UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
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Emerging growth company ☒
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Item 2.02 - Results of Operations and Financial Condition.
On March 7, 2023, First Watch Restaurant Group, Inc. (the “Company”) issued a press release announcing its financial results for the fourth fiscal quarter and fiscal year ended December 25, 2022. A copy of the release is attached as Exhibit 99.1.
Item 7.01 Regulation FD Disclosure.
The Company has also posted a supplemental information presentation to its website at investors.firstwatch.com, which is attached as Exhibit 99.2 and incorporated herein by reference.
The information furnished in this Current Report on Form 8-K, including Exhibit 99.1 and Exhibit 99.2, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. The information in this Current Report shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this Current Report, regardless of any general incorporation language in the filing.
Item 9.01 - Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized on this 7th day of March, 2023.
First Watch Restaurant Group, Inc. (Registrant) | |||||
By: | /s/ Mel Hope | ||||
Name: | Mel Hope | ||||
Title: | Chief Financial Officer and Treasurer | ||||
First Watch Restaurant Group, Inc. Reports Strong 2022 Financial Results and Provides 2023 Outlook
•Total revenues of $730.2 million, up 21.5% and System-wide sales of $914.8 million, up 21.9%
•Same-restaurant sales growth of 14.5% and Same-restaurant traffic growth of 7.7%
•Income from operations margin of 2.4% and Restaurant level operating profit margin of 17.9%
•43 system-wide restaurants opened across 16 states
BRADENTON, Fla. — March 7, 2023 — First Watch Restaurant Group, Inc. (NASDAQ: FWRG) (“First Watch” or the “Company”), the leading Daytime Dining concept serving breakfast, brunch and lunch, today reported financial results for the thirteen weeks ended December 25, 2022 (“Q4 2022”) and fiscal year ended December 25, 2022 (“2022”) compared to the thirteen weeks ended December 26, 2021 (“Q4 2021”) and fiscal year ended December 26, 2021 (“2021”) and provided an outlook for the fiscal year ending December 31, 2023 (“2023”).
“First Watch delivered another impressive year in 2022, achieving a 21.5% increase in total revenues and same-restaurant sales and traffic growth of 14.5% and 7.7%, respectively, when compared to a strong 2021,” said Chris Tomasso, First Watch CEO and President. “We’re off to an encouraging start to 2023, with same-restaurant sales and traffic growth of 15.7% and 8.5%, respectively through the first two periods of the quarter. 2023 also marks our 40th operating year and I’m not only proud of all First Watch has accomplished since we opened our doors in 1983, but optimistic about what we are poised to achieve.”
Highlights for Q4 2022 compared to Q4 2021:
•Total revenues increased 14.2% to $185.7 million in Q4 2022 from $162.6 million in Q4 2021
•System-wide sales increased 15.6% to $234.2 million in Q4 2022 from $202.7 million in Q4 2021
•Same-restaurant sales growth of 7.7% (up 29.3% relative to Q4 2019*)
•Same-restaurant traffic growth of (0.6)% (up 5.2% relative to Q4 2019*)
•Income from operations of $1.5 million and Income from operations margin of 0.8% in Q4 2022 compared to Loss from operations of $(1.1) million and Loss from operations margin of (0.7)% in Q4 2021, respectively
•Restaurant level operating profit** and Restaurant level operating profit margin** of $30.5 million and 16.7% in Q4 2022 compared to $29.2 million and 18.2% in Q4 2021, respectively
•Net loss improved to $(0.5) million in Q4 2022 compared to $(4.7) million in Q4 2021
•Adjusted EBITDA** increased to $15.1 million in Q4 2022 from $14.2 million in Q4 2021
•Opened 16 system-wide restaurants (11 company-owned and 5 franchise-owned) across 12 states, resulting in a total of 474 system-wide restaurants (366 company-owned and 108 franchise-owned) across 29 states
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Highlights for 2022 compared to 2021:
•Total revenues increased 21.5% to $730.2 million in 2022 from $601.2 million in 2021
•System-wide sales increased 21.9% to $914.8 million in 2022 from $750.7 million in 2021
•Same-restaurant sales growth of 14.5% (up 29.6% relative to 2019*)
•Same-restaurant traffic growth of 7.7% (up 6.5% relative to 2019*)
•Income from operations and Income from operations margin of $16.9 million and 2.4% compared to $22.2 million and 3.8% in 2021, respectively
•Restaurant level operating profit** and Restaurant level operating profit margin** of $128.9 million and 17.9% compared to $115.4 million and 19.5% in 2021, respectively
•Net income of $6.9 million compared to Net loss of $(2.1) million in 2021
•Adjusted EBITDA** increased to $69.3 million from $66.3 million in 2021
•Opened 43 system-wide restaurants (29 company-owned and 14 franchise-owned) across 16 states resulting in a total of 474 system-wide restaurants (366 company-owned and 108 franchise-owned) across 29 states
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* Comparison to the thirteen weeks ended December 29, 2019 (“Q4 2019”) and fiscal year ended December 29, 2019 (“2019”) is presented for enhanced comparability due to the economic impact of COVID-19
** See “Non-GAAP Financial Measures” below
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Outlook Fiscal Year 2023
The Company provides the following outlook for the 53-week fiscal year ended December 31, 2023:
•Same-restaurant sales growth of 6.0% to 8.0% with continued positive same-restaurant traffic growth
•Total revenue growth of 15.0% to 19.0%
•Adjusted EBITDA* in the range of $76.0 million to $81.0 million
•Total of 45-51 new system-wide restaurants, net of 3 company-owned restaurant closures (38 to 42 new company-owned restaurants and 10 to 12 new franchise-owned restaurants)
•Capital expenditures in the range of $100.0 million to $110.0 million invested primarily in new restaurant projects and planned remodels
•Blended tax rate of 36.0% to 38.0%
The Company reiterates its long-term annual financial targets as follows:
•Percentage unit growth in the low double digits
•Same-restaurant sales growth of ~3.5%
•Restaurant sales growth in the mid-teens
•Adjusted EBITDA percentage growth in the mid-teens
The Company also believes that the brand has the potential for more than 2,200 restaurants in the U.S.
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*We have not reconciled guidance for Adjusted EBITDA to the corresponding GAAP financial measure because we do not provide guidance for the various reconciling items. We are unable to provide guidance for these reconciling items because we cannot determine their probable significance, as certain items are outside of our control and cannot be reasonably predicted due to the fact that these items could vary significantly from period to period. Accordingly, reconciliations to the corresponding GAAP financial measure is not available without unreasonable effort.
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Q4 2022 Financial Results
Total revenues increased 14.2% to $185.7 million in Q4 2022 from $162.6 million in Q4 2021 primarily due to (i) same-restaurant sales growth of 7.7% driven by an increase in average check per person of 8.3% and the increase in third-party delivery sales, (ii) $12.3 million from our 29 new company-owned restaurants and (iii) the increase of $0.5 million in franchise revenues primarily due to higher sales from franchise-owned restaurants and 14 new franchise-owned restaurants. The increase was partially offset by the slight decline in same-restaurant traffic growth primarily due to Hurricane Ian, which forced temporary closures of 85 restaurants in the Southeast.
Income from operations of $1.5 million in Q4 2022 compared to Loss from operations of $(1.1) million in Q4 2021 was primarily due to (i) the increase in total revenues, (ii) stock compensation expense of $5.3 million recorded in Q4 2021 in connection with modifications of certain stock option awards and (iii) lower marketing expense.
The increase was partially offset by (i) higher food and beverage costs, restaurant-level wages and staffing levels and other operating expenses driven by the increase in restaurant sales and restaurant unit growth, (ii) higher general and administrative expenses mainly due to the increase in staffing levels, recruiting and training, consulting services associated with being a public company and costs related to strategic and growth initiatives, as well as (iii) the gain of $2.0 million recognized in Q4 2021 related to a lease termination for the redevelopment of a restaurant facility by a landlord.
Income from operations margin of 0.8% in Q4 2022 compared to Loss from operations margin of (0.7)% in Q4 2021 was primarily due to (i) lower general and administrative expenses mainly due to stock-based compensation expense recorded in Q4 2021 in connection with modifications of certain stock option awards, (ii) leveraging increased restaurant sales and (iii) menu price increases.
This was partially offset by (i) the increase in restaurant-level wages and staffing levels and (ii) the gain of $2.0 million recognized in Q4 2021 related to a lease termination for the redevelopment of a restaurant facility by a landlord.
Restaurant level operating profit increased to $30.5 million in Q4 2022 from $29.2 million in Q4 2021 primarily due to same-restaurant sales growth of 7.7% driven by the increase in average check per person and the increase in third-party delivery sales. This was partially offset by (i) inflation across commodities and supplies, (ii) the increase in restaurant-level wages and staffing, other operating expenses and occupancy expenses mainly driven by restaurant growth and (iii) the increase in pre-opening expenses driven by the increase in the number of new restaurant openings as well as restaurants that are expected to open in 2023.
Restaurant level operating profit margin decreased to 16.7% in Q4 2022 from 18.2% in Q4 2021 primarily due to (i) inflation across supplies and commodities and (ii) the increase in restaurant-level wages and staffing. This was partially offset by menu price increases.
Net loss improved to $(0.5) million in Q4 2022 from $(4.7) million in Q4 2021 primarily due to (i) income from operations and (ii) the $2.4 million loss on extinguishment of debt recognized in 2021 in connection with the full repayment of our previous debt. This was partially offset by higher income tax expense, which was mainly driven by the Company’s increased profitability.
Adjusted EBITDA in Q4 2022 increased to $15.1 million from $14.2 million in Q4 2021 primarily due to the increase in restaurant level operating profit, which was partially offset by higher general and administrative expenses. The increase in general and administrative expenses was mainly driven by the increase in (i) staffing levels, (ii) recruiting and training, (iii) consulting services associated with being a public company and (iv) costs related to strategic and growth initiatives. The increase in general and administrative expenses was partially offset by lower marketing expense.
New Restaurant Openings during Q4 2022 included 11 company-owned and 5 franchise-owned restaurants. During the fiscal year ended December 25, 2022, there was a total of 43 new system-wide
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restaurants (29 company-owned and 14 franchise-owned) across 16 states resulting in a total of 474 system-wide restaurants (366 company-owned and 108 franchise-owned) across 29 states.
For additional financial information related to the fiscal year ended December 25, 2022, refer to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 7, 2023, which can be accessed at https://investors.firstwatch.com in the Financials & Filings section.
Conference Call and Webcast
Chris Tomasso, Chief Executive Officer and President, and Mel Hope, Chief Financial Officer, will host a conference call and webcast today to discuss these financial results for Q4 2022 at 8:00 AM ET.
Interested parties may listen to the conference call via any one of three options:
–Dial 412-317-5208, which will be answered by an operator
–Pre-register by entering your information at this Call me™ link and entering the following Call me™ passcode to receive a direct call for instant access to the event: 6644352
–Join the webcast at https://investors.firstwatch.com/news-and-events/events
The webcast will be archived shortly after the call has concluded.
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Definitions
The following definitions apply to these terms as used in this release:
System-wide restaurants: the total number of restaurants, including all company-owned and franchise- owned restaurants.
System-wide sales: consists of restaurant sales from our company-owned restaurants and franchise-owned restaurants. We do not recognize the restaurant sales from our franchise-owned restaurants as revenue.
Same-restaurant sales growth: the percentage change in year-over-year restaurant sales (excluding gift card breakage) for the comparable restaurant base, which is defined as the number of company-owned First Watch branded restaurants open for 18 months or longer as of the beginning of the fiscal year (“Comparable Restaurant Base”). At December 25, 2022, there were 301 restaurants in the one-year Comparable Restaurant Base and 207 restaurants in the three-year Comparable Restaurant Base.
Same-restaurant traffic growth: the percentage change in traffic counts as compared to the same period in the prior year using the Comparable Restaurant Base. At December 25, 2022, there were 301 restaurants in the one-year Comparable Restaurant Base and 207 restaurants in the three-year Comparable Restaurant Base.
Adjusted EBITDA: a non-GAAP measure, is defined as net income (loss) before depreciation and amortization, interest expense, income taxes and items that the Company does not consider in the evaluation of its ongoing core operating performance.
Adjusted EBITDA margin: a non-GAAP measure, is defined as Adjusted EBITDA as a percentage of total revenues.
Restaurant level operating profit: a non-GAAP measure, is defined as restaurant sales, less restaurant operating expenses, which include food and beverage costs, labor and other related expenses, other restaurant operating expenses, pre-opening expenses and occupancy expenses. In addition, Restaurant level operating profit excludes corporate-level expenses and items that are not considered in the Company’s evaluation of its ongoing core operating performance.
Restaurant level operating profit margin: a non-GAAP measure, is defined as Restaurant level operating profit as a percentage of restaurant sales.
About First Watch
First Watch is an award-winning Daytime Dining concept serving made-to-order breakfast, brunch and lunch using fresh ingredients. A recipient of hundreds of local “Best Breakfast” and “Best Brunch” accolades, First Watch’s chef-driven menu includes elevated executions of classic favorites along with First Watch specialties such as the protein-packed Quinoa Power Bowl®, Farmstand Breakfast Tacos, Avocado Toast, Chickichanga, Morning Meditation (juiced in-house daily), Vodka Kale Tonic and its famous Million Dollar Bacon. In 2022, First Watch was awarded a sought-after MenuMasters honor by Nation’s Restaurant News for its seasonal Braised Short Rib Omelet, recognized with ADP’s coveted Culture at Work award and named a Top 100 Most Loved Workplace® by Newsweek and the Best Practice Institute. In 2021, First Watch was recognized as FSR Magazine’s Best Menu and as the fastest-growing full-service restaurant chain based on unit growth. There are more than 470 First Watch restaurants in 29 states and the restaurant concept is majority owned by Advent International, one of the world’s largest private-equity firms. For more information, visit www.firstwatch.com.
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Forward-Looking Statements
In addition to historical information, this release contains a number of “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, information concerning First Watch’s possible or assumed future results of operations, new restaurant openings, business strategies, competitive position, industry environment, potential growth opportunities and the effects of regulation. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “target,” “may,” “will,” “should,” “future,” “propose,” “preliminary,” “outlook,” “guidance,” “on track” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. Forward-looking statements in this press release are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the following: uncertainty regarding ongoing hostility between Russia and Ukraine and the related impact on macroeconomic conditions, including inflation, as a result of such conflict or other related events; our vulnerability to changes in economic conditions and consumer preferences; our inability to successfully open new restaurants or establish new markets; our inability to effectively manage our growth; adverse effects of the COVID-19 pandemic or other infectious diseases; potential negative impacts on sales at our and our franchisees’ restaurants as a result of our opening new restaurants; a decline in visitors to any of the retail centers, lifestyle centers, or entertainment centers where our restaurants are located; lower than expected same-restaurant sales growth; unsuccessful marketing programs and limited time new offerings; changes in the cost of food; unprofitability or closure of new restaurants or lower than previously experienced performance in existing restaurants; our inability to compete effectively for customers; unsuccessful financial performance of our franchisees; our limited control over our franchisees’ operations; our inability to maintain good relationships with our franchisees; conflicts of interest with our franchisees; the geographic concentration of our system-wide restaurant base in the southeast portion of the United States; damage to our reputation and negative publicity; our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media; our limited number of suppliers and distributors for several of our frequently used ingredients and shortages or disruptions in the supply or delivery of such ingredients; information technology system failures or breaches of our network security; our failure to comply with federal and state laws and regulations relating to privacy, data protection, advertising and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection, advertising and consumer protection; our potential liability with our gift cards under the property laws of some states; our failure to enforce and maintain our trademarks and protect our other intellectual property; litigation with respect to intellectual property assets; our dependence on our executive officers and certain other key employees; our inability to identify, hire, train and retain qualified individuals for our workforce; our failure to obtain or to properly verify the employment eligibility of our employees; our failure to maintain our corporate culture as we grow; unionization activities among our employees; employment and labor law proceedings; labor shortages or increased labor costs or health care costs; risks associated with leasing property subject to long-term and non-cancelable leases; risks related to our sale of alcoholic beverages; costly and complex compliance with federal, state and local laws; changes in accounting principles applicable to us; our vulnerability to natural disasters, unusual weather conditions, pandemic outbreaks, political events, war and terrorism; our inability to secure additional capital to support business growth; our level of indebtedness; failure to comply with covenants under our credit facility; and the interests of our majority stockholder may differ from those of public stockholders. For additional discussion of factors that could impact our operational and financial results, please refer to our filings with the Securities and Exchange Commission (the “SEC”), accessible on the SEC’s website at www.sec.gov and the Investors Relations section of the Company’s website at https://investors.firstwatch.com/financial-information/sec-filings. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual financial condition, results of operations, future performance and business may vary in material respects from the performance projected in these forward-looking statements.
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Investor Relations Contact
Steve L. Marotta
941-500-1918
investors@firstwatch.com
Media Relations Contact
FirstWatch@icrinc.com
Non-GAAP Financial Measures (Unaudited)
To supplement the consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), we use non-GAAP measures, which present operating results on an adjusted basis. These supplemental measures of performance that are not required by or presented in accordance with GAAP include the following: (i) Adjusted EBITDA, (ii) Adjusted EBITDA margin, (iii) Restaurant level operating profit and (iv) Restaurant level operating profit margin (collectively, the “non-GAAP financial measures”). Our presentation of these non-GAAP financial measures includes isolating the effects of some items that are either nonrecurring in nature or vary from period to period without any correlation to our ongoing core operating performance. Management believes that the use of these non-GAAP financial measures provides additional transparency of our operations, facilitates analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of our ongoing operating performance, identifies operational trends and allows for greater transparency with respect to key metrics used by us in our financial and operational decision making. Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies, have important limitations as analytical tools and may not provide a complete understanding of our performance. These non-GAAP financial measures should not be considered as an alternative or substitute to net income (loss), income (loss) from operations, or any other performance measures derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity. These non-GAAP financial measures should be reviewed in conjunction with our consolidated financial statements prepared in accordance with GAAP.
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Adjusted EBITDA and Adjusted EBITDA Margin
Management uses Adjusted EBITDA and Adjusted EBITDA margin (i) as factors in evaluating management’s performance when determining incentive compensation, (ii) to evaluate the Company’s operating results and the effectiveness of our business strategies, (iii) internally as benchmarks to compare the Company’s performance to that of its competitors and (iv) to provide investors with additional transparency of the Company’s operations. The use of Adjusted EBITDA and Adjusted EBITDA margin as performance measures permit a comparative assessment of the Company’s operating performance relative to the Company’s performance based on the Company’s GAAP results, while isolating the effects of some items that are either nonrecurring in nature or vary from period to period without any correlation to the Company’s ongoing core operating performance.
The following tables reconcile Net income (loss) and Net income (loss) margin, the most directly comparable GAAP measures, to Adjusted EBITDA and Adjusted EBITDA margin for the periods indicated:
| FOURTH QUARTER | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Net loss | $ | (486) | $ | (4,653) | $ | (7,118) | |||||||||||
| Depreciation and amortization | 8,928 | 8,414 | 7,848 | ||||||||||||||
| Interest expense | 1,738 | 1,443 | 6,316 | ||||||||||||||
| Income taxes | 742 | (167) | (3,849) | ||||||||||||||
| EBITDA | 10,922 | 5,037 | 3,197 | ||||||||||||||
IPO-readiness and strategic transition costs (1) | 367 | 647 | 436 | ||||||||||||||
Stock-based compensation (2) | 2,553 | 7,850 | 179 | ||||||||||||||
| Loss on extinguishment of debt | — | 2,403 | — | ||||||||||||||
Transaction expenses (income), net (3) | 537 | (1,908) | (323) | ||||||||||||||
Impairments and loss on disposal of assets (4) | 348 | 120 | 33 | ||||||||||||||
Recruiting and relocation costs (5) | 111 | 18 | 56 | ||||||||||||||
Severance costs (6) | — | — | (5) | ||||||||||||||
Delaware Voluntary Disclosure Agreement Program (7) | 149 | — | — | ||||||||||||||
Costs in connection with natural disasters, net of insurance recoveries (8) | 115 | — | — | ||||||||||||||
COVID-19 related charges (9) | — | — | (96) | ||||||||||||||
| Adjusted EBITDA | $ | 15,102 | $ | 14,167 | $ | 3,477 | |||||||||||
| Total revenues | $ | 185,745 | $ | 162,620 | $ | 109,393 | |||||||||||
| Net loss margin | (0.3) | % | (2.9) | % | (6.5) | % | |||||||||||
| Adjusted EBITDA margin | 8.1 | % | 8.7 | % | 3.2 | % | |||||||||||
| Additional information | |||||||||||||||||
Deferred rent expense (income) (10) | $ | 507 | $ | (48) | $ | 148 | |||||||||||
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| FISCAL YEAR | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Net income (loss) | $ | 6,907 | $ | (2,107) | $ | (49,681) | |||||||||||
| Depreciation and amortization | 34,230 | 32,379 | 30,725 | ||||||||||||||
| Interest expense | 5,232 | 20,099 | 22,815 | ||||||||||||||
| Income taxes | 5,684 | 2,477 | (19,873) | ||||||||||||||
| EBITDA | 52,053 | 52,848 | (16,014) | ||||||||||||||
IPO-readiness and strategic transition costs (1) | 2,318 | 2,402 | 4,247 | ||||||||||||||
Stock-based compensation (2) | 10,374 | 8,596 | 750 | ||||||||||||||
| Loss on extinguishment of debt | — | 2,403 | — | ||||||||||||||
Transaction expenses (income), net (3) | 2,513 | (1,156) | (258) | ||||||||||||||
Impairments and loss on disposal of assets (4) | 920 | 381 | 315 | ||||||||||||||
Recruiting and relocation costs (5) | 681 | 351 | 228 | ||||||||||||||
Severance costs (6) | 155 | 265 | 239 | ||||||||||||||
Delaware Voluntary Disclosure Agreement Program (7) | 149 | — | — | ||||||||||||||
Costs in connection with natural disasters, net of insurance recoveries (8) | 115 | — | — | ||||||||||||||
COVID-19 related charges (9) | — | 211 | 4,749 | ||||||||||||||
| Adjusted EBITDA | $ | 69,278 | $ | 66,301 | $ | (5,744) | |||||||||||
| Total revenues | $ | 730,162 | $ | 601,193 | $ | 342,388 | |||||||||||
| Net income (loss) margin | 0.9 | % | (0.4) | % | (14.5) | % | |||||||||||
| Adjusted EBITDA margin | 9.5 | % | 11.0 | % | (1.7) | % | |||||||||||
| Additional information | |||||||||||||||||
Deferred rent expense (income) (10) | $ | 2,418 | $ | (2,011) | $ | 10,087 | |||||||||||
___________________________
(1) Represents costs related to the assessment and redesign of our systems and processes. In 2021 and 2020, the costs also include information technology support and external professional service costs incurred in connection with IPO-readiness efforts. These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
(2) Represents non-cash, stock-based compensation expense which is recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
(3) Represents (i) revaluations of contingent consideration payable to previous stockholders for tax savings generated through the use of federal and state loss carryforwards and general business credits that had been accumulated from operations prior to August 2017, (ii) gains or losses associated with lease or contract terminations, (iii) costs incurred in connection with the acquisition of franchise-owned restaurants, (iv) costs related to restaurant closures and (v) costs related to secondary offerings of the Company’s common stock.
(4) Represents costs related to the disposal of assets due to retirements, replacements, restaurant closures and natural disasters. There were no impairments recognized during the periods presented.
(5) Represents costs incurred for hiring qualified individuals as we assessed the redesign of our systems and processes. These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
(6) Severance costs are recorded in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
(7) Represents professional service costs incurred in connection with the Delaware Voluntary Disclosure Agreement Program related to unclaimed or abandoned property. These costs are recorded in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
(8) Represents costs incurred, net of insurance recoveries, in connection with Hurricane Ian. The costs include inventory obsolescence and spoilage, compensation for employees and support for hurricane relief, which were recorded in Food and beverage costs, Labor and other expenses and General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
(9) Represents costs incurred in connection with the economic impact of the COVID-19 pandemic.
(10) Represents the non-cash portion of straight-line rent expense recorded within both Occupancy expenses and General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
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Restaurant level operating profit and Restaurant level operating profit margin
Restaurant level operating profit and Restaurant level operating profit margin are not indicative of our overall results, and because they exclude corporate-level expenses, do not accrue directly to the benefit of our stockholders. We will continue to incur such expenses in the future. Restaurant level operating profit and Restaurant level operating profit margin are important measures we use to evaluate the performance and profitability of each operating restaurant, individually and in the aggregate and to make decisions regarding future spending and other operational decisions. We believe that Restaurant level operating profit and Restaurant level operating profit margin provide useful information about our operating results, identify operational trends and allow for transparency with respect to key metrics used by us in our financial and operational decision-making.
The following tables reconcile Income from operations and Income from operations margin, the most directly comparable GAAP financial measures, to Restaurant level operating profit and Restaurant level operating profit margin for the periods indicated:
| FOURTH QUARTER | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Income (Loss) from operations | $ | 1,479 | $ | (1,067) | $ | (4,729) | |||||||||||
| Less: Franchise revenues | (2,893) | (2,413) | (1,506) | ||||||||||||||
| Add: | |||||||||||||||||
| General and administrative expenses | 21,765 | 26,028 | 12,697 | ||||||||||||||
| Depreciation and amortization | 8,928 | 8,414 | 7,848 | ||||||||||||||
Transaction expenses (income), net (1) | 537 | (1,908) | (323) | ||||||||||||||
Impairments and loss on disposal of assets (2) | 348 | 120 | 33 | ||||||||||||||
Costs in connection with natural disasters(3) | 382 | — | — | ||||||||||||||
COVID-19 related charges (4) | — | — | 14 | ||||||||||||||
| Restaurant level operating profit | $ | 30,546 | $ | 29,174 | $ | 14,034 | |||||||||||
| Restaurant sales | $ | 182,852 | $ | 160,207 | $ | 107,887 | |||||||||||
| Income (Loss) from operations margin | 0.8 | % | (0.7) | % | (4.4) | % | |||||||||||
| Restaurant level operating profit margin | 16.7 | % | 18.2 | % | 13.0 | % | |||||||||||
| Additional information | |||||||||||||||||
Deferred rent expense (5) | $ | 457 | $ | (97) | $ | 163 | |||||||||||
11
| FISCAL YEAR | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Income (Loss) from operations | $ | 16,913 | $ | 22,243 | $ | (47,222) | |||||||||||
| Less: Franchise revenues | (10,981) | (8,850) | (4,955) | ||||||||||||||
| Add: | |||||||||||||||||
| General and administrative expenses | 84,959 | 70,388 | 46,322 | ||||||||||||||
| Depreciation and amortization | 34,230 | 32,379 | 30,725 | ||||||||||||||
Transaction expenses (income), net (1) | 2,513 | (1,156) | (258) | ||||||||||||||
Impairments and loss on disposal of assets (2) | 920 | 381 | 315 | ||||||||||||||
Costs in connection with natural disasters (3) | 382 | — | — | ||||||||||||||
COVID-19 related charges (4) | — | 19 | 3,309 | ||||||||||||||
| Restaurant level operating profit | $ | 128,936 | $ | 115,404 | $ | 28,236 | |||||||||||
| Restaurant sales | $ | 719,181 | $ | 592,343 | $ | 337,433 | |||||||||||
| Income (Loss) from operations margin | 2.4 | % | 3.8 | % | (14.0) | % | |||||||||||
| Restaurant level operating profit margin | 17.9 | % | 19.5 | % | 8.4 | % | |||||||||||
| Additional information | |||||||||||||||||
Deferred rent expense (income) (5) | $ | 2,219 | $ | (2,075) | $ | 10,029 | |||||||||||
____________________________
(1) Represents (i) revaluations of contingent consideration payable to previous stockholders for tax savings generated through the use of federal and state loss carryforwards and general business credits that had been accumulated from operations prior to August 2017, (ii) gains or losses associated with lease or contract terminations, (iii) costs incurred in connection with the acquisition of franchise-owned restaurants, (iv) costs related to restaurant closures and (v) costs related to secondary offerings of the Company’s common stock.
(2) Represents costs related to the disposal of assets due to retirements, replacements, certain restaurant closures and natural disasters. There were no impairments recognized during the periods presented.
(3) Represents costs incurred in connection with Hurricane Ian. The costs include inventory obsolescence and spoilage as well as compensation for employees, which were recorded in Food and beverage costs and Labor and other expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
(4) Represents costs incurred in connection with the economic impact of the COVID-19 pandemic.
(5) Represents the non-cash portion of straight-line rent expense recorded within Occupancy expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
12
FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
| Fourth Quarter | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Revenues: | |||||||||||||||||
| Restaurant sales | $ | 182,852 | $ | 160,207 | $ | 107,887 | |||||||||||
| Franchise revenues | 2,893 | 2,413 | 1,506 | ||||||||||||||
| Total revenues | 185,745 | 162,620 | 109,393 | ||||||||||||||
| Operating costs and expenses: | |||||||||||||||||
| Restaurant operating expenses (exclusive of depreciation and amortization shown below): | |||||||||||||||||
| Food and beverage costs | 43,361 | 37,818 | 23,935 | ||||||||||||||
| Labor and other related expenses | 63,166 | 52,581 | 36,253 | ||||||||||||||
| Other restaurant operating expenses | 28,715 | 25,500 | 20,356 | ||||||||||||||
| Occupancy expenses | 15,601 | 14,397 | 12,626 | ||||||||||||||
| Pre-opening expenses | 1,845 | 737 | 697 | ||||||||||||||
| General and administrative expenses | 21,765 | 26,028 | 12,697 | ||||||||||||||
| Depreciation and amortization | 8,928 | 8,414 | 7,848 | ||||||||||||||
| Impairments and loss on disposal of assets | 348 | 120 | 33 | ||||||||||||||
| Transaction expenses (income), net | 537 | (1,908) | (323) | ||||||||||||||
| Total operating costs and expenses | 184,266 | 163,687 | 114,122 | ||||||||||||||
| Income (Loss) from operations | 1,479 | (1,067) | (4,729) | ||||||||||||||
| Interest expense | (1,738) | (1,443) | (6,316) | ||||||||||||||
| Other income (expense), net | 515 | (2,310) | 78 | ||||||||||||||
| Income (Loss) before income taxes | 256 | (4,820) | (10,967) | ||||||||||||||
| Income tax (expense) benefit | (742) | 167 | 3,849 | ||||||||||||||
| Net loss and total comprehensive loss | $ | (486) | $ | (4,653) | $ | (7,118) | |||||||||||
| Net loss per common share - basic and diluted | $ | (0.01) | $ | (0.08) | $ | (0.16) | |||||||||||
| Weighted average number of common shares outstanding - basic and diluted | 59,193,779 | 57,814,630 | 45,013,784 | ||||||||||||||
13
FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
| FISCAL YEAR | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Restaurant sales | $ | 719,181 | $ | 592,343 | $ | 337,433 | ||||||||||||||
| Franchise revenues | 10,981 | 8,850 | 4,955 | |||||||||||||||||
| Total revenues | 730,162 | 601,193 | 342,388 | |||||||||||||||||
| Operating costs and expenses: | ||||||||||||||||||||
| Restaurant operating expenses (exclusive of depreciation and amortization shown below): | ||||||||||||||||||||
| Food and beverage costs | 172,561 | 134,201 | 76,975 | |||||||||||||||||
| Labor and other related expenses | 238,257 | 189,167 | 120,380 | |||||||||||||||||
| Other restaurant operating expenses | 114,476 | 94,847 | 61,821 | |||||||||||||||||
| Occupancy expenses | 59,919 | 55,433 | 49,450 | |||||||||||||||||
| Pre-opening expenses | 5,414 | 3,310 | 3,880 | |||||||||||||||||
| General and administrative expenses | 84,959 | 70,388 | 46,322 | |||||||||||||||||
| Depreciation and amortization | 34,230 | 32,379 | 30,725 | |||||||||||||||||
| Impairments and loss on disposal of assets | 920 | 381 | 315 | |||||||||||||||||
| Transaction expenses (income), net | 2,513 | (1,156) | (258) | |||||||||||||||||
| Total operating costs and expenses | 713,249 | 578,950 | 389,610 | |||||||||||||||||
| Income (Loss) from operations | 16,913 | 22,243 | (47,222) | |||||||||||||||||
| Interest expense | (5,232) | (20,099) | (22,815) | |||||||||||||||||
| Other income (expense), net | 910 | (1,774) | 483 | |||||||||||||||||
| Income (Loss) before income taxes | 12,591 | 370 | (69,554) | |||||||||||||||||
| Income tax (expense) benefit | (5,684) | (2,477) | 19,873 | |||||||||||||||||
| Net income (loss) and total comprehensive income (loss) | $ | 6,907 | $ | (2,107) | $ | (49,681) | ||||||||||||||
| Net income (loss) per common share - basic | $ | 0.12 | $ | (0.04) | $ | (1.10) | ||||||||||||||
| Net income (loss) per common share - diluted | $ | 0.11 | $ | (0.04) | $ | (1.10) | ||||||||||||||
| Weighted average number of common shares outstanding - basic | 59,097,512 | 48,213,995 | 45,013,784 | |||||||||||||||||
| Weighted average number of common shares outstanding - diluted | 60,140,045 | 48,213,995 | 45,013,784 | |||||||||||||||||
Same-Restaurant Sales Growth and Same-Restaurant Traffic Growth
| THIRTEEN WEEKS ENDED | SAME-RESTAURANT SALES GROWTH | SAME-RESTAURANT TRAFFIC GROWTH | COMPARABLE RESTAURANT BASE | |||||||||||||||||
| December 25, 2022 | 7.7 | % | (0.6) | % | 301 | |||||||||||||||
| December 26, 2021 | 36.7 | % | 31.9 | % | 269 | |||||||||||||||
| December 27, 2020 | (11.3) | % | (19.1) | % | 212 | |||||||||||||||
| December 29, 2019 | 4.6 | % | 0.2 | % | 168 | |||||||||||||||
14
Welcome to First Watch Supplemental Information Q4 and Fiscal 2022 March 7, 2023
2 Forward-Looking Statements In addition to historical information, this presentation may contain a number of “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, information concerning First Watch Restaurant Group, Inc.’s (“First Watch”) possible or assumed future results of operations, new restaurant openings, business strategies, competitive position, industry environment, potential growth opportunities and the effects of regulation. These statements are based on First Watch’s current expectations and beliefs, as well as a number of assumptions concerning future events. When used in this presentation, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “target,” “may,” “will,” “should,” “future,” “propose,” “preliminary,” “outlook,” “guidance,” “on track” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. The forward-looking statements included in this presentation are made only as of the date of this presentation and are based on our current expectations and assumptions regarding our business, the economy and other future market conditions. Except as may be required by law, First Watch expressly disclaims any obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of the most recent earnings release reflected in this presentation or to reflect the occurrence of unanticipated events. Because forward-looking statements relate to the future by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the following: uncertainty regarding ongoing hostility between Russia and Ukraine and the related impact on macroeconomic conditions, including inflation, as a result of such conflict or other related events; our vulnerability to changes in economic conditions and consumer preferences; our inability to successfully open new restaurants or establish new markets; our inability to effectively manage our growth; adverse effects of the COVID-19 pandemic or other infectious diseases; potential negative impacts on sales at our and our franchisees’ restaurants as a result of our opening new restaurants; a decline in visitors to any of the retail centers, lifestyle centers, or entertainment centers where our restaurants are located; lower than expected same-restaurant sales growth; unsuccessful marketing programs and limited time new offerings; changes in the cost of food; unprofitability or closure of new restaurants or lower than previously experienced performance in existing restaurants; our inability to compete effectively for customers; unsuccessful financial performance of our franchisees; our limited control over our franchisees’ operations; our inability to maintain good relationships with our franchisees; conflicts of interest with our franchisees; the geographic concentration of our system-wide restaurant base in the southeast portion of the United States; damage to our reputation and negative publicity; our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media; our limited number of suppliers and distributors for several of our frequently used ingredients; information technology system failures or breaches of our network security; our failure to comply with federal and state laws and regulations relating to privacy, data protection, advertising and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection, advertising and consumer protection; our potential liability with our gift cards under the property laws of some states; our failure to enforce and maintain our trademarks and protect our other intellectual property; litigation with respect to intellectual property assets; our dependence on our executive officers and certain other key employees; our inability to identify qualified individuals for our workforce; our failure to obtain or to properly verify the employment eligibility of our employees; our failure to maintain our corporate culture as we grow; unionization activities among our employees; employment and labor law proceedings; labor shortages or increased labor costs or health care costs; risks associated with leasing property subject to long-term and non-cancelable leases; risks related to our sale of alcoholic beverages; costly and complex compliance with federal, state and local laws; changes in accounting principles applicable to us; our vulnerability to natural disasters, unusual weather conditions, pandemic outbreaks, political events, war and terrorism; our inability to secure additional capital to support business growth; our level of indebtedness; failure to comply with covenants under our credit facility; and the interests of our majority stockholder may differ from those of public stockholders. For additional discussion of factors that could impact our operational and financial results, please refer to our filings with the Securities and Exchange Commission (the “SEC”), accessible on the SEC’s website at www.sec.gov and the Investors Relations section of the Company’s website at https://investors.firstwatch.com/financial-information/sec-filings. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual financial condition, results of operations, future performance and business may vary in material respects from the performance projected in these forward-looking statements. Non-GAAP Financial Measures (Unaudited) To supplement the consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), we use certain non-GAAP financial measures, which present operating results on an adjusted basis. These supplemental measures of performance that are not required by or presented in accordance with GAAP include the following: (i) Adjusted EBITDA, (ii) Adjusted EBITDA margin, (iii) Restaurant level operating profit and (iv) Restaurant level operating profit margin (collectively, the “non-GAAP financial measures”). Our presentation of these non-GAAP financial measures includes isolating the effects of some items that are either nonrecurring in nature or vary from period to period without any correlation to our ongoing core operating performance. Management believes that the use of these non-GAAP financial measures provides additional transparency of our operations, facilitates analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of our ongoing operating performance, identifies operational trends and allows for greater transparency with respect to key metrics used by us in our financial and operational decision making. Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies, have important limitations as analytical tools and may not provide a complete understanding of our performance. These non-GAAP financial measures should not be considered as an alternative or substitute to net income (loss), income (loss) from operations, or any other performance measures derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity. These non-GAAP financial measures should be reviewed in conjunction with our consolidated financial statements prepared in accordance with GAAP. CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES
3 We are First Watch. We’re the leaders of the Daytime Dining category – a segment comprised of chef-driven concepts operating exclusively during daytime hours. That’s right… Our performance and successes are achieved during one 7½- hour shift, from 7 a.m. to 2:30 p.m. We serve made-to-order breakfast, brunch and lunch using fresh ingredients, and our culture is built around a simple, people-focused mission: “You First.” Our elevated offering capitalizes on three long-term consumer trends: the growing morning meal occasion, an increasing demand for fresh, healthy food and the heightened importance of on-demand dining. We serve a broad mix of customers of diverse backgrounds, from millennials to baby boomers. Since 1983, we have delivered sales and unit growth as a result of our broad brand appeal. At the end fiscal 2022, we operated 474 system-wide restaurants in 29 states, and we believe we’re just getting started. GOOD MORNING!
Fiscal 2022 Performance and Commentary
“First Watch delivered another impressive year in 2022, achieving a 21.5% increase in total revenues and same-restaurant sales and traffic growth of 14.5% and 7.7%, respectively, when compared to a strong 2021.” “We’re off to an encouraging start to 2023, with same-restaurant sales and traffic growth of 15.7% and 8.5%, respectively, through the first two periods of the quarter. 2023 also marks our 40th operating year, and I’m not only proud of all First Watch has accomplished since we opened our doors in 1983, but optimistic about what we are poised to achieve.” Chris Tomasso, CEO and President 6
7 A TASTE OF 2022 THE TRAILBLAZER BOWL CARNITAS BREAKFAST BURRITO SUPERSEED PROTEIN PANCAKES Hand-pulled roasted turkey, house- roasted sweet potatoes, cage-free scrambled eggs, lemon tahini arugula, fresh avocado with superseed crunch and fresh herbs Pork carnitas, cage-free scrambled eggs, fresh seasoned potatoes, black beans, Cheddar and Monterey Jack cheese and fresh avocado. Wrapped in a grilled whole wheat tortilla, covered with tomatillo hollandaise and topped with lime crema, pico de gallo, house-pickled red onion, fresh cilantro and Cotija cheese Flax, hemp, kasha, pepitas and sunflower seeds added to our multigrain pancake batter. Served as three mid-sized pancakes topped with fresh sliced bananas, blueberries, maple-almond butter, vanilla Greek yogurt and superseed crunch. Served with warm mixed berry compote Jump Start Seasonal Menu | Jan. 3 – March 13 PURPLE HAZE Lemon, cane sugar, butterfly pea flower tea and a hint of lavender
8 A TASTE OF 2022 SHRIMP & GRITS CRAB CAKE BENEDICT CHORIZO SUNRISE SANDWICH Our take on this Lowcountry classic features sautéed shrimp and Cajun andouille sausage reduced with chicken stock, house-roasted tomatoes, onion, green peppers and scallions, served over Bob’s Red Mill Cheddar Parmesan cheese grits, with artisan ciabatta toast. Crispy crab cakes topped with two cage-free poached eggs with sautéed baby spinach and house-made pico de gallo, covered with sriracha hollandaise and garnished with scallions and Old Bay seasoning. Served with lightly dressed organic mixed greens. A cage-free over-easy egg with two griddled chorizo sausage patties, melted Monterey Jack cheese, fresh smashed avocado, Cholula® and house-made pico de gallo on a grilled brioche bun. Served with lightly dressed organic mixed greens. Spring Seasonal Menu | March 21 – May 29 PINEAPPLE EXPRESS Pineapple, orange, coconut water, lime, agave and a mint crystal rim.
9 A TASTE OF 2022 BARBACOA QUESADILLA BENEDICT HACIENDA HASH BLUEBERRY MUFFIN TOP GRIDDLE CAKES Two barbacoa quesadillas prepared quesabirria-style, topped with poached cage-free eggs and covered with our Vera Cruz hollandaise, ranchero sauce and scallions. Served with seasoned black beans topped with housemade pico de gallo. Chorizo, red bell pepper and potato hash topped with two cage-free eggs any style, Cheddar and Monterey Jack, spicy ketchup, lime crema drizzle, fresh smashed avocado and scallions. Three house-baked, butter-griddled blueberry and cinnamon streusel muffin tops, topped with warm mixed berry compote, fresh blueberries, strawberries, blackberries, housemade granola and powdered cinnamon sugar. Summer Seasonal Menu | June 6 – Aug. 14 WATERMELON WAKE-UP Watermelon, pineapple, lime and mint.
10 A TASTE OF 2022 CARAMEL CRUNCH CINNAMON ROLL MODERN CROQUE MADAME BRISKET CORNED BEEF HASH A giant cinnamon roll topped with cream cheese icing, brown sugar caramel sauce, Cinnamon Toast Crunch® cereal and cinnamon streusel. Challah bread griddled with melted Cheddar and Monterey Jack, fresh tomato and crispy bacon, then topped with a cage- free sunny-side up egg, Parmesan cream sauce and fresh herbs. Served with lemon-dressed organic mixed greens. Savory hand-pulled corned beef, freshly seasoned potatoes, house-roasted sweet potatoes, onions and red bell pepper topped with two cage-free eggs cooked any style, Parmesan cream sauce and fresh herbs. Fall Seasonal Menu | Aug. 22 – Oct. 30 PUMPKIN PANCAKE BREAKFAST Two cage-free eggs cooked any style plus one of our signature spiced Pumpkin Pancakes and a Jones Dairy Farm grilled all- natural savory chicken sausage patty. POMAGRANATE PEAR PUNCH Pomegranate, pear, cane sugar and lime.
11 A TASTE OF 2022 Holiday Seasonal Menu | Oct. 31 – Jan. 1 GINGERBREAD SPICE DONUTS BARBACOA BREAKFAST BURRITO PORK GREEN CHILE HASH Warm cake donut holes tossed with gingerbread spice and lightly dusted with powdered cinnamon sugar. Served with salted caramel toffee sauce and crème anglaise. Savory braised beef Barbacoa, scrambled cage-free eggs, freshly seasoned potatoes, seasoned black beans, Cheddar and Monterey Jack in a grilled whole wheat tortilla, red chile hollandaise, lime crema, housemade pico de gallo, fresh smashed avocado, Cotija cheese and cilantro. Hand-shredded pork shoulder tossed with freshly seasoned potatoes, Monterey Jack, fire-roasted green chile sauce and lime crema. Topped with two cage-free eggs cooked any style, house-pickled red onions and cilantro. Served with warm wheat- corn tortillas and freshly cut lime. CINNAMON CHIP PANCAKE BREAKFAST Two cage-free eggs cooked any style with a cinnamon chip pancake and your choice of hardwood smoked bacon or all- natural chicken, pork or turkey sausage. CRANBERRY CRUSH Cranberry, Fuji apple, lemon, cane sugar and cinnamon.
Highlights for Fiscal 2022 compared to Fiscal 2021: • Total revenues increased 21.5% to $730.2 million in 2022 from $601.2 million in 2021 • System-wide sales increased 21.9% to $914.8 million in 2022 from $750.7 million in 2021 • Same-restaurant sales growth of 14.5% (up 29.6% relative to 2019*) • Same-restaurant traffic growth of 7.7% (up 6.5% relative to 2019*) • Income from operations and Income from operations margin of $16.9 million and 2.4% compared to $22.2 million and 3.8% in 2021, respectively • Restaurant level operating profit** and Restaurant level operating profit margin** of $128.9 million and 17.9% compared to $115.4 million and 19.5% in 2021, respectively • Net income of $6.9 million compared to Net loss of $(2.1) million in 2021 • Adjusted EBITDA** increased to $69.3 million from $66.3 million in 2021 • Opened 43 system-wide restaurants (29 company-owned and 14 franchise-owned) across 16 states resulting in a total of 474 system-wide restaurants (366 company-owned and 108 franchise-owned) across 29 states 12 Q4 2022 & Fiscal 2022 HIGHLIGHTS Highlights for Q4 2022 compared to Q4 2021: • Total revenues increased 14.2% to $185.7 million in Q4 2022 from $162.6 million in Q4 2021 • System-wide sales increased 15.6% to $234.2 million in Q4 2022 from $202.7 million in Q4 2021 • Same-restaurant sales growth of 7.7% (up 29.3% relative to Q4 2019*) • Same-restaurant traffic growth of (0.6)% (up 5.2% relative to Q4 2019*) • Income from operations of $1.5 million and Income from operations margin of 0.8% in Q4 2022, respectively, compared to Loss from operations of $(1.1) million and Loss from operations margin of (0.7)% in Q4 2021, respectively • Restaurant level operating profit** and Restaurant level operating profit margin** of $30.5 million and 16.7% in Q4 2022 compared to $29.2 million and 18.2% in Q4 2021, respectively • Net loss improved to $(0.5) million in Q4 2022 compared to $(4.7) million in Q4 2021 • Adjusted EBITDA** increased to $15.1 million in Q4 2022 from $14.2 million in Q4 2021 • Opened 16 system-wide restaurants (11 company-owned and 5 franchise-owned) across 12 states, resulting in a total of 474 system-wide restaurants (366 company-owned and 108 franchise-owned) across 29 states ___________________________ * Comparison to the thirteen weeks ended December 29, 2019 (“Q4 2019”) and fiscal year ended December 29, 2019 (“2019”) is presented for enhanced comparability due to the economic impact of COVID-19 ** See “Non-GAAP Financial Measures” in the appendix
Outlook for Fiscal Year 2023: The Company provides the following outlook for the 53-week fiscal year ended December 31, 2023: • Same-restaurant sales growth of 6.0% to 8.0% with continued positive same-restaurant traffic growth • Total revenue growth of 15.0% to 19.0% • Adjusted EBITDA* in the range of $76.0 million to $81.0 million • Total of 45-51 new system-wide restaurants, net of 3 company-owned restaurant closures (38 to 42 new company-owned restaurants and 10 to 12 new franchise-owned restaurants • Capital expenditures in the range of $100.0 million to $110.0 million invested primarily in new restaurant projects and planned remodels • Blended tax rate of approximately 36.0% to 38.0% Long Term Outlook: The Company reiterates its long-term annual financial targets as follows: • Percentage unit growth in the low double digits • Same-restaurant sales growth of ~3.5% • Restaurant sales growth in the mid-teens • Adjusted EBITDA percentage growth in the mid-teens The Company also believes that the brand has the potential for more than 2,200 restaurants in the US. 13 OUTLOOK ___________________________ * We have not reconciled guidance for Adjusted EBITDA to the corresponding GAAP financial measure because we do not provide guidance for the various reconciling items. We are unable to provide guidance for these reconciling items because we cannot determine their probable significance, as certain items are outside of our control and cannot be reasonably predicted due to the fact that these items could vary significantly from period to period. Accordingly, reconciliations to the corresponding GAAP financial measure is not available without unreasonable effort.
14 Consolidated Statements of Operations and Comprehensive Income (Loss) The following table summarizes our results of operations and the percentages of items in our Consolidated Statements of Operations and Comprehensive Income (Loss) in relation to Total revenues or, where indicated, Restaurant sales for fiscal years 2020, 2021, 2022 and the fourth quarter of 2021 and 2022: ___________________________ (1) Percentages are calculated as a percentage of restaurant sales. (in thousands) Revenues Restaurant sales $182,852 98.4% $160,207 98.5% $719,181 98.5% $592,343 98.5% $337,433 98.6% Franchise revenues 2,893 1.6% 2,413 1.5% 10,981 1.5% 8,850 1.5% 4,955 1.4% Total revenues 185,745 100.0% 162,620 100.0% 730,162 100.0% 601,193 100.0% 342,388 100.0% Operating costs and expenses Restaurant operating expenses (1) (exclusive of depreciation and amortization shown below): Food and beverage costs 43,361 23.7% 37,818 23.6% 172,561 24.0% 134,201 22.7% 76,975 22.8% Labor and other related expenses 63,166 34.5% 52,581 32.8% 238,257 33.1% 189,167 31.9% 120,380 35.7% Other restaurant operating expenses 28,715 15.7% 25,500 15.9% 114,476 15.9% 94,847 16.0% 61,821 18.3% Occupancy expenses 15,601 8.5% 14,397 9.0% 59,919 8.3% 55,433 9.4% 49,450 14.7% Pre-opening expenses 1,845 1.0% 737 0.5% 5,414 0.8% 3,310 0.6% 3,880 1.1% General and administrative expenses 21,765 11.7% 26,028 16.0% 84,959 11.6% 70,388 11.7% 46,322 13.5% Depreciation and amortization 8,928 4.8% 8,414 5.2% 34,230 4.7% 32,379 5.4% 30,725 9.0% Impairments and loss on disposal of assets 348 0.2% 120 0.1% 920 0.1% 381 0.1% 315 0.1% Transaction expenses (income), net 537 0.3% (1,908) (1.2)% 2,513 0.3% (1,156) (0.2%) (258) (0.1%) Total operating costs and expenses 184,266 99.2% 163,687 100.7% 713,249 97.7% 578,950 96.3% 389,610 113.8% Income (Loss) from operations (1) 1,479 0.8% (1,067) (0.7)% 16,913 2.4% 22,243 3.8% (47,222) (13.8%) Interest expense (1,738) (0.9)% (1,443) (0.9)% (5,232) (0.7%) (20,099) (3.3%) (22,815) (6.7%) Other income (expense), net 515 0.3% (2,310) (1.4)% 910 0.1% (1,774) (0.3%) 483 0.1% Income (Loss) before income taxes 256 0.1% (4,820) (3.0)% 12,591 1.7% 370 0.1% (69,554) (20.3%) Income tax (expense) benefit (742) (0.4)% 167 0.1% (5,684) (0.8%) (2,477) (0.4%) 19,873 5.8% Net income (loss) and total comprehensive income (loss) ($486) (0.3)% ($4,653) (2.9)% $6,907 0.90% ($2,107) (0.4%) ($49,681) (14.5%) 2020 FISCAL YEAR 2022 2021December 25, 2022 THIRTEEN WEEKS ENDED December 26, 2021
15 Selected Operating Data ___________________________ (1) Average unit volume presented on an annual basis only. (2) Reconciliations from Income (Loss) from operations and Income (Loss) from operations margin, the most comparable GAAP measures to Restaurant level operating profit and Restaurant level operating profit margin, are set forth in the schedules within the “Non-GAAP Financial Measures” section. (3) Reconciliations from Net income (loss) and Net income (loss) margin, the most comparable GAAP measures to Adjusted EBITDA and Adjusted EBITDA margin, are set forth in the schedules within the “Non-GAAP Financial Measures” section. December 25, 2022 December 26, 2021 2022 2021 2020 System-wide sales (in thousands) $234,228 $202,669 $914,816 $750,674 $426,303 System-wide restaurants 474 435 474 435 409 Company-owned 366 341 366 341 321 Franchise-owned 108 94 108 94 88 Same-restaurant sales growth 7.7% 36.7% 14.5% 63.0% (29.0%) Same-restaurant traffic growth (0.6)% 31.9% 7.7% 52.6% (33.9%) Average Unit Volume (in thousands) (1) $2,032 $1,786 $1,119 Income (Loss) from operations (in thousands) $1,479 ($1,067) $16,913 $22,243 ($47,222) Income (Loss) from operations margin 0.8% (0.7)% 2.4% 3.8% (14.0%) Restaurant level operating profit (in thousands) (2) $30,546 $29,174 $128,936 $115,404 $28,236 Restaurant level operating profit margin (2) 16.7% 18.2% 17.9% 19.5% 8.4% Net income (loss) (in thousands) ($486) (4,653) $6,907 ($2,107) ($49,681) Net income (loss) margin (0.3)% (2.9)% 0.9% (0.4%) (14.5%) Adjusted EBITDA (in thousands) (3) $15,102 $14,167 $69,278 $66,301 ($5,744) Adjusted EBITDA margin (3) 8.1% 8.7% 9.5% 11.0% (1.7%) THIRTEEN WEEKS ENDED FISCAL YEAR
APPENDIX
® 14 (1) Representative of our target 3-year new units performance, which is comparable to the historical 3-year performance of our new restaurants. (2) Cash-on-Cash Return is defined as Restaurant Level Operating Profit (excluding gift card breakage and deferred rent expense (income) in the third year of operation (months 25-36 of operation) for company-owned restaurants divided by their cash build-out expenses, net of landlord incentives. (3) Represents fiscal 2022 annualized average sales of all company-owned restaurants opened through the respective cohort year. (4) Represents fiscal 2022 annualized average sales of all company-owned restaurants opened through fiscal 2019. ATTRACTIVE NEW UNIT ECONOMICS IN A SIZE THAT WORKS EVERYWHERE YEAR 3 SALES YEAR 3 RESTAURANT-LEVEL OPERATING PROFIT YEAR 3 CASH-ON-CASH RETURNS (2) 18-20% Our flexible box size of ~3,000–6,600 square feet with an average net build-out cost of ~$0.9M-$1.4M allows us to fit in any real estate and we can succeed in many markets EXISTING RESTAURANTS (4) FISCAL 2020 NROs FISCAL 2021 NROs FISCAL 2022 NROs 2021 & 2022 NEW RESTAURANT OPENINGS (NROs) OUTPERFORMING THE SYSTEM AND OUR EXPECTATIONS $2.0 $2.1 $2.2 $2.2 2022 Restaurant Cohort Performance(3) ($ millions) $2.5M (1) (1) 35%+ (1)
18 HISTORICAL DATA ** Pre-opening expenses are presented in one line item on the Consolidated Statements of Operations and Comprehensive Income (Loss) Same-Restaurant Sales & Traffic Growth Pre-opening Expenses * Comparison to 2019 is presented for enhanced comparability due to the economic impact of COVID-19. Same-Restaurant Sales & Traffic Growth vs. 2019 ** * Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Same-Restaurant Sales Growth 6.3% 6.2% 5.1% 4.6% 5.6% (10.7%) (75.9%) (17.2%) (11.3%) (29.0%) 14.1% 403.5% 46.2% 36.7% 63.0% 27.2% 13.4% 12.0% 7.7% 14.5% Same-Restaurant Traffic Growth 3.0% 2.4% 0.6% 0.2% 1.6% (14.2%) (77.2%) (24.3%) (19.1%) (33.9%) 2.2% 360.9% 40.1% 31.9% 52.6% 21.9% 8.1% 3.7% (0.6%) 7.7% Comparable Restaurant Base 168 168 168 168 168 212 212 212 212 212 270 270 270 269 269 305 304 303 301 301 2019 2020 2021 2022 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Other restaurant operating expenses $ 976 $ 37 $ 686 $256 $1,955 $ 724 $649 $280 $402 $2,055 $648 $ 563 $ 813 $1,301 $3,325 Occupancy expenses 522 541 422 440 1,925 440 250 230 335 1,255 337 531 677 544 $2,089 Total Pre-opening expenses $1,498 $578 $1,108 $696 $3,880 $1,164 $899 $510 $737 $3,310 $985 $1,094 $1,490 $1,845 $5,414 2020 2021 2022 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Same-Restaurant Sales Growth 0.5% 16.3% 19.7% 20.6% 14.3% 26.1% 30.2% 32.7% 29.3% 29.6% Same-Restaurant Traffic Growth (13.6%) 1.0% 4.8% 6.1% (0.5%) 3.4% 7.4% 7.0% 5.2% 6.5% Comparable Restaurant Base 211 211 211 210 210 209 208 208 207 207 2021 vs. 2019 2022 vs. 2019
19 Adjusted EBITDA and Adjusted EBITDA margin Management uses Adjusted EBITDA and Adjusted EBITDA margin (i) as factors in evaluating management’s performance when determining incentive compensation, (ii) to evaluate the Company’s operating results and the effectiveness of our business strategies, (iii) internally as benchmarks to compare the Company’s performance to that of its competitors and (iv) to provide investors with additional transparency of the Company’s operations. The use of Adjusted EBITDA and Adjusted EBITDA margin as performance measures permit a comparative assessment of the Company’s operating performance relative to the Company’s performance based on the Company’s GAAP results, while isolating the effects of some items that are either nonrecurring in nature or vary from period to period without any correlation to the Company’s ongoing core operating performance. The following tables reconcile Net income (loss) and Net income (loss) margin, the most directly comparable GAAP measures, to Adjusted EBITDA and Adjusted EBITDA margin, respectively, for the periods indicated. NON-GAAP FINANCIAL MEASURES ___________________________ (1) Represents costs related to the assessment and redesign of our systems and processes. In 2021, the costs also include information technology support and external professional service costs incurred in connection with IPO-readiness efforts. (2) Represents non-cash, stock-based compensation expense. (3) Represents (i) revaluations of contingent consideration payable to previous stockholders for tax savings generated through the use of federal and state loss carryforwards and general business credits that had been accumulated from operations prior to August 2017, (ii) gains or losses associated with lease or contract terminations, (iii) costs incurred in connection with the acquisition of franchise-owned restaurants, (iv) costs related to restaurant closures and (v) costs related to secondary offerings of the Company’s common stock. (4) Represents costs related to the disposal of assets due to retirements, replacements, restaurant closures or natural disasters. There were no impairments recognized during the periods presented. (5) Represents costs incurred for hiring qualified individuals as we assessed the redesign of our systems and processes. (6) Represents professional service costs incurred in connection with the Delaware Voluntary Disclosure Agreement Program related to unclaimed or abandoned property. (7) Represents costs incurred, net of insurance recoveries, in connection with Hurricane Ian. The costs include inventory obsolescence and spoilage, compensation for employees and support for hurricane relief. (8) Represents costs incurred in connection with the economic impact of the COVID-19 pandemic. (9) Represents the non-cash portion of straight-line rent expense recorded within both Occupancy expenses and General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss). (in thousands) December 25, 2022 December 26, 2021 2020 Net income (loss) ($486) ($4,653) $6,907 ($2,107) ($49,681) Depreciation and amortization 8,928 8,414 34,230 32,379 30,725 Interest expense 1,738 1,443 5,232 20,099 22,815 Income taxes 742 (167) 5,684 2,477 (19,873) EBITDA 10,922 5,037 52,053 52,848 (16,014) IPO-readiness and strategic transition costs (1) 367 647 2,318 2,402 4,247 Stock-based compensation (2) 2,553 7,850 10,374 8,596 750 Loss on extinguishment of debt - 2,403 - 2,403 - Transaction expenses (income), net (3) 537 (1,908) 2,513 (1,156) (258) Impairments and loss on disposal of assets (4) 348 120 920 381 315 Recruiting and relocation costs (5) 111 18 681 351 228 Severance costs - - 155 265 239 Delaware Voluntary Disclosure Agreement Program (6) 149 - 149 - - Costs in connection with natural disasters, net of insurance recoveries (7) 115 - 115 COVID-19 - related charges (8) - - - 211 4,749 Adjusted EBITDA $15,102 $14,167 $69,278 $66,301 ($5,744) Total revenues $185,745 $162,620 $730,162 $601,193 $342,388 Net income (loss) margin (0.3)% (2.9)% 0.9% (0.4)% (14.5)% Adjusted EBITDA Margin 8.1% 8.7% 9.5% 11.0% (1.7)% Additional information Deferred rent expense (income) (9) $507 ($48) $2,418 ($2,011) $10,087 2022 2021 FISCAL YEARTHIRTEEN WEEKS ENDED
20 Restaurant level operating profit and Restaurant level operating profit margin Restaurant level operating profit and Restaurant level operating profit margin are not indicative of our overall results, and because they exclude corporate-level expenses, do not accrue directly to the benefit of our stockholders. We will continue to incur such expenses in the future. Restaurant level operating profit and Restaurant level operating profit margin are important measures we use to evaluate the performance and profitability of each operating restaurant, individually and in the aggregate and to make decisions regarding future spending and other operational decisions. We believe that Restaurant level operating profit and Restaurant level operating profit margin provide useful information about our operating results, identify operational trends and allow for transparency with respect to key metrics used by us in our financial and operational decision- making. The following tables reconcile Income (Loss) from operations and Income (Loss) from operations margin, the most directly comparable GAAP financial measures, to Restaurant level operating profit and Restaurant level operating profit margin, respectively, for the periods indicated. NON-GAAP FINANCIAL MEASURES ___________________________ (1) Represents (i) revaluations of contingent consideration payable to previous stockholders for tax savings generated through the use of federal and state loss carryforwards and general business credits that had been accumulated from operations prior to August 2017, (ii) gains or losses associated with lease or contract terminations, (iii) costs incurred in connection with the acquisition of franchise-owned restaurants, (iv) costs related to restaurant closures and (v) costs related to secondary offerings of the Company’s common stock. (2) Represents costs related to the disposal of assets due to retirements, replacements or certain restaurant closures and natural disasters. There were no impairments recognized during the periods presented. (3) Represents costs incurred in connection with Hurricane Ian. (4) Represents costs incurred in connection with the economic impact of the COVID-19 pandemic. (5) Represents the non-cash portion of straight-line rent expense recorded within Occupancy expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss). (in thousands) December 25, 2022 December 26, 2021 2021 2021 2020 Income (Loss) from operations $1,479 ($1,067) $16,913 $22,243 ($47,222) Less: Franchise revenues (2,893) (2,413) (10,981) (8,850) (4,955) Add: General and administrative expenses 21,765 26,028 84,959 70,388 46,322 Depreciation and amortization 8,928 8,414 34,230 32,379 30,725 Transaction expenses (income), net (1) 537 (1,908) 2,513 (1,156) (258) Impairments and loss on disposal of assets (2) 348 120 920 381 315 Costs in connection with natural disasters (3) 382 - 382 - - COVID-19 related charges (4) - - - 19 3,309 Restaurant level operating profit $30,546 $29,174 $128,936 $115,404 $28,236 Restaurant sales $182,852 $160,207 $719,181 $592,343 $337,433 Income (Loss) from operations margin 0.8% (0.7)% 2.4% 3.8% (14.0%) Restaurant level operating profit margin 16.7% 18.2% 17.9% 19.5% 8.4% Additional information Deferred rent expense (income) (5) $457 ($97) $2,219 ($2,075) $10,029 FISCAL YEARTHIRTEEN WEEKS ENDED
21 The following definitions apply to these terms as used in this presentation: Adjusted EBITDA: a non-GAAP financial measure, is defined as net income (loss) before depreciation and amortization, interest expense, income taxes and items that the Company does not consider in the evaluation of its ongoing core operating performance. Adjusted EBITDA margin: a non-GAAP financial measure, is defined as Adjusted EBITDA as a percentage of total revenues. Average Unit Volume: the total restaurant sales (excluding gift card breakage) recognized in the comparable restaurant base, which is defined as the number of company-owned First Watch branded restaurants open for 18 months or longer as of the beginning of the fiscal year (“Comparable Restaurant Base”), divided by the number of restaurants in the Comparable Restaurant Base during the period. This measurement allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base. Restaurant level operating profit: a non-GAAP financial measure, is defined as restaurant sales, less restaurant operating expenses, which include food and beverage costs, labor and other related expenses, other restaurant operating expenses, pre-opening expenses and occupancy expenses. Restaurant level operating profit excludes corporate-level expenses and items that are not considered in the Company’s evaluation of its ongoing core operating performance. Restaurant level operating profit margin: a non-GAAP financial measure, is defined as Restaurant level operating profit as a percentage of restaurant sales. Same-restaurant sales growth: the percentage change in year-over-year restaurant sales (excluding gift card breakage) for the Comparable Restaurant Base. Same-restaurant traffic growth: the percentage change in traffic counts as compared to the same period in the prior year using the Comparable Restaurant Base. System-wide restaurants: the total number of restaurants, including all company-owned and franchise-owned restaurants. System-wide sales: consists of restaurant sales from our company-owned restaurants and franchise-owned restaurants. We do not recognize the restaurant sales from our franchise-owned restaurants as revenue. DEFINITIONS
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