First Watch Restaurant Group, Inc.

Thank you for standing by and welcome to the First Watch Restaurant Group Incorporated First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, the conference call will be open for analyst questions and instructions on how to ask a question will be given at that time. This call is being recorded today, May 10, 2022 at 8 a.m. Eastern Time and will be archived and available for replay at investors.com. under the news and events section. I would now like to turn the conference over to Raphael 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 first quarter, 2022, on Globe Newswire and filed his quarterly report on Form 10-Q with the SEC. These documents can be found at investors.firstwatch.com. Let me now 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. These statements include, without limitation, statements concerning the conditions of the company's industry and its operations, performance and financial condition, growth strategies, and future expenses. Any such statements should be considered in conjunction with questionary statements in the company's earnings release and the risk factor disclosure in its filings with the SEC, including its most recent annual report on Form 10-K and quarterly report on Form 10-Q. 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 the comparable gap 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.

Good morning. Just a few short weeks ago, I shared our results from a record 2021, and I'm happy to once again share that our strong performance has carried into 2022. Before I dive into that performance, I want to take a minute to talk about why we believe we've been able to deliver exceptional results like we reported again. morning and give you a little background on those results. We're in the position we are today because of how we came to be back in the early 80s. Back then you would have been hard pressed to find another restaurant that served breakfast, brunch and lunch without moonlighting as a dinner place. Daytime dining was almost unheard of and First Watch was built differently. The fun side of the story of our beginnings and our daytime only hours is that our founders wanted to be able to play golf in the afternoons. That was certainly true. But more importantly, they wanted to give our staff the same opportunity to have evenings free to spend with their families. After spending many years in the restaurant industry themselves, working many long days and late nights, they set out to create a concept where those with the spirit of hospitality could have a fulfilling career in an industry they love and still have quality time to spend with their family and friends doing things they enjoy. That focus on family and on quality of life has been a part of First Watch ever since, even before work-life balance was a trending topic. And frankly, it's one of the attributes that drew me personally to First Watch in the first place nearly 16 years ago. When I joined back in 2006, I had two young children, one of whom actually graduated from college this past weekend. Moving to Sarasota, Florida with my young family was a big decision, but the opportunity to join an organization with the same priorities, with a focus on people, family, and balance, was something nearly non-existent in this industry and an opportunity I couldn't pass up. Some of the hours weren't the only innovation our founders brought to First Watch. They were taking an approach to the menu that was focused on freshness, quality, and creativity, which back then and still today was a stark contrast to the diners and greasy spoons around the block. That passion for innovation is still at the core of who we are, sourcing fresh produce that's delivered to our more than 440 restaurants throughout the week and introducing seasonal menus five times a year, highlighting only the best of what's in season at that time, whether for our entrees or our fresh juice program. We've always offered something different. Today, we obviously are living in unique times, and it's in times like this that I get even more excited to share the First Watch story. Remember, we've been doing this for nearly 40 years and have been a high-growth concept for most of those. Despite the current environment, Our brand has thrived, just as it did during difficult times in the past, and I believe this can largely be credited to our non-traditional model. We realize that we do not fit neatly into industry categories, and as I've said before, we embrace that. We are instead focused on our customers' evolving needs, and the first watch experience for both our customers and our employees has never been more relevant than it is today. Our long track record of strong traffic growth is not an accident. We offer a progressive trend forward menu that has consistently introduced menu items before they hit mainstream. And we do it at a price point and value that allows for, and I would say, encourage frequency. We're fortunate to attract an affluent customer base, yet we continue to see growth from an emerging group that tends to skew younger, a bit more digitally focused, and seeks out great food. My point here is that we cannot be easily defined, and that is because we offer a highly differentiated experience, and this experience is serving a unique need for our communities right now. More than ever, people are seeking connection, and we know that our customers often describe First Watch as a place to, quote, take a time out or a mini vacation in their hectic day. We serve as a neighborhood gathering place, and we don't take this for granted. I believe this unique positioning is a large contributor to our continued strong traffic and dining room recovery. And with that, let's review our Q1 results. We benefited from an accelerated recovery from COVID impacts. In fact, starting in Q1 of 2021, we began seeing positive same restaurant sales versus 2019. And that recovery continued steadily throughout the past year. Year over year, our same restaurant sales growth was 27.2%. And when compared to our strong first quarter of 2019, it was 26.1%. driven primarily by same restaurant traffic growth of 3.4%. I realize that this puts us in rare error. Moreover, despite the challenging operating environment, I'm especially proud that we delivered a solid restaurant-level operating profit margin that surpassed our expectations. Our performance accelerated toward the end of the quarter, bringing system-wide sales for the quarter to $214 million, with $173 million in total revenues. That's a 36% increase over the first quarter of 2021. We opened seven beautiful new First Watch restaurants during the quarter, including six company-owned and one franchise, bringing our system total to 441 at the end of the quarter. These seven restaurants opened across five states and seven DMAs, from St. Louis to Miami to Pittsburgh. And our new restaurants, regardless of geography, continue to consistently achieve annualized sales that exceed the average unit volumes of our existing restaurants. That proven portability is what unlocks expansion opportunities for the future of our brand, once again reinforcing our confidence in our plans to grow to about 2,200 domestic restaurants and to continue to grow our average unit volumes. As we opened those seven new restaurants during the quarter, we maintained our average of 2.7 managers per restaurant, keeping our talent pipeline full with strong leaders who are prepared to take on the general manager position for our upcoming new restaurant openings. Firstwatch has always prioritized professional development for our employees, and during the first quarter, we relaunched our week-long culture and leadership training program, which we call FARM. It's short for the Firstwatch Academy of Restaurant Management. We hosted 50 managers during the quarter for this immersion experience in our home office here in Bradenton, Florida. On our last earnings call, you might remember that I mentioned that First Watch CPO Laura Sorenson was in Anaheim to accept ADP's prestigious Culture at Work Award. I'm proud to share she brought home the hardware. This honor was bestowed by the largest payroll provider in the world, which serves more than 80% of Fortune 500 companies and more than 900,000 total clients. First Watch was one of only five award recipients this year and the only company across all industries that was recognized for outstanding culture. This achievement is a big point of pride for our organization, and it speaks to the incredible teams operating our restaurants every day. If you've been to First Watch or if you follow us on social media, you know all about our commitment to continued menu innovation and the positive results it drives. Our dedication to early trend spotting and culinary research comes to life in our rotating seasonal menus and always expanding menu platforms. During Q1, we featured several craveable dishes on our Jumpstart seasonal menu, including the Trailblazer Bowl, the Carnitas Breakfast Burrito, Super Seed Protein Pancakes, and the star of the show really was our Purple Haze Juice. This refreshing beverage was an immediate success, quickly developing a cult-like following. We responded to an overwhelming amount of customer pleas and added it to our menu permanently. This color-changing lavender lemonade is made with butterfly pea flower tea, and it's now available year-round alongside our fresh kale tonic and morning meditation juices. This Instagrammable addition pays off with incrementality and is just another example of selected pricing as we continue to watch our customers choose to spend more to enhance their brunch experience. Now for an update on our restaurant technology, specifically as it relates to our kitchen display system rollout. Every new company-owned restaurant is opening with these systems, and we continue to install them in more of our existing restaurants each week. When we last spoke about our fourth quarter and fiscal 2021 results, I shared at that time that KDS was live in about 20 of our restaurants. Now, about six weeks later, it's up and running in more than 65 first-watch restaurants. We're conducting an efficient rollout with plans to have KDS in more than half of our company-owned restaurants by the end of this year. I've had the opportunity to visit some of the restaurants with KDS, and I also attended a recent new restaurant opening that incorporated the technology. And I'm so encouraged by the overwhelming support for this project by our teams and the positive energy that exists throughout the organization around its rollout. As we stated before, we have tremendous demand, some of which remains unfulfilled. And I'm proud of our teams in our restaurants and our home office and the steps we're continuing to take in order to help capture that demand while we also expand our footprint. And now to discuss our first quarter results in greater detail, I'll pass the phone to Mel.