First Watch Restaurant Group, Inc.

Previous wording

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 2024 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 2024 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.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with these 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.

Previous wording

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

Current wording

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 for breakfast, brunch and lunch. 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.

Previous wording

The Company operates and franchises restaurants in 32 states under the “First Watch” trade name and as of September 28, 2025, the Company had 548 company-owned restaurants and 72 franchise-owned restaurants.

Current wording

We operate and franchise restaurants in 32 states under the “First Watch” trade name and as of March 29, 2026, the Company had 572 company-owned restaurants and 76 franchise-owned restaurants.

Previous wording

Financial highlights for the thirteen weeks ended September 28, 2025 (“third quarter of 2025”) as compared, unless otherwise indicated below, to the thirteen weeks ended September 29, 2024 (“third quarter of 2024”), reflected the continued momentum of our operating performance and include the following:

Current wording

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

Previous wording

•Opened 21 system-wide restaurants in 14 states, with 1 planned closure, resulting in a total of 620 system-wide restaurants (548 company-owned and 72 franchise-owned) across 32 states

Current wording

•Opened 16 system-wide restaurants in 11 states, with 1 planned closure, resulting in a total of 648 system-wide restaurants (572 company-owned and 76 franchise-owned) across 32 states as of March 29, 2026

Previous wording

•System-wide sales increased 20.9% to $352.7 million in the third quarter of 2025 from $291.8 million in the third quarter of 2024

Current wording

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

Previous wording

•Same-restaurant traffic growth of 2.6%

Current wording

•Same-restaurant traffic growth of negative 2.0%

Previous wording

•Restaurant level operating profit margin* increased to 19.7% in the third quarter of 2025 from 18.9% in the third quarter of 2024

Current wording

•Restaurant level operating profit margin* increased to 18.5% in the first quarter of 2026 from 16.5% in the first quarter of 2025

Previous wording

•Net income increased to $3.0 million, or $0.05 per diluted share, in the third quarter of 2025 from net income of $2.1 million, or $0.03 per diluted share, in the third quarter of 2024

Current wording

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

Previous wording

•Adjusted EBITDA* increased to $34.1 million in the third quarter of 2025 from $25.6 million in the third quarter of 2024

Current wording

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

Previous wording

Restaurant-level wage inflation during the third quarter was 3.6% and full year inflation is expected to be approximately 4%.

Current wording

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

Previous wording

Throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we commonly discuss the following key operating metrics that we believe will drive our financial results and long-term growth model. We believe these metrics are useful to investors because 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.

Current wording

Throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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.

Previous wording

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 28, 2025 and September 29, 2024, there were 381 restaurants and 344 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.

Current wording

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 weeks ended March 29, 2026 and March 30, 2025, there were 454 restaurants and 383 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.

Previous wording

Same-Restaurant Traffic Growth: the percentage change in traffic counts as compared to the same period in the prior year 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 an increase in same-restaurant traffic provides an indicator as to the development of our brand and the effectiveness of our marketing strategy.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

(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, are set forth in the schedules within the Non-GAAP Financial Measures Reconciliations section below.

Current wording

(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 schedules within the Non-GAAP Financial Measures Reconciliations section below.

Previous wording

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

Current wording

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

Previous wording

The following table summarizes our results of operations and the percentages of certain items in relation to Total revenues or, where indicated, Restaurant sales for the thirteen and thirty-nine weeks ended September 28, 2025 and September 29, 2024, respectively:

Current wording

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

Previous wording

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 driven by our menu price increases and changes to our menu mix.

Current wording

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.

Previous wording

The decrease in franchise revenues during the thirteen and thirty-nine weeks ended September 28, 2025 as compared to the same periods in the prior year was primarily driven by the Company’s acquisitions of franchise-owned restaurants, partially offset by franchise revenues from the franchise-owned NROs.

Current wording

The increase in franchise revenues during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was due to an increase in the system fund contribution rate, partially offset by a decrease in franchise-owned restaurants from 86 to 76.

Previous wording

Food and beverage costs as a percent of restaurant sales decreased during the thirteen weeks ended September 28, 2025 compared to the same period in the prior year primarily as a result of leverage associated with menu price increases, partially offset by commodity inflation experienced in bacon and coffee.

Current wording

Food and beverage costs as a percent of restaurant sales decreased during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year primarily as a result of (i) menu price increases and (ii) commodity deflation due to a decrease in the cost of eggs, avocados, and bacon, partially offset by an increase in the cost of coffee.

Previous wording

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 increased competition for qualified staff.

Current wording

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.

Previous wording

Labor and other related expenses as a percentage of restaurant sales decreased during the thirteen weeks ended September 28, 2025 compared to the same period in the prior year primarily as a result of (i) the leverage associated with menu price increases and (ii) hourly labor efficiency. These decreases were partially offset by an increase in health insurance costs.

Current wording

Labor and other related expenses as a percentage of restaurant sales decreased during the thirteen weeks ended March 29, 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.

Previous wording

The increase in labor and other related expenses during the thirteen and thirty-nine weeks ended September 28, 2025 as compared to the same periods in the prior year was primarily due to (i) the increase in the number of restaurants and related headcount, (ii) wage increases and (iii) increased health insurance costs.

Current wording

The increase in labor and other related expenses during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily due to (i) the increase in the number of company-owned restaurants and related headcount and (ii) wage increases.

Previous wording

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

Current wording

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

Previous wording

The increase in other restaurant operating expenses during the thirteen weeks ended September 28, 2025 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) $3.6 million in operating supplies, (ii) $3.0 million related to utilities and repair and maintenance expenses, (iii) $3.2 million in third-party delivery fees and (iv) $1.4 million in credit card fees.

Current wording

The increase in other restaurant operating expenses during the thirteen weeks ended March 29, 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) $2.6 million related to utilities, repair and maintenance expenses, (ii) $2.2 million in operating supplies, (iii) $1.6 million in third-party delivery fees and (iv) $1.0 million in credit card fees.

Previous wording

The increase in occupancy expenses during the thirteen and thirty-nine weeks ended September 28, 2025 as compared to the same periods in the prior year was primarily due to the increase in the number of company-owned restaurants.

Current wording

The increase in occupancy expenses during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily due to the increase in the number of company-owned restaurants.

Previous wording

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, which are recognized in the period in which the expense was incurred. Pre-opening expenses can fluctuate from period to period, based on the number and timing of new company-owned restaurant openings.

Current wording

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.

Previous wording

The increase in pre-opening expenses during the thirteen and thirty-nine weeks ended September 28, 2025 as compared to the same periods in the prior year was primarily from (i) increases in pre-opening rent and (ii) the higher number of new restaurants opened and under construction.

Current wording

The increase in pre-opening expenses during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily due to the higher number of new restaurants opened during the period.

Previous wording

The increase in general and administrative expenses during the thirteen weeks ended September 28, 2025 as compared to the same period in the prior year was mainly due to (i) a $2.9 million increase in marketing expenses, (ii) a $2.4 million increase in compensation expense from wage increases and additional employee headcount to support growth and (iii) a $0.5 million increase in licenses and fees including information technology related expenses for an increased number of restaurants.

Current wording

The increase in general and administrative expenses during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was mainly due to (i) a $4.0 million increase related to 2026 leadership conference expenses, (ii) a $3.5 million increase in compensation expenses related to stock compensation, bonus expenses and additional employee headcount to support growth, (iii) a $1.7 million increase in marketing expenses and (iv) a $0.5 million increase in licenses and fees including information technology related expenses for an increased number of restaurants.

Previous wording

The increase in depreciation and amortization during the thirteen and thirty-nine weeks ended September 28, 2025 as compared to the same periods in the prior year is primarily related to depreciating and amortizing the assets of NROs and of acquired restaurants, including reacquired rights from franchisees.

Current wording

The increase in depreciation and amortization during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily related to depreciating and amortizing the assets of NROs and of acquired restaurants, including reacquired rights from franchisees.

Previous wording

The increase in Transaction expenses, net during the thirteen weeks ended September 28, 2025 as compared to the same period in the prior year was primarily due to $0.3 million on costs incurred in connection with a secondary equity offering. This increase was partially offset by $(0.2) million decrease in costs in connection with the acquisitions of restaurants from our franchisees.

Current wording

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

Previous wording

Income from operations and income from operations margin decreased during the thirty-nine weeks ended September 28, 2025 as revenue increases were exceeded by increases in various other costs compared to the same period in the prior year including (i) food and beverage costs, (ii) labor and related expenses, (iii) other restaurant operating expenses, (iv) preopening expenses and (v) depreciation and amortization expense, partially offset by leveraging of general and administrative expenses.

Current wording

Income from operations and income from operations margin decreased during the thirteen weeks ended March 29, 2026 compared to the same period in the prior year, as revenue increases were exceeded by increases in (i) general and administrative expenses, (ii) depreciation and amortization expense and (iii) occupancy expenses.

Previous wording

The increase in interest expense during the thirteen and thirty-nine weeks ended September 28, 2025 as compared to the same periods in the prior year was primarily due to increased borrowings associated with franchise acquisitions.

Current wording

The increase in interest expense during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily due to increased borrowing associated with 2025 franchise acquisitions, partially offset by lower interest rates.

Previous wording

Other income, net decreased during the thirteen and thirty-nine weeks ended September 28, 2025 as compared to the same periods in the prior year primarily due to a reduction in interest income partially offset by insurance recoveries.

Current wording

Other income, net decreased during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year primarily due to a decrease in insurance proceeds.

Previous wording

Income tax expense primarily consists of various federal and state taxes.

Current wording

Income tax consists of federal and state taxes.

Previous wording

The effective income tax rates during the thirteen and thirty-nine weeks ended September 28, 2025 increased as compared to the same periods in the prior year primarily due to (i) the changes in income before income taxes, (ii) the increase in FICA tax credits and the corresponding change in valuation allowance and (iii) the impact of executive compensation.

Current wording

The change in the effective income tax rate and provision for income taxes for the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily due to (i) the changes in the loss before taxes, (ii) the benefit of FICA tax credits and (iii) the impact of executive compensation.

Previous wording

Net income and net income margin during the thirty-nine weeks ended September 28, 2025 decreased as compared to the same period in the prior year primarily due to the (i) decrease in income from operations as expenses increased at a higher rate than revenue and (ii) increase in interest expense associated with increased borrowings to fund acquisitions, offset partially by the impact of income taxes.

Current wording

Net loss and net loss margin during the thirteen weeks ended March 29, 2026 increased as compared to the same period in the prior year primarily due to (i) the decrease in income from operations as expenses increased at a higher rate than revenue and (ii) an increase in interest expense associated with increased borrowings to fund 2025 franchise acquisitions.