What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-11 compared with 2024-03-05 · 263 added, 235 removed, 823 unchanged (38% of the section changed)

59 unchanged sentences

Current portion of long-term debt 9,228 5,628

Note payable — 1,376

Interest rate swap liabilities, current 105 —

Total current liabilities 138,472 115,073

37 unchanged sentences

Impairments and loss on disposal of assets 525 1,359 920

Transaction expenses (income), net 3,147 2,513 ( 1,156 )

Transaction expenses, net 2,587 3,147 2,513

Total operating costs and expenses 977,003 850,284 713,249

1 unchanged sentence

Interest expense ( 12,640 ) ( 8,063 ) ( 5,232 )

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

Other income, net 1,759 2,871 910

Income before income taxes 28,026 36,075 12,591

Income tax expense ( 9,101 ) ( 10,690 ) ( 5,684 )

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 )

Net income (loss) per common share - diluted $ 0.41 $ 0.11 $ ( 0.04 )

Net income $ 18,925 $ 25,385 $ 6,907

Other comprehensive income (loss):

Unrealized gain (loss) on derivatives 301 ( 889 ) —

Income tax related to other comprehensive (loss) income ( 75 ) 222 —

Other comprehensive income (loss) 226 ( 667 ) —

Comprehensive income $ 19,151 $ 24,718 $ 6,907

Net income per common share - basic $ 0.31 $ 0.43 $ 0.12

Net income per common share - diluted $ 0.30 $ 0.41 $ 0.11

Weighted average number of common shares outstanding - basic 60,365,393 59,531,404 59,097,512

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(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Preferred Stock Common Stock Additional

Common Stock Additional

Capital Accumulated

Deficit Accumulated Other Comprehensive Loss Total Equity

Shares Amount Shares Amount

Deficit Accumulated Other Comprehensive Income (Loss) Total Equity

Shares Amount

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

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 )

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

3 unchanged sentences

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

2 unchanged sentences

Stock-based compensation — — 8,525 — — 8,525

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

Other comprehensive income, net of tax — — — — 226 226

Balance at December 29, 2024 60,700,090 $ 607 $ 649,045 $ ( 53,822 ) $ ( 441 ) $ 595,389

5 unchanged sentences

Cash flows from operating activities:

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

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

Net income $ 18,925 $ 25,385 $ 6,907

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 57,715 41,223 34,230

4 unchanged sentences

Amortization of debt discount and deferred issuance costs 567 452 445

Loss on extinguishment of debt — — 2,403

Non-cash loss on extinguishments and modifications of debt 358 — —

Impairments and loss on disposal of assets 525 1,359 920

30 unchanged sentences

Proceeds from issuance of long-term debt 197,500 — —

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

Repayments of borrowings on revolving credit facility ( 52,500 ) — —

Contingent consideration payment ( 375 ) ( 198 ) ( 78 )

Payment of initial public offering costs — — ( 4,881 )

Payment of debt discount and deferred issuance costs ( 2,430 ) — —

Net cash provided by (used in) financing activities 74,331 28,070 ( 2,018 )

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

Net (decrease) increase in cash and cash equivalents and restricted cash ( 16,649 ) 38 ( 2,192 )

Cash and cash equivalents and restricted cash:

2 unchanged sentences

Supplemental cash flow information:

Cash paid for interest $ 8,725 $ 3,368 $ 16,152

Cash paid for interest, net of amounts capitalized $ 12,328 $ 8,725 $ 3,368

Cash paid for income taxes, net of refunds $ 3,108 $ 1,952 $ 915

Supplemental disclosures of non-cash investing and financing activities:

Interest converted to long-term debt $ — $ — $ 3,063

Leased assets obtained in exchange for new operating lease liabilities (1)

$ 129,105 $ 88,819 $ 45,979

Leased assets obtained in exchange for new finance lease liabilities $ 2,143 $ 249 $ 127

2 unchanged sentences

Increase in liabilities from acquisition of property, fixtures and equipment $ 2,825 $ 7,036 $ 2,463

(1) Leased assets and liabilities obtained in Fiscal 2024 and 2023 include $ 28.1 million and $ 24.0 million from business acquisitions.

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

4 unchanged sentences

(collectively with its wholly-owned subsidiaries, “the Company” or “Management”) is a Delaware holding company.

The Company operates and franchises restaurants in 29 sta tes operating under the “First Watch” trade name, which are focused on made-to-order breakfast, brunch and lunch.

The Company operates and franchises restaurants i n 29 states operating under the “First Watch” trade name, which are focused on made-to-order breakfast, brunch and lunch.

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

3 unchanged sentences

As of December 29, 2024 and December 31, 2023, the Company operated 489 company-owned restaurants and 425 company-owned restaurants, respectively, and had 83 franchise-owned restaurants and 99 franchise-owned restaurants, respectively.

Initial Public Offering

The Company completed its initial public offering (“IPO”) on October 5, 2021, in which the Company sold 10,877,850 shares of common stock, which included the underwriters’ full exercise of their option to purchase up to an additional 1,418,850 shares of common stock, at the initial public offering price of $ 18.00 per share.

The Company received aggregate net proceeds of $ 182.1 million after deducting underwriting discounts and commissions of $ 13.7 million.

Summary of Significant Accounting Policies

3 unchanged sentences

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”).

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

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Actual results could differ from the estimates and such differences could be material.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Segment Reporting

Management determined the Company ’ s single operating segment on the basis that the Company ’ s Chief Operating Decision Maker (the “CODM”), the Chief Executive Officer, assesses performance and allocates resources at the Company's consolidated level.

The Company does not have any customer that represents more than 10.0% of total revenues for the periods presented.

Business Combinations

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Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable inputs and the last is considered unobservable.

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Level 3 Unobservable inputs based on assumptions that cannot be determined by observable market data

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.

The carrying amounts of the Company ’ s financial instruments, including cash equivalents, accounts receivable, accounts payable, accrued expenses 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.

Interest rate swaps are used as an element of the Company’s interest rate risk management strategy.

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

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Amounts included in restricted cash represent those required to be set aside by a contractual agreement for the settlement of insurance claims.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Concentrations of Credit Risk

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The majority of the Company ’ s real estate leases are classified as operating leases and the majority of the Company ’ s equipment leases are classified as finance leases.

For operating leases with lease terms greater than twelve months, a lease liability is recognized for future fixed lease payments and a corresponding right-of-use asset is recognized representing the Company ’ s right to use the underlying asset during the lease term.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For operating leases with lease terms greater than 12 months, a lease liability is recognized for future fixed lease payments and a corresponding right-of-use asset is recognized representing the Company ’ s right to use the underlying asset during the lease term.

The lease liability is initially measured as the present value of the future fixed lease payments that will be made over the lease term using the Company ’ s incremental borrowing rate as there are no implicit rates provided in the lease contracts.

12 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).

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.

8 unchanged sentences

The carrying amount of assets sold, replaced or retired and the related accumulated depreciation are eliminated at the time of disposal and any resulting gains and losses on disposal are recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Direct internal costs associated with the acquisition, development, design and construction of company-owned restaurants are capitalized as these costs have a future benefit to the Company.

Direct internal costs associated with the acquisition, development, design and co nstruction of company-owned restaurants are capitalized as these costs have a future benefit to the Company.

Once a restaurant opens, these costs are depreciated and recorded in Depreciation and amortization.

Direct internal costs of $ 1.0 million and $ 0.7 million were capitalized in Fiscal 2023 and Fiscal 2022, respectively.

Direct internal costs of $ 1.2 million and $ 1.0 million w ere capitalized in Fiscal 2024 and Fiscal 2023, respectively.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Depreciation is computed using the straight-line method over the following estimated useful lives:

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As a result, a quantitative assessment was not required.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Definite-Lived Intangible Assets

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Fair value is generally estimated using a discounted cash flow model using unobservable inputs that fall within Level 3 of the fair value hierarchy.

No impairment loss was recorded for definite-lived intangible assets in Fiscal 2023, Fiscal 2022 and Fiscal 2021.

No i mpairment loss was recorded for definite-lived intangible assets in Fiscal 2024, Fiscal 2023 and Fiscal 2022.

Impairment Assessment of Long-lived Assets

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

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 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.

The Company is self-insured for employee group health claims and Ohio workers’ compensation.

The Company also carries retention levels and per-claim deductibles associated with other workers’ compensation and general liability insurance programs .

S top loss coverage is maintained with third-party insurers to limit loss exposure.

We record liabilities for unresolved and incurred but not reported claims at the anticipated cost below applicable retention levels or per-claim deductible amounts.

Insurance reserve liabilities are established at the balance sheet date using actuarial assumptions and historical data including the frequency and severity of claims.

The establishment of the reserves utilizing estimates and assumptions is based, in part, on the premise that historical claims experience is indicative of current and future expected activity, which could differ significantly.

If actual results are not consistent with our estimates or assumptions, the Company may be exposed to losses or gains that could be material.

Estimated unpaid claims and other insurance liabilities of $ 3.9 million and $ 2.3 million were recorded in the accompanying Consolidated Balance Sheets as of December 29, 2024 and December 31, 2023, respectively.

Revenue Recognition

2 unchanged sentences

For delivery sales made through the Company’s mobile application and website, the Company controls the delivery services and recognizes revenue, including delivery fees, when the delivery partner transfers the food and beverage to the customer.

With respect to sales made through the delivery partner’s mobile application or website, the Company recognizes revenue, excluding delivery fees collected by the delivery partner, when control of the food and beverage is transferred to the delivery partner.

With respect to sales made through delivery partners’ mobile applications or websites, the Company recognizes revenue, excluding delivery fees collected by the delivery partner, when control of the food and beverage is transferred to the delivery partner.

Payment is received from the delivery partner subsequent to the transfer of food and beverage and the payment terms are short-term.

7 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.

2 unchanged sentences

Management estimates the amount of gift cards for which the likelihood of redemption is remote, referred to as “breakage, ” using historical gift card redemption patterns.

The estimated breakage, less an administrative fee, is recognized over the expected period of redemption as the remaining gift card values are redeemed, which is generally over a period of two years.

The estimated breakage is recognized over the expected period of redemption as the remaining gift card values are redeemed, which is generally over a period of two years .

Utilizing this method, Management estimates both the breakage and the time period of redemption.

9 unchanged sentences

Pre-opening expenses can fluctuate from period to period, based on the number and timing of new company-owned restaurant openings.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Consideration Received from Vendors

16 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

Stock-based compensation expense is recognized for stock option awards granted and is based on the fair value of the stock option awards on the date of grant.

Stock-based compensation is recognized in General and administrative expenses based on the fair value of the stock-based awards on the date of grant.

The fair value of performance-based awards is recognized as expense when the achievement of the performance condition is probable.

Stock-based compensation expense for time-based awards is expensed over the requisite service period.

The fair value of restricted stock units (“RSU”) is determined by the market price of the Company’s stock on the date the RSU is granted.

The fair value of stock option awards is determined using the Black-Scholes option pricing model.

The fair value of performance-based stock option awards is recognized as expense when the achievement of the performance condition is probable.

Forfeitures of stock option awards are recognized as they occur.

Determining the fair value of stock option awards at the grant date requires judgment, including estimating the expected term that the stock option awards will be outstanding prior to exercise, volatility, dividend yield and risk-free interest rate.

Stock-based compensation expense is included in General and administrative expenses.

Stock option exercises are settled with authorized but unissued shares of the Company’s common stock.

Fair Value of Common Stock

In Fiscal 2021, prior to the IPO, the Company’s equity value was determined using the probability weighted expected return method (“PWERM”), or the hybrid method.

Under the hybrid method, multiple valuation approaches are used and then combined into a single probability weighted valuation using a PWERM, which considers the probability of an initial public offering and sale scenarios.

The results of the valuation approaches were weighted based on a variety of factors, including the current macroeconomic environment, current industry conditions and length of time since arms-length market transaction events.

Additionally, a discount for lack of marketability was applied to account for the lack of access to an active public market.

The resulting value was then allocated to outstanding equity using an option-pricing model.

This process involved the use of estimates, judgments, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events.

The assumptions underlying these valuations represented Management’s best estimate, which involved inherent uncertainties and the application of Management’s judgment.

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.

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

Stock option exercises and restricted stock unit vesting is settled with authorized but unissued shares of the Company’s common stock.

Forfeitures of stock-based awards are recognized as they occur.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Summary of Recently Issued Accounting Pronouncements

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 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.

1 unchanged sentence

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)

The Company adopted ASU No, 2023-07 on December 29, 2024.

See Note 19, Segment Information, for further detail.

New Accounting Pronouncements

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.

2 unchanged sentences

Management is currently evaluating the impact of this new standard.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures, which establishes new disclosure requirements related to purchases of inventory, employee compensation, selling expenses, depreciation and intangible amortization.

The new guidance is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027 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.

During Fisca l 2024, the Company acquired substantially all the assets associated with 22 franc hise 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

DATE OF ACQUISITION

(dollars in thousands) JANUARY 22, 2024 APRIL 15, 2024

Number of acquired restaurants 1 21

6 unchanged sentences

Inventory $ 15 $ 213

Other assets $ 1 $ 133

Property, fixtures and equipment $ 1,391 $ 16,511

Reacquired rights $ 498 $ 21,459

Goodwill $ 1,097 $ 37,585

Operating right-of-use assets, net of lease positions and prepaid rent $ 1,251 $ 26,199

Operating lease liabilities $ ( 1,247 ) $ ( 26,853 )

Deferred revenues - gift card liabilities assumed $ ( 5 ) $ ( 160 )

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

During Fisca l 2023 , the Company acquired substantially all the assets associated with 23 franc hise operated First Watch restaurants.

The details of each acquisition are as follows:

DATE OF ACQUISITION

(dollars in thousands) 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

3 unchanged sentences

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

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

Operating right-of-use assets, net of lease positions and prepaid rent $ 3,088 $ 5,199 $ 8,432 $ 6,418

Operating lease liabilities $ ( 3,418 ) $ ( 5,269 ) $ ( 8,962 ) $ ( 6,388 )

Accounts payable $ — $ — $ ( 35 ) $ —

1 unchanged sentence

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:

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Balance, end of period $ 5,385 $ 5,224 $ 4,897

Gift cards are combined in one homogeneous pool and are not separately identifiable.

Gift cards are combined in one pool and are not separately identifiable.

As such, the revenue recognized consists of gift cards that were part of the deferred revenue balance at the beginning of the period as well as gift cards that were issued during the period.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Changes in deferred franchise fee contract liabilities were as follows:

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Total revenues $ 1,015,910 $ 891,551 $ 730,162

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Deferred revenues as of December 29, 2024 are expected to be recognized as follows:

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Balance as of December 29, 2024 $ 398,565

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Intangible Assets, Net

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Property, Plant and Equipment

Property, Fixtures and Equipment

Property, fixtures and equipment, net consisted of the following:

(in thousands) DECEMBER 29, 2024 DECEMBER 31, 2023

10 unchanged sentences

Depreciation expense was $ 52.1 million, $ 39.7 million and $ 33.3 million during Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively.

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 2024 and Fiscal 2022, 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.

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

Loss on disposals of assets of $ 0.5 million, $ 0.8 million and $ 0.9 million were recognized in Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively, primarily related to the write-off of assets retired as a result of the replacement of assets or restaurant closures.

As of December 29, 2024 and December 31, 2023, Property, fixtures and equipment, net included $ 1.2 million in land related to sale and leaseback transactions accounted for as financing obligations.

4 unchanged sentences

Sales tax 7,919 6,163

Self-insurance and general liability reserves 1,593 1,529

Self-insurance, general liability and workers’ compensation reserves 2,521 1,593

Utilities 2,156 1,657

Interest payable 401 1,506

Credit card fees 1,973 1,706

Property tax 922 951

Contingent rent 1,058 1,160

Property tax 830 922

Common area maintenance 618 749

Interest payable 267 401

Other 5,496 7,335

Total accrued liabilities $ 39,607 $ 35,630

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 29, 2024 DECEMBER 31, 2023

1 unchanged sentence

Term Facility $ 98,125 6.93 % $ 92,500 7.70 %

Delayed Draw Term Facility 95,672 6.93 % —

Revolving Credit Facility — 30,000 7.72 %

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Credit Facilities

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.

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.

FWR Holding Corporation (“FWR”), a subsidiary of the Company, is the borrower under the credit agreement, dated October 6, 2021 (“Credit Agreement”), which provided 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 Facility”).

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

1 to 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 continued to bear interest at LIBOR until March 27, 2023.

On January 5, 2024, the Company entered into Amendment No.

2 to the Credit Agreement (the “Second Amendment”) with terms substantially identical to the Credit Agreement to (i) replace the $ 100.0 million Term Facility with a new $ 100.0 million term loan A facility (the “New Term Facility”), (ii) replace the $ 75.0 million Revolving Credit Facility with a new $ 75.0 million revolving credit facility (the “New Revolving Credit Facility”), (iii) increase the New Revolving Credit Facility by $ 50.0 million, bringing the aggregate committed amount under the New Revolving Credit Facility to $ 125.0 million and (iv) add a new $ 125.0 million incremental delayed draw term loan facility (the “New Delayed Draw Term Facility”).

The New Delayed Draw Term Facility is available to FWR for a period of 18 months from the date of the Second Amendment and the proceeds may be used to fund permitted acquisitions and new restaurant capital expenditures, repay revolving loans and/or replenish balance sheet cash, in each case, used for such permitted acquisitions or capital expenditures.

On April 12, 2024, the Company drew $ 97.5 million of the $ 125.0 million New Delayed Draw Term Facility.

The proceeds were used to repay $ 22.5 million of borrowings under the New Revolving Credit Facility and fund the franchise acquisition on April 15, 2024 that was completed for approximately $ 75.1 million.

As of December 29, 2024, borrowings under the Credit Facility, as amended, bear interest at the option of FWR at either (i) the alternate base rate plus a margin of between 150 and 225 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 250 and 325 basis points depending on the Total Rent Adjusted Net Leverage Ratio.

In addition, an unused commitment fee of between 37.5 and 50 basis points is paid on the undrawn commitments under the New Revolving Credit Facility and New Delayed Draw Term Facility, also depending on the Total Rent Adjusted Net Leverage Ratio.

Refer to Note 11, Interest Rate Swaps , for information about the variable-to-fixed interest rate swap agreements entered in June 2023 and May 2024.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Loans drawn under the New Delayed Draw Term Facility amortize at the same rate per annum applicable to loans under the New Term Facility.

The New Term Facility and New Delayed Draw Term Facility are subject to amortization of principal, payable in quarterly installments equal to (i) 1.9 % of the original principal amount of the term loans in Fiscal 2024 , (ii) 4.4 % of the original principal amount of the term loans in the fiscal year ending December 28, 2025, (iii) 5.0 % of the original principal amount of the term loans in the fiscal year ending December 27, 2026, (iv) 6.9 % of the original principal amount of the term loans in the fiscal year ending December 26, 2027 and (v) 9.4 % of the original principal amount of the term loans in the fiscal year ending December 31, 2028.

The remaining principal amount outstanding is payable at maturity.

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

Principal payments due on the outstanding debt, excluding finance lease liabilities and financing obligations, as of December 29, 2024 are as follows:

FISCAL YEAR (in thousands)

Interest Expense

The following table summarizes our interest expense:

(in thousands) 2024 2023 2022

Interest expense $ ( 14,257 ) $ ( 8,063 ) $ ( 5,232 )

Capitalized interest $ 1,617 $ — $ —

Total interest expense, net $ ( 12,640 ) $ ( 8,063 ) $ ( 5,232 )

Fair Value of Debt

4 unchanged sentences

Term Facility $ 98,125 $ 97,933 $ 92,500 $ 92,201

Delayed Draw Term Facility $ 95,672 $ 95,484 $ — $ —

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

4 unchanged sentences

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

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Debt Covenants

2 unchanged sentences

FWR was in compliance with covenants under the Credit Agreement as of December 29, 2024 and December 31, 2023.

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 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

1 unchanged sentence

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.

Under the terms of the interest rate swaps, the Company pays 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.

On May 17, 2024, the Company entered into two additional variable-to-fixed interest rate swaps.

These interest rate swaps have an aggregate notional amount of $ 60.0 million and mature on June 30, 2027.

Under the terms of the interest rate swaps, the Company pays a weighted average fixed rate of 4.42 % 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.

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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.

During the fiscal years ended December 29, 2024 and December 31, 2023, a total of $ 1.0 million and $ 0.5 million was reclassified from Other comprehensive income (loss) as a reduction to interest expense, respectively.

Over the next 12 months, the Company estimates that $ 0.2 million will be reclassified as an increase to interest expense.

FIRST WATCH RESTAURANT GROUP, INC.

65 unchanged sentences

The balance of the financing obligation was $ 3.1 million as of December 29, 2024 and December 31, 2023.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Transaction Expenses (Income), Net

3 unchanged sentences

Secondary offering costs $ 1,259 1,031 1,957

Gain on lease modifications — — ( 1,961 )

Credit Agreement modification 268 127 —

Contingent consideration liability revaluation ( 612 ) — 165

Conversion costs — — 2

(Gain) Loss, net on restaurant closures/relocations 13 ( 73 ) 391

Total transaction expenses (income), net $ 2,587 $ 3,147 $ 2,513

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.

Pursuant to the agreement, the Company received $ 1.0 million in December 2021 and received an additional $ 1.0 million after vacating the leased restaurant facility in December 2022.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

During Fiscal 2024 and 2023, $ 1.6 million and $ 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 o f one company-owned restaurant in 2024 and one company-owned restaurant in 2023.

During Fiscal 2024 and 2023 $ 1.3 million and $ 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”).

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 a gain of $ 0.6 and a loss of $ 0.2 million in Fiscal 2024 and Fiscal 2022, respectively.

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

Income tax expense consisted of the following:

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FICA tip credit ( 30.3 ) ( 19.9 ) ( 44.2 )

Other tax credits ( 0.2 ) — —

Valuation allowance for federal and state 34.1 17.6 46.7

5 unchanged sentences

Total 32.5 % 29.6 % 45.1 %

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).

The effective income tax rate for Fiscal 2024, Fiscal 2023 and Fiscal 2022 was different than the blended federal and state statutory rate mainly due to (i) the change in the valuation allowance on deferred tax assets, (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.

FIRST WATCH RESTAURANT GROUP, INC.

4 unchanged sentences

FICA tip credit $ 59,671 $ 49,946

State tax credits 48 —

Net operating loss 17,462 22,964

5 unchanged sentences

Stock-based compensation 3,512 3,552

Research expenses 590 393

Interest rate swaps 146 221

14 unchanged sentences

The Company also has state net operating loss carryforwards of $ 23.5 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.

To the extent that these are utilized to reduce taxes payable, the Company is required to pay the previous stockholders an amount equal to tax savings.

This requirement lapses with respect to any tax year, or portion thereof, beginning after December 31, 2024, or if a change in control event occurs.

In connection with the Advent Acquisition, a contingent consideration liability of $ 1.2 million was initially recognized for expected payments to be made to the previous stockholders.

As of December 31, 2023, the contingent consideration liability was $ 0.9 million, of which $ 0.7 million was recorded within Accrued liabilities and $ 0.2 million was recorded within Other long-term liabilities.

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.

Section 382 of the Internal Revenue Code limits the ability of a company to utilize attribute carryforwards if there is a change in ownership of more than 50% of shareholders over a rolling three-year period.

The Company experienced an ownership change in March 2024 associated with the Secondary Offerings.

Management completed an analysis and concluded that no carryforwards will expire unused due to the application of Section 382.

Certain federal loss carryforwards, state loss carryforwards and general business credits were accumulated from operations prior to the August 2017 merger through which the Company became majority owned by Advent.

Under the terms of an agreement with the previous stockholders, to the extent that these credits and carryforwards were utilized to reduce taxes payable, the Company was required to pay the previous stockholders an amount equal to tax savings.

In accordance with the agreement, an initial contingent consideration liability of $ 1.2 million was recognized and adjusted periodically for estimated future use and the actual distributions to previous stockholders.

By agreement the obligation would lapse following a change in control event.

During the first quarter of 2024, Advent sold common stock of the Company through a secondary public offering.

As a result, Advent no longer controlled a majority of the Company’s issued and outstanding shares of common stock.

Advent’s first quarter sale, therefore, represents a change of control event as defined in the agreement.

Given this change in control event, the remaining $ 0.6 million of the contingent consideration liability was released through Transaction expenses, net.

Final payment to previous stockholders was made in the second quarter of 2024.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Valuation Allowance

6 unchanged sentences

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Changes in the deferred tax asset valuation allowance were as follows:

15 unchanged sentences

During Fiscal 2024, funds managed by Advent International L.P.

sold 6,000,000 and 8,000,000 shares through Secondary Offerings that were completed on March 12, 2024 and November 13, 2024, respectively.

The selling stockholders sold an additional 900,000 shares of common stock on March 12, 2024 pursuant to the terms of the underwriter’s option associated with the secondary public offering.

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

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.

2 unchanged sentences

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.

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

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

No cash dividends were declared or paid in Fiscal 2024, Fiscal 2023 and Fiscal 2022.

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.

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.

In Fiscal 2024 and Fiscal 2023, the Company matched 50 % of the first 6 % of employees’ wages deferred into the 401(k) Plan.

In Fiscal 2022, the Company matched of 25 % of the first 6 % of employees’ wages deferred 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.

All Company contributions vest over a five -year period.

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)

Company contributions vest over a five-year service period.

Total expense recognized for the Company’s contributions to the 401(k) Plan was $ 1.9 million, $ 1.1 million and $ 0.6 million in Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively.

Stock-Based Compensation

Stock Option Awards

Stock-based awards are granted to employees and non-employee directors.

The Company has two compensation plans that provide for the granting of stock options and other share-based awards to key employees and non-employee members of the board of directors.

1 unchanged sentence

2021 Equity Plan

The number of shares of common stock reserved for issuance under the 2021 Equity Plan is 5,218,292 common shares (“Share Reserve”) at December 31, 2023.

The number of shares of common stock that may be issued under the 2021 Equity Plan 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 29, 2030, equal to the least of (i) 2.0 % of the total number of shares of common stock actually issued and outstanding on the last day of the preceding fiscal year, (ii) a number of shares of common stock determined by the board of directors;

The number of common stock reserved for issuance under the 2021 Equity Plan (“Share Reserve”) for Fiscal 2024, Fiscal 2023 and Fiscal 2022 was 6,416,126 , 5,218,292 and 4,034,072 respectively.

The number of shares of common stock that may be issued under the 2021 Equity Plan 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 December 29, 2030, equal to the least of (i) 2.0 % of the total number of shares of common stock actually issued and outstanding on the last day of the preceding fiscal year, (ii) a number of shares of common stock determined by the board of directors;

and (iii) the number of shares of common stock equal to the Share Reserve.

If any award granted under the 2021 Equity Plan is cancelled, expired, forfeited, or surrendered without consideration or otherwise terminated without delivery of the shares to the participant, then such unissued shares will be returned to the 2021 Equity Plan and be available for future awards under the 2021 Equity Plan.

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.

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.

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 and will not be available for future awards under the 2021 Equity Plan.

There were no stock option awards granted under the 2021 Equity Plan during Fiscal 2024 or Fiscal 2023.

The non-qualified time-based option awards granted under the 2021 Equity Plan in Fiscal 2022 vest over a three-year requisite service period from the date of grant and expire 10 years after the grant date.

Restricted stock units are granted at values equal to the market price of the Company’s common stock on the date of grant.

Stock-based compensation expense for awards made under the 2021 Equity Plan is recognized on a straight-line recognition method over the requisite service period.

2017 Equity Plan

The 2017 Equity Plan authorizes stock-based awards to be granted for up to 6,138,240 shares of common stock.

The awards granted under the 2017 Equity Plan consisted of non-qualified stock options that generally vest based over a five-year requisite service period from the date of grant (the “time-based option awards”), as well as upon the occurrence of certain events and if certain market conditions were achieved, the (“performance-based option awards”).

The awards granted under the 2017 Equity Plan consisted of non-qualified stock options that generally vest over a five-year requisite service period from the date of grant (the “time-based option awards”), as well as upon the occurrence of certain events and if certain market conditions were achieved, the (“performance-based option awards”).

Stock-based compensation expense related to the stock option awards issued under the 2017 Plan is recognized on an accelerated recognition method over the requisite service period.

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 2023 and 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 2024, Fiscal 2023 and Fiscal 2022, and the Company does not intend to grant any further awards under the 2017 Equity Plan.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Modification of Performance-Based Option Awards - 2017 Equity Plan

4 unchanged sentences

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.

5 unchanged sentences

An immediate one-time charge of $ 5.6 million was recognized upon closing of the IPO, which included (i) the expense from the date of the modifications through the IPO date and (ii) the expense related to performance-based option awards for which the market condition was not satisfied upon the IPO.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of stock option activity during Fiscal 2023 is as follows:

Stock Options

The following table summarizes stock option activity for Fiscal 2024:

NUMBER OF OPTIONS WEIGHTED AVERAGE

4 unchanged sentences

4,347,186 $ 10.22 $ 42,965 5.1

Granted — $ —

Forfeited ( 35,211 ) $ 12.82

4 unchanged sentences

3,376,772 $ 9.90 $ 29,721 3.8

The aggregate intrinsic value is based on the difference between the exercise price of the stock option and the closing price of the Company’s common stock on the Nasdaq Global Select Market.

The aggregate intrinsic value is based on the difference between the exercise price of the stock option and the closing price of the Company’s common stock on the Nasdaq Global Select Market on the last day of the trading period.

The total intrinsic value of stock options exercised was $ 6.6 million, $ 5.7 million, and $ 1.1 million during Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of the non-vested stock option activity during Fiscal 2024 is as follows:

2 unchanged sentences

1,234,031 $ 7.36

Granted — $ —

Vested ( 874,575 ) $ 7.76

2 unchanged sentences

324,245 $ 6.55

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.

There were no stock options granted during Fiscal 2024 or Fiscal 2023.

The weighted average grant date fair value of options granted during Fiscal 2022 was $ 6.81 .

The total grant date fair value of stock options that vested during Fiscal 2024, Fiscal 2023 and Fiscal 2022 was $ 6.8 million, $ 7.1 million and $ 7.4 million, respectively.

Fair value of Stock Options

The fair value of stock option awards is estimated on the date of grant using the Black-Scholes valuation model.

The assumptions utilized to estimate the grant date fair value of the stock option awards granted were as follows:

2023 2022 2021

The Black-Scholes valuation model is used to estimate the fair value of stock option awards granted.

The assumptions utilized to estimate the grant date fair value of these awards granted in Fiscal 2022 were as follows:

Weighted average expected term (years) 6.5

2 unchanged sentences

Expected dividend yield —

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

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.

1 unchanged sentence

The expected dividend yield is based on the fact that the Company has never paid cash dividends and does not have intentions of paying dividends in the foreseeable future.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Restricted Stock Units

The following table summarizes RSU activity for Fiscal 2024:

RESTRICTED STOCK UNITS WEIGHTED AVERAGE

8 unchanged sentences

759,721 $ 20.67 $ 14,207

Of the 475,328 RSUs granted in Fiscal 2024, 353,683 will vest ratably over a period of three years from the grant date, 50,049 will vest one year from the grant date, and 50 % of the remaining 71,596 will vest two years from the grant date and 50 % will vest three years from the grant date.

The total intrinsic value of restricted stock units that vested in Fiscal 2024 and Fiscal 2023 was $ 4.7 million and $ 0.7 million, respectively.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock-Based Compensation Expense

1 unchanged sentence

The total related income tax benefit for stock-based compensation expense was $ 0.8 million, $ 0.6 million and $ 2.1 million for Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively.

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.

Cash received from stock options exercised was $ 6.4 million, $ 5.8 million and $ 1.4 million for Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively.

The tax benefit realized from stock option exercises and vesting of restricted stock units was $ 2.3 million, $ 1.6 million and $ 0.3 million in Fiscal 2024, Fiscal 2023 and Fiscal 2022, respectively.

Unrecognized Stock-Based Compensation Expense

14 unchanged sentences

(“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)

Future payments of noncancellable unconditional purchase obligations with a remaining term in excess of one year were $ 11.7 million and $ 4.8 million as of December 29, 2024 and December 31, 2023, respectively.

The majority of these purchase obligations are due within three years, however commitments with various vendors extend through 2029.

The Company’s unconditional purchase obligations primarily consist of payments for subscriptions, technology, restaurant level services, and marketing-related platforms.

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

8 unchanged sentences

Property subject to escheat laws generally relates to uncashed checks, trade accounts receivable credits and unredeemed gift card balances.

During the first quarter of 2022, the Company received a letter from the Delaware Secretary of State inviting the Company 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.

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.

The Company intends to work in good faith to complete a review of its books and records related to unclaimed or abandoned property during the periods required under the program.

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.

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

The following table sets forth the computations of basic and diluted net income (loss) per common share:

(in thousands, except share and per share data) 2023 2022 2021

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

Weighted average common shares outstanding - basic 59,531,404 59,097,512 48,213,995

Weighted average common shares outstanding - diluted 61,191,613 60,140,045 48,213,995

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

Net income (loss) per common share - diluted $ 0.41 $ 0.11 $ ( 0.04 )

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.

In 2023, the Company expensed $ 0.8 million in General and administrative expenses associated with the State of Delaware Abandoned or Unclaimed Properly Voluntary Disclosure Program, into which the Company had applied and been accepted in 2022.

In the second quarter of 2024 , $ 0.7 million of the previously accrued amount was paid to the State of Delaware in resolution of escheat matters arising from unclaimed gift card balances.

The Company believes any additional payments to the State of Delaware to resolve the remaining escheat matters will not be significant.

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.

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.

Segment Information

The Company’s CODM uses consolidated net income to evaluate performance and make key operating decisions, such as investments in our long-term growth strategy.

This measure is also used to monitor budget against actual results.

Segment accounting policies are consistent with those described in Note 2, Summary of Significant Accounting Policies .

Revenue is derived from sales of food and beverage, net discounts, by our restaurants as well as franchise royalty, system fund and initial franchise fees.

The measure of total assets for the reporting segment is reported on the consolidated balance sheets as total assets.

The measure of capital expenditures for the reporting segment is reported on the consolidated statements of cash flows as total capital expenditures.

The following table details consolidated net income for the segment for the periods indicated:

(in thousands) 2024 2023 2022

Total revenues $ 1,015,910 $ 891,551 $ 730,162

Food and beverage costs 223,097 197,374 172,561

Labor and other related expenses 335,038 294,010 238,257

Other restaurant operating expenses 151,968 134,477 114,476

Occupancy expenses 82,694 68,400 59,919

Pre-opening expenses 10,109 7,173 5,414

Stock-based compensation 8,525 7,604 10,374

General and administrative expenses (1)

104,745 95,517 74,585

Depreciation and amortization 57,715 41,223 34,230

Other segment items (2)

3,112 4,506 3,433

Interest expense 12,640 8,063 5,232

Other income, net ( 1,759 ) ( 2,871 ) ( 910 )

Income tax expense 9,101 10,690 5,684

Net income $ 18,925 $ 25,385 $ 6,907

(1) General and administrative expenses excludes stock-based compensation presented separately.

(2) Other segment items included in segment net income primarily includes transaction expenses, and impairments and loss on disposal of assets.

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Net Income Per Common Share

The following table sets forth the computations of basic and diluted net income per common share:

(in thousands, except share and per share data) 2024 2023 2022

Net income $ 18,925 $ 25,385 $ 6,907

Weighted average common shares outstanding - basic 60,365,393 59,531,404 59,097,512

Weighted average common shares outstanding - diluted 62,351,222 61,191,613 60,140,045

Net income per common share - basic $ 0.31 $ 0.43 $ 0.12

Net income per common share - diluted $ 0.30 $ 0.41 $ 0.11

Stock options outstanding not included in diluted net income per common share as their effect is anti-dilutive 12,552 13,656 1,787,517

Restricted stock units outstanding not included in diluted net income per common share as their effect is anti-dilutive 336,410 355 —

Diluted net income 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.

Condensed Financial Information of Registrant (Parent Company Only)

19 unchanged sentences

FIRST WATCH RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

FIRST WATCH RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

2024 2023 2022

Equity in net income (loss) of subsidiaries

Net income (loss) and comprehensive income (loss) $ 24,718 $ 6,907 $ ( 2,107 )

Net income (loss) per common share attributable to First Watch Restaurant Group, Inc.

Equity in net income of subsidiaries

Net income and comprehensive income $ 19,151 $ 24,718 $ 6,907

Net income per common share attributable to First Watch Restaurant Group, Inc.

- basic $ 0.31 $ 0.43 $ 0.12

Net income (loss) per common share attributable to First Watch Restaurant Group, Inc.

Net income per common share attributable to First Watch Restaurant Group, Inc.

- diluted $ 0.30 $ 0.41 $ 0.11

10 unchanged sentences

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.

The accompanying financial information

FIRST WATCH RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The accompanying financial information 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.

On November 8, 2024, the Company executed an asset purchase agreement to acquire 16 restaurants from a franchisee, together with other associated assets, including, but not limited to, franchise and development rights for cash of approximately $ 49.0 million.

On February 12, 2025, the Company executed an asset purchase agreement to acquire 3 restaurants from a franchisee, together with other associated assets, including, but not limited to, franchise and development rights for cash of approximately $ 7.0 million.

The closing dates of the purchases are subject to the satisfaction of certain customary closing conditions set forth in the respective asset purchase agreements.

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