First Watch Restaurant Group, Inc.

School 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, the conference call will be open for analysts' questions and instructions on how to ask a question will be given at that time. This call is being recorded today, March 23, 2022, at 8 a.m. Eastern Time, and will be archived and available for replay at investors.firstwatch.com under the News and Events section. I would now like to turn the conference over to Rafael Gross, partner at ICR, to begin.

Good morning, everyone, and welcome. I am joined here today by First Watch's Chief Executive Officer and President, Chris Tommaso, and Chief Financial Officer, Mel Hope. This morning, First Watch issued its earnings release for the fourth quarter, and the fiscal year ended December 26, 2021, on Globe Newswire, and filed its annual report on Form 10-K with the FCC. These documents can be found at investors.firstwatch.com. Let me now first cover a few housekeeping matters before introducing Chris. This conference call will include forward-looking statements that are subject to various risks and uncertainties that could cause the company's actual results to differ materially from these statements. Such statements include, without limitation, statements concerning the conditions of the company's industry and its operations, performance and financial condition, growth strategies, product development efforts, and future expenses. Any such statements should be considered in conjunction with cautionary statements in the company's earnings release and the risk factor disclosure in its filings with the SEC, including its annual report on Form 10-K. First Watch assumes no obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. Lastly, management's remarks today will include references to various non-GAAP measures, including restaurant-level operating profit, restaurant-level operating profit margin, adjusted EBITDA, and adjusted EBITDA margin. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in the company's earnings release filed this morning. And with that, I'd now like to turn the call over to Chris Tommaso, Firstwatch CEO and President.

Thank you, Ray. Good morning, everyone, and welcome to our 2021 earnings call. Before we begin this morning, I ask that you indulge me as I take a moment to acknowledge something that I'm sure is at the forefront of all of our minds, as it is for our customers and the rest of the world. That's the unfolding crisis in Ukraine. While there are few words that can capture the gravity of this moment, I can say this. Our hearts are with the people of Ukraine and all those affected by these tragic events. Now I'd like to move on to First Watch's performance. We're grateful you've taken time out of your schedules to join us this morning to learn more about our record 2021. And we're proud to once again be announcing robust results, results that exceeded our guidance. In 2021, Firstwatch achieved a significant milestone, surpassing three-quarters of a billion dollars in system-wide sales, finishing the year at $750.1 billion. That's up 76.1% year-over-year and up 34.4% over 2019. Traffic increases are a true measure of healthy growth, and we experienced growth in both the quarter and for the year. During the fourth quarter, our significant same restaurant traffic growth of 31.9% drove 36.7% same restaurant sales growth. And for the year, our 52.6% same restaurant traffic growth drove 63% same restaurant sales growth, once again building upon a long-term trend we established prior to the pandemic. where we had 28 consecutive quarters of same restaurant sales growth from 2013 to 2019. Our goal is to break that prior consecutive record as we continue to take market share and we see a long runway ahead. I've been with this organization for nearly 16 years now, and while we've always executed at a very high level, I don't think I've ever seen our teams executing like they are today in every first watch in all 28 states where we operate. They make me proud, and when Mel and I share our financial results this morning, I want to remind you that these results are accomplished in one seven and a half hour daily shift, seven days a week, 363 days a year. Now let's talk about our continued unit growth. As you know, we were recognized as the fastest growing full service restaurant company in America for the past two years, and we continue to demonstrate strong momentum. In the fourth quarter of 2020, we opened eight system-wide restaurants, bringing our total openings to 31. That's on top of the 42 system-wide new restaurants we opened in 2020. And I'd like to point out that these new restaurants are not confined to one region. In fact, in 2021, we successfully opened new restaurants across 12 states and 21 DMAs, further reinforcing our confidence in our ability to achieve our previously shared target of more than 2,200 restaurants in the U.S. Despite our rapid growth, we still have more demand than we can serve. And I'm happy to share the steps we're taking to ensure we're set up to successfully serve that demand going forward. First, we're driving the future with the evolution of our restaurant design. Every first watch contains a consistent set of core brand elements that create a sense of familiarity and comfort for our customers. These are augmented by unique site-specific elements to optimize our operations by creating efficiencies and a seamless experience for our customers and our employees. Some of these features include larger enhanced patios, indoor-outdoor bars, dedicated to-go entrances, and back-of-house improvements like double make lines that optimize the significant increase in off-prem sales our restaurants are now serving. These features also allow us to serve more demand and have undoubtedly contributed to the impressive performance of our class of 2021 new restaurants. Across all geographies, these restaurants have achieved annualized AUVs of $2 million, which is 11% higher than our existing company AUVs. As we accelerate our expansion, we look forward to bringing these elements and further strategic evolution to life. Our updated restaurant design is just one way we're positioning ourselves to serve more demand. Our focus has remained on taking great care of the customer in our restaurants, and that dedication paid off throughout the year. Our ongoing focus on driving traffic back into our restaurants continued to serve as our North Star during the quarter, just as it did for the year. It guided us to make some strategic business decisions that we believe played a critical role in our performance. These include our decision not to pare down our menu, our decision to quickly return to our popular seasonal menu program, and our conservative approach to pricing, which Mel will elaborate on in a few minutes. Let's move to staffing. I'd like to remind you of the attractive one-shift proposition we offer as leaders in the daytime dining segment. First Watch was founded on the premise of having no night shifts, allowing our teams to enjoy evenings with their family or friends. For nearly four decades, we've offered a quality of life that's hard to find in restaurants, and it's contributed to a culture that's unparalleled in the industry, which was acknowledged by our latest recognition. Just last night, First Watch Chief People Officer, Laura Sorenson, proudly accepted the coveted Culture at Work Award on behalf of our organization at this year's ADP Meeting of the Minds Conference in Anaheim. First Watch has always been a people-first organization, and it's difficult to think of a higher honor than one that recognizes our people and the culture that we've worked so hard to build together. Culture is not just something we talk about here. It's really what we're all about. And our leadership tenure reflects that, with our GMs averaging about five years with us our directors of operations averaging about 10 years, and our regional vice presidents and vice presidents of operations averaging about 15 years. And while we weren't completely unaffected by the recent staffing challenges, Firstwatch is considerably better positioned in a challenging staffing environment. We're seeing great progress having been better staffed in the fourth quarter than we were in the third. Additionally, our management turnover continues to be about 30% lower than industry average. And while at the beginning of 2021, we had about two managers per restaurant, we ended the year with 2.6 managers per restaurant and have since returned to our pre-COVID levels of more than 2.7 managers per restaurant. Once again, filling our talent pipeline to support our continued strategic unit growth. In fact, we have 124 managers teed up and ready to take on general manager positions for upcoming new restaurant openings. We're always taking steps to drive further efficiency and support our people. which brings me to an update on our kitchen display system or KDS rollout that we talked about previously. Our primary goal with this rollout is to improve back of house efficiencies by significantly simplifying our kitchen operations, allowing us to serve more demand, particularly during peak sales hours. With long wait times during these high demand hours, reducing friction in our kitchen allows us to increase capacity and welcome more customers into our dining rooms. Our early pilots have shown encouraging results, and we're excited about the tremendous potential this technology upgrade represents. As of today, it's in use in 20 Firstwatch restaurants, and our IT team is in the early stages of a broad company-wide rollout. We expect to have the KDS system installed in more than half of our company-owned restaurants by the end of this year. I've shared some of the ways we plan to serve more demand, and I also want to spend a moment talking through a few of our key platforms aimed at creating more demand. Since 1983, we've been innovating and evolving our menu, trying new things, and blazing a culinary trail. One of our recent and most compelling strategic menu additions is our alcohol platform. Our team's done a great job with the continued rollout. We started 2021 with our crafted cocktails available in 185 of our restaurants, and by the end of the year, the platform was in place in 305 first watch restaurants, or more than 70% of our systems. We continue to see overall beverage attachment lift in restaurants where the alcohol is served, and this program is incremental with accretive margins and little to no targeted marketing efforts put behind it thus far. Virtually all of our new restaurants are opening with this alcohol offering, and we're expecting to complete the rollout in our existing First Watch restaurants, wherever feasible, by the end of 2022. When it comes to culinary and menu strategy, our alcohol program is just the latest example of our innovation and leadership. We've said before, our philosophy for sourcing high-quality ingredients is simple. We follow the sun, welcoming each season into our menu with exceptional ingredients and flavors inspired by the position of the sun. This paves the way for rotating seasonal menus that are always fresh. It's why you'll find sweet Florida strawberries on our menu right now during the spring and tender sweet corn from the Midwest on our menus in August. like you saw in our very popular Elote Mexican Street Corn Hash last summer. Our dedication to featuring seasonal ingredients gives our culinary team the opportunity to constantly innovate and fosters the spirit of discovery for our customers and our team members. It also paves the way for expanding menu platforms, like our seasonal juices and shareables. These platforms lay the foundation for what we call guest-elected pricing. At First Watch, we've seen our customers elect to spend more to enhance their experience. We offer craveable new platforms and menu extensions, and these options give our customers a choice to stick to the basics or elevate their brunch. And when it comes to our culinary innovation, the industry has taken notice as well. Before I pass the mic, I want to congratulate our culinary team on their most recent accolade, a Menu Master's Honor awarded by Nation's Restaurant News for our savory seasonal short rib omelette. Chef Shane will accept the award this May at the Drake Hotel in Chicago in the company of our peers and fellow industry insiders. Our team of talented chefs is more than deserving of this recognition, and I can't wait for you to see what they have cooking for the rest of 2022. And with that, I'll turn it over to my friend and First Watch CFO, Mel Hope, to review our financial results in greater detail.