2022, the timing of receipt of franchisee rental, royalty, and other payments, cash paid for cloud computing arrangements primarily related to the Company's ERP implementation, and an increase in capital expenditures.

Company Declares Quarterly Dividend
The Company announced today the declaration of its regular quarterly cash dividend of 12.5 cents per share, payable on December 15, 2022, to shareholders of record as of December 1, 2022. The number of common shares outstanding as of November 2, 2022 was approximately 213 million.

Share Repurchases
The Company did not repurchase any shares in the third quarter of 2022 and there have been no share repurchases thus far in the fourth quarter of 2022. As of the date of this release, approximately $198.1 million remains available under the Company's existing $250 million share repurchase authorization that expires in February 2023.

2022 Outlook
This release includes forward-looking projections for certain non-GAAP financial measures, including systemwide sales, adjusted EBITDA, adjusted earnings per share and free cash flow. The Company excludes certain expenses and benefits from adjusted EBITDA, adjusted earnings per share and free cash flow, such as the impact from our advertising funds, including the net change in the restricted operating assets and liabilities and any excess or deficit of advertising fund revenues over advertising fund expenses, impairment of long-lived assets, reorganization and realignment costs, system optimization gains, net, amortization of cloud computing arrangements, and the timing and resolution of certain tax matters. Due to the uncertainty and variability of the nature and amount of those expenses and benefits, the Company is unable without unreasonable effort to provide projections of net income, earnings per share or net cash provided by operating activities, or a reconciliation of those projected measures.

During 2022, the Company Now Expects:

Global systemwide sales growth: 6 to 7 percent
Adjusted EBITDA: $490 to $500 million
Cash flows from operations: $305 to $320 million
Capital expenditures: $90 to $95 million

In Addition, the Company Continues to Expect:

Adjusted earnings per share: $0.84 to $0.88
Free cash flow: $215 to $225 million

Conference Call and Webcast Scheduled for 8:30 a.m. Today, November 9
The Company will host a conference call on Wednesday, November 9 at 8:30 a.m. ET, with a simultaneous webcast from the Company's Investor Relations website at www.irwendys.com. The related presentation materials will also be available on the Company's Investor Relations website. The live conference call will be available by telephone at (844) 200-6205 for domestic callers and (929) 526-1599 for international callers, both using event ID 019746. An archived webcast and presentation materials will be available on the Company's Investor Relations website.

Forward-Looking Statements
This release contains certain statements that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Generally, forward-looking statements include the words "may," "believes," "plans," "expects," "anticipates," "intends," "estimate," "goal," "upcoming," "outlook," "guidance" or the negation thereof, or similar expressions. In addition, all statements that address future operating, financial or business performance, strategies or initiatives, future efficiencies or savings, anticipated costs or charges, future capitalization, anticipated impacts of recent or pending investments or transactions and statements expressing general views about future results or brand health are forward-looking statements within the meaning of the Reform Act. Forward-looking statements are based on the Company's expectations at the time such statements are made, speak only as of the dates they are made and are susceptible to a number of risks, uncertainties and other factors. For all such forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Reform Act. The Company's actual results, performance and achievements may differ materially from any future results, performance or achievements expressed or implied by the Company's forward-looking statements.

Many important factors could affect the Company's future results and cause those results to differ materially from those expressed in or implied by the Company's forward-looking statements. Such factors include, but are not limited to, the following: (1) the disruption to the Company's business from the novel coronavirus (COVID-19) pandemic and the impact of the pandemic on the Company's results of operations, financial condition and prospects; (2) the impact of competition or poor customer experiences at Wendy's restaurants; (3) adverse economic conditions or disruptions, including in regions with a high concentration of Wendy's restaurants; (4) changes in discretionary consumer spending and consumer tastes and preferences; (5) impacts to the Company's corporate reputation or the value and perception of the Company's brand; (6) the effectiveness of the Company's marketing and advertising programs and new product development; (7) the Company's ability to manage the accelerated impact of social media; (8) the Company's ability to protect its intellectual property; (9) food safety events or health concerns involving the Company's products; (10) the Company's ability to achieve its growth strategy through new restaurant development and its Image Activation program; (11) the Company's ability to effectively manage the acquisition and disposition of restaurants or successfully implement other strategic initiatives; (12) risks associated with leasing and owning significant amounts of real estate, including environmental matters; (13) the Company's ability to achieve and maintain market share in the breakfast daypart; (14) risks associated with the Company's international operations, including the ability to execute its international growth strategy; (15) changes in commodity and other operating costs; (16) shortages or interruptions in the supply or distribution of the Company's products and other risks associated with the Company's independent supply chain purchasing co-op; (17) the impact of increased labor costs or labor shortages; (18) the continued succession and retention of key personnel and the effectiveness of the Company's leadership structure; (19) risks associated with the Company's digital commerce strategy, platforms and technologies, including its ability to adapt to changes in industry trends and consumer preferences; (20) the Company's dependence on computer systems and information technology, including risks associated with the failure, misuse, interruption or breach of its systems or technology or other cyber incidents or deficiencies; (21) risks associated with the Company's securitized financing facility and other debt agreements, including compliance with operational and financial covenants, restrictions on its ability to raise additional capital, the impact of its overall debt levels and the Company's ability to generate sufficient cash flow to meet its debt service obligations and operate its business; (22) risks associated with the Company's capital allocation policy, including the amount and timing of equity and debt repurchases and dividend payments; (23) risks associated with complaints and litigation, compliance with legal and regulatory requirements and an increased focus on environmental, social and governance issues; (24) risks associated with the availability and cost of insurance, changes in accounting standards, the recognition of impairment or other charges, the impact of reorganization and realignment initiatives, changes in tax rates or tax laws and fluctuations in foreign currency exchange rates; (25) conditions beyond the Company's control, such as adverse weather conditions, natural disasters, hostilities, social unrest, health epidemics or pandemics or other catastrophic events; (26) Trian Fund Management, L.P. and certain of its affiliates filed a Schedule 13D/A with the Securities and Exchange Commission on May 24, 2022 indicating, among other things, that they intend to explore and evaluate the possibility of participating, alone or with third parties, in a potential transaction with respect to the Company to enhance stockholder value; there can be no assurance that (i) any such potential transaction will occur or result in additional value for the Company's stockholders or (ii) that the exploration of a potential transaction will not have an adverse impact on the Company's business; and (27) other risks and uncertainties cited in the Company's releases, public statements and/or filings with the Securities and Exchange Commission, including those identified in the "Risk Factors" sections of the Company's Forms 10-K and 10-Q.

In addition to the factors described above, there are risks associated with the Company's predominantly franchised business model that could impact its results, performance and achievements. Such risks include the Company's ability to identify, attract and retain experienced and qualified franchisees, the Company's ability to effectively manage the transfer of restaurants between and among franchisees, the business and financial health of franchisees, the ability of franchisees to meet their royalty, advertising, development, reimaging and other commitments, participation by franchisees in brand strategies and the fact that franchisees are independent third parties that own, operate and are responsible for overseeing the operations of their restaurants. The Company's predominantly franchised business model may also impact the ability of the Wendy's system to effectively respond and adapt to market changes. Many of these risks have been or in the future may be heightened due to the business disruption and impact from the COVID-19 pandemic.

All future written and oral forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. New risks and uncertainties arise from time to time, and factors that the Company currently deems immaterial may become material, and it is impossible for the Company to predict these events or how they may affect the Company.

The Company assumes no obligation to update any forward-looking statements after the date of this release as a result of new information, future events or developments, except as required by federal securities laws, although the Company may do so from time to time. The Company does not endorse any projections regarding future performance that may be made by third parties.

There can be no assurance that any additional regular quarterly cash dividends will be declared or paid after the date hereof, or of the amount or timing of such dividends, if any. Future dividend payments, if any, are subject to applicable law, will be made at the discretion of the Board of Directors and will be based on factors such as the Company's earnings, financial condition and cash requirements and other factors.

Disclosure Regarding Non-GAAP Financial Measures
In addition to the financial measures presented in this release in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), the Company has included certain non-GAAP financial measures in this release, including adjusted revenue, adjusted EBITDA, adjusted earnings per share, free cash flow and systemwide sales.

The Company uses adjusted revenue, adjusted EBITDA, adjusted earnings per share and systemwide sales as internal measures of business operating performance and as performance measures for benchmarking against the Company's peers and competitors. Adjusted EBITDA and systemwide sales are also used by the Company in establishing performance goals for purposes of executive compensation. The Company believes its presentation of adjusted revenue, adjusted EBITDA, adjusted earnings per share and systemwide sales provides a meaningful perspective of the underlying operating performance of our current business and enables investors to better understand and evaluate our historical and prospective operating performance. The Company believes these non-GAAP financial measures are important supplemental measures of operating performance because they eliminate items that vary from period to period without correlation to our core operating performance and highlight trends in our business that may not otherwise be apparent when relying solely on GAAP financial measures. Due to the nature and/or size of the items being excluded, such items do not reflect future gains, losses, expenses or benefits and are not indicative of our future operating performance. The Company believes investors, analysts and other interested parties use adjusted revenue, adjusted EBITDA, adjusted earnings per share and systemwide sales in evaluating issuers, and the presentation of these measures facilitates a comparative assessment of the Company's operating performance in addition to the Company's performance based on GAAP results.

This release also includes disclosure regarding the Company's free cash flow. Free cash flow is a non-GAAP financial measure that is used by the Company as an internal measure of liquidity. Free cash flow is also used by the Company in establishing performance goals for purposes of executive compensation. The Company defines free cash flow as cash flows from operations minus (i) capital expenditures and (ii) the net change in the restricted operating assets and liabilities of the advertising funds and any excess/deficit of advertising funds revenue over advertising funds expense included in net income, as reported under GAAP. The impact of our advertising funds is excluded because the funds are used solely for advertising and are not available for the Company's working capital needs. The Company may also make additional adjustments for certain non-recurring or unusual items to the extent identified in the reconciliation tables that accompany this release, such as the cash paid for taxes related to the disposition of the New York market. The cash paid for taxes related to the disposition of the New York market is excluded from free cash flow because the cash we received on the sales of those restaurants is being recorded in cash flows from investing activities. The Company believes free cash flow is an important liquidity measure for investors and other interested persons because it communicates how much cash flow is available for working capital needs or to be used for repurchasing shares, paying dividends, repaying or refinancing debt, financing possible acquisitions or investments or other uses of cash.

Adjusted revenue, adjusted EBITDA, adjusted earnings per share, free cash flow and systemwide sales are not recognized terms under GAAP, and the Company's presentation of these non-GAAP financial measures does not replace the presentation of the Company's financial results in accordance with GAAP. Because all companies do not calculate adjusted revenue, adjusted EBITDA, adjusted earnings per share, free cash flow and systemwide sales (and similarly titled financial measures) in the same way, those measures as used by other companies may not be consistent with the way the Company calculates such measures. The non-GAAP financial measures included in this release should not be construed as substitutes for or better indicators of the Company's performance than the most directly comparable GAAP financial measures. See the reconciliation tables that accompany this release for additional information regarding certain of the non-GAAP financial measures included herein.

Key Business Measures
The Company tracks its results of operations and manages its business using certain key business measures, including same-restaurant sales, systemwide sales and Company-operated restaurant margin, which are measures commonly used in the quick-service restaurant industry that are important to understanding Company performance.

Same-restaurant sales and systemwide sales each include sales by both Company-operated and franchise restaurants. The Company reports same-restaurant sales for new restaurants after they have been open for 15 continuous months and for reimaged restaurants as soon as they reopen. Restaurants temporarily closed for more than one fiscal week are excluded from same-restaurant sales. For fiscal 2021, same-restaurant sales compared the 52 weeks from January 4, 2021 through January 2, 2022 to the 52 weeks from January 6, 2020 through January 3, 2021.

Franchise restaurant sales are reported by our franchisees and represent their revenues from sales at franchised Wendy's restaurants. Sales by franchise restaurants are not recorded as Company revenues and are not included in the Company's consolidated financial statements. However, the Company's royalty revenues are computed as percentages of sales made by Wendy's franchisees and, as a result, sales by franchisees have a direct effect on the Company's royalty revenues and profitability.

Same-restaurant sales and systemwide sales exclude sales from Venezuela and Argentina due to the highly inflationary economies of those countries.

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.

Company-operated restaurant margin is defined 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 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.

About Wendy's
Wendy's^® was founded in 1969 by Dave Thomas in Columbus, Ohio. Dave built his business on the premise, "Quality is our Recipe^®," which remains the guidepost of the Wendy's system. Wendy's is best known for its made-to-order square hamburgers, using fresh, never frozen beef*, freshly-prepared salads, and other signature items like chili, baked potatoes and the Frosty^® dessert. The Wendy's Company (Nasdaq: WEN) is committed to doing the right thing and making a positive difference in the lives of others. This is most visible through the Company's support of the Dave Thomas Foundation for Adoption® and its signature Wendy's Wonderful Kids^® program, which seeks to find a loving, forever home for every child waiting to be adopted from the North American foster care system. Today, Wendy's and its franchisees employ hundreds of thousands of people across approximately 7,000 restaurants worldwide with a vision of becoming the world's most thriving and beloved restaurant brand. For details on franchising, connect with us at www.wendys.com/franchising. Visit www.wendys.com and www.squaredealblog.com for more information and connect with us on Twitter and Instagram using @wendys, and on Facebook at www.facebook.com/wendys.

*Fresh beef available in the contiguous U.S., Alaska, and Canada.

Investor Contact:
Kelsey Freed
Director - Investor Relations
(614) 764-3345; [email protected]

Media Contact:
Heidi Schauer
Vice President – Communications, Public Affairs & Customer Care
(614) 764-3368; [email protected]

The Wendy's Company and Subsidiaries
Condensed Consolidated Statements of Operations
Three and Nine Month Periods Ended October 2, 2022 and October 3, 2021
(In Thousands Except Per Share Amounts)
(Unaudited)

	Three Months Ended		Nine Months Ended
	2022	2021	2022	2021
Revenues:
Sales	$ 228,786	$ 171,078	$ 668,930	$ 553,660
Franchise royalty revenue	124,557	116,521	361,315	344,421
Franchise fees	17,176	22,234	52,830	53,825
Franchise rental income	58,463	62,446	174,944	182,190
Advertising funds revenue	103,587	97,976	300,976	289,699
	532,569	470,255	1,558,995	1,423,795
Costs and expenses:
Cost of sales	196,168	146,436	578,506	457,440
Franchise support and other costs	12,728	10,509	34,456	27,080
Franchise rental expense	31,687	34,424	92,699	101,058
Advertising funds expense	108,269	108,529	317,042	310,642
General and administrative	62,523	62,840	186,506	178,576
Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below)	34,252	30,940	100,911	93,243
Amortization of cloud computing arrangements	888	—	888	—
System optimization gains, net	(452)	(1,437)	(4,138)	(32,719)
Reorganization and realignment costs	8	345	628	7,381
Impairment of long-lived assets	206	566	2,682	1,831
Other operating income, net	(11,843)	(3,092)	(20,482)	(10,800)
	434,434	390,060	1,289,698	1,133,732
Operating profit	98,135	80,195	269,297	290,063
Interest expense, net	(31,916)	(26,000)	(90,406)	(82,990)
Loss on early extinguishment of debt	—	—	—	(17,917)
Investment income, net	—	—	2,107	6
Other income, net	2,910	171	4,355	455
Income before income taxes	69,129	54,366	185,353	189,617
Provision for income taxes	(18,587)	(13,195)	(49,258)	(41,356)
Net income	$ 50,542	$ 41,171	$ 136,095	$ 148,261

Net income per share:
Basic	$ .24	$ .19	$ .64	$ .67
Diluted	.24	.18	.63	.66

Number of shares used to calculate basic income per share	212,805	222,373	214,032	222,527

Number of shares used to calculate diluted income per share	214,601	225,058	216,003	225,728

The Wendy's Company and Subsidiaries
Condensed Consolidated Balance Sheets
As of October 2, 2022 and January 2, 2022
(In Thousands Except Par Value)
(Unaudited)

	October 2, 2022	January 2, 2022
ASSETS
Current assets:
Cash and cash equivalents	$ 731,801	$ 249,438
Restricted cash	34,363	27,535
Accounts and notes receivable, net	142,447	119,540
Inventories	6,578	5,934
Prepaid expenses and other current assets	28,795	30,584
Advertising funds restricted assets	150,662	159,818
Total current assets	1,094,646	592,849
Properties	882,283	906,867
Finance lease assets	237,517	244,279
Operating lease assets	765,688	812,620
Goodwill	772,984	775,278
Other intangible assets	1,252,198	1,280,791
Investments	45,482	49,870
Net investment in sales-type and direct financing leases	310,576	299,707
Other assets	163,615	139,130
Total assets	$ 5,524,989	$ 5,101,391

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$ 29,250	$ 24,250
Current portion of finance lease liabilities	17,585	15,513
Current portion of operating lease liabilities	47,481	47,315
Accounts payable	34,667	41,163
Accrued expenses and other current liabilities	130,202	140,783
Advertising funds restricted liabilities	159,231	157,901
Total current liabilities	418,416	426,925
Long-term debt	2,827,493	2,356,416
Long-term finance lease liabilities	567,472	559,587
Long-term operating lease liabilities	804,632	853,328
Deferred income taxes	276,089	267,710
Deferred franchise fees	91,669	88,102
Other liabilities	101,839	112,918
Total liabilities	5,087,610	4,664,986
Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued; 212,945 and 215,849 shares outstanding, respectively	47,042	47,042
Additional paid-in capital	2,930,388	2,898,633
Retained earnings	400,111	344,198
Common stock held in treasury, at cost; 257,479 and 254,575 shares, respectively	(2,871,442)	(2,805,268)
Accumulated other comprehensive loss	(68,720)	(48,200)
Total stockholders' equity	437,379	436,405
Total liabilities and stockholders' equity	$ 5,524,989	$ 5,101,391

The Wendy's Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine Month Periods Ended October 2, 2022 and October 3, 2021
(In Thousands)
(Unaudited)

	Nine Months Ended
	2022	2021
Cash flows from operating activities:
Net income	$ 136,095	$ 148,261
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)	100,911	93,243
Amortization of cloud computing arrangements	888	—
Share-based compensation	17,497	16,735
Impairment of long-lived assets	2,682	1,831
Deferred income tax	10,214	(25)
Non-cash rental expense, net	26,164	28,421
Change in operating lease liabilities	(34,241)	(34,220)
Net receipt of deferred vendor incentives	1,884	1,906
System optimization gains, net	(4,138)	(32,719)
Distributions received from joint ventures, net of equity in earnings	3,468	3,561
Long-term debt-related activities, net	5,746	23,043
Cloud computing arrangements expenditures	(22,685)	(5,619)
Changes in operating assets and liabilities and other, net	(61,846)	32,255
Net cash provided by operating activities	182,639	276,673
Cash flows from investing activities:
Capital expenditures	(50,036)	(43,401)
Franchise development fund	(2,484)	—
Acquisitions	—	4,879
Dispositions	3,731	52,657
Notes receivable, net	2,713	907
Net cash (used in) provided by investing activities	(46,076)	15,042
Cash flows from financing activities:
Proceeds from long-term debt	500,000	1,100,000
Repayments of long-term debt	(19,437)	(955,782)
Repayments of finance lease liabilities	(13,411)	(9,021)
Deferred financing costs	(10,232)	(20,873)
Repurchases of common stock	(51,950)	(125,656)
Dividends	(80,153)	(68,963)
Proceeds from stock option exercises	2,668	27,204
Payments related to tax withholding for share-based compensation	(2,980)	(4,390)
Net cash provided by (used in) financing activities	324,505	(57,481)
Net cash provided by operations before effect of exchange rate changes on cash	461,068	234,234
Effect of exchange rate changes on cash	(7,176)	177
Net increase in cash, cash equivalents and restricted cash	453,892	234,411
Cash, cash equivalents and restricted cash at beginning of period	366,966	418,241
Cash, cash equivalents and restricted cash at end of period	$ 820,858	$ 652,652

The Wendy's Company and Subsidiaries
Reconciliations of Net Income to Adjusted EBITDA and Revenues to Adjusted Revenues
Three and Nine Month Periods Ended October 2, 2022 and October 3, 2021
(In Thousands)
(Unaudited)

	Three Months Ended		Nine Months Ended
	2022	2021	2022	2021

Net income	$ 50,542	$ 41,171	$ 136,095	$ 148,261
Provision for income taxes	18,587	13,195	49,258	41,356
Income before income taxes	69,129	54,366	185,353	189,617
Other income, net	(2,910)	(171)	(4,355)	(455)
Investment income, net	—	—	(2,107)	(6)
Loss on early extinguishment of debt	—	—	—	17,917
Interest expense, net	31,916	26,000	90,406	82,990
Operating profit	98,135	80,195	269,297	290,063
Plus (less):
Advertising funds revenue	(103,587)	(97,976)	(300,976)	(289,699)
Advertising funds expense (a)	105,026	99,550	305,033	294,139
Depreciation and amortization (exclusive of amortization of cloud computing arrangements shown separately below)	34,252	30,940	100,911	93,243
Amortization of cloud computing arrangements	888	—	888	—
System optimization gains, net	(452)	(1,437)	(4,138)	(32,719)
Reorganization and realignment costs	8	345	628	7,381
Impairment of long-lived assets	206	566	2,682	1,831
Adjusted EBITDA	$ 134,476	$ 112,183	$ 374,325	$ 364,239

Revenues	$ 532,569	$ 470,255	$ 1,558,995	$ 1,423,795
Less:
Advertising funds revenue	(103,587)	(97,976)	(300,976)	(289,699)
Adjusted revenues	$ 428,982	$ 372,279	$ 1,258,019	$ 1,134,096

(a)

Excludes advertising funds expense of $3,781 and $11,025 for the three and nine months ended October 2, 2022,
respectively, and $8,979 and $16,503 for the three and nine months ended October 3, 2021, respectively, related
to the Company's funding of incremental advertising. In addition, excludes other international-related advertising
surplus (deficit) of $538 and $(984) for the three and nine months ended October 2, 2022, respectively.

The Wendy's Company and Subsidiaries
Reconciliation of Net Income and Diluted Earnings Per Share to
Adjusted Income and Adjusted Earnings Per Share
Three and Nine Month Periods Ended October 2, 2022 and October 3, 2021
(In Thousands Except Per Share Amounts)
(Unaudited)

	Three Months Ended		Nine Months Ended
	2022	2021	2022	2021

Net income	$ 50,542	$ 41,171	$ 136,095	$ 148,261
Plus (less):
Advertising funds revenue	(103,587)	(97,976)	(300,976)	(289,699)
Advertising funds expense (a)	105,026	99,550	305,033	294,139
System optimization gains, net	(452)	(1,437)	(4,138)	(32,719)
Reorganization and realignment costs	8	345	628	7,381
Impairment of long-lived assets	206	566	2,682	1,831
Loss on early extinguishment of debt	—	—	—	17,917
Total adjustments	1,201	1,048	3,229	(1,150)
Income tax impact on adjustments (b)	40	291	189	1,811
Total adjustments, net of income taxes	1,241	1,339	3,418	661

Adjusted income	$ 51,783	$ 42,510	$ 139,513	$ 148,922

Diluted earnings per share	$ .24	$ .18	$ .63	$ .66
Total adjustments per share, net of income taxes	—	.01	.02	—
Adjusted earnings per share	$ .24	$ .19	$ .65	$ .66


(a)	Excludes advertising funds expense of $3,781 and $11,025 for the three and nine months ended October 2, 2022, respectively, and $8,979 and $16,503 for the three and nine months ended October 3, 2021, respectively, related to the Company's funding of incremental advertising. In addition, excludes other international-related advertising surplus (deficit) of $538 and $(984) for the three and nine months ended October 2, 2022.

(b)	The provision for income taxes on "System optimization gains, net" was $114 and $536 for the three months ended October 2, 2022 and October 3, 2021, respectively, and $1,044 and $8,802 for the nine months ended October 2, 2022 and October 3, 2021, respectively. The benefit for income taxes related to the advertising funds was $20 for the three and nine months ended October 2, 2022. The benefit from income taxes on all other adjustments was calculated using an effective tax rate of 25.37% and 26.89% for the three months ended October 2, 2022 and October 3, 2021, respectively, and 25.23% and 25.77% for the nine months ended October 2, 2022 and October 3, 2021, respectively.

The Wendy's Company and Subsidiaries
Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
Nine Month Periods Ended October 2, 2022 and October 3, 2021
(In Thousands)
(Unaudited)

	Nine Months Ended
	2022	2021
Net cash provided by operating activities	$ 182,639	$ 276,673
Plus (less):
Capital expenditures	(50,036)	(43,401)
Cash paid for taxes related to New York disposition	—	9,512
Advertising funds impact (a)	34,566	30,876
Free cash flow	$ 167,169	$ 273,660


(a)	Represents the net change in the restricted operating assets and liabilities of our advertising funds, which is included in "Changes in operating assets and liabilities and other, net," and the excess of advertising funds expense over advertising funds revenue, which is included in "Net income."

SOURCE The Wendy’s Company