First Watch Restaurant Group, Inc.

First Quarter Earnings Conference Call, occurring today, May 7, 2024, at 8 a.m. Eastern Time. Please note that all participants are currently 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 will be archived and available for replay at investors.firstwatch.com under the News and Invents section. I would now like to turn the conference over to Stephen Murata, Vice President of Investor Relations at First Watch, to begin. Go ahead, sir.

Hello, everyone. I am joined 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, fiscal year 2024, on Globe Newswire and filed its 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. Those statements include, without limitation, statements concerning the condition of the company's industry and its operations, performance and financial condition, outlook, growth plans and 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 the company's 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 profits. 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. During today's call, references to same restaurant sales and traffic growth compares the 13-week periods ended March 31, 2024, and April 2, 2023, in order to compare like-for-like periods. Otherwise, any reference to percentage growth when discussing first quarter performance is a comparison to the first quarter of 2023 unless otherwise indicated. And with that, I will turn the call over to Chris.

Good morning. Thanks to the hard work of our entire team, I'm pleased to report that First Watch delivered another solid quarter. We generated $289.6 million in system-wide sales, $242.4 million in total revenues, and $28.6 million in adjusted EBITDA, driven by our comp restaurant performance, strong results by our non-comp restaurants, new unit growth, solid operations execution that drove improved profitability and contributions from our strategic franchisee acquisitions completed over the past year. We opened nine new restaurants in eight states during the quarter and, on April 15th, completed the acquisition of 21 franchise-owned restaurants associated development rights in the Raleigh North Carolina market I'm especially proud that we delivered positive same restaurant sales continue to grow share and drove strong operating results despite well-documented headwinds and a particularly difficult start to the year namely harsh weather in January encouragingly our trends improved sequentially throughout the quarter although they were a bit choppy as we were up against the strongest quarterly sales and traffic comparison of the year as well as spring break and Easter weekend timing shifts. Despite the volatility in the quarter, our team produced strong operating results across multiple key performance indicators. Labor management efficiencies, once again, were driven by process improvements and the continual refinement of recently deployed labor and analytics tools that allow our operators a more real-time view into their business. With more robust information and enhanced visibility, our leaders are better equipped to manage their business. This improved efficiency contributed to both our top and bottom line, with KPIs once again improving and remaining very strong. In the quarter, we saw the highest customer experience scores we've recorded to date, another sequential improvement in employee turnover, the fastest food ticket times we've recorded to date, and continued market share gains, with our same restaurant traffic exceeding the black box casual dining segment by more than 100 basis points. These accomplishments were achieved during a quarter that typically includes some of the busiest months of the year for us. Our first quarter results give us confidence that we are focused on the right things and delivering the best possible experience for both our employees and our customers. Turning to the consumer, it's evident that after several quarters of macro pressure, there appears to be clear signs of a slowdown. The reality is that consumers are being more cautious and more discerning, resulting in fewer dining out occasions across the industry. This trend began last summer as several large factors converged. Inflation pressures peaked, the gap between food at home and food away from home widened, and student loan payments resumed. Macroeconomic environments are transitory, but proven business models endure. Our operating model allows us to remain nimble so that we can flex labor as business dictates, introduce elevated appeal and higher value items on our LTOs, and lean into and out of G&A projects as the environment evolves. However, we draw a hard line at reacting hastily to short-term dynamics with potentially brand damaging tactics such as discounting or matching the promotional activity which has begun to spike across the industry. In our view, broad discounting is a short-term fix with potentially negative long-term implications. Instead, we will continue to focus on profitable growth over the long term. We've noted discussion about the challenging consumer environment facing restaurants in the state of Florida. validated by Placer AI reporting that restaurant business actually contracted over the last several quarters throughout the state. We believe that the traffic benefit the state enjoyed in the several years following the initial outbreak of COVID is now normalizing. At First Watch, I'm proud of our clear leadership in our home state, where our aggressive expansion strategy is critical to our long-term growth. With 30% of our system in Florida, we are perhaps more attuned to the current environment here than most, and our bullish outlook hasn't changed. Our development in Florida has seen us grow to 123 restaurants in the state, a 48% increase over the past five years. And over that period, we've gained significant market share while keeping competitive intrusion at bay by adhering to our discipline site selection criteria as we have grown. The bottom line is we're serving a lot more customers in Florida than we ever have, and it will continue to be a material component of our growth strategy. No matter the market dynamics we're operating in, we continue to be focused on our long-term opportunity. It's something we've done throughout our 40-year history. As it relates to long-term strategic initiatives, we continue to focus on in-restaurant tech enablement with the ultimate goal of elevating both our customer and our employee experiences. In most instances, these enhancements are tucked behind the scenes, which is by design, and our primary focus remains on delivering memorable hospitality and removing bottlenecks. The launch of systems such as KDS, pay-at-the-table, and waitlist management all serve a particular role in enhancing the first watch experience. Now, there's a greater opportunity for those systems to begin communicating with one another with the purpose of digitizing the end-to-end customer experience. Doing so creates a broader platform to measure our performance more accurately in a variety of ways, paving the road for further improvements. For instance, prior to the launch of KDS, we had little insight into our food ticket times. We completed the installation over a year ago, and with comparative information now available in real time, we are seeing tangible improvement. We will continue to analyze that data to refine and evolve the system in an effort to optimize its benefits. Along with improved customer interaction, there is also a benefit in the acquisition of customer data and insights into their behavior. As we stated in the past, upwards of 50% of our weekend traffic originates on our wait list. We're excited to see that our latest installation, Pave the Table, is experiencing 35% adoption during peak periods as well. The data generated from these two tech enhancements alone are offering rich insight into visit and ordering behavior. We're beginning to pilot processes where these systems are joined in real time and customer identification can be connected to the POS, where check information resides. The result is a more enriched view of our customer and the growing opportunity to target them with relevant communication through an enhanced marketing tech stack. We believe this creates a more focused approach to creating and serving more demand versus resorting to broader, inefficient, and brand-eluting actions. We are in the very early stages of these initiatives and will have more to share in the coming quarters. I'm as excited about the future of Firstwatch as I have ever been. We are the market leader in daytime dining with unmatched scale, proven portability, and a high ceiling, with a total addressable market more than three times our current size. And in the aggregate, our recent NRO vintages are all performing at or above their underwriting targets. In closing, while we feel the headwinds affecting us and many others, we're confident that we're simply far better equipped to withstand them than our competitive set. And with that, I'll turn it over to Mel.