Part I Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements for the period ended June 26, 2022, detail the company's financial position, results of operations, changes in equity, and cash flows Consolidated Balance Sheets As of June 26, 2022, total assets increased to $1.08 billion, total liabilities grew to $563.1 million, and total equity rose to $517.1 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 26, 2022 | December 26, 2021 | | :--- | :--- | :--- | | Total Assets | $1,080,248 | $1,046,917 | | Cash and cash equivalents | $53,566 | $51,864 | | Goodwill | $345,219 | $345,219 | | Operating lease right-of-use assets | $343,797 | $324,995 | | Total Liabilities | $563,126 | $542,488 | | Operating lease liabilities | $391,368 | $368,681 | | Long-term debt, net | $97,180 | $99,753 | | Total Equity | $517,122 | $504,429 | Consolidated Statements of Operations and Comprehensive Income For Q2 2022, total revenues increased 19.8% to $184.5 million, but net income decreased to $2.7 million, while year-to-date revenues grew 27.2% to $357.6 million with net income at $7.3 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $184,453 | $153,963 | $357,565 | $281,132 | | Income from operations | $5,053 | $12,312 | $12,813 | $16,157 | | Net Income | $2,707 | $3,805 | $7,347 | $1,763 | | Diluted EPS | $0.05 | $0.08 | $0.12 | $0.04 | Consolidated Statements of Cash Flows For the twenty-six weeks ended June 26, 2022, net cash from operations was $31.8 million, investing activities used $26.9 million, and financing activities used $3.2 million Cash Flow Summary (in thousands) | Activity | Twenty-Six Weeks Ended June 26, 2022 | Twenty-Six Weeks Ended June 27, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $31,812 | $30,428 | | Net cash used in investing activities | $(26,945) | $(19,524) | | Net cash used in financing activities | $(3,165) | $(1,717) | | Net increase in cash | $1,702 | $9,187 | Notes to Unaudited Consolidated Financial Statements The notes detail accounting policies, restaurant operations, revenue disaggregation, lease obligations, stock-based compensation, and income tax calculations - As of June 26, 2022, the company operated 350 company-owned restaurants and had 99 franchise-owned restaurants23 Revenue Disaggregation (in thousands) | Revenue Source | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | In-restaurant dining sales | $144,839 | $116,705 | $277,731 | $203,836 | | Third-party delivery sales | $19,829 | $16,598 | $40,855 | $37,352 | | Take-out sales | $17,014 | $18,385 | $33,765 | $35,866 | | Total restaurant sales | $181,682 | $151,688 | $352,351 | $277,054 | - Stock-based compensation expense was $2.8 million for Q2 2022 and $5.1 million for the twenty-six weeks ended June 26, 2022, a significant increase from the prior year periods46 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 financial results, highlighting strong revenue and sales growth despite inflationary pressures, impacting margins, liquidity, and capital expenditure plans Overview and Recent Developments In Q2 2022, First Watch achieved 19.8% total revenue growth and 13.4% same-restaurant sales growth, but income from operations margin declined to 2.8% due to inflation, while opening 9 new system-wide restaurants - Key financial highlights for Q2 2022 compared to Q2 2021 include: Total revenues increased 19.8% to $184.5 million, same-restaurant sales grew 13.4%, same-restaurant traffic grew 8.1%, net income was $2.7 million (down from $3.8 million), and Adjusted EBITDA was $17.8 million (down from $22.2 million)59 - The company opened 9 new system-wide restaurants (5 company-owned, 4 franchise-owned) in Q2 2022, bringing the total to 449 restaurants across 28 states59 Results of Operations Restaurant sales grew 19.8% in Q2 2022, but profitability declined due to increased food and beverage costs (24.9%), labor costs (32.3%), and higher G&A expenses, reducing income from operations margin from 8.1% to 2.8% - The 19.8% increase in Q2 restaurant sales was driven by 13.4% same-restaurant sales growth and 18 new company-owned restaurants opened over the past year80 - Food and beverage costs as a percentage of sales increased by 2.8% in Q2 2022 due to commodity inflation, partially offset by menu price increases86 - Labor costs as a percentage of sales increased by 2.0% in Q2 2022 due to higher wages and staffing levels91 - General and administrative expenses increased by 42.6% in Q2 2022, primarily due to $2.6 million in stock-based compensation, $1.2 million in marketing, and $0.9 million in public company insurance costs108 Non-GAAP Financial Measures Non-GAAP metrics show Restaurant Level Operating Profit Margin decreased to 18.2% in Q2 2022 from 22.5%, and Adjusted EBITDA declined to $17.8 million with its margin contracting to 9.6% from 14.4% Non-GAAP Performance (in thousands) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Restaurant level operating profit | $33,079 | $34,066 | $66,518 | $55,990 | | Restaurant level operating profit margin | 18.2% | 22.5% | 18.9% | 20.2% | | Adjusted EBITDA | $17,789 | $22,200 | $37,153 | $35,182 | | Adjusted EBITDA margin | 9.6% | 14.4% | 10.4% | 12.5% | Liquidity and Capital Resources As of June 26, 2022, the company had $53.6 million in cash and $75.0 million available under its revolving credit facility, with projected 2022 capital expenditures between $60.0 million and $70.0 million - The company estimates total capital expenditures for 2022 will be approximately $60.0 million to $70.0 million147 - As of June 26, 2022, the company had $53.6 million in cash and cash equivalents and $75.0 million of availability under its revolving credit facility145 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states no material changes to its market risk exposure as disclosed in its 2021 Annual Report on Form 10-K - There have been no material changes to the company's exposure to market risks from what was disclosed in the 2021 Form 10-K153 Item 4. Controls and Procedures Management concluded that as of June 26, 2022, disclosure controls and procedures were not effective due to previously identified material weaknesses in internal control over financial reporting, with ongoing remediation efforts - The CEO and CFO concluded that as of June 26, 2022, the company's disclosure controls and procedures were not effective due to previously identified material weaknesses156 - Identified material weaknesses include: lack of sufficient personnel with public company financial reporting experience, ineffective controls over period-end financial reporting and income taxes, and ineffective IT general controls for financial systems157158159 - The company is undertaking remediation efforts, including hiring additional personnel and implementing new controls and procedures, but these efforts are still in progress161162 Part II Item 1. Legal Proceedings The company is involved in various claims and legal actions in the ordinary course of business, but does not expect a material adverse effect on its financial position or results of operations - The company is subject to legal proceedings in the ordinary course of business but does not expect them to have a material adverse effect164 Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K and the Q1 2022 Form 10-Q - No material changes have occurred to the risk factors disclosed in the 2021 Form 10-K and the Q1 2022 Form 10-Q165 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None166
First Watch Restaurant (FWRG) - 2022 Q2 - Quarterly Report