First Watch Restaurant Group Inc.

11/04/2025 | Press release | Distributed by Public on 11/04/2025 06:04

Quarterly Report for Quarter Ending September 28, 2025 (Form 10-Q)

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 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.
Overview
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.
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.
Recent Developments
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:
•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
•Total revenues increased 25.6% to $316.0 million in the third quarter of 2025 from $251.6 million in the third quarter of 2024
•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
•Same-restaurant sales growth of 7.1%
•Same-restaurant traffic growth of 2.6%
•Income from operations margin increased to 3.2% during the third quarter of 2025 from 2.5% in the third quarter of 2024
•Restaurant level operating profit margin* increased to 19.7% in the third quarter of 2025 from 18.9% in the third quarter of 2024
•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
•Adjusted EBITDA* increased to $34.1 million in the third quarter of 2025 from $25.6 million in the third quarter of 2024
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* See Non-GAAP Financial Measures Reconciliationssection below.
Business Trends
In the third quarter of 2025, the Company's same-restaurant traffic grew 2.6%, marking two consecutive quarters of positive traffic growth. We expect positive traffic trends to continue through the end of the year.
Commodity inflation was 3.0% in the third quarter of 2025, driven by coffee and bacon. We project our full year commodity inflation to be approximately 6%.
Restaurant-level wage inflation during the third quarter was 3.6% and full year inflation is expected to be approximately 4%.
Key Performance Indicators
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.
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 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.
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.
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.
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 each operating restaurant, 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. SeeNon-GAAP Financial Measure Reconciliationsbelow 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. SeeNon-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 28, 2025
COMPANY-OWNED FRANCHISE-OWNED TOTAL
Beginning of period
531 69 600
New restaurant openings
18 3 21
Acquisitions of franchise-owned restaurants - - -
Closures
(1) - (1)
End of period
548 72 620
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 2025
COMPANY-OWNED FRANCHISE-OWNED TOTAL
Beginning of period
489 83 572
New restaurant openings
43 8 51
Acquisitions of franchise-owned restaurants 19 (19) -
Closures
(3) - (3)
End of period
548 72 620
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 SEPTEMBER 28, 2025 SEPTEMBER 29, 2024
System-wide sales (in thousands) $ 352,688 $ 291,806 $ 1,021,896 $ 880,364
Same-restaurant sales growth 7.1 % (1.9) % 3.7 % (0.6) %
Same-restaurant traffic growth 2.6 % (4.4) % 1.3 % (4.3) %
Income from operations (in thousands) $ 10,050 $ 6,313 $ 18,476 $ 35,046
Income from operations margin 3.2 % 2.5 % 2.1 % 4.7 %
Restaurant level operating profit (in thousands) (1)
$ 61,675 $ 46,991 $ 164,573 $ 152,799
Restaurant level operating profit margin (1)
19.7 % 18.9 % 18.3 % 20.5 %
Net income (in thousands) $ 2,991 $ 2,112 $ 4,268 $ 18,226
Net income margin 0.9 % 0.8 % 0.5 % 2.4 %
Adjusted EBITDA (in thousands)(2)
$ 34,099 $ 25,624 $ 87,231 $ 89,539
Adjusted EBITDA margin(2)
10.8 % 10.2 % 9.6 % 11.9 %
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(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 Reconciliationssection below.
(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 Reconciliationssection below.
Results of Operations
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:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 SEPTEMBER 28, 2025 SEPTEMBER 29, 2024
Revenues
Restaurant sales $ 313,636 99.2 % $ 248,965 98.9 % $ 898,210 99.1 % $ 743,730 98.8 %
Franchise revenues 2,386 0.8 % 2,644 1.1 % 7,939 0.9 % 8,889 1.2 %
Total revenues 316,022 100.0 % 251,609 100.0 % 906,149 100.0 % 752,619 100.0 %
Operating costs and expenses
Restaurant operating expenses (1)(exclusive of depreciation and amortization shown below):
Food and beverage costs 69,730 22.2 % 55,865 22.4 % 208,355 23.2 % 163,852 22.0 %
Labor and other related expenses 102,387 32.6 % 83,756 33.6 % 300,451 33.4 % 247,332 33.3 %
Other restaurant operating expenses 50,140 16.0 % 38,891 15.6 % 141,002 15.7 % 113,232 15.2 %
Occupancy expenses 25,891 8.3 % 21,075 8.5 % 73,849 8.2 % 60,733 8.2 %
Pre-opening expenses 3,813 1.2 % 2,387 1.0 % 9,980 1.1 % 5,782 0.8 %
General and administrative expenses 33,746 10.7 % 27,680 11.0 % 97,150 10.7 % 82,527 11.0 %
Depreciation and amortization 19,662 6.2 % 15,153 6.0 % 54,355 6.0 % 41,960 5.6 %
Impairments and loss on disposal of assets 175 0.1 % 114 - % 311 - % 386 0.1 %
Transaction expenses, net 428 0.1 % 375 0.1 % 2,220 0.2 % 1,769 0.2 %
Total operating costs and expenses 305,972 96.8 % 245,296 97.5 % 887,673 98.0 % 717,573 95.3 %
Income from operations (1)
10,050 3.2 % 6,313 2.5 % 18,476 2.1 % 35,046 4.7 %
Interest expense (4,567) (1.4) % (3,441) (1.4) % (11,904) (1.3) % (9,421) (1.3) %
Other income, net 191 0.1 % 624 0.2 % 1,141 0.1 % 1,663 0.2 %
Income before income taxes 5,674 1.8 % 3,496 1.4 % 7,713 0.9 % 27,288 3.6 %
Income tax expense (2,683) (0.8) % (1,384) (0.6) % (3,445) (0.4) % (9,062) (1.2) %
Net income $ 2,991 0.9 % $ 2,112 0.8 % $ 4,268 0.5 % $ 18,226 2.4 %
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(1) As a percentage of restaurant sales.
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 driven by our menu price increases and changes to our menu mix.
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Restaurant sales:
In-restaurant dining sales $ 254,155 $ 207,047 22.8 % $ 728,282 $ 613,422 18.7 %
Third-party delivery sales 37,163 22,372 66.1 % 103,633 72,682 42.6 %
Take-out sales 22,318 19,546 14.2 % 66,295 57,626 15.0 %
Total restaurant sales $ 313,636 $ 248,965 26.0 % $ 898,210 $ 743,730 20.8 %
The increase in total restaurant sales as compared to the same periods in the prior year was due principally to (i) the increase in number of restaurants due to NROs, (ii) restaurants acquired from franchisees, (iii) menu price increases and (iv) an increase in same-restaurant traffic, partially offset by increased promotional usage.
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 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Franchise revenues:
Royalty and system fund contributions $ 2,333 $ 2,587 (9.8) % $ 7,371 $ 8,257 (10.7) %
Initial fees 53 57 (7.0) % 170 219 (22.4) %
Business acquisitions - franchise revenues recognized $ - $ - - % $ 398 $ 413 (3.6) %
Total Franchise revenues $ 2,386 $ 2,644 (9.8) % $ 7,939 $ 8,889 (10.7) %
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.
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 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Food and beverage costs $ 69,730 $ 55,865 24.8 % $ 208,355 $ 163,852 27.2 %
As a percentage of restaurant sales 22.2 % 22.4 % (0.2) % 23.2 % 22.0 % 1.2 %
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.
Food and beverage costs as a percent of restaurant sales increased during the thirty-nine weeks ended September 28, 2025 as compared to the same period in the prior year primarily due to (i) commodity inflation experienced in eggs, coffee, bacon and avocados, and (ii) increased portion size in certain menu items, partially offset by the leverage associated with menu price increases.
Food and beverage costs increased during the thirteen and thirty-nine weeks ended September 28, 2025 as compared to the same periods in the prior year primarily as a result of (i) the increase in the number of company-owned restaurants, (ii) commodity inflation and (iii) increased portion size of meat in certain menu items.
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 increased competition for qualified staff.
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Labor and other related expenses $ 102,387 $ 83,756 22.2 % $ 300,451 $ 247,332 21.5 %
As a percentage of restaurant sales 32.6 % 33.6 % (1.0) % 33.4 % 33.3 % 0.1 %
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.
Labor and other related expenses as a percentage of restaurant sales increased during the thirty-nine weeks ended September 28, 2025 as compared to the same period in the prior year primarily as a result of increases in (i) wage rates and (ii) health insurance costs, partially offset by the leverage associated with menu price increases.
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.
Other Restaurant Operating Expenses
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.
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Other restaurant operating expenses $ 50,140 $ 38,891 28.9 % $ 141,002 $ 113,232 24.5 %
As a percentage of restaurant sales 16.0 % 15.6 % 0.4 % 15.7 % 15.2 % 0.5 %
As a percentage of restaurant sales, the increase in other restaurant operating expenses for the thirteen and thirty-nine weeks ended September 28, 2025 as compared to the same periods in the prior year was primarily due to increases in (i) operating supply costs, in particular, menus and to-go supplies and (ii) third-party delivery fees.
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.
The increase in other restaurant operating expenses during the thirty-nine 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) $8.8 million in operating supplies, (ii) $7.7 million related to utilities, repair and maintenance expenses, (iii) $6.3 million in third-party delivery fees, (iv) $3.0 million in credit card fees, (v) $1.0 million in insurance expenses and (vi) $0.7 million in legal, accounting and licensing 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 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Occupancy expenses $ 25,891 $ 21,075 22.9 % $ 73,849 $ 60,733 21.6 %
As a percentage of restaurant sales 8.3 % 8.5 % (0.2) % 8.2 % 8.2 % - %
As a percentage of restaurant sales, the decrease in occupancy expenses for the thirteen weeks ended September 28, 2025 as compared to the same period in the prior year was primarily due to leveraging increased restaurant sales.
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.
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, 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.
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Pre-opening expenses $ 3,813 $ 2,387 59.7 % $ 9,980 $ 5,782 72.6 %
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.
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 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
General and administrative expenses $ 33,746 $ 27,680 21.9 % $ 97,150 $ 82,527 17.7 %
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.
The increase in general and administrative expenses during the thirty-nine weeks ended September 28, 2025 as compared to the same period in the prior year was mainly due to, (i) a $7.4 million increase in marketing expenses, (ii) a $4.4 million increase in compensation expense from wage increases and additional employee headcount to support growth, (iii) a $1.5 million increase in licenses and fees including information technology related expenses for an increased number of restaurants and (iv) a $0.8 million increase in consulting and other professional services 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 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Depreciation and amortization $ 19,662 $ 15,153 29.8 % $ 54,355 $ 41,960 29.5 %
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.
Transaction Expenses, Net
Transaction expenses, net include (i) costs incurred in connection with the acquisition of franchise-owned restaurants, (ii) costs related to certain equity offerings, (iii) costs related to restaurant closures, (iv) gains or losses associated with lease or contract terminations and (v) revaluations of contingent consideration payable to previous stockholders for tax savings generated through the use of federal and state loss carryforwards and general business credits that had been accumulated from operations prior to August 2017.
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Transaction expenses, net $ 428 $ 375 14.1 % $ 2,220 $ 1,769 25.5 %
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.
The increase in Transaction expenses, net during the thirty-nine weeks ended September 28, 2025 as compared to the same period in the prior year was primarily due to a $0.6 million reduction to contingent consideration liability in the first quarter of 2024 partially offset by $0.3 million of debt modification costs incurred in the first quarter of 2024.
Income from Operations
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Income from operations $ 10,050 $ 6,313 59.2 % $ 18,476 $ 35,046 (47.3) %
As a percentage of restaurant sales 3.2 % 2.5 % 0.7 % 2.1 % 4.7 % (2.6) %
Income from operations and income from operations margin increased during the thirteen weeks ended September 28, 2025 compared to the same period in the prior year due to leveraging revenue against certain costs including (i) labor and other related expenses, (ii) food and beverage costs, (iii) occupancy expense and (iv) general and administrative expenses.
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.
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 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Interest expense $ 4,567 $ 3,441 32.7 % $ 11,904 $ 9,421 26.4 %
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.
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 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Other income, net $ 191 $ 624 (69.4) % $ 1,141 $ 1,663 (31.4) %
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.
Income Tax
Income tax expense primarily consists of various federal and state taxes.
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Income tax expense $ (2,683) $ (1,384) 93.9 % $ (3,445) $ (9,062) (62.0) %
Effective income tax rate 47.3 % 39.6 % 7.7 % 44.7 % 33.2 % 11.5 %
For the thirteen and thirty-nine weeks ended September 28, 2025 and September 29, 2024, the income tax expense includes the impact of changes to the estimate of forecasted annual income before taxes relative to the prior period in each respective year.
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.
Management applied the relevant provisions of H.R. 1 - One Big Beautiful Bill in the third quarter of 2025 following its enactment on July 4, 2025, including provisions related to research and development. The impact on our consolidated financial statements was immaterial.
Net Income
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Net income $ 2,991 $ 2,112 41.6 % $ 4,268 $ 18,226 (76.6) %
As a percentage of total revenues 0.9 % 0.8 % 0.1 % 0.5 % 2.4 % (1.9) %
Net income and net income margin during the thirteen weeks ended September 28, 2025 increased as compared to the same period in the prior year primarily due to the increase in income from operations, partially offset by (i) the increase in interest expense and (ii) the increase in income tax expense.
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.
Restaurant Level Operating Profit and Restaurant Level Operating Profit Margin
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Restaurant level operating profit $ 61,675 $ 46,991 31.2 % $ 164,573 $ 152,799 7.7 %
Restaurant level operating profit margin 19.7 % 18.9 % 0.8 % 18.3 % 20.5 % (2.2) %
Restaurant level operating profit margin during the thirteen weeks ended September 28, 2025 increased as compared to the same period in the prior year primarily due to (i) favorable labor and other related expenses as a percent of sales, (ii) favorable food and beverage costs as a percent of sales and (iii) favorable occupancy expenses as a percent of sales. This was partially offset by the deleverage of other restaurant operating expenses.
Restaurant level operating profit margin during the thirty-nine weeks ended September 28, 2025 decreased as compared to the same period in the prior year primarily due to (i) inflation across commodities, (ii) increases in restaurant-level wages and (iii) increases in preopening expenses. This was partially offset by the leverage associated with menu price increases.
Restaurant level operating profit for the thirteen and thirty-nine weeks ended September 28, 2025 increased as compared to the same periods in the prior year due to sales growth driven by the increase in (i) restaurant locations, (ii) traffic and (iii) menu prices. This was partially offset by an increase in (i) labor costs, (ii) food and beverage expenses, (iii) other restaurant operating expenses, (iv) occupancy expense and (v) preopening expenses.
Adjusted EBITDA and Adjusted EBITDA Margin
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 Change
Adjusted EBITDA $ 34,099 $ 25,624 33.1 % $ 87,231 $ 89,539 (2.6) %
Adjusted EBITDA margin 10.8 % 10.2 % 0.6 % 9.6 % 11.9 % (2.3) %
Adjusted EBITDA increased during the thirteen weeks ended September 28, 2025 compared to the same period in the prior year primarily due to an increase in restaurant level operating profit partially offset by an increase in general and administrative expenses.
Adjusted EBITDA margin increased during the thirteen weeks ended September 28, 2025 compared to the same period in the prior year primarily due to (i) an increase in restaurant level operating profit margin and (ii) a decrease in general and administrative expenses as a percentage of revenues.
Adjusted EBITDA decreased during the thirty-nine weeks ended September 28, 2025 as compared to the same period in the prior year primarily due to the increase in general and administrative expenses partially offset by the increase in restaurant level operating profit.
Adjusted EBITDA margin decreased during the thirty-nine weeks ended September 28, 2025 as compared to the same period in the prior year primarily due to the decrease in restaurant level operating profit margin partially offset by the decrease in general and administrative expenses as a percentage of revenues.
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, for the periods indicated:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 SEPTEMBER 28, 2025 SEPTEMBER 29, 2024
Net income $ 2,991 $ 2,112 $ 4,268 $ 18,226
Depreciation and amortization 19,662 15,153 54,355 41,960
Interest expense 4,567 3,441 11,904 9,421
Income tax expense 2,683 1,384 3,445 9,062
EBITDA 29,903 22,090 73,972 78,669
Strategic costs (1)
715 558 2,748 954
Loss on extinguishment and modification of debt - - - 428
Stock-based compensation, net of amounts capitalized (2)
2,877 2,076 7,926 6,394
Delaware Voluntary Disclosure Agreement Program (3)
1 26 54 101
Transaction expenses, net (4)
428 375 2,220 1,769
Impairments and loss on disposal of assets (5)
175 114 311 386
Recruiting and relocation costs (6)
- 359 - 634
Severance costs (7)
- 26 - 204
Adjusted EBITDA $ 34,099 $ 25,624 $ 87,231 $ 89,539
Total revenues $ 316,022 $ 251,609 $ 906,149 $ 752,619
Net income margin 0.9 % 0.8 % 0.5 % 2.4 %
Adjusted EBITDA margin 10.8 % 10.2 % 9.6 % 11.9 %
Additional information
Deferred rent expense (8)
$ (141) $ 327 $ 337 $ 1,076
_____________________________
(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 (Loss).
(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 (Loss).
(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 (Loss).
(4) Represents costs incurred in connection with the acquisition of franchise-owned restaurants, secondary offering costs and, in 2024, an offsetting gain on release of contingent consideration liability and expenses related to debt.
(5) Represents costs related to the disposal of assets due to retirements, replacements or certain restaurant closures. There were no impairments recognized during the periods presented.
(6) Represents costs incurred for hiring qualified individuals. These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
(7) Severance costs are recorded in General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
(8) Represents the non-cash portion of straight-line rent expense recorded within both Occupancy expenses and General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
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, for the periods indicated:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024 SEPTEMBER 28, 2025 SEPTEMBER 29, 2024
Income from operations $ 10,050 $ 6,313 $ 18,476 $ 35,046
Less: Franchise revenues (2,386) (2,644) (7,939) (8,889)
Add:
General and administrative expenses 33,746 27,680 97,150 82,527
Depreciation and amortization 19,662 15,153 54,355 41,960
Transaction expenses, net (1)
428 375 2,220 1,769
Impairments and loss on disposal of assets (2)
175 114 311 386
Restaurant level operating profit $ 61,675 $ 46,991 $ 164,573 $ 152,799
Restaurant sales $ 313,636 $ 248,965 $ 898,210 $ 743,730
Income from operations margin 3.2 % 2.5 % 2.1 % 4.7 %
Restaurant level operating profit margin 19.7 % 18.9 % 18.3 % 20.5 %
Additional information
Deferred rent expense (3)
$ (168) $ 277 $ 211 $ 927
_____________________________
(1) Represents costs incurred in connection with the acquisition of franchise-owned restaurants, secondary offering costs and, in 2024, an offsetting gain on release of contingent consideration liability and expenses related to debt.
(2) Represents costs related to the disposal of assets due to retirements, replacements or certain restaurant closures. There were no impairments recognized during the periods presented.
(3) Represents the non-cash portion of straight-line rent expense recorded within Occupancy expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Liquidity and Capital Resources
As of September 28, 2025, we had cash and cash equivalents of $20.7 million and outstanding borrowings under the Credit Facility of $249.4 million, excluding unamortized debt discount and deferred issuance costs. We had availability of $87.9 million under our revolving credit facility of $125.0 million, of which $2.1 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 pay 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 the Company's 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 $150.0 million in 2025, not including the capital allocated to franchise acquisitions. This capital is invested primarily in new restaurant projects and planned remodels. We plan to fund the capital expenditures primarily with cash generated from our operating activities as well as with borrowings pursuant to our Credit Agreement.
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 28, 2025 and September 29, 2024:
THIRTY-NINE WEEKS ENDED
(in thousands) SEPTEMBER 28, 2025 SEPTEMBER 29, 2024
Cash provided by operating activities $ 107,452 $ 92,749
Cash used in investing activities (175,771) (165,919)
Cash provided by financing activities 55,721 74,338
Net (decrease) increase in cash and cash equivalents and restricted cash $ (12,598) $ 1,168
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. Cash provided by operations increased during the thirty-nine week period ended September 28, 2025 as compared to the thirty-nine week period ended September 29, 2024 primarily due to the increase from (i) the timing of operational payments and (ii) the impact of non-cash charges, offset by the decrease to income from operations.
Cash used in investing activities increased during the thirty-nine weeks ended September 28, 2025 from the thirty-nine weeks ended September 29, 2024 due principally to increases in the number of new restaurants and capital projects into which the Company is investing, offset by amounts paid to acquire franchise locations.
Cash provided by financing activities includes borrowings from the Company's Credit Facility to fund capital projects and related debt issuance costs.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations is based upon the accompanying unaudited interim consolidated financial statements and notes thereto, which have been prepared in accordance with GAAP. The preparation of these unaudited interim 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 Estimates" in the 2024 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 the unaudited interim consolidated financial statements.
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