First Watch Restaurant Group, Inc.

Thank you for standing by, and welcome to the First Watch Restaurant Group Incorporated's fourth quarter earnings conference call, occurring today, March 11, 2025, at 8 a.m. Eastern Time. Please note that all participants are currently in 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 Events section. I would now like to turn the conference over to Stephen Murata, Vice President of Investor Relations at FirstWatch, to begin. Thank you.

Hello, everyone. I am joined by FirstWatch's Chief Executive Officer and President Chris Tommaso and Chief Financial Officer Mel Hope. This morning, FirstWatch issued its earnings release for the fourth quarter of fiscal 2024 on Globe Newswire and filed its annual report on 10-K with the SEC. These documents can be found at investors.firstwatch.com. 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, outlook, growth plans and 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 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 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 margins. 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. During today's call, references to same restaurant sales and traffic growth compares to the 13-week periods ended December 29, 2024, and December 31, 2023, in order to compare like-for-like periods. Otherwise, any reference to percentage growth when discussing fourth quarter performance is a comparison to the fourth quarter of 2023 unless otherwise indicated. And with that, I will turn the call over to Chris.

Good morning. Thank you all for joining us to discuss our fourth quarter 2024 financial results in our outlook for 2025. And thank you to our more than 15,000 employees who wake up early every day to make days brighter for our customers and each other. These results are the product of their extraordinary efforts. 2024 was a pivotal year for Firstwatch, just not in the typical way. I'm particularly proud of how our teams operated during the year, driving our total revenue to over $1 billion and our adjusted EBITDA to over $100 million for the first time in the company's more than 40-year history. Despite the adverse conditions faced by consumers, which pressured restaurant industry sales, we controlled the controllables and in the process increased labor efficiency, improved restaurant-level operating profit margins, reduced ticket times, improved employee turnover, and raised our already exceptional customer experience scores. I'm also proud of what we did not do in 2024. We differentiated ourselves by refraining from aggressive price promotions, which were widespread across all day parts. Above all, we stayed true to who we are, which is a trait that has served us well through every environment. And as a result, the Firstwatch brand entered 2025 in a position of strength, committed to serving an elevated daytime dining experience and to providing our customers with value. Importantly, we opened 50 new restaurants in 2024, including a record 25 in the fourth quarter alone. On average, restaurants we opened in 2024 are on pace to generate third year sales of 2.6 million, or about 20% above our current system average unit volumes, with a projected cash on cash return above 35% and IRR above 22%. The pace of our new restaurant development and our proven site selection principles creates a formidable growth engine that contributes to our ability to fulfill FirstWatch's long-term annual goals of mid-teens percentage increases in revenues and adjusted EBITDA. We've identified vast white space for FirstWatch throughout the U.S., which continues to affirm our strategy to reach 2,200 locations in the continental U.S. It's not a matter of if, it's a matter of when. For more than four decades, FirstWatch has grown largely via word of mouth. While we're proud that loyal customers love and recommend us, as our national footprint has grown, we recognize our opportunity to raise brand awareness via smart, targeted marketing efforts. After several years of technology investments and associated data collection aimed at improving our marketing efficiency, combined with learnings from tests conducted in 2024, we are meaningfully scaling our marketing spend in 2025. This effort represents the next step in the continued evolution of our marketing capabilities which has been years in the making and was not a reaction to the more recent challenging industry traffic. Our broad-based iterative approach utilizes various media strategies that target current customer frequency as well as attract new consumers to the First Watch brand. Historically, marketing campaigns aimed at increasing a restaurant's brand awareness were anchored by a significant investment in advertising on national media. You should not expect to see First Watch commercials on traditional broadcast televisions. Instead, our approach utilizes a variety of channels to connect with consumers at various stages of the marketing funnel and nurtures that relationship to a first-party connection. Our investments in technology have led to greater tracking, measurement, and targeting, resulting in more informed results, and we believe the potential for greater per-dollar return than previously achieved. Given these new capabilities, we are funding the cost of our 2025 customer targeting strategy with both the reallocation of existing dollars and increased investment and expect to drive a return to positive guest counts in 2025. While this investment represents a significant step up for us, we believe that as a percent of sales, our planned investment in marketing remains below the industry average. We view this as a natural part of our brand's evolution and see it as a lever to support our long-term growth targets. We do not expect our campaigns to result in traffic-related peaks driven by price promotions, rather an ongoing drumbeat to scale awareness alongside our new restaurant growth. Later this year, we also plan to launch enhanced customer-facing technologies as part of our ongoing journey to improve both the customer and employee experience. These include, but are not limited to, a custom-built waitlist experience, a new menu experience with dynamic nutrition and allergen tools, new ordering capabilities, and a personalized offer wallet. We will build on these levers for continued growth over the next several years. As I mentioned on our third quarter conference call, In an effort to stabilize traffic in the third-party delivery channel, we partnered with our platform providers to modify our approach and improve our effectiveness. These modifications, which we instituted early in the first quarter of this year, immediately improved our visibility within the delivery apps and subsequently reversed our trend. I'm pleased to report that traffic is now positive in this channel year to date. We know that the consumer is facing a lot of pressure everywhere they turn these days. our instinctive response is to reinvest in the customer experience through innovation, heightened hospitality, and enhanced value. Our highly anticipated seasonal menus continue to delight our customers, which was on full display with our current jumpstart menu and its eye-catching and craveable Parmesan prosciutto toast. We'll soon test an expanded line of beverages and have already tested exciting new menu innovations, which have delivered positive early results. We increased meat and potato portions on some of our top-selling menu items and replaced honeydew with more premium fruit, such as strawberries, pineapple, and blueberries in our fruit bowls. And we brought back complimentary coffee while you wait, something our customers loved and we did for more than 30 years before it was discontinued for safety reasons during COVID. This invest in the guest philosophy is nothing new for us. It's yet another way in which we extend hospitality. and a key factor in how we've remained relevant and driven a high value perception with our customers for many years. Being the category leader in the daytime dining segment has many advantages. Scale is the top of the list. This is where our scale matters. Scale is the difference between new restaurant openings at A locations in the epicenter of the trade area versus openings in second rate B or C locations. Scale is the difference between accelerating unit growth and expanding our footprint while others in our segment pull back or close underperforming units. Scale is the difference between an elevated menu offering with dynamic seasonal menus highlighting fresh, in-season ingredients versus highly commoditized breakfast offerings. And scale is the difference between a strong supply chain versus scrambling for key ingredients in challenging times. Quite simply, in good times and not-so-good times, our scale positions us to power through challenges better than anybody else in our space, especially those that are highly franchised, which inherently have less control over menu pricing. Strategically and historically, our disciplined approach considers pricing only to long-term inflationary trends, not to transitory commodity spikes, and we will do the same in 2025. Similar to the avian flu experience in 2022, after taking no price in 2021, our modest pricing that year looked through the short-lived spike in egg costs, which rolled off in the following year and spurred market share gains for us in the meantime. I'm also excited about the opportunities that lie ahead in 2025. Our real estate and people pipelines are robust and well positioned to support our ambitious yet highly achievable unit growth targets. We're bullish on our ability to bring our unique breakfast, brunch, and lunch offering to new markets such as New England, where we've already been welcomed with open arms, and Las Vegas, where we expect to open in the second half of the year, while we continue to build out our core and emerging markets. We spent several years focusing on serving more demand and in doing so have raised our AUVs from 1.6 million in 2019 to 2.2 million today. We now turn our efforts to creating more demand through our continued new restaurant unit growth and burgeoning marketing efforts to expand our presence, increase our awareness, and drive our comp restaurant base. Every year inevitably presents unique challenges, whether it be a pandemic, supply shortages, traffic malaise, national and global crises, or outside inflation. We approach them all the same way, with a long view. We control the controllables year in and year out, and along the way, take care and expand scale to set up a stronger tomorrow. And now I'd like to turn it over to Mel.