FWRG 10-K & 10-Q changes, risk factors and insider trading

You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and our consolidated financial statements and related notes. If any of the risks and uncertainties described in the cautionary factors described below actually occur or continue to occur, our business, financial condition, results of operations,operations and cash flow and the trading price of our common stock could be materially and adversely affected. The considerations and risks that follow are organized within relevant headings but may be relevant to other headings as well. Moreover, the risks below are not the only risks we face and additional risks not currently known to us or that we presently deem immaterial may emerge or become material at any time and may adversely impact our business, reputation, financial condition, results of operations,operations or cash flow or the trading price of our common stock.

•our vulnerability to changes in economic conditionsconditions, consumer preferences and other factors, many of which are largely outside of our control

•opening new restaurants in existing markets may adversely impact sales at our and our franchisees’ existing restaurants

•the number of visitors to areasretail, lifestyle or entertainment centers where our restaurants are located may decline

•lower than expected same-restaurant sales growth or same-restaurant traffic growth

•compliance withwith, and expansion of, federal and state laws and regulations relating to privacy, data protection, advertising and consumer protection

•risks associated with our sustainability activities, including ESG mattersactivities

•labor shortages and increased labor and healthcare costs due to changes in laws and regulations

•volatilitythe in our resultsimpact of operationschanges causedto by fluctuations in ourfuture tax obligationslaws, and effectiveunanticipated tax rateliabilities and realization of our deferred tax assets

•our level of indebtedness and our duty to comply with covenants under our Credit Agreement

•risks associated with the anti-takeover provisions of Delaware law, our amended and restated certificate of incorporation (as amended to date, “our amended and restated certificate of incorporation”) and bylaws

Food service businesses depend on consumer discretionary spending and are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. Factors such as traffic patterns, weather, fuel prices, local demographics and the type, number and locations of competing restaurants have adversely affected, and may continue to adversely affect the performancesperformance of individual locations. In addition, economic downturns, geopolitical tensions, inflation or increased food or energy costs have harmed and could continue to harm the restaurant industry in general and our restaurants in particular. Adverse changes in any of these factors could reduce consumer traffic or impose practical limits on pricing that could have a material adverse effect on our business, financial condition and results of operations. It is possible that consumers may no longer regard our menu offerings favorably, that we will no longer be able to develop new menu items that appeal to consumer preferences or that there will be a drop in consumer demands for restaurant dining during breakfast and lunch dayparts. Restaurant traffic and our resulting sales depend in part on our ability to anticipate, identify and respond to changing consumer preferences and economic conditions. TheFor risingexample, the widespread popularity of certain weight loss drugs, which suppress a person’s appetite, may impact sales or traffic in our restaurants. In addition, the restaurant industry is subject to scrutiny due to the perception that restaurant company practices have contributed to poor nutrition, high caloric intake, obesity or other health concerns of their customers. If we are unable to adapt to changes in consumer preferences and trends, we may lose customers, which could have a material adverse effect on our business, financial condition and results of operations.

OurIn addition, our system-wide restaurants are geographically concentrated in the southeast portion of the United States and we have encountered, and may encountercontinue to encounter, new challenges as we enter new markets. The challenges of entering new markets include: difficulties in hiring experienced personnel; increased labor costs; unfamiliarity with local real estate markets and demographics; consumer unfamiliarity with our brand; and different competitive and economic conditions, consumer tastes and discretionary spending patterns that are more difficult to predict or satisfy than in our existing markets. Consumer recognition of our brand has been important in the success of company-owned and franchise-owned restaurants in our existing markets, and we may find that our concept has limited appeal in new markets. Restaurants we open in new markets may take longer to reach expected sales and profit levels on a consistent basis and may have higher construction, occupancy and operating costs than existing restaurants. Any failure on our part to recognize or respond to these challenges may adversely affect the success of any new restaurants and could have a material adverse effect on our business, financial condition and results of operations.

Our growth plan includes opening new restaurants. Our existing restaurant management systems, financial and management controls and information systems may be inadequate to support our planned expansion. Managing our growth effectively will require us to continue toour enhanceenhancement of these systems, procedures and controls and to recruit, hire, train and retain managers and team members. We may not respond quickly enough to the changing demands that our expansion will impose on our management, restaurant teams and existing infrastructureinfrastructure, which could have a material adverse effect on our business, financial condition and results of operations.

The consumer target area of our company-owned restaurants and our franchisees’franchise-owned restaurants varies by location, depending on a number of factors, including population density, other local retail and business attractions, area demographics and geography. As a result, if we open new restaurants in or near markets in which we or our franchisees’franchisees already have restaurants, it could have a material adverse effect on the results of operations and same-restaurant sales growth for our restaurants in such markets due to the close proximity with our other restaurants and market saturation. ExistingOur existing restaurants could also make it more difficult to build our and our franchisees’ consumer base for a new restaurant in the same market. Sales cannibalizationtransfer between our restaurants may become significant in the future as we continue to open new restaurants and could affect our sales growth, which could, in turn, have a material adverse effect on our business, financial condition and results of operations.

Our same-restaurant sales growth and same-restaurant traffic growth may be lower than we expect in future periods.

Same-restaurant sales growth will continue to be a critical factor affecting our ability to generate profits because the profit margin on same-restaurant sales growth is generally higher than the profit margin on new restaurant sales. Our ability to increase same-restaurant sales growth depends in part on our ability to successfully implement our marketing and operations initiatives to build sales. It is possible such initiatives will not be successful, that we will not achieve our target same-restaurant sales growth or that the change in same-restaurant sales growth could be negative, which may causeadversely aimpact decrease in sales growth andour ability to achieve profitability. This could have a material adverse effect on our business, financial condition and results of operations.

Our marketing programs and our limitedlimited-time time newmenu offerings may not be successful and could fail to meet expectations, and our new menu items, advertising campaigns and restaurant designs and remodels may not generate increased sales or profits.

Our profitability depends in part on our ability to anticipate and react to changes in food and beverage costs, including, among other things, our costs for pork, coffee, eggs, avocados, potatoes, bread, cheese and fresh produce items. We are susceptible to increases in the cost of food due to factors beyond our control, such as freight and delivery charges, general economic conditions, seasonal economic fluctuations, weather conditions, global demand, food safety concerns, infectious diseases, fluctuations in the U.S. dollar, tariffs and import taxes, product recalls and government regulations. In 2024 and continuing into 2025, for example, we have experienced significant increases in the cost of eggs, primarily due to an outbreak of avian influenza, as well as coffee and avocados,coffee, primarily due to the impact of climate and weather conditions. Dependence on frequent deliveries of fresh produce and other food products subjects our business to the risk that shortages or interruptions in supply could adversely affect the availability, quality or cost of ingredients or require us to incur additional costs to obtain adequate supplies. Further, increases in fuel prices could result in increased distribution costs.

Changes in the price or availability of certain food products could affect our profitability and reputation. While some commodities we purchase are subject to contract pricing, as our contracts expire, we may not be able to successfully re-negotiate terms that protect us from price inflation in the future. International commodities we purchase are also subject to supply shortages or interruptions.interruptions, including as a result of changes in foreign and domestic trade and tax policies.

Our continued success also depends in part on the continued popularity of our menu and the experience we offer customers at our restaurants. Consumer tastes, nutritional and dietary trends, traffic patterns and the type, number, and location of competing restaurants often affect the restaurant business, and our competitors may react more efficiently and effectively to changes in those conditions. In addition, some of our competitors in the past have implemented promotional programs that provide price discounts on certain menu offerings, and they may continue to do so in the future. If we are unable to continue to compete effectively, our traffic, restaurant sales and restaurant operating profit margins could decline, which could have a material adverse effect on our business, financial condition and results of operations.

Our food safety controls, procedures and training may not be fully effective in preventing all food safety and public health issues at our restaurants, including any occurrences of pathogens, bacteria, parasites or other toxins infecting our food supply. These potential public health issues, in addition to food tampering, could adversely affect food prices and availability of certain food products, generate negative publicity, and lead to closure of restaurants resulting in a decline in our sales or profitability. In addition, there is no guarantee that our restaurant locations will maintain the high levels of internal controls and training we require at our restaurants. Furthermore, our reliance on third-party food processorsprocessors, suppliers and transporters outside of our control makes it difficult to monitor food safety compliance and may increase the risk that food-borne illness would affect multiple locations rather than single restaurants. Some food-borne illness incidents could be caused by third-party food suppliers and transporters outside of our control, and may affect multiple restaurant locations as a result. We cannot assure that all food items will be properly maintained during transport throughout the supply chain or that our employees will identify all products that may be spoiled and should not be used in our restaurants. The risk of food-borne illness may also increase whenever our menu items are served outside of our control, such as by third-party food delivery services companies, customer take out or at catered events. We do not have direct control over our third-party suppliers, transporters or delivery services, and may not have visibility into their practices. New illnesses resistant to our current precautions may develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or allegations on a retroactive basis. One or more instances of food-borne illness in one of our company-owned or franchised restaurants could adversely affect sales at all our restaurants if highly publicized, such as on national media outlets or through social media, especially due to the geographic concentration of many of our restaurants. This risk exists even if it were later determined that the illness was wrongly attributed to one of our restaurants.

Potential food safety incidents, whether at our restaurants or involving our business partners, could lead to wide public exposure and negative publicity, which could materially harm our business. A number of other restaurant chains have experienced incidents related to food-borne illnesses that have had material adverse impacts on their operations, and we could experience a similar impact upon the occurrence of a similar incident at one of our restaurants. Additionally, even if food-borne illnesses were not identified at our restaurants, our restaurant sales could be adversely affected if instances of food-borne illnesses at other restaurant chains were highly publicized.

As 15% and 19%12% of our system-wide restaurants were franchised as of December 29,28, 2024 and December 31, 2023, respectively,2025, our results of operations are dependent in part upon the operational and financial success of our franchisees. While we are responsible for ensuring the success of our system-wide restaurants and for taking a long-term view with respect to system-wide improvements, our franchisees have individual business strategies and objectives, which may conflict with our interests. Our franchisees may not be able to secure adequate financing to open or continue operating their restaurants. If they incur too much debt or if economic or sales trends deteriorate such that they are unable to repay existing debt, our franchisees could experience financial distress or even bankruptcy. If a significant number of franchisees become financially distressed or close their restaurants, it could result in reduced franchise revenues, which could have a material adverse effect on our business, financial condition and results of operations.

Franchisees are independent business operators and are not our employees, and we do not exercise control over the day-to-day operations of the franchised restaurants. We provide training and support to franchisees,franchisees and set and monitor operational standards and guidelines,guidelines. however,However, because we do not have day-to-day control over the franchisees, our franchisees may operate restaurantsrestaurants, including hiring and training managers and other restaurant personnel, in a manner that is not consistent with our standards, guidelines and requirements, or hire and train qualified managers and other restaurant personnel.requirements. If franchisees do not operate to our expectations, our image and reputation, and the image and reputation of other franchisees, may suffer, which could have a material adverse effect on our business, financial condition and results of operations.

As of December 29,28, 2024,2025, we purchasedprocured substantially all of our pork from two suppliers, substantially all of our eggs from one supplier and all of our coffee from one supplier. We purchase these ingredients pursuant to purchase orders at prevailing market or negotiated contract prices and are not limited by minimum purchase requirements. The cancellation of our supply arrangements with any one of these suppliers or the disruption, delay or inability of these suppliers to deliver these major products to our restaurants or distribution centers due to problems in production or distribution, inclement weather, unanticipated demand, trade restrictions (such as increased tariffs or quotas, embargoes or customs restrictions) or other conditions may materially and adversely affect our results of operations while we establish alternative supplier and distribution channels. Accordingly, although we believe that alternative supply and distribution sources are available, we may not be able to identify or negotiate with such sources on terms that are commercially reasonable to us. If our existing suppliers or distributors are unable to fulfill their obligations under their contracts or we are unable to identify alternative sources, we could encounter supply shortages and incur higher costs, each of which could have a material adverse effect on our business, financial condition and results of operations.

In addition, if our suppliers or distributors fail to comply with food safety or other laws and regulations, or face allegations of non-compliance, their operations may be disrupted. We also could experience shortages of key ingredients if our suppliers need to close or restrict operations due to the impact of a pandemic or other infectious diseases. If our suppliers’ employees are unable to work or our suppliers’ operations are disrupted due to a pandemic or other infectious diseases, we and our franchisees could face shortages of food items or other supplies, and our and our franchisees’ operations and sales could be materially adversely impacted by such supply interruptions. If that were to occur, we may not be able to find replacement suppliers on commercially reasonable terms or a timely basis, if at all.

More generally, we are subject to additional risks related to the increases toin energy orand transportation costs. Energy prices are in turn subject to significant volatility caused by, among other things, market fluctuations, supply and demand, currency fluctuations, production and transportation disruptions, geopolitical developments, and other world events, as well as climate change related conditions discussed above. For instance, the Russia-Ukraine war has adversely impacted, and thecontinues Israel-Hamas war couldto adversely impact, among other things, our raw material, energy and transportation costs, asand wellthose asof certain of our suppliers, as well as global and local macroeconomic conditions, and could cause further supply chain disruptions.

Our restaurants in the southeast portion of the United States represented approximately 41% of our system-wide restaurants as of December 29,28, 2024.2025, Ourwith our restaurants in Florida representedrepresenting approximately 23% of our system-wide restaurants as of December 29, 2024.22%. Adverse changes in demographic, unemployment, economic, regulatory or weather conditions in the southeast portion of the United States have had, and may continue to have, material adverse effects on our business, financial condition and results of operations. As a result of our concentration in this market,concentration, we have been, and in the future may be, disproportionately affected by conditions in this geographic area compared to other chain restaurants with a more national footprint.

Our marketing efforts rely heavily on the use of social media. In recent years, there has been a marked increase in the use of social media platforms, including weblogs (blogs), mini-blogs, chat platforms, social media websites, and other forms of internet-based communications, which allow individuals access to a broad audience of consumers and other interested persons. Many of our competitors are expanding their use of social media, and new social media platforms are rapidly being developed, potentially making more traditional social media platforms obsolete. As a result, we need tomust continuously innovate and develop our marketing strategies in order to maintain broad appeal with customers and brand relevance, particularly given the rise in digital orders by customers at home due to the increased work-from-home customer base. We also continue to invest in other digital marketing initiatives that allow us to reach our customers across multiple digital channels and build their awareness of, engagement with, and loyalty to our brand. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher sales or increased brand recognition. Additionally, negative commentary regarding our restaurants, our food or our service may be posted on our social media platforms and may be adverse to our reputation or business. This harm may be immediate, without affording us an opportunity for redress or correction. In addition, the rapid evolution and increased adoption of artificial intelligence technologies may affect our customers’ expectations, requirements or tastes in ways we cannot adequately anticipate or adapt to, adversely affect our business financial condition and results of operations, and may require us to develop artificial intelligence-specific systems. We and many of our vendors have started to incorporate artificial intelligence tools in our business operations in an effort to improve workflows and outcomes. If these tools are not successful, we could incur expenses without the benefit of improved efficiency.

We and our franchisees rely heavily on our computer systems and network infrastructure across our operations, including point-of-sale processing at ourthe restaurants,restaurants and for management of our supply chain, accounting, payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures. Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems. Our operations and those of our franchisees’ operationsfranchisees depend upon our and our franchisees’the ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses and other disruptive problems. Any actual or perceived breach in the security of our information technology systems or those of our franchisees and third-party service providers could lead to damage or failure of our computer systems or network infrastructureinfrastructure, that causescausing an interruption in our operationsoperations, or could havelead a material adverse effect on our business andto a significant theft, loss, disclosure, modification or misappropriation of, or access to, guests’, employees’, third parties’ or other proprietary data or other breach of our information technology systemssystems, any of which could have a material adverse effect on our business or subject us or our franchisees to litigation or to actions by regulatory authorities. Furthermore, at various times we have allowed certain of our team members in our corporate headquarters to work from home. Remote working, particularly for an extended period of time, could increase certain risks to our business, including an increased risk of cybersecurity events, vulnerability of our systems and improper dissemination of confidential or personal information, if our physical and cybersecurity measures or our corporate policies are not effective. The costs to us to protect against any of the foregoing cybersecurity vulnerabilities or to address a cyber-incident could be significant and have a material adverse impact on our business, financial condition and results of operations.

Further, the standards for systems currently used for transmission and approval of electronic payment transactions, and the technology utilized in electronic paymentpayments themselves, all of which can put electronic payment data at risk, are determined and controlled by the payment card industry, not by us. For example, we are subject to industry requirements such as the Payment Card Industry Data Security Standard,Standard or PCI-DSS,(“PCI-DSS”), as well as certain other industry standards. Any failure to comply with these rules and/or requirements could significantly harm our brand, reputation, business and results of operations, and in the case of PCI-DSS, could result in monetary penalties and/or the exclusion from applicable card brands. We also rely on independent service providers for payment processing, including payments made using credit and debit cards. If these independent service providers become unwilling or unable to provide these services to us or if the cost of using these providers increases, our business could be harmed.

We rely on a variety of marketing and advertising techniques, including email communications, affiliate partnerships, social media interactions, digital marketing, direct mailers, public relations initiatives and local community sponsorships, promotions and partnerships, and we are subject to various laws and regulations that govern such marketing and advertising practices. A variety of federal and state laws and regulations govern the collection, use, retention, sharing and security of consumer data, particularly in the context of digital marketing, which we rely upon to attract new customers. We are, and may increasingly become, subject to other various laws, directives, industry standards and regulations, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. The information, security and privacy requirements imposed by governmental regulation are increasingly demanding and are subject to potentially differing interpretations. Laws and expectations relating to privacy continue to evolve, and we continue to adapt to changing needs. For example, the definition of “personal information” or “personal data” under newer privacy laws is much broader than the definition of “personally identifiable information” that appears in older privacy laws, and many jurisdictions have or will soon enact new privacy laws. Specifically, certain states in which we operate or may operate in the future have enacted or may soon enact comprehensive privacy laws that may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than current federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. The California Consumer Privacy Act (“CCPA”), for example, requires, among other things, covered companies to provide new disclosures to California consumers and allows such consumers new abilities to opt-out of certain sales of personal data. The CCPA also provides for civil penalties for violations as well as a private right of action for data breaches that may increase data breach litigation. Further, the California Privacy Rights Act, which became fully effective in January 2023, significantly modifies the CCPA. Colorado, Connecticut, Colorado, Delaware, Indiana, Iowa, Kentucky, Maryland, Minnesota, Montana, Nebraska, New Hampshire, New Jersey, Oregon, Rhode Island, Tennessee, Texas, Utah and Virginia have enacted similar data privacy legislation and Indiana, Kentucky, Maryland, Minnesota, Rhode Island and Tennessee have enacted similar data privacy legislation that will take effect at various points in 2025 and beyond.legislation. Several other states and countries are considering expanding or passing privacy laws in the near term. These laws and regulations have required and will require us to incur additional costs and expenses in our effort to comply. Our failure to adhere to or successfully implement appropriate processes to adhere to the requirements of evolving laws and regulations in this area could expose us and our franchisees to financial penalties and legal liability. Our and our franchisees’ systems may not be able to satisfy these changing requirements and customer and employee expectations, or may require significant additional investments or time in order to do so.

We have registered First Watch® and certain other names, logos and slogans used by our restaurants as trademarks or service marks with the USPTO. The First Watch® trademark is also registered in Canada. In addition, the First Watch logo, website domain name and Facebook and Instagram accounts are our intellectual property. The success of our business strategy depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and develop our branded products. If our efforts to protect our intellectual property are not adequate, or if any third-partythird party misappropriates or infringes on our intellectual property, whether in print, on the Internet or through other media, the value of our brands may be adversely affected, which could have a material adverse effect on our business, including the failure of our brands and branded products to achieve and maintain market acceptance.

We or our suppliers maintain the seasonings and additives for our menu items, as well as certain standards, specifications and operating procedures, as trade secrets or confidential information. We may not be able to prevent the unauthorized disclosure or use of our trade secrets or confidential information, despite the existence of confidentiality agreements and other measures. If any of our trade secrets or other confidential information were to be disclosed to or independently developed by a competitor, it could have a material adverse effect on our business, financial condition and results of operations.

Third parties may, from time to time, assert infringement or misappropriation claims against us, or assert claims that our rights in our trademarks, service marks, trade names and other intellectual property assets are invalid or unenforceable. Any such claims could have a material adverse effect on us or our franchisees if such claims were to be decided against us. If our rights in our intellectual property were invalidated or deemed unenforceable, we may not be able to prevent third parties from using such intellectual property or similar intellectual property to compete with us, which, in turn, could lead to a decline in our brand and the goodwill associated therewith and theour results of operations. If our intellectual property became subject to third-party infringement, misappropriation or other claims, and such claims were decided against us, we may be forced to pay damages, be required to develop or adopt non-infringing intellectual property or be obligated to acquire a license to the intellectual property that is the subject of the asserted claim. There could be significant expenses associated with the defense of any infringement, misappropriation, or other third-party claims. We may also from time to time be required to institute litigation to enforce our trademarks, service marks and other intellectual property. Any such litigation could result in substantial costs and diversion of management’s attention and resources and could have a material adverse effect on our business, financial condition and results of operations regardless of whether we are able to successfully enforce our rights.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified managers and employees to meet the needs of our existing restaurants and to staff new restaurants. In recent years, the restaurant industry has experienced aggressive competition for talent, wage inflation and pressure to improve benefits and workplace conditions to remain competitive. A sufficient number of qualified individuals to fill these positions may be in short supply in some communities. Competition in these communities for qualified staff could require us to pay higher wages and provide greater benefits. We place a heavy emphasis on the qualification and training of our personnel and spend a significant amount of time and money on training our employees. Any inability to recruit and retain qualified individuals may result in higher turnover and increased labor costs, and could compromise the quality of our service,service couldand have a material adverse effect on our business, financial condition and results of operations. Any such inability could also delay the planned openings of new restaurants and could adversely impact our existing restaurants.restaurants, The inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in restaurant openingswhich could have a material adverse effect on our business, financial condition and results of operations.

We believe that a critical component to our success has been our corporate culture. We have invested substantial time and resources in building our team. As we continue to grow, we may find it difficult to maintain the innovation, teamwork, passion and focus on execution that we believe are important aspectselements of our corporate culture. Any failure to preserve our culture could adversely impact our operations, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives. If we cannot maintain our corporate culture as we grow, it could have a material adverse effect on our business, financial condition and results of operations.

Certain customers, investors, lenders, regulators and other industry stakeholders have placed increasing importance on corporate ESGsustainability practices, which could cause us to incur additional costs and changes to our operations. If our ESGsustainability practices or disclosures do not meet stakeholders’ evolving expectations and standards, our customer and employee retention, our access to certain types of capital, and our brand and reputation may be adversely impacted, which could affect our business operations and financial condition. We could also incur additional costs and require additional resources to monitor, report and comply with various ESGsustainability practices, laws and regulations, which could increase our operating costs and affect our results of operations and financial condition. In addition, from time to time, we may communicate certain initiatives regarding climate change, animal welfare and other ESGcorporate sustainability matters. We could fail or be perceived to fail to achieve such initiatives, which may adversely affect our reputation. The future adoption of new technology or processes to achieve such initiatives could also result in the impairment of existing assets. At the same time, stockholders and regulators have increasingly expressed opposing views and expectations with respect to ESG initiatives, including the enactment of “Anti-ESG” legislation or policies.

First Watch is an award-winning Daytime Dining concept serving made-to-order breakfast, brunch and lunch using fresh ingredients. The Company’sOur common stock trades on Nasdaq under the ticker symbol “FWRG.” A recipient of hundreds ofmany local “Best Breakfast” and “Best Brunch” accolades, First Watch’s award-winning chef-driven menu includes elevated executions of classic favorites for breakfast, brunch and lunch. For threefour consecutive years, First Watch washas been named a Top 100 Most Loved Workplace® by Newsweek and the Best Practice Institute, and in 2024,2025, was named the #1 Most Loved Workplace.Workplace Infor 2023,the second year in a row, featured in The Wall Street Journal. Also, in 2025, First Watch was named theone top restaurant brand inof Yelp’s inauguralMost-Loved listBrands of the top 50 most-loved brands in the United States. In 2022, First Watch was recognized with ADP’s coveted Culture at Work Award.nationwide.

TheWe Company operatesoperate and franchisesfranchise restaurants in 2932 states under the “First Watch” trade name and as of December 29,28, 2024, the Company2025, had 489560 company-owned restaurants and 8373 franchise-owned restaurants. TheWe Company doesdo not operate outside of the United States.

The Company’sOur 52- or 53-week fiscal years end on the last Sunday of each calendar year. ItsOur fiscal quarters are comprised of 13 weeks each and end on the 13th Sunday of each quarter, saveexcept for 53-week yearsyears, during which the fourth quarter ends on the 14th Sunday of the fourth quarter. All references to 20242025 and 20222024 reflect the results of the 52-week fiscal yearyears ended December 29,28, 20242025 and December 25,29, 2022.2024, respectively. All references to 2023 reflect the results of the 53-week fiscal year ended December 31, 2023.2023 unless otherwise stated. We report financial and operating information in one segment.

Throughout this“Management’s Discussion and Analysis of Financial Condition and Results of Operations” we commonly discuss the following key operating metrics that we believe will drive our financial results and long-term growth model. We believe these metrics are useful to investors because our Management uses these metrics to evaluate performance and assess the growth of our business as well as the effectiveness of our marketing and operational strategies.

Same-Restaurant Sales Growth: the percentage change in year-over-year restaurant sales (excluding gift card breakage) for the comparable restaurant base, which we define as the number of company-owned First Watch branded restaurants open for 18 months or longer as of the beginning of the fiscal year (“Comparable Restaurant Base”). For the year ended 2024, thisThis operating metric compares the 52-week periodperiods ended December 28, 2025, December 29, 2024 with the 52-week period endedand December 31, 2023, versusrather than, the 53-week fiscal year ended December 31, 2023, in order to compare like-for-like periods. For the 52-weeks ended December 28, 2025, December 29, 2024 and December 31, 2023,2023 there were 381, 344 restaurants and 327 restaurantsrestaurants, in our Comparable Restaurant Base.Base, respectively. Measuring our same-restaurant sales growth allows Management to evaluate the performance of our existing restaurant base. We believe this measure is useful for investors to provide a consistent comparison of restaurant sales results and trends across periods within our core, established restaurant base, unaffected by results of store openings, closings and other transitional changes.

Same-Restaurant Traffic Growth: the percentage change in year-over-year traffic counts for the 52-week period ended December 29, 2024 as compared to the 52-week period ended December 31, 2023 using the Comparable Restaurant Base,Base. versusThis operating metric compares the 52-week periods ended December 28, 2025, December 29, 2024 and December 31, 2023, - (rather than the 53-week fiscal year ended December 31, 2023), in order to compare like-for-like periods. Measuring our same-restaurant traffic growth allows our Management to evaluate the performance of our existing restaurant base. We believe this measure is useful for investors because same-restaurant traffic provides an indicator as to the development of our brand and the effectiveness of our marketing strategy.

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

Adjusted EBITDA: represents Net income before depreciation and amortization, interest expense, income taxes,taxes and items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of Net income, the most directly comparable measure in accordance with GAAP, to Adjusted EBITDA, included in the section Non-GAAP Financial Measure Reconciliations below.

The financial results of 20242025 reflect the continued growth of the Company. TheIn Company2025, continuedwe toexecuted accelerateour thegrowth pacestrategy ofwith 55 new restaurant openings with 43 NROs in 2024 and wethe executedacquisition onof our growth strategy as we acquired 2219 operating restaurants from our franchisees in 2024.franchisees.

•Total revenues increased 13.9%20.3% to $1.2 billion from $1.0 billion from $891.6 million in 20232024

•Same-restaurant sales growth of negative 0.5%*3.6%

•Same-restaurant traffic growth of negative 4.0%*0.5%

•Restaurant level operating profit** increased to $201.8$224.1 million from $175.7$201.8 million in 20232024

•Restaurant level operating profit margin** increaseddecreased to 20.1%18.5% from 20.0%20.1% in 20232024

•AdjustedNet EBITDA**income increased to $113.8$19.4 million from $99.5$18.9 million in 20232024

•Opened 5064 system-wide restaurants (4355 company-owned and 79 franchise-owned) across 1923 statesstates, resulting in a total of 572633 system-wide restaurants (489560 company-owned and 8373 franchise-owned) across 2932 states ___________________

** See Non-GAAP Financial Measure Reconciliations section below.

Commodity inflation was 3.2%5.0% in 2024.2025, largely driven by eggs, coffee, avocado and bacon. We expect a high-single digit percentage increase in our 20252026 commodity prices to increase approximately 1% to 3% as compared to the prior year.year, primarily related to coffee.

Restaurant level labor inflation ofduring 4.4%2025 was 3.7%, largely offset by improvementsprice in labor efficiencies.increases. At year end, we were staffed with over 120100 managers to lead and operate our future new company-owned restaurants. We expect 2%3% to 4%5% labor inflation in 2025.2026.

Continuing theour Company’sgrowth expansion,strategy, Managementwe intendsintend to open 59 to 6463 net new system-wide restaurants in 2025. In addition, Management has entered into two agreements to acquire 19 restaurants from franchisees.2026.

During 2024,2025, the Companywe had a total of 5064 new system-wide restaurants in 1923 states. OneThree company-owned and one franchise-owned restaurantrestaurants closed in 2024.2025. We also acquired 2219 operating restaurants from our franchisees in the execution of our growth strategy. See Note 3, Business Acquisitions, in the accompanying notes to the consolidated financial statements for additional information. At December 29,28, 2024,2025, the Company had a total of 572633 system-wide restaurants.

We expect to open between 5553 to 5855 company-owned restaurants and 79 to 911 franchise-owned restaurants during 2025.2026. We also plan to close 3three company-owned restaurants, resulting in a total of 59 to 64,63 net new system-wide restaurants in 2025.2026.

________________ (1) Comparing the 52-week periodperiods ended December 28, 2025, December 29, 2024 with the 52-week period endedand December 31, 2023 in order to compare like-for-like periods. See “Key Performance Indicators” for additional information.

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

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

The following table summarizes our results of operations and the percentages of items in our Consolidated Statements of Operations and Comprehensive Income (Loss) in relation to Total revenues or, where indicated, Restaurant sales for 20242025 and 20232024:

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

The increase in total restaurant sales was primarily due to (i) openingnew restaurant openings and acquiring restaurants from franchisees in 2024,2025, (ii) recognizing a full year of sales for restaurants opened and acquired in 2023 and2024, (iii) menupositive pricesame-restaurant increases.sales growth of 3.6%, and (iv) positive traffic of 0.5%. The increase was partially offset by (i)increased 2024promotional negative same-restaurant sales growth of 0.5% and (ii) the 53rd week of sales in 2023.usage.

The decrease in franchise revenues during 20242025 as compared to 20232024 was primarily driven by (i) the Company’s acquisitionsacquisition of 19 and 22 franchise-owned restaurants during 2025 and (ii)2024, $0.6 million of deferred franchise revenues recognized in 2023 in connection with the acquisitions of restaurants from franchisees. The decrease wasrespectively, partially offset by (i)incremental revenuesrevenue from nine franchise-owned NROs in 2025 and (ii)seven $0.4franchise-owned million of deferred franchise revenues recognizedNROs in 2024 in connection with the acquisitions of restaurants from our franchisees.2024.

The components of foodFood and beverage costs at company-owned restaurants are variable by nature, changevary with sales volume, are impacted by product mixvolume and are subject to increases orand decreasesdeclines in commodity costs.

Food and beverage costs as a percent of restaurant sales decreasedincreased during 20242025 as compared to 20232024 primarily due to leveraging(i) commodity inflation of 5.0%, as discussed below, and (ii) increased portion size in certain menu price increases.items. The decreaseincrease was partially offset by commoditythe inflationimpact of 3.2%.menu price increases.

Food and beverage costs increased during 20242025 as compared to 20232024 primarily as a result of (i) the 14.5%20.7% increase in restaurant sales, (ii) opening and acquiring restaurants in 2024,2025, (iii) recognizing a full year of costs for restaurants opened and acquired in 2023 and2024, (iv) commodity inflation.inflation The increase was partially affected by the additional 53rd weekexperienced in 2023.eggs, coffee, bacon and avocados and (v) increased portion size in certain menu items.

Labor and other related expenses are variable by nature and include hourly and management wages, bonuses, payroll taxes, workers’ compensation expense and employee benefits. Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, the number and performance of our company-owned restaurants and increased competition for qualified staff.

Labor and other related expenses as a percentage of restaurant sales decreasedincreased during 20242025 as compared to 20232024 primarily as a result of (i) wage increases and (ii) higher health insurance costs. This increase was mostly offset by (i) menu price increases and (ii) improved hourly labor efficiency. This decrease was partially offset by (i) wage increases and (ii) higher health insurance costs.

The increase in labor and other related expenses during 20242025 as compared to 20232024 was primarily due to (i) the increase in staffing levels to support the increase in corporate-ownedcompany-owned restaurantsrestaurants, (ii) wage increases and (iii) higher health insurance costs. The increase was partially offset by (i) hourly labor efficiency and (ii) the additional 53rd week in 2023.efficiency.

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

Other restaurant operating expenses as a percentage of restaurant sales during 20242025 decreasedincreased as compared to 20232024 primarily due to (i) leveraging menu price increases, (ii) third-party delivery related revenue and expenses, including to-go supplies and third-party delivery fees, increasing at a lower rate than total restaurant sales. This decrease was partially offset by (i) utilities expenses, (ii) restaurantutility advertising costsexpenses and (iii) creditsupply card feescosts, which increased as a percentage of restaurant sales. This increase was partially offset by (i) leveraging menu price increases and (ii) credit card, restaurant-level legal, accounting, and licensing fees, which decreased as a percentage of restaurant sales.

The increase in other restaurant operating expenses during 20242025 as compared to 20232024 was primarily due to the increase in the number of restaurants driving increases in certain expenses including (i) $7.5$10.9 million ofrelated additionalto creditoperating card, delivery, and license fees,supplies, (ii) $4.6$10.4 million increase in utilities and repair and maintenance expenses, (iii) $3.4$9.1 million relatedin tothird-party operatingdelivery supplies andfees, (iv) $1.3$4.0 million relatedin tocredit restaurantcard advertisingfees costs.and The(v) increase$1.4 was partially offset by a decreasemillion in to-goinsurance supplies costs of $0.3 million.expenses.

The increase in occupancy expenses as a percentage of restaurant sales during 20242025 as compared to 20232024 was primarily due to higher rent expense and the deleverage associated with negativenew same-restaurantrestaurants salesmostly growth.offset by leveraging increased restaurant sales.

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

The increase in 20242025 pre-opening expenses as compared to 20232024 was primarily due to (i) the higher number of new restaurants opened and under construction and (ii) the related increase in rents.rent expense.

The increase in general and administrative expenses during 20242025 as compared to 20232024 was mainly due to (i) $5.2an $8.0 million increase in marketing expenses, (ii) a $6.7 million increase in compensation and other related expenses such asfrom wage increases, stock compensationincreases and additional employee headcount to support growth, and (iiiii) $2.7a $2.1 million increase in licenses and fees related to information technology,technology (iii) $1.8 million relateddue to consultingincrease andin professionalrestaurants. servicesThe increase in 2025 was partially offset in part by $1.1a $2.4 million related to a decrease in brand research costsrecruiting and (iv) approximately $1.6 million related to travel and other miscellaneoustraining expenses.

Income from Operations and Income from Operations Margin

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with thesethe unaudited interim consolidated financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q and our audited consolidated financial statements and notes included in our 2025 Form 10-K. As discussed in the “Cautionary Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may materially differ from those discussed in such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified in our 2025 Form 10-K, including under “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations,” and in “Part II, Item 1A. Risk Factors” of this Form 10-Q.

First Watch is an award-winning Daytime Dining concept serving made-to-order breakfast, brunch and lunch using fresh ingredients. Our common stock trades on the Nasdaq under the ticker symbol “FWRGFWRG.”. A recipient of many local “Best Breakfast” and “Best Brunch” accolades, First Watch’s award-winning chef-driven menu includes elevated executions of classic favorites foralongside breakfast,innovative brunchdishes and lunch.fresh juices. For four consecutive years, First Watch has been named a Top 100 Most Loved Workplace® by the Best Practice Institute, and in 2025, was named the #1 Most Loved Workplace for the second year in a row, as featured in The Wall Street Journal.

We employ more than 18,000 employees, operate and franchise restaurants in 3233 states under the “First Watch” trade name andand, as of MarchJune 29,28, 2026, the Company had 572586 company-owned restaurants and 7679 franchise-owned restaurants.

Financial highlights for the thirteen weeks ended MarchJune 29,28, 2026 (“firstsecond quarter of 2026”) as compared, unless otherwise indicated below, to the thirteen weeks ended MarchJune 30,29, 2025 (“firstsecond quarter of 2025”) reflect the continued momentum of our operating performance and include the following:

•Opened 1618 system-wide restaurants in 1115 states, with 1 planned closure, resulting in a total of 648665 system-wide restaurants (572586 company-owned and 7679 franchise-owned) across 3233 states as of MarchJune 29,28, 2026

•Total revenues increased 17.3%15.2% to $331.0$354.7 million in the first quarter of 2026 from $282.2$307.9 million in the first quarter of 2025

•System-wide sales increased 13.8%14.7% to $367.6$397.0 million in the first quarter of 2026 from $323.0$346.2 million in the first quarter of 2025

•Income from operations margin decreased to 0.3% during the first quarter of 20262.3% from 0.4% in the first quarter of 20252.4%

•Restaurant level operating profit margin* increased to 18.5% in the first quarter of 202618.8% from 16.5% in the first quarter of 202518.6%

•Net lossincome increased to $(2.7)$2.3 million, or $(0.04)$0.04 per diluted share, in the first quarter of 2026 from net lossincome of $(0.8)$2.1 million, or $(0.01)$0.03 per diluted share, in the first quarter of 2025share

•Adjusted EBITDA* increased to $27.8$34.5 million in the first quarter of 2026 from $22.8$30.4 million in the first quarter of 2025 ___________________

In the firstsecond quarter of 2026, we experienced same-restaurant sales growth of 2.8%3.4% and same-restaurant traffic growth of negative 2.0%.0.4%. We expect annual same-restaurant sales growth to be between 1%1.5% to 3%.3.0%.

WeFor the second quarter in a row, we experienced commodity deflation of 1.6% in the first quarter of 2026,1.6%, primarily due to lower costs of eggs, avocados, and bacon, partiallymostly offset by the demand for newly introduced higher cost beef offerings and an increase in thecoffee cost of coffee.prices. We expect our full year commodity inflation to be approximately 1%zero to 3%.1.5%.

Restaurant-level wage inflation during the firstsecond quarter of 2026 was 3.7%4.1% and full year inflation is expected to be approximately 3%3.5% to 5%.4.5%.

Same-Restaurant Sales Growth: the percentage change in year-over-year restaurant sales (excluding gift card breakage) for the comparable restaurant base, which we define as the number of company-owned First Watch branded restaurants open for 18 months or longer as of the beginning of the fiscal year (“Comparable Restaurant Base”). For the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 and MarchJune 30,29, 2025, there were 454 restaurants and 383382 restaurants, respectively, in our Comparable Restaurant Base. Measuring our same-restaurant sales growth allows managementManagement to evaluate the performance of our existing restaurant base. We believe this measure is useful for investors to provide a consistent comparison of restaurant sales results and trends across periods within our core, established restaurant base, unaffected by results of store openings, closings, and other transitional changes.

Adjusted EBITDA: represents Net income (loss) before depreciation and amortization, interest expense, income taxes, and items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of Net loss,income (loss), the most directly comparable measure in accordance with GAAP, to Adjusted EBITDA, included in the section Non-GAAP Financial Measure Reconciliations below.

Adjusted EBITDA Margin: represents Adjusted EBITDA as a percentage of total revenues. See Non-GAAP Financial Measure Reconciliations below for a reconciliation to Net income (loss) margin, the most directly comparable GAAP measure.

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

The following table summarizes our results of operations and the percentages of items in our Consolidated Statements of Operations and Comprehensive LossIncome in relation to Total revenues or, where indicated, Restaurant sales for the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 and MarchJune 30,29, 2025:

The increase in total restaurant sales during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periodperiods in the prior year was due principally to (i) a higher number of restaurants from new openingsopenings, and(ii) the acquisition of 19 franchise-owned restaurants during the thirteen weeks ended June 29, 2025 franchise acquisitions and (iiiii) positive same-restaurant sales growth of 2.8%.3.4%, partially offset by the 0.4% decrease in same-restaurant traffic.

The increaseincreases in franchise revenues during the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 as compared to the same periodperiods in the prior year was due to (i) an increase in the system fund contribution rate,rate during the first quarter of 2026 and (ii) 11 new franchise-owned restaurant openings between June 29, 2025 and June 28, 2026. These increases were partially offset by aour decreaseacquisitions inof 19 franchise-owned restaurants fromduring 86the tothirteen 76.weeks ended June 29, 2025.

Food and beverage costs as a percentpercentage of restaurant sales decreased during the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 as compared to the same periodperiods in the prior year primarily as a result of (i) menu price increases and (ii) commoditythe deflation due to a decrease in thelower cost of eggs, avocados,avocados and bacon, partiallymostly offset by the demand for newly introduced higher cost beef offerings and an increase in thecoffee cost of coffee.prices.

Food and beverage costs increased during the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 as compared to the same periodperiods in the prior year primarily as a result of the 5857 new restaurant openings between June 29, 2025 and June 28, 2026 and the 19 franchise restaurants acquired fromduring franchiseesthe betweenthirteen Marchweeks 30,ended 2025 and MarchJune 29, 2026.2025. ThisThese increaseincreases waswere partially offset by commodity deflation.

Labor and other related expenses as a percentage of restaurant sales decreased during the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 as compared to the same periodperiods in the prior year primarily as a result of the leverage associated with menu price increases, partially offset by wage increases.

The increaseincreases in labor and other related expenses during the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 as compared to the same periodperiods in the prior year waswere primarily due to (i) the increase in the number of company-owned restaurants and related headcount and (ii) wage increases.

The increase in otherOther restaurant operating expenses as a percentage of restaurant sales increased during the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 as compared to the same periodperiods in the prior year was primarily due to thean increase in the number of company-owned restaurants driving increased expenses, including (i) $2.6 million related to utilities, repairrepairs and maintenance expenses, (ii) $2.2 million in operating supplies, (iii) $1.6 million in third-party delivery fees and (iv) $1.0 million in credit card fees.expenses.

The increaseincreases in occupancy expenses during the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 as compared to the same periodperiods in the prior year waswere primarily due to the increase in the number of company-owned restaurants.

The increasedecrease in pre-opening expenses during the thirteen weeks ended MarchJune 29,28, 2026 as compared to the same period in the prior year was primarily due to the higherlower number of new company-owned restaurants opened during the period.

The increase in general and administrative expenses during the thirteen weeks ended MarchJune 29,28, 2026 as compared to the same period in the prior year was mainly due to (i) a $4.0 million increase relatedin to 2026 leadership conferencemarketing expenses, (ii) a $3.5$1.0 million increase in compensation expenses related to stock compensation, bonus expensescompensation and additional employee headcount to support growth,growth and (iii) a $1.7 million increase in marketing expenses and (iv) a $0.5$0.7 million increase in licenses and fees including information technology related expenses for an increased number of restaurants. The increase was partially offset by a decrease in consulting and other professional services fees.

The increaseincreases in depreciation and amortization during the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 as compared to the same periodperiods in the prior year waswere primarily related to depreciating and amortizing the assets of NROs and of acquired restaurants, including reacquired rights from franchisees.

Transaction and restructuring expenses, net principally include (i) incremental severance costs resulting from organizational optimization, (ii) costs incurred in connection with the acquisition2025 acquisitions of franchise-owned restaurants and (iii) costs related to secondary equity offerings completed in 2025.

The increasedecrease in transaction and restructuring expenses, net during the thirteen weeks ended MarchJune 29,28, 2026 as compared to the same period in the prior year was mainly due to a $1.1 million increase in incremental severance costs resulting from organizational optimization. The increase was partially offset by (i) a $0.4 million decrease in costs incurred in connection with (i) 2025 acquisitions and (ii) a $0.4 million reduction in2025 secondary equity offering costs.

Income from operations and income from operations margin decreased during the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 compared to the same periodperiods in the prior year,year asdue revenue increases were exceeded byto increases in expenses as a percentage of sales, primarily (i) general and administrative expenses, (ii) depreciationother andrestaurant amortizationoperating expenseexpenses and (iii) occupancydepreciation expenses.and amortization expense.

The increaseincreases in interest expense during the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 as compared to the same periodperiods in the prior year was primarilywere due to increased borrowing associated with 2025 franchise acquisitions, partially offset by lower interest rates.debt.

Other income, net decreased during the thirteen weeks ended MarchJune 29,28, 2026 as compared to the same period in the prior year primarily due to a decrease in insurancesales proceeds.tax commissions.

TheIncome changetax inexpense and the effective income tax rate and provision for income taxesdecreased for the thirteen weeks ended MarchJune 29,28, 2026 as compared to the same period in the prior year wasyear, primarily due to (i) the changes in the loss before taxes, (ii) the benefit of federal FICA tax credits and (iii)changes the impact ofin executive compensation.compensation related tax impacts.

NetIncome losstax andexpense net loss margin duringfor the thirteentwenty-six weeks ended MarchJune 29,28, 2026 increaseddecreased as compared to the same period in the prior year primarily due to (i) the decrease inlower income frombefore operationsincome as expenses increased at a higher rate than revenue andtaxes, (ii) anthe increasebenefit of federal FICA tax credits and (iii) changes in interestexecutive expensecompensation associatedrelated withtax increased borrowings to fund 2025 franchise acquisitions.impacts.

Restaurant level operating profit margin during the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 increased as compared to the same periodperiods in the prior year primarily due to (i) favorable labor and other related expenses as a percentpercentage of restaurant sales and (ii) favorable food and beverage costs as a percentpercentage of sales, partially offset by the increase in other restaurant operating expenses as a percentage of restaurant sales.

Restaurant level operating profit for the thirteen and twenty-six weeks ended MarchJune 29,28, 2026 increased as compared to the same periodperiods in the prior year due to sales growth driven by increases in (i) restaurant locations and (ii) same-restaurant sales. This was partially offset by increases in expenses associated primarily with an increase in the number of company-owned restaurants, including (i) labor and other related expenses, (ii) food and beverage costs, (iii) other restaurant operating expenses,expenses and (iv) occupancy expenses and (v) pre-opening expenses.

Adjusted EBITDA margin increaseddecreased during the thirteen weeks ended MarchJune 29,28, 2026 compared to the same period in the prior year primarily due to an increase in restaurant level operating profit margin, partially offset by an increase in general and administrative expenses as a percentage of revenues.revenues, partially offset by an increase in restaurant level operating profit.

Adjusted EBITDA margin increased during the thirteentwenty-six weeks ended MarchJune 29,28, 2026 compared to the same period in the prior year primarily due to an increase in restaurant level operating profit,profit margin, partially offset by an increase in general and administrative expenses includingas (i)a expenses related to the leadership conference held in the first quarterpercentage of 2026 and (ii) an increase in compensation expenses.revenues.

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

_____________________________ (1) Represents costs related to process improvements and strategic initiatives. These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Loss.Income.

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

(3) Represents professional service costs incurred in connection with the Delaware Voluntary Disclosure Agreement Program related to unclaimed or abandoned property. These costs are recorded in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Loss.Income.

(5) Represents impairment charges and costs related to the disposal of assets due to retirements, replacementsreplacements, and restaurant closures.