First Watch Restaurant Group, Inc.

Thank you for standing by, and welcome to the First Watch Restaurant Grouping First Quarter Earnings Conference Call, occurring today, May 6, 2025, 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 the instructions on how to ask the question will be given at that time. This call will be archived and available for replay at investors.firstwatch.com under the News and Invest I would now like to turn the conference over to Stephen Murata, Vice President of Investor Relations at FirstWatch, to begin.

Hello, everyone. I am joined by FirstWatch's Chief Executive Officer and President, Chris Tommaso, and Chief Financial Officer, Mel Holt. This morning, FirstWatch issued its earnings release for the first quarter of fiscal 2025 on Globe Newswire and filed its quarterly report on Form 10-Q of 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 condition 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 the 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 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 file this morning. Any reference to percentage growth when discussing the first quarter performance is a comparison to the first quarter of 2024, unless otherwise indicated. And with that, I will turn the call over to Chris.

Good morning, everyone. Thank you for joining us today to discuss our first quarter results. and a very special thank you to our entire team across the country, over 16,000 strong. At Firstwatch, regardless of the season or the economic cycle, we are about growth, bringing our unique breakfast, brunch, and lunch offering to more customers, more often, and in more markets. Our first quarter of 2025 delivered better than 16% total revenue growth, positive same restaurant growth, 13 new system-wide restaurant openings, and the launch of new marketing campaigns across multiple markets. We also realized a lift in our traffic, as the improvement in that trend we shared with you in March continued with our first quarter results. As always, our teams continue their high standard of consistent execution on our service objectives. As recent headlines attest, the broader macro environment appears even more volatile than when we spoke in March, with rapidly shifting expectations for both consumer demand and input costs. Last year, in describing our organization's primary focus, we often used the phrase controlling the controllables with regard to our customer and employee experiences, as well as our management of the business day in and day out. This approach served us well through 2024 and will continue to be a guiding principle. Now, on to Q1 in more detail. 2025 got off to an encouraging start with a return to positive traffic in January, followed by a widely reported weather-driven decline in February, and then a return to positive traffic in March. Then in April, we posted the best monthly same restaurant traffic result in over two years, giving us optimism that we're on track to achieve positive traffic for the year. Our better than 16% total revenue growth in the first quarter, driven by a powerful combination of positive same restaurant sales and continued success of new restaurants, illustrates the strength of Firstwatch's growth strategy. The commitment of our culture to improving operational efficiency has led to the adoption of new technologies and streamlined processes, ensuring we deliver exceptional customer experiences while remaining competitive and agile in an ever-changing macro backdrop. Ticket times, for instance, are an important KPI for us, and they improved once again in the first quarter compared to the year-ago period. Our investments in the development of our people and their well-being continue to pay dividends. fostering a highly motivated and skilled team, as evidenced in part by our continued reduction of turnover rates. Indeed, the first quarter of 2025 represented the eighth consecutive quarter of improved field-level employee turnover. Our people are a key brand differentiator, and because we recognize the importance of maintaining a positive and productive work environment, we will continue to introduce and prioritize programs that support their personal and professional growth. Like our GM Council, for instance, where a select few of our general managers are chosen to act as sounding boards and problem solvers for their counterparts across the system. Our enhanced strategic marketing efforts began rolling out across multiple markets in March, and we are pleased with the results thus far. We have tactically targeted various consumer touchpoints, including social media, digital advertising, and connected TV, to positively influence both reach and engagement. This multifaceted approach is allowing us to connect with a broader but more targeted audience, driving brand awareness and fostering deeper connections with our existing customers. These campaigns are already exhibiting promising results in targeted geographies. As we continue to refine and expand our marketing strategies as the year progresses, we will be able to increase our reach, retention, and frequency to support sustained same restaurant traffic growth. Turning to new restaurant development, we opened 13 company-owned and franchise restaurants during the quarter across 10 states, ending with 584 First Watch locations. In January, we opened our first New England location in Hanover, Massachusetts. In only its first few months, this restaurant is performing well above our expectations and is often on a wait even on weekdays. Hanover's success is yet another proof point that supports the fact that the First Watch brand is highly portable, and that our total addressable market of at least 2,200 locations in the continental United States is not only realistic, but highly attainable. And just two weeks ago, we announced that we will open a flagship location in a high-profile site on Boylston Street, right at the finish line of the Boston Marathon in Boston's Back Bay. The entire New England market represents a significant opportunity for our continued expansion. Towards that end, we recently signed a lease in Nashua, New Hampshire, representing our very first in that state. Speaking of new markets, in addition to our previously announced entry into Las Vegas later this year, we recently signed our first lease agreement in Memphis, Tennessee, where we expect to open our first restaurant in Q3 of this year. Our strategic expansion into Memphis is also set to advance our footprint across the region, complementing our presence in Nashville. a market we entered more than a decade ago and now have 14 restaurants. And just yesterday, we put our 31st state on the map with our first restaurant in Idaho, specifically in Meridian, a suburb of Boise, yet another market with a lot of white space that also helps us fill in the Northwest and builds upon our expansion into Nevada and Utah. One last word on development. As a group, the 2024 and 2025 classes are currently tracking 10% or above both the comp cohort and our first year sales expectations. This relative outperformance underpins our confidence in delivering double digit percentage unit growth targets and in our capital allocation strategy targeting cash on cash returns of around 35% and an IRR of greater than 18%. Additionally, we are pleased to share the completion of our previously announced franchise acquisition of 16 restaurants in North and South Carolina on April 28th as well as the acquisition of three franchise restaurants in Missouri on April 14th. These strategic acquisitions bolster our presence in these key states, and the accompanying development rights provide several high-quality trade areas for continued new company restaurant growth. Every year, our strategic planning focuses on innovative methods to create more demand, improve throughput, enhance customer satisfaction, and at the same time, support our entire team. I'd like to highlight a few key initiatives that aim to further strengthen our leadership position and contribute to our continued growth. Last quarter, we mentioned working more closely with our third-party delivery partners to better accommodate the demand dynamics in that channel given the macro pressures facing the consumer. Working in partnership with the largest of our two third-party delivery providers, we developed and implemented a strategy that reversed our negative traffic trends in this channel. The channel's traffic lift has outperformed our expectations, and as a result, we are driving more margin dollars, albeit by design at a lower PPA and at a somewhat lower margin. To enhance customer satisfaction and deliver increased value, we doubled the amount of meat in one of our top-selling classic dishes, the trifecta, and chose not to take price in order to maintain original margin. The timing of an outsized increase in bacon cost combined with a significant demand shift by customers into this menu item has placed additional pressure on our margins. We believe taking selective steps like this will ultimately lead to increased customer frequency at the short-term cost of a tighter margin for this high-mixing item. Our general managers are at the forefront of our customer service. To demonstrate our commitment to hospitality, inspire their creativity, and positively impact their communities, we have empowered and encouraged them to make days brighter for certain customers through surprise and delight acts of kindness. These come to life in the form of a complimentary juice, shareable, or entree. While there is an impact to our per-person average check, with these actions, we are making an investment in long-term customer retention. Small acts such as these create an emotional connection for our customers and build loyalty in ways points-based loyalty programs simply can't. We believe that the way to effectively manage through uncertain times is to focus on the customer, deliver exceptional value, and meet the customer where they are. By optimizing our third-party delivery program, amplifying our invest in the guests initiatives, and empowering our leaders to make days brighter for our customers, we are doing just that and building a stronger foundation for future growth at the same time. Inevitably, every year presents a new set of challenges. While our overall first quarter traffic was a bit lower than our own expectations, specifically as it relates to the in-restaurant channel, we're pleased to see same-restaurant traffic growth displaying sequential improvement. April was better than the first quarter, which was better than the fourth quarter, which was better than the third quarter. Near term, our margin profile is being pressured by higher inflationary headwinds in our market basket since our last earnings call, the impacts of new tariff implementation, and the incremental costs of the previously listed initiatives. We believe that the multiple challenges affecting our current margin profile are transitory. and that our day part dominance, market share, unit growth, competitive positioning, and customer service experience are unmatched across the industry. We have a lot to look forward to in 2025. With our increased marketing activity this year, we're actively building customer awareness in core, emerging, and entirely new markets. Our new restaurant openings continue to exceed expectations. Our growth plan is solid with both our real estate and people pipelines in place to support our continued expansion. Our top-performing restaurants span 14 states and 22 DMAs, showcasing the adaptability and appeal of our brand across diverse regions and illustrating First Watch's widespread popularity. We have nearly 600 system-wide restaurants serving breakfast, brunch, and lunch in 31 states. We believe that with the higher sales potentials represented in our new openings when compared to the existing portfolio, our future restaurant classes will perform even better. And now I'd like to turn it over to Mel.