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00:45 Good morning everyone and welcome. I am joined here today 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 fourth quarter and fiscal year ended December 26, 2021 on GLOBE NEWSWIRE and filed its Annual Report on Form 10-K with the SEC. These documents can be found at investors.firstwatch.com.

01:16 Let me now 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 conditions of the company’s industry and its operations, performance and financial condition, growth strategies, product development efforts and future expenses. 01:47 Any such statements should be considered in conjunction with cautionary statements in the company’s earnings release and the risk factor disclosure in its filings with the SEC, including its 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 maybe required by law. 02:11 Lastly, managements 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 that reconciliation of these non-GAAP measures to the comparable GAAP results contains in the company’s earnings release filed this morning. 02:35 And with that, I’d now like to turn the call over to Chris Tomasso, First Watch’s CEO and President.

02:42 Thank you, Raphael. Good morning everyone and welcome to our 2021 earnings call.

Before we begin this morning, I ask that you indulge me as I take a moment to acknowledge something that I’m sure is at the forefront of all of our minds as it is for our customers and the rest of the world. That’s the unfolding crisis in Ukraine.

While there are few words that can capture the gravity of this moment, I can say this, our hearts are with the people of Ukraine and all those affected by these tragic events. 03:10 Now, I’d like to move on to First Watch’s performance.

We are grateful you’ve taken time out of our schedules to join us this morning to learn more about our record 2021 and we are proud to once again be announcing robust results, results that exceeded our guidance. In 2021, First Watch achieved a significant milestone surpassing three-quarters of a billion dollars in system-wide sales, finishing the year at , that’s up 76.1% year-over-year, and up 34.4% over 2019.

Traffic increases are a true measure of healthy growth and we experienced growth in both the quarter and for the year. 03:49 During the fourth quarter, our significant same-restaurant traffic growth of 31.9% drove 36.7% same-restaurant sales growth and for the year our 52.6% same-restaurant traffic growth drove 63% same-restaurant sales growth, once again building upon a long-term trend we established prior to the pandemic where we had 28 consecutive quarters of same restaurant sales growth from 2013 to 2019.

04:18 Our goal is to break that prior consecutive record as we continue to take market share and we see a long runway ahead. I've been with this organization for nearly 16 years now, while we've always executed at a very high level, I don't think I've ever seen our teams executing like they are today in every First Watch, in all 28 states where we operate.

They make me proud and when Mel and I share our financial results this morning, I want to remind you that these results are accomplished in one 7.5 hour daily shift, 7 days a week, 363 days a year. 04:53 Now, let's talk about our continued unit growth.

As you know, we were recognized as the fastest growing full service restaurant company in America for the past two years, and we continue to demonstrate strong momentum. 05:05 In the fourth quarter of , we opened eight system wide restaurants, bringing our total openings to 31.

That's on top of the 42 system-wide new restaurants we opened in 2020. And I'd like to point out that these new restaurants are not confined to one region.

In fact, in 2021, we successfully opened new restaurants across 12 states and 21 DMA’s. Further reinforcing our confidence in our ability to achieve our previously shared target of more than 2,200 restaurants in the U.S.

05:37 Despite our rapid growth, we still have more demand that we can serve, and I'm happy to share the steps we're taking to ensure we're set up to successfully serve that demand going forward. 05:46 First, we're driving the future with the evolution of our restaurant design.

Every First Watch contains a consistent set of core brand elements that create a sense of familiarity and comfort for our customers. These are augmented by unique site specific elements to optimize our operations by creating efficiencies and a seamless experience for our customers and our employees.

06:09 Some of these features include larger enhanced patios, indoor outdoor bars, dedicated to go entrances, and improvements like double make lines that optimize the significant increase in off-prem sales our restaurants are now serving. 06:23 These features also allow us to serve more demand and have undoubtedly contributed to the impressive performance of our class of 2021 new restaurants.

Across all geographies, these restaurants have achieved annualized AUVs of $2 million, which is 11% higher than our existing company AUVs. 06:42 As we accelerate our expansion, we look forward to bringing these elements and further strategic evolution to life.

Our updated restaurant design is just one way we're positioning ourselves to serve more demand. Our focus has remained on taking great care of the customer in our restaurants and that dedication paid off throughout the year.

07:02 Our ongoing focus on driving traffic back into our restaurants continue to serve as our North Star during the quarter just as it did for the year. It guided us to make some strategic business decisions that we believe played a critical role in our performance.

These include our decision not to pare down our menu, our decision to quickly return to our popular seasonal menu program, and our conservative approach to pricing, which Mel will elaborate on in a few minutes. 07:29 Let's move to staffing.

I'd like to remind you of the attractive one shift proposition we offer as leaders in the daytime dining segment. First Watch was founded on the premise of having no night shifts, allowing our teams to enjoy evenings with their family or friends.

07:43 For nearly four decades, we've offered a quality of life that's hard to find in restaurants and it's contributed to a culture that's unparalleled in the industry, which was acknowledged by our latest recognition. 07:55 Just last night, First Watch’s Chief People Officer, Laura Sorensen proudly accepted the coveted Culture at Work award on behalf of our organization at this year's ADP Meeting of the Minds conference in Anaheim.

First Watch has always been a people first organization and it’s difficult to think of a higher honor than one that recognizes our and the culture that we’ve worked so hard to build together. 08:19 Culture is not just something we talk about here, it's really what we're all about.

And our leadership tenure reflects that with our GM’s averaging about five years with us, our directors of operations averaging about 10 years, and our regional Vice Presidents and Vice President of Operations, averaging about 15 years. And while we weren't completely unaffected by the recent staffing challenges, First Watch is considerably better positioned in a challenging staffing environment.

08:44 We're seeing great progress having been better staffed in the fourth quarter than we were in the third. Additionally, our management turnover continues to be about 30% lower than industry average.

And while at the beginning of 2021, we had about two managers for restaurant, we ended the year with 2.6 managers per restaurant and have since returned to our pre-COVID levels of more than 2.7 managers per restaurant. Once again filling our talent pipeline to support our continued strategic unit growth.

09:11 In fact, we have a 124 managers teed up and ready to take on General Manager positions for upcoming new restaurant openings. We're always taking steps to drive further efficiency and support our people, which brings me to an update on our kitchen display system or KDS rollout that we talked about previously.

09:29 Our primary goal with this rollout is to improve efficiencies by significantly simplifying our kitchen operations, allowing us to serve more demand, particularly during peak sales hours. With long wait times during these high demand hours, reducing friction in our kitchen allows us to increase and welcome more customers into our dining rooms.

09:49 Our early pilots have shown encouraging results, and we're excited about the tremendous potential this technology upgrade represents. As of today, it's in use in 20 First Watch restaurants and our IT team is in the early stages of a broad company-wide rollout.

We expect to have the KDS system installed in more than half of our company-owned restaurants by the end of this year. 10:10 I've shared some of the ways we plan to serve more demand and I also want to spend a moment talking through a few of our key platforms aimed at creating more demand.

Since 1983 we've been innovating and evolving our menu, trying new things, and blazing a culinary trail. 10:26 One of our recent and most compelling strategic menu additions is our alcohol platform.

Our team has done a great job with the continued rollout. We started 2021 with our crafted cocktails available in 185 of our restaurants.

And by the end of the year, the platform was in place in 305 First Watch Restaurants or more than 70% of our system. 10:47 We continue to see overall beverages attachment lift in restaurants where the alcohol is served, and this program is incremental with accretive margins and little to no targeted marketing efforts put behind us thus far.

11:00 Virtually, all of our new restaurant are opening with this alcohol offering, and we're expecting to complete the rollout in our existing First Watch restaurants wherever feasible by the end of 2022. 11:13 When it comes to culinary and menu strategy, our alcohol program is just the latest example of our innovation and leadership.

We've said before, our philosophy for sourcing high quality ingredients is simple. We follow the sun, welcoming each season into our menu with exceptional ingredients and flavors inspired by the position of the sun.

This paves the way for rotating seasonal menus that are always fresh. 11:35 It's why you find sweet Florida strawberries on our menu right now during the spring and tender sweet corn from the Midwest and our menus in August, like you saw in our very popular Elote Mexican Street Corn Hash last summer.

Our dedication to featuring seasonal ingredients gives our culinary team the opportunity to constantly innovate and fosters the spirit of discovery for our customers and our team members. 11:59 It also paves the way for expanding menu platforms like our seasonal juices and .

These platforms lay the foundation for what we call guest selected pricing. At First Watch, we've seen our customers elect to spend more to enhance their experience.

We offer favorable new platforms and menu extensions and these options give our customers a choice to stick to the basics or elevate their brunch. 12:23 And when it comes to the industry has taken notice as well.

Before I pass the mic, I want to congratulate our culinary team on their most recent accolade, a MenuMasters honor awarded by Nation's Restaurant News for our Savory Seasoned Short Rib Omelet. Chef Shane will accept the award this May at The Drake Hotel in Chicago in the company of our peers and fellow industry insiders.

12:45 Our team of Talented Chefs is more than deserving of this recognition and I can't wait for you to see what they have cooking for the rest of 2022. 12:53 And with that, I'll turn it over to my friend and First Watch CFO, Mel Hope, to review our financial results in greater detail.

12:59 Thanks Chris. First, I want to add my congratulations to our team and reiterate how pleased we are to share these results today.

2021 was an incredible year for us. We've completed our initial public offering in October and as Chris mentioned, we surpassed 750 million in annual system-wide sales for the first time in First Watch’s history.

13:27 As I cover our financial highlights with you this morning, I'm going to begin by walking through some fourth quarter metrics. Total revenues were 162.6 million, which was 48.7% higher than the fourth quarter of 2020.

We opened eight system-wide restaurants during the quarter, five company-owned, and three franchise-owned restaurants. And as a side note here, our 2021 class of new restaurants have gotten off to a very fast start with an average annualized sales of over $2 million and were responsible for contributing 27 million in restaurant sales for the full-year.

14:08 The main driver for the increase in total revenues was our same restaurant sales growth of 36.7%, which was driven by two key factors. The first being our traffic growth, which came in at 31.9%.

Dine-in traffic increased 49.1% over Q4 of 2020 rebounding to more than 90% of our pre-pandemic levels. 14:37 At the same time, we retained our significantly increased off-prem business, our off-prem sales of 34.4 million were higher than the fourth quarter of 2020, which were 33.7 million.

The second main driver of our same restaurant sales growth is increased check size due to positive mix and the guest elected pricing Chris mentioned earlier, which carries very attractive margins. 15:06 This dynamic is a big part of why we chose not to increase prices in 2021, which has further strengthened our future pricing power and improved our relative value proposition in an environment where the customer is being forced to absorb significant price increases elsewhere.

15:29 Let's turn the focus of the call to the costs we're incurring in the restaurants. Cost inflation in our market basket increased more than 11% during the fourth quarter, compared to 2020, which was in-line with our expectations.

Remember, we didn't increase in restaurant menu prices during 2021. So, as a percentage of restaurant sales, food and beverage costs experienced about 140 basis points of the increase versus .

Likewise labor and other related expenses as a percentage of restaurant sales at 32.8% trended up by 20 basis points over the third quarter. 16:13 We have some offsetting items in the accounts, but overall, our labor percentages are settling in closer to optimal staffing levels as a result of the progress we've made with our recruiting efforts.

16:27 Our fourth quarter restaurant level operating profit increased 29.2 million that's up 15.2 million over 2020 and represents a margin of 18.2%. General and administrative expenses increased 13.2 million to 26 million for the fourth quarter.

Much of the increase in G&A is due to 7.7 million of charges triggered by the IPO and attributed to equity awards made in prior years under our 2017 equity incentive plan. 5.3 million of these charges are non-recurring.

17:08 The increase in G&A also includes increases in headcount, marketing spend, and insurance costs. Adjusted EBITDA increased to 14.2 million in the fourth quarter from 3.5 million in 2020.

The increase in dollars was driven by our restaurant level operating profit, partially offset by G&A costs. As a percentage of total revenues, adjusted EBITDA margin was 8.7% as compared to 3.2% in the fourth quarter last year.

17:45 During the quarter, cash and proceeds of the IPO were used to retire our legacy debt instruments and we entered into a new credit agreement. We recognized a $2.4 million non-cash charge for the extinguishment of the old debt, and that charge is reported in the other expense line item in our statement of operations.

And as a result of these changes in our debt, our interest expense decreased by 4.9 million in the quarter as compared to the prior year. 18:17 Our fourth quarter transaction income also includes the recognition of a $2 million gain associated with our agreement to sell out of a lease where our restaurant occupied site undergoing redevelopment.

I'm not going to spend much time on the full-year fiscal 2021 results since you can see those in our 10-K except to say that the results reflect a unique year of rapid recovery coming off the 2020 phase of the pandemic. 18:52 Finally, let's shift the focus to our fiscal 2022 expectations.

Now, given the fact that we're in new restaurant and this operating environment is volatile, we believe that we have a heightened obligation to share some forward looking information that may be helpful. 19:11 However, I want to caution the listeners that as we establish our normal practices of discussing guidance and expectations, I do not necessarily consider today's discussion to be precedent setting.

19:24 I'm going to begin with the topic of inflation. When it comes to commodity inflation, we've indicated previously that we anticipated 4% to 7% inflation.

We're operating above the high-end of that range now. For the year, we now expect 10% to 13% inflation.

Drivers include increased fuel costs, as well as a few key items in our market basket, including bread, bacon, and avocados. We're also seeing increases in the cost of our to go packaging and paper goods, which are impacting costs more given our sustained off-prem business.

20:04 We have fixed commodity prices of key items, currently representing more than a third of our market basket with about half of these fixed prices locked in for all of 2022. Shifting to labor inflation, we have been and will continue monitoring the environment to ensure our wages remain competitive.

Our staff on average already made more than $15 an hour and on average our tipped employees take on substantially more. 20:38 Given our restaurants are staffed well relative to the industry and our retention remains strong, we feel good about our competitive wage proposition for employees.

For the full-year, we are anticipating 8% to 10% inflation in our restaurant labor cost. 20:57 Let's shift the menu pricing.

Historically, we've adjusted our menu prices to offset inflation. So, typically, we've taken 2.5% to 3% annual increases.

In 2021, however, we made the decision not to increase prices in our restaurants. Given the positive effects we've seen from guest elected pricing, the macro environment and our focus on continually building traffic and this decision paid off.

21:30 In the first quarter of 2022, we did take a 3.9% increase for our in-restaurant menu prices, which should to some extent offset our current inflationary pressures. We've seen no negative impact on our traffic.

21:49 Looking ahead, we are confident that we have additional pricing power to offset the additional inflationary pressure I just discussed, should we elect to revisit menu prices later in the year. Our first quarter of 2022 will be complete in just a few days on March 27.

22:09 Through the first two periods of the same-restaurant sales growth exceeded 29%, despite the impact of both the Omicron variant and winter storms affecting much of our system in January. Sales and margin performance picked back up in February and the momentum has continued into March.

22:30 While we're proud of the sales momentum, given the effects of the commodity inflation I discussed a moment ago, we're trending only slightly ahead of our fourth quarter 2021 restaurant level operating profit margin. As a reminder, our fourth quarter restaurant level operating profit margin was 18.2% and adjusted EBITDA margin was 8.7%.

With regard to our new restaurant openings in the first quarter of 2022, we've opened six company restaurants and one franchise restaurant. 23:06 2021 was a rebound year for First Watch and in 2022 we're returning our focus to driving growth.

For the full fiscal year of 2022, we expect to deliver same-restaurant sales growth in the high single digits. We plan to open 30 to 35 company restaurant and 8 to 13 franchise restaurants.

As our development team has rebuilt the new project pipeline over the past few months, the scheduling of the opening dates is weighted a bit more heavily in quarters three and four with approximately company restaurant openings to occur in the back half of the year. 23:50 We expect the combination of the same restaurant sales growth and the new restaurants to drive revenue growth in excess of 15% and as you update your expectations for 2022, I want to call your attention to the fact that in 2021 our labor percentages and profit margins were impacted by tighter labor than we prefer.

24:17 So, in 2022, as we continue to increase our staff to optimal levels to serve the projected sales growth and support our new restaurant openings, we expect to return our labor percentage to approximately 34%, which we registered in 2019 prior to the pandemic versus the approximately 32% that we incurred in 2021. 24:46 Based on these considerations, we expect adjusted EBITDA for the full-year in the range of $67 million to $71 million.

Capital expenditures during 2022 are expected to range between 60 million and 70 million, which represent investments in new restaurant projects, planned remodels and in restaurant technology like our new KDS systems. 25:15 And now, I'm going to turn the call Chris, before we open the lines for a few of your questions.

25:21 Thank you, Mel. I want to close today by sharing that we're just enthusiastic about the future of the First Watch brand.

Our strong foundation has supported our continued positive momentum and we’ve built an exceptional track record of delivering compelling results as you can see from our fourth quarter financials that we just shared with all of you. 25:39 These results continue to show that we're disrupting the industry and serving a different occasion to a different customer.

We're very proud of that differentiation and we look forward to continuing to execute on those strategic goals and to strengthen in our position as the leaders in the full service daytime dining category. Again, thanks for taking the time to learn about our successful 2021.

26:00 And with that, I'm happy to open the line for questions.

26:30 Yeah. Good morning, guys.

Nice job and appreciate the first quarter and 2022 update and guide. Can you, Mel maybe just tone in a little bit kind of on the dynamics between the increased inflation, but also now the pricing you're taking and how that sort of works its way to the restaurant level margins?

27:00 So, In terms of our pricing, at 3.9% on price, we continue to enjoy some of the same benefits we have of guest elected pricing during the year. So, as the inflation works through, you know every point of inflation the flow through with that, kind of 18% to 19% level is, kind of what we've used to defend the margins in terms of when we select our price increases overall, if that's the range of the question?

27:43 Yes. It is and just historically, I guess, first quarter has been a strong, kind of profit margin quarter.

take the pricing in the quarter and could the dynamics this year be a little bit different where margins are, kind of moving up a little bit as we move through the year just given hope for decline in inflation and as we move towards the back half?

28:15 We took the price increase early in January. So, we've been operating most with the price increase in, but January, this year was a little softer.

We had the variant spike in Omicron that, kind of showed up a – you know softened our January a bit, and then there was also some weather events and frankly, some of them hit on weekends, which are the big days for us. 28:47 So, January was a little softer out of the gate than we prefer, but we bounced back quickly in February and March as it continued.

So, probably the bigger impact on our first quarter margin comes more from a little bit of softness in January and the fact that as a result of the weather off-prem tended to have more of an outsized contribution and when the off-prem business is at that level, then just the cost of delivery packaging and cost of delivery also has a little bit more of a disproportionate impact on the overall margin.

29:32 And Andy, this is Chris. I think you saw and you know that historically we take 2.5% to 3% taking 3.9 here based on the environment that we're facing is a little bit outsized for us.

And to Mel’s point, we are keeping that dry powder of our pricing power in our back pocket as we continue to monitor the commodity impact specifically for the rest of the year.

30:01 And thanks and just before I pass along, are you willing to share, kind of the more of the February March margin range? I mean, is it back to, sort of the 19-ish levels that you've, kind of seen historically?

30:20 Now, what we referenced in my comments was that we were doing a slight – only slightly better than the fourth quarter margin and that was the guidance that we wanted to be sure you picked up on.

30:34 Okay. Thanks guys.

30:44 Great. Thank you very much.

I have two questions. Good morning.

How are you?

30:49 Fine.

30:51 My first question was just on the broader 2022 guidance. Appreciate all of the granular detail.

I was wondering as you look out, what you think the greatest headwind is to start the year where there might be risk to that guidance? Whether it's question around the comps or units or presumably with lots of inflation?

So, I'm just wondering what you think is the biggest risk to your expectations as we look through 2022?

31:20 I'd like to think that at this point, we've thought, if not over thought about all the inflation that we're seeing and our plans for the year. So, I think that it's mostly captured in our guidance side.

I don't know if anybody can completely explain what the impacts of war in Ukraine maybe or something like that. There's probably a knock-on effect in terms of commodity pricing if that goes on, you know if that goes on for an extended period of time, but Jeff, I believe we've worked very hard to build an operating plan that takes into account the variables that we see today.

32:16 Understood. And then as you think about the pricing as it relates to inflation in the margin, just wondering what your thoughts are on the restaurant margin or what visibility you have for the full-year?

I think you said the 3.9% mitigates that pressure, but I was just wondering as you mentioned to have more pricing power in your back pocket, what your thoughts are in terms of where the restaurant margin plays out this year, if you stuck to that, sub 4% versus what you might consider? I think you said relative value there.

32:48 Jeff, we look at that weekly. I mean that is, you know that's how we manage the business.

So, frankly, what I would say is, we're not reluctant to use some of that pricing power to be sure that we defend we think we've developed a lot of credibility around that pricing power with the steps that we took last year to hold prices flat. And so, what I can tell you is, we're monitoring our inflationary environment and the broader economy as well, and we're going to do our part to be sure that we defend our margins.

33:32 And just lastly, there was no mention, I presume was a reiteration of long-term guidance? I'm assuming that's intact.

And I guess that would include reversion back to mid-teens EBITDA growth maybe in 2023 are those fair comments?

33:47 Yes, we haven't stepped away from our long-term guidance. We just didn't want to get tired of hearing it.

33:55 Understood. Thank you.

34:04 Great. Thank you so much.

Very impressive to see the $2 million plus AUVs in 2021, given the new restaurant design and larger kitchens to help with the off-premise orders. It looks like the guidance, if I’m doing the math right for 2022 implies that the new store volumes annualize around 1.7 million, so, Mel can you help kind of explain the implied step down there?

34:31 I would tell you that probably has more to do with the openings and how much they can contribute during the cycle. And I would also say our unit economic model at least where we – we've been happy with the outperformance of the class of 2021.

And so – but our general, our modeling assumption is something a little bit less than that and we're optimistic that we'll see that, but I'd like to see it before we climb it.

35:15 So, again understood. And Chris, question for you.

I know you tested seasonal menu in one market, a year in advance, just to see what works what doesn't for the following year, is that still the philosophy going forward as you guys scale or was that still working for you guys or are there opportunities to scale that a bit more as well in terms of your testing efforts?

35:34 Yes, It still works well for us. We have a, I'd call it a – the coefficient, if you will of what happens in the test market to what will happen nationally and we continue to monitor that and it still holds true.

And I think long as it holds true even as we continue to grow in new markets, I think that's – you'll continue to see us utilize that as our testing protocols. 36:02 If, you know when we watch it, we see changes there then we'll adapt, but right now, that's worked really well for us for a number of years.

36:09 Excellent. Thanks, guys.

36:19 Hey guys, thanks for the questions, I have two. The first was just on the pricing.

I think you've said that you've seen no impact on the pricing, no push back on the pricing, you've taken this course part. Is that normal historically?

And what is normal elasticity for you guys as you push pricing into the business?

36:40 Interestingly, we've had years where we took price and saw positive results. We've never had – we've never had a traffic impact that we could discern based on increase in prices.

36:58 Yeah, I would say Greg, if you look back at over the years where we’ve taken 2.5% to 3% a year and look at that traffic growth that we talked about pre-pandemic, the streak that we had, I think that paints the picture of we've actually continued to grow same restaurant traffic throughout all of our price increases.

37:18 Got it. And maybe just a follow-up, as you think about how you are going to look at the pricing this year, is there a normal cadence to when you evaluate or put into the business you're changing at this year just given everything that's going on, you get to look at it every two or three months and maybe make adjustments that way.

Just curious how you're approaching that?

37:39 Yes. So, typically we've taken pricing twice a year.

Last year, we deviated from that, obviously, so we're kind of on a new approach here. So, we did take this price at the very beginning of this year.

And I think it's just because of the unique environment that we're in and really the macro factors involved. I think, we will, it won't be a set time as much as it will be watching the inflation specifically.

38:07 I mean, I think that's our biggest focus area and then forecasting that and then about what we think we need to do as Mel said defend the margins. So, we'll continue to monitor.

It's not a every other month, it's an everyday look that we take and evaluation that we do.

38:29 Got it. My other question is just on the other operating line, up a couple hundred basis, I think 250 basis points from where we running before COVID, how much of that is due to the off-prem business?

And as we think about getting a big step down in that line, can you talk about what pieces maybe – can be leveraged as you comp this year and maybe what pieces can't be, just as we think about the magnitude of how much that can come down? Thanks.

38:53 You zeroed down on the right thing, a good bit of that move is attributed to the cost of off-prem. And there are some steps that we can take to work that down, but I think it's going to come in not in big moves of percentage and low hanging fruit.

39:22 Understood. Thank you, guys.

Appreciate it.

39:24 Alright, thanks.

39:32 Good morning. Thanks guys.

This is on for Chris.

39:35 Hi, Patrick.

39:37 Hey Mel. How are you?

I wanted to touch on development, first of all, and just get a little bit of better understanding of maybe what you're seeing in that environment and what might cause you to be at the higher low end of the guidance range for the year, just from an external factor environment and what you guys are experiencing? But then two, just what kind of inflation are you seeing in construction cost at this point and is it something that you expect to push you above sort of that 1.1 million build-out cost as you move forward?

40:05 So, I will try to answer those in reverse. First of all, we're seeing about 8% increase in our construction costs right now.

And I think that rough math, what we say is about a restaurant something like that. We think the ROI still certainly overcomes that increase.

So, it's not certainly not anything that we consider debilitating. We're returning on those asset investments, just fine.

40:42 In terms of what we're seeing in terms of the development, look, we have better developers who’ve been doing this for years and managing different kind of climates. This one certainly is more challenging.

They're managing more projects, of course, than we open. We have a couple of strengths that I think are helpful for us.

One, not only the experience of our development teams, but also since we're such a rapid grower in our space, most of our contractors and equipment suppliers are eager to see that – you see that they continue a good and healthy relationship with us. 41:32 So, perhaps we wind up be in first in-line on things.

And then the other thing is that we are closely involved in all of our projects. So, if we need to redirect efforts from one to another in order to hit our opening dates, than we're in a position to do that.

So, long and short of it is, we're well-positioned to deal with what is a more volatile environment. I think those guys are working a little extra hard this year in this kind of environment, but we're highly confident in our openings.

42:13 Great. That's helpful.

And I just also wanted to touch on, sort of the traffic breakdown in regards to say your weekday lunch day part, is that becoming a source of traffic growth for you or are you seeing more of an incremental gain at peak times and just, sort of, where you sort of see the state of taking advantage of that opportunity to grow that area of the business going forward?

42:35 I think we're seeing growth across all segments, but it is in the weekdays. As we've talked about earlier, that's an area of focus for us.

42:48 Great. Thanks guys.

42:59 Thank you.

43:00 Hi, Sarah.

43:01 Hi. Good morning.

A question on the pricing power comments you made. I guess, first a clarification, you said, you didn't increase in restaurant menu prices, did you increase menu prices on delivery or some other characterization of pricing, some place outside of the restaurant?

I just want to make sure, I'm sort of understanding? And the follow on to that is, is that an opportunity because you mentioned slightly lower margins on the off-prem channel?

So, is there a potential to take some incremental price there to cover some of those costs a customer who might be perhaps a little less price sensitive and more focused on the convenience on the option?

43:46 So, delivery has a surcharge associated with it. And as we have learned new channel of the business.

We’ve adjusted that surcharge a couple of times in order to be sure that we – make sure that we make that kind of profitable business in line of service that we want to have. So, yes, we've had – there are some differences in the surcharge associated with the items that are served outside the restaurant are in the third party delivery for example.

44:27 And is there any kind of intent to make it ultimately margin neutral?

44:34 We worked very hard to make it margin neutral now. Frankly, packaging costs had been pretty profound in the last three months or so.

So, it's had an outsized impact on that, but certainly our goal is for a customer's choice to use us through the off-premises channel or coming in and enjoying the full First Watch experience in the dining room is for it to deliver a similar type margin.

45:11 But we will evaluate the off-premises surcharges and pricing as part of our overall pricing strategy for sure.

45:20 Understood. Okay.

And so to the last – just a last question on this in this name. You mentioned the pricing power and sort of the , I guess historically, there's been a view that consumers don't really let restaurants take catch up pricing, if you will.

So, if you don't take it now, it's hard to take twice as much next time. I guess how are you thinking about that?

And in particular, you mentioned that there have been periods where you've taken price and you've still grown traffic. So, the 2021 decision to take – did not take price and then now probably take less price on what we're seeing across the industry, is there sort of any consideration that you potentially miss out an opportunity if you will?

Or is the view that sort of some of these costs are transitory and you're just more trying to cover the costs that you may be structural in nature?

46:14 Yes. I'll go back to our baseline philosophy of growing traffic and when Mel used the words it paid off, that's what he was speaking to among other things is that even with what would be considered aggressive pricing for us at 3.9% as you just mentioned as well below what the industry has done and what the consumer is experiencing.

And so, looking back at 2021, our focus was on returning to customers back into the restaurant getting them back into their normal routines, back into their normal frequency with us and we accomplished that. 46:49 I think much earlier than the rest of the industry did, and so, I don't feel like we missed out on anything or that we don't have the ability to catch up.

I mean, we're still at around less than per person average, putting out freshly prepared food with high quality ingredients. So, when we talk about overall relative value that's where we feel bullish about our pricing power because of the offering and the per person average that somebody can come and enjoy a meal with us, and frankly in tougher economic times, again, as part of the joy of being around here for 16 years, I can tell you that the last time we were dealing with economic issues, specifically the recession in 2008, 2009, we performed very well.

Again, because of that relative value. 47:41 Not just the relative value, but the absolute value, you know taking a family out for brunch is a lot less than going out for a steak dinner.

And so again, we feel really good about our positioning there, and we're just being conservative because we want to drive more people into the restaurants.

47:57 Thank you, that's very helpful. Appreciate it.

48:07 Thanks and good morning and appreciate all the color today, very helpful. Now, on the quarter to date comps, the up 29% I think year-on-year that you mentioned just somewhere on the same page, could you help us with what that reflects on a two-year basis compared to before COVID set-in or perhaps remind us how your monthly comps trended through the first quarter of 2021?

48:32 I don't know if I have all. We have the two-year stack.

Give me just a second, Brian.

48:49 If not, we can just follow-up offline. I'm just trying to understand if there’s…

48:51 two year stack was 25.3 for Q4. And I'll have to catch up with you on the other stuff.

If we’ve – I can either direct you to where we might have either disclosed it publicly or help you get there from our other public information.

49:16 Okay. Okay.

No problem. We can follow-up offline.

And I guess shifting gears to the 2022 CapEx budget, could you provide a little further breakdown between new units, maintenance, and the in-restaurant technology to KDS, and maybe on KDS specifically, could you provide any more color or perhaps quantify some of the key benefits you expect to achieve as it relates to throughput and table turns or perhaps there's a food waste or benefits to the employee experience, any incremental color on KDS?

49:50 So, our new restaurant construction costs before tenant improvement dollars. So, the amount – in other words the amount that gets capitalized probably running about something would probably be a pretty good average that we've talked about in the past.

KDS, I think to roll it out through the whole system and this is over a little bit longer than a year is right at $5 million in terms of benefits. I think where it's going to show up is probably accelerating the traffic in our restaurants.

50:35 For us, it creates more throughput, but I would also say that there's a benefit that maybe a little bit harder to tease out, but frankly, what we're excited about is that KDS systems are pretty standard in other systems. And as we roll it out, it gives us an opportunity to identify staff in the back of the restaurant who can make use of the KDS system, and so it kind of opened us up to more staff folks who are capable of executing – what for us pretty complex back in the house.

51:30 And so, KDS system helps us to identify people who were able to use the . And in fact where we have used it, some of the folks who have come from other systems have been, some of our for throughout the rest of the company.

51:54 Okay, great. That's helpful.

And then I just had two quick ones on the guidance, if I could. The commodity guidance that you provided I assume that reflects quite a bit higher in the first half, followed by a moderation later in the year, but could you help tighten up the cadence that you expect moving through the year?

Sort of on year-on-year inflation?

52:16 Right now, I got to tell you, I'm not sure I have any reason to think that there's going to be abatement in the near-term. So, we're going to have to just update to you as the year goes on.

52:34 Okay. Okay.

And the 2022 EBITDA guidance, could you help ballpark what level of G&A spend is layered into that guidance?

52:45 We haven't guided to – we haven’t guided to G&A, but there is an increase over last year.

52:57 Alright. I'll pass it along.

Thank you.

53:08 Hi. Thanks for the question and certainly really appreciate the quarter to date update on the comp and the performance so far this year.

Chris or Mel, frankly, we had a lot of conversations recently with investors looking at some challenging times, particularly on the lower end consumer as we head into the year. So, you made some comments a little earlier on some of the performance, I think during the recession in 2008, 2009, I was wondering if you could just dive in a little further there and give us a sense of what you tend to see maybe in some of those timings where discretionary spending power might be pressured or inflation is running as positive and maybe fuel prices are a good proxy there in terms of the inflation metrics, but I think one of the questions that we're getting is, is breakfast – is dining out breakfast sort of the place that consumers look to cut spending and obviously, that would impact your restaurant performance, so just curious on what you've seen there historically?

Obviously, this business has been around for a long time and been through some cycles.

54:09 Great question. So, I'll just tell you, obviously, it's been a while since we’ve dealt with something like this as an economy, but again back in 2008, 2009, it was not, kind of what you're hearing from the investors you're talking to from our standpoint.

Actually, it was one of our best periods ever and back then. And what we thought was, again, what I talked about, I hate to call it a trade down, but it was just a shift.

And it's more than just price focused, I think. 54:42 I think when consumers are being diligent about where they spend their dining out dollars and I should say that even in tough times, consumers want to eat out, they want to gather, they want to have their social occasions.

So they start to think about who delivers consistently, who's high quality, and who delivers a great value and we've always shown up well and when that criteria has applied. 55:06 So, that's part of the positioning that we're doing now.

It is to make sure that we are – we still fit that bill. We're constantly watching our NPS scores and they've been improving.

And so, it's really about delivering an exceptional customer experience, especially as they're being more discerning about where they spend their dollars. And I don't know if that – those comments that you’re hearing have more to do with like type breakfast or stuff, but what we're seeing is families gathering together for brunch as they're dining out occasion for the week or instead of a big dinner somewhere.

55:44 So, we feel good about that. And it remains to be seen how that plays out, but based on our history and what we've seen, even over the last year, in the midst of a pandemic, how much our consumers wanted to come back and how quickly they wanted to come back gives us great confidence in our position going forward here.

56:04 Great. Thanks.

And then just one follow-up on the in-restaurant technology, the KDS systems, I remember when we were on the restaurant tours during the IPO process, some of the employees were very excited about the opportunity to get that installed in the restaurant. So, I know the comment was that you'll have about 50% of the restaurants rolled out with that technology through the balance of this year.

Just wondering maybe why not more than 50% this year? And maybe is there a way to go faster if there are some real tangible benefits there?

56:36 Yes. Our desire is to go faster.

Frankly, some of it has to do with availability of equipment especially as it relates to computer chips and things like that, but I'll tell you this, if we can do more, we will. It's just a matter of access to the equipment to be able to do that.

56:58 Cool. Thanks for the color.

I appreciate it.

57:01 Thank you.

57:11 Thank you. And thanks everybody for joining us today.

We really appreciate your time and great questions and you we're very proud of what we've accomplished here in Q4 and for the whole year and are very excited about what the future holds for First Watch and we appreciate you being along for the ride. So, thank you very much.