What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-05 compared with 2023-03-07 · 260 added, 154 removed, 798 unchanged (34% of the section changed)

41 unchanged sentences

Prepaid expenses 7,494 5,800

Derivative assets, current 457 —

Other current assets 2,365 373

20 unchanged sentences

Deferred income taxes 25,331 17,166

Derivative liabilities 1,346 —

Other long-term liabilities 2,954 3,384

11 unchanged sentences

Accumulated deficit ( 72,747 ) ( 98,132 )

Accumulated other comprehensive loss ( 667 ) —

Total equity 561,284 523,135

20 unchanged sentences

Total operating costs and expenses 850,284 713,249 578,950

Income (Loss) from operations 16,913 22,243 ( 47,222 )

Income from operations 41,267 16,913 22,243

Interest expense ( 8,063 ) ( 5,232 ) ( 20,099 )

Other income (expense), net 2,871 910 ( 1,774 )

Income (Loss) before income taxes 12,591 370 ( 69,554 )

Income tax (expense) benefit ( 5,684 ) ( 2,477 ) 19,873

Net income (loss) and total comprehensive income (loss) $ 6,907 $ ( 2,107 ) $ ( 49,681 )

Income before income taxes 36,075 12,591 370

Income tax expense ( 10,690 ) ( 5,684 ) ( 2,477 )

Net income (loss) $ 25,385 $ 6,907 $ ( 2,107 )

Other comprehensive loss:

Unrealized loss on derivatives ( 889 ) — —

Income tax related to other comprehensive loss 222 — —

Other comprehensive loss ( 667 ) — —

Comprehensive income (loss) $ 24,718 $ 6,907 $ ( 2,107 )

Net income (loss) per common share - basic $ 0.43 $ 0.12 $ ( 0.04 )

8 unchanged sentences

Capital Accumulated

Deficit Total Equity

Deficit Accumulated Other Comprehensive Loss Total Equity

Shares Amount Shares Amount

1 unchanged sentence

Share issuance — — 10,877,850 109 176,965 — — 177,074

Conversion of preferred shares ( 266,667 ) ( 3 ) 3,156,812 31 ( 28 ) — — —

Net loss — — — — — ( 2,107 ) — ( 2,107 )

1 unchanged sentence

Balance at December 26, 2021 — $ — 59,048,446 $ 590 $ 608,878 $ ( 105,039 ) $ — $ 504,429

Common stock issuance — — 10,877,850 109 176,965 — 177,074

Conversion of preferred shares ( 266,667 ) ( 3 ) 3,156,812 31 ( 28 ) — —

Net loss — — — — — ( 2,107 ) ( 2,107 )

Common stock issued under stock-based compensation plans, net — — 162,573 2 1,423 — — 1,425

Net income — — — — — 6,907 — 6,907

Stock-based compensation — — — — 10,374 — — 10,374

Balance at December 25, 2022 — $ — 59,211,019 $ 592 $ 620,675 $ ( 98,132 ) $ — $ 523,135

Common stock issued upon exercise of stock options, net — — 162,573 2 1,423 — 1,425

Common stock issued under stock-based compensation plans, net — — 680,686 7 5,820 — — 5,827

Net income — — — — — 25,385 — 25,385

Stock-based compensation — — — — 7,604 — — 7,604

Other comprehensive loss, net of tax — — — — — — ( 667 ) ( 667 )

Balance at December 31, 2023 — $ — 59,891,705 $ 599 $ 634,099 $ ( 72,747 ) $ ( 667 ) $ 561,284

6 unchanged sentences

Net income (loss) $ 25,385 $ 6,907 $ ( 2,107 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 41,223 34,230 32,379

11 unchanged sentences

Prepaid expenses ( 1,671 ) ( 123 ) ( 3,187 )

Deferred offering costs — — 1,307

Other assets, current and long-term ( 2,342 ) 1,072 169

5 unchanged sentences

Other liabilities ( 368 ) ( 309 ) 695

Net cash provided by (used in) operating activities 62,937 62,971 ( 18,364 )

Net cash provided by operating activities 95,338 62,937 62,971

Cash flows from investing activities:

Insurance proceeds 219 — —

Capital expenditures ( 84,527 ) ( 62,219 ) ( 35,311 )

Business acquisitions, net of cash acquired ( 39,880 ) — —

Purchase of intangible assets ( 161 ) ( 1,111 ) ( 371 )

Insurance proceeds 1,198 219 —

Net cash used in investing activities ( 123,370 ) ( 63,111 ) ( 35,682 )

5 unchanged sentences

Cash flows from financing activities:

Note payable borrowing $ 1,892 $ 2,874 $ —

Proceeds from borrowings on revolving credit facility $ 30,000 $ — $ —

Repayments of long-term debt, including finance lease liabilities ( 6,183 ) ( 2,389 ) ( 291,602 )

Proceeds from exercise of stock options, net of employee taxes paid 5,827 1,425 —

Repayments of note payable ( 1,376 ) ( 2,868 ) ( 522 )

Note payable borrowing — 1,892 2,874

Proceeds from issuance of long-term debt — — 100,000

Repayments of long-term debt, including finance lease liabilities ( 2,389 ) ( 291,602 ) ( 4,286 )

Proceeds from common stock issuance, net of underwriting discounts and commissions — — 182,095

Proceeds from exercise of stock options, net of employee taxes paid 1,425 — —

Proceeds from preferred stock issuance — — 40,000

Proceeds from borrowings on revolving credit facility — — 22,000

Repayments of borrowings on revolving credit facility — — ( 39,000 )

Contingent consideration payment ( 198 ) ( 78 ) ( 9 )

1 unchanged sentence

Payment of debt discount and deferred issuance costs — — ( 2,226 )

Net cash (used in) provided by financing activities ( 2,018 ) ( 14,271 ) 73,314

Net (decrease) increase in cash and cash equivalents and restricted cash ( 2,192 ) 13,018 27,976

Net cash provided by (used in) financing activities 28,070 ( 2,018 ) ( 14,271 )

Net increase (decrease) in cash and cash equivalents and restricted cash 38 ( 2,192 ) 13,018

Cash and cash equivalents and restricted cash:

10 unchanged sentences

Remeasurements and terminations of finance lease assets and lease liabilities $ ( 48 ) $ ( 197 ) $ 6

Increase (Decrease) in liabilities from acquisition of property, fixtures and equipment $ 2,463 $ 144 $ ( 860 )

Increase in liabilities from acquisition of property, fixtures and equipment $ 7,036 $ 2,463 $ 144

The accompanying notes are an integral part of these consolidated financial statements.

6 unchanged sentences

The Company does not operate outside of the United States and all of its assets are located in the United States.

The Company’s outstanding stock was purchased by funds affiliated with or managed by Advent International Corporation on August 21, 2017 (the “Advent Acquisition”).

The Company’s outstanding stock was purchased by funds affiliated with or managed by Advent International L.P.

on August 21, 2017 (the “Advent Acquisition”).

The Company operates restaurants through its wholly owned subsidiary, First Watch Restaurants, Inc., and is a franchisor through its wholly owned subsidiary, First Watch Franchise Development Co.

6 unchanged sentences

The Company reports financial information on a 52- or 53-week fiscal year ending on the last Sunday of each calendar year.

The fiscal years ended December 25, 2022 (“Fiscal 2022”), December 26, 2021 (“Fiscal 2021”) and December 27, 2020 (“Fiscal 2020”) contained 52 weeks.

The fiscal years ended December 31, 2023 (“Fiscal 2023”), December 25, 2022 (“Fiscal 2022”) and December 26, 2021 (“Fiscal 2021”) contained 53 weeks, 52 weeks and 52 weeks, respectively.

The accompanying consolidated financial statements of the Company have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

Comprehensive income (loss) is a measure of net income (loss) and all other changes in equity that result from transactions other than with equity holders, and would normally be recorded in the Consolidated Statements of Equity and the Consolidated Statements of Comprehensive Income (Loss).

The Company does not have any components of other comprehensive income (loss) recorded within its consolidated financial statements.

Accordingly, there is no difference between net income (loss) and comprehensive income (loss).

Out of Period Adjustment

Management identified an error relating to the deferred tax asset associated with accrued compensation in Fiscal 2021.

This out-of-period adjustment resulted in an increase of approximately $ 0.4 million in income tax expense on the Consolidated Statements of Operations and Comprehensive Income for Fiscal 2023.

Management assessed the materiality of this error on the previously issued consolidated financial statements and concluded that the error was not material to the previously issued consolidated financial statements and the impact of correcting the error in Fiscal 2023 is not material to the consolidated financial statements as of and for the fiscal year ended December 31, 2023.

Principles of Consolidation

16 unchanged sentences

Costs incurred in connection with business combinations are expensed as incurred.

The results of operations of the businesses that were acquired are included as of their respective dates of acquisition.

Fair Value of Financial Instruments

7 unchanged sentences

The carrying amounts of the Company ’ s financial instruments, including cash equivalents, accounts receivable, accounts payable, accrued expenses, note payable and other current liabilities, approximate their fair values due to their short-term maturities.

Interest Rate Swaps

As an element of the Company’s interest rate risk management strategy, Management uses interest rate swaps.

The intent of these instruments is to reduce cash flow exposure to variability in expected future interest rates on the Company’s debt.

Management has elected to designate and qualify the interest rate swaps as cash flow hedges.

As such, the instruments are recorded on the balance sheet at fair value.

Thereafter, gains or losses on the instruments are recognized in equity as changes to Other Comprehensive Income (Loss) and subsequently reclassified into earnings at the time of the Company’s debt-interest payments.

The Company has elected to record cash flows from interest rate swaps within operating activities, the same category as the items being hedged, in its Consolidated Statements of Cash Flows.

Cash and Cash Equivalents and Restricted Cash

15 unchanged sentences

Adjustments are not deemed necessary to reduce inventory to net realizable value due to the rapid turnover and utilization of inventory.

Deferred Offering Costs

Certain legal, professional accounting, and other third-party fees that are directly associated with in-process equity financings are capitalized as deferred offering costs until such financings are consummated.

After consummation of the equity financing, these costs are recorded in equity as a reduction of additional paid-in capital generated as a result of the offering.

The Company incurred $ 5.0 million of costs in connection with the IPO in Fiscal 2021, which were recorded in equity as a reduction of additional paid in capital.

The Company incurred $ 2.0 million in deferred offering costs in Fiscal 2020, which were expensed in General and administrative expenses as a result of halting the Company ’ s public registration of equity in Fiscal 2020.

The Company ’ s restaurant facilities, corporate offices and certain restaurant equipment are leased under various agreements having initial terms expiring between 2024 and 2037.

13 unchanged sentences

In addition to fixed lease payments, certain of the Company ’ s real estate leases also require payment of a proportionate share of property taxes, insurance and maintenance costs, which are expensed as incurred in the Consolidated Statements of Operations and Comprehensive Income (Loss) and future variable rent obligations are not included within the lease liabilities on the Consolidated Balance Sheets.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The operating lease right-of-use asset is measured at the amount of the lease liability with adjustments for (i) rent prepayments made prior to or at lease commencement, (ii) landlord incentives and (iii) favorable and unfavorable leasehold positions.

3 unchanged sentences

Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets, however, they are recognized on a straight-line basis over the lease term in the Consolidated Statements of Operations and Comprehensive Income (Loss).

In Fiscal 2020, Management renegotiated numerous lease agreements that primarily resulted in rent abatements or rent deferrals during the period of the closures of the company-owned restaurants as a result of the COVID-19 pandemic.

Management elected the practical expedient for COVID-19 related rent concessions pursuant to the question and answer document issued by the Financial Accounting Standards Board (the “FASB”) in April 2020 and remeasured the lease liabilities using the original discount rate with a corresponding adjustment to the right-of-use assets.

Rent deferrals increased the lease liabilities and right-of use assets until amounts are paid with no impact to lease expense.

Rent abatements were recognized on a straight-line basis over the respective remaining lease term.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Finance lease liabilities and corresponding finance lease assets are recognized at an amount equal to the present value of the minimum lease payments over the lease term.

22 unchanged sentences

If the qualitative assessment is not performed, or if it is not more likely than not that the estimated fair value of the reporting unit and indefinite-lived intangible assets exceeds the respective carrying value, a quantitative analysis is required.

Prior to the IPO, Management’s quantitative assessment for determining the fair value of the reporting unit used a blend of the market capitalization approach and the income approach.

The market capitalization approach used Management’s selection of peer companies to estimate fair value.

The income approach used the discounted cash flow method estimating

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

future cash flow, sales and traffic growth rates, operating margins and new restaurant openings, each of which are inputs that fall within Level 3 of the fair value hierarchy.

The fair value of the indefinite-lived intangibles is determined through a relief from royalty method using certain unobservable inputs that fall within Level 3 of the fair value hierarchy.

2 unchanged sentences

As a result, a quantitative assessment was not required.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Definite-Lived Intangible Assets

11 unchanged sentences

An impairment loss is recognized in an amount equal to the excess of the carrying value over the estimated fair value.

No impairment loss was recorded for long-lived assets in Fiscal 2022, Fiscal 2021 and Fiscal 2020.

Self-Insurance Reserves

Insurance Reserves

The Company is self-insured primarily for employee group healt h claims and for workers’ compensation in Ohio.

The Company holds stop-loss insurance which funds individual health claims in excess of $ 125,000 per occ urrence and workers’ compensation claims in Ohio in excess of $ 500,000 per occurrence annually.

The Consolidated Statements of Operations and Comprehensive Income (Loss) include expenses related to the costs of claims reported and an estimate of claims incurred but not reported.

A liability of $ 1.5 million and $ 1.4 million for e stimated unpaid claims and other insurance liabilities is recorded within Accrued liabilities as of December 25, 2022 and December 26, 2021, respectively.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Consolidated Statements of Operations and Comprehensive Income (Loss) include expenses related to the costs of claims reported and an estimate of claims incurred but not reported for health and general liability claims.

In addition, the Company’s insurance program includes specific retention levels or per-claim deductibles with respect to general liability.

Estimated unpaid claims and other insurance liabilities of $ 2.3 million and $ 1.5 million were recorded within Accrued liabilities and Other long-term liabilities as of December 31, 2023 and December 25, 2022, respectively.

Revenue Recognition

12 unchanged sentences

Royalty and system fund contributions from franchisees are based on a percentage of sales and are recognized as revenue in the period the sales occurred.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Gift cards are sold at restaurants and certain retail venues.

19 unchanged sentences

Advertising costs are recognized as incurred or, in the case of advertisements, when the advertisement occurs.

Advertising costs were $ 6.4 million, $ 4.8 million and $ 3.3 million during Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively, and are included in General and administrative expenses and in Other restaurant operating expenses.

Advertising costs were $ 7.2 million, $ 6.4 million and $ 4.8 million during Fiscal 2023, Fiscal 2022 and Fiscal 2021, respectively, and are included in General and administrative expenses, Other restaurant operating expenses and Pre-opening expenses.

Debt Discount and Deferred Issuance Costs

1 unchanged sentence

Amortization expense of debt discount and deferred issuance costs is included in Interest expense.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Income taxes are accounted for under the asset and liability method of accounting.

1 unchanged sentence

Deferred tax assets and liabilities are measured using enacted tax rates expected to be applicable in the years in which the differences are expected to be recovered or settled.

Changes in deferred tax assets or liabilities are recognized in Income tax (expense) benefit.

Changes in deferred tax assets or liabilities are recognized in Income tax expense.

Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available against which the deductible temporary differences can be utilized.

3 unchanged sentences

Interest and penalties, when incurred, are recognized in Other (expense) income, net.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock-Based Compensation

15 unchanged sentences

As a result, if Management had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Summary of Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, “ Reference Rate Reform (Topic 848):

Recently Adopted Accounting Pronouncements

In the first quarter of Fiscal 2023, the Company amended its Credit Agreement to replace the London interbank offer rate (“LIBOR”) with a secured overnight financing rate (“SOFR”) pursuant to the terms and LIBOR fallback language in the Credit Agreement and we adopted the Financial Accounting Standards Board (“FASB”) ASU 2020-04, “ Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting ” (“ASU 2020-04”).

The guidance provides optional expedients and exceptions to apply to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

ASU 2020-04 was effective beginning March 12, 2020 and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

In December 2022, ASU 2022-06, “ Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848” (“ASU 2022-06”) was issued which defers the sunset date referenced in Topic 848 from December 31, 2022 to December 31, 2024, after which companies will no longer be permitted to apply the relief in Topic 848.

This standard and the optional expedients will not have a material impact to the Company.

In February 2023, the Company amended its credit agreement dated as of October 6, 2021 (the “Credit Agreement”) to replace the London interbank offer rate (“LIBOR”) with a secured overnight financing rate (“SOFR”) pursuant to the terms and LIBOR fallback language in the Credit Agreement.

All outstanding borrowings under the Credit Agreement will continue to bear interest at LIBOR until the end of the current interest period or payment period pursuant to the terms of the Credit Agreement.

The guidance provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates.

The adoption of the new guidance did not have a material impact on the Company’s financial statements.

New Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which requires incremental disclosures related to a public entity’s reportable segments but does not change the definition of a segment, the method for determining segments, or the criteria for aggregating operating segments into reportable segments.

The new guidance requires that a public entity disclose, on an annual and interim basis, disaggregated expense information that is regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss.

The disclosures are also required for public entities that have a single reporting segment.

The new guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and should be adopted retrospectively.

Early adoption is permitted.

Management is currently evaluating the impact of this new standard.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures , which establishes new income tax disclosure requirements including disaggregated information about a reporting entity’s effective tax rate reconciliation as well as disaggregated information on income taxes paid.

The new guidance is effective for fiscal years beginning after December 15, 2024 and should be applied on a prospective basis with the option to apply the standard retrospectively.

Early adoption is permitted.

Management is currently evaluating the impact of this new standard.

Recent accounting guidance not discussed herein is not applicable, did not have, or is not expected to have a material impact to the Company.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Business Acquisitions

During Fiscal 2023, the Company acquired substantially all the assets associated with 23 franchise operated First Watch restaurants.

The purchase price was allocated to the fair value of assets acquired and liabilities assumed, which are based on preliminary valuations and are subject to adjustment as additional information is available.

The details of each acquisition are as follows:

(dollars in thousands)

Date of acquisition May 1, 2023 June 26, 2023 August 9, 2023 November 13, 2023

Number of acquired restaurants 6 5 6 6

Number of acquired restaurants under development — — 1 —

Purchase price (cash) $ 8,177 $ 8,651 $ 14,129 $ 9,568

Transaction costs incurred $ 362 $ 352 $ 400 $ 327

Deferred franchise fees recognized as a result of termination of pre-existing franchise agreement $ 78 $ 123 $ 200 $ 206

Recognized amounts of identifiable assets acquired and liabilities assumed:

Cash $ 9 $ 6 $ 16 $ 9

Inventory $ 57 $ 62 $ 102 $ 70

Prepaid rent and other assets $ 67 $ 26 $ 89 $ 51

Property, fixtures and equipment $ 1,840 $ 3,783 $ 6,364 $ 5,185

Reacquired rights $ 1,342 $ 2,304 $ 4,358 $ 1,405

Goodwill (primarily expected synergies and assembled workforce;

tax deductible) $ 5,272 $ 2,667 $ 3,888 $ 2,837

(Unfavorable)/Favorable leasehold positions, net $ ( 330 ) $ ( 70 ) $ ( 530 ) $ 30

Accounts payable $ — $ — $ ( 35 ) $ —

Deferred tax liability — $ — $ ( 72 ) $ —

Deferred revenues - gift card liabilities assumed $ ( 80 ) $ ( 127 ) $ ( 51 ) $ ( 19 )

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following tables include a detail of liabilities from contracts with customers:

13 unchanged sentences

Gift card breakage ( 1,081 ) ( 915 ) ( 748 )

Gift card liabilities assumed through acquisitions 277 — —

Balance, end of period $ 5,224 $ 4,897 $ 4,410

7 unchanged sentences

Franchise revenues recognized ( 388 ) ( 298 ) ( 275 )

Business combinations - franchise revenues recognized ( 607 ) — —

Balance, end of period $ 2,061 $ 2,768 $ 2,536

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Revenues recognized disaggregated by type were as follows:

8 unchanged sentences

Initial fees 388 298 275

Business combinations - revenues recognized 607 — —

Total franchise revenues $ 14,459 $ 10,981 $ 8,850

Total revenues $ 891,551 $ 730,162 $ 601,193

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Deferred revenues as of December 31, 2023 are expected to be recognized as follows:

12 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The changes in the carrying value of goodwill were as follows:

(in thousands)

Balance as of December 26, 2021 $ 345,219

Additions - acquisitions —

Balance as of December 25, 2022 345,219

Additions - acquisitions 14,664

Balance as of December 31, 2023 $ 359,883

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Intangible Assets, Net

35 unchanged sentences

Depreciation expense was $ 39.7 million, $ 33.3 million and $ 31.3 million during Fiscal 2023, Fiscal 2022 and Fiscal 2021, respectively.

The Company did not recognize an impairment loss in Fiscal 2022, Fiscal 2021 and Fiscal 2020.

Loss on disposals of assets recognized of $ 0.9 million, $ 0.4 million and $ 0.3 million during Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively, primarily related to the write-off of assets retired as a result of restaurant closures or replacements of assets.

The Company recognized impairment losses of $ 0.5 million in Fiscal 2023 which primarily related to the long-lived assets of two company-owned restaurants due to their approved closures.

In Fiscal 2023, the Company also recognized $ 0.8 million in loss on disposals primarily related to write-offs of assets retired as a result of replacement of assets.

In Fiscal 2022 and Fiscal 2021, there were no impairment losses recorded.

Loss on disposals of assets of $ 0.9 million and $ 0.4 million recognized in Fiscal 2022 and Fiscal 2021, respectively, primarily related to the write-off of assets retired as a result of restaurant closures or replacements of assets.

As of December 31, 2023 and December 25, 2022, Property, fixtures and equipment, net included $ 1.2 million in land related to sale and leaseback transactions accounted for as financing obligations.

6 unchanged sentences

Utilities 1,657 1,468

Legal 379 105

Interest payable 401 1,506

Credit card fees 1,706 1,043

4 unchanged sentences

Total accrued liabilities $ 35,630 $ 22,729

Long-term debt, net consisted of the following:

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Long-term debt, net consisted of the following:

DECEMBER 31, 2023 DECEMBER 25, 2022

1 unchanged sentence

Term Facility $ 92,500 7.70 % $ 98,125 5.89 %

Revolving Credit Facility 30,000 7.72 % — — %

Finance lease liabilities 1,076 1,433

5 unchanged sentences

Credit Facilities

FWR Holding Corporation, (“FWR”), an indirect subsidiary of the Company, is the borrower under 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, collectively, the “Credit Facilities”).

The Revolving Credit Facility was undrawn at December 25, 2022 and December 26, 2021.

The Credit Facilities mature on October 6, 2026.

The Term Facility is subject to amortization of principal, payable in quarterly installments on the last business day of each fiscal quarter, commencing on March 27, 2022, equal to (i) 2.5 % of the original principal amount of the term loans in fiscal year ended December 25, 2022, (ii) 5.0 % of the original principal amount of the term loans in fiscal year ended December 31, 2023, (iii) 5.0 % of the original principal amount of the term loans in fiscal year ended December 29, 2024, (iv) 7.5 % of the original principal amount of the term loans in fiscal year ended December 28, 2025 and (v) 10.0 % of the original principal amount of the term loans in fiscal year ended December 27, 2026.

The remaining aggregate principal amount outstanding (together with accrued and unpaid interest on the principal amount) under the Term Facility is payable at the maturity of the Term Facility.

Borrowings under the Credit Facilities bear interest, at the option of FWR at either (i) the base rate plus a margin of between 125 and 200 basis points depending on the total rent adjusted net leverage ratio of FWR and its restricted subsidiaries on a consolidated basis (the “Total Rent Adjusted Net Leverage Ratio”) or (ii) LIBOR plus a margin of between 225 and 300 basis points depending on the Total Rent Adjusted Net Leverage Ratio.

FWR Holding Corporation, (“FWR”), an indirect subsidiary of the Company, is party to that certain Credit Agreement, dated October 6, 2021, by and among FWR, as the borrower, AI Fresh Parent, Inc., a Delaware corporation and indirect subsidiary of the Company (“Holdings”), the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “Administrative Agent”) which, as of December 31, 2023, 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, collectively, the “Credit Facilities”).

As of December 31, 2023, the Credit Facilities mature on October 6, 2026.

On February 24, 2023, the Company entered into that certain Amendment No.

1 to the Credit Agreement (the “First Amendment”), by and among FWR, the lenders party thereto and the Administrative Agent, which amended the Credit Agreement in order to replace LIBOR with SOFR, and effective as of March 27, 2023, borrowings under the Credit Facilities bear interest, at the option of FWR at either (i) the alternate base rate plus a margin of between 125 and 200 basis points depending on the total rent adjusted net leverage ratio of FWR and its restricted subsidiaries on a consolidated basis (the “Total Rent Adjusted Net Leverage Ratio”) or (ii) SOFR plus a credit spread adjustment of 10 basis points plus a margin of between 225 and 300 basis points depending on the Total Rent Adjusted Net Leverage Ratio.

Prior to March 27, 2023, borrowings under the Credit Facilities bore interest at the option of FWR at either (i) the base rate plus a margin of 125 and 200 basis points depending on the Total Rent Adjusted Net Leverage Ratio or (ii) LIBOR plus a margin of between 225 and 300 basis points depending on the Total Rent Adjusted Net Leverage Ratio.

In addition, an unused commitment fee of between 25 and 50 basis points will be paid on the undrawn commitments under the Revolving Credit Facility, also depending on the Total Rent Adjusted Net Leverage Ratio.

In February 2023, the Company amended its Credit Agreement to replace LIBOR with SOFR pursuant to the terms and LIBOR fallback language in the Credit Agreement.

The aggregate net proceeds from the IPO, the proceeds from borrowings under the Term Facility and cash on hand were used to repay in full the outstanding borrowings under our previous senior credit facilities in October 2021.

This repayment was accounted for as a debt extinguishment for accounting purposes and a loss on debt extinguishment of $ 2.4 million was recorded in the fourth fiscal quarter of 2021 in Other income (expense), net.

Fair Value of Debt

The estimated fair value of the outstanding debt, excluding finance lease obligations and financing obligations, is classified as Level 3 in the fair value hierarchy and was estimated using discounted cash flow models, market yield and yield volatility.

At December 25, 2022, the estimated fair value of the outstanding debt under the Credit Facilities was $ 97.1 million.

As of December 31, 2023, the Term Facility is subject to amortization of principal, payable in quarterly installments on the last business day of each fiscal quarter, commencing on March 27, 2022, equal to (i) 2.5 % of the original principal amount of the term loans in fiscal year ended December 25, 2022, (ii) 5.0 % of the original principal amount of the term loans in fiscal year ended December 31, 2023, (iii) 5.0 % of the original principal amount of the term loans in fiscal year ended December 29, 2024, (iv) 7.5 % of the original principal amount of the term loans in fiscal year ended December 28, 2025 and (v) 10.0 % of the original principal amount of the term loans in fiscal year ended December 27, 2026.

The remaining aggregate principal amount outstanding (together with accrued and unpaid interest on the principal amount) under the Term Facility is payable at the maturity of the Term Facility.

Principal payments due on the outstanding debt, excluding finance lease liabilities and financing obligations, as of December 31, 2023 are as follows:

Fiscal Year (in thousands)

Refer to Note 21, Subsequent Events, for information about the amendment to the Credit Agreement that was executed on January 5, 2024.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fiscal Year (in thousands)

Fair Value of Debt

The following table includes the carrying value and fair value of the Company’s debt as of the periods indicated:

DECEMBER 31, 2023 DECEMBER 25, 2022

(in thousands) Carrying Value Fair Value Carrying Value Fair Value

Term Facility $ 92,500 $ 92,201 $ 98,125 $ 97,124

Revolving Credit Facility 30,000 $ 29,897 — $ —

Letter of Credit

The Company utilizes a standby letter of credit to satisfy workers’ compensation requirements.

The contract amount of the letter of credit approximates its fair value.

As of December 25, 2022 and December 26, 2021, the open letter of credit was approximately $ 0.2 million and $ 0.4 million, respectively, and there were no draws against the letter of credit.

The Company pays participation fees for the letter of credit based on a varying percentage of the amount not drawn.

The Company utilizes standby letters of credit to satisfy workers’ compensation and general liability insurance requirements.

The contract amount of the letters of credit approximates fair value.

As of December 31, 2023 and December 25, 2022, the open letters of credit totaled approximately $ 1.1 million and $ 0.2 million, respectively, and there were no draws against the letters of credit.

The Company pays participation fees for the letters of credit based on a varying percentage of the amount not drawn.

Debt Covenants

3 unchanged sentences

In October 2022, the Company entered into an agreement for the financing of insurance premiums in a total amount of approximately $ 1.9 million.

The note payable bears interest of 6.04 % and is payable in monthly installments of $ 0.2 million through September 30, 2023.

As of December 25, 2022, the balance on the note payable was $ 1.4 million.

In October 2021, the Company entered into a financing agreement for the financing of insurance premiums in a total amount of approximately $ 3.0 million that bears interest of 2.41 % and was payable in monthly installments of $ 0.3 million through August 30, 2022.

As of December 26, 2021, the balance on the note payable was $ 2.4 million.

The note payable bore interest of 6.04 % and was payable in monthly installments of $ 0.2 million through September 30, 2023.

The note payable was paid in full in Fiscal 2023.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Interest Rate Swaps

On June 23, 2023, the Company entered into variable-to-fixed interest rate swaps to hedge a portion of the cash flows of the Company’s variable rate debt.

The interest rate swaps have an aggregate notional amount of $ 90.0 million and mature on October 6, 2026.

Under the terms of the interest rate swaps, the Company will pay a weighted average fixed rate of 4.16 % on the notional amount and will receive payments from the counterparties based on the three-month SOFR rate.

The fair value measurement of the interest rate swaps was based on the contractual terms and used observable market-based inputs.

The interest rate swaps were valued using a discounted cash flow analysis on the expected cash flows using observable inputs including interest rate curves and credit spreads.

Although the majority of the inputs used to value the instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and the counterparties.

The Company has determined that the impact of the credit valuation adjustments was not significant to the overall valuation.

As a result, the derivative was classified as Level 2 of the fair value hierarchy.

Amounts reported in Other comprehensive income (loss) related to the interest rate swaps will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

During the fiscal year ended December 31, 2023, a total of $ 0.5 million was reclassified from Other comprehensive income (loss) as a reduction to interest expense.

Over the next 12 months, the Company estimates that $ 0.5 million will be reclassified as a reduction to interest expense.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table includes a detail of lease assets and liabilities:

11 unchanged sentences

(1) Excludes all variable lease expense.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The components of lease expense were as follows:

21 unchanged sentences

Financing cash flows - finance leases $ 558 $ 514 $ 507

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Supplemental information related to leases was as follows:

6 unchanged sentences

(1) Based on the Company’s incremental borrowing rate.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of December 31, 2023, future minimum lease payments for operating and finance leases consisted of the following:

17 unchanged sentences

The balance of the financing obligation was $ 3.1 million as of December 31, 2023 and December 25, 2022.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Transaction Expenses (Income), Net

1 unchanged sentence

(in thousands) 2023 2022 2021

Secondary offering and Registration Statement on Form S-3 costs $ 1,957 $ — $ —

Gain on lease modification — ( 1,961 ) —

Acquisition-related costs 2,062 $ — $ —

Secondary offering costs $ 1,031 1,957 —

Gain on lease modifications — — ( 1,961 )

Credit Agreement modification 127 — —

Contingent consideration liability revaluation — 165 801

Conversion costs — — 2

Loss (Gain) on restaurant closures/relocations 391 2 ( 36 )

(Gain) Loss, net on restaurant closures/relocations ( 73 ) 391 2

Total transaction expenses (income), net $ 3,147 $ 2,513 $ ( 1,156 )

During Fiscal 2022, a total of $ 2.0 million of costs was incurred by the Company in connection with the secondary public offering of the Company’s common stock by entities affiliated with our majority owner, Advent International Corporation (the “Secondary Offering”) and for the Registration Statement on Form S-3 that allows the Company to sell up to 5,000,000 shares of common stock from time to time in one or more offerings.

The Company revalued the contingent consideration liability initially recognized in connection with the Advent Acquisition (see Note 11, Income Taxes , for additional information) and recorded a loss of $ 0.2 million in Fiscal 2022, a loss of $ 0.8 million in Fiscal 2021 and a gain of $ 0.3 million in Fiscal 2020.

During Fiscal 2023, $ 2.1 million of costs were incurred in connection with the acquisition of certain franchise-owned restaurants, which was partially offset by the gain recognized from the lease modification of one company-owned restaurant.

During Fiscal 2023, $ 1.0 million of costs were incurred by the Company in connection with underwritten secondary public offerings of the Company’s common stock by entities affiliated with our majority owner, Advent International L.P., (“Secondary Offerings”).

During Fiscal 2022, total costs of $ 2.0 million were incurred by the Company in connection with Secondary Offerings as well as for the Registration Statement on Form S-3 that allows the Company to sell up to 5,000,000 shares of common stock from time to time in one or more offerings.

The Company revalued the contingent consideration liability initially recognized in connection with the Advent Acquisition (see Note 14, Income Taxes , for additional information) and recorded losses of $ 0.2 million and $ 0.8 million in Fiscal 2022 and Fiscal 2021, respectively.

There was no revaluation adjustment recorded for the contingent liability in Fiscal 2023.

A gain on lease modification of $ 2.0 million was recognized in Fiscal 2021 in connection with a lease termination for the redevelopment of a restaurant facility by a landlord.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Income tax (expense) benefit consisted of the following:

Income tax expense consisted of the following:

(in thousands) 2023 2022 2021

3 unchanged sentences

Total current provision ( 2,375 ) ( 1,007 ) ( 301 )

Deferred (provision) benefit:

Deferred provision:

Federal ( 8,896 ) ( 4,562 ) ( 1,825 )

State 581 ( 115 ) ( 351 )

Total deferred (provision) benefit ( 4,677 ) ( 2,176 ) 19,991

Income tax (expense) benefit $ ( 5,684 ) $ ( 2,477 ) $ 19,873

Total deferred provision ( 8,315 ) ( 4,677 ) ( 2,176 )

Income tax expense $ ( 10,690 ) $ ( 5,684 ) $ ( 2,477 )

A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

5 unchanged sentences

Stock-based compensation 3.4 4.2 275.9

Secondary Offering and Registration Statement on Form S-3 costs 3.2 — —

Secondary Offerings - costs 0.6 3.2 —

Other permanent items 0.5 0.6 57.6

2 unchanged sentences

Total 29.6 % 45.1 % 669.5 %

The effective income tax rate for Fiscal 2022, Fiscal 2021 and Fiscal 2020 was different than the blended federal and state statutory rate mainly due to (i) the change in the valuation allowance, (ii) the benefit of the tax credits for FICA taxes on certain employee tips, (iii) impacts of executive stock-based compensation and (iv) non-deductible costs associated with the Secondary Offering and the Registration Statement on Form S-3.

The effective income tax rate for Fiscal 2023, Fiscal 2022 and Fiscal 2021 was different than the blended federal and state statutory rate mainly due to (i) the change in the valuation allowance, (ii) the benefit of tax credits for FICA taxes on certain employees’ tips, (iii) impacts of executive stock-based compensation and (iv) non-deductible costs associated with the Secondary Offerings and the Registration Statement on Form S-3.

The effective income tax rate for Fiscal 2021 was also different than the blended federal and state statutory rate as a result of the pre-vesting forfeiture of performance-based stock option awards for which the market condition was not satisfied upon the Company’s IPO (see Note 17, Stock-Based Compensation, for additional information).

12 unchanged sentences

Stock-based compensation 3,552 3,693

Interest rate swaps 221 —

Other 1,665 1,210

7 unchanged sentences

Net deferred income tax liabilities $ ( 25,331 ) $ ( 17,166 )

Based upon an evaluation of the Company's deferred tax assets, Management has recognized a valuation allowance of $ 41.8 million and $ 35.9 million as of December 25, 2022 and December 26, 2021, respectively.

The valuation allowance primarily relates to the Company’s federal tax credit carryforwards that are not expected to be realized prior to the statutory expiration of the carryforward.

The valuation allowance will be maintained until sufficient positive evidence exists to support its reversal, including but not limited to, the magnitude and duration of the Company’s historical losses as compared to potential future profits within taxing jurisdictions to overcome such negative evidence.

Tax Carryforwards

The amount and expiration dates of federal tax loss carryforwards as of December 25, 2022 are as follows:

The amount and expiration dates of tax carryforwards as of December 31, 2023 are as follows:

(in thousands) Expiration Date Amount

Federal net operating loss carryforwards Indefinite $ 103,425

Federal net operating loss carryforwards 2036 - 2037

The Company also has state net operating loss carryforwards of $ 42.7 million at December 25, 2022.

In addition, the Company has general business tax credits of $ 41.7 million at December 25, 2022, which can be carried forward 20 years and will expire between 2027 and 2042.

General business tax credits (carried forward 20 years) 2028 - 2043

The Company also has state net operating loss carryforwards of $ 26.0 million.

There were certain federal loss carryforward, state loss carryforward and general business credits that were accumulated from operations prior to the Advent Acquisition in August 2017.

4 unchanged sentences

As of December 25, 2022, the contingent consideration liability was $ 1.2 million, of which $ 0.6 million was recorded within Accrued liabilities and $ 0.6 million was recorded within Other long-term liabilities.

Valuation Allowance

Based upon an evaluation of the Company's deferred tax assets, Management has recognized a valuation allowance of $ 48.1 million and $ 41.8 million as of December 31, 2023 and December 25, 2022, respectively.

The valuation allowance primarily relates to the Company’s federal tax credit carryforwards that are not expected to be realized prior to the statutory expiration of the carryforward.

Management continues to monitor and evaluate the rationale for recording a valuation allowance for deferred tax assets.

As the Company’s future taxable earnings increase and deferred tax assets are utilized, it is possible that a portion of the valuation allowance will no longer be needed.

Release of any portion of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense in the period of the release.

The timing and amount of any release related to future taxable income is currently indeterminable.

During the year ended December 31, 2023, a release of the valuation allowance related to certain state loss carryforwards decreased income tax expense by approximately $ 1.2 million.

FIRST WATCH RESTAURANT GROUP, INC.

11 unchanged sentences

As of December 31, 2023, the tax years that remain subject to examination by major tax jurisdictions under the statute of limitations are from the year 2013 and forward.

On March 27, 2020, the U.S.

government enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) to provide certain relief as a result of COVID-19.

The CARES Act provides tax relief, along with other stimulus measures, including a retroactive technical correction of prior tax legislation for tax depreciation of certain qualified improvement property, among other changes.

A total of $ 59.3 million of accelerated tax depreciation deductions was recognized related to qualified assets placed in service in Fiscal 2020, Fiscal 2019 and Fiscal 2018.

Furthermore, the CARES Act made favorable changes to the Section 163(j) interest limitation and as a result, the Company was able to deduct additional interest totaling $ 18.9 million and $ 8.6 million for Fiscal 2020 and Fiscal 2019, respectively.

In addition, Management began deferring the employer-paid portion of social security taxes as permitted by the CARES Act in the second quarter of Fiscal 2020.

A total of $ 6.7 million was deferred, of which $ 3.3 million was paid in Fiscal 2021.

The remaining balance was paid in Fiscal 2022.

Furthermore, the CARES Act provided for refundable employee retention tax credits, which can be used to offset payroll tax liabilities.

As a result, a credit of $ 0.9 million was recorded as an offset to payroll tax expense in Fiscal 2020.

Stockholders’ Equity

In Fiscal 2020, the Company had issued 266,667 preferred stock shares having a par value of $ 0.01 per share to existing stockholders, including Advent International Corporation, directors and executive officers.

The proceeds from the issuance of the preferred stock were used to repay a portion of borrowings under our previous senior credit facilities and for working capital and general corporate purposes in Fiscal 2020.

The preferred stock was automatically converted into 3,156,812 shares of common stock immediately prior to and in connection with the consummation of the Company’s IPO in October 2021.

The Company is authorized to issue 300,000,000 common stock shares with a par value of $ 0.01 per share and 10,000,000 preferred stock shares with a par value of $ 0.01 per share pursuant to the Company’s Amended and Restated Certificate of Incorporation.

2 unchanged sentences

In addition, all common stockholders are entitled to share equally on a share-for-share basis in any assets available for distribution to common stockholders upon liquidation, dissolution, or winding up of the Company after payment is made to the preferred stockholders.

During Fiscal 2022, funds managed by the Company’s majority owner, Advent International Corporation, sold 4,500,000 shares of the Company’s common stock in the Secondary Offering.

During Fiscal 2023, funds managed by Advent International L.P.

sold 3,500,000 and 3,000,000 shares through Secondary Offerings that were completed on May 18, 2023 and June 13, 2023, respectively.

The selling stockholders sold an additional 525,000 and 450,000 shares of common stock on May 18, 2023 and July 3, 2023, respectively, pursuant to the terms of the underwriter’s option associated with each secondary public offering.

All net proceeds from the sale of the shares of common stock were distributed to the selling stockholders.

During Fiscal 2022, funds managed by Advent sold 4,500,000 shares of the Company’s common stock through a Secondary Offering.

The selling stockholders sold an additional 675,000 shares of common stock on October 6, 2022 pursuant to the terms of the underwriters option associated with the Secondary Offering.

1 unchanged sentence

No cash dividends were declared or paid in Fiscal 2023, Fiscal 2022 and Fiscal 2021.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Defined Contribution Plan

The Company sponsors a defined contribution 401(k) savings plan (“401(k) Plan”) which requires the Company to match contributions for participants with at least one year of service 25 % of the first 6 % of the employees’ wages deferred into the 401(k) Plan.

The Company sponsors a defined contribution 401(k) savings plan (“401(k) Plan”) which requires the Company to match contributions for participants.

In Fiscal 2023 and Fiscal 2022, 50 % and 25 %, respectively, of the first 6 % of the employees’ wages are contributed by the Company into the 401(k) Plan.

The 401(k) Plan also allows for additional profit-sharing contributions by the Company at the sole discretion of Management.

1 unchanged sentence

Total expense for the Company’s contributions to the 401(k) Plan was $ 1.1 million, $ 0.6 million and $ 0.5 million in Fiscal 2023, Fiscal 2022 and Fiscal 2021, respectively.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock-Based Compensation

9 unchanged sentences

Shares that are withheld from any award in payment of the exercise, base or purchase price or taxes related to such an award, not issued or delivered as a result of the net settlement of any award, or repurchased by the Company on the open market with the proceeds of a stock option will be deemed to have been delivered under the 2021 Equity Plan and will not be available for future awards under the 2021 Equity Plan.

A total of 1,018,975 non-qualified time-based stock option awards were granted under the 2021 Equity Plan during Fiscal 2022, which vest over a three-year requisite service period from the date of grant and expire 10 years after the grant date.

There were no stock option awards granted under the 2021 Equity Plan during Fiscal 2023.

The stock option awards granted in Fiscal 2022 vest over a three-year requisite service period from the date of grant and expire 10 years after the grant date.

A total of 543,270 restricted stock units (“RSU”) were granted, at a value equal to the market price of the Company’s common stock on the date of grant, which will vest ratably over a period of 1 to 3 years from grant date.

Stock-based compensation expense is recognized on a straight-line recognition method over the requisite service period.

4 unchanged sentences

All stock options have an exercisable life of no more than 10 years from the date of grant.

No awards were granted under the 2017 Equity Plan during Fiscal 2022 and the Company does not intend to grant any further awards under the 2017 Equity Plan.

No awards were granted under the 2017 Equity Plan during Fiscal 2023 and Fiscal 2022 and the Company does not intend to grant any further awards under the 2017 Equity Plan.

Modification of Performance-Based Option Awards - 2017 Equity Plan

1 unchanged sentence

This was accounted for as a modification, resulting in a new fair value for all the performance-based option awards using an option-pricing model as of the modification date.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On September 19, 2021, the Company’s board of directors modified performance-based option awards that contained a market condition granted under the 2017 Equity Plan, such that the vesting terms for one such tranche were amended to waive the market condition.

1 unchanged sentence

This was accounted for as a modification resulting in a new fair value using the option-pricing model for such performance-based option awards as of the modification date.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On September 19, 2021, the Company’s board of directors modified the terms of performance-based option awards granted under the 2017 Equity Plan to the Company’s Chairman Emeritus.

31 unchanged sentences

1,234,031 $ 7.36

The weighted average grant date fair value of options granted during Fiscal 2022, Fiscal 2021 and Fiscal 2020 was $ 6.81 , $ 6.35 and $ 1.02 , respectively.

The weighted average grant date fair value of options granted during Fiscal 2022 and Fiscal 2021 was $ 6.81 and $ 6.35 , respectively.

The total fair value of stock options vested during Fiscal 2023, Fiscal 2022 and Fiscal 2021 was $ 7.1 million, $ 7.4 million and $ 0.9 million, respectively.

8 unchanged sentences

The Company does not have sufficient historical stock option exercise activity and therefore the expected term of stock options granted in Fiscal 2022 was estimated using the simplified method, which represents the mid-point between the vesting period and the contractual term for each grant.

In Fiscal 2021 and Fiscal 2020, the expected term of stock option awards had been determined based on data from publicly traded companies.

For Fiscal 2022, Fiscal 2021 and Fiscal 2020, the expected volatility of stock options is based on the historical volatilities of a set of publicly traded peer companies in a similar industry as the Company lacks company-specific historical or implied volatility information.

In Fiscal 2021, the expected term of stock option awards had been determined based on data from publicly traded companies.

For Fiscal 2022 and Fiscal 2021, the expected volatility of stock options is based on the historical volatilities of a set of publicly traded peer companies in a similar industry as the Company lacks company-specific historical or implied volatility information.

The risk-free interest rate is determined by reference to the U.S.

4 unchanged sentences

Restricted Stock Units

During Fiscal 2022, a total of 38,311 restricted stock units were granted under the 2021 Equity Plan at the weighted average grant date fair value of $ 14.36 .

The restricted stock units will vest over a one-year requisite service period from the date of grant and the fair value of restricted stock units was determined based on the closing market price of the Company’s common stock on the date of grant.

Stock-based compensation expense related to the restricted stock units is recognized on a straight-line basis over the vesting period.

There were no forfeitures of restricted stock units in Fiscal 2022.

RESTRICTED STOCK UNITS WEIGHTED AVERAGE

GRANT DATE FAIR VALUE AGGREGATE INTRINSIC VALUE

(in thousands)

Outstanding, December 25, 2022

38,311 $ 14.36 $ 544

Granted 543,270 $ 15.70

Vested ( 38,311 ) $ 14.36

Forfeited ( 22,228 ) $ 15.52

Outstanding, December 31, 2023

521,042 $ 15.71 $ 10,473

Stock-Based Compensation Expense

1 unchanged sentence

The total related income tax benefit for stock-based compensation expense was $ 0.6 million, $ 2.1 million and $ 0.9 million for Fiscal 2023, Fiscal 2022 and Fiscal 2021, respectively.

Cash received from stock options exercised was $ 1.4 million and the tax benefit realized from the option exercises was $ 0.3 million in Fiscal 2022.

The total intrinsic value of stock options exercised during Fiscal 2022 was $ 1.1 million.

There were no stock option exercises in Fiscal 2021 and 2020.

Cash received from stock options exercised was $ 5.8 million and $ 1.4 million for Fiscal 2023 and Fiscal 2022, respectively.

The tax benefit realized from stock option exercises and vesting of restricted stock units was $ 1.6 million and $ 0.3 million in Fiscal 2023 and Fiscal 2022, respectively.

The total intrinsic value of stock options exercised was $ 5.7 million and $ 1.1 million during Fiscal 2023 and Fiscal 2022, respectively.

There were no stock option exercises in Fiscal 2021.

The total intrinsic value of restricted stock units that vested in Fiscal 2023 was $ 0.7 million.

Unrecognized Stock-Based Compensation Expense

11 unchanged sentences

We also enter into long-term, exclusive contracts with vendors to supply us with certain goods and services, however, they generally do not include firm minimum purchase commitments.

Unconditional Purchase obligations

The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services

(“unconditional purchase obligations”).

The Company’s unconditional purchase obligations primarily consist of payments for subscriptions and marketing-related platforms.

Future payments under noncancellable unconditional purchase obligations with a remaining term in excess of one year as of December 31, 2023, are as follows:

Fiscal Year (in thousands)

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In July 2022, Management entered into an agreement with a vendor to purchase product.

The agreement will remain in effect through the later of (i) the purchase of 585,940 gallons of product or (ii) five years from the effective date of the agreement.

The agreement will remain in effect through the later of (i) the purchase of 585,940 gallons of product or (ii) 5 years from the effective date of the agreement.

The remaining minimum purchase commitment as of December 31, 2023 was approximately $ 7.7 million.

3 unchanged sentences

In the event any litigation losses become probable and estimable, the Company will recognize any anticipated losses.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Unclaimed Property

5 unchanged sentences

The Company will continue to examine its options regarding the escheat laws of Delaware including completing Delaware’s Voluntary Disclosure Agreement Program or proceeding to audit.

Any potential loss, or range of loss, that may result from this matter is not currently reasonably estimable.

As of December 26, 2022, Management believes the Company is not currently required to remit any amounts relating to future unredeemed gift cards to states as the Company’s subsidiary that is the issuer of our gift cards was re-domiciled in Florida, which exempts gift cards from the abandoned and unclaimed property laws.

In the fourth quarter of 2023, the Company recorded $ 0.8 million in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss) for estimated probable losses that might arise from this matter.

The Company may ultimately be subject to greater losses resulting from this matter.

As of the beginning of Fiscal 2023, Management believes the Company is not currently required to remit any amounts relating to future unredeemed gift cards to states as the Company’s subsidiary that is the issuer of our gift cards was re-domiciled in Florida, which exempts gift cards from the abandoned and unclaimed property laws.

Net Income (Loss) Per Common Share

7 unchanged sentences

Stock options outstanding not included in diluted net income (loss) per common share as their effect is anti-dilutive 13,656 1,787,517 4,409,331

Restricted stock units outstanding not included in diluted net income (loss) per common share as their effect is anti-dilutive 355 — —

Diluted net income (loss) per common share is calculated by adjusting the weighted average shares outstanding for the theoretical effect of potential common shares that would be issued for preferred stock using the two-class method, as well as for stock options and restricted stock units outstanding and unvested as of the respective periods using the treasury method.

All stock option awards outstanding were excluded from the calculation of diluted net loss per common share because of their anti-dilutive impact for Fiscal 2021 and Fiscal 2020.

All preferred stock shares were excluded from the calculation of diluted net loss per common share because of their anti-dilutive impact for Fiscal 2021 and Fiscal 2020.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

All stock option awards outstanding were excluded from the calculation of diluted net loss per common share because of their anti-dilutive impact for Fiscal 2021.

As a result, there was no difference between basic and diluted net loss per common share attributable to First Watch Restaurant Group, Inc.

during Fiscal 2021 and Fiscal 2020.

During Fiscal 2020, the performance-based stock options that were granted under the 2017 Equity Plan, certain of which were converted into time-based stock options upon the Company’s IPO, were excluded from the diluted net loss per common share calculation as the performance condition was not considered probable of being met.

during Fiscal 2021.

FIRST WATCH RESTAURANT GROUP, INC.

17 unchanged sentences

Accumulated deficit ( 72,747 ) ( 98,132 )

Accumulated other comprehensive loss ( 667 ) —

Total equity attributable to First Watch Restaurant Group, Inc.

25 unchanged sentences

should be read in conjunction with the accompanying Company’s consolidated financial statements and related notes thereto.

Subsequent Events

Business Acquisitions

On January 5, 2024, the Company executed an asset purchase agreement to acquire from a franchisee 21 operating restaurants, together with other associated assets, including, but not limited to, franchise and development rights for cash of approximately $ 75.0 million.

The close date of the sale is subject to the satisfaction of certain customary closing conditions set forth in the asset purchase agreement.

On January 22, 2024, the Company acquired one restaurant from a franchisee, together with associated assets, pursuant to an executed purchase agreement in December 2023 for cash of approximately $ 3.0 million.

Amendment to Credit Agreement

On January 5, 2024, (the “Closing Date”), FWR entered into that certain Amendment No.

2 to Credit Agreement (the “Amendment”), by and among FWR, as borrower, AI Fresh Parent, Inc., a Delaware corporation and indirect subsidiary of the Company (“Holdings”), the subsidiaries of FWR party thereto as guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (in such capacities, the “Administrative Agent”), which amended its credit agreement, dated as of October 6, 2021, (as previously amended, and as amended by the Amendment, the “Credit Agreement”), by and among FWR, Holdings, the lenders from time to time party thereto and the Administrative Agent.

Pursuant to the terms of the Amendment, (i) the existing $ 100.0 million Term Facility was replaced with a new $ 100.0 million term loan A facility, (the “New Term Facility”), on terms substantially identical to the Term Facility, (ii) the $ 75.0 million Revolving Credit Facility was replaced with a new $ 75.0 million revolving credit facility (the “New Revolving Credit Facility”) on terms substantially identical to the Revolving Credit Facility, (iii) a new $ 125.0 million incremental delayed draw term loan facility, (the “New Delayed Draw Term Facility”), was established that will be available to FWR in one or more draws of at least $ 5.0 million each for a period of 18 months following the Closing Date, and (iv) the New Revolving Credit Facility was increased by $ 50.0 million in new revolving credit commitments bringing the aggregate committed amount under the New Revolving Credit Facility to $ 125.0 million.

Commitments in respect of the New Delayed Draw Term Facility may be reduced, in whole or in part, at any time prior to 18 months following the Closing Date in the sole discretion of FWR.

Loans under the New Term Facility and, once funded, under the New Delayed Draw Term Facility will constitute the same class of term loans for all purposes under the Amendment.

The New Term Facility, the New Revolving Credit Facility and the New Delayed Draw Term Facility mature on January 5, 2029.

The proceeds of the New Delayed Draw Term Facility may be used by FWR to directly or indirectly finance permitted acquisitions (including working capital, earn-outs and/or purchase price adjustments) of franchisees, directly or indirectly finance new restaurant capital expenditure, repay revolving loans and/or replenish balance sheet cash, in each case, used for such permitted acquisitions or capital expenditures, and to pay related fees and expenses.

Commencing on the last day of the first fiscal quarter ending after the date on which 50.0 % or more of the New Delayed Draw Term Facility has been funded (the “First DDTL Term Out Date”), loans drawn under the New Delayed Draw Term Facility on or before the First DDTL Term out Date will amortize in equal quarterly installments at the same amortization rate per annum as then applicable to loans under the New Term Facility.

Commencing on the last day of the first fiscal quarter ending after the earlier of (i) the date on which 100.0 % of the commitments in respect of the New Delayed Draw Term Facility have been funded and (ii) 18 months following the Closing Date (such earlier date, the “Second DDTL Term Out Date”), loans drawn under the New Delayed Draw Term Facility after the First DDTL Term Out Date and on or before the Second DDTL Term Out Date, will amortize in equal quarterly installments at the same amortization rate per annum then applicable to loans under the New Term Facility.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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.

What changed 10-K

Item 8. Financial Statements and Supplementary Data