First Watch Restaurant Group, Inc.

Thank you for standing by and welcome to the First Watch Restaurant Group Inc. Third 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, November 7, 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 raphael gross partner at icr please begin good morning everyone and welcome i am joined here today by firstwatch's chief executive officer and president chris tomaso and chief financial officer mel hope this morning firstwatch issued its earnings release for the third 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 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, 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 most recent annual report on Form 10-K and quarterly reports 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 to the comparable GAAP results contained in the company's earnings release filed this morning. And with that, I would like to turn the call over to Chris.

Good morning, and thank you for joining us. First Watch had another fantastic quarter where we experienced positive trends and improvement across several key areas of the business. We achieved same-restaurant sales growth driven in part by an increase in same-restaurant traffic. We accelerated our new restaurant development. Management staffing increased, and we benefited from an easing of commodity inflation. Our confidence in the continued momentum we are experiencing with consumers to drive sustainable growth remains higher than ever. This morning, I look forward to sharing our third quarter highlights. I'll also provide an update on Hurricane Ian's impact on our Florida business and discuss the national recognition as a beloved workplace that we recently received. Afterward, I'll pass the call to Mel to dive into our quarterly results in greater detail. In an environment where economic uncertainty and global turmoil dominated the news cycle, First Watch experienced great strength. System-wide sales for the third quarter were up 19.2% year-over-year. We achieved 12% same-restaurant sales growth, driven in part by 3.7% same-restaurant traffic growth when compared to a successful third quarter of 2021. Performance brings our year-to-date same restaurant sales and traffic growth to 17% and 10.6% respectively. And when we compare our Q3 results to 2019, same restaurant sales growth was 32.7% and same restaurant traffic growth was 7%. This brings our geometric three-year stacks to 36.1% and 10.4% respectively. We know that very few brands out there are generating traffic-driven growth in this environment. In fact, Black Box Intelligence recently reported that September was the industry's seventh consecutive month of traffic declines. And in Q3, the industry as a whole was down 4.6% in traffic, though as you know, First Watch saw the opposite. Our traffic grew 3.7% during the same period. Our continued same-restaurant performance appears to be consistently among the best in the industry, demonstrating the enduring strength of the First Watch brand. And because of these continued strong results, we'll again be raising certain elements of our full-year guidance, which Mel will elaborate on shortly. Breakfast and brunch occasions continue to grow as consumers crave elevated experiences and opportunities for meaningful social interactions, and we show up very well here. We continue to see evidence that consumers truly recognize our unique positioning and our overall value proposition and are seeking out our highly differentiated offerings. According to Technomic data, we maintain high ratings related to food quality and health and wellness. And in addition to appealing to a high-income consumer, we've seen a desirable balancing out of our customer base with strong growth among the millennial and Gen Z segments, who now make up a majority of our heavy users, according to Technomic, filling that pipeline of future diners. Growth in these segments is undoubtedly related to our increased relevance, and these customer groups have the highest stated likelihood of increasing usage at restaurants, especially during the breakfast day part. And in an environment where consumers are nervous about inflation, breakfast or lunch at First Watch is an affordable luxury and an appealing alternative to more expensive meals like dinner, with our elevated and on-trend menu made with fresh, high-quality ingredients at a per-person average just under $15.50. Our scale is an advantage here, and as the leader in dining, we continue to see a long runway ahead. Further to the point of continuing relevance, our seasonal menu program serves as a key differentiator and a traffic driver. We introduced our fall menu in late August, featuring unique takes on some classic favorites like our brisket corned beef hash and modern croque madame. Just one week ago, we unveiled our holiday menu, which includes a braised barbacoa breakfast burrito and shareable gingerbread spiced donut holes. And now, across most of our restaurants, you can enjoy a refreshing mimosa or Bloody Mary made the way only First Watch can. We're proud of the investments we've made in developing our award-winning culinary strategy, and this approach continues to propel the First Watch brand forward, build tremendous loyalty among both staff and customers, and create buzz throughout the year. Our teams embrace a culture of innovation. As an organization, we continue to invest in resources to support evolution and growth on the culinary, operational enhancement, and human capital fronts. We've been pleased to see continued increases in applicant flow, and our team's focus on hiring has resulted in continued improvement in staffing levels. In fact, during Q3, we returned to full management staffing for the first time since before the pandemic. We opened 11 system-wide restaurants during the third quarter, and we will open an additional 17 in the fourth quarter. This brings our full year total to 44, which is above the midpoint of our previously announced full year guidance range. Our company-owned restaurants, open to date in fiscal 2022, continue to boast annualized AUVs above our comp group average and have maintained that momentum regardless of geography, which reinforces our proven portability. Our kitchen display systems, or KDS, continue to be a popular upgrade among our staff. In addition to efficiencies in our day-to-day execution, the system also streamlines our onboarding and training process for both our hourly employees and our managers. KDS is now active in more than 300 restaurants. We're ahead of schedule with this rollout and now anticipate it will be active in every company-owned Firstwatch restaurant by early next year, with plans for our franchise restaurants to implement the system next year as well. With the capital spent on this system, we will reap the intended benefits in 2023. Firstwatch has delivered tremendous growth and success for decades. Throughout that time, our organization has managed through challenging times, including economic crises, natural disasters, and, of course, the COVID-19 pandemic. These challenges are by no means easy to navigate, but I can assure you that each time we faced an obstacle, we've continued to invest in people, we've continued to invest in our brand, and we've continued to invest in our growth. Our customers trust us, and they've shown unwavering support for their neighborhood first watch during each difficulty we faced. and in every instance, we've emerged stronger than before. About five weeks ago, we provided an update on Hurricane Ian and its effects on our Florida business after the Category 4 storm hit southwest Florida during the first week of our fourth quarter. At that time, we shared most importantly that every First Watch employee had been accounted for and that 10 of our restaurants remained temporarily closed. Later that same week, following our update, we were able to reopen nine of those 10 restaurants while we reopened while we began to rebuild one 35-year-old restaurant that sits right on the intercoastal waterway in Naples that had sustained substantial damage. I'm proud to share that next week, our training team is heading to Naples, preparing to reopen that final restaurant two weeks from today. The team is thrilled to return to their home restaurant, reunite with their longtime colleagues, and, of course, welcome back our loyal customers. Through the storm's destruction and Southwest Florida's ongoing recovery, we once again saw the absolute best in our people. They showed up for each other and for our communities. Through our Youth First Fund, thus far we've been able to provide tax-free grants to more than 230 of our employees in need in Southwest Florida, which is helping them get back on their feet more quickly. Companies talk about culture all the time. In my 16 years with First Watch, I've seen firsthand our culture come to life through inspiring actions, particularly during difficult times. A few weeks ago, First Watch was honored nationally as one of Newsweek's Top 100 Most Loved Workplaces. In fact, we were the top-ranked full-service restaurant concept. When the culture our people have built over the past 39 years is noticed and appreciated with recognition like this, it makes me so proud. I want to personally congratulate and thank our teams in every First Watch restaurant and in our home office. This one is because of you, and it's for you. And with that, I'll pass the mic to Mel to share our third quarter results.