UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 8-K
___________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Emerging growth company ☒
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Item 2.02 - Results of Operations and Financial Condition.
On May 2, 2023, First Watch Restaurant Group, Inc. (the “Company”) issued a press release announcing its financial results for the first fiscal quarter ended March 26, 2023. A copy of the release is attached as Exhibit 99.1.
The information furnished pursuant to Item 2.02 and Exhibit 99.1 of this Current Report on Form 8-K 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 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 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 2nd day of May, 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 Q1 2023 Financial Results
Same-restaurant sales growth of 12.9% driven by same-restaurant traffic growth of 5.1%
Income from operations margin of 7.4% and restaurant level operating profit margin of 21.2%
Net income of $9.4 million and Adjusted EBITDA of $27.4 million
10 system-wide restaurants opened across 7 states
Raises 2023 Adjusted EBITDA guidance
BRADENTON, FL — May 2, 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 March 26, 2023 (“Q1 2023”) and raises certain elements of its fiscal year 2023 guidance.
“First Watch delivered yet another strong quarter. Most notably, we continued to differentiate ourselves by driving traffic share with disciplined operational execution as evidenced by our first quarter Restaurant-Level Operating Profit margin of 21.2% and Adjusted EBITDA of $27.4 million,” said Chris Tomasso, First Watch CEO and President. “Despite an increasingly fragile consumer environment, our first quarter performance reaffirms my continued confidence in First Watch’s leadership position and our strong consumer value proposition.”
Highlights for Q1 2023 compared to Q1 2022*:
•Total revenues increased 22.1% to $211.4 million in Q1 2023 from $173.1 million in Q1 2022
•System-wide sales increased 23.6% to $264.7 million in Q1 2023 from $214.1 million in Q1 2022
•Same-restaurant sales growth of 12.9% (42.0% relative to the first quarter of 2019**)
•Same-restaurant traffic growth of 5.1% (11.7% relative to the first quarter of 2019**)
•Income from operations margin increased to 7.4% during Q1 2023 from 4.5% in Q1 2022
•Restaurant level operating profit margin*** increased to 21.2% in Q1 2023 from 19.6% in Q1 2022
•Net income increased to $9.4 million, or $0.15 per diluted share, in Q1 2023 from $4.6 million, or $0.08 per diluted share, in Q1 2022
•Adjusted EBITDA*** increased to $27.4 million in Q1 2023 from $19.4 million in Q1 2022
•Opened 10 system-wide restaurants in 7 states resulting in a total of 484 system-wide restaurants (370 company-owned and 114 franchise-owned) across 29 states
___________________
* Thirteen weeks ended March 27, 2022 (“Q1 2022”)
** Comparison to the thirteen weeks ended March 31, 2019 (“first quarter of 2019”) is presented for enhanced comparability due to the economic impact of COVID-19.
*** See “Non-GAAP Financial Measures” below
For additional financial information related to the thirteen weeks ended March 26, 2023, refer to the Company’s quarterly report on Form 10-Q filed with the Securities and Exchange Commission on May 2, 2023, which can be accessed at https://investors.firstwatch.com in the Financials & Filings section.
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Outlook Fiscal Year 2023
The Company raises certain of its guidance for the 53-week fiscal year ended December 31, 2023:
•Total revenue growth in the range of 16.0% to 20.0%(1)
•Adjusted EBITDA* in the range of $80.0 million to $85.0 million(1)
•Updated blended tax rate in the range of 33.0% to 36.0%
The Company confirms certain of its previous guidance for the 53-week fiscal year ended December 31, 2023:
•Same-restaurant sales growth in the range of 6.0% to 8.0% with positive same-restaurant traffic growth
•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(2)
______________________
(1) Includes approximately 1.0% in total revenue growth and approximately $1.0 million in Adjusted EBITDA associated with May 2023 franchise acquisition
(2) Does not include the capital outlays associated with the acquisition of franchise-owned restaurants
* 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, a reconciliation to the corresponding GAAP financial measure is not available without unreasonable effort.
Conference Call and Webcast
Chris Tomasso, Chief Executive Officer and President, and Mel Hope, Chief Financial Officer, will host a conference call and webcast to discuss these financial results for Q1 2023 on May 2, 2023 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.
2
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”). For the thirteen weeks ended March 26, 2023 and March 27, 2022, there were 328 restaurants and 305 restaurants, respectively, in our 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. For the thirteen weeks ended March 26, 2023 and March 27, 2022, there were 328 restaurants and 305 restaurants, respectively, in our 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®, Farm Stand Breakfast Tacos, Avocado Toast, Chickichanga, Morning Meditation (juiced in-house daily), Spiked Lavender Lemonade and its signature Million Dollar Bacon. In 2023, First Watch was named the top restaurant brand in Yelp’s inaugural list of the 50 most loved brands in the U.S and recognized as a Customer Experience All-Star by Forbes. 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 Most Loved Workplace® in Newsweek by 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 480 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
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to any historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “outlook,” “potential,” “project,” “projection,” “plan,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other similar expressions. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties disclosed herein, in our Annual Report on Form 10-K as of and for the year ended December 25, 2022, including under Part I. Item 1A. “Risk Factors” and Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our other 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. 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.
The forward-looking statements included in this press release are made only as of the date hereof and are expressly qualified in their entirety by these cautionary statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years and the associated quarters, months and periods of those fiscal years.
4
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 accounting principles generally accepted in the United States of America (“GAAP”), we use the following non-GAAP measures, which present operating results on an adjusted basis: (i) Adjusted EBITDA, (ii) Adjusted EBITDA margin, (iii) Restaurant level operating profit and (iv) Restaurant level operating profit margin. Our presentation of these non-GAAP 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. These supplemental measures of performance are not required by or presented in accordance with GAAP. Management believes these non-GAAP measures provide investors with additional visibility into our operations, facilitate analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of our ongoing operating performance, help to identify operational trends and allow for greater transparency with respect to key metrics used by management in our financial and operational decision making. Our non-GAAP measures may not be comparable to similarly titled measures used by other companies and have important limitations as analytical tools. These non-GAAP measures should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP as they may not provide a complete understanding of our performance. These non-GAAP measures should be reviewed in conjunction with our consolidated financial statements prepared in accordance with GAAP.
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 and (iii) internally as benchmarks to compare the Company’s performance to that of its competitors.
5
The following tables reconcile Net income and Net income margin, the most directly comparable GAAP measures, to Adjusted EBITDA and Adjusted EBITDA margin for the periods indicated:
| THIRTEEN WEEKS ENDED | |||||||||||
| (in thousands) | MARCH 26, 2023 | MARCH 27, 2022 | |||||||||
| Net income | $ | 9,360 | $ | 4,640 | |||||||
| Depreciation and amortization | 9,117 | 8,223 | |||||||||
| Interest expense | 1,907 | 1,006 | |||||||||
| Income taxes | 4,558 | 2,277 | |||||||||
| EBITDA | 24,942 | 16,146 | |||||||||
| Strategic costs (1) | 305 | 450 | |||||||||
| Stock-based compensation (2) | 1,497 | 2,294 | |||||||||
| Delaware Voluntary Disclosure Agreement Program (3) | 367 | — | |||||||||
| Transaction expenses, net (4) | 253 | 257 | |||||||||
| Insurance proceeds in connection with natural disasters, net (5) | (141) | — | |||||||||
| Impairments and loss on disposal of assets (6) | 134 | 79 | |||||||||
| Recruiting and relocation costs (7) | 30 | 76 | |||||||||
| Severance costs (8) | 26 | 62 | |||||||||
| Adjusted EBITDA | $ | 27,413 | $ | 19,364 | |||||||
| Total revenues | $ | 211,406 | $ | 173,112 | |||||||
| Net income margin | 4.4 | % | 2.7 | % | |||||||
| Adjusted EBITDA margin | 13.0 | % | 11.2 | % | |||||||
| Additional information | |||||||||||
| Deferred rent expense (9) | $ | 584 | $ | 580 | |||||||
(1) Represents costs related to process improvements and strategic initiatives. These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.
(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.
(3) 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.
(4) Represents costs incurred in connection with the acquisition of franchise-owned restaurants. In 2022, represents termination fee in connection with the closure of one company-owned restaurant.
(5) Represents insurance recoveries, net of costs incurred, in connection with Hurricane Ian, which were recorded in Other income, net on the Consolidated Statements of Operations and Comprehensive Income.
(6) Represents costs related to the disposal of assets due to retirements, replacements or certain restaurant closures. There were no impairments recognized during the periods presented.
(7) Represents costs incurred for hiring qualified individuals. These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.
(8) Severance costs are recorded in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.
(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.
6
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:
| THIRTEEN WEEKS ENDED | |||||||||||
| (in thousands) | MARCH 26, 2023 | MARCH 27, 2022 | |||||||||
| Income from operations | $ | 15,331 | $ | 7,760 | |||||||
| Less: Franchise revenues | (3,438) | (2,443) | |||||||||
| Add: | |||||||||||
| General and administrative expenses | 22,705 | 19,563 | |||||||||
| Depreciation and amortization | 9,117 | 8,223 | |||||||||
| Transaction expenses, net (1) | 253 | 257 | |||||||||
| Impairments and loss on disposal of assets (2) | 134 | 79 | |||||||||
| Restaurant level operating profit | 44,102 | 33,439 | |||||||||
| Restaurant sales | 207,968 | 170,669 | |||||||||
| Income from operations margin | 7.4 | % | 4.5 | % | |||||||
| Restaurant level operating profit margin | 21.2 | % | 19.6 | % | |||||||
| Additional information | |||||||||||
| Deferred rent expense (3) | $ | 534 | $ | 530 | |||||||
____________________________
(1) Represents costs incurred in connection with the acquisition of franchise-owned restaurants. In 2022, represents a termination fee in connection with the closure of one company-owned restaurant.
(2) Represents costs related to the disposal of assets due to retirements, replacements or certain restaurant closures. There were no impairments recognized during the periods presented.
(3) Represents the non-cash portion of straight-line rent expense recorded within Occupancy expenses on the Consolidated Statements of Operations and Comprehensive Income.
7
FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
| THIRTEEN WEEKS ENDED | |||||||||||
| MARCH 26, 2023 | MARCH 27, 2022 | ||||||||||
| Revenues: | |||||||||||
| Restaurant sales | $ | 207,968 | $ | 170,669 | |||||||
| Franchise revenues | 3,438 | 2,443 | |||||||||
| Total revenues | 211,406 | 173,112 | |||||||||
| Operating costs and expenses: | |||||||||||
| Restaurant operating expenses (exclusive of depreciation and amortization shown below): | |||||||||||
| Food and beverage costs | 46,627 | 39,403 | |||||||||
| Labor and other related expenses | 68,573 | 55,142 | |||||||||
| Other restaurant operating expenses | 31,696 | 27,317 | |||||||||
| Occupancy expenses | 15,934 | 14,383 | |||||||||
| Pre-opening expenses | 1,036 | 985 | |||||||||
| General and administrative expenses | 22,705 | 19,563 | |||||||||
| Depreciation and amortization | 9,117 | 8,223 | |||||||||
| Impairments and loss on disposal of assets | 134 | 79 | |||||||||
| Transaction expenses, net | 253 | 257 | |||||||||
| Total operating costs and expenses | 196,075 | 165,352 | |||||||||
| Income from operations | 15,331 | 7,760 | |||||||||
| Interest expense | (1,907) | (1,006) | |||||||||
| Other income, net | 494 | 163 | |||||||||
| Income before income taxes | 13,918 | 6,917 | |||||||||
| Income tax expense | (4,558) | (2,277) | |||||||||
| Net income and total comprehensive income | $ | 9,360 | $ | 4,640 | |||||||
| Net income per common share - basic | $ | 0.16 | $ | 0.08 | |||||||
| Net income per common share - diluted | $ | 0.15 | $ | 0.08 | |||||||
| Weighted average number of common shares outstanding - basic | 59,243,430 | 59,048,446 | |||||||||
| Weighted average number of common shares outstanding - diluted | 60,597,729 | 59,983,150 | |||||||||
Same-Restaurant Sales Growth and Same-Restaurant Traffic Growth
| Thirteen Weeks Ended | Same-Restaurant Sales Growth | Same-Restaurant Traffic Growth | Comparable Restaurant Base | |||||||||||||||||
| March 26, 2023 | 12.9 | % | 5.1 | % | 328 | |||||||||||||||
| March 27, 2022 | 27.2 | % | 21.9 | % | 305 | |||||||||||||||
March 28, 2021 | 14.1 | % | 2.2 | % | 270 | |||||||||||||||
8
Welcome to First Watch Supplemental Information Q1 2023 May 2, 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 of the first quarter, we operated 484 system-wide restaurants in 29 states, and we believe we’re just getting started. GOOD MORNING!
Q1 2023 Performance and Commentary
6 A TASTE OF Q1 TRIPLE BERRY ACAI BOWL CAULI-RIZO BREAKFAST TACOS CHICKEN PESTO HASH Organic SAMBAZON® Açaí topped with fresh strawberries, blackberries, blueberries and our housemade granola with almonds. Served with our whole grain artisan toast topped with almond butter and Maldon sea salt Chorizo-spiced cauliflower, scrambled cage-free eggs, Cheddar and Monterey Jack, and freshly seasoned potatoes on three wheat- corn tortillas. Topped with fresh avocado, lime crema, house-pickled red onions and cilantro. Served with seasoned black beans. (vegetarian) Two cage-free eggs basted in basil pesto, served over fresh, seasoned potatoes with grape tomatoes, sliced seasoned chicken breast and housemade pico de gallo. Topped with herbed Goat cheese and fresh herbs. Jump Start Seasonal Menu | Jan. 2 – March 12 TANGERINE DREAM Tangerine, pineapple, organic ginger and cane sugar, topped with vanilla coconut milk.
7 A TASTE OF Q1 & Q2 TACOS AL PASTOR HASH CRAB & AVOCADO TOAST BANANAS FOSTER FRENCH TOAST Crispy pork al pastor, fresh pineapple and seasoned potatoes topped with two cage-free eggs cooked any style, fresh avocado, house-pickled red onions, Cotija cheese, cilantro and lime crema. Served with a side of warm tortillas. Wild-caught lump crab and fresh smashed avocado on top of our whole grain artisan toast with house-pickled red onions, EVOO, fresh herbs and Maldon sea salt. Served with two basted cage-free eggs. Thick-cut, custard-dipped challah bread griddled and topped with freshly sliced bananas, pecans and caramel sauce and lightly dusted with powdered cinnamon sugar. Spring Seasonal Menu | March 20 – May 28 TROPICAL SUNRISE Mango, pineapple, strawberry and lime.
8 Q1 2023 HIGHLIGHTS Highlights for Q1 2023 compared to Q1 2022*: • Total revenues increased 22.1% to $211.4 million in Q1 2023 from $173.1 million in Q1 2022 • System-wide sales increased 23.6% to $264.7 million in Q1 2023 from $214.1 million in Q1 2022 • Same-restaurant sales growth of 12.9% (42.0% relative to the first quarter of 2019**) • Same-restaurant traffic growth of 5.1% (11.7% relative to the first quarter of 2019**) • Income from operations margin increased to 7.4% during Q1 2023 from 4.5% in Q1 2022 • Restaurant level operating profit margin** increased to 21.2% in Q1 2023 from 19.6% in Q1 2022 • Net income increased to $9.4 million, or $0.15 per diluted share, in Q1 2023 from $4.6 million, or $0.08 per diluted share, in Q1 2022 • Adjusted EBITDA** increased to $27.4 million in Q1 2023 from $19.4 million in Q1 2022 • Opened 10 system-wide restaurants in 7 states resulting in a total of 484 system-wide restaurants (370 company-owned and 114 franchise-owned) across 29 states ___________________________ *Thirteen weeks ended March 27, 2022 ** Comparison to the thirteen weeks ended March 31, 2019 (“first quarter of 2019”) is presented for enhanced comparability due to the economic impact of COVID-19 *** See “Non-GAAP Financial Measures”
Outlook for Fiscal Year 2023: The Company raises certain of its fiscal year 2023 guidance: • Total revenue growth in the range of 16.0% to 20.0%(1) • Adjusted EBITDA* in the range of $80.0 million to $85.0 million(1) • Updated blended tax rate in the range of 33.0% to 36.0% The Company confirms certain of its previous fiscal year 2023 guidance: • Same-restaurant sales growth in the range of 6.0% to 8.0% with positive same-restaurant traffic growth • 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(2) ___________________ (1) Includes approximately 1.0% in total revenue growth and approximately $1.0 million in Adjusted EBITDA associated with May 2023 franchise acquisition (2) Does not include the capital outlays associated with the acquisition of franchise-owned restaurants 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. 9 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.
10 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 2023 and 2022: ___________________________ (1) Percentages are calculated as a percentage of restaurant sales. (in thousands) Revenues Restaurant sales $207,968 98.4% $170,669 98.6% $719,181 98.5% $592,343 98.5% $337,433 98.6% Franchise revenues 3,438 1.6% 2,443 1.4% 10,981 1.5% 8,850 1.5% 4,955 1.4% Total revenues 211,406 100.0% 173,112 100.0% 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 46,627 22.4% 39,403 23.1% 172,561 24.0% 134,201 22.7% 76,975 22.8% Labor and other related expenses 68,573 33.0% 55,142 32.3% 238,257 33.1% 189,167 31.9% 120,380 35.7% Other restaurant operating expenses 31,696 15.2% 27,317 16.0% 114,476 15.9% 94,847 16.0% 61,821 18.3% Occupancy expenses 15,934 7.7% 14,383 8.4% 59,919 8.3% 55,433 9.4% 49,450 14.7% Pre-opening expenses 1,036 0.5% 985 0.6% 5,414 0.8% 3,310 0.6% 3,880 1.1% General and administrative expenses 22,705 10.7% 19,563 11.3% 84,959 11.6% 70,388 11.7% 46,322 13.5% Depreciation and amortization 9,117 4.3% 8,223 4.8% 34,230 4.7% 32,379 5.4% 30,725 9.0% Impairments and loss on disposal of assets 134 0.1% 79 0.0% 920 0.1% 381 0.1% 315 0.1% Transaction expenses (income), net 253 0.1% 257 0.1% 2,513 0.3% (1,156) (0.2%) (258) (0.1%) Total operating costs and expenses 196,075 92.7% 165,352 95.5% 713,249 97.7% 578,950 96.3% 389,610 113.8% Income (Loss) from operations (1) 15,331 7.4% 7,760 4.5% 16,913 2.4% 22,243 3.8% (47,222) (13.8%) Interest expense (1,907) (0.9%) (1,006) (0.6%) (5,232) (0.7%) (20,099) (3.3%) (22,815) (6.7%) Other income (expense), net 494 0.2% 163 0.1% 910 0.1% (1,774) (0.3%) 483 0.1% Income (Loss) before income taxes 13,918 6.6% 6,917 4.0% 12,591 1.7% 370 0.1% (69,554) (20.3%) Income tax (expense) benefit (4,558) (2.2%) (2,277) (1.3%) (5,684) (0.8%) (2,477) (0.4%) 19,873 5.8% Net income (loss) and total comprehensive income (loss) $ 9,360 4.4% 4,640 2.7% $6,907 0.90% ($2,107) (0.4%) ($49,681) (14.5%) 2020 FISCAL YEAR 2022 2021March 26, 2023 THIRTEEN WEEKS ENDED March 27, 2022
11 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. March 26, 2023 March 27, 2022 2022 2021 2020 System-wide sales (in thousands) $264,719 $214,121 $914,816 $750,674 $426,303 System-wide restaurants 484 441 474 435 409 Company-owned 370 346 366 341 321 Franchise-owned 114 95 108 94 88 Same-restaurant sales growth 12.9% 27.2% 14.5% 63.0% (29.0%) Same-restaurant traffic growth 5.2% 21.9% 7.7% 52.6% (33.9%) Average Unit Volume (in thousands) (1) - - $2,032 $1,786 $1,119 Income (Loss) from operations (in thousands) $15,331 $7,760 $16,913 $22,243 ($47,222) Income (Loss) from operations margin 7.4% 4.5% 2.4% 3.8% (14.0%) Restaurant level operating profit (in thousands) (2) $44,102 $33,439 $128,936 $115,404 $28,236 Restaurant level operating profit margin (2) 21.2% 19.6% 17.9% 19.5% 8.4% Net (loss) income (in thousands) $9,360 $4,640 $6,907 ($2,107) ($49,681) Net (loss) income margin 4.4% 2.7% 0.9% (0.4%) (14.5%) Adjusted EBITDA (in thousands) (3) $27,413 $19,364 $69,278 $66,301 ($5,744) Adjusted EBITDA margin (3) 13.0% 11.2% 9.5% 11.0% (1.7%) THIRTEEN WEEKS ENDED FISCAL YEAR
APPENDIX
® 14 (1) Representa tive 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 Opera ting Profit (excluding gift ca rd breakage and deferred rent expense (income) in the third year of opera tion (months 25-36 of opera tion) for company-owned restaurants divided by their cash build-out expenses, net of landlord incentives. (3) Represents fisca l 2022 annua lized average sa les of a ll company-owned restaurants opened through the respective cohort yea r. (4) Represents fisca l 2022 annua lized average sa les of a ll company-owned restaurants opened through fisca l 2019. ATTRACTIVENEWUNITECONOMICSNA SIZETHATWORKSEVERYWHERE YEAR3 SALES YEAR3 RESTAURANT-LEVEL OPERATING PROFIT YEAR3 CASH-ON-CASHRETURNS(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&2022NEW RESTAURANT OPENINGS (NROs) OUTPERFORMINGTHE SYSTEMANDOUREXPECTATIONS $ 2 .0 $ 2 .1 $ 2 .2 $ 2 .2 2022 Restaurant Cohort Performance(3) ($ millions) $2.5M (1) (1) 35%+(1)
14 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** 2023 Q1 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Same-Restaurant Sales Growth 12.9% 27.2% 13.4% 12.0% 7.7% 14.5% 14.1% 403.5% 46.2% 36.7% 63.0% Same-Restaurant Traffic Growth 5.2% 21.9% 8.1% 3.7% (0.6%) 7.7% 2.2% 360.9% 40.1% 31.9% 52.6% Comparable Restaurant Base 328 305 304 303 301 301 270 270 270 269 269 2022 2021 2023 Q1 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Other restaurant operating expenses $ 654 $ 648 $ 563 $ 813 $ 1,301 $ 3,325 $ 724 $ 649 $ 280 $ 402 $ 2,055 Occupancy expenses 382 337 531 677 544 $ 2,089 440 250 230 335 1,255 Total Pre-opening expenses $ 1,036 $ 985 $ 1,094 $ 1,490 $ 1,845 $ 5,414 $ 1,164 $ 899 $ 510 $ 737 $ 3,310 2022 2021
15 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) March 26, 2023 March 27, 2022 2020 Net income (loss) $9,360 $4,640 $6,907 ($2,107) ($49,681) Depreciation and amortization 9,117 8,223 34,230 32,379 30,725 Interest expense 1,907 1,006 5,232 20,099 22,815 Income taxes 4,558 2,277 5,684 2,477 (19,873) EBITDA 24,942 16,146 52,053 52,848 (16,014) Strategic transition costs (1) 305 450 2,318 2,402 4,247 Stock-based compensation (2) 1,497 2,294 10,374 8,596 750 Delaware Voluntary Disclosure Agreement Program (3) 367 - 149 - - Transaction expenses (income), net (4) 253 257 2,513 (1,156) (258) Costs in connection with natural disasters, net of insurance recoveries (5) (141) - 115 - - Impairments and loss on disposal of assets (6) 134 79 920 381 315 Recruiting and relocation costs (7) 30 76 681 351 228 Severance costs (8) 26 62 155 265 239 Loss on extinguishment of debt - - - 2,403 - COVID-19 - related charges (9) - - - 211 4,749 Adjusted EBITDA $27,413 $19,364 $69,278 $66,301 ($5,744) Total revenues $211,406 $173,112 $730,162 $601,193 $342,388 Net loss (income) margin 4.4% 2.7% 0.9% (0.4)% (14.5)% Adjusted EBITDA Margin 13.0% 11.2% 9.5% 11.0% (1.7)% Additional information Deferred rent expense (income) (10) $584 $580 $2,418 ($2,011) $10,087 2022 2021 FISCAL YEARTHIRTEEN WEEKS ENDED
16 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) March 26, 2023 March 27, 2022 2022 2021 2020 Income (Loss) from operations $15,331 $7,760 $16,913 $22,243 ($47,222) Less: Franchise revenues (3,438) (2,443) (10,981) (8,850) (4,955) Add: General and administrative expenses 22,705 19,563 84,959 70,388 46,322 Depreciation and amortization 9,117 8,223 34,230 32,379 30,725 Transaction expenses (income), net (1) 253 257 2,513 (1,156) (258) Impairments and loss on disposal of assets (2) 134 79 920 381 315 Costs in connection with natural disasters (3) - - 382 - - COVID-19 related charges (4) - - - 19 3,309 Restaurant level operating profit $44,102 $33,439 $128,936 $115,404 $28,236 Restaurant sales $207,968 $170,669 $719,181 $592,343 $337,433 Income (Loss) from operations margin 7.4% 4.5% 2.4% 3.8% (14.0%) Restaurant level operating profit margin 21.2% 19.6% 17.9% 19.5% 8.4% Additional information Deferred rent expense (income) (5) $534 $530 $2,219 ($2,075) $10,029 FISCAL YEARTHIRTEEN WEEKS ENDED
17 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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