Part I. Financial Information Financial Statements (Unaudited) This section presents First Watch Restaurant Group's unaudited consolidated financial statements as of March 26, 2023, highlighting increased total revenues to $211.4 million and net income to $9.4 million Consolidated Balance Sheets Total assets increased to $1.115 billion, total liabilities remained stable at $580.5 million, and total equity rose to $534.6 million as of March 26, 2023 Consolidated Balance Sheet Highlights (in thousands) | Account | March 26, 2023 | December 25, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $54,416 | $49,672 | | Total current assets | $70,159 | $67,288 | | Goodwill | $345,219 | $345,219 | | Total assets | $1,115,052 | $1,104,446 | | Liabilities & Equity | | | | Total current liabilities | $91,661 | $99,980 | | Long-term debt, net | $93,410 | $94,668 | | Total liabilities | $580,495 | $581,311 | | Total equity | $534,557 | $523,135 | Consolidated Statements of Operations and Comprehensive Income Total revenues grew 22.1% to $211.4 million, income from operations nearly doubled to $15.3 million, and net income increased to $9.4 million for Q1 2023 Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2023 (Thirteen Weeks Ended Mar 26) | Q1 2022 (Thirteen Weeks Ended Mar 27) | | :--- | :--- | :--- | | Total revenues | $211,406 | $173,112 | | Income from operations | $15,331 | $7,760 | | Net income | $9,360 | $4,640 | | Net income per common share - diluted | $0.15 | $0.08 | Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $21.1 million, with a net cash increase of $4.7 million for Q1 2023 Cash Flow Summary (in thousands) | Activity | Q1 2023 (Thirteen Weeks Ended Mar 26) | Q1 2022 (Thirteen Weeks Ended Mar 27) | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,143 | $7,989 | | Net cash used in investing activities | ($14,441) | ($11,458) | | Net cash used in financing activities | ($1,958) | ($1,874) | | Net increase (decrease) in cash | $4,744 | ($5,343) | | Cash and cash equivalents, end of period | $54,667 | $46,772 | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policies, restaurant operations (370 company-owned, 114 franchise), strong in-restaurant dining growth, credit agreement amendment, and a post-period acquisition - As of March 26, 2023, the company operated 370 company-owned and 114 franchise-owned restaurants across 29 states22 Disaggregated Restaurant Sales (in thousands) | Sales Type | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | In-restaurant dining sales | $169,229 | $132,892 | | Third-party delivery sales | $22,314 | $21,026 | | Take-out sales | $16,425 | $16,751 | - On February 24, 2023, the company amended its credit agreement to replace LIBOR with the Secured Overnight Financing Rate (SOFR) for interest calculations, effective March 27, 202333 - On May 1, 2023, the company acquired six restaurants, including franchise and development rights, from a franchisee for $8.2 million in cash54 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, highlighting strong revenue growth to $211.4 million, 12.9% same-restaurant sales growth, and robust liquidity Recent Developments and Key Performance Indicators Q1 2023 saw total revenues increase 22.1%, same-restaurant sales grow 12.9%, and Adjusted EBITDA rise 41.6% to $27.4 million Q1 2023 Financial Highlights vs. Q1 2022 | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total revenues | $211.4 million | $173.1 million | | Same-restaurant sales growth | 12.9% | 27.2% | | Same-restaurant traffic growth | 5.1% | 21.9% | | Net income | $9.4 million | $4.6 million | | Adjusted EBITDA | $27.4 million | $19.4 million | | System-wide restaurants | 484 | 441 | Business Trends Same-restaurant sales grew 12.9% driven by traffic and price, while commodity inflation decelerated to 3.0% and wage inflation was 11.0% - Q1 2023 same-restaurant sales growth of 12.9% was driven by 5.1% traffic growth and an approximate 7.0% average price increase over Q1 202260 - Commodity inflation was 3.0% in Q1 2023, with fixed prices for eggs and potatoes, constituting about 15.0% of the market basket61 - Restaurant-level hourly wage inflation was approximately 11.0% in Q1 2023, with overall restaurant-level labor inflation at about 9.0%62 Results of Operations Total revenues increased 22.1% to $211.4 million, driven by restaurant and franchise sales, while income from operations grew 97.6% to $15.3 million - Restaurant sales increased by 21.9% to $208.0 million, primarily due to 12.9% same-restaurant sales growth and $24.0 million from new restaurants82 - Food and beverage costs as a percentage of restaurant sales decreased from 23.1% to 22.4% year-over-year, aided by lower pork and avocado prices and menu price increases86 - Labor expenses increased as a percentage of sales from 32.3% to 33.0% year-over-year, driven by investments in wages and staffing levels88 - General and administrative expenses increased by 16.1% to $22.7 million, mainly due to higher compensation expense and technology investments supporting growth99 Non-GAAP Financial Measures Reconciliations Reconciliations of non-GAAP measures show Q1 2023 Net Income of $9.4 million reconciled to Adjusted EBITDA of $27.4 million, and Income from Operations to Restaurant Level Operating Profit Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income | $9,360 | $4,640 | | Depreciation and amortization | $9,117 | $8,223 | | Interest expense | $1,907 | $1,006 | | Income taxes | $4,558 | $2,277 | | Stock-based compensation | $1,497 | $2,294 | | Other adjustments | $639 | $844 | | Adjusted EBITDA | $27,413 | $19,364 | Reconciliation of Income from Operations to Restaurant Level Operating Profit (in thousands) | Line Item | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Income from operations | $15,331 | $7,760 | | Less: Franchise revenues | ($3,438) | ($2,443) | | Add: G&A, D&A, other | $32,209 | $28,122 | | Restaurant level operating profit | $44,102 | $33,439 | Liquidity and Capital Resources As of March 26, 2023, the company maintained strong liquidity with $54.4 million in cash and $75.0 million available credit, projecting $100.0-$110.0 million in 2023 capital expenditures - The company's liquidity position as of March 26, 2023, includes $54.4 million in cash and cash equivalents and $75.0 million available under its undrawn revolving credit facility130 - Projected capital expenditures for 2023 are estimated to be between $100.0 million and $110.0 million, focused on new restaurants and remodels132 - Cash provided by operating activities increased to $21.1 million in Q1 2023 from $8.0 million in Q1 2022, driven by higher net income and changes in operating assets and liabilities133 Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risk exposure have occurred since the 2022 Form 10-K filing - There have been no material changes to the company's market risk exposure since the 2022 Form 10-K filing138 Controls and Procedures Disclosure controls and procedures were deemed ineffective as of March 26, 2023, due to material weaknesses, though remediation efforts are ongoing - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 26, 2023, due to ongoing material weaknesses in internal control over financial reporting141 - The company is continuing remediation efforts, which include hiring new leadership, augmenting staff capabilities, formalizing policies and roles, and implementing enhanced controls for financial reporting and information technology144148 - Changes were made during the quarter to internal controls over financial reporting that are reasonably likely to materially affect them, as part of the ongoing remediation plan147 Part II. Other Information Legal Proceedings The company is involved in ordinary course legal proceedings, not expected to materially impact financial position or results - The company is subject to ordinary course legal proceedings but does not expect them to have a material adverse effect149 Risk Factors No material changes have occurred to the risk factors previously disclosed in the 2022 Form 10-K - No material changes have occurred to the risk factors previously disclosed in the 2022 Form 10-K150 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report - None151 Defaults Upon Senior Securities No defaults upon senior securities to report - None152 Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Not applicable153 Other Information No other information to report - None154 Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and iXBRL data files - The exhibits listed in the Exhibits index are incorporated by reference155
First Watch Restaurant (FWRG) - 2023 Q1 - Quarterly Report