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The considerations and risks that follow are organized within relevant headings but may be relevant to other headings as well.
−Removed: Moreover, the risks below are not the only risks we face and additional risks not currently known to us or that we presently deem immaterial may emerge or become material at any time and may negatively impact our business, reputation, financial condition, results of operati ons, cash flow or the trading price of our common stock.
+Added: Moreover, the risks below are not the only risks we face and additional risks not currently known to us or that we presently deem immaterial may emerge or become material at any time and may adversely impact our business, reputation, financial condition, results of operati ons, cash flow or the trading price of our common stock.
Risk Factors Summary
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• our inability to effectively manage our growth
+Added: • opening new restaurants may adversely impact sales at our and our franchisees’ existing restaurants
• the number of visitors to areas where our restaurants are located may decline
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• shortages or disruptions in the supply or delivery of frequently used food items or increases in the cost of our frequently used food items
−Removed: • continued adverse effects of the COVID-19 pandemic, including the potential impact of the emergence of COVID-19 variants, or other infectious disease on our financial condition, results of operations, and supply chain
• our inability to compete successfully with other breakfast and lunch restaurants
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• our inability to effectively manage the accelerated impact of social media
−Removed: • our insurance may not provide adequate levels of coverage against claims
Risks Related to Information Technology and Intellectual Property
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Risks Related to Employees and the Workforce
−Removed: • the loss of our executive officers or other key employees
• our inability to identify qualified individuals for our workforce
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• risks associated with leasing properties subject to long-term and non-cancelable leases
+Added: • compliance with the laws and regulations applicable to public companies
+Added: • volatility in our results of operations caused by fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets
• risks related to our sale of alcoholic beverages
Risks Related to Accounting and Financial Reporting Matters
−Removed: • changes in accounting principles or estimates
• impairment in the carrying value of our goodwill or indefinite-lived intangible assets
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Risks Related to Our Indebtedness
−Removed: • our inability to access additional capital to support business growth
• our level of indebtedness and our duty to comply with covenants under our Credit Agreement
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• dilutive impact from grants under our equity incentive plans
+Added: General Risk Factors
+Added: • the loss of our executive officers or other key employees
+Added: • lack of access to additional capital to support business growth
+Added: • changes in accounting principles or estimates
+Added: • inadequate levels of insurance coverage against claims
Risks Related to Our Business and Industry
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Factors such as traffic patterns, weather, fuel prices, local demographics and the type, number and locations of competing restaurants may adversely affect the performances of individual locations.
−Removed: In addition, economic downturns, geopolitical tensions, inflation or increased food or energy costs could harm the restaurant industry in general and our restaurants in particular.
+Added: In addition, economic downturns, geopolitical tensions, inflation or increased food or energy costs have harmed and could continue to harm the restaurant industry in general and our restaurants in particular.
Adverse changes in any of these factors could reduce consumer traffic or impose practical limits on pricing that could have a material adverse effect on our business, financial condition and results of operations.
−Removed: There can also be no assurance that consumers will continue to regard our menu offerings favorably, that we will be able to develop new menu items that appeal to consumer preferences or that there will not be a drop in consumer demands for restaurant dining during breakfast and lunch dayparts.
+Added: It is possible that consumers may no longer regard our menu offerings favorably, that we will no longer be able to develop new menu items that appeal to consumer preferences or that there will be a drop in consumer demands for restaurant dining during breakfast and lunch dayparts.
Restaurant traffic and our resulting sales depend in part on our ability to anticipate, identify and respond to changing consumer preferences and economic conditions.
+Added: The rising popularity of certain weight loss drugs, which suppress a person’s appetite, may impact sales or traffic in our restaurants.
In addition, the restaurant industry is subject to scrutiny due to the perception that restaurant company practices have contributed to poor nutrition, high caloric intake, obesity or other health concerns of their customers.
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A number of counties, cities and states have enacted menu labeling laws requiring multi-unit restaurant operators to disclose to consumers certain nutritional information, or have enacted legislation restricting the use of certain types of ingredients in restaurants.
−Removed: An unfavorable report on, or reaction to, our menu ingredients, the size of our portions or the nutritional content of our menu items could negatively influence the demand for our menu offerings.
+Added: An unfavorable report on, or reaction to, our menu ingredients, the size of our portions or the nutritional content of our menu items could adversely influence the demand for our menu offerings.
Compliance with current and future laws and regulations regarding the ingredients and nutritional content of our menu items may be costly and time-consuming.
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• changes in climate, including changes to the frequency of severe weather events, that impact the cost and availability of goods and services, energy and other materials throughout our supply chain;
−Removed: • labor discord or disruption, geopolitical events, war, terrorism, political instability, acts of public violence, boycotts, hostilities and social unrest and other health pandemics that lead to avoidance of public places or restrictions on public gatherings such as in our restaurants.
+Added: • labor discord or disruption, geopolitical events, war, terrorism, political instability, acts of public violence, boycotts, hostilities and social unrest and health pandemics or other outbreaks of infectious disease that lead to avoidance of public places or restrictions on public gatherings such as in our restaurants.
An important aspect of our growth strategy involves opening new restaurants in existing and new markets.
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and different competitive and economic conditions, consumer tastes and discretionary spending patterns that are more difficult to predict or satisfy than in our existing markets.
−Removed: Consumer recognition of our
−Removed: brand has been important in the success of company-owned and franchise-owned restaurants in our existing markets, and we may find that our concept has limited appeal in new markets.
+Added: Consumer recognition of our brand has been important in the success of company-owned and franchise-owned restaurants in our existing markets, and we may find that our concept has limited appeal in new markets.
Restaurants we open in new markets may take longer to reach expected sales and profit levels on a consistent basis and may have higher construction, occupancy and operating costs than existing restaurants.
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We may not respond quickly enough to the changing demands that our expansion will impose on our management, restaurant teams and existing infrastructure which could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Opening new restaurants in existing markets may negatively impact sales at our and our franchisees’ existing restaurants.
+Added: Opening new restaurants in existing markets may adversely impact sales at our and our franchisees’ existing restaurants.
The consumer target area of our and our franchisees’ restaurants varies by location, depending on a number of factors, including population density, other local retail and business attractions, area demographics and geography.
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Sales cannibalization between our restaurants may become significant in the future as we continue to open new restaurants and could affect our sales growth, which could, in turn, have a material adverse effect on our business, financial condition and results of operations.
−Removed: A decline in visitors to any of the retail centers, lifestyle centers, or entertainment centers where our restaurants are located could negatively affect our restaurant sales.
+Added: A decline in visitors to any of the retail centers, lifestyle centers, or entertainment centers where our restaurants are located could adversely affect our restaurant sales.
Our restaurants are primarily located in high-activity trade areas that often contain retail centers, lifestyle centers, and entertainment centers.
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Accordingly, in the future, we will incur greater marketing expenditures, resulting in greater financial risk.
−Removed: Additionally, our limited time menu offerings, which we offer as a key part of our promotional activities from time to time, may not perform as anticipated, which could have an adverse impact on our results of operations for the related period.
−Removed: If these initiatives are not successful, it could result in us incurring expenses without the benefit of higher revenues, which could have a material adverse effect on our business, financial condition and results of operations.
+Added: Additionally, our limited time menu offerings, which are a key part of our promotional activities from time to time, may not perform as anticipated, which could have an adverse impact on our results of operations for the related period.
+Added: If these initiatives are not successful, we could incur expenses without the benefit of higher revenues, which could have a material adverse effect on our business, financial condition and results of operations.
Changes in the cost of food could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our profitability depends in part on our ability to anticipate and react to changes in food and beverage costs, including, among other things, pork, coffee, eggs, avocados, potatoes, bread, cheese, fresh fruit and produce items.
+Added: Our profitability depends in part on our ability to anticipate and react to changes in food and beverage costs, including, among other things, our costs for pork, coffee, eggs, avocados, potatoes, bread, cheese, fresh fruit and produce items.
We are susceptible to increases in the cost of food due to factors beyond our control, such as freight and delivery charges, general economic conditions, seasonal economic fluctuations, weather conditions, global demand, food safety concerns, infectious diseases, fluctuations in the U.S.
dollar, tariffs and import taxes, product recalls and government regulations.
+Added: In 2022-2023, for example, we experienced significant increases in the cost of eggs, primarily due to an outbreak of avian influenza.
Dependence on frequent deliveries of fresh produce and other food products subjects our business to the risk that shortages or interruptions in supply could adversely affect the availability, quality or cost of ingredients or require us to incur additional costs to obtain adequate supplies.
Further, increases in fuel prices could result in increased distribution costs.
+Added: In 2022, for example, we experienced significant increases in distribution costs as a result of material increases in fuel prices.
Changes in the price or availability of certain food products could affect our profitability and reputation.
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International commodities we purchase are also subject to supply shortages or interruptions.
−Removed: Changes in the cost of ingredients can result from a number of factors, including seasonality, increases in the cost of grain, disease and viruses and other factors that affect availability and greater international demand for domestic pork products.
−Removed: In 2022, we experienced significant increases in the cost of eggs primarily due to an outbreak of avian influenza that is expected to continue into 2023.
In the event of cost increases with respect to one or more of our raw ingredients, we may choose to temporarily suspend or permanently discontinue serving menu items rather than pay the increased cost for the ingredients.
−Removed: Any such changes to our available menu could negatively impact our restaurant traffic, business and same-restaurant sales growth during the shortage and thereafter.
−Removed: While future cost increases can be partially offset by increasing menu prices, there can be no assurance that we will be able to offset future cost increases by increasing menu prices.
−Removed: If we or our franchisees implement menu prices increases, there can be no assurance that increased menu prices will be fully absorbed by our customers without any resulting change to their visit frequencies or purchasing patterns.
+Added: Any such changes to our available menu could adversely impact our restaurant traffic, business and same-restaurant sales growth.
+Added: While future cost increases can be partially offset by increasing menu prices, such price increases may adversely affect our customers’ visit frequencies and purchasing patterns.
Competitive conditions may limit our menu pricing flexibility and if we or our franchisees implement menu price increases to protect our margins, restaurant traffic could be materially adversely affected, at both company-owned and franchise-owned restaurants.
−Removed: Our financial condition, results of operations, and supply chain have been and may continue to be adversely affected for an extended period of time by the COVID-19 pandemic or other infectious diseases.
−Removed: The COVID-19 pandemic has had, and is continuing to have, a significant impact on our business and results of operations.
−Removed: At the peak of the COVID-19 outbreak, all of our company-owned restaurants were closed.
−Removed: For franchised restaurants that remained open, same-store sales declined due to modified operating hours and reduced customer traffic.
−Removed: While all of our company-owned and franchised restaurants have reopened, we expect that our operations will continue to be impacted by the continuing effects of COVID-19, including resurgences and variants of the virus.
−Removed: It remains difficult to predict the full impact of the COVID-19 pandemic on the broader economy and how consumer behavior may change, and whether such change is temporary or permanent.
−Removed: Social distancing, telecommuting and reductions in travel may become the new normal.
−Removed: In addition, the COVID-19 pandemic has required and may continue to require us to make controversial decisions about precautionary measures, such as vaccinations, showing proof of vaccinations and face coverings, that could impact our results, including by impacting our brand, our employee retention and satisfaction, and our customer traffic.
−Removed: conditions could fundamentally impact the way we work and the customer experience we provide, and could have continuing adverse effects on our results of operations, cash flows and financial condition.
−Removed: As a result, we may incur impairment charges to our inventory, restaurant and corporate assets—and our ability to realize the benefits from deferred tax assets may become limited—any of which may have a significant or material impact on our financial results.
−Removed: The COVID-19 pandemic also has affected and may continue to adversely affect the ability of certain of our suppliers, from whom we purchase domestic and international commodities, to fulfill their obligations to us, which may negatively affect our restaurant operations.
−Removed: These suppliers include third parties that supply and/or prepare our ingredients, packaging, paper and cleaning products and other necessary operating materials, as well as distribution centers, and logistics and transportation services providers, including those in the trucking industry.
−Removed: If our suppliers are unable to fulfill their obligations to us, we could face shortages of food items or other supplies at our restaurants, which could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Prolonged volatility or significant disruption of global financial markets due in part to the COVID-19 pandemic could have a negative impact on our ability to access capital markets and other funding sources, on acceptable terms or at all and impede our ability to comply with debt covenants.
New restaurants may not be profitable or may close, and the performance of our restaurants that we have experienced in the past may not be indicative of future results.
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In addition, many of our competitors have greater name recognition nationally or in some of the local markets in which we have or plan to have restaurants.
−Removed: We also compete with a number of non-traditional market participants, such as
−Removed: convenience stores, grocery stores, coffee shops, meal kit delivery services, and “ghost” or dark kitchens, where meals are prepared at separate takeaway premises rather than a restaurant.
−Removed: Competition from food delivery services companies has also increased in recent years, particularly during the COVID-19 pandemic, and is expected to continue to increase.
+Added: We also compete with a number of non-traditional market participants, such as convenience stores, grocery stores, coffee shops, meal kit delivery services, and “ghost” or dark kitchens, where meals are prepared at separate takeaway premises rather than a restaurant.
+Added: Competition from food delivery services companies has also increased in recent years.
Any inability to successfully compete with the restaurants in our existing or new markets will place downward pressure on our customer traffic and could have a material adverse effect on our business, financial condition and results of operations.
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Food safety and food-borne illness concerns may have an adverse effect on our business by decreasing sales and increasing costs.
−Removed: Food safety and quality concerns may negatively impact our business and profitability, our internal operational controls and standards may not always be met and our employees may not always act professionally, responsibly and in our and our customers’ best interests.
+Added: Food safety and quality concerns may adversely impact our business and profitability, our internal operational controls and standards may not always be met and our employees may not always act professionally, responsibly and in our and our customers’ best interests.
Any possible instances of food-borne illness could reduce our restaurant sales.
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Incidents or reports of food-borne or water-borne illness or other food safety issues, food contamination or tampering, employee hygiene and cleanliness failures or improper employee conduct, customers entering our restaurants while ill and contaminating food ingredients or surfaces at our restaurants could lead to product liability or other claims.
−Removed: Such incidents or reports could negatively affect our brand and reputation and could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Similar incidents or reports occurring at competitors in our industry unrelated to us could likewise create negative publicity, which could negatively impact consumer behavior towards us.
−Removed: We cannot guarantee to consumers that our food safety controls, procedures and training will be fully effective in preventing all food safety and public health issues at our restaurants, including any occurrences of pathogens, bacteria, parasites or other toxins infecting our food supply.
+Added: Such incidents or reports could adversely affect our brand and reputation and could have a material adverse effect on our business, financial condition and results of operations.
+Added: Similar incidents or reports occurring at competitors in our industry unrelated to us could likewise create negative publicity, which could adversely impact consumer behavior towards us.
+Added: Our food safety controls, procedures and training may not be fully effective in preventing all food safety and public health issues at our restaurants, including any occurrences of pathogens, bacteria, parasites or other toxins infecting our food
These potential public health issues, in addition to food tampering, could adversely affect food prices and availability of certain food products, generate negative publicity, and lead to closure of restaurants resulting in a decline in our sales or profitability.
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Some food-borne illness incidents could be caused by third-party food suppliers and transporters outside of our control, and may affect multiple restaurant locations as a result.
−Removed: We cannot assure that all food items will be properly maintained during transport throughout the supply chain and that our employees will identify all products that may be spoiled and should not be used in our restaurants.
+Added: We cannot assure that all food items will be properly maintained during transport throughout the supply chain or that our employees will identify all products that may be spoiled and should not be used in our restaurants.
The risk of food-borne illness may also increase whenever our menu items are served outside of our control, such as by third-party food delivery services companies, customer take out or at catered events.
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New illnesses resistant to our current precautions may develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or allegations on a retroactive basis.
−Removed: One or more instances of food-borne illness in one of our company-owned or franchised restaurants could negatively affect sales at all our restaurants if highly publicized, such as on national media outlets or through social media, especially due to the geographic concentration of many of our restaurants.
+Added: One or more instances of food-borne illness in one of our company-owned or franchised restaurants could adversely affect sales at all our restaurants if highly publicized, such as on national media outlets or through social media, especially due to the geographic concentration of many of our restaurants.
This risk exists even if it were later determined that the illness was wrongly attributed to one of our restaurants.
Potential food safety incidents, whether at our restaurants or involving our business partners, could lead to wide public exposure and negative publicity, which could materially harm our business.
−Removed: A number of other restaurant chains have experienced incidents related to food-borne illnesses that have had material adverse impacts on their operations, and we cannot assure you that we could avoid a similar impact upon the occurrence of a similar incident at one of our restaurants.
+Added: A number of other restaurant chains have experienced incidents related to food-borne illnesses that have had material adverse impacts on their operations, and we could experience a similar impact upon the occurrence of a similar incident at one of our restaurants.
Additionally, even if food-borne illnesses were not identified at our restaurants, our restaurant sales could be adversely affected if instances of food-borne illnesses at other restaurant chains were highly publicized.
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Franchisees are independent business operators and are not our employees, and we do not exercise control over the day-to-day operations of the franchised restaurants.
−Removed: We provide training and support to franchisees, and set and monitor operational standards and guidelines, however, because we do not have day-to-day control over the franchisees, we cannot give assurance that the franchisees operate restaurants in a manner consistent with our standards, guidelines and requirements, or hire and train qualified managers and other restaurant personnel.
+Added: We provide training and support to franchisees, and set and monitor operational standards and guidelines, however, because we do not have day-to-day control over the franchisees, our franchisees may operate restaurants in a manner that is not consistent with our standards, guidelines and requirements, or hire and train qualified managers and other restaurant personnel.
If franchisees do not operate to our expectations, our image and reputation, and the image and reputation of other franchisees, may suffer, which could have a material adverse effect on our business, financial condition and results of operations.
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We contract with one distributor, which we refer to as our “broad line” distributor, to provide virtually all of our food distribution services in the United States.
−Removed: As of December 25, 2022, we utilized 16 affiliated distribution centers and each distribution center carries two to three weeks of inventory for our core ingredients.
−Removed: In the event of a catastrophe, such as a fire, our broad line distributor can supply the restaurants affected by their respective distribution center from another affiliated distribution center.
−Removed: If a catastrophe, such as a fire or extreme adverse weather conditions such as storms, floods, severe thunderstorms and hurricanes, were to occur at the distribution center that services the concentration of our restaurants located in Florida, we would be at immediate risk of product shortages because that distribution center supplies
−Removed: 23.0% of our company-owned restaurants as of December 25, 2022, which collectively represented 31.0% of our restaurant sales for 2022.
−Removed: The other 15 distribution centers collectively supply the other 77.0% of our company-owned restaurants, which represented the remaining 69% of our sales.
+Added: If our broad-line distributor does not adequately perform its obligations or is unable to scale with our business, or our distribution is disrupted for any reason, there could be an adverse effect on our business, financial condition and results of operations.
As of December 31, 2023, we purchased substantially all of our pork from two suppliers, substantially all of our eggs from one supplier and all of our coffee from one supplier.
We purchase these ingredients pursuant to purchase orders at prevailing market or negotiated contract prices and are not limited by minimum purchase requirements.
−Removed: The cancellation of our supply arrangements with any one of these suppliers or the disruption, delay or inability of these suppliers to deliver these major products to our restaurants or distribution centers due to problems in production or distribution, inclement weather, unanticipated demand or other conditions may materially and adversely affect our results of operations while we establish alternative supplier and distribution channels, all of which may materially and adversely affect our results of operations while we establish these alternate supplier and distribution channels.
−Removed: Accordingly, although we believe that alternative supply and distribution sources are available, there can be no assurance that we will continue to be able to identify or negotiate with such sources on terms that are commercially reasonable to us.
+Added: The cancellation of our supply arrangements with any one of these suppliers or the disruption, delay or inability of these suppliers to deliver these major products to our restaurants or distribution centers due to problems in production or distribution, inclement weather, unanticipated demand or other conditions may materially and adversely affect our results of operations while we establish alternative supplier and distribution channels.
+Added: Accordingly, although we believe that alternative supply and distribution sources are available, we may not be able to identify or negotiate with such sources on terms that are commercially reasonable to us.
If our existing suppliers or distributors are unable to fulfill their obligations under their contracts or we are unable to identify alternative sources, we could encounter supply shortages and incur higher costs, each of which could have a material adverse effect on our business, financial condition and results of operations.
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Energy prices are in turn subject to significant volatility caused by, among other things, market fluctuations, supply and demand, currency fluctuations, production and transportation disruptions, geopolitical developments, and other world events, as well as climate change related conditions discussed above.
−Removed: For instance, the Russia-Ukraine conflict could adversely impact, among other things, our raw material, energy and transportation costs, as well as certain of our suppliers, global and local macroeconomic conditions, and cause further supply chain disruptions.
−Removed: Our system-wide restaurant base is geographically concentrated in the southeast portion of the United States, and we could be negatively affected by conditions specific to that region.
+Added: For instance, the Russia-Ukraine war and the Israel-Hamas war could adversely impact, among other things, our raw material, energy and transportation costs, as well as certain of our suppliers, global and local macroeconomic conditions, and cause further supply chain disruptions.
+Added: Our system-wide restaurant base is geographically concentrated in the southeast portion of the United States, and we could be adversely affected by conditions specific to that region.
Our restaurants in the southeast portion of the United States represented approximately 42% of our system-wide restaurants as of December 31, 2023.
−Removed: Our restaurants in Florida represented approximately 23.0% of our system-wide restaurants as of December 25, 2022.
+Added: Our restaurants in Florida represented approximately 23% of our system-wide restaurants as of
+Added: December 31, 2023.
Adverse changes in demographic, unemployment, economic, regulatory or weather conditions in the southeast portion of the United States have had, and may continue to have, material adverse effects on our business, financial condition and results of operations.
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In addition, incidents of restaurant commentary have increased dramatically with the proliferation of social media platforms.
−Removed: publicity may adversely affect us, regardless of whether the allegations are valid or whether we are held responsible.
+Added: Negative publicity may adversely affect us, regardless of whether the allegations are valid or whether we are held responsible.
In addition, the negative impact of adverse publicity may extend far beyond the restaurant involved, especially due to the high geographic concentration of many of our restaurants, and affect some or all our other restaurants, including our franchise-owned restaurants.
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A significant increase in the number of these claims or an increase in the number of successful claims could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could have a material adverse effect on our business, financial condition and results of operations.
+Added: Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media or artificial intelligence could have a material adverse effect on our business, financial condition and results of operations.
Our marketing efforts rely heavily on the use of social media.
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Many of our competitors are expanding their use of social media, and new social media platforms are rapidly being developed, potentially making more traditional social media platforms obsolete.
−Removed: As a result, we need to continuously innovate and develop our social media strategies in order to maintain broad appeal with customers and brand relevance, particularly given the rise in digital orders by customers at home due to the increased work-from-home customer base.
+Added: As a result, we need to continuously innovate and develop our marketing strategies in order to maintain broad appeal with customers and brand relevance, particularly given the rise in digital orders by customers at home due to the increased work-from-home customer base.
We also continue to invest in other digital marketing initiatives that allow us to reach our customers across multiple digital channels and build their awareness of, engagement with, and loyalty to our brand.
These initiatives may not be successful, resulting in expenses incurred without the benefit of higher sales or increased brand recognition.
−Removed: Additionally, negative commentary regarding our restaurants, our food or our service may be posted on our website or social media platforms and may be adverse to our reputation or business.
+Added: Additionally, negative commentary regarding our restaurants, our food or our service may be posted on our social media platforms and may be adverse to our reputation or business.
This harm may be immediate, without affording us an opportunity for redress or correction.
−Removed: Our insurance may not provide adequate levels of coverage against claims.
−Removed: We believe that we maintain insurance customary for businesses of our size and type.
−Removed: However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure.
−Removed: Such losses could have a material adverse effect on our business, financial condition and results of operations.
+Added: In addition, the rapid evolution and increased adoption of artificial intelligence technologies may affect our customers’ expectations, requirements or tastes in ways we cannot adequately anticipate or adapt to, and adversely affect our business financial condition and results of operations.
Risks Related to Information Technology and Intellectual Property
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Any actual or perceived breach in the security of our information technology systems or those of our franchisees and third-party service providers could lead to damage or failure of our computer systems or network infrastructure that causes an interruption in our operations could have a material adverse effect on our business and a significant theft, loss, disclosure, modification or misappropriation of, or access to, guests’, employees’, third parties’ or other proprietary data or other breach of our information technology systems could subject us or our franchisees to litigation or to actions by regulatory authorities.
−Removed: Furthermore, before and during the COVID-19 pandemic, at various times we have allowed certain of our team members in our corporate headquarters to work from home.
−Removed: The significant increase in remote working, particularly for an extended period of time, could increase certain risks to our business, including an increased risk of cybersecurity events, vulnerability of our systems and improper dissemination of confidential or personal information, if our physical and cybersecurity measures or our corporate policies are not effective.
−Removed: The costs to us to eliminate any of the foregoing cybersecurity vulnerabilities or to
−Removed: address a cyber-incident could be significant and have a material adverse impact on our business, financial condition and results of operations.
+Added: Furthermore, at various times we have allowed certain of our team members in our corporate headquarters to work from home.
+Added: Remote working, particularly for an extended period of time, could increase certain risks to our business, including an increased risk of cybersecurity events, vulnerability of our systems and improper dissemination of confidential or personal information, if our physical and cybersecurity measures or our corporate policies are not effective.
+Added: The costs to us to protect against any of the foregoing cybersecurity vulnerabilities or to address a cyber-incident could be significant and have a material adverse impact on our business, financial condition and results of operations.
+Added: Security incidents or breaches have from time to time occurred and may in the future occur involving our systems, the systems of the parties with whom we communicate or collaborate (including franchisees) or the systems of third-party providers.
+Added: Certain of these technology systems contain personal, financial and other information of our customers, employees, franchisees and their employees, suppliers and other third parties, as well as financial, proprietary and other confidential information related to our business.
The techniques and sophistication used to conduct cyber-attacks and breaches of information technology systems, as well as the sources and targets of these attacks, may take many forms (including phishing, social engineering, denial or degradation of service attacks, malware or ransomware), change frequently and are often not recognized until such attacks are launched or have been in place for a period of time.
−Removed: In addition, our employees, franchisees, contractors, or third parties with whom we do business or to whom we outsource business operations may attempt to circumvent our security measures in order to misappropriate regulated, protected, or personally identifiable information, and may purposefully or inadvertently cause a breach involving or compromise of such information.
+Added: In addition, our employees, franchisees, contractors, or third parties with whom we do business or to whom we outsource business operations may attempt to circumvent our security measures in order to misappropriate regulated, protected, or personally identifiable information, and may purposefully or inadvertently cause a breach involving or compromising such information.
Third parties may have the technology or know-how to breach the security of the information collected, stored, or transmitted by us or our franchisees, and our respective security measures, as well as those of our technology vendors, may not effectively prohibit others from obtaining improper access to this information.
Advances in computer and software capabilities and encryption technology, new tools, and other developments may increase the risk of such a breach or compromise.
−Removed: There is no assurance that any security procedures or controls that we or our third-party providers have implemented will be sufficient to prevent data-security related incidents from occurring.
−Removed: We may be required to expend significant capital and other resources to protect against, respond to, and recover from any potential, attempted or existing security breaches or failures and their consequences.
+Added: The rapid evolution and increased adoption of artificial intelligence technologies may intensify our cybersecurity risks.
+Added: Despite response procedures and measures in place in the event of an incident, a security breach could result in disruptions, shutdowns, or the theft or unauthorized disclosure of such information.
+Added: The actual or alleged occurrence of any of these incidents could result in mitigation costs, reputational damage, adverse publicity, loss of consumer confidence, reduced sales and profits, complications in executing our growth initiatives and regulatory and legal risk, including criminal penalties or civil liabilities.
As data security-related threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
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We rely on a variety of marketing and advertising techniques, including email communications, affiliate partnerships, social media interactions, digital marketing, direct mailers, public relations initiatives and local community sponsorships, promotions and partnerships, and we are subject to various laws and regulations that govern such marketing and advertising practices.
−Removed: A variety of federal and state laws and regulations govern the collection, use, retention, sharing and
−Removed: security of consumer data, particularly in the context of digital marketing, which we rely upon to attract new customers.
+Added: A variety of federal and state laws and regulations govern the collection, use, retention, sharing and security of consumer data, particularly in the context of digital marketing, which we rely upon to attract new customers.
We are, and may increasingly become, subject to other various laws, directives, industry standards and regulations, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate.
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These modifications will require us to incur additional costs and expenses in our effort to comply.
−Removed: Virginia and Colorado recently enacted similar data privacy legislation that will take effect in 2023, and several other states and countries are considering expanding or passing privacy laws in the near term.
+Added: Virginia, Connecticut, Colorado and Utah have enacted similar data privacy legislation that took effect in 2023, and Delaware, Indiana, Iowa, Montana, Oregon, Tennessee and Texas have enacted similar data privacy legislation that will take effect at various points in 2024 and beyond.
+Added: Several other states and countries are considering expanding or passing privacy laws in the near term.
Our failure to adhere to or successfully implement appropriate processes to adhere to the requirements of evolving laws and regulations in this area could expose us and our franchisees to financial penalties and legal liability.
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We received a letter, dated February 21, 2022, from the Delaware Secretary of State inviting us to participate in the Delaware Secretary of State’s Abandoned or Unclaimed Property Voluntary Disclosure Agreement Program to avoid being sent an audit notice by the Delaware Department of Finance.
−Removed: On August 31, 2022, the Company was accepted into Delaware’s Voluntary Disclosure Agreement Program, entitling it to certain benefits and protections offered to participants
−Removed: in the program .
−Removed: We intend to work in good faith to complete a review of our books and records related to unclaimed or abandoned property during the periods required under the program.
+Added: On August 31, 2022, the Company was accepted into Delaware’s Voluntary Disclosure Agreement Program, entitling it to certain benefits and protections offered to participants in the program .
+Added: We intend to continue to work in good faith to complete a review of our books and records related to unclaimed or abandoned property during the periods required under the program.
+Added: In the fourth quarter of 2023, the Company recorded a charge of $0.8 million for est imated probable losses that might arise from this matter.
Amounts incurred and paid to resolve past due unclaimed property obligations in Delaware could have a material adverse effect on our financial condition and results of operations.
5 unchanged sentences
If we are required to materially increase the estimated liability recorded in our consolidated financial statements with respect to unredeemed gift cards, our financial condition and results of operations could be adversely affected.
−Removed: Additionally, through December 25, 2022, we relied on a third-party service provider to administer aspects of our gift cards.
−Removed: Any failure on the part of this service provider to fulfill their contract in a way that adversely effects the use or purchase of our gift cards prior to the termination of our contract with the third-party service provider could result in a material adverse effect on our business, financial condition and results of operations.
The failure to enforce and maintain our trademarks and protect our other intellectual property could have a material adverse effect on our business, including our ability to establish and maintain brand awareness.
1 unchanged sentence
The First Watch ® trademark is also registered in Canada.
−Removed: In addition, the First Watch logo, website domain name and Facebook, Instagram and Twitter accounts are our intellectual property.
+Added: In addition, the First Watch logo, website domain name and Facebook and Instagram accounts are our intellectual property.
The success of our business strategy depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and develop our branded products.
−Removed: If our efforts to protect our intellectual property are not adequate, or if any third-party misappropriates or infringes on our intellectual property, whether in print, on the Internet or through other media, the value of our brands may be negatively affected, which could have a material adverse effect on our business, including the failure of our brands and branded products to achieve and maintain market acceptance.
−Removed: There can be no assurance that all the steps we have taken to protect our intellectual property in the United States will be adequate.
+Added: If our efforts to protect our intellectual property are not adequate, or if any third-party misappropriates or infringes on our intellectual property, whether in print, on the Internet or through other media, the value of our brands may be adversely affected, which could have a material adverse effect on our business, including the failure of our brands and branded products to achieve and maintain market acceptance.
We or our suppliers maintain the seasonings and additives for our menu items, as well as certain standards, specifications and operating procedures, as trade secrets or confidential information.
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Litigation with respect to intellectual property assets, if decided against us, may result in competing uses or require adoption of new, non-infringing intellectual property, which may in turn adversely affect sales and revenues.
−Removed: There can be no assurance that third parties will not assert infringement or misappropriation claims against us, or assert claims that our rights in our trademarks, service marks, trade names and other intellectual property assets are invalid or unenforceable.
+Added: Third parties may, from time to time, assert infringement or misappropriation claims against us, or assert claims that our rights in our trademarks, service marks, trade names and other intellectual property assets are invalid or unenforceable.
Any such claims could have a material adverse effect on us or our franchisees if such claims were to be decided against us.
5 unchanged sentences
Risks Related to Employees and the Workforce
−Removed: We depend on our executive officers and certain other key employees, the loss of whom could have a material adverse effect on our business, financial condition and results of operations.
−Removed: We rely upon the accumulated knowledge, skills and experience of our executive officers and certain other key employees.
−Removed: The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition and results of operations, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all.
−Removed: If our executive officers were to leave us or become incapacitated, it might negatively impact our planning and execution of business strategy and operations.
−Removed: We believe that our future success will depend on our continued ability to attract and retain highly skilled and qualified executive personnel.
−Removed: There is a high level of competition for experienced, successful executive personnel in our industry.
−Removed: Our inability to meet our executive staffing requirements in the future could have a material adverse effect on our business, financial condition and results of operations.
Our inability to identify qualified individuals for our workforce could slow our growth and adversely impact our ability to operate our restaurants.
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The inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in restaurant openings could have a material adverse effect on our business, financial condition and results of operations.
−Removed: The COVID-19 pandemic has created systemic staffing complexities for us and other restaurant operators, including among others a decreased applicant pool for all positions, safety concerns, and ongoing staff call-outs and exclusions due to illness.
−Removed: The restaurant industry has also experienced since the start of the COVID-19 pandemic aggressive competition for talent, wage inflation and pressure to improve benefits and workplace conditions to remain competitive.
+Added: Since the start of the COVID-19 pandemic, the restaurant industry has experienced aggressive competition for talent, wage inflation and pressure to improve benefits and workplace conditions to remain competitive.
In addition, our existing wages and benefits programs, combined with the highly competitive wage pressure resulting from the labor shortage, may be insufficient to attract and retain the best talent.
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As we continue to grow, we may find it difficult to maintain the innovation, teamwork, passion and focus on execution that we believe are important aspects of our corporate culture.
−Removed: Any failure to preserve our culture could negatively impact our operations, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.
+Added: Any failure to preserve our culture could adversely impact our operations, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.
If we cannot maintain our corporate culture as we grow, it could have a material adverse effect on our business, financial condition and results of operations.
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Our sustainability activities, including environmental, social and governance matters, could result in reputational risks, increased costs and other risks.
−Removed: Customers, investors, lenders, regulators and other industry stakeholders have placed increasing importance on corporate ESG practices, which could cause us to incur additional costs and changes to our operations.
−Removed: If our ESG practices or disclosures do not meet stakeholders’ evolving expectations and standards, our customer and employee retention, our access to certain types of capital, and our brand and reputation may be negatively impacted, which could affect our business operations and financial condition.
−Removed: We could also incur additional costs and require additional resources to monitor, report and comply with various ESG practices and regulations, which could increase our operating costs and affect our results of operations and financial condition.
+Added: Certain customers, investors, lenders, regulators and other industry stakeholders have placed increasing importance on corporate ESG practices, which could cause us to incur additional costs and changes to our operations.
+Added: If our ESG practices or disclosures do not meet stakeholders’ evolving expectations and standards, our customer and employee retention, our access to certain types of capital, and our brand and reputation may be adversely impacted, which could affect our business operations and financial condition.
+Added: We could also incur additional costs and require additional resources to monitor, report and comply with various ESG practices, laws and regulations, which could increase our operating costs and affect our results of operations and financial condition.
In addition, from time to time, we may communicate certain initiatives regarding climate change and other ESG matters.
−Removed: We could fail or be perceived to fail to achieve such initiatives, which may negatively affect our reputation.
+Added: We could fail or be perceived to fail to achieve such initiatives, which may adversely affect our reputation.
The future adoption of new technology or processes to achieve such initiatives could also result in the impairment of existing assets.
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In recent years, restaurant companies, including us, have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state laws regarding workplace and employment conditions, discrimination and similar matters.
−Removed: Similar lawsuits have been instituted from time to time alleging violations
−Removed: of various federal and state wage and hour laws regarding, among other things, employee meal deductions, overtime eligibility of managers and failure to pay for all hours worked.
+Added: Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, overtime eligibility of managers and failure to pay for all hours worked.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations and result in increases in our insurance premiums.
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Additionally, if we or our franchisees are unable to properly identify unauthorized workers, such workers will be subject to deportation and may subject us to fines or penalties.
−Removed: If any of our workers are found to be unauthorized, we could experience adverse publicity that may negatively impact our brand, disrupt our operations, make it more difficult to hire and keep qualified employees, cause temporary increases in our labor costs as we train new employees and result in adverse publicity.
+Added: If any of our workers are found to be unauthorized, we could experience adverse publicity that may
+Added: adversely impact our brand, disrupt our operations, make it more difficult to hire and keep qualified employees, cause temporary increases in our labor costs as we train new employees and result in adverse publicity.
We could be party to litigation that could distract management, increase our expenses or subject us to material monetary damages or other remedies.
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A judgment in excess of our insurance coverage for any claims could have a material adverse effect on our business, financial condition and results of operations.
−Removed: In addition, such allegations could result in adverse publicity and negatively impact our reputation, which could have a material adverse effect on our business, financial condition and results of operations.
+Added: In addition, such allegations could result in adverse publicity and adversely impact our reputation, which could have a material adverse effect on our business, financial condition and results of operations.
If we and our franchisees face labor shortages or increased labor costs or health care costs, it could have a material adverse effect on our business, financial condition and results of operations.
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Increases in federal or state minimum wage may also result in increases in the wage rates paid for non-minimum wage positions.
−Removed: We may be unable to increase our menu prices in order to pass future increased labor costs on to our customers, in which case our operating margins would be negatively affected.
+Added: We may be unable to increase our menu prices in order to pass future increased labor costs on to our customers, in which case our operating margins would be adversely affected.
If menu prices are increased by us or our franchisees to cover increased labor costs, the higher prices could adversely affect demand for our menu items, resulting in lower sales and decreased franchise revenues.
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Many of our restaurant leases are non-cancelable and typically have initial terms of 10 years, providing for two to four renewal options of five years each as well as rent escalations.
−Removed: Generally, our leases are triple-net leases that require us to
−Removed: pay our share of the costs of real estate taxes, utilities, building operating expenses, insurance and other charges in addition to rent.
+Added: Generally, our leases are triple-net leases that require us to pay our share of the costs of real estate taxes, utilities, building operating expenses, insurance and other charges in addition to rent.
We generally cannot cancel these leases, and additional sites that we lease are likely to be subject to similar long-term non-cancelable leases.
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Additionally, the revenues and profit, if any, generated at a relocated restaurant may not equal the revenues and profit generated at the existing restaurant.
+Added: As a public company, we incur significant costs to comply with the laws and regulations affecting public companies, which could harm our business and results of operations.
+Added: As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the listing requirements of Nasdaq, and other applicable securities rules and regulations.
+Added: These rules and regulations have increased and will continue to increase our legal, accounting and financial compliance costs and have made and will continue to make some activities more time-consuming and costly, particularly after we cease to be an emerging growth company.
+Added: For example, these rules and regulations could make it more difficult and more costly for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage.
+Added: These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board or our Board committees or as executive officers.
+Added: Our management and other personnel will continue to devote a substantial amount of time to these compliance initiatives.
+Added: As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations.
+Added: We will need to hire more employees in the future to comply with these requirements, which will increase our costs and expenses.
+Added: To comply with the requirements of being a public company, including the Sarbanes-Oxley Act, we have and will need to continue to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff or outsourcing certain functions to third parties, which could have a material adverse effect on our business, financial condition and results of operations.
+Added: Fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets may result in volatility of our results of operations.
+Added: We are subject to income taxes in various U.S.
+Added: jurisdictions.
+Added: We record tax expense based on our estimates of future payments, which may in the future include reserves for uncertain tax positions in multiple tax jurisdictions, and valuation allowances related to certain net deferred tax assets.
+Added: At any one time, many tax years may be subject to audit by various taxing jurisdictions.
+Added: The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues.
+Added: We expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated.
+Added: In addition, our effective tax rate in a given financial reporting period may be materially impacted by a variety of factors including, but not limited to, changes in the mix and level of earnings, varying tax rates in the different jurisdictions in which we operate, fluctuations in the valuation allowance or by changes to existing accounting rules or regulations.
+Added: Further, tax legislation may be enacted in the future, which could negatively impact our current or future tax structure and effective tax rates.
+Added: government may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate and the imposition of minimum taxes or surtaxes on certain types of income.
+Added: No specific United States tax legislation has been proposed at this time and the likelihood of these changes being enacted or implemented is unclear.
+Added: We are currently unable to predict whether such changes will occur.
+Added: If such changes are enacted or implemented, we are currently unable to predict the ultimate impact on our business.
Our business is subject to risks related to our sale of alcoholic beverages.
5 unchanged sentences
Recent litigation against restaurant chains has resulted in significant judgments and settlements under dram shop statutes.
−Removed: Because these cases often seek punitive damages, which may not be covered by insurance, such litigation could have a material effect on our business, financial condition and results of operations.
+Added: Because these cases often seek punitive damages, which may not be covered by insurance, such litigation could
+Added: have a material effect on our business, financial condition and results of operations.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from operations and hurt our financial performance.
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Although restaurants are specifically exempted from or not directly implicated by some of these requirements, we anticipate that the requirements may impact our industry.
−Removed: Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability of certain products, result in adverse publicity or require us to take actions that
−Removed: could be costly for us or otherwise impact our business.
+Added: Additionally, due to such regulations, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise impact our business.
We may be required to incur additional time and resources to comply with new food safety requirements made under FSMA or other federal or state food safety regulations.
2 unchanged sentences
Compliance with these laws can be costly and may increase our exposure to litigation or governmental investigations or proceedings.
−Removed: Our business is also subject to extensive laws and regulations relating to public company compliance, disclosure and governance matters, including accounting and tax regulations, SEC and Nasdaq disclosure requirements.
+Added: Our business is also subject to extensive laws and regulations relating to public company compliance, disclosure and governance matters, including accounting and tax regulations, SEC and Nasdaq disclosure requirements, as further discussed below.
The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations, or our inability to respond effectively to significant regulatory or public policy issues, could increase our compliance and other costs of doing business and could have a material adverse effect on our business, financial condition and results of operations.
3 unchanged sentences
Risks Related to Accounting and Financial Reporting Matters
−Removed: Changes in accounting principles applicable to us could have a material adverse effect on our financial condition and results of operations.
−Removed: Generally accepted accounting principles in the U.S.
−Removed: are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles.
−Removed: A change in these principles or interpretations could have a significant effect on our financial condition and results of operations, and could affect the reporting of transactions completed before the announcement of a change.
An impairment in the carrying value of our goodwill or indefinite-lived intangible assets could have a material adverse effect on our financial condition and results of operations.
8 unchanged sentences
We have identified material weaknesses in our internal control over financial reporting, which could result in us failing to prevent or detect material misstatements of our consolidated financial statements due to error or fraud.
−Removed: remediation of the material weaknesses is not effective, or if we otherwise fail to maintain effective internal control over financial reporting in the future, we may not be able to accurately or timely report our financial condition or results of operations, which, in turn, could negatively impact the market value of our common stock.
−Removed: As a newly public company, we are required to comply with Section 404 of the Sarbanes-Oxley Act (“Section 404”) in accordance with the rules and regulations of the SEC, which requires management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report after our IPO.
+Added: If our remediation of the material weaknesses is not effective, or if we otherwise fail to maintain effective internal control over financial reporting in the future, we may not be able to accurately or timely report our financial condition or results of operations, which, in turn, could adversely impact the market value of our common stock.
+Added: As a public company, we are required to comply with Section 404 of the Sarbanes-Oxley Act (“Section 404”) in accordance with the rules and regulations of the SEC, which requires management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting.
In addition, under Section 404 our independent registered public accounting firm will also need to attest to the effectiveness of our internal control over financial reporting in the future to the extent that we are no longer an emerging growth company, as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”).
−Removed: To achieve compliance with the rules and regulations of the SEC within the prescribed period, we will need to continue to dedicate internal resources, engage outside consultants and continue to execute on a detailed work plan to assess and document the adequacy of our internal control over financial reporting, continue taking steps to improve control processes, as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.
−Removed: Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective.
−Removed: In connection with the preparation of our consolidated financial statements, we identified material weaknesses in our internal control over financial reporting.
−Removed: The material weaknesses we identified were as follows:
−Removed: We did not design and maintain an effective internal control environment commensurate with the financial reporting requirements of a public company.
−Removed: Specifically, we lacked a sufficient complement of personnel with an appropriate level of knowledge, experience and training in internal control over financial reporting and the reporting requirements of a public company.
−Removed: Additionally, we did not formally delegate authority or establish appropriate segregation of duties in our finance and accounting functions.
−Removed: As a result, we did not perform an effective risk assessment nor did we design and maintain internal controls in response to the risks of material misstatement.
−Removed: These material weaknesses contributed to the following material weaknesses:
−Removed: • We did not design and maintain effective controls over the period-end financial reporting process, including controls over the preparation and review of account reconciliations and journal entries, and the appropriate classification and presentation of accounts and disclosures in the consolidated financial statements.
−Removed: This material weakness resulted in adjustments to accruals and within the statement of cash flows in our fiscal 2018 consolidated financial statements, which were recorded prior to the issuance of our fiscal 2018 consolidated financial statements.
−Removed: • We did not design and maintain effective controls over the accounting for income taxes over the recording of deferred income taxes and the assessment of the realization of deferred tax assets.
−Removed: This material weakness resulted in adjustments to the income tax benefit, deferred taxes, goodwill, and liabilities in our fiscal 2018 consolidated financial statements, which were recorded prior to issuance.
−Removed: This material weakness also resulted in immaterial adjustments to the income tax benefit and deferred taxes and related disclosures in the fiscal 2017 and 2019 consolidated financial statements, which were corrected in the fiscal 2019 and 2020 consolidated financial statements, respectively.
−Removed: This material weakness also resulted in adjustments to the income tax expense and deferred taxes in our fiscal 2021 consolidated financial statements, which were recorded prior to issuance.
−Removed: • We did not design and maintain effective controls over information technology general controls for information systems and applications that are relevant to the preparation of the consolidated financial statements.
−Removed: Specifically, we did not design and maintain:
−Removed: sufficient user access controls to ensure appropriate segregation of duties and adequately restrict user and privileged access to financial applications, programs and data to appropriate Company personnel;
−Removed: program change management controls to ensure that information technology program and data changes affecting financial information technology applications and underlying accounting records are identified, tested, authorized and implemented appropriately;
−Removed: computer operations controls to ensure that critical batch jobs are monitored, privileges are appropriately granted, and data backups are authorized and monitored;
−Removed: and testing and approval controls for program development to ensure that new software development is aligned with business and information technology requirements.
−Removed: The deficiencies, when aggregated, could impact our ability to maintain effective segregation of duties, as well as the effectiveness of information technology-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the information technology controls and underlying data that
−Removed: support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
−Removed: Therefore, we concluded the information technology deficiencies resulted in a material weakness.
−Removed: However, these information technology deficiencies did not result in any misstatements to the consolidated financial statements.
−Removed: Additionally, each of the aforementioned material weaknesses could result in a misstatement of the consolidated financial statements that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
−Removed: We have taken certain measures to remediate the material weaknesses described above, as described in Item 9A of this Form 10-K.
+Added: To comply with the rules and regulations of the SEC, we need to continue to dedicate internal resources, engage outside consultants and continue to execute on a detailed work plan to assess and document the adequacy of our internal control over financial reporting, continue taking steps to improve control processes, as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.
+Added: Despite our efforts, there is a risk that we will not be able to conclude that our internal control over financial reporting is effective.
+Added: As further described in Part II Item 9A of this Form 10-K, in connection with the preparation of our consolidated financial statements, we identified material weaknesses in our internal control over financial reporting, which could result in misstatement of the consolidated financial statements that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
+Added: We have taken certain measures to remediate the material weaknesses.
+Added: See Item 9A for additional information.
Risks Related to Our Indebtedness
−Removed: We might require additional capital to support business growth and this capital might not be available.
−Removed: We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges or opportunities, including the need to open additional restaurants, develop new menu items or enhance our existing menu items, and enhance our operating infrastructure.
−Removed: Accordingly, we may need to engage in equity or debt financings to secure additional funds.
−Removed: In addition, we may not be able to obtain additional financing on terms favorable to us, if at all.
−Removed: Volatility in the financial markets like we are currently experiencing could affect our ability to access capital markets at a time when we desire, or need, to do so, which could have an impact on our flexibility to pursue additional expansion opportunities and maintain our desired level of revenue growth in the future.
−Removed: If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, which could have a material adverse effect on our business, financial condition and results of operations.
Our level of indebtedness could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our total principal amount of debt outstanding, excluding finance lease liabilities, financing obligations and unamortized debt discount and deferred issuance costs as of December 25, 2022 was $98.1 million.
+Added: Our principal amount of our term loan outstanding was $92.5 million, excluding unamortized debt discount and deferred issuance costs, and we had drawn $30.0 million on our revolving credit facility as of December 31, 2023.
Our indebtedness could have significant effects on our business, such as:
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If we are not able to pay our borrowings as they become due, we will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring our indebtedness or selling additional debt or equity securities.
−Removed: We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we must sell our assets, it may negatively affect our financial condition and results of operations.
−Removed: Pursuant to our credit agreement dated as of October 6, 2021 (the “Credit Agreement”), which provides for (i) a $100.0 million term loan A facility (the “Term Facility”) and (ii) a $75.0 million revolving credit facility (the “Revolving Credit Facility”) and together with the Term Facility, the “Facilities”), we are required to maintain, on a consolidated basis, both (a) a maximum total rent adjusted net leverage ratio of (i) consolidated total net debt to (ii) consolidated EBITDA plus consolidated cash rental expense with certain adjustments and (b) a minimum fixed charge coverage ratio of (i) consolidated EBITDA plus consolidated cash rental expense with certain adjustments to (ii) consolidated fixed charges, in each case, as set forth in the Credit Agreement and tested as of the last day of each fiscal quarter (commencing with the fiscal quarter ending March 27, 2022).
−Removed: Our ability to borrow under the Revolving Credit Facility is subject to the absence of a default or event of default under the Credit Agreement, including our compliance with these financial covenants.
−Removed: Events beyond our control, including changes in general economic and business conditions, may affect our ability to comply with the financial covenants.
−Removed: We cannot assure you that we will comply with the financial covenants in the future, or that our lenders will waive any failure to comply with the financial covenants.
+Added: We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we must sell our assets, it may adversely affect our financial condition and results of operations.
+Added: See Note 10, Debt , and Note 21, Subsequent Events , in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Form 10-K for additional information.
The failure to comply with the covenants under our Credit Agreement or the volatile credit and capital markets could have a material adverse effect on our financial condition.
Our ability to manage our debt is dependent on our level of positive cash flow from company-owned and franchise-owned restaurants.
−Removed: An economic downturn may negatively impact our cash flows.
+Added: An economic downturn may adversely impact our cash flows.
Credit and capital markets can be volatile, which could make it more difficult for us to refinance our existing debt or to obtain additional debt or equity financings in the future.
Such constraints could increase our costs of borrowing and could restrict our access to other potential sources of future liquidity.
−Removed: Our failure to comply with the covenants under the Credit Agreement for our Facilities or to have sufficient liquidity to make interest and other payments required by our debt could result in a default of such debt and acceleration of our borrowings, which could have a material adverse effect on our business, financial condition and results of operations.
+Added: Our failure to comply with the covenants under our Credit Agreement for our debt facilities or to have sufficient liquidity to make interest and other payments required by our debt could result in a default of such debt and acceleration of our borrowings, which could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Company and Organizational Structure
16 unchanged sentences
Although First Watch Restaurant Group, Inc.
−Removed: does not expect to pay dividends on its common stock for the foreseeable future, if it is unable to obtain funds from its subsidiaries, it may be unable to, or its board of directors (the “Board”) may exercise its discretion not to, pay dividends.
+Added: does not expect to pay dividends on its common stock for the foreseeable future, if it is unable to obtain funds from its subsidiaries, it may be unable to, or its Board may exercise its discretion not to, pay dividends.
Our management does not have significant experience managing a public company and our current resources may not be sufficient to fulfill our public company obligations.
5 unchanged sentences
For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.
−Removed: As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not
−Removed: limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and of stockholder approval of any golden parachute payments not previously approved.
+Added: As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and of stockholder approval of any golden parachute payments not previously approved.
We may take advantage of some of these exemptions.
4 unchanged sentences
We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
−Removed: We could remain an emerging growth company for up to five years or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in non-convertible debt securities in the preceding three-year period.
+Added: We could remain an emerging growth company for up to five years after our IPO, which took place in September 2021, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (b) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1.0 billion in non-convertible debt securities in the preceding three-year period.
Delaware law and our organizational documents, as well as our existing and future debt agreements, may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their shares.
We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders.
−Removed: In addition, provisions of our amended and restated certificate of incorporation and bylaws may make it more difficult for, or prevent a third party from, acquiring control of us without the approval of our Board.
+Added: In addition, provisions of our amended and restated certificate of incorporation and bylaws may make it more difficult to, or prevent a third party from, acquiring control of us without the approval of our Board.
Among other things, these provisions:
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Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders and designates the federal district courts of the United States of America as the sole and exclusive forum for claims arising under the Securities Act of 1933, as amended, which, in each case, could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, agents or other stockholders.
−Removed: Our amended and restated certificate of incorporation provides that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware or, if the Court of Chancery lacks jurisdiction, a state court located within
−Removed: the State of Delaware or the federal district court for the District of Delaware, shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (a) derivative action or proceeding brought on behalf of the Corporation;
−Removed: (b) action asserting a claim of breach of a fiduciary duty owed by or other wrongdoing by any current or former director, officer, employee, agent or stockholder of the Corporation to the Corporation or the Corporation’s stockholders;
−Removed: (c) action asserting a claim arising under any provision of the Delaware General Corporation Law (the “DGCL”) or this Certificate or the Bylaws (as either may be amended from time to time), or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware;
−Removed: or (d) action asserting a claim governed by the internal affairs doctrine.
−Removed: For the avoidance of doubt, our amended and restated certificate of incorporation also provides that the foregoing exclusive forum provision does not apply to actions brought to enforce any liability or duty created by the Securities Act or the Exchange Act, or any other claim or cause of action for which the federal courts have exclusive jurisdiction.
−Removed: Our amended and restated certificate of incorporation also provides that, unless we consent in writing to an alternative forum, the federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any action asserting a claim arising under the Securities Act or the rules and regulations promulgated thereunder.
−Removed: Pursuant to the Exchange Act, claims arising thereunder must be brought in federal district courts of the United States of America.
−Removed: To the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring or holding any interest in any shares of our capital stock shall be deemed to have notice of and consented to the forum provision in our amended and restated certificate of incorporation.
+Added: Our amended and restated certificate of incorporation includes a forum selection provision.
+Added: To the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring or holding any interest in any shares of our capital stock shall be deemed to have notice of and consented to the forum selection.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a different judicial forum, including one that it may find favorable or convenient for a specified class of disputes with us or our directors, officers, other stockholders, or employees, which may discourage such lawsuits, make them more difficult or expensive to pursue, and result in outcomes that are less favorable to such stockholders than outcomes that may have been attainable in other jurisdictions.
9 unchanged sentences
Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion.
−Removed: Preferred shares could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock.
+Added: Preferred shares could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common
Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may have a material adverse effect on the amount, timing, or nature of our future offerings.
3 unchanged sentences
As a result, Advent beneficially owns shares sufficient for majority votes over all matters requiring stockholder votes, including:
−Removed: the election of
+Added: the election of directors;
mergers, consolidations and acquisitions;
15 unchanged sentences
We do not expect to declare or pay any cash or other dividends in the foreseeable future on our common stock because we intend to use cash flow generated by operations to grow our business.
−Removed: Our Credit Agreement for our Facilities restricts our ability to pay cash dividends on our common stock.
+Added: Our Credit Agreement for our debt facilities restricts our ability to pay cash dividends on our common stock.
We may also enter into other credit agreements or other borrowing arrangements in the future that restrict or limit our ability to pay cash dividends on our common stock.
6 unchanged sentences
In that event, the price of our common stock could be adversely impacted.
−Removed: The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets.
+Added: The market price of our common stock could be adversely affected by sales of substantial amounts of our common stock in the public markets.
Of our issued and outstanding shares, all the common stock sold in our initial public offering is freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act.
7 unchanged sentences
Additionally, the 2021 Equity Plan contains an “evergreen provision,” pursuant to which the aggregate number of shares available for issuance will automatically increase on the first day of each fiscal year, beginning on December 26, 2022 and continuing for each fiscal year until, and including, the fiscal year ending on (and including) December 30, 2030.
−Removed: While we do not intend to grant any further awards under the 2017 Equity Plan, we may issue all the shares underlying the awards granted under the 2017 Plan and all of the shares authorized for issuance under the 2021 Equity Plan without any action or approval by our stockholders, subject to certain exceptions.
+Added: While we do not intend to grant any further awards under the 2017 Equity Plan, we may issue all the shares underlying the awards granted under the 2017 Equity Plan and all of the shares authorized for issuance under the 2021 Equity Plan without any action or approval by our stockholders, subject to certain exceptions.
Any common stock issued in connection with the 2021 Equity Plan or the 2017 Equity Plan would dilute the ownership percentage held by existing stockholders.
−Removed: As a public company, we incur significant costs to comply with the laws and regulations affecting public companies, which could harm our business and results of operations.
−Removed: As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the listing requirements of Nasdaq, and other applicable securities rules and regulations.
−Removed: These rules and regulations have increased and will continue to increase our legal, accounting and financial compliance costs and have made and will continue to make some activities more time-consuming and costly, particularly after we cease to be an emerging growth company.
−Removed: For example, these rules and regulations could make it more difficult and more costly for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage.
−Removed: These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board or our Board committees or as executive officers.
−Removed: Our management and other personnel will devote a substantial amount of time to these compliance initiatives.
−Removed: As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations.
−Removed: We will need to hire more employees in the future to comply with these requirements, which will increase our costs and expenses.
−Removed: To comply with the requirements of being a public company, including the Sarbanes-Oxley Act, we have and will need to continue to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff or outsourcing certain functions to third parties, which could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets may result in volatility of our results of operations.
−Removed: We are subject to income taxes in various U.S.
−Removed: jurisdictions.
−Removed: We record tax expense based on our estimates of future payments, which may in the future include reserves for uncertain tax positions in multiple tax jurisdictions, and valuation allowances related to certain net deferred tax assets.
−Removed: At any one time, many tax years may be subject to audit by various taxing jurisdictions.
−Removed: The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues.
−Removed: We expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated.
−Removed: In addition, our effective tax rate in a given financial reporting period may be materially impacted by a variety of factors including, but not limited to, changes in the mix and level of earnings, varying tax rates in the different jurisdictions in which we operate, fluctuations in the valuation allowance or by changes to existing accounting rules or regulations.
−Removed: Further, tax legislation may be enacted in the future, which could negatively impact our current or future tax structure and effective tax rates.
−Removed: government may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate and the imposition of minimum taxes or surtaxes on certain types of income.
−Removed: No specific United States tax legislation has been proposed at this time and the likelihood of these changes being enacted or implemented is unclear.
−Removed: We are currently unable to predict whether such changes will occur.
−Removed: If such changes are enacted or implemented, we are currently unable to predict the ultimate impact on our business.
−Removed: Unresolved Staff Comments
+Added: General Risk Factors
+Added: We depend on our executive officers and certain other key employees, the loss of whom could have a material adverse effect on our business, financial condition and results of operations.
+Added: We rely upon the accumulated knowledge, skills and experience of our executive officers and certain other key employees.
+Added: The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition and results of operations, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all.
+Added: If our executive officers were to leave us or become incapacitated, it might adversely impact our planning and execution of business strategy and operations.
+Added: We believe that our future success will depend on our continued ability to attract and retain highly skilled and qualified executive personnel.
+Added: There is a high level of competition for experienced, successful executive personnel in our industry.
+Added: Our inability to meet our executive staffing requirements in the future could have a material adverse effect on our business, financial condition and results of operations.
+Added: We might require additional capital to support business growth and this capital might not be available.
+Added: We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges or opportunities, including the need to open additional restaurants, develop new menu items or enhance our existing menu items, and enhance our operating infrastructure.
+Added: Accordingly, we may need to engage in equity or debt financings to secure additional funds.
+Added: In addition, we may not be able to obtain additional financing on terms favorable to us, if at all.
+Added: Volatility in the financial markets like we are currently experiencing could affect our ability to access capital markets at a time when we desire, or need, to do so, which could have an impact on our flexibility to pursue additional expansion opportunities and maintain our desired level of revenue growth in the future.
+Added: If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, which could have a material adverse effect on our business, financial condition and results of operations.
+Added: Changes in accounting principles applicable to us could have a material adverse effect on our financial condition and results of operations.
+Added: Generally accepted accounting principles in the U.S.
+Added: are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles.
+Added: A change in these principles or interpretations could have a significant effect on our financial condition and results of operations, and could affect the reporting of transactions completed before the announcement of a change.
+Added: Our insurance may not provide adequate levels of coverage against claims.
+Added: We believe that we maintain insurance customary for businesses of our size and type.
+Added: However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure.
+Added: Such losses could have a material adverse effect on our business, financial condition and results of operations.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.