First Watch Q3 net income rises 60% to $4.8M
FWRG added 16 system-wide restaurants; third-quarter traffic was negative 1.9%, while restaurant-level operating profit margin was 19.4%.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Form Type
10-Q
Rhea-AI Filing Summary
First Watch Restaurant Group, Inc. (FWRG) reported third-quarter 2026 revenue of $349.9 million, up 10.7% from $316.0 million, and net income of $4.8 million, compared with $3.0 million a year earlier. Diluted earnings per share were $0.08 versus $0.05. Adjusted EBITDA, a non-GAAP measure, was $39.7 million, compared with $34.1 million.
The system added 16 restaurants in 11 states, ending September 27, 2026 with 681 locations across 33 states: 601 company-owned and 80 franchise-owned. Same-restaurant sales grew 1.0%, while traffic declined 1.9%; restaurant-level operating profit margin was 19.4%, versus 19.7%. For the 39 weeks ended September 27, 2026, revenue was $1.035 billion and net income was $4.4 million; operating cash flow was $110.4 million and capital expenditures were $113.3 million. At quarter-end, cash was $21.1 million, borrowings under the senior secured credit facility were $271.7 million, and revolving-credit availability was $54.0 million. The company estimates 2026 capital expenditures of approximately $145.0 million, primarily for new restaurants and remodels.
3 points · 0 major0 major · 0 points
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointThird-quarter revenue rose 10.7% to $349.9 million.
- Moderate pointThird-quarter net income rose 60.0% to $4.8 million.
- Moderate pointThird-quarter Adjusted EBITDA rose 16.6% to $39.7 million.
Negative
- None.
Filing Explained
Common shares outstanding rose from 61,131,978 on
Key Figures
Total revenue: $349.9 million, up 10.7% from $316.0 million
Net income: $4.8 million, up 60.0% from $3.0 million
Diluted earnings per share: $0.08 per share, compared with $0.05 per share
+5 more
8 metrics
Total revenue
$349.9 million, up 10.7% from $316.0 million
Thirteen weeks ended September 27, 2026, compared with the prior-year period
Net income
$4.8 million, up 60.0% from $3.0 million
Thirteen weeks ended September 27, 2026, compared with the prior-year period
Diluted earnings per share
$0.08 per share, compared with $0.05 per share
Thirteen weeks ended September 27, 2026, compared with the prior-year period
Adjusted EBITDA
$39.7 million, up 16.6% from $34.1 million
Thirteen weeks ended September 27, 2026; non-GAAP measure
Same-restaurant sales growth
1.0%
Thirteen weeks ended September 27, 2026
Same-restaurant traffic growth
negative 1.9%
Thirteen weeks ended September 27, 2026
System-wide restaurants
681 restaurants
As of September 27, 2026: 601 company-owned and 80 franchise-owned
Cash provided by operating activities
$110.4 million
Thirty-nine weeks ended September 27, 2026
Key Terms
Adjusted EBITDA, Same-Restaurant Sales Growth, cash flow hedges, SOFR, +1 more
5 terms
Adjusted EBITDA financial
"Adjusted EBITDA increased to $39.7 million from $34.1 million"
Adjusted EBITDA is a way companies measure how much money they make from their core operations, like running a business, by removing certain costs or income that aren’t part of regular business activities. It helps investors see how well a company is doing without distractions from unusual expenses or gains, making it easier to compare companies or track performance over time.
Same-Restaurant Sales Growth financial
"same-restaurant sales growth of 1.0%"
Same-restaurant sales growth measures how much sales changed at outlets that were open during both the current period and a comparable prior period, excluding revenue from newly opened or permanently closed locations. Investors watch it because it isolates underlying demand and operational performance at established sites—like checking whether items on a grocery shelf are selling more or less without counting new shelves—and helps assess profitability, management effectiveness, and the quality of growth.
cash flow hedges financial
"designate and qualify the interest rate swaps as cash flow hedges"
A cash flow hedge is an accounting label companies use when they enter financial contracts—like currency or interest-rate agreements—to protect expected future cash payments or receipts from unpredictable moves. For investors, it signals that the company is trying to smooth out future cash variability (think of locking in a price to avoid surprises), which can reduce reported profit swings but also means the company has exposure to derivative instruments and their associated risks.
SOFR financial
"secured overnight financing rate (“SOFR”)"
The Secured Overnight Financing Rate (SOFR) is a market benchmark that measures the cost of borrowing cash overnight using U.S. Treasury securities as collateral. Investors watch SOFR because it acts like a speedometer for short-term interest costs—affecting loan rates, bond yields and the pricing of interest-rate contracts—so movements change borrowing expenses, cash returns and the value of interest-sensitive investments.
reacquired rights financial
"weighted average estimated useful life of the reacquired rights"
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much revenue did FWRG report in the third quarter of 2026?
FWRG reported total revenues of $349.9 million for the thirteen weeks ended September 27, 2026, compared with $316.0 million for the thirteen weeks ended September 28, 2025. Restaurant sales were $346.7 million for the 2026 quarter.
How much did FWRG earn in the third quarter of 2026?
For the thirteen weeks ended September 27, 2026, FWRG's net income was $4.8 million, versus $3.0 million for the thirteen weeks ended September 28, 2025. Diluted earnings per share were $0.08, compared with $0.05.
What same-restaurant sales growth does FWRG expect?
FWRG expects annual same-restaurant sales growth to be approximately 2.0%. Management reported third-quarter same-restaurant sales growth of 1.0% and same-restaurant traffic growth of negative 1.9%.
How much does FWRG estimate spending on capital expenditures in 2026?
FWRG estimates 2026 capital expenditures of approximately $145.0 million, invested primarily in new restaurant projects and planned remodels. The company intends to fund them primarily with cash generated from operating activities and borrowings under its credit agreement.
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 27, 2026
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ______ to _____
Commission file number 001-40866
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of Principal Executive Offices) (Zip Code) | ||||||||
(941 ) 907-9800
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
(Nasdaq Global Select Market) | ||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
x | Accelerated filer | ☐ | |||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The registrant had outstanding 61,726,533 shares of common stock as of October 30, 2026.
TABLE OF CONTENTS
| Page | ||||||||
Cautionary Note Regarding Forward-Looking Statements | 3 | |||||||
Part I - Financial Information | ||||||||
Item 1. | Financial Statements (Unaudited) | 5 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 33 | ||||||
Item 4. | Controls and Procedures | 34 | ||||||
Part II - Other Information | ||||||||
Item 1. | Legal Proceedings | 35 | ||||||
Item 1A. | Risk Factors | 35 | ||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 35 | ||||||
Item 3. | Defaults Upon Senior Securities | 35 | ||||||
Item 4. | Mine Safety Disclosures | 35 | ||||||
Item 5. | Other Information | 35 | ||||||
Item 6. | Exhibits | 36 | ||||||
Signatures | 37 | |||||||
2
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements can be identified by words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “outlook,” “potential,” “project,” “projection,” “plan,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other similar expressions. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance and statements discussing our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business, such as those contained in Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include:
•our vulnerability to changes in consumer preferences and economic conditions such as inflation and recession;
•our inability to successfully open new restaurants or establish new markets;
•our inability to effectively manage our growth;
•potential negative impacts on sales at our and our franchisees’ restaurants as a result of our opening new restaurants in existing markets;
•a decline in visitors to any of the retail centers, lifestyle centers, or entertainment centers where our restaurants are located;
•lower than expected same-restaurant sales growth;
•unsuccessful marketing programs and limited time new offerings;
•changes in the cost of food;
•unprofitability or closure of new restaurants or lower than previously experienced performance in existing restaurants;
•our inability to compete effectively for customers;
•our vulnerability to food safety and food-borne illness concerns;
•unsuccessful financial performance of our franchisees;
•our limited control over our franchisees’ operations;
•our inability to maintain good relationships with our franchisees and conflicts of interest with our franchisees;
•the geographic concentration of our system-wide restaurant base in the southeast portion of the United States;
•damage to our reputation and negative publicity;
•our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media and artificial intelligence;
•our limited number of suppliers and distributors for several of our frequently used ingredients and shortages or disruptions in the supply or delivery of such ingredients;
•information technology system failures or breaches of our network security;
•our failure to comply with federal and state laws and regulations relating to privacy, data protection, advertising and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection, advertising and consumer protection;
•our potential liability with our gift cards under the property laws of some states;
•our failure to enforce and maintain our trademarks and protect our other intellectual property;
•litigation with respect to intellectual property assets;
•our dependence on our executive officers and certain other key employees;
•our inability to identify, hire, train and retain qualified individuals for our workforce;
•our failure to obtain or to properly verify the employment eligibility of our employees;
•our failure to maintain our corporate culture as we grow;
•unionization activities among our employees;
•employment and labor law proceedings;
•labor shortages or increased labor costs or health care costs;
•risks associated with leasing property subject to long-term and non-cancelable leases;
•risks related to our sale of alcoholic beverages;
•costly and complex compliance with federal, state and local laws, including trade and tax policies;
•changes in accounting principles applicable to us;
3
•our vulnerability to natural disasters, unusual weather conditions, pandemic outbreaks, political events, war and terrorism;
•our inability to secure additional capital to support business growth;
•our level of indebtedness;
•failure to comply with covenants under our credit facility; and
•uncertainty regarding the Russia and Ukraine war, war and unrest in the Middle East and the related impact on macroeconomic conditions, including inflation, as a result of such conflicts or other related events.
See Part I. Item 1A. “Risk Factors” in our Annual Report on Form 10-K as of and for the year ended December 28, 2025 (“2025 Form 10-K”) and Part II. Item 1A. “Risk Factors” in this Form 10-Q for a further description of these and other factors. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Form 10‑Q and in our other filings with the Securities and Exchange Commission (the “SEC”). Any forward-looking statement made by us in this Form 10-Q speaks only as of the date hereof and is expressly qualified in its entirety by these cautionary statements. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
4
Table of Contents
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
| SEPTEMBER 27, 2026 | DECEMBER 28, 2025 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Inventory | |||||||||||
| Prepaid expenses | |||||||||||
| Deposits and other current assets | |||||||||||
| Total current assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
Property, fixtures and equipment, net of accumulated depreciation of $ | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Accrued compensation | |||||||||||
| Deferred revenues | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Current portion of long-term debt | |||||||||||
| Interest rate swap liabilities, current | |||||||||||
| Total current liabilities | |||||||||||
| Operating lease liabilities | |||||||||||
| Long-term debt, net | |||||||||||
| Deferred income taxes | |||||||||||
| Derivative liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 12) | |||||||||||
| Equity: | |||||||||||
Preferred stock; $ | |||||||||||
Common stock; $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Table of Contents
FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||
| SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Restaurant sales | $ | $ | $ | $ | |||||||||||||||||||
| Franchise revenues | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Operating costs and expenses | |||||||||||||||||||||||
| Restaurant operating expenses (exclusive of depreciation and amortization shown below): | |||||||||||||||||||||||
| Food and beverage costs | |||||||||||||||||||||||
| Labor and other related expenses | |||||||||||||||||||||||
| Other restaurant operating expenses | |||||||||||||||||||||||
| Occupancy expenses | |||||||||||||||||||||||
| Pre-opening expenses | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Impairments and loss on disposal of assets | |||||||||||||||||||||||
| Transaction and restructuring expenses, net | |||||||||||||||||||||||
| Total operating costs and expenses | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense | ( | ( | ( | ( | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Unrealized gain (loss) on derivatives | ( | ||||||||||||||||||||||
| Income tax related to other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
| Net income per common share - basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income per common share - diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of common shares outstanding - basic | |||||||||||||||||||||||
| Weighted average number of common shares outstanding - diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
Table of Contents
FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balance at December 29, 2024 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued under stock-based compensation plans, net | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance at March 30, 2025 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued under stock-based compensation plans, net | — | — | — | |||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance at June 29, 2025 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued under stock-based compensation plans, net | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance at September 28, 2025 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balance at December 28, 2025 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued under stock-based compensation plans, net | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance at March 29, 2026 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued under stock-based compensation plans, net | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance at June 28, 2026 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Common stock issued under stock-based compensation plans, net | — | — | — | |||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance at September 27, 2026 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
Table of Contents
FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
| THIRTY-NINE WEEKS ENDED | |||||||||||
| SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation, net of amounts capitalized | |||||||||||
| Non-cash operating lease costs | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Amortization of debt discount and deferred issuance costs | |||||||||||
| Impairments and loss on disposal of assets | |||||||||||
| Changes in assets and liabilities, net of effects of business combinations: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Inventory | ( | ( | |||||||||
| Prepaid expenses | ( | ||||||||||
| Deposits and other assets, current and long-term | ( | ||||||||||
| Accounts payable | |||||||||||
| Accrued liabilities and other long-term liabilities | |||||||||||
| Accrued compensation and deferred payroll taxes | |||||||||||
| Deferred revenues, current and long-term | ( | ( | |||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Acquisitions, net of cash acquired | ( | ( | |||||||||
| Purchase of intangible assets | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from borrowings on revolving credit facility | |||||||||||
| Repayments of borrowings on revolving credit facility | ( | ( | |||||||||
| Proceeds from issuance of long-term debt | |||||||||||
| Repayments of long-term debt, including finance lease liabilities | ( | ( | |||||||||
| Proceeds from exercise of stock options, net of employee taxes paid | |||||||||||
| Net cash provided by financing activities | |||||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents | |||||||||||
| Beginning of period | |||||||||||
| End of period | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
Table of Contents
FIRST WATCH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(IN THOUSANDS)
(Unaudited)
| THIRTY-NINE WEEKS ENDED | |||||||||||
| SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | ||||||||||
| Supplemental cash flow information | |||||||||||
| Cash paid for interest, net of amounts capitalized | $ | $ | |||||||||
| Cash paid for income taxes, net of refunds | $ | $ | |||||||||
| Supplemental disclosures of non-cash investing and financing activities | |||||||||||
Leased assets obtained in exchange for new operating lease liabilities (1) | $ | $ | |||||||||
| Leased assets obtained in exchange for new finance lease liabilities | $ | $ | |||||||||
| Remeasurements and terminations of operating lease assets and lease liabilities | $ | $ | |||||||||
| Remeasurements and terminations of finance lease assets and lease liabilities | $ | ( | $ | ( | |||||||
| Increase (decrease) in liabilities from acquisition of property, fixtures and equipment | $ | $ | ( | ||||||||
(1) Leased assets and liabilities obtained during the thirty-nine weeks ended September 28, 2025 include $23.6 million from business acquisitions.
The accompanying notes are an integral part of these consolidated financial statements.
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 33 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. As of September 27, 2026, the Company operated 601 company-owned restaurants and had 80 franchise-owned restaurants.
2. Summary of Significant Accounting Policies
Basis of Presentation
Fair Value of Financial Instruments
Interest Rate Swaps
Summary of Recently Issued Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 on disclosures.
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
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 or did not have, or is not expected to have, a material impact to the Company.
3. Business Acquisitions
During the second quarter of 2025, the Company acquired, in two separate transactions, substantially all the assets associated with 19 franchise-operated First Watch restaurants. For both transactions, the purchase price was allocated to the fair value of the assets acquired and the liabilities assumed. The Company has finalized the purchase price allocations for the acquisitions and there were no adjustments made to the initial preliminary valuations.
| DATE OF ACQUISITION | |||||||||||
| (in thousands, except number of acquired restaurants) | APRIL 14, 2025 | APRIL 28, 2025 | |||||||||
| Number of acquired restaurants | |||||||||||
| Purchase price (cash) | $ | $ | |||||||||
| Transaction costs incurred | $ | $ | |||||||||
| Deferred franchise fees recognized as a result of termination of pre-existing franchise agreement | $ | $ | |||||||||
| Recognized amounts of identifiable assets acquired and liabilities assumed: | |||||||||||
| Cash | $ | $ | |||||||||
| Inventory | $ | $ | |||||||||
| Other assets | $ | $ | |||||||||
| Property, fixtures and equipment | $ | $ | |||||||||
| Reacquired rights | $ | $ | |||||||||
| Goodwill | $ | $ | |||||||||
| Operating right-of-use assets, net of lease positions and prepaid rent | $ | $ | |||||||||
| Operating lease liabilities | $ | ( | $ | ( | |||||||
| Accounts payable | $ | ( | $ | ||||||||
| Deferred revenues - gift card liabilities assumed | $ | ( | $ | ( | |||||||
Goodwill reflects the value of expected synergies and assembled workforce, and was assigned to the Company’s single reporting unit. The Company treated the transactions as asset acquisitions for income tax purposes, which allows for any goodwill recognized to be tax deductible and amortized over a 15-year statutory life.
The weighted average estimated useful life of the reacquired rights was 6.1 years on the acquisition dates.
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
4. Revenues
Revenues recognized, disaggregated by type, were as follows:
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | |||||||||||||||||||
| Restaurant sales: | |||||||||||||||||||||||
| In-restaurant dining sales | $ | $ | $ | $ | |||||||||||||||||||
| Third-party delivery sales | |||||||||||||||||||||||
| Take-out sales | |||||||||||||||||||||||
| Total restaurant sales | |||||||||||||||||||||||
| Franchise revenues: | |||||||||||||||||||||||
| Royalty and system fund contributions | |||||||||||||||||||||||
| Initial fees | |||||||||||||||||||||||
| Business combinations - revenues recognized | |||||||||||||||||||||||
| Total franchise revenues | |||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
The following tables include details of liabilities from contracts with customers:
| (in thousands) | SEPTEMBER 27, 2026 | DECEMBER 28, 2025 | |||||||||
| Deferred revenues: | |||||||||||
| Deferred gift card revenue | $ | $ | |||||||||
| Deferred franchise fee revenue - current | |||||||||||
| Total current deferred revenues | $ | $ | |||||||||
| Other long-term liabilities: | |||||||||||
| Deferred franchise fee revenue - non-current | $ | $ | |||||||||
Changes in deferred gift card contract liabilities were as follows:
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | |||||||||||||||||||
| Deferred gift card revenue: | |||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Gift card sales | |||||||||||||||||||||||
| Gift card redemptions | ( | ( | ( | ( | |||||||||||||||||||
| Gift card breakage | ( | ( | ( | ( | |||||||||||||||||||
| Gift card liabilities assumed through acquisitions | |||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | |||||||||||||||||||
Changes in deferred franchise fee contract liabilities were as follows:
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | |||||||||||||||||||
| Deferred franchise fee revenue: | |||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Cash received | |||||||||||||||||||||||
| Franchise revenues recognized | ( | ( | ( | ( | |||||||||||||||||||
| Business combinations - franchise revenues recognized | ( | ||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | |||||||||||||||||||
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Accounts Receivable
Accounts receivable consisted of the following:
| (in thousands) | SEPTEMBER 27, 2026 | DECEMBER 28, 2025 | |||||||||
| Receivables from third-party delivery providers | $ | $ | |||||||||
| Receivables from vendors | |||||||||||
| Receivables from franchisees | |||||||||||
| Receivables related to gift card sales | |||||||||||
| Other receivables | |||||||||||
| Total accounts receivable | $ | $ | |||||||||
6. Accrued Liabilities
Accrued liabilities consisted of the following:
| (in thousands) | SEPTEMBER 27, 2026 | DECEMBER 28, 2025 | |||||||||
| Construction liabilities | $ | $ | |||||||||
| Sales tax | |||||||||||
| Insurance liabilities | |||||||||||
| Utilities | |||||||||||
| Credit card fees | |||||||||||
| Property tax | |||||||||||
| Contingent rent | |||||||||||
| Other | |||||||||||
| Total accrued liabilities | $ | $ | |||||||||
7. Debt
Long-term debt, net consisted of the following:
| SEPTEMBER 27, 2026 | DECEMBER 28, 2025 | ||||||||||||||||||||||
| (in thousands) | Balance | Interest Rate | Balance | Interest Rate | |||||||||||||||||||
| Term Facilities | $ | $ | |||||||||||||||||||||
| Revolving Credit Facility | |||||||||||||||||||||||
| Finance lease liabilities | |||||||||||||||||||||||
| Financing obligation | |||||||||||||||||||||||
| Less: Unamortized debt discount and deferred issuance costs | ( | ( | |||||||||||||||||||||
| Total debt, net | |||||||||||||||||||||||
| Less: Current portion of long-term debt | ( | ( | |||||||||||||||||||||
| Long-term debt, net | $ | $ | |||||||||||||||||||||
Credit Facility
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 (as amended, the “Credit Agreement”), 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.
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
As of September 27, 2026, 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 Revolving Credit Facility, also depending on the Total Rent Adjusted Net Leverage Ratio. Refer to Note 8, Interest Rate Swaps, for information about the Company’s variable-to-fixed interest rate swap agreements.
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:
| SEPTEMBER 27, 2026 | DECEMBER 28, 2025 | ||||||||||||||||||||||
| (in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||
| Term Facilities | $ | $ | $ | $ | |||||||||||||||||||
| Revolving Credit Facility | $ | $ | $ | $ | |||||||||||||||||||
Debt Covenants
The Credit Facility is 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 is secured by associated collateral agreements that pledge a lien on substantially all of FWR’s and each guarantor’s assets, including fixed assets and intangible assets, 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 the covenants under the Credit Agreement as of September 27, 2026.
8. 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. These interest rate swaps have an aggregate notional amount of $90.0 million and mature on October 6, 2026. Under the terms of these interest rate swaps, the Company pays a weighted average fixed rate of 4.16 % on the notional amount and receives payments from, or makes 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 these interest rate swaps, the Company pays a weighted average fixed rate of 4.42 % on the notional amount and receives payments from, or makes payments to, the counterparties based on the three-month SOFR rate.
On August 18, 2026, the Company entered into two additional variable-to-fixed interest rate swaps. These interest rate swaps have an initial aggregate notional amount of $50.0 million, which will increase to a notional amount of $80.0 million on December 24, 2026 and mature on December 29, 2028. Under the terms of these interest rate swaps, the Company pays a weighted average fixed rate of 4.08 % on the notional amounts and receives payments from, or makes 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 derivatives were classified within Level 2 of the fair value hierarchy.
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 thirty-nine weeks ended September 27, 2026, a total of $0.6 million was reclassified from Other comprehensive income (loss) as an increase to interest expense. Over the next 12 months, Management estimates that $0.3 million will be reclassified as a decrease to interest expense.
9. Leases
The following table includes detail of lease assets and liabilities:
| (in thousands) | Consolidated Balance Sheet Classification | SEPTEMBER 27, 2026 | DECEMBER 28, 2025 | ||||||||||||||
| Finance lease assets - current | Deposits and other current assets | $ | $ | ||||||||||||||
| Operating lease right-of-use assets | Operating lease right-of-use assets | ||||||||||||||||
| Finance lease assets | Property, fixtures and equipment, net | ||||||||||||||||
| Total lease assets | $ | $ | |||||||||||||||
Operating lease liabilities - current(1) | Current portion of operating lease liabilities | $ | $ | ||||||||||||||
| Operating lease liabilities - non-current | Operating lease liabilities | ||||||||||||||||
Finance lease liabilities - current(1) | |||||||||||||||||
| Finance lease liabilities - non-current | |||||||||||||||||
| Total lease liabilities | $ | $ | |||||||||||||||
_____________
(1) Excludes all variable lease expense.
The components of lease expense were as follows:
| (in thousands) | Consolidated Statements of Operations and Comprehensive Income Classification | THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||
| SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | ||||||||||||||||||||||||||
| Operating lease expense | Other restaurant operating expenses Occupancy expenses Pre-opening expenses General and administrative expenses | $ | $ | $ | $ | ||||||||||||||||||||||||
| Variable lease expense | Food and beverage costs Occupancy expenses General and administrative expenses | ||||||||||||||||||||||||||||
| Finance lease expense: | |||||||||||||||||||||||||||||
| Amortization of leased assets | Depreciation and amortization | ||||||||||||||||||||||||||||
| Interest on lease liabilities | Interest expense | ||||||||||||||||||||||||||||
Total lease expense (1) | $ | $ | $ | $ | |||||||||||||||||||||||||
_____________
(1) Includes contingent rent expense of $0.6 million and $0.5 million during the thirteen weeks ended September 27, 2026 and September 28, 2025, respectively, and $1.6 million and $1.5 million during the thirty-nine weeks ended September 27, 2026 and September 28, 2025, respectively.
Supplemental cash flow information related to leases was as follows:
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| (in thousands) | THIRTY-NINE WEEKS ENDED | ||||||||||
| SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows - operating leases | $ | $ | |||||||||
| Operating cash flows - finance leases | $ | $ | |||||||||
| Financing cash flows - finance leases | $ | $ | |||||||||
Supplemental information related to leases was as follows:
| THIRTY-NINE WEEKS ENDED | |||||||||||
| SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | ||||||||||
| Weighted-average remaining lease term (in years) | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
Weighted-average discount rate (1) | |||||||||||
| Operating leases | % | % | |||||||||
| Finance leases | % | % | |||||||||
(1) Based on the Company’s incremental borrowing rate.
10. Equity and Stock-Based Compensation
Stock option awards
There were no stock option awards granted during the thirty-nine weeks ended September 27, 2026. A summary of stock option activity during the thirty-nine weeks ended September 27, 2026 was as follows:
| NUMBER OF OPTIONS | WEIGHTED AVERAGE EXERCISE PRICE PER SHARE | AGGREGATE INTRINSIC VALUE (in thousands) | WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (in years) | ||||||||||||||||||||
Outstanding, December 28, 2025 | $ | $ | |||||||||||||||||||||
| Expired | ( | $ | |||||||||||||||||||||
| Exercised | ( | $ | |||||||||||||||||||||
Outstanding and exercisable, September 27, 2026 | $ | $ | |||||||||||||||||||||
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 (“Nasdaq”) on the last trading day of the period.
A summary of the non-vested stock option activity during the thirty-nine weeks ended September 27, 2026 is as follows:
| NUMBER OF OPTIONS | WEIGHTED AVERAGE GRANT DATE FAIR VALUE PER SHARE | ||||||||||
Nonvested, December 28, 2025 | $ | ||||||||||
| Vested | ( | $ | |||||||||
Nonvested, September 27, 2026 | $ | ||||||||||
Restricted stock units
During the thirty-nine weeks ended September 27, 2026, a total of 1,136,227 restricted stock units (“RSUs”) were granted. Of these RSUs, 901,643 will vest over a period of three years ; 113,353 will vest in full one year from the grant date; 94,636 will vest in full three years from the grant date; and 26,595 will vest in full four years from the grant date.
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
A summary of the Company’s RSU activity during the thirty-nine weeks ended September 27, 2026 is as follows:
| RESTRICTED STOCK UNITS | WEIGHTED AVERAGE GRANT DATE FAIR VALUE PER SHARE | AGGREGATE INTRINSIC VALUE (in thousands) | |||||||||||||||
Outstanding, December 28, 2025 | $ | $ | |||||||||||||||
| Granted | $ | ||||||||||||||||
| Forfeited | ( | $ | |||||||||||||||
| Vested | ( | $ | |||||||||||||||
Outstanding, September 27, 2026 | $ | $ | |||||||||||||||
The aggregate intrinsic value is based on the closing price of the Company’s common stock on Nasdaq of $10.14 and $15.91 on September 25, 2026 and December 26, 2025, the last trading days of the periods, respectively.
Stock-based compensation expense, net of amounts capitalized, was $3.6 million and $2.9 million during the thirteen weeks ended September 27, 2026 and September 28, 2025, respectively, and $10.7 million and $7.9 million during the thirty-nine weeks ended September 27, 2026 and September 28, 2025, respectively. Capitalized stock-based compensation included in property, fixtures and equipment totaled $0.2 million and $0.1 million for the thirty-nine weeks ended September 27, 2026 and September 28, 2025, respectively.
Unrecognized stock-based compensation expense
The following represents unrecognized stock-based compensation expense and the remaining weighted average vesting period as of September 27, 2026:
UNRECOGNIZED STOCK-BASED COMPENSATION EXPENSE (in thousands) | REMAINING WEIGHTED AVERAGE RECOGNITION PERIOD (in years) | ||||||||||
| Restricted stock units | $ | ||||||||||
As of September 27, 2026, all stock options were fully vested and there were no unvested stock options outstanding.
11. Income Taxes
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | |||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
| Income tax expense | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Effective income tax rate | % | % | % | % | |||||||||||||||||||
Management accounts for income taxes in interim periods using an estimated annual effective tax rate, adjusted for discrete items recognized during the period. Income tax expense reflects the application of the estimated annual effective income tax rate to the Company’s actual earnings for the periods, partially offset by discrete tax items, including stock-based compensation and certain state income tax matters.
The effective income tax rate for the thirteen and thirty-nine weeks ended September 27, 2026 decreased compared to the same periods in the prior year primarily due to changes in (i) the benefit of federal tax credits received by the Company for FICA taxes paid on certain employee tips, (ii) state income taxes, and (iii) stock-based compensation tax impacts.
Valuation allowance
Management routinely assesses the realizability of deferred tax assets, and may record a valuation allowance if, based on all available positive and negative evidence, the determination is reached that some portion of the deferred tax assets may not be realized prior to expiration. If Management determines that the Company may be able to realize the deferred tax assets in the future, the Company would make an adjustment to the deferred tax assets valuation allowance, which would reduce the provision for income taxes during the period in which the determination was made. As of the period ended
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
September 27, 2026 based upon all available evidence, Management has maintained a valuation allowance against a portion of the deferred tax assets.
As the Company’s future taxable earnings increase and the deferred tax assets are utilized, it is possible that a portion of the valuation allowance will no longer be needed. Release of any valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense in the period of the release. The timing and amount of any release related to future taxable income is currently indeterminable.
12. Commitments and Contingencies
Legal Proceedings
The Company is subject to legal proceedings, claims and liabilities that arise in the ordinary course of business. The amount of the anticipated liability with respect to these matters was not material as of September 27, 2026. In the event any litigation losses become probable and estimable, the Company will recognize anticipated losses.
13. 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.
Revenue is derived from sales of food and beverage, net of 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 capital expenditures.
The following table details consolidated net income for the segment for the periods indicated:
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | |||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
| Less: | |||||||||||||||||||||||
| Food and beverage costs | |||||||||||||||||||||||
| Labor and other related expenses | |||||||||||||||||||||||
| Other restaurant operating expenses | |||||||||||||||||||||||
| Occupancy expenses | |||||||||||||||||||||||
| Pre-opening expenses | |||||||||||||||||||||||
| Stock-based compensation, net of amounts capitalized | |||||||||||||||||||||||
General and administrative expenses (1) | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
Other segment items (2) | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other income, net | ( | ( | ( | ( | |||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
(1) General and administrative expenses excludes stock-based compensation, net of amounts capitalized, which is presented separately.
(2) Other segment items included in segment net income include transaction and restructuring expenses, net and impairments and loss on disposal of assets.
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FIRST WATCH RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
14. Net Income Per Common Share
The following table sets forth the computations of basic and diluted net income per common share:
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||
| (in thousands, except share and per share data) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares outstanding - basic | |||||||||||||||||||||||
| Weighted average common shares outstanding - diluted | |||||||||||||||||||||||
| Net income per common share - basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income per common share - diluted | $ | $ | $ | $ | |||||||||||||||||||
| Stock options outstanding not included in diluted net income per common share as their effect is anti-dilutive | |||||||||||||||||||||||
| Restricted stock units outstanding not included in diluted net income per share as their effect is anti-dilutive | |||||||||||||||||||||||
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 stock awards outstanding and unvested as of the respective periods using the treasury method.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the 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 Operations,” and in “Part II, Item 1A. Risk Factors” of this Form 10-Q.
References to “we,” “us,” “our,” “the Company” and “Management” in this Management’s Discussion and Analysis of Financial Condition and Results of Operation (“MD&A”) refer to First Watch Restaurant Group, Inc., collectively with its wholly-owned subsidiaries.
Overview
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 Nasdaq under the ticker symbol “FWRG.” A recipient of many local “Best Breakfast” and “Best Brunch” accolades, First Watch’s award-winning chef-driven menu includes elevated executions of classic favorites alongside innovative dishes and 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 19,000 employees, operate and franchise restaurants in 33 states under the “First Watch” trade name and, as of September 27, 2026, had 601 company-owned restaurants and 80 franchise-owned restaurants.
Recent Developments
Financial highlights for the thirteen weeks ended September 27, 2026 (“third quarter of 2026”) as compared to the thirteen weeks ended September 28, 2025 (“third quarter of 2025”) reflect the continued momentum of our operating performance and include the following:
•Opened 16 system-wide restaurants in 11 states resulting in a total of 681 system-wide restaurants (601 company-owned and 80 franchise-owned) across 33 states as of September 27, 2026
•Total revenues increased 10.7% to $349.9 million from $316.0 million
•System-wide sales increased 10.9% to $391.2 million from $352.7 million
•Same-restaurant sales growth of 1.0%
•Same-restaurant traffic growth of negative 1.9%
•Income from operations margin remained flat at 3.2%
•Restaurant level operating profit margin* decreased to 19.4% from 19.7%
•Net income increased to $4.8 million, or $0.08 per diluted share, from net income of $3.0 million, or $0.05 per diluted share
•Adjusted EBITDA* increased to $39.7 million from $34.1 million
___________________
* See Non-GAAP Financial Measures Reconciliations section below.
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Business Trends
In the third quarter of 2026, we experienced same-restaurant sales growth of 1.0% and same-restaurant traffic growth of negative 1.9%. We expect annual same-restaurant sales growth to be approximately 2.0%.
We experienced commodity deflation of 0.4% in the third quarter of 2026, primarily due to lower costs of bacon and avocados, somewhat offset by an increase in turkey sausage prices and the demand for higher cost beef offerings. We expect our full year commodity inflation to be approximately flat.
Restaurant-level wage inflation during the third quarter of 2026 was 4.1% and full year inflation is expected to be approximately 4.0%.
Key Performance Indicators
Throughout this MD&A, we discuss the following key operating metrics that we believe will drive our financial results and long-term growth model. We believe these metrics are useful to investors because Management uses these metrics to evaluate performance and assess the growth of our business as well as the effectiveness of our marketing and operational strategies.
New Restaurant Openings (“NROs”): the number of new company-owned First Watch restaurants commencing operations during the period. Management reviews the number of new restaurants to assess new restaurant growth and company-owned restaurant sales.
Franchise-owned New Restaurant Openings (“Franchise-owned NROs”): the number of new franchise-owned First Watch restaurants commencing operations during the period.
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 thirty-nine weeks ended September 27, 2026 and September 28, 2025, there were 454 restaurants and 381 restaurants, respectively, in our Comparable Restaurant Base. 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 using the Comparable Restaurant Base. Measuring our same-restaurant traffic growth allows 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.
System-wide restaurants: the total number of restaurants, including all company-owned and franchise-owned restaurants.
System-wide sales: consists of restaurant sales from our company-owned restaurants and franchise-owned restaurants. We do not recognize the restaurant sales from our franchise-owned restaurants as revenue.
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Non-GAAP Financial Measures
To supplement the consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we use the following non-GAAP measures, which present operating results on an adjusted basis: (i) Adjusted EBITDA, (ii) Adjusted EBITDA margin, (iii) Restaurant level operating profit and (iv) Restaurant level operating profit margin. Our presentation of these non-GAAP measures includes isolating the effects of some items that are either nonrecurring in nature or have no meaningful correlation to our ongoing core operating performance. These supplemental measures of performance are not required by or presented in accordance with GAAP. Management believes these non-GAAP measures provide investors with additional visibility into our operations, facilitate analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of our ongoing operating performance, help to identify operational trends and allow for greater transparency with respect to metrics used by Management in our financial and operational decision making. Our non-GAAP measures may not be comparable to similarly titled measures used by other companies and have important limitations as analytical tools. These non-GAAP measures should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP as they may not provide a complete understanding of our performance. These non-GAAP measures should be reviewed in conjunction with our consolidated financial statements prepared in accordance with GAAP.
We use Adjusted EBITDA and Adjusted EBITDA margin (i) as factors in evaluating Management’s performance when determining incentive compensation, (ii) to evaluate our operating results and the effectiveness of our business strategies and (iii) internally as benchmarks to compare our performance to that of our competitors.
We use Restaurant level operating profit and Restaurant level operating profit margin (i) to evaluate the performance and profitability of operating restaurants, individually and in the aggregate, and (ii) to make decisions regarding future spending and other operational decisions.
Adjusted EBITDA: represents Net income 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 income, 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 margin, the most directly comparable GAAP measure.
Restaurant Level Operating Profit: represents restaurant sales, less restaurant operating expenses, which include food and beverage costs, labor and other related expenses, other restaurant operating expenses, pre-opening expenses and occupancy expenses. Restaurant level operating profit excludes corporate-level expenses and other items that we do not consider in the evaluation of the ongoing core operating performance of our restaurants as identified in the reconciliation of Income from operations, the most directly comparable GAAP measure, to Restaurant level operating profit, included in the section Non-GAAP Financial Measure Reconciliations below.
Restaurant Level Operating Profit Margin: represents Restaurant level operating profit as a percentage of restaurant sales. See Non-GAAP Financial Measure Reconciliations below for a reconciliation to Income from operations margin, the most directly comparable GAAP measure.
Selected Operating Data
| THIRTEEN WEEKS ENDED SEPTEMBER 27, 2026 | |||||||||||||||||
| COMPANY-OWNED | FRANCHISE-OWNED | TOTAL | |||||||||||||||
Beginning of period | 586 | 79 | 665 | ||||||||||||||
New restaurant openings | 15 | 1 | 16 | ||||||||||||||
Closures | — | — | — | ||||||||||||||
End of period | 601 | 80 | 681 | ||||||||||||||
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| THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2026 | |||||||||||||||||
| COMPANY-OWNED | FRANCHISE-OWNED | TOTAL | |||||||||||||||
Beginning of period | 560 | 73 | 633 | ||||||||||||||
New restaurant openings | 42 | 8 | 50 | ||||||||||||||
Closures | (1) | (1) | (2) | ||||||||||||||
End of period | 601 | 80 | 681 | ||||||||||||||
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||
| SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | ||||||||||||||||||||
| System-wide sales (in thousands) | $ | 391,192 | $ | 352,688 | $ | 1,155,803 | $ | 1,021,896 | |||||||||||||||
| Same-restaurant sales growth | 1.0 | % | 7.1 | % | 2.4 | % | 3.7 | % | |||||||||||||||
| Same-restaurant traffic growth | (1.9) | % | 2.6 | % | (1.4) | % | 1.3 | % | |||||||||||||||
| Income from operations (in thousands) | $ | 11,048 | $ | 10,050 | $ | 20,174 | $ | 18,476 | |||||||||||||||
| Income from operations margin | 3.2 | % | 3.2 | % | 2.0 | % | 2.1 | % | |||||||||||||||
Restaurant level operating profit (in thousands) (1) | $ | 67,343 | $ | 61,675 | $ | 194,149 | $ | 164,573 | |||||||||||||||
Restaurant level operating profit margin (1) | 19.4 | % | 19.7 | % | 18.9 | % | 18.3 | % | |||||||||||||||
| Net income (in thousands) | $ | 4,787 | $ | 2,991 | $ | 4,441 | $ | 4,268 | |||||||||||||||
| Net income margin | 1.4 | % | 0.9 | % | 0.4 | % | 0.5 | % | |||||||||||||||
Adjusted EBITDA (in thousands) (2) | $ | 39,748 | $ | 34,099 | $ | 102,015 | $ | 87,231 | |||||||||||||||
Adjusted EBITDA margin (2) | 11.4 | % | 10.8 | % | 9.9 | % | 9.6 | % | |||||||||||||||
(1) 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 tables within the Non-GAAP Financial Measures Reconciliations section below.
(2) 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 tables within the Non-GAAP Financial Measures Reconciliations section below.
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Results of Operations
The following table summarizes our results of operations and the percentages of items in our Consolidated Statements of Operations and Comprehensive Income in relation to Total revenues or, where indicated, Restaurant sales for the thirteen and thirty-nine weeks ended September 27, 2026 and September 28, 2025:
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | |||||||||||||||||||||||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||||||||||||||
| Restaurant sales | $ | 346,722 | 99.1 | % | $ | 313,636 | 99.2 | % | $ | 1,026,351 | 99.1 | % | $ | 898,210 | 99.1 | % | |||||||||||||||||||||||||||||||
| Franchise revenues | 3,139 | 0.9 | % | 2,386 | 0.8 | % | 9,141 | 0.9 | % | 7,939 | 0.9 | % | |||||||||||||||||||||||||||||||||||
| Total revenues | 349,861 | 100.0 | % | 316,022 | 100.0 | % | 1,035,492 | 100.0 | % | 906,149 | 100.0 | % | |||||||||||||||||||||||||||||||||||
| Operating costs and expenses | |||||||||||||||||||||||||||||||||||||||||||||||
Restaurant operating expenses (1) (exclusive of depreciation and amortization shown below): | |||||||||||||||||||||||||||||||||||||||||||||||
| Food and beverage costs | 77,402 | 22.3 | % | 69,730 | 22.2 | % | 234,305 | 22.8 | % | 208,355 | 23.2 | % | |||||||||||||||||||||||||||||||||||
| Labor and other related expenses | 112,962 | 32.6 | % | 102,387 | 32.6 | % | 339,294 | 33.1 | % | 300,451 | 33.4 | % | |||||||||||||||||||||||||||||||||||
| Other restaurant operating expenses | 56,048 | 16.2 | % | 50,140 | 16.0 | % | 163,509 | 15.9 | % | 141,002 | 15.7 | % | |||||||||||||||||||||||||||||||||||
| Occupancy expenses | 29,506 | 8.5 | % | 25,891 | 8.3 | % | 85,261 | 8.3 | % | 73,849 | 8.2 | % | |||||||||||||||||||||||||||||||||||
| Pre-opening expenses | 3,461 | 1.0 | % | 3,813 | 1.2 | % | 9,833 | 1.0 | % | 9,980 | 1.1 | % | |||||||||||||||||||||||||||||||||||
| General and administrative expenses | 35,244 | 10.1 | % | 33,746 | 10.7 | % | 113,916 | 11.0 | % | 97,150 | 10.7 | % | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 22,700 | 6.5 | % | 19,662 | 6.2 | % | 65,935 | 6.4 | % | 54,355 | 6.0 | % | |||||||||||||||||||||||||||||||||||
| Impairments and loss on disposal of assets | 170 | — | % | 175 | 0.1 | % | 437 | — | % | 311 | — | % | |||||||||||||||||||||||||||||||||||
| Transaction and restructuring expenses, net | 1,320 | 0.4 | % | 428 | 0.1 | % | 2,828 | 0.3 | % | 2,220 | 0.2 | % | |||||||||||||||||||||||||||||||||||
| Total operating costs and expenses | 338,813 | 96.8 | % | 305,972 | 96.8 | % | 1,015,318 | 98.1 | % | 887,673 | 98.0 | % | |||||||||||||||||||||||||||||||||||
Income from operations (1) | 11,048 | 3.2 | % | 10,050 | 3.2 | % | 20,174 | 2.0 | % | 18,476 | 2.1 | % | |||||||||||||||||||||||||||||||||||
| Interest expense | (4,933) | (1.4) | % | (4,567) | (1.4) | % | (14,603) | (1.4) | % | (11,904) | (1.3) | % | |||||||||||||||||||||||||||||||||||
| Other income, net | 362 | 0.1 | % | 191 | 0.1 | % | 840 | 0.1 | % | 1,141 | 0.1 | % | |||||||||||||||||||||||||||||||||||
| Income before income taxes | 6,477 | 1.9 | % | 5,674 | 1.8 | % | 6,411 | 0.6 | % | 7,713 | 0.9 | % | |||||||||||||||||||||||||||||||||||
| Income tax expense | (1,690) | (0.5) | % | (2,683) | (0.8) | % | (1,970) | (0.2) | % | (3,445) | (0.4) | % | |||||||||||||||||||||||||||||||||||
| Net income | $ | 4,787 | 1.4 | % | $ | 2,991 | 0.9 | % | $ | 4,441 | 0.4 | % | $ | 4,268 | 0.5 | % | |||||||||||||||||||||||||||||||
(1) As a percentage of restaurant sales.
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Restaurant Sales
Restaurant sales represent the aggregate sales of food and beverages, net of discounts, at company-owned restaurants. Restaurant sales in any period are directly influenced by the number of operating weeks in the period, the number of open restaurants, customer traffic and average check. Average check growth is the combined result of our menu price increases and changes to our menu mix.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Restaurant sales: | |||||||||||||||||||||||||||||||||||
| In-restaurant dining sales | $ | 279,365 | $ | 254,155 | 9.9 | % | $ | 829,383 | $ | 728,282 | 13.9 | % | |||||||||||||||||||||||
| Third-party delivery sales | 42,442 | 37,163 | 14.2 | % | 123,477 | 103,633 | 19.1 | % | |||||||||||||||||||||||||||
| Take-out sales | 24,915 | 22,318 | 11.6 | % | 73,491 | 66,295 | 10.9 | % | |||||||||||||||||||||||||||
| Total restaurant sales | $ | 346,722 | $ | 313,636 | 10.5 | % | $ | 1,026,351 | $ | 898,210 | 14.3 | % | |||||||||||||||||||||||
The increase in total restaurant sales during the thirteen weeks ended September 27, 2026 as compared to the same period in the prior year was due principally to (i) a higher number of company-owned restaurants from new openings and (ii) menu price increases, partially offset by an increase in promotional usage and a (1.9)% decrease in same-restaurant traffic.
The increase in total restaurant sales during the thirty-nine weeks ended September 27, 2026 as compared to the same period in the prior year was due principally to (i) a higher number of company-owned restaurants from new openings, (ii) the acquisition of 19 franchise-owned restaurants during the second quarter of 2025 and (iii) menu price increases, partially offset by an increase in promotional usage and a 1.4% decrease in same-restaurant traffic.
Franchise Revenues
Franchise revenues are comprised of sales-based royalty fees, system fund contributions and the amortization of upfront initial franchise fees, which are recognized as revenue on a straight-line basis over the term of the franchise agreement. Franchise revenues in any period are directly influenced by the number of open franchise-owned restaurants.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Franchise revenues: | |||||||||||||||||||||||||||||||||||
| Royalty and system fund contributions | $ | 3,077 | $ | 2,333 | 31.9 | % | $ | 8,941 | $ | 7,371 | 21.3 | % | |||||||||||||||||||||||
| Initial fees | 62 | 53 | 17.0 | % | 200 | 170 | 17.6 | % | |||||||||||||||||||||||||||
| Business acquisitions - franchise revenues recognized | — | — | — | % | — | 398 | (100.0) | % | |||||||||||||||||||||||||||
| Total Franchise revenues | $ | 3,139 | $ | 2,386 | 31.6 | % | $ | 9,141 | $ | 7,939 | 15.1 | % | |||||||||||||||||||||||
The increases in franchise revenues during the thirteen and thirty-nine weeks ended September 27, 2026 as compared to the same periods in the prior year was due to (i) an increase in the system fund contribution rate during the first quarter of 2026 and (ii) 9 new franchise-owned restaurant openings between September 28, 2025 and September 27, 2026. The increase for the thirty-nine weeks ended September 27, 2026 was partially offset by one franchise-owned restaurant closure and our acquisitions of 19 franchise-owned restaurants during the second quarter of 2025.
Food and Beverage Costs
Food and beverage costs at company-owned restaurants vary with sales volume and are subject to increases and declines in commodity costs.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Food and beverage costs | $ | 77,402 | $ | 69,730 | 11.0 | % | $ | 234,305 | $ | 208,355 | 12.5 | % | |||||||||||||||||||||||
| As a percentage of restaurant sales | 22.3 | % | 22.2 | % | 0.1 | % | 22.8 | % | 23.2 | % | (0.4) | % | |||||||||||||||||||||||
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Food and beverage costs as a percentage of restaurant sales increased during the thirteen weeks ended September 27, 2026 as compared to the same period in the prior year primarily as a result of the timing of vendor credits that did not recur in the same period in 2026, partially offset by (i) menu price increases and (ii) the lower cost of bacon and avocados, partially offset by an increase in the cost of turkey sausage and the demand for higher cost beef offerings.
Food and beverage costs as a percentage of restaurant sales decreased during the thirty-nine weeks ended September 27, 2026 as compared to the same period in the prior year primarily as a result of (i) menu price increases and (ii) the lower cost of bacon, eggs, and avocados, partially offset by the higher cost of coffee and the demand for higher cost beef offerings.
Food and beverage costs increased during the thirteen and thirty-nine weeks ended September 27, 2026 as compared to the same periods in the prior year primarily as a result of an increase in the number of company-owned restaurants between September 28, 2025 and September 27, 2026. These increases were partially offset by commodity deflation.
Labor and Other Related Expenses
Labor and other related expenses include hourly and management wages, bonuses, payroll taxes, workers’ compensation expense and employee benefits. Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, the number and performance of our company-owned restaurants and competition for qualified staff.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Labor and other related expenses | $ | 112,962 | $ | 102,387 | 10.3 | % | $ | 339,294 | $ | 300,451 | 12.9 | % | |||||||||||||||||||||||
| As a percentage of restaurant sales | 32.6 | % | 32.6 | % | — | % | 33.1 | % | 33.4 | % | (0.3) | % | |||||||||||||||||||||||
Labor and other related expenses as a percentage of restaurant sales remained flat for the thirteen weeks ended September 27, 2026 as compared to the same period in the prior year primarily as a result of the leverage associated with menu price increases, offset by wage increases.
Labor and other related expenses as a percentage of restaurant sales decreased during the thirty-nine weeks ended September 27, 2026 as compared to the same period in the prior year primarily as a result of the leverage associated with menu price increases, partially offset by wage increases.
The increases in labor and other related expenses during the thirteen and thirty-nine weeks ended September 27, 2026 as compared to the same periods in the prior year were primarily due to (i) the increase in the number of company-owned restaurants and related headcount and (ii) wage increases.
Other Restaurant Operating Expenses
Other restaurant operating expenses consist of utilities, insurance, marketing and advertising expenses and other variable expenses incidental to operating company-owned restaurants, such as operating supplies (including paper products, menus and to-go supplies), third-party delivery services fees, credit card fees and repairs and maintenance expenses.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Other restaurant operating expenses | $ | 56,048 | $ | 50,140 | 11.8 | % | $ | 163,509 | $ | 141,002 | 16.0 | % | |||||||||||||||||||||||
| As a percentage of restaurant sales | 16.2 | % | 16.0 | % | 0.2 | % | 15.9 | % | 15.7 | % | 0.2 | % | |||||||||||||||||||||||
Other restaurant operating expenses as a percentage of restaurant sales increased during the thirteen and thirty-nine weeks ended September 27, 2026 as compared to the same periods in the prior year primarily due to an increase in (i) utilities and (ii) third-party delivery fees.
The increase in other restaurant operating expenses during the thirteen weeks ended September 27, 2026 as compared to the same period in the prior year was primarily due to the increase in the number of company-owned restaurants driving increased expenses, including (i) $2.0 million related to utilities, repairs and maintenance expenses, (ii) $1.3 million in third-party delivery fees, (iii) $1.1 million in operating supplies and (iv) $1.1 million in credit card fees.
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The increase in other restaurant operating expenses during the thirty-nine weeks ended September 27, 2026 as compared to the same period in the prior year was primarily due to the increase in the number of company-owned restaurants driving increased expenses, including (i) $7.9 million related to utilities, repairs and maintenance expenses, (ii) $5.6 million in operating supplies, (iii) $4.5 million in third-party delivery fees and (iv) $3.0 million in credit card fees.
Occupancy Expenses
Occupancy expenses primarily consist of rent expense, property insurance, common area expenses and property taxes.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Occupancy expenses | $ | 29,506 | $ | 25,891 | 14.0 | % | $ | 85,261 | $ | 73,849 | 15.5 | % | |||||||||||||||||||||||
| As a percentage of restaurant sales | 8.5 | % | 8.3 | % | 0.2 | % | 8.3 | % | 8.2 | % | 0.1 | % | |||||||||||||||||||||||
Occupancy expenses as a percentage of restaurant sales increased during the thirteen and thirty-nine weeks ended September 27, 2026 as compared to the same periods in the prior year primarily due to higher rent expense associated with new restaurants.
The increases in occupancy expenses during the thirteen and thirty-nine weeks ended September 27, 2026 as compared to the same periods in the prior year were primarily due to the increase in the number of company-owned restaurants.
Pre-opening Expenses
Pre-opening expenses are costs incurred to open new company-owned restaurants. Pre-opening expenses include rent expense, manager salaries, recruiting expenses, employee payroll and training costs. Pre-opening expenses can fluctuate from period to period, based on the number and timing of new company-owned restaurant openings.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Pre-opening expenses | $ | 3,461 | $ | 3,813 | (9.2) | % | $ | 9,833 | $ | 9,980 | (1.5) | % | |||||||||||||||||||||||
The decrease in pre-opening expenses during the thirteen and thirty-nine weeks ended September 27, 2026 as compared to the same periods in the prior year was primarily due to the lower number of new company-owned restaurants opened during the 2026 periods.
General and Administrative Expenses
General and administrative expenses primarily consist of costs associated with our corporate and administrative functions that support restaurant development and operations including marketing and advertising costs incurred as well as legal fees, professional fees, stock-based compensation and expenses associated with being a public company, including costs associated with our compliance with the Sarbanes-Oxley Act. General and administrative expenses are impacted by changes in our employee headcount and costs related to strategic and growth initiatives.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| General and administrative expenses | $ | 35,244 | $ | 33,746 | 4.4 | % | $ | 113,916 | $ | 97,150 | 17.3 | % | |||||||||||||||||||||||
The increase in general and administrative expenses during the thirteen weeks ended September 27, 2026 as compared to the same period in the prior year was mainly due to (i) a $1.7 million increase in compensation expenses related to stock-based compensation and additional employee headcount to support growth, (ii) a $0.5 million increase in licenses and fees including information technology related expenses for an increased number of restaurants and (iii) a $0.4 million increase in marketing expenses. The increase was partially offset by a decrease in consulting, legal and other professional service fees.
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The increase in general and administrative expenses during the thirty-nine weeks ended September 27, 2026 as compared to the same period in the prior year was mainly due to (i) a $6.2 million increase in compensation expenses related to stock-based compensation, bonus expenses and additional employee headcount to support growth, (ii) a $6.1 million increase in marketing expenses, (iii) a $3.9 million increase related to 2026 leadership conference expenses and (iv) a $1.7 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, legal and other professional service fees.
Depreciation and Amortization
Depreciation and amortization consists of the depreciation of fixed assets, including leasehold improvements, fixtures and equipment and the amortization of definite-lived intangible assets, which are primarily comprised of franchise rights.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 22,700 | $ | 19,662 | 15.5 | % | $ | 65,935 | $ | 54,355 | 21.3 | % | |||||||||||||||||||||||
The increases in depreciation and amortization during the thirteen and thirty-nine weeks ended September 27, 2026 as compared to the same periods in the prior year were primarily related to depreciating and amortizing the assets of NROs and of acquired restaurants, including reacquired rights from franchisees.
Transaction and Restructuring Expenses, Net
Transaction and restructuring expenses, net principally include (i) incremental severance costs resulting from organizational optimization, (ii) costs incurred in connection with the 2025 acquisitions of franchise-owned restaurants, (iii) non-recurring professional fees, (iv) investor relations costs and (v) costs related to secondary equity offerings completed in 2025.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Transaction and restructuring expenses, net | $ | 1,320 | $ | 428 | 208.4 | % | $ | 2,828 | $ | 2,220 | 27.4 | % | |||||||||||||||||||||||
The increase in transaction and restructuring expenses, net during the thirteen weeks ended September 27, 2026 as compared to the same period in the prior year was primarily due to an increase in costs related to (i) non-recurring professional fees and (ii) investor day costs. The increase was partially offset by secondary equity offering costs incurred in 2025 that did not recur in 2026.
The increase in transaction and restructuring expenses, net during the thirty-nine weeks ended September 27, 2026 as compared to the same period in the prior year was primarily due to an increase in (i) organizational optimization costs, (ii) costs related to non-recurring professional fees and (iii) investor day costs. The increase was partially offset by costs incurred in connection with (i) 2025 acquisitions and (ii) 2025 secondary equity offering costs that did not recur in 2026.
Income from Operations
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Income from operations | $ | 11,048 | $ | 10,050 | 9.9 | % | $ | 20,174 | $ | 18,476 | 9.2 | % | |||||||||||||||||||||||
| As a percentage of restaurant sales | 3.2 | % | 3.2 | % | — | % | 2.0 | % | 2.1 | % | (0.1) | % | |||||||||||||||||||||||
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Income from operations margin remained flat during the thirteen weeks ended September 27, 2026, compared to the same period in the prior year, as revenue increases and a decrease in general and administrative expenses as a percentage of restaurant sales were offset by increases in other costs, primarily (i) depreciation and amortization expense, (ii) other restaurant operating expenses and (iii) occupancy expenses.
Income from operations margin decreased during the thirty-nine weeks ended September 27, 2026 compared to the same period in the prior year as revenue increases were exceeded by increases in other costs, primarily (i) depreciation and amortization expense, (ii) labor and other related expenses, (iii) general and administrative expenses, (iv) other restaurant operating expenses and (v) occupancy expenses.
Interest Expense
Interest expense primarily consists of interest and fees on our outstanding debt and the amortization expense for debt discount and deferred issuance costs.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Interest expense | $ | 4,933 | $ | 4,567 | 8.0 | % | $ | 14,603 | $ | 11,904 | 22.7 | % | |||||||||||||||||||||||
The increase in interest expense during the thirteen and thirty-nine weeks ended September 27, 2026 as compared to the same periods in the prior year was due to increased debt.
Other Income, Net
Other income, net includes items deemed to be non-operating based on Management’s assessment of the nature of the item in relation to our core operations.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Other income, net | $ | 362 | $ | 191 | 89.5 | % | $ | 840 | $ | 1,141 | (26.4) | % | |||||||||||||||||||||||
Other income, net increased during the thirteen weeks ended September 27, 2026 as compared to the same period in the prior year primarily due to an increase in (i) interest income and (ii) sales tax commissions.
Other income, net decreased during the thirty-nine weeks ended September 27, 2026 as compared to the same period in the prior year primarily due to a decrease in insurance proceeds.
Income Tax
Income tax consists of federal and state taxes.
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Income tax expense | $ | (1,690) | $ | (2,683) | (37.0) | % | $ | (1,970) | $ | (3,445) | (42.8) | % | |||||||||||||||||||||||
| Effective income tax rate | 26.1 | % | 47.3 | % | (21.2) | % | 30.7 | % | 44.7 | % | (14.0)% | ||||||||||||||||||||||||
Income tax expense and the effective income tax rate during the thirteen and thirty-nine weeks ended September 27, 2026 decreased as compared to the same period in the prior year primarily due to (i) the impact of federal FICA tax credits and the related valuation allowance, (ii) stock-based compensation and (iii) certain discrete state income tax matters.
Net Income
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Net income | $ | 4,787 | $ | 2,991 | 60.0 | % | $ | 4,441 | $ | 4,268 | 4.1 | % | |||||||||||||||||||||||
| As a percentage of total revenues | 1.4 | % | 0.9 | % | 0.5 | % | 0.4 | % | 0.5 | % | (0.1) | % | |||||||||||||||||||||||
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Net income increased during the thirteen and thirty-nine weeks ended September 27, 2026 as compared to the same periods in the prior year primarily due to (i) the increase in income from operations and (ii) a decrease in income tax expense, partially offset by an increase in interest expense.
Restaurant Level Operating Profit and Restaurant Level Operating Profit Margin
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Restaurant level operating profit | $ | 67,343 | $ | 61,675 | 9.2 | % | $ | 194,149 | $ | 164,573 | 18.0 | % | |||||||||||||||||||||||
| Restaurant level operating profit margin | 19.4 | % | 19.7 | % | (0.3) | % | 18.9 | % | 18.3 | % | 0.6 | % | |||||||||||||||||||||||
Restaurant level operating profit margin during the thirteen weeks ended September 27, 2026 decreased as compared to the same period in the prior year primarily due to an increase as a percentage of restaurant sales in (i) other restaurant operating expenses, (ii) occupancy expenses and (iii) food and beverage costs, partially offset by a decrease in pre-opening expenses as a percentage of restaurant sales.
Restaurant level operating profit margin during the thirty-nine weeks ended September 27, 2026 increased as compared to the same period in the prior year primarily due to (i) favorable labor and other related expenses as a percentage of restaurant sales and (ii) favorable food and beverage costs as a percentage of restaurant 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 thirty-nine weeks ended September 27, 2026 increased as compared to the same periods 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 and (iv) occupancy expenses.
Adjusted EBITDA and Adjusted EBITDA Margin
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | Change | |||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 39,748 | $ | 34,099 | 16.6 | % | $ | 102,015 | $ | 87,231 | 16.9 | % | |||||||||||||||||||||||
| Adjusted EBITDA margin | 11.4 | % | 10.8 | % | 0.6 | % | 9.9 | % | 9.6 | % | 0.3 | % | |||||||||||||||||||||||
Adjusted EBITDA margin increased during the thirteen weeks ended September 27, 2026 compared to the same period in the prior year primarily due to a decrease in general and administrative expenses as a percentage of revenues, partially offset by a decrease in restaurant level operating profit margin.
Adjusted EBITDA margin increased during the thirty-nine weeks ended September 27, 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.
Adjusted EBITDA increased during the thirteen and thirty-nine weeks ended September 27, 2026 compared to the same periods in the prior year primarily due to an increase in restaurant level operating profit, partially offset by an increase in general and administrative expenses.
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Non-GAAP Financial Measures Reconciliations
Adjusted EBITDA and Adjusted EBITDA margin - The following table reconciles Net income and Net income margin, the most directly comparable GAAP measures to Adjusted EBITDA and Adjusted EBITDA margin, respectively, for the periods indicated:
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | |||||||||||||||||||
| Net income | $ | 4,787 | $ | 2,991 | $ | 4,441 | $ | 4,268 | |||||||||||||||
| Depreciation and amortization | 22,700 | 19,662 | 65,935 | 54,355 | |||||||||||||||||||
| Interest expense | 4,933 | 4,567 | 14,603 | 11,904 | |||||||||||||||||||
| Income tax expense | 1,690 | 2,683 | 1,970 | 3,445 | |||||||||||||||||||
| EBITDA | 34,110 | 29,903 | 86,949 | 73,972 | |||||||||||||||||||
Strategic transition costs (1) | 509 | 715 | 1,113 | 2,748 | |||||||||||||||||||
Stock-based compensation, net of amounts capitalized (2) | 3,639 | 2,877 | 10,688 | 7,926 | |||||||||||||||||||
Delaware Voluntary Disclosure Agreement Program (3) | — | 1 | — | 54 | |||||||||||||||||||
Transaction and restructuring expenses, net (4) | 1,320 | 428 | 2,828 | 2,220 | |||||||||||||||||||
Impairments and loss on disposal of assets (5) | 170 | 175 | 437 | 311 | |||||||||||||||||||
| Adjusted EBITDA | $ | 39,748 | $ | 34,099 | $ | 102,015 | $ | 87,231 | |||||||||||||||
| Total revenues | $ | 349,861 | $ | 316,022 | $ | 1,035,492 | $ | 906,149 | |||||||||||||||
| Net income margin | 1.4 | % | 0.9 | % | 0.4 | % | 0.5 | % | |||||||||||||||
| Adjusted EBITDA margin | 11.4 | % | 10.8 | % | 9.9 | % | 9.6 | % | |||||||||||||||
| Additional information | |||||||||||||||||||||||
Deferred rent (6) | $ | (337) | $ | (141) | $ | (836) | $ | 337 | |||||||||||||||
(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 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 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 Income.
(4) Represents severance costs resulting from organizational optimization, costs incurred in connection with the acquisition of franchise-owned restaurants, non-recurring professional fees, secondary equity offering costs, costs related to restaurant closures and investor relations costs.
(5) Represents impairment charges and costs related to the disposal of assets due to retirements, replacements and restaurant closures.
(6) Represents the non-cash portion of straight-line rent recorded within both Occupancy expenses and General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.
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Restaurant level operating profit and Restaurant level operating profit margin - The following table reconciles Income from operations and Income from operations margin, the most comparable GAAP measures to Restaurant level operating profit and Restaurant level operating profit margin, respectively, for the periods indicated:
| THIRTEEN WEEKS ENDED | THIRTY-NINE WEEKS ENDED | ||||||||||||||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | |||||||||||||||||||
| Income from operations | $ | 11,048 | $ | 10,050 | $ | 20,174 | $ | 18,476 | |||||||||||||||
| Less: Franchise revenues | (3,139) | (2,386) | (9,141) | (7,939) | |||||||||||||||||||
| Add: | |||||||||||||||||||||||
| General and administrative expenses | 35,244 | 33,746 | 113,916 | 97,150 | |||||||||||||||||||
| Depreciation and amortization | 22,700 | 19,662 | 65,935 | 54,355 | |||||||||||||||||||
Transaction and restructuring expenses, net (1) | 1,320 | 428 | 2,828 | 2,220 | |||||||||||||||||||
Impairments and loss on disposal of assets (2) | 170 | 175 | 437 | 311 | |||||||||||||||||||
| Restaurant level operating profit | $ | 67,343 | $ | 61,675 | $ | 194,149 | $ | 164,573 | |||||||||||||||
| Restaurant sales | $ | 346,722 | $ | 313,636 | $ | 1,026,351 | $ | 898,210 | |||||||||||||||
| Income from operations margin | 3.2 | % | 3.2 | % | 2.0 | % | 2.1 | % | |||||||||||||||
| Restaurant level operating profit margin | 19.4 | % | 19.7 | % | 18.9 | % | 18.3 | % | |||||||||||||||
| Additional information | |||||||||||||||||||||||
Deferred rent(3) | $ | (353) | $ | (168) | $ | (883) | $ | 211 | |||||||||||||||
(1) Represents severance costs resulting from organizational optimization, costs incurred in connection with the acquisition of franchise-owned restaurants, non-recurring professional fees, secondary equity offering costs, costs related to restaurant closures and investor relations costs.
(2) Represents impairment charges and costs related to the disposal of assets due to retirements, replacements and restaurant closures.
(3) Represents the non-cash portion of straight-line rent recorded within Occupancy expenses on the Consolidated Statements of Operations and Comprehensive Income.
Liquidity and Capital Resources
As of September 27, 2026, we had cash and cash equivalents of $21.1 million and outstanding borrowings under our senior secured credit facility (the “Credit Facility”) of $271.7 million, excluding unamortized debt discount and deferred issuance costs. We had availability of $54.0 million under our revolving credit facility of $125.0 million, of which $2.5 million is reserved under letters of credit pursuant to our credit agreement, dated as of October 6, 2021, as amended (“Credit Agreement”). Our principal uses of cash include capital expenditures for the development, acquisition or remodeling of restaurants, lease obligations, debt service payments and strategic infrastructure investments. Our working capital requirements are low due to our restaurants storing minimal inventory and customers paying for their purchases at the time of the sale, which frequently precedes our payment terms with suppliers.
We believe that our cash flow from operations combined with our availability under the Credit Facility and our cash and cash equivalents will be sufficient to meet our liquidity needs for at least the next 12 months. We anticipate that to the extent that we require additional liquidity, or should we decide to pursue one or more significant acquisitions, the funds would be furnished first through additional indebtedness and thereafter through the issuance of equity. Although we believe that our current level of total available liquidity is sufficient to meet our short-term and long-term liquidity requirements, we regularly evaluate opportunities to improve our liquidity position in order to enhance financial flexibility.
We estimate that our capital expenditures will total approximately $145.0 million in 2026. This capital is invested primarily in new restaurant projects and planned remodels. We intend to fund the capital expenditures primarily with cash generated from our operating activities as well as with borrowings pursuant to our Credit Agreement.
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Summary of Cash Flows
The following table presents a summary of our cash provided by (used in) operating, investing and financing activities for the thirty-nine weeks ended September 27, 2026 and September 28, 2025:
| THIRTY-NINE WEEKS ENDED | |||||||||||
| (in thousands) | SEPTEMBER 27, 2026 | SEPTEMBER 28, 2025 | |||||||||
| Cash provided by operating activities | $ | 110,445 | $ | 107,452 | |||||||
| Cash used in investing activities | (113,949) | (175,771) | |||||||||
| Cash provided by financing activities | 3,323 | 55,721 | |||||||||
| Net decrease in cash and cash equivalents | $ | (181) | $ | (12,598) | |||||||
Cash provided by operations is our typical source of liquidity used (i) to fund capital expenditures for new restaurants, (ii) to maintain and remodel existing restaurants and (iii) for debt service. During the thirty-nine weeks ended September 27, 2026 as compared to the thirty-nine weeks ended September 28, 2025, there was an increase in cash provided by operations primarily due to an increase in company-owned restaurants, partially offset by the timing of operational payments.
Cash used in investing activities decreased during the thirty-nine weeks ended September 27, 2026 from the thirty-nine weeks ended September 28, 2025 due principally to (i) amounts paid in 2025 to acquire franchise locations and (ii) the timing of capital expenditures and payments.
Cash provided by financing activities includes borrowing from, and repayments of, the Company’s Credit Facility.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon the accompanying consolidated financial statements and notes thereto, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements and related notes requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our evaluation of trends in the industry and information available from other outside sources, as appropriate. We evaluate our estimates and judgments on an on-going basis. Our actual results may differ from these estimates. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. There have been no significant changes to our critical accounting policies as disclosed in “Critical Accounting Policies and Estimates” in the 2025 Form 10-K.
Recently Issued Accounting Pronouncements
For a discussion of recently issued accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, in the accompanying notes to these consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Commodity and Food Price Risks
We expect our full year commodity inflation to be approximately flat.
Interest Rate Risk
On August 18, 2026, we entered into two additional variable-to-fixed interest rate swaps. These interest rate swaps have an initial aggregate notional amount of $50.0 million, which will increase to a notional amount of $80.0 million on December 24, 2026 and mature on December 29, 2028. Under the terms of these interest rate swaps, we will pay a weighted average fixed rate of 4.08% on the notional amounts and receive payments from, or make payments to, the counterparties based on the three-month SOFR rate.
Except as described above, there have been no material changes to our exposure to market risks as disclosed in the 2025 Form 10-K.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established and maintain disclosure controls and procedures, as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures are also designed to ensure that information allowing for timely disclosure decisions is accumulated and communicated to Management, including the Chief Executive Officer and Chief Financial Officer, as appropriate.
Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 27, 2026, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended September 27, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
We are involved in various claims and legal actions that arise in the ordinary course of business. We do not believe that the ultimate resolution of any of these actions, individually or taken in the aggregate, will have a material adverse effect on our financial position, results of operations, liquidity or capital resources. A significant increase in the number of claims or an increase in amounts owing under successful claims could materially adversely affect our business, financial condition, results of operations and cash flows. See Note 12, Commitments and Contingencies, in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Item 1A. Risk Factors
In addition to the other information discussed in this Form 10-Q, please consider the factors described in Part I, Item 1A., “Risk Factors” in our 2025 Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition or results of operations.
There have been no material changes to the risk factors disclosed in our 2025 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Insider Adoption or Termination of Trading Arrangements:
During the fiscal quarter ended September 27, 2026, none of our directors or officers adopted terminated
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Item 6. Exhibits
The exhibits listed in the Exhibits index to this Form 10-Q are incorporated herein by reference.
| Exhibit No. | Description | FILINGS REFERENCED FOR INCORPORATION BY REFERENCE | ||||||||||||
| 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||||||||||||
| 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||||||||||||
| 32.1* | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished herewith | ||||||||||||
| 101 | The financial information from First Watch Restaurant Group, Inc.’s Quarterly Report on Form 10-Q for the third fiscal quarter ended September 27, 2026, filed on November 3, 2026, formatted in Inline Extensible Business Reporting Language (“iXBRL”) | Filed herewith | ||||||||||||
| 104 | Cover Page Interactive Date File (formatted as iXBRL and contained in Exhibit 101) | Filed herewith | ||||||||||||
* This certification is not deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 3, 2026.
| FIRST WATCH RESTAURANT GROUP, INC. | ||||||||
| By: | /s/ Christopher A. Tomasso | |||||||
| Name: | Christopher A. Tomasso | |||||||
| Title: | President, Chief Executive Officer and Director (Principal Executive Officer) | |||||||
| By: | /s/ Ashlee Weisser | |||||||
| Name: | Ashlee Weisser | |||||||
| Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||||||
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