First Watch Restaurant Group, Inc.: Form 10-Q for the period ended Sep 28, 2025

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

* See Non-GAAP Financial Measures Reconciliations section 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. See Non-GAAP Financial Measure Reconciliations below for a reconciliation to Net income margin, the most directly comparable GAAP measure.

Restaurant Level Operating Profit: represents restaurant sales, less restaurant operating expenses, which include food and beverage costs, labor and other related expenses, other restaurant operating expenses, pre-opening expenses and occupancy expenses. Restaurant level operating profit excludes corporate-level expenses and other items that we do not consider in the evaluation of the ongoing core operating performance of our restaurants as identified in the reconciliation of Income from operations, the most directly comparable GAAP measure, to Restaurant level operating profit, included in the section Non-GAAP Financial Measure Reconciliations below.

Restaurant Level Operating Profit Margin: represents Restaurant level operating profit as a percentage of restaurant sales. See Non-GAAP Financial Measure Reconciliations below for a reconciliation to Income from operations margin, the most directly comparable GAAP measure.

Selected Operating Data

21

(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.

(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.

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:

(in thousands)

(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.

(in thousands)

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.

(in thousands)

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.

(in thousands)

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.

(in thousands)

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.

(in thousands)

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.

(in thousands)

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.

(in thousands)

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.

(in thousands)

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.

(in thousands)

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.

(in thousands)

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

(in thousands)

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.

(in thousands)

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.

(in thousands)

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.

(in thousands)

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

(in thousands)

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

(in thousands)

28

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

(in thousands)

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:

(in thousands)

(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:

(in thousands)

(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:

(in thousands)

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.

Commodity and Food Price Risks

We project our full year commodity inflation to be approximately 6%.

Except as described above, there have been no material changes to our exposure to market risks as disclosed in the 2024 Form 10-K.

Evaluation of Disclosure Controls and Procedures

We are responsible for establishing and maintaining disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures also include, without limitation, controls and procedures that are designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Due to the material weaknesses in our internal control over financial reporting discussed below, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 28, 2025, our disclosure controls and procedures were not effective. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

Previously Identified Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements would not be prevented or detected on a timely basis.

Refer to the management report on internal control over financial reporting in Part II - Item 9A of the 2024 Form 10-K filed with SEC on March 11, 2025 for a discussion of the material weaknesses, which continue to exist as of September 28, 2025.

Remediation Efforts

In connection with the material weaknesses, management has taken the following remedial actions:

• Hired new and reassigned existing financial reporting, accounting, and information technology leadership with public company experience to enhance public company financial reporting, technical accounting, and information technology services and solutions.
• Augmented financial reporting capabilities by staffing professionals with knowledge and experience in income tax, internal audit, information technology, and legal.
• Established various policies, including a formal delegation of authority policy defining the protocols for reviewing and authorizing commitments, contracts, invoices, and transactions as well as account reconciliation and journal entry policies that provide the framework to ensure the performance of consistent procedures in reconciling general ledger balances to supporting documentation and set the standards for the preparation and review of journal entries.
• Formalized certain roles and reviewed responsibilities, including ensuring appropriate segregation of duties. Implemented preventive and detective controls designed to segregate certain duties to reduce the risk of fraud and errors.
• Designed and implemented period-end financial reporting controls, such as controls over the preparation and review of account reconciliations, financial statement disclosures, and the consolidated financial statements, including controls around classification of cash flows and disclosure of noncash items, as well as establishing a formal management Disclosure Committee to review the draft financial statements and disclosures prior to release, including a sub-certification process from various functional groups.
• Enhanced access restrictions for certain users over general ledger journal entries and designed new processes to further automate journal entries and segregate journal entry creation from journal entry approval authority.
• Designed and implemented a comprehensive risk assessment process during second quarter of 2025 to identify risks of material misstatement and ensure our internal control framework has the appropriate business process controls to meet the objectives and address the risks identified.

While management believes that these actions will remediate the material weaknesses, the material weaknesses will not be considered remediated until the applicable controls have operated for a sufficient period of time, and management has concluded, through testing, that these controls are designed and operating effectively. As management continues to evaluate and improve the Company’s internal control over financial reporting, additional improvements may be implemented, or management may further modify the remediation plan described above.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter ended September 28, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In addition to the other information discussed in this report, please consider the factors described in Part I, Item 1A., “Risk Factors” in our 2024 Form 10-K, which could materially affect our business, financial condition or future results. There have been no material changes to the risk factors disclosed in our 2024 Form 10-K, but these are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition or results of operations.