First Watch Restaurant Group, Inc.

Good morning and welcome to the First Watch Restaurant Group fourth quarter 2022 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Steve Murata, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome. I'm 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 fiscal year 2022 on Globe Newswire and filed its annual report on Form 10-K with the SEC. These documents can be found at investors.firstwatch.com. Let me 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 statement should be considered in conjunction with cautionary statements in the company's earnings release and the risk factor disclosure in our filings with the SEC, including our 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 file this morning. And with that, I would like to turn it over to Chris. Thanks, Steve.

Good morning. 2022 was another stellar year for Firstwatch. To start, we continued to outperform the industry in a number of key areas, perhaps most significantly in same restaurant sales growth of 14.5% versus 2021 and 29.6% when compared to 2019. Importantly, this comp group was led by 7.7% same restaurant traffic growth versus 2021 and 6.5% when compared to 2019. System-wide sales increased 21.9% year-over-year, growing to $914.8 million from $750.7 million. Total revenues increased 21.5% year-over-year, and adjusted EBITDA increased 4.5%. All of our growth metrics are even more noteworthy when you consider that they were achieved amidst a challenging macro environment during a year when the industry as a whole experienced year-over-year same restaurant traffic declines of three percent according to black box to us strong traffic share represents the truest measure of consumer appeal and the overall health of a concept as the pioneer of the daytime dining segment our consistent year-over-year traffic growth is yet another indication that consumers recognize the highly differentiated offering that first watch provides and the continued growing awareness of our brand. It is further evidence that our strategies are driving our desired results and gives us great confidence in our ability to achieve our long-term growth targets. I'm especially proud of what our team's accomplished on a development front, delivering 43 new restaurant openings in 2022. Our 29 company-owned restaurants opened in 2022 are achieving annualized AUVs that are about 7% above our comp group AUV of $2 million and well above their projected first year sales targets. More notably, these restaurants across all geographies appear to be building off of those volumes as they continue to mature. What's most exciting to us is that we are seeing volumes higher than we've ever experienced before. Prior to 2022, our weekly sales record was just shy of $70,000. With that in mind, I'd like to share about a new restaurant that we opened in November in Virginia. It had week one sales of just under $75,000. Over the next few weeks, the team there went on to break that record three more times, culminating at more than $110,000 in sales in its fifth week of operation. Year to date, this new restaurant has a weekly sales average of nearly $90,000, well above the company's previous weekly sales record. Since this record setting opening, we've seen others in our 2022 vintage break that $75,000 weekly sales threshold as well. These higher sales are not an anomaly. Our strong new restaurants from 2022 are still trending well above our comp group AUVs, and their high volumes appear to be sticky. We believe that one of these exceptional restaurants from our 2022 vintage will be our first $4 million restaurant. Achieving $4 million in sales in one seven and a half hour daily shift will be an amazing accomplishment for sure. Considering the comp group's consistent traffic and sales growth, Coupled with the exceptional performance of our new restaurants, it becomes abundantly clear that our biggest opportunity as a company now and for the foreseeable future is to serve more consumer-led demand. So our entire organization is focused on it. It's an enviable position to be, and we don't take it for granted. Our team has worked diligently over many years to put us in this position by evolving the brand to ensure relevance, broadening our appeal, and meeting the consumer's ever-changing needs. We've driven higher AUVs by unlocking tremendous upside potential in our restaurants through some key initiatives that I'll walk you through today. Admittedly, these efforts aren't necessarily shiny and sexy, and none of them have to do with robots or chat GPT technology, but they are transformational nonetheless and are designed to minimize or eliminate the look and leave phenomenon. That's when customers arrive at our restaurant to find a busy dining room and lengthy wait time and make a decision to go elsewhere. This is the unfulfilled demand at our doorstep that represents an outsized opportunity for us to continue to push our long-term sales and traffic growth to new heights. In 2023, we are focused on five primary strategic initiatives, both front of house and back of house, that are helping to serve this demand. First, our evolving real estate strategy. We're opening more restaurants to serve more demand, investing in A sites and a growing number of larger standalone units. and often taking over second generation locations from closed casual and fast casual concepts that have failed to evolve. The larger footprints of these new locations are one factor in our ability to generate higher volumes while maintaining or improving our returns on invested capital. We also see little to no cannibalization, even when infilling core markets. And in the rare instances when we have seen cannibalization, This has been strategically planned as a means to serve excess demand and underwritten in our new restaurant pro forma. Second, back of house process enhancements and kitchen equipment upgrades. We're installing double make lines in many of our kitchens to simultaneously accommodate both off-prem volumes and peak hours in the dining room. We're investing in double dishwashers and wider griddles that allow for more pancakes or sandwiches to cook at the same time. And we're in the early phases of leveraging energy efficient smart ovens that ensure a faster and more consistent cook time every time. Third, our kitchen display systems, or KDS. We completed the rollout to all of our company-owned restaurants ahead of schedule at the end of 2022, and we continue to optimize the system. KDS is a critical piece in driving higher throughput, and more importantly, in setting us up to scale to our goal of 2,200 domestic locations. Fourth, role specialization. We're testing a more specialized approach to some key job functions, particularly in the back of the house. We're leveraging positions such as a dedicated expediter role and a dedicated beverage position to allow us to free up more time from our servers in the front of house. We've been pleased to see that in the restaurant testing this, specialization has allowed our servers to serve more tables and drive elevated customer satisfaction. Fifth, optimizing the dining room experience for both customers and employees. From the customer's perspective, that comes to life by leveraging technology to alleviate pain points using what we call our front of house management system, which builds upon our waitlist system. Similar to the way we view KDS as the heart of our kitchens, this is the heart of our front of house. Up to 30% of our weekend traffic flows through our waitlist management system, showcasing the magnitude of demand on these key days. This system allows us to track consumer behavior in our dining rooms. It's allowing us to focus on increasing seat utilization, table turns, reducing waitlist abandonment, and frankly, serving more demand. And not only do these initiatives allow us to more efficiently serve the growing demand for our offering, they help reduce food waste and ensure our teams have the tools they need to deliver a fantastic customer experience in every first watch, every time. In 2022, we serve more customers than ever before. And yet, our wait times were actually shorter than in the prior year, and our customer satisfaction scores held strong above industry averages. 2023 marks our 40th year in business, and a 40-year-old brand doesn't establish itself as a growth concept without a dedication to evolution. Our success meeting evolving consumer preferences and adapting to an ever-changing marketplace fueled my belief that Firstwatch is just getting started. We know that our success rests on the strength of each Firstwatch employee throughout the system, And we've done much to strengthen our position as an employer of choice. Just last week, we announced several exciting enhancements to our benefits, including extended parental leave and programs that focus on mental health and well-being. I've never been more excited to be part of this organization. We're all working together towards serving more demand and specifically towards serving the person who's already seeking us out. We're not paying to acquire the incremental customer. They're knocking on our door. We're prepared to deliver another year of growth behind some of the best operators in the business. First Watch has a plan, and we're sticking to it. And now I'd like to turn the call over to Mel to review the fourth quarter in greater detail. Mel?