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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 2021
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 001-04321
https://cdn.kscope.io/b8d1d4e5ce507d7ce53d4456ec5b5f01-fwrg-20210926_g1.jpg
First Watch Restaurant Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
82-4271369
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
8725 Pendery Place, Suite 201, Bradenton, FL 34201
(Address of Principal Executive Offices) (Zip Code)
(941) 907-9800
Registrants telephone number, including area code
N/A
(Former name, former address and former fiscal year, if changed since last report)
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, $0.01 par valueFWRG
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
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 and posted on its corporate web site, if any, 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 and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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 Act). Yes No

The registrant had outstanding 59,048,446 shares of common stock as of November 5, 2021.



TABLE OF CONTENTS
Page
Item 3.
2

Table of Contents
Part I - Financial Information
Item 1.    Financial Statements (Unaudited)
FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
SEPTEMBER 26, 2021DECEMBER 27, 2020
Assets
Current assets:
Cash and cash equivalents$51,851 $38,846 
Restricted cash251 251 
Accounts receivable2,901 3,915 
Inventory3,473 2,915 
Prepaid expenses3,304 2,490 
Deferred offering costs3,709  
Other current assets1,232 621 
Total current assets66,721 49,038 
Goodwill345,219 345,219 
Intangible assets, net143,241 143,662 
Operating lease right-of-use assets318,931 307,558 
Property, fixtures and equipment, net of accumulated depreciation of $107,994 and $86,250, respectively
163,404 160,744 
Other long-term assets1,319 1,291 
Total assets$1,038,835 $1,007,512 
Liabilities and Equity
Current liabilities:
Accounts payable$6,977 $4,220 
Accrued liabilities17,281 13,482 
Accrued compensation and deferred payroll taxes15,256 10,856 
Deferred revenues2,251 4,273 
Current portion of operating lease liabilities39,633 40,111 
Current portion of long-term debt3,626 3,590 
Total current liabilities85,024 76,532 
Operating lease liabilities322,516 307,802 
Long-term debt, net287,660 286,400 
Deferred income taxes12,839 10,313 
Deferred payroll taxes3,333 3,333 
Other long-term liabilities3,305 2,266 
Total liabilities714,677 686,646 
Commitments and contingencies (Note 11)
Equity:
Preferred stock; $0.01 par value; 266,667 shares authorized, issued and outstanding
3 3 
Common stock; $0.01 par value; 300,000,000 shares authorized; 45,013,784 shares issued and outstanding
450 450 
Additional paid-in capital424,091 423,345 
Accumulated deficit(100,386)(102,932)
Total equity324,158 320,866 
Total liabilities and equity$1,038,835 $1,007,512 
The accompanying notes are an integral part of these consolidated financial statements.
3

Table of Contents
FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
 THIRTEEN WEEKS ENDEDTHIRTY-NINE WEEKS ENDED
 SEPTEMBER 26, 2021SEPTEMBER 27, 2020SEPTEMBER 26, 2021SEPTEMBER 27, 2020
Revenues:
Restaurant sales$155,082 $98,353 $432,136 $229,546 
Franchise revenues2,359 1,396 6,437 3,449 
Total revenues157,441 99,749 438,573 232,995 
Operating costs and expenses:
Restaurant operating expenses (exclusive of depreciation and amortization shown below):
Food and beverage costs35,871 22,053 96,383 53,040 
Labor and other related expenses50,587 34,115 136,586 84,127 
Other restaurant operating expenses24,185 19,881 71,000 43,163 
Occupancy expenses14,199 13,127 41,956 38,309 
General and administrative expenses17,019 11,347 44,360 33,625 
Depreciation and amortization8,203 7,849 23,965 22,877 
Impairments and loss on disposal of assets98 27 261 282 
Transaction expenses (income), net126 (34)752 65 
Total operating costs and expenses150,288 108,365 415,263 275,488 
Income (Loss) from operations7,153 (8,616)23,310 (42,493)
Interest expense(6,051)(5,832)(18,656)(16,499)
Other income, net215 45 536 405 
Income (Loss) before income tax expense (benefit)1,317 (14,403)5,190 (58,587)
Income tax expense (benefit)534 (3,262)2,644 (16,024)
Net income (loss) and total comprehensive income (loss)$783 $(11,141)$2,546 $(42,563)
Net income (loss) per common share - basic$0.02 $(0.25)$0.06 $(0.95)
Net income (loss) per common share - diluted$0.02 $(0.25)$0.06 $(0.95)
Weighted average number of common shares outstanding - basic45,013,784 45,013,784 45,013,784 45,013,784 
Weighted average number of common shares outstanding - diluted46,085,650 45,013,784 46,077,196 45,013,784 

The accompanying notes are an integral part of these consolidated financial statements.
4

Table of Contents
FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)

 Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Equity
 SharesAmountSharesAmount
Balance at June 27, 2021266,667 $3 45,013,784 $450 $423,661 $(101,169)$322,945 
Net income— — — — — 783 783 
Stock-based compensation— — — — 430 — 430 
Balance at September 26, 2021266,667 $3 45,013,784 $450 $424,091 $(100,386)$324,158 
 Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Equity
 SharesAmountSharesAmount
Balance at December 27, 2020
266,667 $3 45,013,784 $450 $423,345 $(102,932)$320,866 
Net income— — — — — 2,546 2,546 
Stock-based compensation— — — — 746 — 746 
Balance at September 26, 2021266,667 $3 45,013,784 $450 $424,091 $(100,386)$324,158 

 Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Equity
 SharesAmountSharesAmount
Balance at June 28, 2020 $ 45,013,784 $450 $382,977 $(84,673)$298,754 
Share issuance266,667 3 — — 39,997 — 40,000 
Net loss— — — — — (11,141)(11,141)
Stock-based compensation— — — — 192 — 192 
Balance at September 27, 2020266,667 $3 45,013,784 $450 $423,166 $(95,814)$327,805 
 Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Equity
 SharesAmountSharesAmount
Balance at December 29, 2019
 $ 45,013,784 $450 $382,598 $(53,251)$329,797 
Share issuance266,667 3 — — 39,997 — 40,000 
Net loss— — — — — (42,563)(42,563)
Stock-based compensation— — — — 571 — 571 
Balance at September 27, 2020266,667 $3 45,013,784 $450 $423,166 $(95,814)$327,805 


The accompanying notes are an integral part of these consolidated financial statements.
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FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
THIRTY-NINE WEEKS ENDED
SEPTEMBER 26, 2021SEPTEMBER 27, 2020
Cash flows from operating activities:
Net income (loss)$2,546 $(42,563)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization23,965 22,877 
Amortization of debt discount and deferred issuance costs958 901 
Non-cash operating lease costs9,582 8,757 
Deferred income taxes2,526 (16,112)
Impairments and loss on disposal of assets261 282 
Stock-based compensation746 571 
Changes in assets and liabilities:
Accounts receivable1,014 3,438 
Inventory(558)53 
Prepaid expenses(814)291 
Deferred offering costs(2,454)1,307 
Other assets, current and long-term(639)(517)
Accounts payable2,757 768 
Accrued liabilities8,406 (2,346)
Accrued compensation and deferred payroll taxes, current and long-term4,399 (3,188)
Deferred revenues, current and long-term(1,714)(4,069)
Operating lease liabilities(6,716)9,157 
Net cash provided by (used in) operating activities44,265 (20,393)
Cash flows from investing activities:
Capital expenditures(27,065)(22,179)
Purchase of intangible assets(359)(149)
Net cash used in investing activities(27,424)(22,328)
Cash flows from financing activities:
Proceeds from preferred stock issuance 40,000 
Proceeds from issuance of long-term debt 54,600 
Repayments of long-term debt(2,210)(3,210)
Proceeds from borrowings on revolving credit facility 22,000 
Repayments of borrowings on revolving credit facility (39,000)
Payment of deferred offering costs(1,255) 
Finance lease payments(371)(223)
Net cash (used in) provided by financing activities(3,836)74,167 
Net increase in cash and cash equivalents and restricted cash13,005 31,446 
Cash and cash equivalents and restricted cash:
Beginning of period39,097 11,121 
End of period$52,102 $42,567 
Supplemental cash flow information:
Cash paid for interest$14,763 $14,606 
Cash paid for income taxes, net of refunds$55 $155 
The accompanying notes are an integral part of these consolidated financial statements.
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FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(IN THOUSANDS)
(Unaudited)
 THIRTY-NINE WEEKS ENDED
 SEPTEMBER 26, 2021SEPTEMBER 27, 2020
Supplemental disclosures of non-cash investing and financing activities:
Interest converted to long-term debt$3,062 $566 
Leased assets obtained in exchange for new operating lease liabilities$23,391 $14,313 
Leased assets obtained in exchange for new finance lease liabilities$185 $248 
Remeasurements of operating lease assets and lease liabilities$(2,396)$(3,355)
Terminations of operating lease liabilities$ $(705)
Remeasurements of finance lease assets and lease liabilities$9 $164 
Change in liabilities from acquisition of property, fixtures and equipment$(1,153)$(3,036)



The accompanying notes are an integral part of these consolidated financial statements.
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.    Nature of Business and Organization

First Watch Restaurant Group, Inc. (collectively with its wholly-owned subsidiaries, “the Company” or “Management”) operates and franchises restaurants in 28 states operating under the “First Watch” trade name which are focused on made-to-order breakfast, brunch and lunch. As of September 26, 2021 and December 27, 2020, the Company operated 337 company-owned restaurants and 321 company-owned restaurants, respectively, and had 91 franchise-owned restaurants and 88 franchise-owned restaurants, respectively.

Initial Public Offering

On September 20, 2021, the Company’s board of directors and its stockholders approved an amendment to the Company’s Certificate of Incorporation. Such amendment (i) effected a 11.838-for-1 stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratio of the preferred stock and (ii) authorized an increase to the number of shares of common stock of the Company to 300,000,000 and an increase to the number of shares of preferred stock to 10,000,000. The par value of the Company’s common and preferred stock was not adjusted in connection with the stock split. All common share and per share amounts for all periods presented in the accompanying unaudited interim consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split.

On September 30, 2021, the Company’s registration statement on Form S-1 related to its initial public offering (“IPO”) was declared effective and the Company’s common stock began trading on the Nasdaq Global Select Market on October 1, 2021. On October 5, 2021, the Company completed its IPO, in which the Company sold 10,877,850 shares of common stock at the initial public offering price of $18.00 per share. The shares sold included the underwriters’ full exercise of their option to purchase up to an additional 1,418,850 shares of common stock at the initial public offering price of $18.00 per share. All of the Companys outstanding shares of preferred stock were adjusted in connection with the aforementioned stock split and were automatically converted into 3,156,812 shares of common stock immediately prior to and in connection with the consummation of the IPO.

On October 5, 2021, the Company received aggregate net proceeds of $182.1 million after deducting underwriting discounts and commissions of $13.7 million. The aggregate net proceeds received were used to repay $182.1 million of borrowings outstanding under the Companys senior credit facilities, which are comprised of the Initial Term Loan Facility, Initial Delayed Draw Term Loan Facility, First Amendment Delayed Draw Term Facility, Second Amendment Delayed Draw Term Facility and Revolving Credit Facility (collectively, “Senior Credit Facilities”). On October 6, 2021, the Company entered into a new credit agreement that provides for (i) a $100 million term loan A facility and (ii) a $75 million revolving credit facility (See Note 13, Subsequent Events).
2.    Summary of Significant Accounting Policies
Basis of Presentation
The Company reports financial information on a 52- or 53-week fiscal year ending on the last Sunday of each calendar year. Our fiscal quarters are comprised of 13 weeks each, except for fiscal years consisting of 53 weeks for which the fourth quarter will consist of 14 weeks, and end on the 13th Sunday of each quarter (14th Sunday of the fourth quarter, when applicable). The quarters ended September 26, 2021 and September 27, 2020 were both 13-week periods. The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments necessary for the fair statement of the consolidated financial statements for the interim periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for other interim periods or the entire fiscal year. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 27, 2020 included in the Company’s final prospectus dated September 30, 2021 filed with the SEC in accordance with Rule 424(b) of the Securities Act on October 4, 2021 (the “IPO Prospectus”).
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Use of Estimates

The preparation of the unaudited interim consolidated financial statements in accordance with GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates and such differences could be material.

Deferred Offering Costs

Certain legal, professional accounting, and other third-party fees that are directly associated with in-process equity financings are capitalized as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in equity as a reduction of additional paid-in capital generated as a result of the offering. As of September 26, 2021, there was a total of $3.7 million of deferred offering costs related to the Company’s IPO. There were no deferred offering costs as of December 27, 2020.
Newly Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” (“ASU 2020-04”). The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 may be adopted beginning March 12, 2020 and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. Management is currently evaluating its contracts and the optional expedients and exceptions provided by the new standard.
3.    Revenues
The following tables include a detail of contract liabilities with customers:
(in thousands)SEPTEMBER 26, 2021DECEMBER 27, 2020
Deferred revenues:
Deferred gift card revenue$2,012 $4,024 
Deferred franchise fee revenue - current239 249 
Total current deferred revenues$2,251 $4,273 
Other long-term liabilities:
Deferred franchise fee revenue - non-current$2,334 $2,025 
Changes in deferred gift card contract liabilities were as follows:
 THIRTEEN WEEKS ENDEDTHIRTY-NINE WEEKS ENDED
(in thousands)SEPTEMBER 26, 2021SEPTEMBER 27, 2020SEPTEMBER 26, 2021SEPTEMBER 27, 2020
Deferred gift card revenue:
Balance, beginning of period$2,657 $3,993 $4,024 $6,902 
Gift card sales1,003 577 4,088 2,365 
Gift card redemptions(1,483)(1,437)(5,543)(5,455)
Gift card breakage(165)(131)(557)(810)
Balance, end of period$2,012 $3,002 $2,012 $3,002 
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Changes in deferred franchise fee contract liabilities were as follows:
 THIRTEEN WEEKS ENDEDTHIRTY-NINE WEEKS ENDED
(in thousands)SEPTEMBER 26, 2021SEPTEMBER 27, 2020SEPTEMBER 26, 2021SEPTEMBER 27, 2020
Deferred franchise fee revenue:
Balance, beginning of period$2,232 $2,266 $2,274 $2,456 
Cash received400 75 482 113 
Franchise revenues recognized(59)(54)(183)(282)
Balance, end of period$2,573 $2,287 $2,573 $2,287 
Revenues recognized disaggregated by type were as follows:
 THIRTEEN WEEKS ENDEDTHIRTY-NINE WEEKS ENDED
(in thousands)SEPTEMBER 26, 2021SEPTEMBER 27, 2020SEPTEMBER 26, 2021SEPTEMBER 27, 2020
Restaurant sales:
In-restaurant dining sales$123,311 $68,853 $327,147 $182,814 
Third-party delivery sales15,232 15,141 52,584 19,947 
Take-out sales16,539 14,359 52,405 26,785 
Total restaurant sales$155,082 $98,353 $432,136 $229,546 
Franchise revenues:
Royalty and system fund contributions$2,300 $1,342 $6,254 $3,167 
Initial fees59 54 183 282 
Total franchise revenues$2,359 $1,396 $6,437 $3,449 
Total revenues$157,441 $99,749 $438,573 $232,995 
4.    COVID-19 Charges
Following is a summary of the charges recorded in connection with the COVID-19 pandemic during the thirteen and thirty-nine weeks ended September 26, 2021 and September 27, 2020:
  THIRTEEN WEEKS ENDEDTHIRTY-NINE WEEKS ENDED
(in thousands)Consolidated Statements of 
Operations and Comprehensive Income (Loss)
SEPTEMBER 26, 2021SEPTEMBER 27, 2020SEPTEMBER 26, 2021SEPTEMBER 27, 2020
Inventory obsolescence and spoilageFood and beverage costs$ $156 $ $556 
Compensation for employees upon furlough and return from furloughLabor and other related expenses 38 3 1,085 
Health insurance premiums paid for furloughed employees, net of employee retention creditsLabor and other related expenses 68  852 
Other expensesOther restaurant operating expenses 323 16 802 
Compensation for employees upon furlough and return from furloughGeneral and administrative expenses (56)128 277 
Other expensesGeneral and administrative expenses 434 64 1,273 
Total COVID-19 charges$ $963 $211 $4,845 
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5.    Accounts Receivable
Accounts receivable consisted of the following:
(in thousands)SEPTEMBER 26, 2021DECEMBER 27, 2020
Receivables from third-party delivery providers$984 $1,742 
Receivables from franchisees876 591 
Rebate receivables635 514 
Receivables related to gift card sales318 1,028 
Other receivables88 40 
Total accounts receivable$2,901 $3,915 
6.    Accrued Liabilities
Accrued liabilities consisted of the following:
(in thousands)SEPTEMBER 26, 2021DECEMBER 27, 2020
Sales tax$3,277 $2,159 
Construction liabilities3,148 4,301 
Legal services and contingencies1,602 126 
Self-insurance and general liability reserves1,386 1,297 
Utilities1,284 1,016 
Property tax1,213 424 
Credit card fees929 520 
Accounting and consulting718 251 
Common area maintenance411 700 
Contingent rent593 234 
Other2,720 2,454 
Total accrued liabilities$17,281 $13,482 
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7.    Debt
Long-term debt, net consisted of the following:
SEPTEMBER 26, 2021DECEMBER 27, 2020
(in thousands)Balance
Interest rate (1)
Balance
Interest rate (1)
Senior Credit Facilities:
Initial Term Loan
Repayment in quarterly installments of 0.25%; outstanding balance paid at maturity
$150,649 6.75 %$150,214 8.00 %
Initial Delayed Draw Term Loan
Repayment in quarterly installments of 0.25%; outstanding balance paid at maturity
49,138 6.75 %48,992 8.00 %
First Amendment Delayed Draw Term Facility
Repayment in quarterly installments of 0.25%; outstanding balance paid at maturity
49,609 6.75 %49,458 8.00 %
Second Amendment Delayed Draw Term Facility
Repayment in quarterly installments of 0.25%; outstanding balance paid at maturity
39,491 6.75 %39,369 8.00 %
Revolving credit facility  
Finance lease liabilities2,120 2,300 
Financing obligations3,050 3,050 
Less: Unamortized debt discount and deferred issuance costs(2,771)(3,393)
Total debt, net291,286 289,990 
Less: Current portion of long-term debt(3,626)(3,590)
Long-term debt, net$287,660 $286,400 
_____________
(1) Borrowings under the Senior Credit Facilities bore interest, at the Company’s option, at a rate per annum equal to either (a) (i) the greater of an adjusted London Interbank Offered Rate (the “Adjusted Eurocurrency Rate”) and 1.00%, plus (ii) the applicable Adjusted Eurocurrency Rate spread, or (b) (i) the alternate base rate (“ABR”) plus (ii) the applicable ABR spread. ABR is a floating rate per annum equal to the highest of (i) the federal funds effective rate plus 0.50%, (ii) to the extent ascertainable, the London interbank offered rate for a 1-month interest period on such day plus 1.00%, (iii) the rate of interest last quoted by The Wall Street Journal as the “prime rate” in the U.S. and (iv) 1.00%. Borrowings under the Senior Credit Facilities also bore an additional interest pursuant to the Fourth Amendment that is paid in kind. The applicable rate for the additional interest ranges from 0.25% to 1.5% of the outstanding balances, depending on the leverage ratio.

The estimated fair value of the outstanding debt, excluding finance lease obligations and financing obligations, is classified as Level 3 in the fair value hierarchy and was estimated using discounted cash flow models using market yield and yield volatility. The estimated fair value of the outstanding debt, excluding finance lease liabilities and financing obligations, is as follows:
(in thousands)SEPTEMBER 26, 2021DECEMBER 27, 2020
Initial term loan$150,652 $150,239 
Initial delayed draw term loan49,139 49,000 
First amendment delayed draw term facility49,610 49,466 
Second amendment delayed draw term facility39,491 39,376 
Total$288,892 $288,081 
The Company was in compliance with all financial covenants as of September 26, 2021 and December 27, 2020.
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
8.    Leases
The following table includes a detail of lease assets and liabilities:
(in thousands)Consolidated Balance Sheets ClassificationSEPTEMBER 26, 2021DECEMBER 27, 2020
Operating lease right-of-use assetsOperating lease right-of-use assets$318,931 $307,558 
Finance lease assetsProperty, fixtures and equipment, net2,001 2,212 
Total lease assets$320,932 $309,770 
Operating lease liabilities (1) - current
Current portion of operating lease liabilities39,633 40,111 
Operating lease liabilities - non-currentOperating lease liabilities322,516 307,802 
Finance lease liabilities - currentCurrent portion of long-term debt679 645 
Finance lease liabilities - non-currentLong-term debt, net1,441 1,655 
Total lease liabilities$364,269 $350,213 
_____________
(1) Excludes all variable lease expense.
The components of lease expense were as follows:
(in thousands)Consolidated Statements of Operations and Comprehensive Income (Loss) ClassificationTHIRTEEN WEEKS ENDEDTHIRTY-NINE WEEKS ENDED
SEPTEMBER 26, 2021SEPTEMBER 27, 2020SEPTEMBER 26, 2021SEPTEMBER 27, 2020
Operating lease expenseOccupancy expenses
General and administrative expenses
Other restaurant operating expenses
$11,377 $10,505 $33,263 $31,144 
Variable lease expenseOccupancy expenses
General and administrative expenses
Food and beverage costs
3,202 2,677 9,294 7,254 
Finance lease expense:
Amortization of leased assetsDepreciation and amortization139 125 405 373 
Interest on lease liabilitiesInterest expense43 48 133 137 
Total lease expense (1)
$14,761 $13,355 $43,095 $38,908 
_____________
(1) Includes contingent rent of $0.3 million and $0.7 million during the thirteen and thirty-nine weeks ended September 26, 2021, respectively. There was no contingent rent during the thirteen and thirty-nine weeks ended September 27, 2020.
Supplemental cash flow information related to leases was as follows:
 THIRTY-NINE WEEKS ENDED
(in thousands)SEPTEMBER 26, 2021SEPTEMBER 27, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows - operating leases$30,388 $13,255 
Operating cash flows - finance leases$133 $137 
Financing cash flows - finance leases$371 $223 
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Supplemental information related to leases was as follows:
 THIRTY-NINE WEEKS ENDED
 SEPTEMBER 26, 2021SEPTEMBER 27, 2020
Weighted-average remaining lease term (in years)
Operating leases15.616.5
Finance leases3.74.6
Weighted-average discount rate (1)
Operating leases9.1 %9.1 %
Finance leases8.0 %8.1 %
_____________
(1) Based on the Company’s incremental borrowing rate.
As of September 26, 2021, future minimum lease payments for operating and finance leases consisted of the following:
(in thousands)Operating LeasesFinance Leases
Fiscal year
2021$10,944 $204 
202240,879 667 
202343,637 667 
202444,081 667 
202544,153 212 
Thereafter523,322 32 
Total future minimum lease payments (1)707,016 2,449 
Less: imputed interest(344,867)(329)
Total present value of lease liabilities$362,149 $2,120 
_____________
(1) Excludes approximately $28.0 million of executed operating leases that have not commenced as of September 26, 2021.
9. Stock-Based Compensation

The 2017 Omnibus Equity Incentive Plan (the “2017 Equity Plan”) authorizes stock-based option awards to be granted for up to 6,138,240 shares of common stock. The awards granted under the 2017 Equity Plan consist of non-qualified stock options that generally vest based over a five-year requisite service period from the date of grant, as well as upon the occurrence of certain events and market conditions.

Stock-based compensation expense associated with awards granted under the 2017 Equity Plan was $0.4 million and $0.7 million during the thirteen and thirty-nine weeks ended September 26, 2021, respectively. Stock-based compensation expense was $0.2 million and $0.6 million during the thirteen and thirty-nine weeks ended September 27, 2020, respectively.

Modification of Stock-Based Awards

On August 31, 2021, the Company’s board of directors amended the 2017 Equity Plan such that the performance-based option awards that convert into time-based options upon an initial public offering no longer vest over a period of three years, but instead one-third (1/3rd) on each of the first two anniversaries of an initial public offering and one-third (1/3rd) on the 273rd day following the second anniversary of an initial public offering. This was accounted for as a modification for accounting purposes, resulting in a new fair value for all the performance-based option awards as of the modification date.

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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
On September 19, 2021, the Company’s board of directors modified performance-based option awards that contained a market condition granted under the 2017 Equity Plan, such that the vesting terms for one such tranche of the performance-based option awards that contain a market condition were amended to waive the market condition. Accordingly, upon an initial public offering, such tranche will convert into time-based option awards and will vest one-third (1/3rd) on each of the first two anniversaries of an initial public offering and one-third (1/3rd) on the 273rd day following the second anniversary of an initial public offering. This was accounted for as a modification for accounting purposes resulting in a new fair value for such tranche as of the modification date.

On September 19, 2021, the Company’s board of directors modified the terms of performance-based option awards granted under the 2017 Equity Plan to the Company’s Chairman Emeritus. The modification accelerated the vesting period of the performance-based option awards that convert into time-based option awards upon an initial public offering such that they no longer vest one-third (1/3rd) on each of the first two anniversaries of an initial public offering and one-third (1/3rd) on the 273rd day following the second anniversary of an initial public offering, but instead will vest on August 1, 2022. Additionally, the exercise period of these time-based and performance-based vested awards was modified such that any vested option may be exercised at any time prior to the 10th anniversary of the original grant date. These actions were accounted for as modifications for accounting purposes and resulted in an increase of $0.3 million to the fair value of these awards.

Unrecognized stock-based compensation expense

As of September 26, 2021, the amount of stock-based compensation expense not yet recognized on time-based option awards was approximately $0.7 million, and will be recognized over a weighted-average period of approximately 1.3 years. After consideration of the above modifications to the performance-based option awards, the amount of stock-based compensation expense not yet recognized on performance-based option awards as of September 26, 2021 was approximately $20.5 million and will be expensed over a weighted-average period of approximately 2.8 years.

A total of approximately $3.8 million of stock compensation expense will be recognized in the fourth fiscal quarter of 2021 related to non-vested performance-based option awards for which the market condition was not satisfied upon the Company’s IPO.

2021 Equity Incentive Plan

On September 19, 2021, the Company’s board of directors adopted, and on September 19, 2021 its stockholders approved, the First Watch Restaurant Group, Inc. 2021 Equity Incentive Plan (the “2021 Equity Plan”), which became effective on September 30, 2021. The 2021 Equity Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, and stock-based awards. The number of shares of common stock to be reserved for issuance under the 2021 Equity Plan is 4,034,072 common shares (“Share Reserve”). The number of shares of common stock that may be issued under the 2021 Equity Plan will automatically increase on the first day of each fiscal year, commencing on January 1, 2023 and continuing for each fiscal year until, and including, the fiscal year ending on (and including) January 1, 2032, equal to the least of (i) 2% of the total number of shares of common stock actually issued and outstanding on the last day of the preceding fiscal year, (ii) a number of shares of common stock determined by the board of directors; and (iii) the number of shares of common stock equal to the Share Reserve. If any award granted under the 2021 Equity Plan is cancelled, expired, forfeited, or surrendered without consideration or otherwise terminated without delivery of the shares to the participant, then such unissued shares will be returned to the 2021 Equity Plan and be available for future awards under the 2021 Equity Plan. Shares that are withheld from any award in payment of the exercise, base or purchase price or taxes related to such an award, not issued or delivered as a result of the net settlement of any award, or repurchased by the Company on the open market with the proceeds of a stock option will be deemed to have been delivered under the 2021 Equity Plan and will not be returned to the 2021 Equity Plan nor be available for future awards under the 2021 Equity Plan.
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
10.    Income Taxes
 THIRTEEN WEEKS ENDEDTHIRTY-NINE WEEKS ENDED
(in thousands)SEPTEMBER 26, 2021SEPTEMBER 27, 2020SEPTEMBER 26, 2021SEPTEMBER 27, 2020
Income (Loss) before income tax expense (benefit)$1,317 $(14,403)$5,190 $(58,587)
Income tax expense (benefit)$534 $(3,262)$2,644