First Watch Restaurant Group, Inc.

Previous wording

References to “we,” “us,” “our” and “the Company” 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.

Current wording

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.

Previous 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 the 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.

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 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.

Previous wording

We employ more than 18,000 employees, operate and franchise restaurants in 33 states under the “First Watch” trade name and, as of June 28, 2026, had 586 company-owned restaurants and 79 franchise-owned restaurants.

Current wording

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.

Previous wording

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

Current wording

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:

Previous wording

•Opened 18 system-wide restaurants in 15 states, with 1 planned closure, resulting in a total of 665 system-wide restaurants (586 company-owned and 79 franchise-owned) across 33 states as of June 28, 2026

Current wording

•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

Previous wording

•System-wide sales increased 14.7% to $397.0 million from $346.2 million

Current wording

•System-wide sales increased 10.9% to $391.2 million from $352.7 million

Previous wording

•Same-restaurant traffic growth of negative 0.4%

Current wording

•Same-restaurant traffic growth of negative 1.9%

Previous wording

•Net income increased to $2.3 million, or $0.04 per diluted share, from net income of $2.1 million, or $0.03 per diluted share

Current wording

•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

Previous wording

•Adjusted EBITDA* increased to $34.5 million from $30.4 million

Current wording

•Adjusted EBITDA* increased to $39.7 million from $34.1 million

Previous wording

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

Current wording

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%.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

Restaurant-level wage inflation during the third quarter of 2026 was 4.1% and full year inflation is expected to be approximately 4.0%.

Previous 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.

Current wording

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.

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 twenty-six weeks ended June 28, 2026 and June 29, 2025, there were 454 restaurants and 382 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 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.

Previous 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 income (loss), 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 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.

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 (loss) 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 income 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, respectively, 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 tables within the Non-GAAP Financial Measures Reconciliations section below.

Previous wording

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

Current wording

(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.

Previous wording

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 twenty-six weeks ended June 28, 2026 and June 29, 2025:

Current wording

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:

Previous wording

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

Current wording

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.

Previous wording

The increases in franchise revenues during the thirteen and twenty-six weeks ended June 28, 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) 11 new franchise-owned restaurant openings between June 29, 2025 and June 28, 2026. These increases were partially offset by our acquisitions of 19 franchise-owned restaurants during the thirteen weeks ended June 29, 2025.

Current wording

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.

Previous wording

Food and beverage costs as a percentage of restaurant sales decreased during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year primarily as a result of (i) menu price increases and (ii) the lower cost of eggs, avocados and bacon, mostly offset by the demand for newly introduced higher cost beef offerings and an increase in coffee prices.

Current wording

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.

Previous wording

Food and beverage costs increased during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year primarily as a result of the 57 new restaurant openings between June 29, 2025 and June 28, 2026 and the 19 franchise restaurants acquired during the thirteen weeks ended June 29, 2025. These increases were partially offset by commodity deflation.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

The increases in labor and other related expenses during the thirteen and twenty-six weeks ended June 28, 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.

Current wording

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.

Previous 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.

Current wording

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.

Previous wording

The increase in other restaurant operating expenses during the thirteen weeks ended June 28, 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) $3.4 million related to utilities, repairs and maintenance expenses, (ii) $2.4 million in operating supplies, (iii) $1.6 million in third-party delivery fees and (iv) $0.9 million in credit card fees.

Current wording

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.

Previous wording

The increase in other restaurant operating expenses during the twenty-six weeks ended June 28, 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) $6.0 million related to utilities, repairs and maintenance expenses, (ii) $4.5 million in operating supplies, (iii) $3.2 million in third-party delivery fees and (iv) $1.9 million in credit card fees.

Current wording

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.

Previous wording

The increases in occupancy expenses during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year were primarily due to the increase in the number of company-owned restaurants.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

The increase in general and administrative expenses during the twenty-six weeks ended June 28, 2026 as compared to the same period in the prior year was mainly due to (i) a $5.7 million increase in marketing expenses, (ii) a $4.5 million increase in compensation expenses related to stock compensation, bonus expenses and additional employee headcount to support growth, (iii) a $3.9 million increase related to 2026 leadership conference expenses and (iv) a $1.1 million increase in licenses and fees including information technology related expenses for an increased number of restaurants. The increase was partially offset by a decrease in consulting and other professional services fees.

Current wording

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.

Previous wording

The increases in depreciation and amortization during the thirteen and twenty-six weeks ended June 28, 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.

Current wording

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.

Previous wording

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 and (iii) costs related to secondary equity offerings completed in 2025.

Current wording

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.

Previous wording

The decrease in transaction and restructuring expenses, net during the thirteen weeks ended June 28, 2026 as compared to the same period in the prior year was due to a decrease in costs incurred in connection with (i) 2025 acquisitions and (ii) 2025 secondary equity offering costs.

Current wording

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.

Previous wording

The decrease in transaction and restructuring expenses, net during the twenty-six weeks ended June 28, 2026 as compared to the same period in the prior year was due to decreases in costs incurred in connection with (i) 2025 acquisitions and (ii) 2025 secondary equity offering costs. The decrease was partially offset by an increase in organizational optimization costs.

Current wording

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.

Previous wording

Income from operations margin decreased during the thirteen and twenty-six weeks ended June 28, 2026 compared to the same periods in the prior year due to increases in expenses as a percentage of sales, primarily (i) general and administrative expenses, (ii) other restaurant operating expenses and (iii) depreciation and amortization expense.

Current wording

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.

Previous wording

The increases in interest expense during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year were due to increased debt.

Current wording

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.

Previous wording

Other income, net decreased during the twenty-six weeks ended June 28, 2026 as compared to the same period in the prior year primarily due to a decrease in insurance proceeds.

Current wording

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.

Previous wording

Income tax expense and the effective income tax rate decreased for the thirteen weeks ended June 28, 2026 as compared to the same period in the prior year, primarily due to the benefit of federal FICA tax credits and changes in executive compensation related tax impacts.

Current wording

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.