Hello, everyone. I'm joined by First Watch's Chief Executive Officer and President, Chris Tomasso; and Chief Financial Officer, Mel Hope.

This morning, First Watch issued its earnings release for the first quarter fiscal year 2024 on GlobeNewswire and filed its quarterly report on Form 10-Q with the SEC. These documents can be found at investors.firstwatch.com.

Let me first cover a few housekeeping matters before introducing Chris. This conference call will include forward-looking statements that are subject to various risks and uncertainties that could cause the company's actual results to differ materially from these statements.

Such statements include, without limitation, statements concerning the condition of the company's industry and its operations, performance and financial condition, outlook, growth plans and strategies and future expenses. Any such statements should be considered in conjunction with cautionary statements in the company's earnings release and the risk factor disclosure in the company's filings with the SEC, including our annual report on Form 10-K.

First Watch assumes no obligation to update these forward-looking statements whether as a result of new information, future developments or otherwise, except as may be required by law. Lastly, management's remarks today will include references to various non-GAAP measures, including restaurant-level operating profit, restaurant-level operating profit margin, adjusted EBITDA and adjusted EBITDA margin.

Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in the company's earnings release filed this morning. During today's call, references to same-restaurant sales and traffic growth compares the 13-week periods ended March 31, 2024, and April 2, 2023, in order to compare like-for-like periods.

Otherwise, any reference to percentage growth when discussing first quarter performance is in comparison to the first quarter of 2023, unless otherwise indicated. And with that, I will turn the call over to Chris.

Good morning. Thanks to the hard work of our entire team, I'm pleased to report that First Watch delivered another solid quarter.

We generated $289.6 million in system-wide sales, $242.4 million in total revenues and $28.6 million in adjusted EBITDA, driven by our comp restaurant performance, strong results by our noncomp restaurants, new unit growth, solid operations execution that drove improved profitability and contributions from our strategic franchisee acquisitions completed over the past year. We opened 9 new restaurants in 8 states during the quarter and, on April 15, completed the acquisition of 21 franchise-owned restaurants and associated development rights in the Raleigh, North Carolina, market.

I'm especially proud that we delivered positive same-restaurant sales, continued to grow share and drove strong operating results despite well-documented headwinds and a particularly difficult start to the year; namely, harsh weather in January. Encouragingly, our trends improved sequentially throughout the quarter, although they were a bit choppy, as we were up against the strongest quarterly sales and traffic comparison of the year as well as spring break and Easter weekend timing shifts.

Despite the volatility in the quarter, our team produced strong operating results across multiple key performance indicators. Labor management efficiencies once again were driven by process improvements and the continual refinement of recently deployed labor and analytics tools that allow our operators a more real-time view into their business.

With more robust information and enhanced visibility, our leaders are better equipped to manage their business. This improved efficiency contributed to both our top and bottom line, with KPIs once again improving and remaining very strong.

In the quarter, we saw the highest customer experience scores we've recorded to date, another sequential improvement in employee turnover, the fastest food ticket times we've recorded to date and continued market share gains, with our same-restaurant traffic exceeding the black box casual dining segment by more than 100 basis points. These accomplishments were achieved during a quarter that typically includes some of the busiest months of the year for us.

Our first quarter results give us confidence that we are focused on the right things and delivering the best possible experience for both our employees and our customers. Turning to the consumer, it's evident that after several quarters of macro pressure there appears to be clear signs of a slowdown.

The reality is that consumers are being more cautious and more discerning, resulting in fewer dining-out occasions across the industry. This trend began last summer as several large factors converged: inflation pressures peaked, the gap between food at home and food away from home widened and student loan payments resumed.

Macroeconomic environments are transitory, but proven business models endure. Our operating model allows us to remain nimble so that we can flex labor as business dictates, introduce elevated appeal and higher-value items on our LTOs and lean into and out of G&A projects as the environment evolves.

However, we draw a hard line at reacting hastily to short-term dynamics with potentially brand-damaging tactics such as discounting or matching the promotional activity which has begun to spike across the industry. In our view, broad discounting is a short-term fix with potentially negative long-term implications.

Instead, we will continue to focus on profitable growth over the long term. We've noted discussion about the challenging consumer environment facing restaurants in the state of Florida, validated by Placer.ai reporting that restaurant visits actually contracted over the last several quarters throughout the state.

We believe that the traffic benefit the state enjoyed in the several years following the initial outbreak of COVID is now normalizing. At First Watch, I'm proud of our clear leadership in our home state, where our aggressive expansion strategy is critical to our long-term growth.

With 30% of our system in Florida, we are perhaps more attuned to the current environment here than most, and our bullish outlook hasn't changed. Our development in Florida has seen us grow to 123 restaurants in the state, a 48% increase over the past 5 years.

And over that period, we've gained significant market share while keeping competitive intrusion at bay by adhering to our disciplined site selection criteria as we have grown. The bottom line is we're serving a lot more customers in Florida than we ever have, and it will continue to be a material component of our growth strategy.

No matter the market dynamics we're operating in, we continue to be focused on our long-term opportunity. It's something we've done throughout our 40-year history.

As it relates to long-term strategic initiatives, we continue to focus on in-restaurant tech enablement, with the ultimate goal of elevating both our customer and our employee experiences. In most instances, these enhancements are tucked behind the scenes, which is by design, and our primary focus remains on delivering memorable hospitality and removing bottlenecks.

The launch of systems such as KDS, pay-at-the-table and waitlist management all serve a particular role in enhancing the First Watch experience. Now there's a greater opportunity for those systems to begin communicating with one another, with the purpose of digitizing the end-to-end customer experience.

Doing so creates a broader platform to measure our performance more accurately in a variety of ways, paving the road for further improvements. For instance, prior to the launch of KDS, we had little insight into our food ticket times.

We completed the installation over a year ago. And with comparative information now available in real time, we are seeing tangible improvement.

We'll continue to analyze that data to refine and evolve the system in an effort to optimize its benefits. Along with improved customer interaction, there is also a benefit in the acquisition of customer data and insights into their behavior.

As we've stated in the past, upwards of 50% of our weekend traffic originates on our waitlist. We're excited to see that our latest installation, pay-at-the-table, is experiencing 35% adoption during peak periods as well.

The data generated from these 2 tech enhancements alone are offering rich insight into visit and ordering behavior. We're beginning to pilot processes where these systems are joined in real time and customer identification can be connected to the POS, where check information resides.

The result is a more enriched view of our customer and the growing opportunity to target them with relevant communication through an enhanced marketing tech stack. We believe this creates a more focused approach to creating and serving more demand versus resorting to broader, inefficient and brand-diluting actions.

We are in the very early stages of these initiatives, and we'll have more to share in the coming quarters. I'm as excited about the future of First Watch as I have ever been.

We are the market leader in daytime dining, with unmatched scale, proven affordability and a high ceiling, with a total addressable market more than 3x our current size. And in the aggregate, our recent NRO vintages are all performing at or above their underwriting targets.

In closing, while we feel the headwinds affecting us and many others, we are confident that we are simply far better equipped to withstand them than our competitive set. And with that, I'll turn it over to Mel.

Thanks, and good morning. Overall, as Chris mentioned, we're proud to have delivered strong first quarter operating results.

Total revenues were $242.4 million, an increase of 14.7%. Our total revenue growth in the first quarter was driven primarily by our new restaurant openings and the 24 franchise restaurants we acquired over the past year.

First quarter same-restaurant sales grew 0.5% on negative traffic of 4.5%, compared to last year's strong positive traffic of 5.1%. Our food and beverage costs were 21.8% of sales in the first quarter, compared to 22.4% in the same period last year.

Cost as a percent of sales benefited from carried pricing of 4.4%, positive mix and were partially offset by commodity inflation of 2.9%. Labor and other related expenses were 33.3% of sales in the first quarter, an increase from 33% in the first quarter of 2023.

We're fully staffed to support longer-term growth, with an average of 3 managers per restaurant, compared with 2.9 managers in the same period 1 year ago. Hourly labor efficiency improved in the first quarter, and we're pleased to call out that our employee turnover again declined.

Restaurant-level operating profit was $49.9 million for the first quarter, reflecting a margin of 20.8%. The 40-basis point decline versus last year was due to an increase in the average number of managers per restaurant, deleveraging of fixed expenses, partially offset by favorable food and beverage costs as a percent of sales.

General and administrative expenses were $27.7 million, approximately $5 million higher than in the prior year, primarily due to additional headcount. Adjusted EBITDA was $28.6 million, an increase versus the $27.4 million reported last year.

Given the headwinds to the same-restaurant sales and traffic during the period, we're pleased to report this year-over-year increase in adjusted EBITDA. Adjusted EBITDA margin was 11.8%, versus the 13% margin we realized in the first quarter of 2023.

The difference was primarily attributable to the decline in restaurant-level operating profit margin and higher general administrative expenses. We opened 9 system-wide restaurants during the quarter, of which 7 are company-owned and 2 are franchise-owned, and we closed 2, including 1 company-owned and 1 franchise restaurant, resulting in 531 system-wide restaurants at the end of the quarter.

In an effort to help you model our performance, acquisitions favorably impacted first quarter revenue by $12 million and adjusted EBITDA by about $2 million. For further details on the first quarter, please review our supplemental materials deck on our Investor Relations website beneath the webcast link.

To provide some color on how we're planning the balance of the year, while our same-restaurant traffic trend improved each month during the first quarter, it remains negative mid-single-digit quarter-to-date, a trend we expect to continue for the remainder of the second quarter. At the same time, based primarily on easing comparisons, we're expecting same-restaurant traffic in the second half of 2024 to be relatively flat.

Now I'd like to update our full year outlook for 2024. We're adjusting our total revenue growth to a range of 17% to 19%, from 18% to 20% previously, excluding the impact of the 53rd week last year.

Of the 17% to 19% range, approximately 7% of the growth is expected to be contributed from the 23 restaurants we acquired in 2023 and the 22 restaurants we've acquired in 2024. We're adjusting same-restaurant sales growth to a range of flat to up 2%, with a low-single-digit decline in same-restaurant traffic, from a range of 1% to 3%, with flat to negative same-restaurant traffic, previously.

Our same-restaurant sales growth guidance includes a 2% price action implemented in the last week of January, which implies carried pricing of around 3.5% in the second quarter and just under 3% for the year. We continue to expect a total of 51 to 57 net new system-wide restaurants, updated to reflect 44 to 48 company-owned restaurants, 9 to 11 franchise-owned restaurants and the 2 aforementioned system-wide closures.

Our 2024 development pipeline remains heavily weighted in the second half of the year, Q4 in particular, similar to our cadence in 2023. Our expectation of commodity inflation for the year remains unchanged at 2% to 4%, as does our expected restaurant-level labor cost inflation, in the range of 5% to 7%.

Also unchanged is our adjusted EBITDA guidance range of $106 million to $112 million, with the impact of acquisitions expected to contribute about $12 million. The overall adjusted EBITDA range implies growth of 12% to 18% over 2023, after adjusting for the 53rd week.

We expect a blended tax rate in the range of 27% to 29%. Finally, we continue to plan capital expenditures of $125 million to $135 million, not including the capital invested in franchise acquisitions.

Even though traffic has been challenging this year, our restaurant teams are operating at a high level. Our new-restaurant development is on pace for double-digit percentage unit growth, and all departments are engaged in the successful execution of our franchise acquisition strategy.

I commend all our teams for their commitment and excellence. And Operator, if we could please open the line for the questions.

This is Katherine Griffin on for Sara. First question, I wanted to ask about the same-restaurant sales growth guidance.

Could you just clarify why lower the guidance by 1 point at the midpoint? What exactly are you seeing that's different from what you had expected previously?

It's really just the performance in the second -- in the first quarter. We started out of the box a little slower than we had seen when we were guiding for the full year originally.

Okay. So I guess, just to clarify though, so is it more on traffic then came in lower than expected?

Traffic has been lower, and we're bouncing back from it slower.

Okay. And then just on EBITDA came in certainly better than we had expected, possibly better than internal expectations.

So we're wondering if there's any consideration of reinvesting some of that margin into value and how that might look at First Watch, given the brand's everyday value approach?

I think the second part of your question is the answer to your question, which is we're focused on the everyday value piece. And as I said in my prepared remarks, we're not a discounting brand; we haven't been for our 40-year history.

And we've been through all kinds of economic environments and have stayed true to who we are and what we are, and that's our plan for right now. We really want to focus on profitable growth and focusing on the guest experience.

This is Anisha Datt on for Jeff Bernstein. I wanted to ask about restaurant margins.

Are you comfortable over time in the 19% to 20% range? And is there any potential upside in 2024 with a strong start to the year and seemingly an easing of commodities and labor versus the prior year?

I think over the years we've been pretty consistent about communicating that we're comfortable in that 19% to 20% range. And generally, that margin fluctuates in short-term periods, but it also helps us guide how we price.

So if we stay within that range, we feel pretty comfortable with that.

Just a couple of clarifications. Can you give us dine-in traffic in the quarter?

And then maybe just some color on how the Easter shift impacted 1Q and the start to 2Q?

So I heard "dine-in traffic." And what was the other?

Andy, if you could just say again what the second half was?

The impact of the Easter shift in 1Q to the start of the 2Q?

I'm not sure I know the answer off-hand to the second part of the question. On the first part, dine-in traffic overall was down roughly similar to the rest of the overall number.

I think it was down, like, 4%, something like that.

Okay. And Chris, on your opening comments, I mean, there was, I think, some subtle commentary around the seasonals and the LTOs.

I mean, are you thinking about any kind of shifting? I know those are planned pretty far out, but it's been an area where you guys have gotten check growth from premium items.

Is there a way to balance that maybe with some more items that are intended to drive traffic potentially?

As you know, our seasonal menus have been a strength of ours, and they continue to be. And one of the greatest benefits of it, frankly, is the information that we have and the database of items that we've done.

So what my subtle comment really had to do with was more around our flexibility. So for example -- and maybe derisking it a little bit, Andy, and putting in, bringing back, I should say, some of our guest favorites, which is exactly what you're talking about with driving traffic.

So for example, we pivoted and brought back Shrimp and Grits, which is a big customer favorite, and it also happens to be a high-margin item for us. And ironically, the items that we brought back may not have a top line impact from a PPA standpoint, but the higher appeal, derisking, trying something new during these times and then also the higher-margin elements of them is really what led us to do that.

So we look at it as kind of a win-win-win in a situation like this: it's something that the customers love, they're high-margin items for us and it reduces the risk of anything not performing as it did in test once we go nationally.

Just curious, maybe you could start off, obviously, you touched on the fact that Florida has been a soft spot for the overall industry. Just curious if maybe you can call out the discrepancy between that part of your business and the rest of the country.

Was there a real wide gap between the state and the rest of the country?

There was a difference between Florida and the rest of the states. I think we're not the only one you're hearing that from.

What we like to do is when we're given questions about things like that, that's why we bring it forth here. And so we're not quantifying the specific impact of Florida on our overall traffic and sales, but wanted to provide a little bit of color.

Florida was up huge first quarter last year. So that was an exceptional comp for us, and that's the impact that we're seeing in the top line now.

Okay. And just going back to the guidance for the year, I think, Mel, you had mentioned the idea that you were anticipating if kind of trends hold that you'll see flattish traffic by the back half of the year.

One, is that a correct assumption? And then two, what gives you confidence that this is going to kind of hold as is?

What are you seeing in your own dining behaviors in consumers to suggest that this trend is going to remain rather than weaken, going forward?

I think our focus is on the -- first of all, we're rolling over some softer comps in the back half of the year. So I still remain confident that our original expectation that things would begin to flatten out with that softer comp is pretty reliable.

Plus, we have a good program planned for the year in terms of our offerings and performance. So part of this is depending on 40 years of experience of recovering short term, with the company's typical history of long-term growth.

Got it. And then just lastly, I believe you had mentioned earlier in the call, Chris, something about flexing not just LTOs and labor with demand, but also some G&A projects.

And later on in the conversation, you talked about doing some stuff on the marketing side, very early stages. Can you elaborate a little bit on perhaps what projects you're going after right now?

So when I talked about the flexibility, what we're doing, I believe, is a thoughtful balance of near-term solutions and long-term brand implication-type initiatives. And from a long-term perspective, it really is starting to leverage the data that we've been collecting now for a while with some of the new platforms and tools that we've done.

So it's not any different than what I've talked about before, Jon. It's just that we're really starting to get voluminous data that we're tying together to get more insights into consumer behavior in our restaurants, everything from operational KPIs to seat-to-eat times to actual visit times.

The pay-at-the-table is a big part of that for us, and we've been really pleased with how that's gone. So it's really just starting to dig in and leverage all of that data.

Just given the current environment, you noted where the consumer obviously is seeking value. I thought maybe you could elaborate on how First Watch's value proposition stacks up to peers and sort of positions you for the current environment.

I think you've taken around 20% pricing cumulative during the pandemic. Is that about right?

Maybe you could tighten that up for us? And maybe just speak to or provide any metrics sort of on how your average menu prices compare to your direct peers in most markets.

Any color there would be great.

We have quite a bit of pricing power. You're right on how much we've taken since the pandemic.

It's been about 3.5% a year. But when we look at our per-person average versus our competitive set, we are, believe it or not, actually at the low end of that.

And while we realize that we have pricing power, we're sticking to our philosophy of pricing to cover inflation. So I think if you look at that 3.5% a year and look at it comparatively, you'll see that we've been quite conservative, and we'll continue to be that way.

Our focus, as always, even in times like this, incredible relative value, really want to focus on traffic. I think our numbers here and how we're beating the industry versus black box kind of attest to that.

And we think that's the right approach for us. It's what we've done for years, and we're going to continue to do that.

All right. And one follow-up, just on the operational improvements that you're seeing.

You mentioned ticket times. Could you provide any more color or quantification on the year-on-year improvement you're seeing there?

And on labor, it looks like the cost per week as we look at it, it was about flat year-on-year despite wage inflation. Obviously, traffic was lower.

But is there any way to parse out sort of the level of efficiencies being generated by some of the new tools you've deployed in recent quarters?

Sure. I'll speak to the ticket times.

I'm not sure I or Mel have the answer for your labor piece. But on ticket times, we're seeing what we consider to be significant improvements.

Keep in mind, we're just at the point now where we're comping over the installation and the full rollout. And as I always caution, just because it was rolled out doesn't mean it was optimized at that point.

So even with that, as we continue to optimize the KDS system based on the information that we get, I mean, we're seeing early on 10% to 20% improvements in ticket times, which is most impactful during the peak sales hours, obviously.

And then, Brian, in terms of labor, really a couple of things are going on. One is that our operators are doing a very, very good job of managing that and managing the crews.

But I think one of the things that they've really been successful with that maybe gets underappreciated is that our turnover has gone way down. And so when -- and that's been deliberate.

It's been part of their process. But that helps us lower overall costs.

They become more efficient when you have tenured employees. And that low turnover is also part of lowering just overtime charges.

So we've been delighted to see the improvements that the operators and our people services folks have made in terms of the crews and their interest in creating careers at the company, because it's really paid off a great deal. And much, much lower turnover over the course of the last several years.

It's been ticking down to a great degree. It's been fun to watch.

I had a couple of questions. The first is, it looks like you may have had stronger mix from the fourth quarter to the first quarter.

I'm curious, one, is that right? And what's maybe driving that?

So I think that goes back to our LTOs. And as you know, we don't consider mix in our plans, but we have experienced it in the past.

And I think our decision to select high-appeal items that are proven and that the consumer looks for from us, I think, helped with that mix in Q1.

Got it. And then maybe just to level-set expectations, the commentary on the traffic throughout the year is helpful, but do you expect comps in 2Q to be better or worse than comps in the first quarter?

Better.

Okay. And then just maybe on -- I think some of the commentary around the tech platforms and how long that's been in the system now, you're getting better insights on the customer across a few different platforms, can you maybe give some examples of what -- is that giving you changes you can make from an operational perspective?

Is that helping you change out the menu? I'm just curious kind of what the learnings are and what that's kind of tangibly giving you feedback on.

Greg, it's Matt Eisenacher. I'll chime in on that one.

Similar to what you've seen from us in KDS and back of house and ticket time, it's a similar long-term perspective there. The data informs us to make better decisions overall.

It enables better insight to efficiency in the front of house. So just as Chris and Mel talked about ticket times, we have that same opportunity over the long term to get more efficient in the front of house.

And then of course if you look even further out, it's already telling us more about our customers and visit frequency, and then that will allow us to segment and talk to our customers in a more targeted and more efficient way. So again, it's a long-term perspective, but one that is really at the forefront of how we look to drive demand.

I had a follow-up question to that last one, Mel. Can you expand on your comments about comps expected to be better in the second quarter than in the first quarter?

Because I believe you said you expect traffic to be down mid-single digits and pricing to be up 3.5% in the second quarter. I want to confirm that, because I think that's less pricing in the second than in the first, with similar traffic performance.

So I'm just curious, is mix expected to be the sequential improvement in the second that you're looking for?

Again, when we project we don't project the mix in terms of our projections very much. So really, it's -- while we're still choppy on the traffic side, we feel optimistic about it gradually improving.

Okay. That's fair.

And then, Chris, I know the company hasn't used paid advertising in a big way in the past, but have you considered making more meaningful investments in that medium, just to address the recent traffic weakness, especially in Florida?

Well, paid media specifically, our focus has been on digital and social. So we do spend in channels, just not what I would call traditional media of television, radio perhaps.

And we have spent and invested into those channels more for us. We think they're a better fit for our brand.

Again, we're not going to have a discounting platform, but it is a way for us to increase awareness. And as Matt talked about, understanding customer visitation helps us be more targeted, especially with digital, when you think about timing of messages, the messaging itself.

So Matt and his team have done a good job of segmenting better, and I think that's been helpful for us and we'll continue to do that.

I was thinking more traditional, like billboards and radio. And that's not something that you guys are considering?

You know what, Chris, we don't really have the scale to be media-efficient, even despite some of these markets where we're pretty well penetrated. When you start getting into traditional media, it's very difficult to get media-efficient, as you know.

Thank you. I want to once again thank our teams for their dedication and commitment to making days brighter for our customers and each other.

Our success and growth opportunities are due in large part to their efforts, which in turn creates growth opportunities for them as we march toward 2,200 restaurants. Thank you all for your time today.