First Watch Restaurant Group, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL INFORMATION Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 56 Consolidated Balance Sheets - December 2 8 , 202 5 and December 29 , 20 24 59 Consolidated Statements of Operations and Comprehensive Income - For Fiscal Years 202 5 , 202 4 and 202 3 60 Consolidated Statements of Equity - For Fiscal Years 202 5 , 202 4 and 202 3 61 Consolidated Statements of Cash Flows - For Fiscal Years 202 5 , 202 4 and 202 3 62 Notes to Consolidated Financial Statements 64 55 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of First Watch Restaurant Group, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of First Watch Restaurant Group, Inc. and its subsidiaries (the "Company") as of December 28, 2025 and December 29, 2024, and the related consolidated statements of operations and comprehensive income, of equity and of cash flows for each of the three years in the period ended December 28, 2025, including the related notes (collectively referred to as the “consolidated financial statements”). We have also audited the Company’s internal control over financial reporting as of December 28, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 28, 2025 and December 29, 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 28, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28, 2025, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinion The Company’s management is responsible for the consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Managements’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 56 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Insurance Reserves As described in Note 2 to the consolidated financial statements, the Company’s estimated unpaid claims and other insurance liabilities was $6.3 million as of December 28, 2025. 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. Stop loss coverage is maintained with third-party insurers to limit loss exposure. Management records 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 principal considerations for our determination that performing procedures relating to the valuation of insurance reserves is a critical audit matter are (i) the significant judgment by management when developing the estimate of insurance reserves; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the frequency and severity of claims; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s valuation of insurance reserves, including controls over the development of significant assumptions. These procedures also included, among others (i) testing management’s process for developing the estimate of insurance reserves, (ii) evaluating the appropriateness of the actuarial methods used by management, (iii) evaluating the reasonableness of the significant assumptions used by management related to the frequency and severity of claims, and (iv) testing the completeness and accuracy of the underlying data used in the valuation. Evaluating management’s assumptions related to the frequency and severity of claims involved considering (i) the consistency with external market data; and (ii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge assisted in evaluating the reasonableness of management's estimate by (i) developing an independent estimate of insurance reserves and comparing the independent estimate to management's actuarial determined reserves, (ii) evaluating the appropriateness of management's actuarial methodologies and, (iii) evaluating the reasonableness of management's significant assumptions related to frequency and severity of claims. Acquisition of Franchise Operated First Watch Restaurants on April 28, 2025 – Valuation of Reacquired Rights As described in Notes 2 and 3 to the consolidated financial statements, on April 28, 2025, the Company acquired certain franchise operated First Watch restaurants for a net purchase price of $49.2 million. Of the assets acquired, $13.1 million of reacquired rights were recorded. The fair value of reacquired rights is determined as of the acquisition date by management using the excess earnings method. Under this method, the fair value is determined based on estimated future cash flows arising from the reacquired rights over their estimated economic lives. The assumptions that have the most significant effect on the fair value calculations are projected Earnings Before Interest and Taxes (“EBIT”) margins and the discount rate. The principal considerations for our determination that performing procedures relating to the valuation of reacquired rights acquired in the acquisition of franchise operated First Watch restaurants on April 28, 2025 is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the reacquired rights intangible asset acquired; (ii) a high degree of auditor judgment and effort in performing procedures and evaluating management’s significant assumptions related to the projected EBIT margins and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. 57 Table of Contents Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the reacquired rights intangible asset acquired. These procedures also included, among others, (i) reading the purchase agreement; (ii) testing management’s process for developing the fair value estimate of the reacquired rights intangible asset acquired; (iii) evaluating the appropriateness of the excess earnings method used by management; (iv) testing the completeness and accuracy of the underlying data used in the excess earnings method; and (v) evaluating the reasonableness of the significant assumptions used by management related to the projected EBIT margins and the discount rate. Evaluating management’s assumptions related to projected EBIT margins involved considering (i) the current and past performance of the franchisee’s franchise locations; (ii) the consistency with the historical performance of the Company’s existing restaurants; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the excess earnings method and (ii) the reasonableness of the discount rate assumption. /s/ PricewaterhouseCoopers LLP Tampa, Florida February 24, 2026 We have served as the Company’s auditor since 1999. 58 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) DECEMBER 28, 2025 DECEMBER 29, 2024 Assets Current assets: Cash and cash equivalents $ 21,246 $ 33,312 Accounts receivable 6,859 7,235 Inventory 7,174 6,117 Prepaid expenses 7,945 7,008 Deposits and other current assets 5,856 2,204 Total current assets 49,080 55,876 Goodwill 420,208 398,565 Intangible assets, net 174,908 167,596 Operating lease right-of-use assets 614,548 527,674 Property, fixtures and equipment, net of accumulated depreciation of $ 285,706 and $ 229,227 , respectively 478,451 361,394 Other long-term assets 4,834 3,251 Total assets $ 1,742,029 $ 1,514,356 Liabilities and Equity Current liabilities: Accounts payable $ 8,701 $ 6,961 Accrued liabilities 38,496 39,607 Accrued compensation 24,281 21,244 Deferred revenues 6,778 5,623 Current portion of operating lease liabilities 75,034 55,704 Current portion of long-term debt 13,309 9,228 Interest rate swap liabilities, current 900 105 Total current liabilities 167,499 138,472 Operating lease liabilities 651,254 555,576 Long-term debt, net 269,071 189,043 Deferred income taxes 21,972 32,218 Derivative liabilities 557 503 Other long-term liabilities 5,397 3,155 Total liabilities 1,115,750 918,967 Commitments and contingencies (Note 18) Equity: Preferred stock; $ 0.01 par value; 10,000,000 shares authorized; none issued and outstanding — — Common stock; $ 0.01 par value; 300,000,000 shares authorized; 61,131,978 and 60,700,090 shares issued and outstanding at December 28, 2025 and December 29, 2024, respectively 611 607 Additional paid-in capital 661,153 649,045 Accumulated deficit ( 34,390 ) ( 53,822 ) Accumulated other comprehensive loss ( 1,095 ) ( 441 ) Total equity 626,279 595,389 Total liabilities and equity $ 1,742,029 $ 1,514,356 The accompanying notes are an integral part of these consolidated financial statements. 59 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) FISCAL YEAR 2025 2024 2023 Revenues: Restaurant sales $ 1,212,173 $ 1,004,355 $ 877,092 Franchise revenues 10,328 11,555 14,459 Total revenues 1,222,501 1,015,910 891,551 Operating costs and expenses: Restaurant operating expenses (exclusive of depreciation and amortization shown below): Food and beverage costs 280,098 223,097 197,374 Labor and other related expenses 405,544 335,038 294,010 Other restaurant operating expenses 188,685 151,968 134,477 Occupancy expenses 100,788 82,694 68,400 Pre-opening expenses 12,933 10,109 7,173 General and administrative expenses 128,950 113,270 103,121 Depreciation and amortization 75,011 57,715 41,223 Impairments and loss on disposal of assets 448 525 1,359 Transaction expenses, net 2,533 2,587 3,147 Total operating costs and expenses 1,194,990 977,003 850,284 Income from operations 27,511 38,907 41,267 Interest expense ( 16,699 ) ( 12,640 ) ( 8,063 ) Other income, net 1,321 1,759 2,871 Income before income taxes 12,133 28,026 36,075 Income tax benefit (expense) 7,299 ( 9,101 ) ( 10,690 ) Net income $ 19,432 $ 18,925 $ 25,385 Net income $ 19,432 $ 18,925 $ 25,385 Other comprehensive (loss) income: Unrealized (loss) gain on derivatives ( 869 ) 301 ( 889 ) Income tax related to other comprehensive (loss) income 215 ( 75 ) 222 Other comprehensive (loss) income ( 654 ) 226 ( 667 ) Comprehensive income $ 18,778 $ 19,151 $ 24,718 Net income per common share - basic $ 0.32 $ 0.31 $ 0.43 Net income per common share - diluted $ 0.31 $ 0.30 $ 0.41 Weighted average number of common shares outstanding - basic 60,963,587 60,365,393 59,531,404 Weighted average number of common shares outstanding - diluted 62,842,519 62,351,222 61,191,613 The accompanying notes are an integral part of these consolidated financial statements. 60 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Equity Shares Amount Balance at December 25, 2022 59,211,019 $ 592 $ 620,675 $ ( 98,132 ) $ — $ 523,135 Common stock issued under stock-based compensation plans, net 680,686 7 5,820 — — 5,827 Net income — — — 25,385 — 25,385 Stock-based compensation — — 7,604 — — 7,604 Other comprehensive loss, net of tax — — — — ( 667 ) ( 667 ) Balance at December 31, 2023 59,891,705 $ 599 $ 634,099 $ ( 72,747 ) $ ( 667 ) $ 561,284 Common stock issued under stock-based compensation plans, net 808,385 8 6,421 — — 6,429 Net income — — — 18,925 — 18,925 Stock-based compensation — — 8,525 — — 8,525 Other comprehensive income, net of tax — — — — 226 226 Balance at December 29, 2024 60,700,090 $ 607 $ 649,045 $ ( 53,822 ) $ ( 441 ) $ 595,389 Common stock issued under stock-based compensation plans, net 431,888 4 1,189 — — 1,193 Net income — — — 19,432 — 19,432 Stock-based compensation — — 10,919 — — 10,919 Other comprehensive loss, net of tax — — — ( 654 ) ( 654 ) Balance at December 28, 2025 61,131,978 $ 611 $ 661,153 $ ( 34,390 ) $ ( 1,095 ) $ 626,279 The accompanying notes are an integral part of these consolidated financial statements. 61 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) FISCAL YEAR 2025 2024 2023 Cash flows from operating activities: Net income $ 19,432 $ 18,925 $ 25,385 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 75,011 57,715 41,223 Stock-based compensation, net of amounts capitalized 10,760 8,525 7,604 Non-cash operating lease costs 32,786 26,579 19,472 Non-cash loss on extinguishments and modifications of debt — 358 — Deferred income taxes ( 10,031 ) 6,823 8,315 Amortization of debt discount and deferred issuance costs 664 567 452 Impairments and loss on disposal of assets 448 525 1,359 Changes in assets and liabilities, net of effects of business combinations: Accounts receivable 376 ( 1,703 ) 632 Inventory ( 867 ) ( 508 ) ( 62 ) Prepaid expenses ( 868 ) 509 ( 1,671 ) Deposits and other assets, current and long-term ( 5,655 ) 77 ( 3,540 ) Accounts payable 1,740 637 ( 1,301 ) Accrued liabilities and other long-term liabilities 6,580 2,648 6,082 Accrued compensation and deferred payroll taxes 3,037 ( 467 ) 3,812 Deferred revenues, current and long-term 555 ( 136 ) ( 657 ) Other liabilities — ( 259 ) ( 368 ) Operating lease liabilities ( 8,056 ) ( 5,142 ) ( 11,399 ) Net cash provided by operating activities 125,912 115,673 95,338 Cash flows from investing activities: Capital expenditures ( 156,906 ) ( 127,915 ) ( 83,329 ) Acquisitions, net of cash acquired ( 56,008 ) ( 78,638 ) ( 39,880 ) Purchase of intangible assets ( 850 ) ( 100 ) ( 161 ) Net cash used in investing activities ( 213,764 ) ( 206,653 ) ( 123,370 ) The accompanying notes are an integral part of these consolidated financial statements. 62 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - continued (IN THOUSANDS) FISCAL YEAR 2025 2024 2023 Cash flows from financing activities: Proceeds from borrowings on revolving credit facility 443,500 22,500 30,000 Repayments of borrowings on revolving credit facility ( 387,500 ) ( 52,500 ) — Proceeds from issuance of long-term debt 27,500 197,500 — Repayments of long-term debt, including finance lease liabilities ( 8,907 ) ( 96,793 ) ( 6,183 ) Payment of debt discount and deferred issuance costs — ( 2,430 ) — Proceeds from exercise of stock options, net of employee taxes paid 1,193 6,429 5,827 Contingent consideration payment — ( 375 ) ( 198 ) Repayment of notes payable — — ( 1,376 ) Net cash provided by financing activities 75,786 74,331 28,070 Net (decrease) increase in cash and cash equivalents ( 12,066 ) ( 16,649 ) 38 Cash and cash equivalents: Beginning of period 33,312 49,961 49,923 End of period $ 21,246 $ 33,312 $ 49,961 Supplemental cash flow information: Cash paid for interest, net of amounts capitalized $ 15,507 $ 12,328 $ 8,725 Cash paid for income taxes, net of refunds $ 2,562 $ 3,108 $ 1,952 Supplemental disclosures of non-cash investing and financing activities: Leased assets obtained in exchange for new operating lease liabilities (1) $ 114,903 $ 129,105 $ 88,819 Leased assets obtained in exchange for new finance lease liabilities $ 9,831 $ 2,143 $ 249 Remeasurements and terminations of operating lease assets and lease liabilities $ 4,757 $ 5,797 $ ( 898 ) Remeasurements and terminations of finance lease assets and lease liabilities $ ( 575 ) $ 86 $ ( 48 ) (Decrease) Increase in liabilities from acquisition of property, fixtures and equipment $ ( 5,181 ) $ 2,825 $ 7,036 (1) Leased assets and liabilities obtained in Fiscal 2025 and 2024 include $ 23.6 million and $ 28.1 million, respectively, from business acquisitions. The accompanying notes are an integral part of these consolidated financial statements. 63 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business and Organization First Watch Restaurant Group, Inc. (collectively with its wholly-owned subsidiaries, “the Company” or “Management”) is a Delaware holding company. The Company operates and franchises restaurants in 32 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. The Company operates restaurants through its wholly owned subsidiary, First Watch Restaurants, Inc., and is a franchisor through its wholly owned subsidiary, First Watch Franchise Development Co. As of December 28, 2025 and December 29, 2024, the Company operated 560 company-owned restaurants and 489 company-owned restaurants, respectively, and had 73 franchise-owned restaurants and 83 franchise-owned restaurants, respectively. 2. Summary of Significant Accounting Policies Basis of Presentation The Company reports financial information on a 52- or 53-week fiscal year ending on the last Sunday of each calendar year. The fiscal years ended December 28, 2025 (“Fiscal 2025”), December 29, 2024 (“Fiscal 2024”) and December 31, 2023 (“Fiscal 2023”) contained 52 weeks, 52 weeks and 53 weeks, respectively. The accompanying consolidated financial statements of the Company have been prepared by the Company in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Principles of Consolidation The Company’s consolidated financial statements include the accounts of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company does not hold ownership interests in any franchisee and does not provide financial support to franchisees. As a result, the Company’s franchise relationships are not variable interest entities and are not consolidated. Use of Estimates The preparation of consolidated financial statements in accordance with GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates and such differences could be material. Business Combinations The Company’s business combinations are accounted for using the purchase method of accounting . The consideration transferred in a business combination, identifiable assets acquired and liabilities assumed are measured at their estimated fair value as of the date of the acquisition. The fair value of reacquired rights is determined as of the acquisition date by Management using the excess earnings method. Under this method, the fair value is determined based on estimated future cash flows arising from the reacquired rights over their estimated economic lives. The assumptions that have the most significant effect on the fair value calculations are projected Earnings Before Interest and Taxes (“EBIT”) margins and the discount rate. Goodwill is recognized for the amount by which the purchase consideration exceeds the fair values of the net assets acquired. Costs incurred in connection with business combinations are expensed as incurred. The results of operations of the businesses that were acquired are included as of their respective dates of acquisition. Fair Value of Financial Instruments Certain assets and liabilities are carried at fair value. 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. 64 Table of Contents 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. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 Observable inputs available other than quoted prices included in Level 1 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 and other current liabilities, approximate their fair values due to their short-term maturities. Interest Rate Swaps Interest rate swaps are used as an element of the Company’s interest rate risk management strategy with the intent of reducing cash flow exposure to variability in expected future interest rates. Management has elected to designate and qualify the interest rate swaps as cash flow hedges. As such, the instruments are recorded on the balance sheet at fair value. Thereafter, gains or losses on the instruments are recognized in equity as changes to Other comprehensive income (loss) and subsequently reclassified into earnings at the time of the Company’s debt-interest payments. The Company has elected to record cash flows from interest rate swaps within operating activities, the same category as the items being hedged, in its Consolidated Statements of Cash Flows. Cash and Cash Equivalents Cash and cash equivalents include all cash balances and highly liquid investments with an original maturity of three months or less. Amounts receivable from credit card processors are considered cash equivalents because they are highly liquid and are typically converted to cash within three business days. Concentrations of Credit Risk Financial instruments, which potentially subject the Company to concentrations of market and credit risk, are cash and cash equivalents. At times, cash balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses to date as a result of these risks. Management periodically assesses the quality of the financial institutions and believes that the risk related to these deposits is minimal. Accounts Receivable Accounts receivable consist primarily of receivables from franchisees, receivables from third-party delivery providers, receivables from gift card sales and vendor rebates. The Company believes all amounts to be collectible based on a variety of factors it evaluates, including historical experience, current economic conditions and other factors. Accordingly , no allowance for credit losses or doubtful accounts has been recorded as of December 28, 2025 and December 29, 2024. Inventory Inventory consists primarily of food and beverage costs and is stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Adjustments are not deemed necessary to reduce inventory to net realizable value due to the rapid turnover and utilization of inventory. Leases The Company’s restaurant facilities, corporate offices and certain restaurant equipment are leased under various agreements having initial terms expiring between 2026 and 2041. Restaurant facility leases generally have renewal periods of five to 20 years, exercisable at the option of the Company. At the commencement of each lease, an evaluation is performed to determine whether (i) the contract involves the use of property or equipment, (ii) the Company controls the use of the asset and (iii) the Company has the right to direct the use of the asset. Management determines the classification of lease contracts as operating or finance leases. 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. 65 Table of Contents 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. The Company ’ s incremental borrowing rate is based on a market yield implied by the Company ’ s outstanding secured term loans interpolated for various maturities using the Company ’ s synthetic credit rating, which was determined using a regression analysis of rated comparable publicly-traded companies and their financial data. Occupancy expense, which includes the effects of free rent periods and rent escalation clauses within certain of the Company ’ s leases, is recognized on a straight-line basis over the lease term. Tenant improvement allowances are amortized on a straight-line basis over the term of the lease as a reduction of lease expense. The lease term, which commences on the date the Company has the right to control the use of the property, includes the Company ’ s options to extend the lease to the extent it is reasonably certain that the renewal options will be exercised. Leases with indexed rent escalation clauses are recorded using the index that existed at lease commencement or upon the latest modification requiring remeasurement. Subsequent changes in the index are recorded as variable lease expense. Contingent rent payments, which are based on a percentage of sales for certain restaurant facilities, are recorded as variable lease expense when the Company determines that such sales levels will be achieved. In addition to fixed lease payments, certain of the Company ’ s real estate leases also require payment of a proportionate share of property taxes, insurance and maintenance costs, which are expensed as incurred in the Consolidated Statements of Operations and Comprehensive Income and future variable rent obligations are not included within the lease liabilities on the Consolidated Balance Sheets. The operating lease right-of-use asset is measured as the amount of the lease liability with adjustments for (i) rent prepayments made prior to or at lease commencement, (ii) landlord incentives and (iii) favorable and unfavorable leasehold positions. The depreciable life of an operating lease right-of-use asset is limited by the lease term. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants. Fixed lease and non-lease components of the Company’s restaurant facility leases are accounted for as a single lease component. 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. 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. The amortization of finance lease assets is recognized over the shorter of the lease term or useful life of the underlying asset within Depreciation and amortization. The interest expense related to finance leases, including any variable lease payments, is recognized in Interest expense. Finance lease assets are classified in Property, fixtures and equipment, net and current maturities and long-term portions of finance lease liabilities are classified within Current portion of long-term debt and Long-term debt, net, respectively. Property, Fixtures and Equipment Property, fixtures and equipment, including capitalized software, are stated at cost less accumulated depreciation. Refurbishments and improvements that increase the productive capacity or extend the useful life of assets are capitalized and depreciated over their estimated useful lives. Repair and maintenance costs are expensed as incurred. Leasehold improvements are depreciated over the shorter of their useful life or the lease term. 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. 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. Direct internal costs o f $ 1.7 million and $ 1.2 million w ere capitalized in Fiscal 2025 and Fiscal 2024, respectively. 66 Table of Contents 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: Building and land improvements 30 to 40 years Leasehold improvements 3 to 20 years Furniture and fixtures 2 to 10 years Equipment (including capitalized software) 2 to 15 years Vehicles 3 to 10 years Goodwill and Indefinite-lived Intangible Assets Goodwill and indefinite-lived intangible assets are evaluated for impairment annually on the first day of the fourth quarter of the fiscal year, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company has one reporting unit for goodwill impairment testing purposes. Management may elect to perform a qualitative assessment to determine whether it is more likely than not that the reporting unit and/or asset group is impaired. If the qualitative assessment is not performed, or if it is not more likely than not that the estimated fair value of the reporting unit and indefinite-lived intangible assets exceeds the respective carrying value, a quantitative analysis is required. The fair value of the indefinite-lived intangibles is determined through a relief from royalty method using certain unobservable inputs that fall within Level 3 of the fair value hierarchy. The respective carrying values are compared to the related estimated fair values and an impairment loss is recognized in an amount equal to the excess of the carrying value over estimated fair values. Management performed a qualitative annual impairment assessment for goodwill and indefinite-lived intangible assets as of the first day of the fourth quarter of each of Fiscal 2025 and Fiscal 2024 and concluded that impairment of both goodwill and indefinite-lived intangible assets was not more likely than not. As a result, a quantitative assessment was not required in either year. Definite-Lived Intangible Assets Intangible assets with definite lives consist of franchise rights and reacquired rights from the Company ’ s acquisitions of franchised restaurants. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When evaluating the carrying amount for recoverability, the total future undiscounted net cash flows expected to be generated by the asset are compared to the carrying amount. If the total future undiscounted net cash flows are less than the carrying amount, this may be an indicator of impairment. An impairment loss is recognized when the asset’s carrying value exceeds its estimated fair value. 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 2025, Fiscal 2024 and Fiscal 2023. Impairment Assessment of Long-lived Assets Long-lived assets deployed at company-owned restaurants include (i) property, fixtures and equipment, (ii) operating lease right-of-use asset, net of the related operating lease liability and (iii) reacquired rights to the extent the restaurant had been previously acquired by the Company. When circumstances indicate that the carrying value may not be recoverable, an evaluation for impairment is performed at the lowest level of identifiable cash flows, which is at the individual restaurant level. If the total future undiscounted net cash flows are less than the carrying value of the long-lived assets at the individual restaurant level, the fair value is determined based on discounted future net cash flows expected to result from the use and eventual disposition of the assets, which are unobservable inputs that fall within Level 3 of the fair value hierarchy. An impairment loss is recognized in an amount equal to the excess of the carrying value over the estimated fair value. 67 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Insurance Reserves 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 $ 6.3 million and $ 3.9 million were recorded in the accompanying Consolidated Balance Sheets as of December 28, 2025 and December 29, 2024, respectively. Revenue Recognition Revenues from food and beverage sales are reported, net of discounts and taxes. For in-restaurant dining and take-out sales, revenues are recognized when payment is tendered. 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 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. Franchise revenues include initial franchise fees and ongoing sales-based royalty and system fund contributions, which are used for advertising, marketing and public relations programs and materials. The license granted to develop and operate a restaurant is the distinct performance obligation that is transferred to the franchisee. Ancillary promised services, such as training, which are not considered distinct within the context of the franchise agreement, are combined with the franchise license and are considered one distinct performance obligation. Payments for initial franchise fees are received either upon execution of the franchise agreement and/or upon opening of the restaurant. These payments are deferred and recognized as revenue throughout the contractual term of the related franchise agreement. Unamortized deferred franchise fees are recognized as revenue upon the termination of franchise agreements with franchisees. The short-term and long-term unamortized portion of these liabilities are included in Deferred revenues and in Other long-term liabilities, respectively. 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. Gift cards are sold at restaurants and certain retail venues. Deferred revenues include liabilities established for the value of the gift cards when sold. Revenue is recognized from gift card sales upon redemption by the customer. 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 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. If actual redemption patterns vary from these estimates, actual gift card breakage income may differ from the amounts recorded. Estimates of the redemption period and breakage rate applied are updated periodically. Gift card liabilities are included in Deferred revenues. Food and Beverage Costs The components of food and beverage costs at company-owned restaurants fluctuate directly with sales volumes and are impacted by changes in commodity prices or promotional activities. Pre-opening Expenses 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 can fluctuate from period to period, based on the number and timing of new company-owned restaurant openings. 68 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Consideration Received from Vendors The Company receives consideration from certain vendors for volume rebates and allowances. The Company accounts for consideration from a vendor as a reduction of the purchase price of the goods or services acquired from the vendor. Advertising Costs Advertising costs are recognized as incurred or, in the case of advertisements, when the advertisement occurs. Advertising costs were $ 16.5 million, $ 8.5 million and $ 7.2 million during Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively, and are included in General and administrative expenses, Other restaurant operating expenses and Pre-opening expenses. Debt Discount and Deferred Issuance Costs Debt discount and deferred issuance costs incurred in connection with the issuance of long-term debt are recorded as reductions of long-term debt and are amortized over the term of the related debt. Amortization expense of debt discount and deferred issuance costs is included in Interest expense. Income Taxes Income taxes are accounted for under the asset and liability method of accounting. 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 their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. When Management determines it is more likely than not that some portion or all of the deferred tax assets may not be realized, a valuation allowance is established against the deferred tax assets. In the assessment for realization of deferred tax assets, Management considers all sources of taxable income including carryback available, scheduling of anticipated reversal of taxable temporary differences, prudent and feasible tax-planning strategies and future taxable income expected. Management evaluates our tax filing positions and recognizes a tax benefit from an uncertain tax position only if, based on its technical merits, it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities. The tax benefits recognized in the financial statements from such a position would be measured based on the largest tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority. For uncertain tax positions that do not meet this threshold, we would record a related tax reserve in the period in which it arises. We would adjust our unrecognized tax benefit liability and provision for income taxes in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new information becomes available that would require a change in recognition and/or measurement of the liability. We recognize interest to be paid on an underpayment of income taxes in interest expense and any related statutory penalties in the provision for income taxes. Accrued interest and penalties would be included within the related tax reserve on our consolidated balance sheets. Stock-Based Compensation 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. 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. 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 stock option awards and stock-based compensation expense could have been materially different. Stock option exercises and restricted stock unit vesting are settled with authorized but unissued shares of the Company’s common stock. Forfeitures of stock-based awards are recognized as they occur. 69 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Summary of Recently Issued Accounting Pronouncements Recently Adopted Accounting Pronouncements In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, Improvements to Income Tax Disclosures , which establishes new income tax disclosure requirements including disaggregated information about a reporting entity’s effective tax rate reconciliation as well as disaggregated information on income taxes paid. The Company adopted ASU 2023-09 prospectively on December 28, 2025. See the disclosure included in Note 14, Income Taxes . New Accounting Pronouncements 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. In September 2025, the FASB issued ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software , which updates the accounting for internal-use software by replacing stage-based rules with a principles-based framework, clarifying the criteria for capitalization and merging website development cost guidance. The amendments in this update are effective for annual periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. The update may be applied prospectively, retrospectively, or on a modified transition basis based on the status of the project and whether software costs were capitalized before the date of adoption. Management is currently evaluating the impact of this new standard. In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging: Hedge Accounting Improvements, which includes amendments to more closely align hedge accounting with the economics of the Company’s risk management activities. The amendments in this update are effective for annual periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. Management is currently evaluating the impact of this new standard. In December 2025, the FASB issued ASU 2025-11, Interim Reporting: Narrow-Scope Improvements, which makes targeted, narrow scope improvements to interim reporting to clarify application and improve consistency in practice. The amendments in this update are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. 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 on the Company. 3. Business Acquisitions During Fiscal 2025 and Fiscal 2024, the Company acquired substantially all the assets associated with 19 and 22 franchise operated First Watch restaurants, respectively. The purchase price was allocated to the fair value of assets acquired and liabilities assumed. Fiscal 2025 acquisitions are based on preliminary valuations and are subject to adjustment as additional information is available. 70 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The dates and details of each acquisition are as follows: FISCAL YEAR 2025 FISCAL YEAR 2024 (dollars in thousands) APRIL 28, 2025 APRIL 14, 2025 APRIL 15, 2024 JANUARY 22, 2024 Number of acquired restaurants 16 3 21 1 Purchase price (cash) $ 49,247 $ 6,985 $ 75,119 $ 3,002 Transaction costs incurred $ 1,016 $ 415 $ 1,328 $ 211 Deferred franchise fees recognized as a result of termination of pre-existing franchise agreement $ 398 $ — $ 383 $ 30 Recognized amounts of identifiable assets acquired and liabilities assumed: Cash $ 24 $ 5 $ 32 $ 1 Inventory $ 159 $ 31 $ 213 $ 15 Other assets $ 124 $ 9 $ 133 $ 1 Property, fixtures and equipment $ 19,800 $ 2,998 $ 16,511 $ 1,391 Reacquired rights $ 13,060 $ 1,920 $ 21,459 $ 498 Goodwill (primarily expected synergies and assembled workforce; tax deductible) $ 18,767 $ 2,876 $ 37,585 $ 1,097 Operating right-of-use assets, net of lease positions and prepaid rent $ 17,305 $ 2,922 $ 26,199 $ 1,251 Accounts payable $ — $ ( 2 ) $ — $ — Operating lease liabilities $ ( 19,896 ) $ ( 3,735 ) $ ( 26,853 ) $ ( 1,247 ) Deferred revenues - gift card liabilities assumed $ ( 96 ) $ ( 39 ) $ ( 160 ) $ ( 5 ) 4. Revenues The following tables include a detail of liabilities from contracts with customers: (in thousands) DECEMBER 28, 2025 DECEMBER 29, 2024 Deferred revenues: Deferred gift card revenue $ 6,548 $ 5,385 Deferred franchise fee revenue - current 230 238 Total current deferred revenues $ 6,778 $ 5,623 Other long-term liabilities: Deferred franchise fee revenue - non-current $ 1,226 $ 1,691 Changes in deferred gift card contract liabilities were as follows: FISCAL YEAR (in thousands) 2025 2024 2023 Deferred gift card revenue: Balance, beginning of period $ 5,385 $ 5,224 $ 4,897 Gift card sales 13,193 11,492 12,329 Gift card redemptions ( 10,885 ) ( 10,230 ) ( 11,198 ) Gift card breakage ( 1,280 ) ( 1,266 ) ( 1,081 ) Gift card liabilities assumed through acquisitions 135 165 277 Balance, end of period $ 6,548 $ 5,385 $ 5,224 71 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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. Changes in deferred franchise fee contract liabilities were as follows: FISCAL YEAR (in thousands) 2025 2024 2023 Deferred franchise fee revenue: Balance, beginning of period $ 1,929 $ 2,061 $ 2,768 Cash received 150 559 288 Franchise revenues recognized ( 225 ) ( 278 ) ( 388 ) Business combinations - franchise revenues recognized ( 398 ) ( 413 ) ( 607 ) Balance, end of period $ 1,456 $ 1,929 $ 2,061 Revenues recognized disaggregated by type were as follows: FISCAL YEAR (in thousands) 2025 2024 2023 Restaurant sales: In-restaurant dining sales $ 982,349 $ 829,048 $ 716,960 Third-party delivery sales 142,255 97,444 91,433 Take-out sales 87,569 77,863 68,699 Total restaurant sales $ 1,212,173 $ 1,004,355 $ 877,092 Franchise revenues: Royalty and system fund contributions $ 9,705 $ 10,864 $ 13,464 Initial fees 225 278 388 Business combinations - revenues recognized 398 413 607 Total franchise revenues $ 10,328 $ 11,555 $ 14,459 Total revenues $ 1,222,501 $ 1,015,910 $ 891,551 Deferred revenues as of December 28, 2025 are expected to be recognized as follows: FISCAL YEAR (in thousands) 2026 $ 6,778 2027 $ 227 2028 $ 201 2029 $ 167 2030 $ 144 Thereafter $ 487 72 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Accounts Receivable Accounts receivable consisted of the following: (in thousands) DECEMBER 28, 2025 DECEMBER 29, 2024 Receivables from third-party delivery providers $ 2,068 $ 1,445 Receivables from franchisees 907 987 Receivables from vendors 1,337 1,657 Receivables related to gift card sales 2,091 1,683 Other receivables 456 1,463 Total accounts receivable $ 6,859 $ 7,235 6. Goodwill The changes in the carrying value of goodwill were as follows: (in thousands) Balance as of December 31, 2023 $ 359,883 Additions - acquisitions 38,682 Balance as of December 29, 2024 398,565 Additions - acquisitions 21,643 Balance as of December 28, 2025 $ 420,208 7. Intangible Assets, Net Intangible assets, net consisted of the following: DECEMBER 28, 2025 (in thousands) Weighted Average Useful Lives Gross Carrying Value Accumulated Amortization Net Carrying Value Registered trademarks, trade names, domains, liquor licenses Indefinite $ 140,052 $ — $ 140,052 Franchise rights 6 years 55,735 ( 20,879 ) 34,856 $ 195,787 $ ( 20,879 ) $ 174,908 DECEMBER 29, 2024 (in thousands) Weighted Average Useful Lives Gross Carrying Value Accumulated Amortization Net Carrying Value Registered trademarks, trade names, domains, liquor licenses Indefinite $ 139,202 $ — $ 139,202 Franchise rights 7 years 40,771 ( 12,377 ) 28,394 $ 179,973 $ ( 12,377 ) $ 167,596 Total amortization expense related to definite-lived intangible assets was $ 8.5 million, $ 5.6 million and $ 1.5 million in Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. 73 Table of Contents FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Estimated future amortization of definite-lived intangible assets as of December 28, 2025 is as follows: FISCAL YEAR (in thousands) 2026 $ 8,917 2027 $ 8,238 2028 $ 7,188 2029 $ 4,750 2030 $ 2,847 Thereafter $ 2,916 8. Property, Fixtures and Equipment Property, fixtures and equipment, net consisted of the following: (in thousands) DECEMBER 28, 2025 DECEMBER 29, 2024 Building and land improvements $ 1,354 $ 1,354 Leased land asset 1,190 1,190 Leasehold improvements 434,438 324,389 Furniture, fixtures and equipment (including capitalized software) 279,300 223,137 Financing lease assets 11,731 5,312 Vehicles — 460 Total property, fixtures and equipment 728,013 555,842 Accumulated depreciation ( 285,706 ) ( 229,227 ) Construction-in-progress 36,144 34,779 Total property, fixtures and equipment, net $ 478,451 $ 361,394 Depreciation expense was $ 66.5 million, $ 52.1 million and $ 39.7 million during Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. In Fiscal 2025 and Fiscal 2024, there were no impairment losses recorded. In Fiscal 2023, the Company recognized impairment losses of $ 0.5 million, primarily related to the long-lived assets of two company-owned restaurants due to their approved closures. Loss on disposals of assets of $ 0.4 million, $ 0.5 million and $ 0.8 million were recognized in Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively, primarily related to the write-off of assets retired as a result of the replacement of assets or restaurant closures. As of December 28, 2025 and December 29, 2024, Property, fixtures and equipment, net included $ 1.2 million in land related to sale and leaseback transactions accounted for as financing obligations. 74 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. Accrued Liabilities Accrued liabilities consisted of the following: (in thousands) DECEMBER 28, 2025 DECEMBER 29, 2024 Construction liabilities $ 11,588 $ 16,769 Sales tax 8,806 7,919 Insurance liabilities 4,047 2,521 Utilities 2,892 2,156 Credit card fees 2,110 1,973 Property tax 1,453 830 Contingent rent 1,239 1,058 Other 6,361 6,381 Total accrued liabilities $ 38,496 $ 39,607 10. Debt Long-term debt, net consisted of the following: DECEMBER 28, 2025 DECEMBER 29, 2024 (in thousands) Balance Interest Rate Balance Interest Rate Term Facilities $ 211,625 6.54 % $ 193,797 6.93 % Revolving Credit Facility 56,000 7.17 % — Finance lease liabilities 12,906 2,766 Financing obligation 3,050 3,050 Less: Unamortized debt discount and deferred issuance costs ( 1,201 ) ( 1,342 ) Total Debt, net 282,380 198,271 Less: Current portion of long-term debt ( 13,309 ) ( 9,228 ) Long-term debt, net $ 269,071 $ 189,043 Credit Facilities FWR Holding Corporation (“FWR”), a subsidiary of the Company, is the borrower under the credit agreement dated October 6, 2021, the terms of which were amended on February 24, 2023 and January 5, 2024, which provides for (i) a $ 225.0 million term loan A facility and delayed draw facility (the “Term Facilities”) and (ii) a $ 125.0 million revolving credit facility (the “Revolving Credit Facility” and collectively with the Term Facilities the “Credit Facility”). The Credit Facility matures on January 5, 2029. During Fiscal 2024, the Company drew $ 97.5 million of the $ 125.0 million delayed draw facility. The proceeds were used to repay $ 22.5 million of borrowings under the Revolving Credit Facility and fund the business acquisition that was completed on April 15, 2024 for approximately $ 75.1 million. During Fiscal 2025, the Company drew the remaining $ 27.5 million on the delayed draw facility and $ 32.5 million on the Revolving Credit Facility, primarily to fund the business acquisitions referenced in Note 3, “Business Acquisitions”. As of December 28, 2025, the delayed draw facility was fully drawn with the same servicing and repayment terms as the term loan A facility. The Company drew an additional $ 23.5 million on the Revolving Credit Facility during Fiscal 2025 primarily to fund capital expenditures. As of December 28, 2025, borrowings under the Credit Facility 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) the secured overnight financing rate (“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. Additionally, an unused commitment fee of between 37.5 and 50 basis points is paid on the undrawn commitments under the New Revolving Credit Facility, also depending on the Total Rent Adjusted Net Leverage Ratio. Refer to Note 11, Interest Rate Swaps, for information about the Company’s variable-to-fixed interest rate swap agreements. 75 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Term Facilities 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. Principal payments due on the outstanding debt, excluding finance lease liabilities and financing obligations, as of December 28, 2025 are as follows: FISCAL YEAR (in thousands) 2026 $ 11,250 2027 15,469 2028 21,094 2029 219,812 $ 267,625 Interest Expense The following table summarizes our interest expense: FISCAL YEAR (in thousands) 2025 2024 2023 Interest expense $ ( 18,664 ) $ ( 14,257 ) $ ( 8,063 ) Capitalized interest 1,965 1,617 — Total interest expense, net $ ( 16,699 ) $ ( 12,640 ) $ ( 8,063 ) Fair Value of Debt The estimated fair value of the outstanding debt, excluding finance lease obligations and financing obligations, is classified as Level 3 in the fair value hierarchy and was estimated using discounted cash flow models, market yield and yield volatility. The following table includes the carrying value and fair value of the Company’s debt as of the dates indicated: DECEMBER 28, 2025 DECEMBER 29, 2024 (in thousands) Carrying Value Fair Value Carrying Value Fair Value Term Facilities $ 211,625 $ 210,860 $ 193,797 $ 193,417 Revolving Credit Facility $ 56,000 $ 55,761 $ — $ — Letter of Credit The Company utilizes standby letters of credit to satisfy workers’ compensation and general liability insurance requirements. The contract amount of the letters of credit approximates fair value. As of December 28, 2025 and December 29, 2024, the open letters of credit totaled approximately $ 2.1 million and $ 1.7 million, respectively, and there were no draws against the letters of credit. The Company pays participation fees for the letters of credit based on a varying percentage of the amount not drawn. Debt Covenants The Credit Facilities are guaranteed by all of FWR’s wholly-owned domestic restricted subsidiaries, subject to customary exceptions, and by AI Fresh Parent, Inc., a Delaware corporation and the direct parent company of FWR (“Holdings”), and are secured by associated collateral agreements that pledge a lien on substantially all of FWR’s and each guarantor’s assets, including fixed assets and intangibles, in each case, subject to customary exceptions. Under the Credit Agreement, FWR (and in certain circumstances, Holdings) and its restricted subsidiaries are subject to customary affirmative, negative and financial covenants, maintenance of certain ratios, restrictions on additional indebtedness and events of default for facilities of this type (with customary grace periods, as applicable, and lender remedies). FWR was in compliance with covenants under the Credit Agreement as of December 28, 2025 and December 29, 2024. 76 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. Interest Rate Swaps Interest rate swaps are utilized to hedge a portion of the cash flows of the Company’s variable rate debt. On June 23, 2023, the Company entered into two variable-to-fixed interest rate swaps. 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, or make payments to, 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, or make payments to, the counterparties based on the three-month SOFR rate. The fair value measurement of the interest rate swaps was based on the contractual terms and used observable market-based inputs. The interest rate swaps were valued using a discounted cash flow analysis on the expected cash flows using observable inputs including interest rate curves and credit spreads. Although the majority of the inputs used to value the instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and the counterparties. The Company has determined that the impact of the credit valuation adjustments was not significant to the overall valuation. As a result, the derivative was classified as Level 2 of the fair value hierarchy. Amounts reported in Other comprehensive income (loss) related to the interest rate swaps will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the fiscal year ended December 28, 2025, a total of $ 0.1 million was reclassified from Other comprehensive income (loss) as an increase to interest expense. During the fiscal year ended December 29, 2024, a total of $ 1.0 million was reclassified from Other comprehensive income (loss) as a reduction to interest expense. Over the next 12 months, Management estimates that $ 1.1 million will be reclassified as an increase to interest expense. 12. Leases The following table includes a detail of lease assets and liabilities: (in thousands) Consolidated Balance Sheets Classification DECEMBER 28, 2025 DECEMBER 29, 2024 Finance lease assets - current Deposits and other current assets $ 120 $ — Operating lease right-of-use assets Operating lease right-of-use assets 614,548 527,674 Finance lease assets Property, fixtures and equipment, net 10,730 2,724 Total lease assets $ 625,398 $ 530,398 Operating lease liabilities (1) - current Current portion of operating lease liabilities $ 75,034 $ 55,704 Operating lease liabilities - non-current Operating lease liabilities 651,254 555,576 Finance lease liabilities - current Current portion of long-term debt 2,059 587 Finance lease liabilities - non-current Long-term debt, net 10,847 2,179 Total lease liabilities $ 739,194 $ 614,046 _____________ (1) Excludes all variable lease expense. 77 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The components of lease expense were as follows: (in thousands) Consolidated Statements of Operations and Comprehensive Income Classification FISCAL YEAR 2025 2024 2023 Operating lease expense Other restaurant operating expenses Occupancy expenses Pre-opening expenses General and administrative expenses $ 84,790 $ 69,908 $ 56,129 Variable lease expense Food and beverage costs Occupancy expenses General and administrative expenses 23,292 19,249 17,158 Finance lease expense: Amortization of leased assets Depreciation and amortization 1,232 539 507 Interest on lease liabilities Interest expense 472 64 92 Total lease expense (1) $ 109,786 $ 89,760 $ 73,886 _____________ (1) Includes contingent rent expense of $ 2.1 million, $ 1.8 million and $ 2.1 million during Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. Supplemental cash flow information related to leases was as follows: FISCAL YEAR (in thousands) 2025 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows - operating leases $ 60,065 $ 48,467 $ 47,930 Operating cash flows - finance leases $ 472 $ 64 $ 92 Financing cash flows - finance leases $ ( 764 ) $ 590 $ 558 Supplemental information related to leases was as follows: FISCAL YEAR 2025 2024 Weighted-average remaining lease term (in years) Operating leases 12.7 13.3 Finance leases 10.2 15.0 Weighted-average discount rate (1) Operating leases 7.8 % 7.7 % Finance leases 6.2 % 6.2 % ____________ (1) Based on the Company’s incremental borrowing rate. 78 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) As of December 28, 2025, future minimum lease payments for operating and finance leases consisted of the following: (in thousands) FISCAL YEAR OPERATING LEASES FINANCE LEASES 2026 $ 77,739 $ 1,996 2027 88,264 2,558 2028 90,268 2,558 2029 90,009 2,556 2030 90,061 881 Thereafter 736,730 7,652 Total future minimum lease payments (1) 1,173,071 18,201 Less: imputed interest ( 446,783 ) ( 5,415 ) Total present value of lease liabilities $ 726,288 $ 12,786 _____________ (1) Excludes approximately $ 130.7 million of executed operating leases that have not commenced as of December 28, 2025. Sale-Leaseback Transactions In 2015, Management entered into an agreement relating to the sale and leaseback of the land for use in restaurant operations and received cash proceeds of $ 3.1 million. As the Company had continuing involvement with the property, the sale of the land did not qualify for sale accounting. As a result, the cash proceeds were recorded as a financing obligation. The balance of the financing obligation was $ 3.1 million as of December 28, 2025 and December 29, 2024. 13. Transaction Expenses, Net Transaction expenses, net consisted of the following: FISCAL YEAR (in thousands) 2025 2024 2023 Acquisition-related costs $ 1,098 $ 1,595 $ 2,062 Secondary offering costs 1,306 1,259 1,031 Credit Agreement modification — 268 127 Loss (Gain), net on restaurant closures/relocations 49 13 ( 73 ) Other 80 ( 548 ) — Total transaction expenses, net $ 2,533 $ 2,587 $ 3,147 During Fiscal 2025 and 2024, $ 1.1 million and $ 1.6 million, respectively, of costs were incurred in connection with the acquisition of certain franchise-owned restaurants. During both Fiscal 2025 and 2024, $ 1.3 million of costs were incurred by the Company in connection with underwritten secondary offerings of the Company’s common stock and public resales of the Company’s common stock under Rule 144 of the Securities Act of 1933, as amended, by entities affiliated with or managed by our former majority owner. During Fiscal 2023, total costs of $ 1.0 million were incurred by the Company in connection with secondary offerings. 79 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. Income Taxes Income before taxes were as follows: FISCAL YEAR (in thousands) 2025 2024 2023 U.S. income before tax $ 12,133 $ 28,026 $ 36,075 Income before taxes $ 12,133 $ 28,026 $ 36,075 The components of the provision for income taxes were as follows: FISCAL YEAR (in thousands) 2025 2024 2023 Current provision: U.S. Federal $ ( 706 ) $ ( 326 ) $ ( 217 ) State ( 2,026 ) ( 1,952 ) ( 2,158 ) Total current provision ( 2,732 ) ( 2,278 ) ( 2,375 ) Deferred benefit (provision): U.S. Federal 9,846 ( 7,031 ) ( 8,896 ) State 185 208 581 Total deferred benefit (provision) 10,031 ( 6,823 ) ( 8,315 ) Income tax benefit (expense) $ 7,299 $ ( 9,101 ) $ ( 10,690 ) A reconciliation of the provision for income taxes to the amount computed by applying the federal statutory income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows: FISCAL YEAR 2025 U.S. Federal statutory rate $ 2,548 21.0 % State and local income taxes, net of federal income tax effect (a) 1,415 11.7 % Tax credits FICA tip credit ( 12,561 ) ( 103.5 ) % Change in valuation allowance ( 3,147 ) ( 25.9 ) % Nontaxable or nondeductible items FICA tip expenses 2,638 21.7 % Stock-based compensation 1,278 10.5 % Secondary offerings - costs 291 2.4 % Meals 130 1.0 % Other nondeductible items 75 0.6 % Other adjustments 34 0.3 % Effective tax rate $ ( 7,299 ) ( 60.2 ) % _____________ ( a) State taxes in Florida, Texas and Missouri make up the majority (greater than 50 percent) of the tax effect of this category The effective income tax rate for Fiscal 2025 differed from the federal statutory rate primarily due to (i) the benefit of the tax credits for FICA taxes on certain employee tips, (ii) the change in valuation allowance, (iii) state taxes and (iv) impacts of executive stock-based compensation. 80 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate before the adoption of ASU 2023-09 is as follows: FISCAL YEAR 2024 2023 Income taxes at federal statutory rate 21.0 % 21.0 % State income taxes, net of federal tax effect 5.9 5.8 FICA tip credit ( 30.3 ) ( 19.9 ) Other tax credits ( 0.2 ) — Valuation allowance for federal and state 34.1 17.6 Stock-based compensation 1.8 3.4 Secondary offerings - costs 1.0 0.6 Other permanent items 0.4 0.5 Rate change ( 0.5 ) 0.6 Other ( 0.7 ) — Total 32.5 % 29.6 % The effective income tax rate for Fiscal year 2024 and Fiscal year 2023 differed from the blended federal and state statutory rate primarily due to (i) the change in the valuation allowance, (ii) the benefit of the tax credits for FICA taxes on certain employee tips, (iii) impacts of executive stock-based compensation and (iv) non-deductible costs associated with the secondary offerings. The components of deferred tax assets and liabilities were as follows: (in thousands) DECEMBER 28, 2025 DECEMBER 29, 2024 Deferred income tax assets FICA tip credit $ 70,094 $ 59,671 State tax credits 51 48 Net operating loss 5,504 17,462 Operating lease liabilities 183,635 155,540 Organizational costs 437 520 Interest limitation 159 416 Accrued compensation 3,634 2,781 Deferred revenues 384 492 Stock-based compensation 3,807 3,512 Research expenses 50 590 Interest rate swaps 361 146 Other 2,221 1,748 Valuation allowance ( 54,365 ) ( 57,664 ) Total deferred income tax assets 215,972 185,262 Deferred income tax liabilities Operating lease right-of-use assets ( 154,405 ) ( 132,054 ) Depreciation ( 46,249 ) ( 48,303 ) Intangible assets ( 37,290 ) ( 37,123 ) Total deferred income tax liabilities ( 237,944 ) ( 217,480 ) Net deferred income tax liabilities $ ( 21,972 ) $ ( 32,218 ) 81 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Tax Carryforwards The amount and expiration dates of tax carryforwards as of December 28, 2025 are as follows: (in thousands) EXPIRATION DATE AMOUNT Federal net operating loss carryforwards Indefinite $ 23,602 General business tax credits (carried forward 20 years) 2031 - 2045 $ 70,264 The Company also has state net operating loss carryforwards of $ 11.9 million. In the U.S., a restaurant company employer may claim a credit against its federal income taxes for FICA taxes paid on certain tipped wages (“FICA tip credit”). During the first quarter of 2024, the Company’s former majority shareholder sold shares, through a secondary offering. The sale resulted in a change in control event, per the terms of the agreement with previous stockholders, and the contingent liability was reevaluated and final payment to previous stockholders was made in the second quarter of 2024. Section 382 of the Internal Revenue Code (“IRC § 382”) limits a company’s ability to utilize tax attribute carryforwards in the event of an “ownership change”, which is defined as a change in ownership of more than 50% of a company’s stock within a rolling three-year period. We have considered the impact of potential ownership changes to our ability to realize the benefit of our deferred tax assets and do not believe that any resulting limitation will have a material impact. Valuation Allowance As a result of Management’s annual assessment, for the fiscal year ended on December 28, 2025, there was a net decrease to the valuation allowance on federal tax credit carryforwards. Management’s assessment of the valuation allowance considered all available positive and negative evidence, including the scheduled reversal of temporary differences, cumulative income position, recent and projected future taxable income, and prudent and feasible tax planning strategies. Changes in the deferred tax asset valuation allowance were as follows: (in thousands) Balance as of December 25, 2022 $ ( 41,754 ) Increase ( 6,357 ) Balance as of December 31, 2023 ( 48,111 ) Increase ( 9,553 ) Balance as of December 29, 2024 ( 57,664 ) Decrease 3,299 Balance as of December 28, 2025 $ ( 54,365 ) The Company is subject to examination by federal, state and local jurisdictions, where applicable. As of December 28, 2025, the tax years that remain subject to examination by major tax jurisdictions under the statute of limitations are from the year 2017 and forward. Disclosure of Income Taxes Paid Income taxes paid by jurisdiction are as follows: FISCAL YEAR (in thousands) 2025 U.S. Federal $ 597 Florida 707 Texas 230 All other states 1,028 Total taxes paid $ 2,562 82 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Enactment of H.R. 1 On July 4, 2025, H.R. 1 - the One Big Beautiful Bill Act (“the Bill”) was enacted in the U.S. The Bill includes a broad range of tax reform provisions, including extending and modifying certain key Tax Cuts and Jobs Act provisions and provisions allowing accelerated tax deductions for qualified property and research expenditures. The Bill has multiple effective dates, with certain provisions effective in 2025 and others to be implemented through 2027. The Bill’s enactment did not materially impact our effective income tax rate or cash tax position for the year ended December 28, 2025. 15. Stockholders’ Equity The Company is authorized to issue 300,000,000 common stock shares with a par value of $ 0.01 per share and 10,000,000 preferred stock shares with a par value of $ 0.01 per share pursuant to the Company’s Amended and Restated Certificate of Incorporation. Each share of common stock entitles the holder to one vote for each share of common stock held and common stockholders will not have cumulative voting rights. Common stockholders are entitled to receive dividends, as and if declared by the Board of Directors. In addition, all common stockholders are entitled to share equally on a share-for-share basis in any assets available for distribution to common stockholders upon liquidation, dissolution, or winding up of the Company after payment is made to the preferred stockholders. During Fiscal 2025, our former majority shareholder sold their remaining 10,289,784 shares of common stock through secondary offerings. During Fiscal 2024 and Fiscal 2023, our former majority shareholder sold 14,900,000 and 7,475,000 shares of common stock through secondary offerings, respectively. The net proceeds from the sales of common stock from the transactions were distributed to the selling stockholders. No cash dividends were declared or paid in Fiscal 2025, Fiscal 2024 and Fiscal 2023. 16. Employee Savings Plans 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. The Company matches 50 % 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. Company contributions vest over a five-year service period. Total expense recognized for the Company’s contributions to the 401(k) Plan was $ 2.3 million, $ 1.9 million and $ 1.1 million in Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. Non-Qualified Deferred Compensation Plan The First Watch Deferred Compensation Plan is a non-qualified plan that allows officers and other eligible key employees to defer a percentage of their base salary and cash bonus on a pre-tax basis. The plan allows participants to make tax-deferred contributions that would otherwise be limited under the 401(k) Plan because of Internal Revenue Service rules. The Company matches 50 % of the first 6 % of employees’ wages deferred into the First Watch Deferred Compensation Plan. The employer match credits vest over a five-year service period, or vest in full upon an active participant’s death, disability or a Company change in control event, as defined in the plan. Participants’ earnings on contributions fluctuate with the actual earnings and losses of available investment choices selected by the participants. Changes to deferred compensation liabilities incurred under the First Watch Deferred Compensation Plan are recorded as general and administrative expenses. As of December 28, 2025 , the deferred compensation obligation was included in Other long-term liabilities and totaled $ 1.9 million . While the First Watch Deferred Compensation Plan is unsecured, Management has elected to fund certain of these obligations through a rabbi trust, the assets of which consist of company-owned life insurance policies. The life insurance policies cover certain of our officers and other key employees included in the First Watch Deferred Compensation Plan. The assets held in the rabbi trust are not available for general corporate purposes and are subject to creditor claims in the event of insolvency. Changes to the cash surrender value are recorded as general and administrative expenses. The cash surrender value of the life insurance policies in the rabbi trust is recorded in Other long-term assets and totaled $ 1.8 million as of December 28, 2025 . 83 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Stock-Based Compensation Equity Plans 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. The 2017 Omnibus Equity Incentive Plan (the “2017 Equity Plan”) and the 2021 Equity Incentive Plan (the “2021 Equity Plan”) provide for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, stock appreciation rights and stock-based awards. 2021 Equity Plan The number of shares of common stock reserved for issuance under the 2021 Equity Plan (“Share Reserve”) for Fiscal 2025, Fiscal 2024 and Fiscal 2023 was 7,630,128 , 6,416,126 , and 5,218,292 , 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 and will not be available for future awards under the 2021 Equity Plan. 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. There were no stock option awards granted under the 2021 Equity Plan after Fiscal 2022. 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 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 after Fiscal 2021, and the Company does not intend to grant any further awards under the 2017 Equity Plan. Modification of Performance-Based Option Awards - 2017 Equity Plan On August 31, 2021, the Company’s Board of Directors amended the 2017 Equity Plan such that the performance-based option awards that convert into time-based option awards upon an initial public offering no longer vested over a period of three years , but instead vested one-third (1/3rd) on each of the first two anniversaries of an initial public offering and one-third (1/3rd) on the 273rd day following the second anniversary of an initial public offering. This was accounted for as a modification, resulting in a new fair value for all the performance-based option awards using an option-pricing model as of the modification date. On September 19, 2021, the Company’s Board of Directors modified performance-based option awards that contained a market condition granted under the 2017 Equity Plan, such that the vesting terms for one such tranche were amended to waive the market condition. Accordingly, upon the Company’s IPO, such tranche converted into time-based option awards and vested one-third (1/3rd) on each of the first two anniversaries of the Company’s IPO and one-third (1/3rd) on the 273rd day following the second anniversary of the Company’s IPO. 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. 84 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. The modification accelerated the vesting period of the performance-based option awards that convert into time-based option awards upon the Company’s IPO such that they no longer vested one-third (1/3rd) on each of the first two anniversaries of the Company’s IPO and one-third (1/3rd) on the 273rd day following the second anniversary of the Company’s IPO, but instead vested on August 1, 2022. Additionally, the exercise period of these time-based and performance-based vested option awards was modified such that any vested option may be exercised at any time prior to the 10th anniversary of the original grant date. These actions were accounted for as modifications and resulted in an increase of $ 0.3 million to the fair value of these awards. Upon the consummation of the Company’s IPO in October 2021, certain performance-based option awards converted into time-based option awards and stock compensation expense of $ 2.4 million was recognized in the fourth quarter of Fiscal 2021. The remaining expense is being recognized on an accelerated recognition method over the remaining service period. 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. Stock Options The following table summarizes stock option activity for Fiscal 2025: NUMBER OF OPTIONS WEIGHTED AVERAGE EXERCISE PRICE AGGREGATE INTRINSIC VALUE (in thousands) WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (in years) Outstanding, December 29, 2024 3,701,017 $ 10.14 $ 31,676 4.1 Forfeited ( 964 ) $ 12.58 Exercised ( 122,679 ) $ 9.73 Outstanding, December 28, 2025 3,577,374 $ 10.15 $ 20,614 3.2 Exercisable, December 28, 2025 3,573,428 $ 10.15 $ 20,601 3.2 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 $ 0.9 million, $ 6.6 million, and $ 5.7 million during Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. A summary of the non-vested stock option activity during Fiscal 2025 is as follows: NUMBER OF OPTIONS WEIGHTED AVERAGE GRANT DATE FAIR VALUE Nonvested, December 29, 2024 324,245 $ 6.55 Vested ( 319,336 ) $ 6.57 Forfeited ( 963 ) $ 6.76 Nonvested, December 28, 2025 3,946 $ 5.22 The total grant date fair value of stock options that vested during Fiscal 2025, Fiscal 2024 and Fiscal 2023 was $ 2.1 million, $ 6.8 million and $ 7.1 million, respectively. There were no stock options granted after Fiscal 2022. 85 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Fair Value of Stock Options The Black-Scholes valuation model is used to estimate the fair value of stock option awards granted. The Company has not had sufficient historical stock option exercise activity and therefore the expected term of stock options granted 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. 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. Restricted Stock Units The following table summarizes RSU activity for Fiscal 2025: RESTRICTED STOCK UNITS WEIGHTED AVERAGE GRANT DATE FAIR VALUE AGGREGATE INTRINSIC VALUE (in thousands) Outstanding, December 29, 2024 759,721 $ 20.67 $ 14,207 Granted 1,572,044 $ 16.46 Vested ( 309,209 ) $ 19.30 Forfeited ( 11,639 ) $ 19.46 Outstanding, December 28, 2025 2,010,917 $ 17.60 $ 31,994 Of the 1,572,044 RSUs granted in Fiscal 2025, 597,737 will vest ratably over a period of three years from the grant date, 65,364 will vest one year from the grant date, and the remaining 908,943 will vest four years from the grant date. The total intrinsic value of restricted stock units that vested in Fiscal 2025 and Fiscal 2024 was $ 5.8 million and $ 4.7 million, respectively. Stock-Based Compensation Expense Stock-based compensation expense, net of amounts capitalized, was $ 10.8 million, $ 8.5 million and $ 7.6 million during Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. Capitalized stock-based compensation included in property, fixtures and equipment totaled $ 0.2 million during Fiscal 2025. The total related income tax benefit for stock-based compensation expense was $ 0.3 million, $ 0.8 million and $ 0.6 million for Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. Cash received from stock options exercised was $ 1.2 million, $ 6.4 million and $ 5.8 million for Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. The tax benefit realized from stock option exercises and vesting of restricted stock units was $ 1.5 million, $ 2.3 million and $ 1.6 million in Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. Unrecognized Stock-Based Compensation Expense The following represents unrecognized stock-based compensation expense and the remaining weighted average vesting period as of December 28, 2025: UNRECOGNIZED STOCK-BASED COMPENSATION EXPENSE (in thousands) REMAINING WEIGHTED AVERAGE VESTING PERIOD (in years) Stock options $ — 0.1 Restricted stock units $ 25,882 2.5 18. Commitments and Contingencies Purchase Commitments We enter into various purchase obligations in the ordinary course of business, generally of a short-term nature. These purchase obligations include commitments for inventory purchases, marketing-related contracts, corporate sponsorships, 86 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) software/license commitments and service contracts. We also enter into long-term, exclusive contracts with vendors to supply us with certain goods and services, however, they generally do not include firm minimum purchase commitments. Unconditional Purchase Obligations The Company has entered into certain off–balance sheet commitments that require the future purchase of goods or services (“unconditional purchase obligations”). Future payments of noncancellable unconditional purchase obligations with a remaining term in excess of one year were $ 14.4 million and $ 11.7 million as of December 28, 2025 and December 29, 2024, respectively. The majority of these purchase obligations are due within two 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. The agreement will remain in effect through the later of (i) the purchase of 585,940 gallons of product or (ii) 5 years from the effective date of the agreement. The remaining minimum purchase commitment as of December 28, 2025 was approximately $ 3.0 million. Legal Proceedings The Company is subject to legal proceedings, claims and liabilities that arise in the ordinary course of business. The amount of the ultimate liability with respect to these matters was not material as of December 28, 2025. In the event any litigation losses become probable and estimable, the Company will recognize any anticipated losses. 19. Segment Information 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’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. 87 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table details consolidated net income for the segment for the periods indicated: FISCAL YEAR (in thousands) 2025 2024 2023 Total revenues $ 1,222,501 $ 1,015,910 $ 891,551 Less: Food and beverage costs 280,098 223,097 197,374 Labor and other related expenses 405,544 335,038 294,010 Other restaurant operating expenses 188,685 151,968 134,477 Occupancy expenses 100,788 82,694 68,400 Pre-opening expenses 12,933 10,109 7,173 Stock-based compensation, net of amounts capitalized 10,760 8,525 7,604 General and administrative expenses (1) 118,190 104,745 95,517 Depreciation and amortization 75,011 57,715 41,223 Other segment items (2) 2,981 3,112 4,506 Interest expense 16,699 12,640 8,063 Other income, net ( 1,321 ) ( 1,759 ) ( 2,871 ) Income tax (benefit) expense ( 7,299 ) 9,101 10,690 Net income $ 19,432 $ 18,925 $ 25,385 (1) General and administrative expenses excludes stock-based compensation, net of amounts capitalized, presented separately. (2) Other segment items included in segment net income primarily includes transaction expenses, and impairments and loss on disposal of assets. 20. Net Income Per Common Share The following table sets forth the computations of basic and diluted net income per common share: FISCAL YEAR (in thousands, except share and per share data) 2025 2024 2023 Numerator: Net income $ 19,432 $ 18,925 $ 25,385 Denominator: Weighted average common shares outstanding - basic 60,963,587 60,365,393 59,531,404 Weighted average common shares outstanding - diluted 62,842,519 62,351,222 61,191,613 Net income per common share - basic $ 0.32 $ 0.31 $ 0.43 Net income per common share - diluted $ 0.31 $ 0.30 $ 0.41 Stock options outstanding not included in diluted net income per common share as their effect is anti-dilutive 12,552 12,552 13,656 Restricted stock units outstanding not included in diluted net income per common share as their effect is anti-dilutive 7 336,410 355 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. 88 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 21. Condensed Financial Information of Registrant (Parent Company Only) FIRST WATCH RESTAURANT GROUP, INC. (PARENT COMPANY ONLY) CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) DECEMBER 28, 2025 DECEMBER 29, 2024 Assets Investment in subsidiaries $ 626,279 $ 595,389 Equity Preferred stock; $ 0.01 par value; 10,000,000 shares authorized; none issued and outstanding — — Common stock; $ 0.01 par value; 300,000,000 shares authorized; 61,131,978 and 60,700,090 shares issued and outstanding at December 28, 2025 and December 29, 2024, respectively 611 607 Additional paid-in capital 661,153 649,045 Accumulated deficit ( 34,390 ) ( 53,822 ) Accumulated other comprehensive loss ( 1,095 ) ( 441 ) Total equity attributable to First Watch Restaurant Group, Inc. $ 626,279 $ 595,389 FIRST WATCH RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) FISCAL YEAR 2025 2024 2023 Equity in net income of subsidiaries Net income and comprehensive income $ 18,778 $ 19,151 $ 24,718 Net income per common share attributable to First Watch Restaurant Group, Inc. - basic $ 0.32 $ 0.31 $ 0.43 Net income per common share attributable to First Watch Restaurant Group, Inc. - diluted $ 0.31 $ 0.30 $ 0.41 Weighted average number of common shares outstanding - basic 60,963,587 60,365,393 59,531,404 Weighted average number of common shares outstanding - diluted 62,842,519 62,351,222 61,191,613 Statements of cash flows have not been presented as First Watch Restaurant Group, Inc. did not have any cash as of, or for Fiscal 2025, Fiscal 2024 and Fiscal 2023. Basis of Presentation The Company is a holding company without any operations of its own (the “Parent Company”). Pursuant to the terms of the Credit Agreement discussed in Note 10, Debt, the Company and certain subsidiaries of the Company have restrictions on their ability to, among other things, (i) incur additional indebtedness, pay dividends or make certain intercompany loans and advances, and (ii) exceed a maximum total rent adjusted net leverage ratio or fall below a minimum fixed charge coverage ratio. As a result of these restrictions, these parent company financial statements have been prepared in accordance with Rule 12-04 of Regulation S-X, as restricted net assets of the Company’s subsidiaries (as defined in Rule 4-08(e)(3) of Regulation S-X) exceed 25 % of the Company’s consolidated net assets as of December 28, 2025 and December 29, 2024. 89 FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) These condensed financial statements have been prepared on a “parent-only” basis. These condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the Company’s consolidated financial statements, with the only exception being that the parent company accounts for its subsidiaries using the equity method. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The accompanying financial information should be read in conjunction with the accompanying Company’s consolidated financial statements and related notes thereto. 90 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.