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Item 7. Management’s Discussion and Analysis

2026-02-24 compared with 2025-03-11 · 147 added, 177 removed, 333 unchanged (49% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section and other parts of this Annual Report on Form 10-K contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein.

All statements other than statements of historical fact are forward-looking statements.

Forward-looking statements discuss our industry outlook, our expectations for the future of our business and our liquidity and capital resources as well as other non-historical statements.

You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.

These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “outlook,” “potential,” “project,” “projection,” “plan,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other similar expressions.

Our actual results may differ materially from those contained in or implied by these forward-looking statements.

These statements are based on current expectations and are subject to numerous risks and uncertainties.

All forward-looking statements are expressly qualified in their entirety by these cautionary statements.

You should evaluate all forward-looking statements made in this Annual Report on Form 10-K in the context of the risks and uncertainties disclosed in Part I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors” and in this Item 7, “Management ’ s Discussion and Analysis of Financial Condition and Results of Operations.”

The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date hereof.

We undertake no obligation to publicly update any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

First Watch is an award-winning Daytime Dining concept serving made-to-order breakfast, brunch and lunch using fresh ingredients.

The Company’s common stock trades on Nasdaq under the ticker symbol “FWRG.” A recipient of hundreds of local “Best Breakfast” and “Best Brunch” accolades, First Watch’s award-winning chef-driven menu includes elevated executions of classic favorites for breakfast, brunch and lunch.

For three consecutive years, First Watch was named a Top 100 Most Loved Workplace® by Newsweek and the Best Practice Institute, and in 2024, was named the #1 Most Loved Workplace.

In 2023, First Watch was named the top restaurant brand in Yelp’s inaugural list of the top 50 most-loved brands in the United States.

In 2022, First Watch was recognized with ADP’s coveted Culture at Work Award.

The Company operates and franchises restaur ants in 29 states under the “First Watch” trade name and as of December 29, 2024, the Company had 489 company-owned restaurants and 83 franchise- owned restaurants.

The Company does not operate outside of the United States.

The Company’s 52- or 53-week fiscal years end on the last Sunday of each calendar year.

Its fiscal quarters are comprised of 13 weeks each and end on the 13th Sunday of each quarter, save for 53-week years during which the fourth quarter ends on the 14th Sunday of the fourth quarter.

All references to 2024 and 2022 reflect the results of the 52-week fiscal year ended December 29, 2024 and December 25, 2022.

All references to 2023 reflect the results of the 53-week fiscal year ended December 31, 2023.

Our common stock trades on Nasdaq under the ticker symbol “FWRG.” A recipient of many local “Best Breakfast” and “Best Brunch” accolades, First Watch’s award-winning chef-driven menu includes elevated executions of classic favorites for breakfast, brunch and lunch.

For four consecutive years, First Watch has been named a Top 100 Most Loved Workplace® by the Best Practice Institute, and in 2025, was named the #1 Most Loved Workplace for the second year in a row, featured in The Wall Street Journal .

Also, in 2025, First Watch was named one of Yelp’s Most-Loved Brands nationwide.

We operate and franchise restaur ants in 32 states u nder the “First Watch” trade name and as of December 28, 2025, h ad 560 company-owned restaurants and 73 franchise-owned restaurants.

We do not operate outside of the United States.

Our 52- or 53-week fiscal years end on the last Sunday of each calendar year.

Our fiscal quarters are comprised of 13 weeks each and end on the 13th Sunday of each quarter, except for 53-week years, during which the fourth quarter ends on the 14th Sunday of the fourth quarter.

All references to 2025 and 2024 reflect the results of the 52-week fiscal years ended December 28, 2025 and December 29, 2024, respectively.

All references to 2023 reflect the results of the 53-week fiscal year ended December 31, 2023 unless otherwise stated.

We report financial and operating information in one segment.

This section of this Annual Report on the Form 10-K generally discusses Fiscal 2025 and Fiscal 2024 and year-over-year comparisons between Fiscal 2025 and Fiscal 2024.

A discussion of Fiscal 2023 and year-over-year comparisons between Fiscal 2024 and Fiscal 2023 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on March 5, 2024.

Key Performance Indicators

Throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” we commonly discuss the following key operating metrics that we believe will drive our financial results and long-term growth model.

We believe these metrics are useful to investors because Management uses these metrics to evaluate performance and assess the growth of our business as well as the effectiveness of our marketing and operational strategies.

Throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” we commonly discuss the following key operating metrics that we believe will drive our financial results and long-term growth model.

We believe these metrics are useful to investors because our Management uses these metrics to evaluate performance and assess the growth of our business as well as the effectiveness of our marketing and operational strategies.

New Restaurant Openings (“NROs”):

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the percentage change in year-over-year restaurant sales (excluding gift card breakage) for the comparable restaurant base, which we define as the number of company-owned First Watch branded restaurants open for 18 months or longer as of the beginning of the fiscal year (“Comparable Restaurant Base”).

For the year ended 2024, this operating metric compares the 52-week period ended December 29, 2024 with the 52-week period ended December 31, 2023, versus the 53-week fiscal year ended December 31, 2023, in order to compare like-for-like periods.

For the 52-weeks ended December 29, 2024 and December 31, 2023, there were 344 restaurants and 327 restaurants in our Comparable Restaurant Base.

This operating metric compares the 52-week periods ended December 28, 2025, December 29, 2024 and December 31, 2023, rather than, the 53-week fiscal year ended December 31, 2023, in order to compare like-for-like periods.

For the 52-weeks ended December 28, 2025, December 29, 2024 and December 31, 2023 there were 381, 344 and 327 restaurants, in our Comparable Restaurant Base, respectively.

Measuring our same-restaurant sales growth allows Management to evaluate the performance of our existing restaurant base.

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Same-Restaurant Traffic Growth :

the percentage change in traffic counts for the 52-week period ended December 29, 2024 as compared to the 52-week period ended December 31, 2023 using the Comparable Restaurant Base, versus the 53-week fiscal year ended December 31, 2023 in order to compare like-for-like periods.

Measuring our same-restaurant traffic growth allows Management to evaluate the performance of our existing restaurant base.

the percentage change in year-over-year traffic counts using the Comparable Restaurant Base.

This operating metric compares the 52-week periods ended December 28, 2025, December 29, 2024 and December 31, 2023, - (rather than the 53-week fiscal year ended December 31, 2023), in order to compare like-for-like periods.

Measuring our same-restaurant traffic growth allows our Management to evaluate the performance of our existing

restaurant base.

We believe this measure is useful for investors because same-restaurant traffic provides an indicator as to the development of our brand and the effectiveness of our marketing strategy.

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We use Adjusted EBITDA and Adjusted EBITDA margin (i) as factors in evaluating management’s performance when determining incentive compensation, (ii) to evaluate our operating results and the effectiveness of our business strategies and (iii) internally as benchmarks to compare our performance to that of our competitors.

We use Restaurant level operating profit and Restaurant level operating profit margin (i) to evaluate the performance and profitability of operating restaurants, individually, and in the aggregate, (ii) to compare the performance of our restaurants and markets and (iii) to make decisions regarding future spending and other operational decisions.

We use Restaurant level operating profit and Restaurant level operating profit margin (i) to evaluate the performance and profitability of operating restaurants, individually and in the aggregate, and (ii) to make decisions regarding future spending and other operational decisions.

Adjusted EBITDA :

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The financial results of 2025 reflect the continued growth of the Company.

The Company continued to accelerate the pace of new restaurant openings with 43 NROs in 2024 and we executed on our growth strategy as w e acquired 22 op erating restaurants from our franchisees in 2024.

Financial highlights for the 52-weeks ended December 29, 2024 as compared, unless otherwise indicated below, to the 53-weeks ended December 31, 2023, reflected the continued momentum of our strong operating performance and include the following:

• Total revenues increase d 13.9% to $1.0 billion from $891.6 million in 2023

In 2025, we executed our growth strategy with 55 new restaurant openings and the acquisition of 19 operating restaurants from our franchisees.

Financial highlights for 2025 as compared to 2024 include the following:

• Total revenues increased 20.3% to $1.2 billion from $1.0 billion in 2024

• System-wide sales increased to $1.4 billion from $1.2 billion in 2024

• Same-restaurant sales growth of negative 0.5%*

• Same-restaurant traffic growth of negative 4.0%*

• Same-restaurant sales growth of 3.6%

• Same-restaurant traffic growth of 0.5%

• Income from operations decreased to $27.5 million from $38.9 million in 2024

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• Restaurant level operating profit* increased to $224.1 million from $201.8 million in 2024

• Restaurant level operating profit margin** increased to 20.1% f rom 20.0% in 2023

• Net income decreased t o $18.9 million from $25.4 million in 2023

• Adju sted EBITDA** increased to $113.8 million from $99.5 million in 2023

• O pened 50 system-wide restaurants (43 company-owned and 7 franchise-owned) across 19 states resulting in a total of 572 system-wide restaurants (489 company-owned and 83 franchise-owned) across 29 state s

• Restaurant level operating profit margin* decreased to 18.5% from 20.1% in 2024

• Net income increased t o $19.4 million f rom $18.9 million in 2024

• Adju sted EBITDA* increased to $120.9 million f rom $113.8 million in 2024

• Opened 64 system-wide restaurants (55 company-owned and 9 franchise-owned) across 23 states, resulting in a total of 633 system-wide restaurants (560 company-owned and 73 franchise-owned) across 32 states

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*Comparison to the 52-week periods ended December 29, 2024 and December 31, 2023 in order to compare like-for-like periods.

See “Key Performance Indicators” for additional information.

* See Non-GAAP Financial Measure Reconciliations section below.

Business Trends

During 2024, many restaurant industry sectors experienced downward sales pressure and traffic and “breakfast” was the most impacted daypart .

The Company’s same-restaurant sales growth in 2024 was negative 0.5%, and partially offset by a 3.6% increase in carried price.

Commodity inflation was 3.2% in 2024.

We expect a high-single digit percentage increase in our 2025 commodity prices as compared to the prior year.

Restaurant level labor inflation of 4.4% was offset by improvements in labor efficiencies.

At year end, we were staffed with ov er 120 ma nagers to lead and operate our future new company-owned restaurants.

During 2025, our same-restaurant sales growth was 3.6% with positive traffic growth.

We expect annual same-restaurant sales growth in 2026 to be between 1% and 3%.

Commodity inflation was 5.0% in 2025, largely driven by eggs, coffee, avocado and bacon.

We expect 2026 commodity prices to increase approximately 1% to 3% as compared to the prior year, primarily related to coffee.

Restaurant level labor inflation during 2025 was 3.7%, largely offset by price increases.

At year end, we were staffed with over 100 managers to lead and operate future new company-owned restaurants.

We expect 3% to 5% labor inflation in 2026.

Continuing the Company’s expansion, Management intends to open 59 to 64 net new system-wide restaurants in 2025.

In addition, Management has entered into two agreements to acquire 19 restaurants from franchisees.

Continuing our growth strategy, we intend to open 59 to 63 net new system-wide restaurants in 2026.

Development Highlights

During 2024, the Company had a tot al of 50 new system-wide restaurant s in 19 states.

One company-owned and one franchise-owned restaurant closed in 2024 .

We also acquired 22 operating restaurants from our franchisees in the execution of our growth strategy.

See Note 3, Business Acquisitions , in the accompanying notes to the consolidated financial statements for additional information.

During 2025, we had a tot al of 64 new system-wide restaurant s in 23 states.

Three company-owned restaurants closed in 2025.

We also acquired 19 operating resta urants from our franchisees in the execution of our growth strategy.

See Note 3, Business Acquisitions , in the acc ompanying notes to the consolidated financial statements for additional information.

At December 28, 2025, the Company had a total of 633 system -wide restaurants.

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End of period

We expect to open betwe en 55 to 58 company-owned restaurants and 7 to 9 franchise-owned restaurants during 2025.

We also plan to close 3 company-owned restaurants, resulting in a total of 59 to 64 , net new sys tem-wide restaurants in 2025.

We expect to open between 53 to 55 company-owned restaurants and 9 to 11 franchise-owned restaurants during 2026.

We also plan to close three company-owned restaurants, resulting in a total of 59 to 63 net new system-wide restaurants in 2026.

Selected Operating Data

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(1) Comparing th e 52-week period ended December 29, 2024 with the 52-week period ended December 31, 2023 in order to compare like-for-like periods.

(1) Comparing th e 52-week periods ended December 28, 2025, December 29, 2024 and December 31, 2023 in order to compare like-for-like periods.

See “Key Performance Indicators” for additional information .

(2) Reconciliations from Income from operations and Income from operations margin, the most comparable GAAP measures to Restaurant level operating profit and Restaurant level operating profit margin, are set forth in the schedules within the Non-GAAP Financial Measure Reconciliations section below.

(3) Reconciliations from Net income and Net income margin, the most comparable GAAP measures to Adjusted EBITDA and Adjusted EBITDA margin, are set forth in the schedules within the Non-GAAP Financial Measure Reconciliations section below.

(2) Reconciliations from Income from operations and Income from operations margin, the most comparable GAAP measures to Restaurant level operating profit and Restaurant level operating profit margin, respectively, are set forth in the schedules within the Non-GAAP Financial Measure Reconciliations section below.

(3) Reconciliations from Net income and Net income margin, the most comparable GAAP measures to Adjusted EBITDA and Adjusted EBITDA margin, respectively, are set forth in the schedules within the Non-GAAP Financial Measure Reconciliations section below.

Results of Operations

The discussion that follows includes a comparison of our results of operations for 2025 and 2024.

The following table summarizes our results of operations and the percentages of items in our Consolidated Statements of Operations and Comprehensive Income (Loss) in relation to Total revenues or, where indicated, Restaurant sales for 2024 and 2023:

The following table summarizes our results of operations and the percentages of items in our Consolidated Statements of Operations and Comprehensive Income in relation to Total revenues or, where indicated, Restaurant sales for 2025 and 2024:

(in thousands) 2025 2024

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Income before income taxes 12,133 1.0 % 28,026 2.8 %

Income tax expense (9,101) (0.9) % (10,690) (1.2) %

Income tax benefit (expense) 7,299 0.6 % (9,101) (0.9) %

Net income $ 19,432 1.6 % $ 18,925 1.9 %

(1) Percentages are calculated as a percentage of restaurant sales.

(1) As a percentage of restaurant sales.

Restaurant Sales

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Total Restaurant sales $ 1,212,173 $ 1,004,355 $ 207,818 20.7 %

The increase in total restaurant sales was primarily due to (i) opening and acquiring restaurants in 2024, (ii) recognizing a full year of sales for restaurants opened and acquired in 2023 and (iii) menu price increases .

The increase was partially offset by (i) 2024 negative same-restaurant sales growth of 0.5% and (ii) the 53rd week of sales in 2023 .

The increase in total restaurant sales was primarily due to (i) new restaurant openings and acquiring restaurants from franchisees in 2025, (ii) recognizing a full year of sales for restaurants opened and acquired in 2024, (iii) positive same-

restaurant sales growth of 3.6%, and (iv) positive traffic of 0.5%.

The increase was partially offset by increased promotional usage.

Franchise Revenues

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Total Franchise revenues $ 10,328 $ 11,555 $ (1,227) (10.6) %

The decrease in franchise revenues during 2024 as compared to 2023 was primarily driven by (i) the Company’s acquisitions of franchise-owned restaurants and (ii) $0.6 million of deferred franchise revenues recognized in 2023 in connection with the acquisitions of restaurants from franchisees.

The decrease was partially offset by (i) revenues from franchise-owned NROs and (ii) $0.4 million of deferred franchise revenues recognized in 2024 in connection with the acquisitions of restaurants from our franchisees.

The decrease in franchise revenues during 2025 as compared to 2024 was primarily driven by the Company’s acquisition of 19 and 22 franchise-owned restaurants during 2025 and 2024, respectively, partially offset by incremental revenue from nine franchise-owned NROs in 2025 and seven franchise-owned NROs in 2024.

Food and Beverage Costs

The components of food and beverage costs at company-owned restaurants are variable by nature, change with sales volume, are impacted by product mix and are subject to increases or decreases in commodity costs.

Food and beverage costs at company-owned restaurants vary with sales volume and are subject to increases and declines in commodity costs.

(in thousands) 2025 2024 Change

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As a percentage of restaurant sales 23.1 % 22.2 % 0.9%

Food and beverage costs as a percent of restau rant sales decreased during 2024 as compared to 2023 primarily due to leveraging menu price increases.

The decrease was partially offset by commodity inflation of 3.2% .

Food and bevera ge costs increased during 2024 as compared to 2023 primarily as a result of (i) the 14.5% increase in restaurant sales, (ii) opening and acquiring restaurants in 2024, (iii) recognizing a full year of costs for restaurants opened and acquired in 2023 and (iv) commodity inflation.

The increase was partially affected by the additional 53rd week in 2023.

Food and beverage costs as a percent of restaurant sales increased during 2025 as compared to 2024 primarily due to (i) commodity inflation of 5.0%, as discussed below, and (ii) increased portion size in certain menu items.

The increase was partially offset by the impact of menu price increases.

Food and beverage costs increased during 2025 as compared to 2024 primarily as a result of (i) the 20.7% increase in restaurant sales, (ii) opening and acquiring restaurants in 2025, (iii) recognizing a full year of costs for restaurants opened and acquired in 2024, (iv) commodity inflation experienced in eggs, coffee, bacon and avocados and (v) increased portion size in certain menu items.

Labor and Other Related Expenses

Labor and other related expenses are variable by nature and include hourly and management wages, bonuses, payroll taxes, workers’ compensation expense and employee benefits.

Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, the number and performance of our company-owned restaurants and increased competition for qualified staff.

Labor and other related expenses include hourly and management wages, bonuses, payroll taxes, workers’ compensation expense and employee benefits.

Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, the number and performance of our company-owned restaurants and competition for qualified staff.

(in thousands) 2025 2024 Change

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As a percentage of restaurant sales 33.5 % 33.4 % 0.1%

Labor and other related expenses as a percentage of restaurant sales decreased during 2024 as compared to 2023 primarily as a result of (i) menu price increases and (ii) improved hourly labor efficie ncy.

This decrease was partially offset by (i) wage increases and (ii) higher health insurance costs.

The increase in labor and other related expenses during 2024 as compared to 2023 was primarily due to (i) the increase in staffing levels to support the increase in corporate-owned restaurants (ii) wage increases and (iii) higher health insurance costs .

The increase was partially offset by (i) hourly labor efficiency and (ii) the additional 53rd week in 2023.

Labor and other related expenses as a percentage of restaurant sales increased during 2025 as compared to 2024 primarily as a result of (i) wage increases and (ii) higher health insurance costs.

This increase was mostly offset by (i) menu price increases and (ii) improved hourly labor efficiency.

The increase in labor and other related expenses during 2025 as compared to 2024 was primarily due to (i) the increase in staffing levels to support the increase in company-owned restaurants, (ii) wage increases and (iii) higher health insurance costs.

The increase was partially offset by hourly labor efficiency.

Other Restaurant Operating Expenses

Other restaurant operating expenses consist of marketing and advertising expenses, utilities, insurance and other operating variable expenses incidental to operating company-owned restaurants, such as operating supplies (including paper products, menus and to-go supplies), credit card fees, repairs and maintenance, and third-party delivery services fees.

Other restaurant operating expenses consist of marketing and advertising expenses, utilities, insurance and other variable expenses incidental to operating company-owned restaurants, such as operating supplies (including paper products, menus and to-go supplies), credit card fees, repairs and maintenance and third-party delivery services fees.

(in thousands) 2025 2024 Change

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As a percentage of restaurant sales 15.6 % 15.1 % 0.5%

Other restaurant operating expenses as a percentage of restaurant sales during 2024 decreased as compared to 2023 primarily due to (i) leveraging menu price increases, (ii) third-party delivery related revenue and expenses, including to-go supplies and third-party delivery fees, increasing at a lower rate than total restaurant sales.

This decrease was partially offset by (i) utilities expenses, (ii) restaurant advertising costs and (iii) credit card fees which increased as a percentage of restaurant sales.

The increase in other restaurant operating expenses during 2024 as compared to 2023 was primarily due to the increase in the number of restaurants driving increases in certain expenses including (i) $ 7.5 million of additional credit card, delivery, and license fees, (ii) $4.6 million increase in utilities and repair and maintenance expenses, (iii) $3.4 million related to operating supplies and (iv) $ 1.3 million related to restaurant advertising costs .

The increase was partially offset by a decrease in to-go supplies costs of $0.3 million.

Other restaurant operating expenses as a percentage of restaurant sales during 2025 increased as compared to 2024 primarily due to (i) third-party delivery fees, (ii) utility expenses and (iii) supply costs, which increased as a percentage of restaurant sales.

This increase was partially offset by (i) leveraging menu price increases and (ii) credit card, restaurant-level legal, accounting, and licensing fees, which decreased as a percentage of restaurant sales.

The increase in other restaurant operating expenses during 2025 as compared to 2024 was primarily due to the increase in the number of restaurants driving increases in certain expenses including (i) $10.9 million related to operating supplies, (ii) $10.4 million in utilities and repair and maintenance expenses, (iii) $9.1 million in third-party delivery fees, (iv) $4.0 million in credit card fees and (v) $1.4 million in insurance expenses.

Occupancy Expen ses

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As a percentage of restaurant sales 8.3 % 8.2 % 0.1%

The increase in occupancy expenses as a percentage of restaurant sales during 2024 as compared to 2023 was primarily due to higher rent expense and the deleverage associated with negative same-restaurant sales grow th.

The increase in occupancy expenses as a percentage of restaurant sales during 2025 as compared to 2024 was primarily due to higher rent expense associated with new restaurants mostly offset by leveraging increased restaurant sales.

The increase in occupancy expenses during 2025 as compared to 2024 was primarily due to the increase in the number of company-owned restaurants.

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Pre-opening expenses are costs incurred to open new company-owned restaurants.

Pre-opening expenses include pre-opening rent expense, which is recognized during the period between the date of possession of the restaurant facility and the restaurant opening date.

In addition, pre-opening expenses include manager salaries, recruiting expenses, employee payroll and training costs, which are recognized in the period in which the expense was incurred.

Pre-opening expenses include rent expense, manager salaries, recruiting expenses, employee payroll and training costs.

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

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Pre-opening expenses $ 12,933 $ 10,109 $ 2,824 27.9 %

The increase in 2024 pre-opening expenses as compared to 2023 was primarily due to (i) the higher number of restaurants opened and under construction and (ii) the increase in rents.

The increase in 2025 pre-opening expenses as compared to 2024 was primarily due to (i) the higher number of new restaurants opened and under construction and (ii) the related increase in rent expense.

General and Administrative Expenses

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General and administrative expenses $ 128,950 $ 113,270 $ 15,680 13.8 %

The increase in general and administrative expenses during 2024 as compared to 2023 was mainly due to (i) $5.2 million increase in compensation and other related expenses such as wage increases, stock compensation and additional employee headcount to support growth, (ii) $2.7 million increase in licenses and fees related to information technology, (iii) $1.8 million related to consulting and professional services partially offset by $1.1 million related to a decrease in brand research costs and (iv) approximately $1.6 million related to travel and other miscellaneous expenses.

The increase in general and administrative expenses during 2025 as compared to 2024 was mainly due to (i) an $8.0 million increase in marketing expenses, (ii) a $6.7 million increase in compensation and other related expenses from wage increases and additional employee headcount to support growth, and (iii) a $2.1 million increase in licenses and fees related to information technology due to increase in restaurants.

The increase in 2025 was partially offset in part by a $2.4 million decrease in recruiting and training expenses.

Depreciation and Amortization

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The increase in depreciation and amortization during 2025 as compared to 2024 was primarily due to additional NRO assets and restaurants acquired, including reacquired rights from franchisees.

Impairments and Loss on Disposal of Assets

Impairments and loss on disposal of assets include (i) the impairment of long-lived assets and intangible assets where the carrying amount of the asset is not recoverable and exceeds the fair value of the asset, (ii) the write-off of the net book value of assets that have been retired or replaced in the normal course of business and (iii) the write-off of the net book value of assets in connection with restaurant closures and natural disasters.

(in thousands) 2024 2023 Change

Impairments and loss on disposal of assets $ 525 $ 1,359 $ (834) (61.4)%

In 2024, the amounts represented write-off of assets retired as a result of restaurant closures or replacements of assets.

There were no impairment losses recognized.

In 2023, we recorded total impairment charges of $0.5 million, which primarily related to the long-lived assets of two company-owned restaurants for which Management agreed to accelerate the expected closure dates.

Transaction Expenses, Net

Transaction expenses, net include (i) costs incurred in connection with the acquisition of franchise-owned restaurants, (ii) costs related to certain equity offerings, (iii) costs related to restaurant closures, (iv) gains or losses associated with lease or contract terminations and (v) revaluations of contingent consideration payable to previous stockholders for tax savings generated through the use of federal and state loss carryforwards and general business credits that had been accumulated from operations prior to August 2017.

Transaction expenses, net principally include (i) costs incurred in connection with the acquisition of franchise-owned restaurants and (ii) costs related to secondary equity offerings.

(in thousands) 2025 2024 Change

Transaction expenses, net $ 2,533 $ 2,587 $ (54) (2.1)%

Transaction expenses, net decreased during 2024 as compared to 2023 primarily due to (i) lower costs incurred in connection with the acquisitions of restaurants from our franchisees and (ii) contingent consideration liability reduction.

This decrease was partially offset by an increase in costs incurred by us in connection with the sale of the Company’s common stock by funds managed by Advent through secondary public offerings.

Income from Operations and Income from Operations Margin

Income from Operations

(in thousands) 2025 2024 Change

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Income from operations margin 2.3 % 3.9 % (1.6)%

Income from operations margin decreased during 2024 as compared to 2023 primarily due to (i) deleveraging of certain expenses, including occupancy expenses, as a result of a decline in same-restaurant sales and (ii) higher depreciation and amortization expense driven by our restaurant growth and acquisition of certain franchise-owned restaurants partially offset by (i) labor efficiency and (ii) food and beverage costs improving as a percent of sales.

Income from operations decreased during 2024 as compared to 2023 primarily due to (i) higher operating costs and depreciation expense driven by our restaurant growth and acquisitions of restaurants from franchisees, as well as (ii) higher general and administrative expenses primarily attributable to additional employee headcount and performance-based compensation and (iii) the 53rd week in 2023.

This decrease was partially offset by the increase in restaurant sales and franchise revenues.

Income from operations margin decreased during 2025 as compared to 2024 due to increases in operating expenses as a percentage of restaurant sales, primarily (i) food and beverage cost inflation, (ii) other restaurant operating expenses and (iii) depreciation and amortization expense driven by restaurant growth and our acquisition of restaurants from franchisees, offset in part by the leveraging of certain general and administrative expenses.

Income from operations decreased during 2025 as compared to 2024 due to higher (i) restaurant operating expenses, (ii) depreciation and amortization expenses driven by our restaurant growth and our acquisition of restaurants from franchisees, and (iii) general and administrative expenses primarily attributable to increased marketing costs, additional employee headcount and compensation.

This was partially offset by the increase in revenues.

Interest Expense

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Interest expense $ (16,699) $ (12,640) $ (4,059) 32.1 %

The increase in interest expense during 2024 as compared to 2023 was primarily due (i) an increase borrowings associated with franchise acquisitions and (ii) higher interest rates.

The increase in interest expense during 2025 as compared to 2024 was primarily due an increase in borrowings associated with franchise acquisitions.

Other Income, Net

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Other income, net $ 1,321 $ 1,759 $ (438) (24.9) %

Othe r income, net decreased in 2024 primarily related to insurance recoveries received in 2023 in connection with 2022 insured losses.

Income Tax Expense

Income tax expense primarily consists of various federal and state taxes.

Other income, net decreased in 2025 primarily due to a reduction in interest income, partially offset by an increase in insurance recoveries recognized in 2025.

Income tax consists of federal and state taxes.

(in thousands) 2025 2024 Change

Income tax expense $ (9,101) $ (10,690) $ 1,589 (14.9)%

Income tax benefit (expense) $ 7,299 $ (9,101) $ 16,400 (180.2)%

Effective income tax rate (60.2) % 32.5 % (92.7)%

The change in the effective income tax rates for 2024 as compared to 2023 was 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 and (iii) impacts of executive stock-based compensation.

Net Income and Net Income Margin

The change in the effective income tax rate and provision for income taxes for 2025 as compared to 2024 was primarily due to the favorable impact of the increase in the tax benefit from the FICA tip credits and the net change in the valuation allowance against the FICA tip credit carryforward.

The adjustment to the valuation allowance was determined as part of Management’s year-end assessment of the realizability of the Company’s deferred tax assets.

(in thousands) 2025 2024 Change

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Net income margin 1.6 % 2.8 % (1.2)%

The decrease in net income and net income margin during 2024 as compared to 2023 was primarily due to (i) the decrease in income from operations including deleveraging of occupancy expenses, (ii) increase in depreciation and amortization attributed primarily to locations opened and acquired in 2024 and (iii) the increase in interest expense associated with increased borrowings to fund acquisitions.

The decrease in net income margin during 2025 as compared to 2024 was primarily due to (i) the decrease in income from operations as expenses inflated rapidly early in the year, (ii) increased depreciation and amortization associated with new company-owned restaurants opened and acquired in 2025 and 2024 and (iii) interest expense from the borrowings to fund acquisitions, partially offset by the impact of the income tax benefit recognized in 2025.

The increase in net income during 2025 as compared to 2024 was primarily due to the impact of the income tax benefit recognized in 2025.

The increase was partially offset by (i) the decrease in income from operations, (ii) the increase in depreciation and amortization attributed primarily to locations opened and acquired in 2025 and 2024, and (iii) the increase in interest expense associated with increased borrowings to fund acquisitions.

Restaurant Level Operating Profit and Restaurant level Operating Profit Margin

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Restaurant level operating profit margin 18.5 % 20.1 % (1.6)%

Restaurant level operating profit margin during 2024 increased as compared to 2023 primarily due to (i) favorable food and beverage costs as a percent of sales, (ii) favorable labor and other related expenses as a percent of sales and (iii) acquired restaurants.

This was partially offset by the deleverage of occupancy expenses.

Restaurant level operating profit during 2024 increased as compared to 2023 primarily due to (i) menu price increases and (ii) revenue from the increase in the number of restaurants .

This was partially offset by the increase in (i) operating costs and expenses driven by our restaurant growth and (ii) deleverage of occupancy expenses.

Restaurant level operating profit margin during 2025 decreased as compared to 2024 primarily due to an increase in (i) food and beverage costs as a percent of sales and (ii) other restaurant operating expenses as a percent of sales.

This was partially offset by leverage associated with our positive same-restaurant sales growth.

Restaurant level operating profit during 2025 increased as compared to 2024 due to sales growth driven primarily by the increase in (i) restaurant locations, (ii) menu prices and (iii) traffic.

This was partially offset by (i) the increase in inflation across commodities and (ii) increases in operating expenses due to restaurant growth.

Adjusted EBITDA and Adjusted EBITDA Margin

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Adjusted EBITDA margin 9.9 % 11.2 % (1.3)%

The increase in Adjusted EBITDA and consistent Adjusted EBITDA margin during 2024 as compared to 2023 was primarily due to the increase in (i) restaurant level operating profit and (ii) restaurant level operating profit margin.

This was partially offset by the increase in general and administrative expenses, mainly due to the increase in compensation expense.

The decrease in Adjusted EBITDA margin during 2025 as compared to 2024 was primarily due the decrease in restaurant level operating profit margin, partially offset by the decrease in general and administrative expenses as a percentage of revenues.

The increase in Adjusted EBITDA during 2025 as compared to 2024 was primarily due to the increase in restaurant level operating profit.

This was partially offset by the increase in general and administrative expenses.

Non-GAAP Financial Measure Reconciliations

Adjusted EBITDA and Adjusted EBITDA margin - The following table reconciles Net income (Loss) and Net income (loss) margin, the most directly comparable GAAP measures to Adjusted EBITDA and Adjusted EBITDA margin for the periods indicated:

Adjusted EBITDA and Adjusted EBITDA margin - The following table reconciles Net income and Net income margin, the most directly comparable GAAP measures to Adjusted EBITDA and Adjusted EBITDA margin, respectively, for the periods indicated:

(in thousands) 2025 2024 2023

Net income (loss) $ 18,925 $ 25,385 $ 6,907

Net income $ 19,432 $ 18,925 $ 25,385

Depreciation and amortization 75,011 57,715 41,223

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EBITDA 103,843 98,381 85,361

Stock-based compensation (1)

Stock-based compensation, net of amounts capitalized (1)

10,760 8,525 7,604

Transaction expenses (income), net (2)

Transaction expenses, net (2)

2,533 2,587 3,147

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Delaware Voluntary Disclosure Agreement Program (5)

126 1,250 149

Recruiting and relocation costs (6)

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Insurance proceeds in connection with natural disasters, net (8)

329 (621) 115

Loss on extinguishment of debt — 428 —

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Total revenues $ 1,222,501 $ 1,015,910 $ 891,551

Net income (loss) margin 1.9 % 2.8 % 0.9 %

Net income margin 1.6 % 1.9 % 2.8 %

Adjusted EBITDA margin 9.9 % 11.2 % 11.2 %

Additional information

Deferred rent expense (income) (9)

Deferred rent expense (9)

$ 309 $ 1,318 $ 2,090

_____________________________

(1) Represents non-cash, stock-based compensation expense which is recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).

(2) Represents costs incurred in connection with the acquisition of franchise-owned restaurants, expenses related to debt, secondary offering costs, costs related to restaurant closures, gains or losses associated with lease or contract terminations and revaluations of contingent consideration liability.

(1) Represents non-cash, stock-based compensation expense, net of amounts capitalized, which is recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.

(2) Represents costs incurred in connection with the acquisition of franchise-owned restaurants, secondary offering costs, costs related to restaurant closures, expenses related to debt and revaluations of contingent consideration liability.

(3) Represents costs related to process improvements and strategic initiatives.

These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).

( 4) Represents impairment charges and costs related to the disposal of assets due to retirements, replacements, restaurant closures and natural disasters.

These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.

( 4) Represents impairment charges and c osts related to the disposal of assets due to retirements, replacements, restaurant closures and natural disasters.

(5) Represents professional service costs incurred in connection with the Delaware Voluntary Disclosure Agreement Program related to unclaimed or abandoned property.

These costs are recorded in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).

These costs are recorded in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.

(6) Represents costs incurred for hiring qualified individuals.

These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).

(7) Severance costs are recorded in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).

(8) Represents insurance recoveries, net of costs incurred, in connection with hurricane damage, which were recorded in Other income, net on the Consolidated Statements of Operations and Comprehensive Income (Loss).

(9) Represents the non-cash portion of straight-line rent expense recorded within both Occupancy expenses and General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).

Restaurant level operating profit and Restaurant level operating profit margin - The following table reconciles Income from operations and Income from operations margin, the most comparable GAAP measures to Restaurant level operating profit and Restaurant level operating profit margin for the periods indicated:

These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.

(7) Severance costs are recorded in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.

(in thousands) 2025 2024 2023

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Depreciation and amortization 75,011 57,715 41,223

Transaction expenses (income), net (1)

Transaction expenses, net (1)

2,533 2,587 3,147

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Additional information

Deferred rent expense (income) (4)

Deferred rent expense (4)

$ 167 $ 1,119 $ 1,891

_____________________________

(1) Represents costs incurred in connection with the acquisition of franchise-owned restaurants, secondary offering costs, costs related to restaurant closures, gains or losses associated with lease or contract terminations and revaluations of contingent consideration liability.

(1) Represents costs incurred in connection with the acquisition of franchise-owned restaurants, secondary offering costs, costs related to restaurant closures, expenses related to debt and revaluations of contingent consideration liability.

(2) Represents impairment charges and costs related to the disposal of assets due to retirements, replacements, restaurant closures and natural disasters.

(3) Represents costs incurred in connection with hurricane damage.

The costs include inventory spoilage and labor costs, which were recorded in Food and beverage costs and Labor and other related expenses, respectively, on the Consolidated Statements of Operations and Comprehensive Income (Loss).

(4) Represents the non-cash portion of straight-line rent expense recorded within Occupancy expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).

(4) Represents the non-cash portion of straight-line rent expense recorded within Occupancy expenses on the Consolidated Statements of Operations and Comprehensive Income.

Liquidity and Capital Resources

As of December 28, 2025, we had cash and cash equivalents of $21.2 million and outstanding borrowings under the Credit Facility of $267.6 million, excluding unamortized debt discount and deferred issuance costs.

We had availability of $123.3 million under our revolving credit facility of $125.0 million, of which $1.7 million is reserved under letters of credit, and availability of $27.5 million under our delayed draw term loan pursuant to our credit agreement, as amended (“Credit Agreement”).

We had availability of $66.9 million under our revolving credit facility of $125.0 million, of which $2.1 million is reserved under letters of credit pursuant to our credit agreement dated as of October 6, 2021 as amended (“Credit Agreement”).

Our principal uses of cash include capital expenditures for the development, acquisition or remodeling of restaurants, lease obligations, debt service payments and strategic infrastructure investments.

Our working capital requirements are low due to our restaurants’ storage of minimal inventory and customers’ payment for purchases at the time of the sale, which frequently precedes our payment terms with suppliers.

We believe that our cash flow from operations combined with our availability under the Credit Facility and our cash and cash equivalents will be sufficient to meet the Company’s liquidity needs for at least the next 12 months.

Our working capital requirements are low due to our restaurants storing minimal inventory and customers pay for purchases at the time of the sale, which frequently precedes our payment terms with suppliers.

We believe that our cash flow from operations combined with our availability under the Credit Facility and our cash and cash equivalents will be sufficient to meet our liquidity needs for at least the next 12 months.

We anticipate that to the extent that we require additional liquidity, or should we decide to pursue one or more significant acquisitions, the funds would be furnished first through additional indebtedness and thereafter through the issuance of equity.

Although we believe that our current level of total available liquidity is sufficient to meet our short-term and long-term liquidity requirements, we regularly evaluate opportunities to improve our liquidity position in order to enhance financial flexibility.

On November 7, 2022, we filed a 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.

We estimate that our capital expenditures will total approximately $150.0 million to $160.0 million in 2025, not including the capital allocated to franchise acquisitions.

We estimate that our capital expenditures will total approximately $150.0 million to $160.0 million in 2026.

This capital is invested primarily in new restaurant projects and planned remodels.

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Cash provided by financing activities 75,786 74,331

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

Net decrease in cash and cash equivalents $ (12,066) $ (16,649)

Cash provided by operations is our typical source of liquidity used (i) to fund capital expenditures for new restaurants, (ii) to maintain and remodel existing restaurants and (iii) for debt service.

Cash provided by operations increased in 2024 as compared to 2023 primarily due t o the addition of new and acquired restaurants.

Cash used in investing activities increas ed to $206.7 million during 2024 from $123.4 million du ring 2023 primarily as a result of the increase in capital expenditures to support our restaurant growth and the acquisitions of restaurants from our franchisees.

Cash provided by financing activitie s of $74.3 million during 2024 as compared to $28.1 million during 2023 was primarily due to additional borrowings to fund the acquisition of franchise-owned restaurants .

Cash provided by operations increased in 2025 as compared to 2024 primarily due to (i) the addition of new and acquired restaurants, (ii) the timing of operational payments and (iii) the impact of non-cash charges, offset by the decrease to income from operations.

Cash used in investing activities increas ed during 2025 from 2024 primarily as a result of the increase in capital expenditures to support our restaurant growth, partially offset by the decrease in amounts paid to acquire restaurants from our franchisees.

Cash provided by financing activitie s increased slightly in 2025 compared to 2024 and included borrowings under our Credit Agreement to fund capital projects and the acquisition of restaurants from our franchisees and proceeds from stock option exercises, partially offset by debt repayments.

Contractual Obligations

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Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions.

The accounting policies and estimates that we believe to be the most critical to an understanding of our financial condition and results of operations and that require the most complex and subjective management judgments are discussed below.

accounting policies and estimates that we believe to be the most critical to an understanding of our financial condition and results of operations and that require the most complex and subjective management judgments are discussed below.

Business Combinations

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We determine the fair values of tangible and intangible assets acquired generally in consultation with a third-party valuation advisor.

Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows and discount rates.

In addition, we have estimated the value and economic lives of certain tangible assets based on historical information, industry estimates and averages, which are used to calculate depreciation and amortization expense.

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We record these adjustments to the provisional amounts with a corresponding adjustment to goodwill.

Any adjustments identified after the measurement period are recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Any adjustments identified after the measurement period are recorded in the Consolidated Statements of Operations and Comprehensive Income.

The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date and costs that we incur to complete the business combination, such as legal and other professional fees, are expensed as they are incurred.

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We recognize an impairment loss when the carrying value of the reporting unit exceeds the estimated fair value.

In performing the quantitative assessment for indefinite-lived intangibles, we estimate the fair value of trade names and trademarks using the relief-from-royalty method, which requires assumptions related to projected sales, assumed royalty rates that could be payable if we did not own the trademarks and a discount rate.

rates that could be payable if we did not own the trademarks and a discount rate.

We recognize an impairment loss when the carrying value of the asset exceeds the estimated fair value.

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If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized.

Definite-lived intangible assets consist of franchise rights which arose from the purchase price allocation in connection with the Advent Acquisition and also include reacquired rights from the Company ’ s acquisitions of franchised restaurants.

Definite-lived intangible assets consist of rights valued in business combinations.

Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and are reviewed for impairment when events or change in circumstances indicate that the carrying amount of such assets may not be recoverable.

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We lease our restaurant facilities and corporate offices, as well as certain restaurant equipment, under various non-cancelable agreements.

At the inception of each lease, we evaluate the expected term which includes reasonably certain renewal options, and the classification as either an operating leases or a finance lease.

At the inception of each lease, we evaluate the expected term which includes reasonably certain renewal options, and classify the lease as either an operating leases or a finance lease.

Lease liabilities represent the present value of future lease payments.

To determine the present value of the lease liability, we estimate the incremental borrowing rates corresponding to the reasonably certain lease term as our leases do not provide implicit rates.

Assumptions used in determining our incremental borrowing rate include a market yield implied by our outstanding secured term loans interpolated for various maturities using our synthetic credit rating, which is determined using a regression analysis of rated publicly-traded comparable companies and their financial data.

Assumptions used in determining our incremental borrowing rate include a market yield implied by our outstanding secured term loans interpolated for various maturities using our synthetic credit rating, which is determined using a regression analysis of rated comparable publicly-traded companies and their financial data.

We assess the impairment of the right-of-use asset at the asset group level whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

Changes in Management’s judgments and in the assumptions being used may produce materially different amounts in the recognition of the right-of-use assets, lease liabilities and lease expense.

We use the asset and liability method of accounting for income taxes.

Under this method, deferred tax assets or liabilities are recognized for the estimated future tax effects attributable to temporary differences between the carrying value and the tax basis of assets and liabilities as well as tax credit carryforwards.

The estimates we make under this method include, among other items, depreciation and amortization expense allowable for tax purposes, credits for items such as taxes paid on reported employee tip wages, effective rates for state and local income taxes and the deductibility of certain items.

In addition, our annual effective income tax rate is adjusted as additional information becomes available during the reporting period.

We recognize deferred tax assets 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.

A valuation allowance for deferred tax assets is provided when it is more likely than not that a portion of the deferred tax assets will not be realized.

Potential for recovery of deferred tax assets is evaluated by estimating the taxable income in any available carry back period, considering future taxable income expected, scheduling of anticipated reversal of taxable temporary differences and considering prudent and feasible tax planning strategies.

We continue to monitor and evaluate the rationale for recording a valuation allowance against deferred tax assets.

As we increase earnings and utilize deferred tax assets, it is possible the valuation allowance could be reduced or eliminated.

In addition, our ability to utilize net operating loss carryforwards and tax credit carryforwards could be adversely impacted by, among other things, a future “ownership change” as defined under Section 382 of the Internal Revenue Code.

Changes in assumptions regarding our level and composition of earnings, tax laws or the deferred tax valuation allowance and the results of tax audits, may materially impact the effective income tax rate.

The provision for income taxes, deferred income tax assets and liabilities and any related valuation allowance requires the use of estimates based on Management’s interpretation and application of complex tax laws and accounting guidance.

The estimates made under this method include, among other items, depreciation and amortization expense allowable for tax purposes, credits for items such as taxes paid on reported employee tip wages, effective tax rates for state and local income taxes and the deductibility of certain items.

Income taxes are accounted for utilizing the asset and liability method, under which deferred income tax assets and liabilities are recognized based on the differences between the financial reporting bases and the respective tax bases of assets and liabilities.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse.

Any effects of changes in the income tax rates or tax laws are included in the provision for income taxes in the period that includes the enacted date.

Management routinely assesses the realizability of deferred tax assets and may record a valuation allowance if, based on all available positive and negative evidence, the determination is reached that some portion of the deferred tax assets may not be realized prior to expiration.

If we determine that we may be able to realize the deferred tax assets in the future, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes during the period in which the determination was made.

Stock-Based Compensation and Fair Value of Common Stock

Stock-based compensation expense is measured based on the award’s fair value at the date of grant.

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

Upon the Company’s IPO in October 2021, certain performance-based stock option awards issued under the 2017 Equity Plan for which the performance and market conditions were satisfied as a result of the Company’s IPO, converted into time-based stock option awards with the related stock-based compensation expense to be recognized on an accelerated recognition method over the remaining service period.

No awards were granted under the 2017 Equity Plan during 2024 or 2023, and the Company does not intend to grant any further awards under the 2017 Equity Plan.

Stock-based compensation expense related to time-based stock option awards issued under the 2021 Equity Plan is recognized on a straight-line basis over the requisite service period.

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

No awards were granted under the 2017 Equity Plan during 2025, 2024 and 2023, and we do not intend to grant any further awards under the 2017 Equity Plan.

Stock-based compensation expense related to time-based stock option awards issued under our 2021 Equity Plan is recognized on a straight-line basis over the requisite service period.

Forfeitures are recognized as they occur for all awards.

We estimate the fair value of stock option awards using the Black-Scholes valuation model, which involves several assumptions and judgments including the expected term of the stock option, expected volatility, the risk-free interest rate and the expected dividend yield.

The Company does not have sufficient historical stock option exercise activity and therefore we estimated the expected term of stock options granted under the 2021 Equity Plan using the simplified method, which represents the mid-point between the vesting period and the contractual term for each grant.

Prior to the IPO, the expected term of stock option awards was determined based on data from publicly traded companies.

The expected volatility of stock option awards 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.

Management estimates the fair value of stock option awards using the Black-Scholes valuation model, which involves several assumptions and judgments including the expected term of the stock option, expected volatility, the risk-free interest rate and the expected dividend yield.

The Company does not have sufficient historical stock option exercise activity and therefore the expected term of stock options granted under the 2021 Equity Plan is estimated using the simplified method, which represents the mid-point between the vesting period and the contractual term for each grant.

Prior to our IPO in October 2021, the expected term of stock option awards was determined based on data from publicly-traded companies.

The expected volatility of stock option awards is based on the historical volatilities of a set of publicly-traded peer companies in a similar industry, as we lack company-specific historical or implied volatility information.

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

Treasury yield curve for time periods approximately equal to the expected term of the stock option award.

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.

The expected dividend yield is based on the fact that the Company has never paid cash dividends and there is no intent to pay dividends in the foreseeable future.

These assumptions represented Management’s best estimate, which involved inherent uncertainties and the application of Management’s judgment.

As a result, if we had used significantly different assumptions or estimates, our stock-based compensation expense could have been materially different.

As a result, use of significantly different assumptions or estimates could yield a materially different stock-based compensation expense.

The fair value of our common stock and our stock-based awards’ grant date fair value is determined based on the closing price on our common stock on Nasdaq.

Prior to our IPO and our common stock being listed on Nasdaq, given the absence of a public trading market for our common stock, the estimated fair value had been determined with input from Management exercising reasonable judgment and considering several objective and subjective factors including:

(i) third-party valuations of our common stock, (ii) a combination of the income approach and the market approach and (iii) general economic outlook including economic growth, inflation and interest rates.

See Note 17, Stock-Based Compensation , in the accompanying notes to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for additional information.

Insurance Reserves

The Company is self-insured for employee group health claims and Ohio workers’ compensation and carries retention levels and per-claim deductibles for a significant portion of expected losses associated with other workers’ compensation and general liability programs.

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

The Company is self-insured for employee group health claims and Ohio workers’ compensation and carry retention levels and per-claim deductibles for a significant portion of expected losses associated with other workers’ compensation and general liability programs.

Liabilities for unresolved and incurred but not reported claims are recognized at the anticipated cost below applicable retention levels or per-claim deductible amounts.

Insurance reserve liabilities are established using actuarial assumptions and judgments regarding the frequency and severity of claims.

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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 7. Management’s Discussion and Analysis