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What changed in First Watch Restaurant Group, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of First Watch Restaurant Group, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+287 added−296 removedSource: 10-K (2025-03-11) vs 10-K (2024-03-05)

Top changes in First Watch Restaurant Group, Inc.'s 2024 10-K

287 paragraphs added · 296 removed · 235 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn 2023 First Watch was the only restaurant brand recognized. • Recognized with ADP’s Culture at Work Award (2022) • Ranked # 1 in a five-year longitudinal study of employee surveys on Glassdoor published by William Blair for work/life balance and we were in the top 10 in overall employee satisfaction, among casual dining concepts (2022) 4 Table of Contents We also extend our You First culture by giving back to important organizations and causes that are meaningful to our people.
Biggest changeAs a result, we are proud of the many people-focused awards and accolades we have received over the past few decades, most recently including the following: • Ranked the #1 Most Loved Workplace® in 2024 by Newsweek and the Best Practice Institute • Recognized with ADP’s Culture at Work Award (2022) • Named the top restaurant brand in Yelp’s inaugural list of the top 50 most-loved brands in the U.S (2023) • Ranked # 1 in a five-year study of employee surveys on Glassdoor published by William Blair for work/life balance and we were in the top 10 in overall employee satisfaction, among casual dining concepts (2022) 4 Table of Contents We also extend our You First culture by giving back to important organizations and causes that are meaningful to our people.
Our growth strategy targets an accelerating pace of new system-wide restaurant development with a long-term goal of an annual percentage growth in the low double digits. In selecting new locations, we evaluate specific market characteristics, demographics, traffic patterns, co-tenants and growth potential.
Our growth strategy targets an accelerating pace of new system-wide restaurant development with a long-term goal of annual percentage growth in the low double digits. In selecting new locations, we evaluate specific market characteristics, demographics, traffic patterns, co-tenants and growth potential.
As we have finalized the initial stage of adding alcohol to the majority of our system, our alcohol platform offers the opportunity to innovate alongside our constantly evolving culinary platforms and seasonal menus. • Increasing Our Brand Awareness. For 40 years, our awareness has grown primarily through word-of-mouth as our service, menu and environment created loyal fans.
As we have finalized the initial stage of adding alcohol to the majority of our system, our alcohol platform offers the opportunity to innovate alongside our constantly evolving culinary platforms and seasonal menus. • Increasing Our Brand Awareness. For over 40 years, our awareness has grown primarily through word-of-mouth as our service, menu and environment created loyal fans.
None of our employees are part of a collective bargaining agreement and based upon independent surveys and our internal evaluations, we believe our “You First” organizational culture continues to foster overall favorable relations with our employees. Each restaurant operates with a staff of approximately 20 to 30 team members led by general manager(s).
None of our employees are part of a collective bargaining agreement and based upon independent surveys and our internal evaluations, we believe our “You First” organizational culture continues to foster overall favorable relations with our employees. Each restaurant operates with a staff of approximately 30 team members led by general manager(s).
See Note 21, Subsequent Events , in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Form 10-K for additional information. We believe the Company’s operation of the restaurants acquired from our franchisees as well as development in the reacquired territory provides substantial opportunity to realize new Company value.
See Note 22, Subsequent Events , in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Form 10-K for additional information. We believe the Company’s operation of the restaurants acquired from our franchisees as well as development in the reacquired territory provides substantial opportunity to realize new Company value.
This program in turn empowers these women leaders to reinvest in their communities. • Pediatric Cancer Research: Through each sale of a First Watch kid’s meal, we donate a portion of proceeds to the V Foundation in order to support and advance pediatric cancer research. To date, we have donated $1.0 million towards these important efforts.
This program in turn empowers these women leaders to reinvest in their communities. • Pediatric Cancer Research: Through each sale of a First Watch kid’s meal, we donate a portion of proceeds to the V Foundation in order to support and advance pediatric cancer research. To date, we have donated $1.4 million towards these important efforts.
Our corporate website address is www.firstwatch.com. We completed our initial public offering (“IPO”) in October 2021 and our common stock is listed on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “FWRG.” Additional Information Our consumer website is located at www.firstwatch.com, and our investor relations website is located at https://investors.firstwatch.com.
We completed our initial public offering (“IPO”) in October 2021 and our common stock is listed on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “FWRG.” Additional Information Our consumer website is located at www.firstwatch.com, and our investor relations website is located at https://investors.firstwatch.com.
In addition, successful new platform introductions such as our Fresh Juice program, our Shareables, our alcohol program and our premium iced coffees add incremental revenue opportunities and capitalize on growing trends. ◦ Offer Alcohol as Only First Watch Can .
In addition, successful new platform introductions such as our Fresh Juice program, our Shareables, our alcohol program and our premium iced coffees add incremental sales opportunities and capitalize on growing trends. ◦ Offer Alcohol as Only First Watch Can .
In 2022 we implemented kitchen display screens in all company-owned restaurants to simplify the employee experience and improve back-of house efficiency. Along with many other operational initiatives, processes and procedures, we continue to see opportunity to use technology to elevate the customer experience and simplify tasks for our teams.
In 2022 we implemented kitchen display screens in all company-owned 5 Table of Contents restaurants to simplify the employee experience and improve back-of house efficiency. Along with many other operational initiatives, processes and procedures, we continue to see opportunity to use technology to elevate the customer experience and simplify tasks for our teams.
Our development approach has proven that First Watch has tremendous portability across markets, with new restaurants boasting consistent and a strong average unit volume across all geographies. First Watch’s top 10% of restaurants in terms of sales, span 10 states and 20 designated market areas.
Our development approach has proven that First Watch has tremendous portability across markets, with new restaurants boasting consistent and a strong average unit volume across all geographies. First Watch’s top 10% of restaurants in terms of sales, span 14 states and 22 designated market areas.
(“First Watch Academy of Restaurant Management”), to which we invite managers-in-training for a week-long brand experience where they learn everything from our history and cultural pillars to leadership and management tools. We have enhanced this training program to also focus on building a more diverse and inclusive team. In addition, managers-in-training also complete a comprehensive 10-week C.A.F.E.
(“First Watch Academy of Restaurant Management”), to which we invite managers-in-training for a week-long immersive brand experience where we teach everything from our history and cultural pillars to leadership and management tools. We have enhanced this training program to also focus on building a more diverse and inclusive team. In addition, managers-in-training also complete a comprehensive 10-week C.A.F.E.
Our executives and key employees average more than 15 years of industry experience and our directors of operations have an average tenure at First Watch of approximately ten years.
Our executives and key employees average more than 15 years of industry experience and our directors of operations have an average tenure at First Watch of approximately 10 years.
Our alcohol platform is unique and reflects our culinary innovation through combinations of fresh juices and ingredients with a variety of liquors. We have continued to expand on this strategic initiative and acquire the necessary licenses. As of December 31, 2023, our alcohol menu was offered in about 90% of our system-wide restaurants.
Our alcohol platform is unique and reflects our culinary innovation through combinations of fresh juices and ingredients with a variety of liquors. We have continued to expand on this strategic initiative and acquire the necessary licenses. As of December 29, 2024, our alcohol menu was offered in about 90% of our system-wide restaurants.
We have built our brand on our commitment to operational excellence, our culinary mission centered around a fresh, continuously evolving menu, and our “You First” culture. Our focus on one daytime shift enables us to optimize restaurant operations while generating an average unit volume of $2.3 million per restaurant in 2023 in only 7.5 hours per day.
We have built our brand on our commitment to operational excellence, our culinary mission centered around a fresh, continuously evolving menu, and our “You First” culture. Our focus on one daytime shift enables us to optimize restaurant operations while generating an average unit volume of $2.2 million p er restaurant in 2024 in only 7.5 hours per day.
Since implementation of these systems, we have gathered customer information for over 14.6 million unique customer profiles, 6.1 million of whom have opted for direct communication from First Watch. The advances in these foundational systems have allowed us to learn more about our customers and the behaviors that ultimately drive lifetime customer value.
Since implementation of these systems, we have gathered customer information for over 17.9 million unique customer profiles, 7.7 million of whom have opted for direct communication from First Watch. The advances in these foundational systems have allowed us to learn more about our customers and the behaviors that ultimately drive lifetime customer value.
We continue to build upon the success of the program with training on the program for new managers and an ongoing #beabetterhuman series on Facebook, Instagram and Glassdoor highlighting diverse employees within the restaurants and their unique and inspiring stories. The R.I.S.E.
We continue to build upon the success of the program with training for new managers and an ongoing #beabetterhuman series on Facebook, Instagram and Glassdoor highlighting employees within the restaurants and their unique and inspiring stories.
In 2021, First Watch was recognized by FSR Magazine as the fastest-growing full-service restaurant company in the United States based on unit growth and in 2023, we continued to realize that potential by opening 51 new company-owned and franchise-owned restaurants, which we collectively refer to as “system-wide” restaurants, across 19 states.
In 2021, First Watch was recognized by FSR Magazine as the fastest-growing full-service restaurant company in the United States based on unit growth and in 2024, we continued to realize that potential by openin g 50 new company-owned and franchise-owned restaurants, which we collectively refer to as “system-wide” restaurants, across 19 states.
New employee benefits, practices and operational tools have been introduced as a direct result of feedback from each tour, reinforcing the Company’s culture of listening to its employees and taking action on the issues that matter the most to them.
New menu changes, employee benefits, training, operational practices and more efficient tools have been introduced as a direct result of feedback from each annual tour, reinforcing the Company’s culture of listening to its employees and taking action on the issues that matter the most to them.
In 2023, CEO and President, Chris Tomasso, Chief People Officer, Laura Sorensen and Chief Operations Officer, Dan Jones, hosted nineteen separate 90 minute calls with hourly employees across the country for their second annual W.H.Y. Tour – their “We Hear You” listening tour.
In 2024, CEO and President, Chris Tomasso, Chief People Officer, Laura Sorensen and Chief Operations Officer, Dan Jones, hosted twenty-four separate 90 minute calls with hourly employees across the country for their fourth annual W.H.Y. Tour – their “We Hear You” listening tour.
We believe our diverse teams reflect the wide diversity of our customers across the U.S., allowing us to better anticipate market trends and address the needs of our customers. And while our work is ongoing, we’re dedicated to building on our “You First” commitment and unlocking amazing possibilities for each team member and the communities we serve.
We believe the composition of our teams reflect the diversity of our restaurant communities across the country, allowing us to better anticipate market trends and address the needs of our customers. And while our work is ongoing, we’re dedicated to building on our “You First” commitment and unlocking possibilities for each team member and the communities we serve.
This daytime focus also provides us with a competitive advantage allowing us to attract and retain employees who are passionate about hospitality and drawn to our “No Night Shifts Ever” approach, among other attractive benefits. As of December 31, 2023, we had a total of 524 restaurants across 29 states, 425 of which were company-owned and 99 were franchise-owned.
This daytime focus also provides us with a competitive advantage allowing us to attract and retain employees who are passionate about hospitality and drawn to our “No Night Shifts Ever” approach, among other attractive benefits. As of December 29, 2024, we had a to tal of 572 restaurants across 29 states, 489 of which were company-owned and 83 were franchise-owned.
In addition, the program includes a self-assessment and career goal setting workshops. Experienced, Passionate Leadership Team and Deep Bench of Talent Our team is led by passionate executives who have an extensive mix of experience in our brand and with other leading national restaurant concepts and consumer facing businesses. We have a deep bench of talent throughout the organization.
Experienced, Passionate Leadership Team and Deep Bench of Talent Our team is led by passionate executives who have an extensive mix of experience in our brand and with other leading national restaurant concepts and consumer facing businesses. We have a deep bench of talent throughout the organization.
We believe in fostering an environment where all employees feel valued and heard, and we provide employees with various channels to provide regular feedback, including surveys, meetings and direct communication.
Listening to Our Employees We believe in fostering an environment where all employees feel valued and heard, and we furnish employees with various communication channels to provide regular feedback, including surveys, meetings, and, most importantly, direct communication with Company leadership.
More directly, we do not believe there is a comparable offering within our segment that operates at the scale of First Watch 9 Table of Contents and we view our primary competition as a network of independent restaurants that also serve breakfast and lunch in neighborhoods across the United States.
More directly, we do not believe there is a comparable offering within our segment that operates at the scale of First Watch and we view our primary competition as a network of independent restaurants that also serve breakfast and lunch in neighborhoods across the United States. Seasonality Our quarterly results of operations are subject to seasonal fluctuations.
Growth Strategies New Restaurant Openings As supported by a third-party study, we believe First Watch has the potential for more than 2,200 restaurants in the continental United States.
Growth Strategies New Restaurant Openings We believe First Watch has the potential for more than 2,200 restaurants in the continental United States.
At First Watch, we are driven by a pursuit of freshness as is highlighted by our culinary and sourcing philosophy to “Follow the Sun.” With this philosophy our menu, which is inspired by the seasons, changes five times per year.
We do not use microwave ovens, heat lamps or deep fryers in our kitchens. At First Watch, we are driven by a pursuit of freshness as is highlighted by our culinary and sourcing philosophy to “Follow the Sun.” With this philosophy, our menu, which is inspired by the seasons, changes five times per year.
We “Follow the Sun” Every morning, we arrive at the crack of dawn to slice and juice fresh fruits and vegetables, bake muffins, brew our fresh coffee and whip up our French Toast batter from scratch. Every menu item is made-to-order and prepared with care. We do not use microwave ovens, heat lamps or deep fryers in our kitchens.
We “Follow the Sun” Every morning, thousands of our employees arrive at the crack of dawn to slice and juice fresh fruits and vegetables, bake muffins, brew our fresh coffee and whip up our French Toast batter from scratch. Every menu item is made-to-order and prepared with care.
To date we have implemented technologies that have enhanced accessibility by adding the functionality for direct ordering of takeout as well as third party delivery integrations. In 2023 and 2022, our total off-premises sales accounted for 18.3% and 20.6%, respectively, of our total restaurant sales.
To date we have implemented technologies that have enhanced accessibility by adding the functionality for direct ordering of takeout as well as third party delivery integrations. In 2024 and 2023, our total off-premises sales accounted for 17.5% and 18.3%, respectively, of our total restaurant sales. ◦ In-restaurant dining sales continue to strengthen, indicating continued customer demand for experiences and connection.
At December 31, 2023, we had 11 franchisees operating 99 restaurants with 18 total new restaurant development obligations. At December 31, 2023, 47 franchise-owned restaurants are subject to our option to purchase.
At December 29, 2024, we had 11 franchisees operating 83 restaurants with 29 total new restaurant development obligations. At December 29, 2024, 26 franchise-owned restaurants are subject to our option to purchase.
At First Watch, we are committed to making days brighter by creating a culture where our teams and customers feel valued and celebrated for who they are and the differences they bring to the table. We also embrace the fact that diversity goes hand in hand with inclusion.
Including Our Employees At First Watch, we are committed to making days brighter by creating a culture where our teams and our customers feel valued and celebrated for who they are and the differences they bring to the table.
We focus on increasing our engagement with social media platforms in order to generate brand awareness and also to gather information we can then apply to future marketing efforts. Franchise Program As of December 31, 2023, we had 11 franchisees that operated 99 restaurants and our existing franchisees had 18 total new restaurant development obligations.
We focus on increasing our engagement with social media platforms in order to generate brand awareness and also to gather information we can then apply to future marketing efforts. 7 Table of Contents Franchise Program As of December 29, 2024, we ha d 11 franchisees that operat ed 83 rest aurants and our existing franchisees had 29 total new restaurant development obligations.
We constantly evolve our on-trend menu which highlights our commitment to quality and freshness and is also operationally efficient. When it comes to sourcing, we are guided by a core philosophy: “Follow the Sun.” Our five highly anticipated seasonal menus drive customer frequency.
We constantly evolve our on-trend menu which highlights quality and freshness and is operationally efficient. When it comes to sourcing our produce, we are guided by a core philosophy: “Follow the Sun.” Our five highly anticipated seasonal menus drive customer frequency. This means that we welcome each season with exceptional ingredients harvested when they are most flavorful and fresh.
These systems are designed to enable functionality, improve operating efficiencies, provide us with timely access to financial and marketing data and reduce restaurant and corporate administrative time and expense.
These systems are designed to enable functionality, improve operating efficiencies, provide us with timely access to financial and marketing data and reduce restaurant and corporate administrative time and expense. In addition, our in-restaurant systems are used to process customer orders, credit card payments, employee time-keeping and scheduling.
In addition, as part of our overall food quality assurance, we have a process in place to review vendors’ food safety practices to ensure they meet or exceed industry standards. Restaurant Staff As of December 31, 2023, we had approximately 14,000 employees.
Restaurant management incentive plans provide strong motivation to meet and exceed standards. In addition, as part of our overall food quality assurance, we have a process in place to review vendors’ food safety practices to ensure they meet or exceed industry standards. 6 Table of Contents Restaurant Staff As of December 29, 2024, we had more than 15,000 restaurant employees.
This culture was also a key factor in the Company’s achievement of top 50 status in Newsweek’s 2023 Top 100 Most Loved Workplaces, a designation that was a result of an assessment of First Watch’s people practices along with an independent survey of approximately 1,000 of our employees.
This is the third consecutive year in which the Company has been included in Newsweek’s Top 100 Most Loved Workplaces®, a designation that was a result of an assessment of First Watch’s people practices along with an independent survey of approximately 1,000 of our employees.
We believe that putting our employees first, in turn, leads them to put customers first. We believe the Company’s culture plays a significant role in higher retention of all employees.
We believe that putting our employees first, in turn, leads them to put customers first and we are confident that our people-centric culture plays a significant role in retaining our employees.
The purpose of the in-depth sessions was to learn more about the issues most meaningful to our hourly workforce. As a result of this tour, the Company was able to take swift action on the most meaningful issues.
The purpose of these in-depth sessions is to learn more about the issues most meaningful to our hourly workforce. As a result of these tours, the Company has been able to take swift action on the issues that surfaced, resulting in positive changes for both employees and customers.
In addition, our in-restaurant systems are used to process customer orders, credit card payments, employee time-keeping and scheduling. 7 Table of Contents Marketing and Advertising We use a variety of marketing channels, including affiliate partnerships, social media interactions, digital marketing, direct mailers, public relations initiatives and local community sponsorships, email communications, promotions and partnerships.
Marketing and Advertising We use a variety of marketing channels, including affiliate partnerships, social media interactions, digital marketing, direct mailers, public relations initiatives and local community sponsorships, email communications, promotions and partnerships.
With our core belief to “Just Be Kind,” we endeavor to provide our people with the opportunity to contribute at the highest level and we empower diverse voices to ensure everyone can belong, thrive and “follow the sun” to reach their full potential.
With our mission of “Making days brighter at Every opportunity”, we endeavor to provide all employees with the opportunity to contribute at the highest level to ensure everyone can belong, thrive, and “Follow the Sun” to reach their full potential.
Food preparation and cleaning procedures are defined, monitored and maintained by our quality assurance department. We contract with third-party inspectors to regularly monitor restaurant performance through unannounced non-biased food safety assessments with program standards that meet or exceed those of local health departments.
We contract with third-party inspectors to regularly monitor restaurant performance through unannounced non-biased food safety assessments with program standards that meet or exceed those of local health departments. These inspections are intended to achieve active managerial control in our restaurants in an effort to reduce risk factors and maintain a strong food safety culture.
First Watch works with an outside consultant to complete an annual assessment to both build and benchmark our policies, practices and representation.
First Watch works with an outside consultant to complete an annual assessment to both build and benchmark our policies, practices and representation. In 2020, we developed and launched an annual campaign, branded #beabetterhuman, which has taken our people-focused approach to a new level.
We see this as a long-term opportunity to drive increased visit frequency as we have the ability to build new customer technology features that elevate the customer experience. 6 Table of Contents Operations Quality and Food Safety First Watch emphasizes high food quality and a commitment to food safety in each restaurant through the careful training and supervision of personnel and by following rigorous quality and cleanliness standards.
We see this as a long-term opportunity to drive increased visit frequency as we have the ability to build new customer technology features that elevate the customer experience.
Corporate Information First Watch Restaurant Group, Inc. was incorporated in Delaware on August 10, 2017, under the name AI Fresh Super Holdco, Inc. We changed our name on December 20, 2019 to First Watch Restaurant Group, Inc. Our principal executive offices are located at 8725 Pendery Place, Suite 201, Bradenton, FL 34201 and our telephone number is (941) 907-9800.
See Item 1A.“ Risk Factors ” for discussion of risks related to seasonal and periodic fluctuations. 10 Table of Contents Corporate Information First Watch Restaurant Group, Inc. was incorporated in Delaware on August 10, 2017, under the name AI Fresh Super Holdco, Inc. We changed our name on December 20, 2019 to First Watch Restaurant Group, Inc.
Seasonality Our quarterly results of operations are subject to seasonal fluctuations. Additionally, the timing of holidays, weather conditions and the number of new restaurant openings may affect sales volumes seasonally. See Item 1A.“ Risk Factors ” for discussion of risks related to seasonal and periodic fluctuations.
Additionally, the timing of holidays, weather conditions and the number of new restaurant openings may affect sales volumes seasonally.
The general managers interview each applicant and identify motivated employees who are friendly, service oriented, eager to prepare high-quality food and a fit for our “You First” culture. Training Our training programs share our legacy and culture of operating excellence. We have established a training facility at our corporate headquarters named the F.A.R.M.
During a restaurant’s 7:00 a.m. to 2:30 p.m. shift, our staff focus on gracious service, food preparation, order accuracy and “instagrammable” plating. General managers interview each applicant and identify motivated employees who are friendly, service oriented, eager to prepare high-quality food and a fit for our “You First” culture.
During a restaurant’s 7:00 a.m. to 2:30 p.m. shift, our staff focus on gracious service, food preparation, order accuracy and “instagrammable” plating. We employ a narrow span of control, which we believe contributes to the consistency of our restaurants’ performance across our system.
We employ a narrow span of supervisory control, which we believe contributes to the consistency of our restaurants’ performance across our system. Training Our training programs share our legacy and culture of operating excellence. We have a training facility at our corporate headquarters named the F.A.R.M.
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As a result, we are proud of the many people-focused awards and accolades we have received over the past few decades, most recently including the following: • Named the top restaurant brand in Yelp’s inaugural list of the top 50 most-loved brands in the U.S (2023) • Named a Top 100 Most Loved Workplace® by Newsweek and the Best Practice Institute (2022 and 2023).
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The average annual sales volumes of our new restaurants outpace the system average and we expect to sustain the performance through quality real estate selection and the introduction of features and operational practices designed to efficiently serve more demand. Acquisitions of Franchise-Owned Restaurants Our long-term growth strategy includes the acquisitions of First Watch restaurants operated by certain of our franchisees.
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Our new restaurant performance continues to accelerate and we are confident in our ability to continue this growth by elevating both the quality of real estate as well as the introduction of new design features that allow our teams to serve the significant demand.
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To that end, during 2024, we acquired 22 o perating restaurants along with development and territory rights in two separate transactions. We have also signed agreements to acquire a total of 19 additional restaurants from franchisees.
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Acquisitions of Franchise-Owned Restaurants Our long-term growth strategy includes the acquisitions of First Watch restaurants operated by certain of our franchisees. To that end, during 2023, we acquired 23 operating restaurants along with development and territory rights from four franchisees. In addition, shortly following the end of 2023, we announced our agreement to acquire 21 restaurants from our largest franchisee.
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Operations Quality and Food Safety First Watch emphasizes high food quality and a commitment to food safety in each restaurant through the careful training and supervision of personnel and by following rigorous quality and cleanliness standards. Food preparation and cleaning procedures are defined, monitored and maintained by our quality assurance department.
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While these sales channels have corrected from anomalous highs during 2020 and 2021 due to the COVID-19 pandemic, this still reflects a significant portion of our business and has remained elevated relative to 2019 when off-premises sales only reflected 6.7% of our total restaurant sales. 5 Table of Contents ◦ In-restaurant dining sales continue to strengthen indicating continued customer demand for experiences and connection.
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This culture was also a key factor in the Company’s achievement of being recognized as 2024’s #1 Most Loved Workplace in the United States by Newsweek and the Best Practice Institute.
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This means that we welcome each season into our menu with exceptional ingredients harvested when they are most flavorful and fresh.
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Taking Care of Our Employees At First Watch, our people are our purpose, which is why we continue to invest in benefits and programs.
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These inspections are intended to achieve active managerial control in our restaurants in an effort to reduce risk factors and maintain a strong food safety culture. Restaurant management incentive plans provide strong motivation to meet and exceed standards.
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We operate on a “No Nights Ever” model and work to get our restaurant employees “out the door by four”– which allows our teams to enjoy evenings with their family and friends, and an improved quality of life. This one-shift model provides our employees with a work-life balance that is simply out of reach for most restaurant industry employees.
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This commitment to diversity, inclusion, and fair and equal representation of underrepresented or minority groups is demonstrated throughout all levels of the organization (based on self-reported information as of February 19, 2023): • 50% of the non-employee members of our Board of Directors are women, and our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are each chaired by a woman; • 25% of our non-employee directors are from an underrepresented group as it relates to race/ethnicity; • 33% of the members of our executive leadership team are women; • 53% of our workforce are women; and • 57% of our workforce belong to an underrepresented or minority group as it relates to race/ethnicity. 8 Table of Contents In 2020, we developed and launched an annual campaign, branded #beabetterhuman, which has taken our people-focused approach to a new level.
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In addition to this flexibility, we support our employees with healthcare benefits, a 401(k) plan, tuition reimbursement, family leave and other assistance, including but not limited to: • Backup childcare and eldercare available for all employees, at all levels • Our “You First” Emergency Assistance Fund • A text-based telemedicine platform with no out-of-pocket expenses, for all employees regardless of insurance plan • Complimentary access to the Calm App (for meditation, relaxation and sleep) for all employees and five of their loved ones • No-cost high school diploma program • Discounts on thousands of items from sporting tickets and computers to cars and daycare • Pet insurance 8 Table of Contents In 2020, we created the “You First” Emergency Assistance Fund, which provides financial support to employees and their immediate families during times of significant hardship following the impacts of qualifying disasters.
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We turned participation in the #beabetterhuman campaign into an opportunity for employees to give back to the community. The #beabetterhuman initiative included a six-part live, interactive web series tackling sensitive topics such as unconscious bias, privilege and mental health. The #beabetterhuman campaign was designed to educate our entire workforce, raise awareness and influence change.
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A portion of each kid’s meal sold by our restaurants benefits this program. Since its inception, this fund has provided employees with over with over $1 million dollars in tax-free hardship grants.
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(Race Inclusion and Support Exchange) Council was created to dialogue with high performing diverse leaders on how to best advance the Company’s diversity efforts. As a result of ideas that the R.I.S.E.
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Most recently the fund was leveraged to assist hundreds of our Southeast-based employees after the hurricanes of 2024 caused flooding and wind damage in Florida, Georgia, North and South Carolina.
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Council surfaced, The Rising 20, a new mentor program was established as an important step in the #beabetterhuman campaign to help accelerate the development and advancement of under-represented groups within First Watch. In this mentoring program, employees are partnered with a senior leader in the organization for a six-month guided mentorship journey targeting personal development and professional growth.
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The #beabetterhuman initiative is comprised of monthly live, interactive in-person and online workshops fostering personal and professional development. The #beabetterhuman campaign was designed to educate and develop our workforce, raise awareness and influence change.
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Our #beabetterhuman campaign also inspired the opportunity for employees to give back to the community through our executive-sponsored and employee-led Kale Krew, which coordinates multiple volunteer opportunities annually. Developing Our Employees Professional development and growth are a way of life at First Watch.
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Since 2022, more than 85% of the 510 employees promoted to general manager at our corporate-owned restaurants were promoted from within. The average tenures for our directors of operations, regional vice presidents and field operations vice presidents are 8 years, 13 years and 19 years, respectively. First Watch takes a 360-degree personal/professional approach to career advancement and development.
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We are constantly iterating and promoting career advancement opportunities for our people.
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Specific programs include: • Our certified Black Hat and Black Apron program encourages leadership development for back-of-house and front-of-house employees through financial and growth incentives. • A certified training general manager and restaurant program provides additional financial and growth opportunities for aspiring leaders, enabling us to promote more employees from within our restaurants and ensure we are delivering a best-in-class training experience to all new hires. • Regional “Come Grow With Us” events provide hourly employees who are interested in leadership the chance to learn about growth and development and get on the fast track to management. • Established in 2018, our First Watch Academy of Restaurant Management immerses new restaurant managers in our You First culture and leverages Company subject matter experts to educate these leaders on a variety of essential topics, including leadership behaviors.
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To date, nearly 1,000 high-potential leaders have attended the week-long sessions that take place throughout the year. We prioritize personal and professional growth because it’s simply the right thing to do and it’s part of our culture. However, it also makes our aggressive growth plans possible.
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With over 100 new restaurants in our real estate development pipeline, we need a robust GM-ready talent bench.
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Our ongoing career growth opportunities, along with our culture and hours, are a key component to our employee value proposition, which fuels our ability to both attract and retain great talent. 9 Table of Contents Retaining Our Employees All of these aspects, and many more, contribute to our award-winning culture and employee retention.
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Our turnover sits well below the industry average and has improved sequentially over the last two years for both managers and hourly team members, enabling us to provide consistent and memorable dining experiences for our customers.
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Our principal executive offices are located at 8725 Pendery Place, Suite 201, Bradenton, FL 34201 and our telephone number is (941) 907-9800. Our corporate website address is www.firstwatch.com.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks include the following: Risks Related to Our Business and Industry • our vulnerability to changes in economic conditions and other factors, many of which are largely outside of our control • our inability to open new restaurants in new and existing markets or to operate them as profitably as we have experienced in the past • our inability to effectively manage our growth • opening new restaurants may adversely impact sales at our and our franchisees’ existing restaurants • the number of visitors to areas where our restaurants are located may decline • our inability to generate same-restaurant sales growth • our marketing programs and limited-time menu offerings may fail to generate profits • shortages or disruptions in the supply or delivery of frequently used food items or increases in the cost of our frequently used food items • our inability to compete successfully with other breakfast and lunch restaurants • our vulnerability to food safety and food-borne illness concerns • issues with our existing franchisees, including their financial performance, our lack of control over their operations and conflicting business interests • our reliance on a small number of suppliers for a substantial amount of our food and coffee • geographic concentration • damage to our reputation and negative publicity, even if unwarranted • our inability to effectively manage the accelerated impact of social media Risks Related to Information Technology and Intellectual Property • our failure to adequately protect our network security • compliance with federal and state laws and regulations relating to privacy, data protection, advertising and consumer protection • potential state property law liability with our gift cards • our failure to enforce and maintain our trademarks and other intellectual property • adverse litigation outcomes with respect to our intellectual property rights Risks Related to Employees and the Workforce • our inability to identify qualified individuals for our workforce • our failure to maintain our corporate culture • potential unionization activities • our sustainability activities, including ESG matters Legal and Regulatory Risks • compliance with federal and local environmental, labor, employment, food safety, franchise, zoning and other applicable laws and regulations • the distraction and expense of litigation • risks associated with leasing properties subject to long-term and non-cancelable leases • compliance with the laws and regulations applicable to public companies • volatility in our results of operations caused by fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets • risks related to our sale of alcoholic beverages Risks Related to Accounting and Financial Reporting Matters • impairment in the carrying value of our goodwill or indefinite-lived intangible assets • our inability to effectively manage our internal control over financial reporting 11 Table of Contents Risks Related to Our Indebtedness • our level of indebtedness and our duty to comply with covenants under our Credit Agreement Risks Related to Our Company and Organizational Structure • the interests of Advent may differ from those of our public stockholders • our reliance on our operating subsidiaries • our lack of significant experience managing a public company • risks associated with our status as an emerging growth company and a Delaware corporation Risks Related to Ownership of Our Common Stock • the market price of our common stock could be reduced by future offerings of debt or equity securities • risks associated with our status as a controlled company with highly concentrated ownership of common stock • possible significant fluctuations in our quarterly results of operations that could fall below the expectations of securities analysts and investors • dilutive impact from grants under our equity incentive plans General Risk Factors • the loss of our executive officers or other key employees • lack of access to additional capital to support business growth • changes in accounting principles or estimates • inadequate levels of insurance coverage against claims Risks Related to Our Business and Industry We are vulnerable to changes in economic conditions and consumer preferences that could have a material adverse effect on our business, financial condition and results of operations.
Biggest changeThese risks include the following: Risks Related to Our Business and Industry • our vulnerability to changes in economic conditions and other factors, many of which are largely outside of our control • our inability to open new restaurants in new and existing markets or to operate them as profitably as we have experienced in the past • our inability to effectively manage our growth • opening new restaurants may adversely impact sales at our and our franchisees’ existing restaurants • the number of visitors to areas where our restaurants are located may decline • lower than expected same-restaurant sales growth • unsuccessful marketing programs or limited-time menu offerings 11 Table of Contents • shortages or disruptions in the supply or delivery of frequently used food items or increases in the cost of our frequently used food items • unsuccessful new restaurant openings • our inability to compete successfully with other breakfast and lunch restaurants • our vulnerability to food safety and food-borne illness concerns • issues with our existing franchisees, including their financial performance, our lack of control over their operations and conflicting business interests • our reliance on a small number of suppliers for a substantial amount of our food and coffee • geographic concentration • damage to our reputation and negative publicity, even if unwarranted • our inability to effectively manage the accelerated impact of social media and artificial intelligence Risks Related to Information Technology and Intellectual Property • our failure to adequately protect our network security • compliance with federal and state laws and regulations relating to privacy, data protection, advertising and consumer protection • potential state property law liability with our gift cards • our failure to enforce and maintain our trademarks and other intellectual property • adverse litigation outcomes with respect to our intellectual property rights Risks Related to Employees and the Workforce • our inability to identify qualified individuals for our workforce • our failure to maintain our corporate culture • potential unionization activities • risks associated with our sustainability activities, including ESG matters Legal and Regulatory Risks • compliance with federal and local environmental, labor, employment, food safety, franchise, zoning and other applicable laws and regulations • the distraction and expense of litigation • increased labor and healthcare costs due to changes in laws and regulations • risks associated with leasing properties subject to long-term and non-cancelable leases • compliance with the laws and regulations applicable to public companies • volatility in our results of operations caused by fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets • risks related to our sale of alcoholic beverages Risks Related to Accounting and Financial Reporting Matters • impairment in the carrying value of our goodwill or indefinite-lived intangible assets • risks associated with changes to accounting estimates • our inability to effectively manage our internal control over financial reporting Risks Related to Our Indebtedness • our level of indebtedness and our duty to comply with covenants under our Credit Agreement Risks Related to Our Company and Organizational Structure • the interests of Advent may differ from those of our public stockholders • our reliance on our operating subsidiaries • risks associated with our status as an emerging growth company • risks associated with the anti-takeover provisions of Delaware law, our amended and restated certificate of incorporation and bylaws • risks associated with exclusive forum jurisdiction in the Court of Chancery in the State of Delaware 12 Table of Contents Risks Related to Ownership of Our Common Stock • the market price of our common stock could be reduced by future offerings of debt or equity securities • risks associated with our status as a controlled company with highly concentrated ownership of common stock • our expectation not to pay any dividends on our common stock in the foreseeable future • possible significant fluctuations in our quarterly results of operations that could fall below the expectations of securities analysts and investors • sales of substantial amounts of common stock in the public markets by Advent • dilutive impact from grants under our equity incentive plans General Risk Factors • the loss of our executive officers or other key employees • lack of access to additional capital to support business growth • changes in accounting principles or estimates • inadequate levels of insurance coverage against claims Risks Related to Our Business and Industry We are vulnerable to changes in economic conditions and consumer preferences that could have a material adverse effect on our business, financial condition and results of operations.
To comply with the requirements of being a public company, including the Sarbanes-Oxley Act, we have and will need to continue to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff or outsourcing certain functions to third parties, which could have a material adverse effect on our business, financial condition and results of operations.
To comply with the requirements of being a public company, including the Sarbanes-Oxley Act, we have undertaken and will need to continue to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff or outsourcing certain functions to third parties, which could have a material adverse effect on our business, financial condition and results of operations.
Our ability to operate new restaurants profitably and increase our average unit volume and same-restaurant sales growth will depend on many factors, some of which are beyond our control, including: • consumer awareness and understanding of our brand; • general economic conditions, which can affect restaurant traffic, local labor costs and prices we pay for the food products and other supplies we use; • consumption patterns and food preferences that may differ from region to region; • changes in consumer preferences and discretionary spending; 15 Table of Contents • difficulties obtaining or maintaining adequate relationships with distributors or suppliers in new markets; • increases in prices for commodities; • inefficiency in our labor costs as the staff gains experience; • competition, either from our competitors in the restaurant industry or our own restaurants; • temporary and permanent site characteristics of new restaurants; • changes in government regulation; and • other unanticipated increases in costs, any of which could give rise to delays or cost overruns.
Our ability to operate new restaurants profitably and increase our average unit volume and same-restaurant sales growth will depend on many factors, some of which are beyond our control, including: • consumer awareness and understanding of our brand; • general economic conditions, which can affect restaurant traffic, local labor costs and prices we pay for the food products and other supplies we use; • consumption patterns and food preferences that may differ from region to region; • changes in consumer preferences and discretionary spending; • difficulties obtaining or maintaining adequate relationships with distributors or suppliers in new markets; 16 Table of Contents • increases in prices for commodities; • inefficiency in our labor costs as the staff gains experience; • competition, either from our competitors in the restaurant industry or our own restaurants; • temporary and permanent site characteristics of new restaurants; • changes in government regulation; and • other unanticipated increases in costs, any of which could give rise to delays or cost overruns.
Among other things, these provisions: • provide for a classified Board with staggered three-year terms; 30 Table of Contents • do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates; • delegate the sole power of a majority of the Board to fix the number of directors; • provide the power of our Board to fill any vacancy on our Board, whether such vacancy occurs as a result of an increase in the number of directors or otherwise; • authorize the issuance of “blank check” preferred stock without any need for action by stockholders; • eliminate the ability of stockholders to call special meetings of stockholders; and • establish advance notice requirements for nominations for election to our Board or for proposing matters that can be acted on by stockholders at stockholder meetings.
Among other things, these provisions: • provide for a classified Board with staggered three-year terms; • do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates; • delegate the sole power of a majority of the Board to fix the number of directors; • provide the power of our Board to fill any vacancy on our Board, whether such vacancy occurs as a result of an increase in the number of directors or otherwise; • authorize the issuance of “blank check” preferred stock without any need for action by stockholders; • eliminate the ability of stockholders to call special meetings of stockholders; and 31 Table of Contents • establish advance notice requirements for nominations for election to our Board or for proposing matters that can be acted on by stockholders at stockholder meetings.
If we are unable to successfully upgrade or expand our technological capabilities, we may not be able to take advantage of market opportunities, manage our costs and transactional data effectively, satisfy customer requirements, execute our business plan or respond to competitive pressures. 20 Table of Contents 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, could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to successfully upgrade or expand our technological capabilities, we may not be able to take advantage of market opportunities, manage our costs and transactional data effectively, satisfy customer requirements, execute our business plan or respond to competitive pressures. 21 Table of Contents 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, could have a material adverse effect on our business, financial condition and results of operations.
Our profitability depends in part on our ability to anticipate and react to changes in food and beverage costs, including, among other things, our costs for pork, coffee, eggs, avocados, potatoes, bread, cheese, fresh fruit and produce items.
Our profitability depends in part on our ability to anticipate and react to changes in food and beverage costs, including, among other things, our costs for pork, coffee, eggs, avocados, potatoes, bread, cheese and fresh produce items.
If franchisees do not operate to our expectations, our image and reputation, and the image and reputation of other franchisees, may suffer, which could have a material adverse effect on our business, financial condition and results of operations. 17 Table of Contents If we are unable to maintain good relationships with our franchisees due to conflicts of interest or otherwise, revenues could decrease and we may be unable to expand our presence in certain markets .
If franchisees do not operate to our expectations, our image and reputation, and the image and reputation of other franchisees, may suffer, which could have a material adverse effect on our business, financial condition and results of operations. 18 Table of Contents If we are unable to maintain good relationships with our franchisees due to conflicts of interest or otherwise, revenues could decrease and we may be unable to expand our presence in certain markets .
This could have a material adverse effect on our business, financial condition and results of operations. 14 Table of Contents Our marketing programs and our limited time new offerings may not be successful and could fail to meet expectations, and our new menu items, advertising campaigns and restaurant designs and remodels may not generate increased sales or profits.
This could have a material adverse effect on our business, financial condition and results of operations. 15 Table of Contents Our marketing programs and our limited time new offerings may not be successful and could fail to meet expectations, and our new menu items, advertising campaigns and restaurant designs and remodels may not generate increased sales or profits.
We could also incur additional costs and require additional resources to monitor, report and comply with various ESG practices, laws and regulations, which could increase our operating costs and affect our results of operations and financial condition. In addition, from time to time, we may communicate certain initiatives regarding climate change and other ESG matters.
We could also incur additional costs and require additional resources to monitor, report and comply with various ESG practices, laws and regulations, which could increase our operating costs and affect our results of operations and financial condition. In addition, from time to time, we may communicate certain initiatives regarding climate change, animal welfare and other ESG matters.
Compliance with all these laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings. 27 Table of Contents Risks Related to Accounting and Financial Reporting Matters An impairment in the carrying value of our goodwill or indefinite-lived intangible assets could have a material adverse effect on our financial condition and results of operations.
Compliance with all these laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings. Risks Related to Accounting and Financial Reporting Matters An impairment in the carrying value of our goodwill or indefinite-lived intangible assets could have a material adverse effect on our financial condition and results of operations.
If we are unable to open new restaurants, or if planned restaurant openings are significantly delayed, it could have a material adverse effect on our business, financial condition and results of operations. 13 Table of Contents Our system-wide restaurants are geographically concentrated in the southeast portion of the United States and we may encounter new challenges as we enter new markets.
If we are unable to open new restaurants, or if planned restaurant openings are significantly delayed, it could have a material adverse effect on our business, financial condition and results of operations. Our system-wide restaurants are geographically concentrated in the southeast portion of the United States and we may encounter new challenges as we enter new markets.
We performed a qualitative annual impairment assessment of goodwill and indefinite-lived intangible assets on the first day of the fourth quarter of 2023. Based on the results of the qualitative assessment, we did not perform a quantitative assessment and no impairment was recognized in 2023.
We performed a qualitative annual impairment assessment of goodwill and indefinite-lived intangible assets on the first day of the fourth quarter of 2024. Based on the results of the qualitative assessment, we did not perform a quantitative assessment and no impairment was recognized in 2024.
Any one or more of the factors listed below or described elsewhere in this Risk Factors section could have a material adverse impact on our business, financial condition and/or results of operations: • increases in real estate costs in certain markets; • inflationary pressures; • disruptions to our supply chain; • changes in governmental rules and approaches to taxation; • adverse outcomes of litigation; • severe weather or other natural or man-made disasters affecting a large market or several closely located markets that may temporarily but significantly impact our restaurant operations in such markets; • changes in climate, including changes to the frequency of severe weather events, that impact the cost and availability of goods and services, energy and other materials throughout our supply chain; and • labor discord or disruption, geopolitical events, war, terrorism, political instability, acts of public violence, boycotts, hostilities and social unrest and health pandemics or other outbreaks of infectious disease that lead to avoidance of public places or restrictions on public gatherings such as in our restaurants.
Any one or more of the factors listed below or described elsewhere in this Risk Factors section could have a material adverse impact on our business, financial condition and/or results of operations: • increases in real estate costs in certain markets; • inflationary pressures; • disruptions to our supply chain; • changes in governmental rules and approaches to taxation and trade restrictions, including tariffs; • adverse outcomes of litigation; • severe weather or other natural or man-made disasters affecting a large market or several closely located markets or our supply chain; • changes in climate, including changes to the frequency of severe weather events, that impact the cost and availability of goods and services, energy and other materials throughout our supply chain; and • labor discord or disruption, geopolitical events, war, terrorism, political instability, acts of public violence, boycotts, hostilities and social unrest and health pandemics or other outbreaks of infectious disease that lead to avoidance of public places or restrictions on public gatherings such as in our restaurants.
However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Such losses could have a material adverse effect on our business, financial condition and results of operations. Item 1B. Unresolved Staff Comments None
However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Such losses could have a material adverse effect on our business, financial condition and results of operations. 34 Table of Contents Item 1B. Unresolved Staff Comments None
If any of our workers are found to be unauthorized, we could experience adverse publicity that may 24 Table of Contents adversely impact our brand, disrupt our operations, make it more difficult to hire and keep qualified employees, cause temporary increases in our labor costs as we train new employees and result in adverse publicity.
If any of our workers are found to be unauthorized, we could experience adverse publicity that may adversely impact our brand, disrupt our operations, make it more difficult to hire and keep qualified employees, cause temporary increases in our labor costs as we train new employees and result in adverse publicity.
See Note 10, Debt , and Note 21, Subsequent Events , in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Form 10-K for additional information.
See Note 10, Debt , and Note 22, Subsequent Events , in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Form 10-K for additional information.
In addition, as leases expire for restaurants that we will continue to operate, we may, at the end of the lease term and any renewal period for a restaurant, be unable to negotiate renewals, either on commercially acceptable terms or at all.
In addition, as leases expire for 26 Table of Contents restaurants that we will continue to operate, we may, at the end of the lease term and any renewal period for a restaurant, be unable to negotiate renewals, either on commercially acceptable terms or at all.
An unfavorable report on, or reaction to, our menu ingredients, the size of our portions or the nutritional content of our menu items could adversely influence the demand for our menu offerings. 12 Table of Contents Compliance with current and future laws and regulations regarding the ingredients and nutritional content of our menu items may be costly and time-consuming.
An unfavorable report on, or reaction to, our menu ingredients, the size of our portions or the nutritional content of our menu items could adversely influence the demand for our menu offerings. Compliance with current and future laws and regulations regarding the ingredients and nutritional content of our menu items may be costly and time-consuming.
Our food safety controls, procedures and training may not be fully effective in preventing all food safety and public health issues at our restaurants, including any occurrences of pathogens, bacteria, parasites or other toxins infecting our food 16 Table of Contents supply.
Our food safety controls, procedures and training may not be fully effective in preventing all food safety and public health issues at our restaurants, including any occurrences of pathogens, bacteria, parasites or other toxins infecting our food supply.
These potential public health issues, in addition to food tampering, could adversely affect food prices and availability of certain food products, generate negative publicity, and lead to closure of restaurants resulting in a decline in our sales or profitability.
These potential public health issues, in addition to food tampering, could adversely affect food prices and availability of certain food products, generate negative publicity, and lead to closure of restaurants resulting in a decline in 17 Table of Contents our sales or profitability.
In the future, results of operations may fall below the expectations of securities analysts and investors. In that event, the price of our common stock could be adversely impacted. 32 Table of Contents The market price of our common stock could be adversely affected by sales of substantial amounts of our common stock in the public markets.
In the future, results of operations may fall below the expectations of securities analysts and investors. In that event, the price of our common stock could be adversely impacted. The market price of our common stock could be adversely affected by sales of substantial amounts of our common stock in the public markets.
Because these cases often seek punitive damages, which may not be covered by insurance, such litigation could 26 Table of Contents have a material effect on our business, financial condition and results of operations.
Because these cases often seek punitive damages, which may not be covered by insurance, such litigation could have a material effect on our business, financial condition and results of operations.
In addition, certain laws, including the Americans with Disabilities Act, which, among other things, requires our restaurants to meet federally mandated requirements for the disabled, could require us to expend significant funds to make modifications to our restaurants if we failed to comply with applicable standards.
In addition, certain laws, including the Americans with Disabilities Act, which, among other things, requires our restaurants to meet federally mandated requirements for the disabled, could require us to expend significant funds to make modifications 28 Table of Contents to our restaurants if we failed to comply with applicable standards.
Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters.
Although we maintain what we believe to be adequate levels of insurance, insurance may not be 25 Table of Contents available at all or in sufficient amounts to cover any liabilities with respect to these or other matters.
As of December 31, 2023, we purchased substantially all of our pork from two suppliers, substantially all of our eggs from one supplier and all of our coffee from one supplier. We purchase these ingredients pursuant to purchase orders at prevailing market or negotiated contract prices and are not limited by minimum purchase requirements.
As of December 29, 2024, we purchased substantially all of our pork from two suppliers, substantially all of our eggs from one supplier and all of our coffee from one supplier. We purchase these ingredients pursuant to purchase orders at prevailing market or negotiated contract prices and are not limited by minimum purchase requirements.
Any future failure to comply with these regulations and obtain or retain licenses could have a material adverse effect on our business, financial condition and results of operations.
Any future 27 Table of Contents failure to comply with these regulations and obtain or retain licenses could have a material adverse effect on our business, financial condition and results of operations.
Preferred shares could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common 31 Table of Contents stock.
Preferred shares could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock.
We may take advantage of some of these exemptions. If we do, we do not know if some investors will find our common stock less attractive as a result. The result may be a less-active trading market for our common stock and our stock price may be more volatile.
We have taken and may continue to take advantage of some of these exemptions. If we do, we do not know if some investors will find our common stock less attractive as a result. The result may be a less-active trading market for our common stock and our stock price may be more volatile.
In addition, the rapid evolution and increased adoption of artificial intelligence technologies may affect our customers’ expectations, requirements or tastes in ways we cannot adequately anticipate or adapt to, and adversely affect our business financial condition and results of operations. 19 Table of Contents Risks Related to Information Technology and Intellectual Property Information technology system failures or breaches of our network security could interrupt our operations and have a material adverse effect on our business, financial condition and results of operations.
In addition, the rapid evolution and increased adoption of artificial intelligence technologies may affect our customers’ expectations, requirements or tastes in ways we cannot adequately anticipate or adapt to, adversely affect our business financial condition and results of operations, and may require us to develop artificial intelligence-specific systems. 20 Table of Contents Risks Related to Information Technology and Intellectual Property Information technology system failures or breaches of our network security could interrupt our operations and have a material adverse effect on our business, financial condition and results of operations.
Our existing restaurant management systems, financial and management controls and information systems may be inadequate to support our planned expansion. Managing our growth effectively will require us to continue to enhance these systems, procedures and controls and to recruit, hire, train and retain managers and team members.
Our growth plan includes opening new restaurants. Our existing restaurant management systems, financial and management controls and information systems may be inadequate to support our planned expansion. Managing our growth effectively will require us to continue to enhance these systems, procedures and controls and to recruit, hire, train and retain managers and team members.
The financial performance of our franchisees can have a material adverse effect on our business, financial condition and results of operations. As 19% and 23% of our system-wide restaurants were franchised as of December 31, 2023 and December 25, 2022, respectively, our results of operations are dependent in part upon the operational and financial success of our franchisees.
The financial performance of our franchisees can have a material adverse effect on our business, financial condition and results of operations. As 15% and 19% of our system-wide restaurants were franchised as of December 29, 2024 and December 31, 2023, respectively, our results of operations are dependent in part upon the operational and financial success of our franchisees.
Any failure on our part to recognize or respond to these challenges may adversely affect the success of any new restaurants and could have a material adverse effect on our business, financial condition and results of operations. Our failure to manage our growth effectively could harm our business and results of operations. Our growth plan includes opening new restaurants.
Any failure on our part to recognize or respond to these challenges may adversely affect the 14 Table of Contents success of any new restaurants and could have a material adverse effect on our business, financial condition and results of operations. Our failure to manage our growth effectively could harm our business and results of operations.
The cancellation of our supply arrangements with any one of these suppliers or the disruption, delay or inability of these suppliers to deliver these major products to our restaurants or distribution centers due to problems in production or distribution, inclement weather, unanticipated demand or other conditions may materially and adversely affect our results of operations while we establish alternative supplier and distribution channels.
The cancellation of our supply arrangements with any one of these suppliers or the disruption, delay or inability of these suppliers to deliver these major products to our restaurants or distribution centers due to problems in production or distribution, inclement weather, unanticipated demand, trade restrictions (such as increased tariffs or quotas, embargoes or customs restrictions) or other conditions may materially and adversely affect our results of operations while we establish alternative supplier and distribution channels.
If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, which could have a material adverse effect on our business, financial condition and results of operations. 33 Table of Contents Changes in accounting principles applicable to us could have a material adverse effect on our financial condition and results of operations.
If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, which could have a material adverse effect on our business, financial condition and results of operations.
Approximately 56.9% of our outstanding common stock is indirectly beneficially owned by Advent, and can be resold into the public markets in the future in accordance with the requirements of Rule 144. The market price of our common stock may decline significantly in connection with any sales by Advent of its common stock.
As of December 29, 2024, approximately 32% of our outstanding common stock was indirectly beneficially owned by Advent, and can be resold into the public markets in the future in accordance with the requirements of Rule 144. The market price of our common stock may decline significantly in connection with any sales by Advent of its common stock.
As of December 31, 2023, we had $359.9 million of goodwill and $139.1 million of indefinite-lived intangible assets. We test goodwill and indefinite-lived intangible assets for impairment annually on the first day of the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that impairment may have occurred.
As of December 29, 2024, we had $398.6 million of goodwill and $139.2 million of indefinite-lived intangible assets. We test goodwill and indefinite-lived intangible assets for impairment annually on the first day of the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that impairment may have occurred.
While some commodities we purchase are subject to contract pricing, as our contracts expire, we may not be able to successfully re-negotiate terms that protect us from price inflation in the future. International commodities we purchase are also subject to supply shortages or interruptions.
Changes in the price or availability of certain food products could affect our profitability and reputation. While some commodities we purchase are subject to contract pricing, as our contracts expire, we may not be able to successfully re-negotiate terms that protect us from price inflation in the future. International commodities we purchase are also subject to supply shortages or interruptions.
Although none of our employees are currently covered under collective bargaining agreements, our employees may elect to be represented by labor unions in the future.
Unionization activities may disrupt our operations and increase our costs. Although none of our employees are currently covered under collective bargaining agreements, our employees may elect to be represented by labor unions in the future.
Our financial condition and results of operations are subject to, and may be adversely affected by, a number of other factors, many of which are also largely outside of our control. Our operating results have been in the past and will continue to be subject to a number of other factors, many of which are largely outside our control.
Our operating results have been in the past and will continue to be subject to a number of other factors, many of which are largely outside our control.
Any inability to successfully compete with the restaurants in our existing or new markets will place downward pressure on our customer traffic and could have a material adverse effect on our business, financial condition and results of operations.
Competition from food delivery services companies has also increased in recent years. Any inability to successfully compete with the restaurants in our existing or new markets will place downward pressure on our customer traffic and could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to effectively respond to changes in consumer health perceptions, comply with further nutrient content disclosure requirements or adapt our menu offerings to trends in eating habits, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to effectively respond to changes in consumer health perceptions, comply with further nutrient content disclosure requirements or adapt our menu offerings to trends in eating habits, which could have a material adverse effect on our business, financial condition and results of operations. 13 Table of Contents Our financial condition and results of operations are subject to, and may be adversely affected by, a number of other factors, many of which are also largely outside of our control.
The CCPA also provides for civil penalties for violations as well as a private right of action for data breaches that may increase data breach litigation. Further, the California Privacy Rights Act, which became fully effective in January 2023, significantly modifies the CCPA. These modifications will require us to incur additional costs and expenses in our effort to comply.
The CCPA also provides for civil penalties for violations as well as a private right of action for data breaches that may increase data breach litigation. Further, the California Privacy Rights Act, which became fully effective in January 2023, significantly modifies the CCPA.
If our efforts to protect our intellectual property are not adequate, or if any third-party misappropriates or infringes on our intellectual property, whether in print, on the Internet or through other media, the value of our brands may be adversely affected, which could have a material adverse effect on our business, including the failure of our brands and branded products to achieve and maintain market acceptance. 22 Table of Contents We or our suppliers maintain the seasonings and additives for our menu items, as well as certain standards, specifications and operating procedures, as trade secrets or confidential information.
If our efforts to protect our intellectual property are not adequate, or if any 23 Table of Contents third-party misappropriates or infringes on our intellectual property, whether in print, on the Internet or through other media, the value of our brands may be adversely affected, which could have a material adverse effect on our business, including the failure of our brands and branded products to achieve and maintain market acceptance.
We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business. 21 Table of Contents Federal and state governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes.
We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to 22 Table of Contents privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.
Moreover, the risks below are not the only risks we face and additional risks not currently known to us or that we presently deem immaterial may emerge or become material at any time and may adversely impact our business, reputation, financial condition, results of operati ons, cash flow or the trading price of our common stock. 10 Table of Contents Risk Factors Summary Our business is subject to numerous risks and uncertainties, including those outside of our control, that could cause our actual results to be harmed.
Moreover, the risks below are not the only risks we face and additional risks not currently known to us or that we presently deem immaterial may emerge or become material at any time and may adversely impact our business, reputation, financial condition, results of operati ons, cash flow or the trading price of our common stock.
Our restaurants in Florida represented approximately 23% of our system-wide restaurants as of 18 Table of Contents December 31, 2023. Adverse changes in demographic, unemployment, economic, regulatory or weather conditions in the southeast portion of the United States have had, and may continue to have, material adverse effects on our business, financial condition and results of operations.
Adverse changes in demographic, unemployment, economic, regulatory or weather conditions in the southeast portion of the United States have had, and may continue to have, material adverse effects on our business, financial condition and results of operations.
Generally accepted accounting principles in the U.S. are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles.
Changes in accounting principles applicable to us could have a material adverse effect on our financial condition and results of operations. Generally accepted accounting principles in the U.S. are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles.
As a result, we may close or relocate the restaurant, which could subject us to construction costs related to leasehold improvements and other costs and risks.
As a result, we may close or relocate the restaurant, which could subject us to construction costs related to leasehold improvements and other costs and risks. Additionally, the revenues and profit, if any, generated at a relocated restaurant may not equal the revenues and profit generated at the existing restaurant.
As a result, Advent beneficially owns shares sufficient for majority votes over all matters requiring stockholder votes, including: the election of directors; mergers, consolidations and acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; amendments to our certificate of incorporation or our bylaws; and our winding up and dissolution.
Although we are no longer a “controlled company” within the meaning of the Nasdaq listing rules, Advent beneficially owns shares sufficient to significantly influence all matters requiring stockholder votes, including: the election of directors; mergers, consolidations and acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; amendments to our certificate of incorporation or our bylaws; and our winding up and dissolution.
As of December 31, 2023, we had an aggregate of 11,356,532 shares of common stock authorized for issuance under the 2021 Equity Plan and 2017 Equity Plan.
As of December 29, 2024, we had an aggregate of 12,554,366 shares of common stock authorized for issuance under the 2021 Equity Plan and 2017 Equity Plan.
The future issuance of additional common stock in connection with the First Watch Restaurant Group, Inc. 2021 Equity Incentive Plan (the “2021 Equity Plan”) and the First Watch Restaurant Group, Inc. 2017 Omnibus Equity Incentive Plan (the “2017 Equity Plan”) will dilute all other stockholdings.
A decline in the price of our common stock might impede our ability to raise capital through the issuance of additional common stock or other equity securities. 33 Table of Contents The future issuance of additional common stock in connection with the First Watch Restaurant Group, Inc. 2021 Equity Incentive Plan (the “2021 Equity Plan”) and the First Watch Restaurant Group, Inc. 2017 Omnibus Equity Incentive Plan (the “2017 Equity Plan”) will dilute all other stockholdings.
First Watch Restaurant Group, Inc.’s principal assets are the equity interests it indirectly holds in its operating subsidiaries which own our operating assets. 29 Table of Contents As a result, First Watch Restaurant Group, Inc. is dependent on loans, dividends and other payments from its operating subsidiaries to generate the funds necessary to meet its financial obligations and to pay dividends on its common stock.
As a result, First Watch Restaurant Group, Inc. is dependent on loans, dividends and other payments from its operating subsidiaries to generate the funds necessary to meet its financial obligations and to pay dividends on its common stock.
As we continue to grow, we may find it difficult to maintain the innovation, teamwork, passion and focus on execution that we believe are important aspects of our corporate culture. Any failure to preserve our culture could adversely impact our operations, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.
As we continue to grow, we may find it difficult to maintain the innovation, teamwork, passion and focus on execution that we believe are important aspects of our corporate culture.
We may not be able to prevent the unauthorized disclosure or use of our trade secrets or confidential information, despite the existence of confidentiality agreements and other measures.
We or our suppliers maintain the seasonings and additives for our menu items, as well as certain standards, specifications and operating procedures, as trade secrets or confidential information. We may not be able to prevent the unauthorized disclosure or use of our trade secrets or confidential information, despite the existence of confidentiality agreements and other measures.
In addition, our Facilities impose, and we anticipate that documents governing our future indebtedness may impose, limitations on our ability to enter into change of control transactions. Thereunder, the occurrence of a change of control transaction could constitute an event of default permitting acceleration of the indebtedness, thereby impeding our ability to enter into certain transactions.
Thereunder, the occurrence of a change of control transaction could constitute an event of default permitting acceleration of the indebtedness, thereby impeding our ability to enter into certain transactions.
The inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in restaurant openings could have a material adverse effect on our business, financial condition and results of operations.
The inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in restaurant openings could have a material adverse effect on our business, financial condition and results of operations. In recent years, the restaurant industry has experienced aggressive competition for talent, wage inflation and pressure to improve benefits and workplace conditions to remain competitive.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the listing requirements of Nasdaq, and other applicable securities rules and regulations.
As a public company, we incur significant costs to comply with the laws and regulations affecting public companies, which could harm our business and results of operations. As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the listing requirements of Nasdaq, and other applicable securities rules and regulations.
For instance, the Russia-Ukraine war and the Israel-Hamas war could adversely impact, among other things, our raw material, energy and transportation costs, as well as certain of our suppliers, global and local macroeconomic conditions, and cause further supply chain disruptions.
For instance, the Russia-Ukraine war and the Israel-Hamas war could adversely impact, among other things, our raw material, energy and transportation costs, as well as certain of our suppliers, global and local macroeconomic conditions, and cause further supply chain disruptions. 19 Table of Contents Our system-wide restaurant base is geographically concentrated in the southeast portion of the United States, and we could be adversely affected by conditions specific to that region.
Since the start of the COVID-19 pandemic, the restaurant industry has experienced aggressive competition for talent, wage inflation and pressure to improve benefits and workplace conditions to remain competitive. In addition, our existing wages and benefits programs, combined with the highly competitive wage pressure resulting from the labor shortage, may be insufficient to attract and retain the best talent.
In addition, our existing wages and benefits programs, combined with the highly competitive wage pressure resulting from the labor shortage, may be insufficient to attract and retain the best talent.
In addition, this concentration of share ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in a company with significant stockholders. As a controlled company, we are not subject to all of the corporate governance rules of Nasdaq. We are considered a “controlled company” under the rules of Nasdaq.
In addition, this concentration of share ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in a company with significant stockholders. We do not anticipate paying any dividends on our common stock in the foreseeable future.
Factors such as traffic patterns, weather, fuel prices, local demographics and the type, number and locations of competing restaurants may adversely affect the performances of individual locations. In addition, economic downturns, geopolitical tensions, inflation or increased food or energy costs have harmed and could continue to harm the restaurant industry in general and our restaurants in particular.
In addition, economic downturns, geopolitical tensions, inflation or increased food or energy costs have harmed and could continue to harm the restaurant industry in general and our restaurants in particular.
If we cannot maintain our corporate culture as we grow, it could have a material adverse effect on our business, financial condition and results of operations. 23 Table of Contents Unionization activities may disrupt our operations and increase our costs.
Any failure to preserve our culture could adversely impact our operations, including our ability to retain and recruit personnel and to effectively focus 24 Table of Contents on and pursue our corporate objectives. If we cannot maintain our corporate culture as we grow, it could have a material adverse effect on our business, financial condition and results of operations.
In 2022-2023, for example, we experienced significant increases in the cost of eggs, primarily due to an outbreak of avian influenza.
In 2024 and continuing into 2025, for example, we have experienced significant increases in the cost of eggs, primarily due to an outbreak of avian influenza, as well as coffee and avocados, primarily due to the impact of climate and weather conditions.
Food service businesses depend on consumer discretionary spending and are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends.
Food service businesses depend on consumer discretionary spending and are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. Factors such as traffic patterns, weather, fuel prices, local demographics and the type, number and locations of competing restaurants may adversely affect the performances of individual locations.
In addition, Advent may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment in us, even though such transactions might involve risks to you, such as debt-financed acquisitions.
In addition, Advent may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment in us, even though such transactions might involve risks to you, such as debt-financed acquisitions. 30 Table of Contents First Watch Restaurant Group, Inc. is a holding company with no operations and relies on its operating subsidiaries to provide it with funds necessary to meet its financial obligations and to pay dividends.
Virginia, Connecticut, Colorado and Utah have enacted similar data privacy legislation that took effect in 2023, and Delaware, Indiana, Iowa, Montana, Oregon, Tennessee and Texas have enacted similar data privacy legislation that will take effect at various points in 2024 and beyond. Several other states and countries are considering expanding or passing privacy laws in the near term.
Colorado, Connecticut, Colorado, Delaware, Iowa, Montana, Nebraska, New Hampshire, New Jersey, Oregon, Texas, Utah and Virginia have enacted similar data privacy legislation and Indiana, Kentucky, Maryland, Minnesota, Rhode Island and Tennessee have enacted similar data privacy legislation that will take effect at various points in 2025 and beyond.
In addition, many of our competitors have greater name recognition nationally or in some of the local markets in which we have or plan to have restaurants.
In addition, many of our competitors have greater name recognition nationally or in some of the local markets in which we have or plan to have restaurants. We also compete with a number of non-traditional market participants, such as convenience stores, grocery stores, coffee shops, and meal kit delivery services.
In the fourth quarter of 2023, the Company recorded a charge of $0.8 million for est imated probable losses that might arise from this matter. Amounts incurred and paid to resolve past due unclaimed property obligations in Delaware could have a material adverse effect on our financial condition and results of operations.
In the fourth quarter of 2023 , the Company recorded a charge of $0.8 million for e st imated probable losses that might arise from this matter. In the second quarter of 2024 , the Company paid $0.7 million to the State of Delaware to resolve escheat matters related to unclaimed gift card balances.
We have taken certain measures to remediate the material weaknesses. See Item 9A for additional information.
We have taken certain measures to remediate the material weaknesses. See Item 9A for additional information. 29 Table of Contents Risks Related to Our Indebtedness Our level of indebtedness could have a material adverse effect on our business, financial condition and results of operations.
First Watch Restaurant Group, Inc. is a holding company with no operations and relies on its operating subsidiaries to provide it with funds necessary to meet its financial obligations and to pay dividends. First Watch Restaurant Group, Inc. is a holding company with no material direct operations.
First Watch Restaurant Group, Inc. is a holding company with no material direct operations. First Watch Restaurant Group, Inc.’s principal assets are the equity interests it indirectly holds in its operating subsidiaries which own our operating assets.
Our system-wide restaurant base is geographically concentrated in the southeast portion of the United States, and we could be adversely affected by conditions specific to that region. Our restaurants in the southeast portion of the United States represented approximately 42% of our system-wide restaurants as of December 31, 2023.
Our restaurants in the southeast portion of the United States represented approximately 41% of our system-wide restaurants as of December 29, 2024. Our restaurants in Florida represented approximately 23% of our system-wide restaurants as of December 29, 2024.
Removed
For example, due in large part to trends related to increased work-from-home accommodations by employers, we experienced and continue to experience changes in our breakfast and lunch business as it relates to customers who visit us before starting the workday, on their way to work or during corporate lunch breaks.
Added
Risk Factors Summary Our business is subject to numerous risks and uncertainties, including those outside of our control, that could cause our actual results to be harmed.
Removed
In 2022, for example, we experienced significant increases in distribution costs as a result of material increases in fuel prices. Changes in the price or availability of certain food products could affect our profitability and reputation.
Added
For example, in January 2024, unionized drivers at our broad-line distributor went on strike at a number of distribution centers, which adversely effected our operations and supply chain for several weeks resulting in the incurrence of higher costs and delays in food deliveries.
Removed
We also compete with a number of non-traditional market participants, such as convenience stores, grocery stores, coffee shops, meal kit delivery services, and “ghost” or dark kitchens, where meals are prepared at separate takeaway premises rather than a restaurant. Competition from food delivery services companies has also increased in recent years.
Added
Several other states and countries are considering expanding or passing privacy laws in the near term. These laws and regulations have required and will require us to incur additional costs and expenses in our effort to comply.
Removed
Additionally, the revenues and profit, if any, generated at a relocated restaurant may not equal the revenues and profit generated at the existing restaurant. 25 Table of Contents As a public company, we incur significant costs to comply with the laws and regulations affecting public companies, which could harm our business and results of operations.
Added
Federal and state governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes.
Removed
Risks Related to Our Indebtedness Our level of indebtedness could have a material adverse effect on our business, financial condition and results of operations. 28 Table of Contents Our principal amount of our term loan outstanding was $92.5 million, excluding unamortized debt discount and deferred issuance costs, and we had drawn $30.0 million on our revolving credit facility as of December 31, 2023.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

4 edited+3 added−1 removed5 unchanged
Biggest changeThe Audit Committee receives reports on cybersecurity at least annually from the Company’s SVP, Informational Technology, who has over 25 years of experience in the management of information technology systems and cybersecurity. The Audit Committee briefs the full Board of Directors on these matters as a part of its reports of its meetings. 34 Table of Contents
Biggest changeThe Audit Committee receives reports on cybersecurity at least twice annually from the Company’s Chief Information Officer, who has over 25 years of experience in the management of information technology systems and cybersecurity. These reports cover trends vulnerability management, cybersecurity posture, risk assessment findings, incident responses and updates on technology initiatives.
Incidents or breaches have from time to time occurred and may in the future occur involving our systems, the systems of the parties with whom we communicate or collaborate (including franchisees) or the systems of third-party providers.
Security incidents or breaches have from time to time occurred and may in the future occur involving our systems, the systems of the parties with whom we communicate or collaborate (including franchisees) or the systems of third-party providers.
Our program defines our governance and management oversight, and includes (i) continual training to raise user vigilance and resistance to phishing attempts and cyber-attacks, (ii) evaluation of compliance with privacy and data security regulations and (iii) reporting obligations in the event of an incident.
Our program defines our governance and management oversight, and includes (i) continual training to enhance user vigilance and resistance to phishing attempts and cyber-attacks, (ii) evaluation of compliance with privacy and data security regulations and (iii) reporting obligations in the event of an incident.
As part of our program, we partner with a security operations center for continuous monitoring and alerting across all of our information technology systems. Annually, we engage external consultants to evaluate the effectiveness of our cybersecurity program and recommend improvements.
As part of our program, we partner with a security operations center for continuous monitoring and alerting across all of our information technology systems. Additionally, our Information Technology leadership meets monthly with a cyber advisor to review progress on tools, scoring and management of our cybersecurity programs.
Removed
We have also developed vendor scoring criteria to assess cybersecurity, incidence readiness and cyber insurance of our critical vendors and service providers. Security incidents or breaches have from time to time occurred and may in the future occur involving our systems, the systems of the parties with whom we communicate or collaborate (including franchisees) or the systems of third-party providers.
Added
On an annual basis, we engage an external partner to conduct a comprehensive risk assessment of our cybersecurity program, identify gaps based on best practices and recommend improvements. We have also developed vendor scoring criteria to assess cybersecurity, incidence readiness and cyber insurance of our critical vendors and service providers.
Added
Additionally, we conduct ongoing internal and external vulnerability and penetration scans. Our internal security team is led by a manager with over 40 years of experience who reports directly to our Chief Information Officer.
Added
The Audit Committee briefs the full Board of Directors on these matters as a part of its reports of its meetings. 35 Table of Contents

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2023, company-owned and franchise-owned restaurants by jurisdiction were: State Company-owned Franchise-owned Total Alabama 5 — 5 Arizona 31 — 31 Arkansas — 3 3 Colorado 19 — 19 Delaware 4 — 4 Florida 123 — 123 Georgia 23 — 23 Illinois 7 — 7 Indiana 6 1 7 Kansas 10 — 10 Kentucky 2 14 16 Louisiana — 1 1 Maryland 11 — 11 Michigan 11 — 11 Mississippi — 1 1 Missouri 17 7 24 Nebraska 6 — 6 New Jersey 5 — 5 North Carolina 3 33 36 Ohio 40 — 40 Oklahoma — 1 1 Pennsylvania 19 — 19 South Carolina 4 3 7 Tennessee 12 8 20 Texas 42 21 63 Utah — 1 1 Virginia 20 4 24 West Virginia — 1 1 Wisconsin 5 — 5 TOTAL 425 99 524
Biggest changeAs of December 29, 2024, company-owned and franchise-owned restaurants by juris diction were: State Company-owned Franchise-owned Total Alabama 6 — 6 Arizona 35 — 35 Arkansas — 3 3 Colorado 19 — 19 Delaware 4 — 4 Florida 133 — 133 Georgia 23 — 23 Illinois 8 — 8 Indiana 7 1 8 Kansas 13 — 13 Kentucky 2 15 17 Louisiana — 1 1 Maryland 15 — 15 Michigan 11 — 11 Mississippi — 1 1 Missouri 18 7 25 Nebraska 7 — 7 New Jersey 7 — 7 North Carolina 24 12 36 Ohio 44 — 44 Oklahoma 2 — 2 Pennsylvania 19 — 19 South Carolina 5 5 10 Tennessee 15 9 24 Texas 45 23 68 Utah — 1 1 Virginia 22 4 26 West Virginia — 1 1 Wisconsin 5 — 5 TOTAL 489 83 572
Item 2. Properties We lease all our company-owned restaurant facilities. As of December 31, 2023, we had 425 company-owned restaurants and 99 franchise-owned restaurants located in 29 states, including a large presence in Florida, Texas, Ohio and Arizona.
Item 2. Properties We lease all our company-owned restaurant locations. As of December 29, 2024, we h ad 489 company-owned restaurants and 83 franchise-owned restaurants located in 29 states, including a large presence in Florida, Texas, Ohio, North Carolina and Arizona.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeA significant increase in the number of claims or an increase in amounts owing under successful claims could materially adversely affect our business, financial condition, results of operations and cash flows. Item 4. Mine Safety Disclosures None 35 Table of Contents Part II
Biggest changeA significant increase in the number of claims or an increase in amounts owing under successful claims could materially adversely affect our business, financial condition, results of operations and cash flows. Item 4. Mine Safety Disclosures None 36 Table of Contents Part II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+0 added−1 removed0 unchanged
Biggest changeItem 4. Mine Safety Disclosures 35 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 36 Item 6. Reserved 37 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 38 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 57 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 36 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 37 Item 6. Reserved 38 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 39 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 56 Item 8.
Removed
Financial Statements and Supplementary Data 57 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 95 Item 9A. Controls and Procedures 96

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+1 added−0 removed8 unchanged
Biggest changeThis graph is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. 36 Table of Contents October 1, 2021 December 26, 2021 December 25, 2022 December 31, 2023 First Watch Restaurant Group, Inc. $ 100.00 $ 72.16 $ 64.20 $ 90.80 Nasdaq Composite Index $ 100.00 $ 107.62 $ 72.77 $ 104.97 S&P Restaurants Index $ 100.00 $ 84.95 $ 67.46 $ 79.93
Biggest changeThis graph is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on Nasdaq under the symbol “FWRG.” Holders As of March 1, 2024, there were 25 stockholders of record of our common stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on Nasdaq under the symbol “FWRG.” Holders As of March 7, 2025, there were 25 stockholders of record of our common stock.
Issuer Purchases of Equity Securities None Cumulative Stock Performance Graph The following graph compares the cumulative annual stockholders return on our common stock from October 1, 2021, the date our common stock began trading on Nasdaq, through December 31, 2023 , to that of the total return index for the Nasdaq Composite Index and the S&P Restaurants Index assuming an investment of $100 on October 1, 2021.
Issuer Purchases of Equity Securities None 37 Table of Contents Cumulative Stock Performance Graph The following graph compares the cumulative annual stockholders return on our common stock from October 1, 2021, the date our common stock began trading on Nasdaq, through December 29, 2024 , to that of the total return index for the Nasdaq Composite Index and the S&P Restaurants Index assuming an investment of $100 on October 1, 2021.
Added
October 1, 2021 December 26, 2021 December 25, 2022 December 31, 2023 December 29, 2024 First Watch Restaurant Group, Inc. $ 100.00 $ 72.16 $ 64.20 $ 90.80 $ 84.46 Nasdaq Composite Index $ 100.00 $ 107.62 $ 72.77 $ 104.97 $ 138.90 S&P Restaurants Index $ 100.00 $ 84.95 $ 67.46 $ 79.93 $ 95.74

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

99 edited+20 added−35 removed59 unchanged
Biggest changeFinancial highlights 2023, which was a 53-week fiscal year, include the following: • Total revenues increased 22.1% to $891.6 million from $730.2 million in 2022 • System-wide sales increased 20.6% to $1.1 billion from $914.8 million in 2022 • Same-restaurant sales growth of 7.6%* (up 38.9% relative to 2019**) • Same-restaurant traffic growth of 0.2%* (up 7.5% relative to 2019**) • Income from operations increased to $41.3 million from $16.9 million in 2022 • Income from operations margin increased to 4.7% from 2.4% in 2022 • Restaurant level operating profit*** increased to $175.7 million from $128.9 million in 2022 • Restaurant level operating profit margin*** increased to 20.0% from 17.9% in 2022 • Net income increased to $25.4 million from $6.9 million in 2022 • Adjusted EBITDA*** increased to $99.5 million from $69.3 million in 2022 • Opened 51 system-wide restaurants (37 company-owned and 14 franchise-owned) across 19 states resulting in a total of 524 system-wide restaurants (425 company-owned and 99 franchise-owned) across 29 states ___________________ *Comparison to the 53 weeks ended January 1, 2023, is provided for enhanced comparability. **Comparison to the 53 weeks ended January 5, 2020, is provided for enhanced comparability. *** See Non-GAAP Financial Measure Reconciliations section below. 40 Table of Contents Business Trends Throughout 2023 and as compared to the prior year, First Watch continued to see dining room traffic grow.
Biggest changeFinancial highlights for the 52-weeks ended December 29, 2024 as compared, unless otherwise indicated below, to the 53-weeks ended December 31, 2023, reflected the continued momentum of our strong operating performance and include the following: • Total revenues increase d 13.9% to $1.0 billion from $891.6 million in 2023 • System-wide sales increased to $1.2 billion from $1.1 billion in 2023 • Same-restaurant sales growth of negative 0.5%* • Same-restaurant traffic growth of negative 4.0%* • Income from operations decreased to $38.9 million from $41.3 million in 2023 • Income from operations margin decreased to 3.9% from 4.7% in 2023 • Restaurant level operating profit** increased to $201.8 million from $175.7 million in 2023 • Restaurant level operating profit margin** increased to 20.1% f rom 20.0% in 2023 • Net income decreased t o $18.9 million from $25.4 million in 2023 • Adju sted EBITDA** increased to $113.8 million from $99.5 million in 2023 • O pened 50 system-wide restaurants (43 company-owned and 7 franchise-owned) across 19 states resulting in a total of 572 system-wide restaurants (489 company-owned and 83 franchise-owned) across 29 state s ___________________ *Comparison to the 52-week periods ended December 29, 2024 and December 31, 2023 in order to compare like-for-like periods.
By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our evaluation of trends in the industry, information available from other outside sources, as appropriate. We evaluate our estimates and judgments on an on-going basis. Our actual results may differ from these estimates.
By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our evaluation of trends in the industry, and information available from other outside sources, as appropriate. We evaluate our estimates and judgments on an on-going basis. Our actual results may differ from these estimates.
Upon consummation of the Company’s IPO in October 2021, certain performance-based stock option awards issued under the 2017 Equity Plan for which the performance and market conditions were satisfied as a result of the Company’s IPO, converted into time-based stock option awards with the related stock-based compensation expense to be recognized on an accelerated recognition method over the remaining service period.
Upon the Company’s IPO in October 2021, certain performance-based stock option awards issued under the 2017 Equity Plan for which the performance and market conditions were satisfied as a result of the Company’s IPO, converted into time-based stock option awards with the related stock-based compensation expense to be recognized on an accelerated recognition method over the remaining service period.
Restaurant level operating profit excludes corporate-level expenses and other items that we do not consider in the evaluation of the ongoing core operating performance of our restaurants as identified in the reconciliation of Income (Loss) from operations, the most directly comparable GAAP measure, to Restaurant level operating profit, included in the section Non-GAAP Financial Measure Reconciliations below.
Restaurant level operating profit excludes corporate-level expenses and other items that we do not consider in the evaluation of the ongoing core operating performance of our restaurants as identified in the reconciliation of Income from operations, the most directly comparable GAAP measure, to Restaurant level operating profit, included in the section Non-GAAP Financial Measure Reconciliations below.
Goodwill and Indefinite-Lived Intangibles Goodwill and indefinite-lived intangibles are tested for impairment annually, on the first day of the fourth quarter of the fiscal year, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Significant judgments are used to determine if an indicator of impairment has occurred.
Goodwill and Indefinite-Lived Intangibles Goodwill and indefinite-lived intangibles are tested for impairment annually on the first day of the fourth quarter of the fiscal year, or when events or changes in circumstances indicate that the carrying amount may not be recoverable. Significant judgments are used to determine if an indicator of impairment has occurred.
This was partially offset by the increase in general and administrative expenses, mainly due to the increase in compensation expense. 49 Table of Contents Non-GAAP Financial Measure Reconciliations Adjusted EBITDA and Adjusted EBITDA margin - The following table reconciles 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: .
This was partially offset by the increase in general and administrative expenses, mainly due to the increase in compensation expense. 48 Table of Contents Non-GAAP Financial Measure Reconciliations Adjusted EBITDA and Adjusted EBITDA margin - The following table reconciles 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: .
During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. We record these adjustments to the provisional amounts with a corresponding offset to goodwill.
During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. We record these adjustments to the provisional amounts with a corresponding adjustment to goodwill.
If the initial accounting for a business combination is incomplete by the end of a reporting period that falls within the measurement period (not to exceed a year from the date of acquisition), we report provisional amounts in our consolidated financial statements.
If the initial accounting for a business combination is incomplete at the end of a reporting period that falls within a measurement period not to exceed a year from the date of acquisition, we report provisional amounts in our consolidated financial statements.
Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and are reviewed for impairment when events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Significant judgments are used to determine if an indicator of impairment has occurred.
Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and are reviewed for impairment when events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Significant judgment is used to determine if an indicator of impairment has occurred.
No awards were granted under the 2017 Equity Plan during 2023 and 2022 and the Company does not intend to grant any further awards under the 2017 Equity Plan. Stock-based compensation expense related to time-based stock option awards issued under the 2021 Equity Plan is recognized on a straight-line basis over the requisite service period.
No awards were granted under the 2017 Equity Plan during 2024 or 2023, and the Company does not intend to grant any further awards under the 2017 Equity Plan. Stock-based compensation expense related to time-based stock option awards issued under the 2021 Equity Plan is recognized on a straight-line basis over the requisite service period.
(2) Represents impairment charges and costs related to the disposal of assets due to retirements, replacements, restaurant closures and natural disasters. (3) Represents costs incurred in connection with Hurricane Ian.
(2) Represents impairment charges and costs related to the disposal of assets due to retirements, replacements, restaurant closures and natural disasters. (3) Represents costs incurred in connection with hurricane damage.
Income Taxes We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets or liabilities are recognized for the estimated future tax effects attributable to temporary differences between the carrying value and the 55 Table of Contents tax basis of assets and liabilities as well as tax credit carryforwards.
Income Taxes We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets or liabilities are recognized for the estimated future tax effects attributable to temporary differences between the carrying value and the tax basis of assets and liabilities as well as tax credit carryforwards.
Restaurant Level Operating Profit Margin : represents Restaurant level operating profit as a percentage of restaurant sales. See Non-GAAP Financial Measure Reconciliations below for a reconciliation to Income (Loss) from operations margin, the most directly comparable GAAP measure. Financial Highlights The financial results of 2023 reflect the continued growth of the Company.
Restaurant Level Operating Profit Margin : represents Restaurant level operating profit as a percentage of restaurant sales. See Non-GAAP Financial Measure Reconciliations below for a reconciliation to Income from operations margin, the most directly comparable GAAP measure. Financial Highlights The financial results of 2024 reflect the continued growth of the Company.
Recently Issued Accounting Pronouncements For a discussion of recently issued accounting pronouncements, see Note 2, Summary of Significant Accounting Policies , in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements For a discussion of recently issued accounting pronouncements, see Note 2, Summary of Significant Accounting Policies , in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K. 55 Table of Contents
During 2023 and 2022, we elected to perform a qualitative assessment for our annual impairment review of goodwill and indefinite-lived intangibles.
During 2024 and 2023, we elected to perform a qualitative assessment for our annual impairment review of goodwill and indefinite-lived intangibles.
Changes in assumptions regarding our level and composition of earnings, tax laws or the deferred tax valuation allowance and the results of tax audits, may materially impact the effective income tax rate. Stock-Based Compensation and Fair Value of Common Stock Stock-based compensation expense is measured based on the award’s grant date fair value.
Changes in assumptions regarding our level and composition of earnings, tax laws or the deferred tax valuation allowance and the results of tax audits, may materially impact the effective income tax rate. 54 Table of Contents Stock-Based Compensation and Fair Value of Common Stock Stock-based compensation expense is measured based on the award’s fair value at the date of grant.
(2) 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 Measure Reconciliations section below. 42 Table of Contents Results of Operations The discussion that follows includes a comparison of our results of operations for 2023 and 2022.
(3) Reconciliations from Net income and Net income margin, the most comparable GAAP measures to Adjusted EBITDA and Adjusted EBITDA margin, are set forth in the schedules within the Non-GAAP Financial Measure Reconciliations section below. 42 Table of Contents Results of Operations The discussion that follows includes a comparison of our results of operations for 2024 and 2023.
(3) 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 (Loss). (4) Represents impairment charges and costs related to the disposal of assets due to retirements, replacements, restaurant closures and natural disasters.
These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss). ( 4) Represents impairment charges and costs related to the disposal of assets due to retirements, replacements, restaurant closures and natural disasters.
Adjusted EBITDA : represents Net income (loss) before depreciation and amortization, interest expense, income taxes, and items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of 39 Table of Contents Net income (loss), the most directly comparable measure in accordance with GAAP, to Adjusted EBITDA, included in the section Non-GAAP Financial Measure Reconciliations below .
Adjusted EBITDA : represents Net income before depreciation and amortization, interest expense, income taxes, and items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of Net income, the most directly comparable measure in accordance with GAAP, to Adjusted EBITDA, included in the section Non-GAAP Financial Measure Reconciliations below . 40 Table of Contents Adjusted EBITDA Margin : represents Adjusted EBITDA as a percentage of total revenues.
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill.
As such, the fair value of purchase consideration is allocated to the tangible assets acquired, liabilities assumed and intangible assets acquired based on estimated fair values at the acquisition date. The excess of the purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill.
Long-Lived Assets and Definite-Lived Intangible Assets Long-lived assets deployed at company-owned restaurants include (i) property, fixtures and equipment, (ii) operating lease right-of-use asset, net of the related operating lease liability and (iii) reacquired rights to the extent the restaurant had been acquired by the Company.
Long-Lived Assets and Definite-Lived Intangible Assets Long-lived assets deployed at company-owned restaurants include (i) property, fixtures and equipment, (ii) operating lease right-of-use assets, net of the related operating lease liabilities and (iii) reacquired rights to the extent the restaurants have been acquired by the Company.
(5) Represents estimated probable loss and 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).
(5) 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). (6) Represents costs incurred for hiring qualified individuals.
We use Restaurant level operating profit and Restaurant level operating profit margin (i) to evaluate the performance and profitability of each operating restaurant, individually and in the aggregate and (ii) to make decisions regarding future spending and other operational decisions.
We use Restaurant level operating profit and Restaurant level operating profit margin (i) to evaluate the performance and profitability of operating restaurants, individually, and in the aggregate, (ii) to compare the performance of our restaurants and markets and (iii) to make decisions regarding future spending and other operational decisions.
In considering the qualitative approach related to goodwill, we considered factors including, 54 Table of Contents but not limited to, macro-economic conditions, market and industry conditions, the competitive environment, results of prior impairment tests, operational stability, the overall financial performance of the reporting unit and the impacts of the discount rates.
In considering the qualitative approach related to goodwill, we considered factors including, but not limited to, macro-economic conditions, market and industry conditions, the competitive environment, results of prior impairment tests, operational stability, the overall financial performance of the reporting unit and the impacts of the discount rates. Management also considered the specific future outlook for the reporting unit.
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.
Our presentation of these non-GAAP measures includes isolating the effects of some items that are either nonrecurring in nature or have no meaningful correlation to our ongoing core operating performance. These supplemental measures of performance are not required by or presented in accordance with GAAP.
We have identified one reporting unit to which we have attributed goodwill. Management may elect to perform a qualitative assessment to determine whether it is more likely than not that the reporting unit and/or asset group is impaired.
Management may elect to perform a qualitative assessment to determine whether it is more likely than not that the reporting unit and/or asset group is impaired.
Overview 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 award-winning chef-driven menu includes elevated executions of classic favorites for breakfast, brunch and lunch.
Overview First Watch is an award-winning Daytime Dining concept serving made-to-order breakfast, brunch and lunch using fresh ingredients. The Company’s common stock trades on Nasdaq under the ticker symbol “FWRG.” A recipient of hundreds of local “Best Breakfast” and “Best Brunch” accolades, First Watch’s award-winning chef-driven menu includes elevated executions of classic favorites for breakfast, brunch and lunch.
Prior to our IPO and our common stock being listed on Nasdaq, given the absence of a public trading market for our common stock, the estimated fair value had been determined with input from management exercising reasonable judgment and considering several objective and subjective factors including: (i) third-party valuations of our common stock, (ii) a combination of the income approach and the market approach and (iii) general economic outlook including economic growth, inflation and interest rates. 56 Table of Contents In 2021, prior to the IPO, we determined the Company’s equity value using the probability weighted expected return method (“PWERM”), or the hybrid method.
Prior to our IPO and our common stock being listed on Nasdaq, given the absence of a public trading market for our common stock, the estimated fair value had been determined with input from Management exercising reasonable judgment and considering several objective and subjective factors including: (i) third-party valuations of our common stock, (ii) a combination of the income approach and the market approach and (iii) general economic outlook including economic growth, inflation and interest rates.
Same-Restaurant Sales Growth : the percentage change in year-over-year restaurant sales (excluding gift card breakage) for the comparable restaurant base, which we define 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”).
Franchise-owned New Restaurant Openings (“Franchise-owned NROs”): the number of new franchise-owned First Watch restaurants commencing operations during the period. 39 Table of Contents Same-Restaurant Sales Growth : the percentage change in year-over-year restaurant sales (excluding gift card breakage) for the comparable restaurant base, which we define 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”).
(8) 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 (Loss). (9) Represents costs incurred in connection with the economic impact of the COVID-19 pandemic.
(8) Represents insurance recoveries, net of costs incurred, in connection with hurricane damage, which were recorded in Other income, net on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Our principal uses of cash include capital expenditures for the development, acquisition or remodeling of restaurants, lease obligations, debt service payments and strategic infrastructure investments. Our working capital requirements are low because our restaurants store very little inventory and our customers pay for their purchases at the time of the sale which frequently precedes our payment terms with suppliers.
Our principal uses of cash include capital expenditures for the development, acquisition or remodeling of restaurants, lease obligations, debt service payments and strategic infrastructure investments. Our working capital requirements are low due to our restaurants’ storage of minimal inventory and customers’ payment for purchases at the time of the sale, which frequently precedes our payment terms with suppliers.
(1) Reconciliations from Income from operations and Income 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 Measure Reconciliations section below.
See “Key Performance Indicators” for additional information . (2) Reconciliations from Income from operations and Income 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 Measure Reconciliations section below.
This was partially offset by the increase in (i) operating costs and expenses driven by our restaurant growth and (ii) restaurant-level staffing and wages.
This was partially offset by the increase in (i) operating costs and expenses driven by our restaurant growth and (ii) deleverage of occupancy expenses.
Management also considered the specific future outlook for the reporting unit. As it relates to our trade names and trademarks, we evaluate similar factors as the goodwill assessment, in addition to impacts of potential changes to the assumed royalty rate.
As it relates to our trade names and trademarks, we evaluate similar factors as the goodwill assessment, in addition to impacts of potential changes to the assumed royalty rate.
FISCAL YEAR (in thousands) 2023 2022 2021 Net income (loss) $ 25,385 $ 6,907 $ (2,107) Depreciation and amortization 41,223 34,230 32,379 Interest expense 8,063 5,232 20,099 Income taxes 10,690 5,684 2,477 EBITDA 85,361 52,053 52,848 Stock-based compensation (1) 7,604 10,374 8,596 Transaction expenses (income), net (2) 3,147 2,513 (1,156) Strategic transition costs (3) 892 2,318 2,402 Impairments and loss on disposal of assets (4) 1,359 920 381 Delaware Voluntary Disclosure Agreement Program (5) 1,250 149 — Recruiting and relocation costs (6) 465 681 351 Severance costs (7) 26 155 265 Insurance proceeds in connection with natural disasters, net (8) (621) 115 — Loss on extinguishment of debt — — 2,403 COVID-19 related charges (9) — — 211 Adjusted EBITDA $ 99,483 $ 69,278 $ 66,301 Total revenues $ 891,551 $ 730,162 $ 601,193 Net income (loss) margin 2.8 % 0.9 % (0.4) % Adjusted EBITDA margin 11.2 % 9.5 % 11.0 % Additional information Deferred rent expense (income) (10) $ 2,090 $ 2,418 $ (2,011) _____________________________ (1) 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).
FISCAL YEAR (in thousands) 2024 2023 2022 Net income (loss) $ 18,925 $ 25,385 $ 6,907 Depreciation and amortization 57,715 41,223 34,230 Interest expense 12,640 8,063 5,232 Income taxes 9,101 10,690 5,684 EBITDA 98,381 85,361 52,053 Stock-based compensation (1) 8,525 7,604 10,374 Transaction expenses (income), net (2) 2,587 3,147 2,513 Strategic transition costs (3) 1,843 892 2,318 Impairments and loss on disposal of assets (4) 525 1,359 920 Delaware Voluntary Disclosure Agreement Program (5) 126 1,250 149 Recruiting and relocation costs (6) 888 465 681 Severance costs (7) 204 26 155 Insurance proceeds in connection with natural disasters, net (8) 329 (621) 115 Loss on extinguishment of debt 428 — — Adjusted EBITDA $ 113,836 $ 99,483 $ 69,278 Total revenues $ 1,015,910 $ 891,551 $ 730,162 Net income (loss) margin 1.9 % 2.8 % 0.9 % Adjusted EBITDA margin 11.2 % 11.2 % 9.5 % Additional information Deferred rent expense (income) (9) $ 1,318 $ 2,090 $ 2,418 _____________________________ (1) 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).
At the inception of each lease, we evaluate the expected term which includes reasonably certain renewal options, and the classification as either an operating leases or a finance lease. Lease liabilities represent the present value of future lease payments.
Leases We lease our restaurant facilities and corporate offices, as well as certain restaurant equipment under various non-cancelable agreements. At the inception of each lease, we evaluate the expected term which includes reasonably certain renewal options, and the classification as either an operating leases or a finance lease. Lease liabilities represent the present value of future lease payments.
Cash used in investing activities increased to $123.4 million during 2023 from $63.1 million during 2022 primarily as a result of the increase in capital expenditures to support our restaurant growth and the acquisitions of restaurants from our franchisees.
Cash used in investing activities increas ed to $206.7 million during 2024 from $123.4 million du ring 2023 primarily as a result of the increase in capital expenditures to support our restaurant growth and the acquisitions of restaurants from our franchisees.
We believe this measure is useful for investors because an increase in same-restaurant traffic provides an indicator as to the development of our brand and the effectiveness of our marketing strategy.
Measuring our same-restaurant traffic growth allows Management to evaluate the performance of our existing restaurant base. We believe this measure is useful for investors because same-restaurant traffic provides an indicator as to the development of our brand and the effectiveness of our marketing strategy.
The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by management.
The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by Management. We determine the fair values of tangible and intangible assets acquired generally in consultation with a third-party valuation advisor.
Transaction Expenses, Net Transaction expenses, net include (i) costs incurred in connection with the acquisition of franchise-owned restaurants, (ii) costs related to certain equity offerings, (iii) costs related to restaurant closures, (iv) gains or losses associated with lease or contract terminations and (v) 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.
In 2023, we recorded total impairment charges of $0.5 million, which primarily related to the long-lived assets of two company-owned restaurants for which Management agreed to accelerate the expected closure dates. 46 Table of Contents Transaction Expenses, Net Transaction expenses, net include (i) costs incurred in connection with the acquisition of franchise-owned restaurants, (ii) costs related to certain equity offerings, (iii) costs related to restaurant closures, (iv) gains or losses associated with lease or contract terminations and (v) 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.
The increase in occupancy expenses during 2023 as compared to 2022 was primarily due to our NROs and the acquired restaurants from our franchisees. Pre-opening Expenses Pre-opening expenses are costs incurred to open new company-owned restaurants.
The increase in occupancy expenses during 2024 as compared to 2023 was primarily due to the increase in the number of company-owned restaurants. Pre-opening Expenses Pre-opening expenses are costs incurred to open new company-owned restaurants.
This increase was partially offset by (i) lower costs incurred by us in connection with the sale of the Company’s common stock by funds managed by Advent through secondary public offerings and (ii) costs incurred related to restaurant closures in 2022.
This decrease was partially offset by an increase in costs incurred by us in connection with the sale of the Company’s common stock by funds managed by Advent through secondary public offerings.
In addition, we have estimated the value and economic lives of certain tangible assets based on historical information, industry estimates and averages, which are used to calculate depreciation and amortization expense.
Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows and discount rates. In addition, we have estimated the value and economic lives of certain tangible assets based on historical information, industry estimates and averages, which are used to calculate depreciation and amortization expense.
This increase was partially offset by lower health insurance costs. Other Restaurant Operating Expenses Other restaurant operating expenses consist of marketing and advertising expenses, utilities, insurance and other operating variable expenses incidental to operating company-owned restaurants, such as operating supplies (including paper products, menus and to-go supplies), credit card fees, repairs and maintenance, and third-party delivery services fees.
The increase was partially offset by (i) hourly labor efficiency and (ii) the additional 53rd week in 2023. 44 Table of Contents Other Restaurant Operating Expenses Other restaurant operating expenses consist of marketing and advertising expenses, utilities, insurance and other operating variable expenses incidental to operating company-owned restaurants, such as operating supplies (including paper products, menus and to-go supplies), credit card fees, repairs and maintenance, and third-party delivery services fees.
Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, which have been prepared in accordance with GAAP.
Refer to Note 18, Commitments and Contingencies, in the accompanying consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information. 51 Table of Contents Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, which have been prepared in accordance with GAAP.
The increase was partially offset by lower insurance costs of $0.4 million. Occupancy Expenses Occupancy expenses primarily consist of rent expense, property insurance, common area expenses and property taxes.
The increase was partially offset by a decrease in to-go supplies costs of $0.3 million. Occupancy Expen ses Occupancy expenses primarily consist of rent expense, property insurance, common area expenses and property taxes.
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 2023 and 2022: FISCAL YEAR (in thousands) 2023 2022 Revenues Restaurant sales $ 877,092 98.4 % $ 719,181 98.5 % Franchise revenues 14,459 1.6 % 10,981 1.5 % Total revenues 891,551 100.0 % 730,162 100.0 % Operating costs and expenses Restaurant operating expenses (1) (exclusive of depreciation and amortization shown below): Food and beverage costs 197,374 22.5 % 172,561 24.0 % Labor and other related expenses 294,010 33.5 % 238,257 33.1 % Other restaurant operating expenses 134,477 15.3 % 114,476 15.9 % Occupancy expenses 68,400 7.8 % 59,919 8.3 % Pre-opening expenses 7,173 0.8 % 5,414 0.8 % General and administrative expenses 103,121 11.6 % 84,959 11.6 % Depreciation and amortization 41,223 4.6 % 34,230 4.7 % Impairments and loss on disposal of assets 1,359 0.2 % 920 0.1 % Transaction expenses, net 3,147 0.4 % 2,513 0.3 % Total operating costs and expenses 850,284 95.4 % 713,249 97.7 % Income from operations (1) 41,267 4.7 % 16,913 2.4 % Interest expense (8,063) (0.9) % (5,232) (0.7) % Other income, net 2,871 0.3 % 910 0.1 % Income before income taxes 36,075 4.0 % 12,591 1.7 % Income tax expense (10,690) (1.2) % (5,684) (0.8) % Net income $ 25,385 2.8 % $ 6,907 0.9 % ____________ (1) Percentages are calculated as a percentage of restaurant sales.
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 2024 and 2023: FISCAL YEAR (in thousands) 2024 2023 Revenues Restaurant sales $ 1,004,355 98.9 % $ 877,092 98.4 % Franchise revenues 11,555 1.1 % 14,459 1.6 % Total revenues 1,015,910 100.0 % 891,551 100.0 % Operating costs and expenses Restaurant operating expenses (1) (exclusive of depreciation and amortization shown below): Food and beverage costs 223,097 22.2 % 197,374 22.5 % Labor and other related expenses 335,038 33.4 % 294,010 33.5 % Other restaurant operating expenses 151,968 15.1 % 134,477 15.3 % Occupancy expenses 82,694 8.2 % 68,400 7.8 % Pre-opening expenses 10,109 1.0 % 7,173 0.8 % General and administrative expenses 113,270 11.1 % 103,121 11.6 % Depreciation and amortization 57,715 5.7 % 41,223 4.6 % Impairments and loss on disposal of assets 525 0.1 % 1,359 0.2 % Transaction expenses, net 2,587 0.3 % 3,147 0.4 % Total operating costs and expenses 977,003 96.2 % 850,284 95.4 % Income from operations (1) 38,907 3.9 % 41,267 4.7 % Interest expense (12,640) (1.2) % (8,063) (0.9) % Other income, net 1,759 0.2 % 2,871 0.3 % Income before income taxes 28,026 2.8 % 36,075 4.0 % Income tax expense (9,101) (0.9) % (10,690) (1.2) % Net income $ 18,925 1.9 % $ 25,385 2.8 % ____________ (1) Percentages are calculated as a percentage of restaurant sales.
In 2023, First Watch was named the top restaurant brand in Yelp’s inaugural list of the top 50 most-loved brands in the United States. In 2023 and 2022, First Watch was named a Top 100 Most Loved Workplace® by Newsweek and the Best Practice Institute. In 2022, First Watch was recognized with ADP’s coveted Culture at Work Award.
For three consecutive years, First Watch was named a Top 100 Most Loved Workplace® by Newsweek and the Best Practice Institute, and in 2024, was named the #1 Most Loved Workplace. In 2023, First Watch was named the top restaurant brand in Yelp’s inaugural list of the top 50 most-loved brands in the United States.
Its fiscal quarters are comprised of 13 weeks each and end on the 13th Sunday of each quarter, save for 53-week years during which the fourth quarter ends on the 14th Sunday of the fourth quarter. All references to 2023 reflect the results of the 53-week fiscal year ended December 31, 2023.
The Company’s 52- or 53-week fiscal years end on the last Sunday of each calendar year. Its fiscal quarters are comprised of 13 weeks each and end on the 13th Sunday of each quarter, save for 53-week years during which the fourth quarter ends on the 14th Sunday of the fourth quarter.
(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). 50 Table of Contents Restaurant level operating profit and Restaurant level operating profit margin - The following table reconciles Income from operations and Income from operations margin, the most comparable GAAP measures to Restaurant level operating profit and Restaurant level operating profit margin for the periods indicated: FISCAL YEAR (in thousands) 2023 2022 2021 Income from operations $ 41,267 $ 16,913 $ 22,243 Less: Franchise revenues (14,459) (10,981) (8,850) Add: General and administrative expenses 103,121 84,959 70,388 Depreciation and amortization 41,223 34,230 32,379 Transaction expenses (income), net (1) 3,147 2,513 (1,156) Impairments and loss on disposal of assets (2) 1,359 920 381 Costs in connection with natural disasters (3) — 382 — COVID-19 related charges (4) — — 19 Restaurant level operating profit $ 175,658 $ 128,936 $ 115,404 Restaurant sales $ 877,092 $ 719,181 $ 592,343 Income from operations margin 4.7 % 2.4 % 3.8 % Restaurant level operating profit margin 20.0 % 17.9 % 19.5 % Additional information Deferred rent expense (income) (5) $ 1,891 $ 2,219 $ (2,075) _____________________________ (1) Represents (i) costs incurred in connection with the acquisition of franchise-owned restaurants, (ii) costs related to certain equity offerings, (iii) costs related to restaurant closures, (iv) gains or losses associated with lease or contract terminations and (v) 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.
(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). 49 Table of Contents Restaurant level operating profit and Restaurant level operating profit margin - The following table reconciles Income from operations and Income from operations margin, the most comparable GAAP measures to Restaurant level operating profit and Restaurant level operating profit margin for the periods indicated: FISCAL YEAR (in thousands) 2024 2023 2022 Income from operations $ 38,907 $ 41,267 $ 16,913 Less: Franchise revenues (11,555) (14,459) (10,981) Add: General and administrative expenses 113,270 103,121 84,959 Depreciation and amortization 57,715 41,223 34,230 Transaction expenses (income), net (1) 2,587 3,147 2,513 Impairments and loss on disposal of assets (2) 525 1,359 920 Costs in connection with natural disasters (3) 312 — 382 Restaurant level operating profit $ 201,761 $ 175,658 $ 128,936 Restaurant sales $ 1,004,355 $ 877,092 $ 719,181 Income from operations margin 3.9 % 4.7 % 2.4 % Restaurant level operating profit margin 20.1 % 20.0 % 17.9 % Additional information Deferred rent expense (income) (4) $ 1,119 $ 1,891 $ 2,219 _____________________________ (1) Represents costs incurred in connection with the acquisition of franchise-owned restaurants, secondary offering costs, costs related to restaurant closures, gains or losses associated with lease or contract terminations and revaluations of contingent consideration liability.
All references to 2022 and 2021 reflect the 52-week fiscal years ended December 25, 2022 and December 26, 2021, respectively. We report financial and operating information in one segment.
All references to 2024 and 2022 reflect the results of the 52-week fiscal year ended December 29, 2024 and December 25, 2022. All references to 2023 reflect the results of the 53-week fiscal year ended December 31, 2023. We report financial and operating information in one segment.
Development Highlights During 2023, the Company had a total of 51 new system-wide restaurants in 19 states and we closed one company-owned restaurant. We also acquired 23 operating restaurants from our franchisees in the execution of our growth strategy. See Note 3, Business Acquisitions , in the accompanying notes to the consolidated financial statements for additional information.
We also acquired 22 operating restaurants from our franchisees in the execution of our growth strategy. See Note 3, Business Acquisitions , in the accompanying notes to the consolidated financial statements for additional information. At December 29, 2024, the Company had a total of 572 system-wide restaurants.
On November 7, 2022, we filed a Registration Statement on Form S-3 that allows the Company to sell up to 5,000,000 shares of common stock from time to time in one or more offerings.
On November 7, 2022, we filed a Registration Statement on Form S-3 that allows the Company to sell up to 5,000,000 shares of common stock from time to time in one or more offerings. 50 Table of Contents We estimate that our capital expenditures will total approximately $150.0 million to $160.0 million in 2025, not including the capital allocated to franchise acquisitions.
Labor and Other Related Expenses Labor and other related expenses are variable by nature and include hourly and management wages, bonuses, payroll taxes, workers’ compensation expense and employee benefits. Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, the number and performance of our company-owned restaurants and increased competition for qualified staff.
Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, the number and performance of our company-owned restaurants and increased competition for qualified staff.
FISCAL YEAR (in thousands) 2023 2022 Change Franchise revenues: Royalty and system fund contributions $ 13,464 $ 10,683 $ 2,781 26.0 % Initial fees 388 298 90 30.2 % Business combinations - revenues recognized 607 — 607 — % Total Franchise revenues $ 14,459 $ 10,981 $ 3,478 31.7 % The increase in franchise revenues during 2023 as compared to 2022 was primarily driven by (i) the increase in sales from franchise-owned restaurants, (ii) $0.6 million from 14 franchise-owned NROs and (iii) $0.6 million of deferred franchise revenues recognized in connection with the acquisitions of restaurants from our franchisees.
FISCAL YEAR (in thousands) 2024 2023 Change Franchise revenues: Royalty and system fund contributions $ 10,864 $ 13,464 $ (2,600) (19.3) % Initial fees 278 388 (110) (28.4) % Business combinations - revenues recognized 413 607 (194) — % Total Franchise revenues $ 11,555 $ 14,459 $ (2,904) (20.1) % The decrease in franchise revenues during 2024 as compared to 2023 was primarily driven by (i) the Company’s acquisitions of franchise-owned restaurants and (ii) $0.6 million of deferred franchise revenues recognized in 2023 in connection with the acquisitions of restaurants from franchisees.
There were 327 restaurants and 301 restaurants in our Comparable Restaurant Base in 2023 and in 2022, respectively. There were 205 restaurants in the four-year Comparable Restaurant Base. Measuring our same-restaurant sales growth allows management to evaluate the performance of our existing restaurant base.
For the 52-weeks ended December 29, 2024 and December 31, 2023, there were 344 restaurants and 327 restaurants in our Comparable Restaurant Base. Measuring our same-restaurant sales growth allows Management to evaluate the performance of our existing restaurant base.
FISCAL YEAR (in thousands) 2023 2022 Change Transaction expenses, net $ 3,147 $ 2,513 $ 634 25.2% Transaction expenses, net increased during 2023 as compared to 2022 primarily due to costs incurred in connection with the acquisitions of restaurants from our franchisees.
FISCAL YEAR (in thousands) 2024 2023 Change Transaction expenses, net $ 2,587 $ 3,147 $ (560) (17.8)% Transaction expenses, net decreased during 2024 as compared to 2023 primarily due to (i) lower costs incurred in connection with the acquisitions of restaurants from our franchisees and (ii) contingent consideration liability reduction.
Interest Expense Interest expense primarily consists of interest and fees on our outstanding debt and the amortization expense for debt discount and deferred issuance costs.
This decrease was partially offset by the increase in restaurant sales and franchise revenues. Interest Expense Interest expense primarily consists of interest and fees on our outstanding debt and the amortization expense for debt discount and deferred issuance costs.
(6) 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). (7) Severance costs are recorded in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss). (7) Severance costs are recorded in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
We plan to fund the capital expenditures and our significant acquisitions primarily with cash generated from our operating activities as well as with borrowings from our facilities pursuant to our Credit Agreement.
This capital is invested primarily in new restaurant projects and planned remodels. We intend to fund the capital expenditures primarily with cash generated from our operating activities as well as with borrowings pursuant to our Credit Agreement.
Other Income, Net Other income (expense), net includes items deemed to be non-operating based on management’s assessment of the nature of the item in relation to our core operations. FISCAL YEAR (in thousands) 2023 2022 Change Other income, net $ 2,871 $ 910 $ 1,961 n/m (1) ____________ (1) Not meaningful.
Other Income, Net Other income, net includes items deemed to be non-operating based on Management’s assessment of the nature of the item in relation to our core operations.
Such indicators may include, among others: negative operating performance of our restaurants, economic and restaurant industry trends, legal factors, significant competition or changes in our business strategy. Adverse changes in these factors could have a significant impact on the recoverability of these assets and the resulting impairment charge could be material to our consolidated financial statements.
Such indicators may include, among others: negative operating performance of our restaurants, economic and restaurant industry trends, legal factors, significant competition or changes in our business strategy.
Adjusted EBITDA and Adjusted EBITDA Margin FISCAL YEAR (in thousands) 2023 2022 Change Adjusted EBITDA $ 99,483 $ 69,278 $ 30,205 43.6 % Adjusted EBITDA margin 11.2 % 9.5 % 1.7% The increase in Adjusted EBITDA and Adjusted EBITDA margin during 2023 as compared to 2022 was primarily due to the increase in restaurant level operating profit and restaurant level operating profit margin.
Adjusted EBITDA and Adjusted EBITDA Margin FISCAL YEAR (in thousands) 2024 2023 Change Adjusted EBITDA $ 113,836 $ 99,483 $ 14,353 14.4 % Adjusted EBITDA margin 11.2 % 11.2 % —% The increase in Adjusted EBITDA and consistent Adjusted EBITDA margin during 2024 as compared to 2023 was primarily due to the increase in (i) restaurant level operating profit and (ii) restaurant level operating profit margin.
Contractual Obligations Material contractual obligations arising in the normal course of business primarily consist of operating and finance lease obligations, long-term debt, and purchase obligations. The timing and nature of these commitments are expected to have an impact on our liquidity and capital requirements in future periods.
The timing and nature of these commitments are expected to have an impact on our liquidity and capital requirements in future periods.
Such indicators could include negative operating performance of our restaurants, economic and restaurant industry trends, legal factors, significant competition or changes in our business strategy. Any adverse change in these factors could have a significant impact on the recoverability of our goodwill and indefinite-lived intangible assets and could have a material impact on our consolidated financial statements.
Such indicators could include negative operating performance of our restaurants, economic and restaurant industry trends, legal factors, significant competition or changes in our business strategy.
We also plan on closing 1 company-owned restaurant, resulting in a total of 51 to 57, net new system-wide restaurants in 2024. 41 Table of Contents Selected Operating Data FISCAL YEAR 2023 2022 2021 Operating weeks in fiscal year 53 52 52 System-wide restaurants 524 474 435 Company-owned 425 366 341 Franchise-owned 99 108 94 System-wide sales (in thousands) $ 1,103,089 $ 914,816 $ 750,674 Same-restaurant sales growth 7.6 % * 14.5 % 63.0 % Same-restaurant traffic growth 0.2 % * 7.7 % 52.6 % AUV (in thousands) $ 2,250 $ 2,032 $ 1,786 Income from operations (in thousands) $ 41,267 $ 16,913 $ 22,243 Income from operations margin 4.7 % 2.4 % 3.8 % Restaurant level operating profit (in thousands) (1) $ 175,658 $ 128,936 $ 115,404 Restaurant level operating profit margin (1) 20.0 % 17.9 % 19.5 % Net income (loss) (in thousands) $ 25,385 $ 6,907 $ (2,107) Net income (loss) margin 2.8 % 0.9 % (0.4) % Adjusted EBITDA (in thousands) (2) $ 99,483 $ 69,278 $ 66,301 Adjusted EBITDA margin (2) 11.2 % 9.5 % 11.0 % ________________ * Comparison to the 53 weeks ended January 1, 2023, is provided for enhanced comparability.
Selected Operating Data FISCAL YEAR 2024 2023 2022 Number of weeks in fiscal year 52 53 52 System-wide restaurants 572 524 474 Company-owned 489 425 366 Franchise-owned 83 99 108 System-wide sales (in thousands) 1,184,469 1,103,089 914,816 Same-restaurant sales growth (1) (0.5) % 7.6 % 14.5 % Same-restaurant traffic growth (1) (4.0) % 0.2 % 7.7 % AUV (in thousands) $ 2,204 $ 2,250 $ 2,032 Income from operations (in thousands) $ 38,907 $ 41,267 $ 16,913 Income from operations margin 3.9 % 4.7 % 2.4 % Restaurant level operating profit (in thousands) (2) $ 201,761 $ 175,658 $ 128,936 Restaurant level operating profit margin (2) 20.1 % 20.0 % 17.9 % Net income (in thousands) $ 18,925 $ 25,385 $ 6,907 Net income margin 1.9 % 2.8 % 0.9 % Adjusted EBITDA (in thousands) (3) $ 113,836 $ 99,483 $ 69,278 Adjusted EBITDA margin (3) 11.2 % 11.2 % 9.5 % ________________ (1) Comparing th e 52-week period ended December 29, 2024 with the 52-week period ended December 31, 2023 in order to compare like-for-like periods.
Our AUV increased 10.7% to $2.3 million in 2023 from $2.0 million in 2022. The Company continued to accelerate the pace of new restaurant openings with 37 NROs in 2023 and we executed on our growth strategy as we acquired 23 operating restaurants from our franchisees in 2023.
The Company continued to accelerate the pace of new restaurant openings with 43 NROs in 2024 and we executed on our growth strategy as w e acquired 22 op erating restaurants from our franchisees in 2024.
FISCAL YEAR (in thousands) 2023 2022 Change Depreciation and amortization $ 41,223 $ 34,230 $ 6,993 20.4 % The increase in depreciation and amortization during 2023 as compared to 2022 was primarily due to incremental depreciation of capital expenditures associated with NROs and the acquired restaurants from our franchisees. 46 Table of Contents Impairments and Loss on Disposal of Assets Impairments and loss on disposal of assets include (i) the impairment of long-lived assets and intangible assets where the carrying amount of the asset is not recoverable and exceeds the fair value of the asset, (ii) the write-off of the net book value of assets that have been retired or replaced in the normal course of business and (iii) the write-off of the net book value of assets in connection with restaurant closures and natural disasters.
Impairments and Loss on Disposal of Assets Impairments and loss on disposal of assets include (i) the impairment of long-lived assets and intangible assets where the carrying amount of the asset is not recoverable and exceeds the fair value of the asset, (ii) the write-off of the net book value of assets that have been retired or replaced in the normal course of business and (iii) the write-off of the net book value of assets in connection with restaurant closures and natural disasters.
We believe that our cash flows from operations, availability under our Credit Agreement and available cash and cash equivalents will be sufficient to meet our liquidity needs for at least the next 12 months. We anticipate that to the extent that we require additional liquidity, it will be funded first through additional indebtedness and thereafter through the issuance of equity.
We believe that our cash flow from operations combined with our availability under the Credit Facility and our cash and cash equivalents will be sufficient to meet the Company’s liquidity needs for at least the next 12 months.
This increase was partially offset by lower health insurance costs. 44 Table of Contents The increase in labor and other related expenses during 2023 as compared to 2022 was primarily due to (i) the increase in wages and staffing levels, (ii) 37 NROs and (iii) 23 restaurants we had acquired from our franchisees.
This decrease was partially offset by (i) wage increases and (ii) higher health insurance costs. The increase in labor and other related expenses during 2024 as compared to 2023 was primarily due to (i) the increase in staffing levels to support the increase in corporate-owned restaurants (ii) wage increases and (iii) higher health insurance costs .
FISCAL YEAR 2023 Company-owned Franchise-owned Total Beginning of period 366 108 474 New restaurants 37 14 51 Acquisitions of franchise-owned restaurants 23 (23) — Closures (1) — (1) End of period 425 99 524 We expect to open between 43 to 47 company-owned restaurants and 9 to 11 franchise-owned restaurants during 2024.
FISCAL YEAR 2024 Company-owned Franchise-owned Total Beginning of period 425 99 524 New restaurants 43 7 50 Acquisitions of franchise-owned restaurants 22 (22) — Closures (1) (1) (2) End of period 489 83 572 We expect to open betwe en 55 to 58 company-owned restaurants and 7 to 9 franchise-owned restaurants during 2025.
Management reviews the number of new restaurants to assess new restaurant growth and company-owned restaurant sales. 38 Table of Contents Franchise-owned New Restaurant Openings (“Franchise-owned NROs”): the number of new franchise-owned First Watch restaurants commencing operations during the period.
Management reviews the number of new restaurants to assess new restaurant growth and company-owned restaurant sales.
This increase was partially offset by (i) higher restaurant-level wages and staffing, (ii) higher operating costs and depreciation expense driven by our restaurant growth and acquisitions of franchise-owned restaurants, as well as (iii) higher general and administrative expenses mainly attributable to additional employee headcount and performance-based compensation.
Income from operations decreased during 2024 as compared to 2023 primarily due to (i) higher operating costs and depreciation expense driven by our restaurant growth and acquisitions of restaurants from franchisees, as well as (ii) higher general and administrative expenses primarily attributable to additional employee headcount and performance-based compensation and (iii) the 53rd week in 2023.
Franchise Revenues Franchise revenues are comprised of sales-based royalty fees, system fund contributions and the amortization of upfront initial franchise fees, which are recognized as revenue on a straight-line basis over the term of the franchise agreement. Franchise revenues in any period are directly influenced by the number of open franchise-owned restaurants.
The increase was partially offset by (i) 2024 negative same-restaurant sales growth of 0.5% and (ii) the 53rd week of sales in 2023 . 43 Table of Contents Franchise Revenues Franchise revenues are comprised of sales-based royalty fees, system fund contributions and the amortization of upfront initial franchise fees, which are recognized as revenue on a straight-line basis over the term of the franchise agreement.
FISCAL YEAR (in thousands) 2023 2022 Change Other restaurant operating expenses $ 134,477 $ 114,476 $ 20,001 17.5 % As a percentage of restaurant sales 15.3 % 15.9 % (0.6)% Other restaurant operating expenses as a percentage of restaurant sales during 2023 decreased as compared to 2022 primarily due to (i) leveraging restaurant sales, (ii) lower costs of to-go supplies, (iii) lower insurance costs and (iv) lower third-party delivery fees mainly driven from leveraging in-restaurant dining sales.
FISCAL YEAR (in thousands) 2024 2023 Change Other restaurant operating expenses $ 151,968 $ 134,477 $ 17,491 13.0 % As a percentage of restaurant sales 15.1 % 15.3 % (0.2)% Other restaurant operating expenses as a percentage of restaurant sales during 2024 decreased as compared to 2023 primarily due to (i) leveraging menu price increases, (ii) third-party delivery related revenue and expenses, including to-go supplies and third-party delivery fees, increasing at a lower rate than total restaurant sales.
Restaurant Level Operating Profit : represents 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.
See Non-GAAP Financial Measure Reconciliations below for a reconciliation to Net income margin, the most directly comparable GAAP measure. Restaurant Level Operating Profit : represents 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.
FISCAL YEAR (in thousands) 2023 2022 Change Occupancy expenses $ 68,400 $ 59,919 $ 8,481 14.2 % As a percentage of restaurant sales 7.8 % 8.3 % (0.5)% The decrease in occupancy expenses as a percentage of restaurant sales during 2023 as compared to 2022 was primarily due to leveraging restaurant sales.
FISCAL YEAR (in thousands) 2024 2023 Change Occupancy expenses $ 82,694 $ 68,400 $ 14,294 20.9 % As a percentage of restaurant sales 8.2 % 7.8 % 0.4% The increase in occupancy expenses as a percentage of restaurant sales during 2024 as compared to 2023 was primarily due to higher rent expense and the deleverage associated with negative same-restaurant sales grow th.
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.
The costs include inventory spoilage and labor costs, which were recorded in Food and beverage costs and Labor and other related expenses, respectively, on the Consolidated Statements of Operations and Comprehensive Income (Loss). (4) Represents the non-cash portion of straight-line rent expense recorded within Occupancy expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
FISCAL YEAR (in thousands) 2023 2022 Change Food and beverage costs $ 197,374 $ 172,561 $ 24,813 14.4 % As a percentage of restaurant sales 22.5 % 24.0 % (1.5)% Food and beverage costs as a percent of restaurant sales decreased during 2023 as compared to 2022 primarily due to (i) lower commodity costs across the market basket, driven mostly by decreases in pork and avocado prices, and (ii) leveraging menu price increases.
FISCAL YEAR (in thousands) 2024 2023 Change Food and beverage costs $ 223,097 $ 197,374 $ 25,723 13.0 % As a percentage of restaurant sales 22.2 % 22.5 % (0.3)% Food and beverage costs as a percent of restau rant sales decreased during 2024 as compared to 2023 primarily due to leveraging menu price increases.
FISCAL YEAR (in thousands) 2023 2022 Change Interest expense $ (8,063) $ (5,232) $ (2,831) 54.1 % The increase in interest expense during 2023 as compared to 2022 was primarily due to higher interest rates and the increase in outstanding debt.
FISCAL YEAR (in thousands) 2024 2023 Change Interest expense $ (12,640) $ (8,063) $ (4,577) 56.8 % The increase in interest expense during 2024 as compared to 2023 was primarily due (i) an increase borrowings associated with franchise acquisitions and (ii) higher interest rates.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeIn 2024, we expect cost inflation for our entire market basket in the range of 2% to 4%. In 2024, we have locked prices for approximately 32% of our market basket. Other commodities are purchased based upon negotiated price ranges established with vendors and are subject to fixed prices or fixed formulas for 30-to-90 day periods.
Biggest changeWe expect a high-single digit percentage increase in our 2025 commodity prices as compared to the prior year. In 2024, we have negotiated annual pricing for approximately 30% of our market basket. Other commodities are purchased based upon price ranges established with vendors and are subject to fixed prices or fixed formulas for 30-to-90 day periods.
On June 23, 2023, we entered into a variable-to-fixed interest rate swap agreement with two financial institutions to hedge $90.0 million of the outstanding variable rate debt.
On June 23, 2023, we entered into a variable-to-fixed interest rate swap agreement with two financial institutions to hedge $90 million of the outstanding variable rate debt.
We have been able to partly offset cost increases resulting from a number of factors, including market conditions, shortages or interruptions in supply due to weather, the macroeconomic impacts of the Russia-Ukraine conflict or other conditions beyond our control, governmental regulations and inflation, by increasing our menu prices, as well as making other operational adjustments that increase productivity.
We have been able to partly offset cost increases resulting from a number of factors, including market conditions, shortages or interruptions in supply due to weather, the macroeconomic impacts of regional conflicts, including the ongoing Russia-Ukraine conflict, or other conditions beyond our control, governmental regulations and inflation, by increasing our menu prices, as well as making other operational adjustments that increase productivity.
Refer to Note 10, Debt, and Note 11, Interest Rate Swaps , in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for more information. 57 Table of Contents
Refer to Note 10, Debt, and Note 11, Interest Rate Swaps , in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for more information.
However, elevated inflation in commodity markets and substantial increases in costs and expenses could impact our results of operations to the extent that such increases cannot be offset by menu price increases. Currently we do not use financial instruments to hedge our commodity risk. The Company’s market basket experienced cost deflation of 50 basis points in 2023.
However, elevated inflation in commodity markets and substantial increases in costs and expenses could impact our results of operations to the extent that such increases cannot be offset by menu price increases. Currently we do not use financial instruments to hedge our commodity risk. The Company’s market basket experienced cost inflation of 320 basis points in 2024.
Our loans pursuant to our Credit Agreement incur interest at a floating rate and we also pay an unused commitment fee of between 25 and 50 basis points on the undrawn commitments under our Revolving Credit Facility, depending on the Total Rent Adjusted Net Leverage Ratio, as defined in our Credit Agreement.
Our loans pursuant to our Credit Agreement incur interest at a floating rate and we also pay an unused commitment fee of between 37.5 and 50 basis points on the undrawn commitments, depending on the Total Rent Adjusted Net Leverage Ratio, as defined in our Credit Agreement.
Under the terms of the interest rate swap agreements, the Company will pay a weighted average fixed rate of 4.16% on the notional amount and will receive payments from the counterparties based on the three-month secured overnight financing rate.
Under the terms of the interest rate swap agreements, the Company will pay a weighted average fixed rate of 4.16% on the notional amount and will receive payments from the counterparties based on the three-month secured overnight financing rate. On May 17, 2024, the Company entered into two additional variable-to-fixed interest rate swaps.
Interest Rate Risk As of December 31, 2023, we had $92.5 million in outstanding borrowings, excluding unamortized debt discount and deferred issuance costs.
Interest Rate Risk As of December 29, 2024, we had $193.8 million in outstanding borrowings, excluding unamortized debt discount and deferred issuance costs.
Added
These interest rate swaps have an aggregate notional amount of $60 million and mature on June 30, 2027. Under the terms of the interest rate swaps, the Company will pay a weighted average fixed rate of 4.42% on the notional amount and will receive payments from the counterparties based on the three-month secured overnight financing rate.

Other FWRG 10-K year-over-year comparisons