Q3 2021 First Watch Restaurant Group Inc Earnings Call

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Good morning, everyone and welcome to the first watch restaurant group third quarter 2021 earnings Conference call all participants will be in a listen only mode.

Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

Following the presentation the conference call will be open for analyst questions and instructions on how to ask a question will be given at that time.

The conference call is being recorded today November nine 2021 at eight a M eastern time and will be archived and available one hour conference call.

At this time I would like to turn the conference call over to Raphael gross managing director of ICR. Please go ahead.

Good morning, everyone and welcome I'm joined today by first watches, Chris Tommaso, Chief Executive Officer, and precedent and Mel Hope Chief Financial Officer last evening, we issued our earnings release for the third quarter ended September 26, 2021 on global Newswire and filed our quarterly report.

And on Form 10-Q and earnings release on form 8-K with the SEC. These documents can be found at investors Doctor first watch dot com.

Now first cover a few housekeeping matters before introducing Chris.

During our prepared remarks and in responses to your questions.

Certain items may be discussed, which are not based on historical fact and there.

Operations performance and financial condition growth strategies product development efforts and future expenses.

Forward looking statements can be identified by words, such as anticipates intends plans seeks believes estimates expects and similar references to future periods or by the inclusion of goals forecasts or projections. These forward looking statements are based on our current expectations and assumptions regarding our business.

The economy and other future conditions, because forward looking statements relate to the future by their nature. They are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict as a result, our actual results may differ materially from those contemplated by the forward looking statements.

These factors include but are not limited to those described under risk factors in our amendment number one to form S. One registration statement filed with the SEC on September 20.

2021, and in other filings that we may make with the SEC should one or more of these risks risks or uncertainties materialize or should any of our assumptions prove incorrect our actual financial condition results of operations future performance and business prospects may vary in material respects from the performance describe.

And these forward looking statements. In addition, any forward looking statement made by US today speaks only as of the date on which it is made first walk under Kates undertakes no obligation to publicly update any forward looking statement, whether as a result of new information future developments or otherwise except as may be required.

By law.

Lastly, our remarks today will include references to various non-GAAP measures.

Should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our third quarter 2021 earnings press release and with that I'd like to now turn the call over to Chris Tommaso first Swatch CEO and president.

Yeah.

Thanks, Ray I wanted to start by saying, what our team's day to tens of thousands of consumers every day and that is good morning.

What they don't say is welcome to first watch his inaugural earnings conference call.

It's exciting for us to have this public forum to share that our first watch story with U.

As most of you likely know we recently completed our initial public offering and we're proud to be a NASDAQ listed company.

First and foremost I want to thank all of the first watch employees, whose hard work not only made our IPO successful they made it possible.

There are many people listening today, who may be fairly new to the first watch brand story and I consider it my privilege to introduce a few just think about our concept.

For nearly 40 years, we've deliberately lay the foundation of excellence, which has helped position us for this next chapter in our story.

At first what we serve different customer <unk>.

Breakfast and branch concept, we tend to align closely with consumer brands, whose customer basis skew much healthier have greater disposable income and seek quality food if you've ever visited one of our restaurants, you know that our experience is an elevated one.

Our focus is on being distinguished distinguished simply different from our competition.

We believe we accomplish this by delivering an elevated menu and it's in an environment, that's definitely balances warrants and hospitality with speed and convenience. This.

This unique combination coupled with our very strong culture is why we believe we have enjoyed such a passionate response from the consumer for decades.

Continue our track record of delivering exceptional results.

That's a combination that's hard to find and that is daytime dining.

In 2020 amidst the pandemic, while headlines we're continually broadcasting a bleak outlook for the restaurant segment, a recovery and momentum demonstrated otherwise starting in March of this year. We began to consistently achieve positive same restaurant sales growth measured against pre Covid result, and we returned to positive traffic in Q2 and haven't looked.

Back.

As I said, we have a long track record of delivering sales unit and profit growth as a result of our broad brand appeal compelling economic proposition and difficult to replicate business model.

I'd be remiss not to point out that prior to the emergence of Covid, we consistently achieve positive.

Sales growth, averaging six 3% annually from 2014 to 2019, and we delivered same restaurant traffic growth, averaging one 4% annually during that same six year period ended December 2019.

Okay.

We're 12, 5% so when I share our Q3 results keep in mind that we are comparing to a very strong base.

From a traffic perspective, Q3, 2021 March one of the strongest quarters in first watches nearly 40 year history.

Our system wide sales in Q3, we are in and breath impressive $197 4 million, which is up over 58% over the same quarter last year and up 38, 8% over the same period in 2019.

Same restaurant sales grew 46, 2% compared to last year and 19, 7% over the same period in 2019, while same restaurant traffic grew 41% compared to last year and four 8% over the same period in 2019.

Embedded in our Q3 results is strong continued uses usage of our off premises channels, even as our dine in sales have continued to improve.

We've retained 100% of the off premises sales that increased significantly during the height of the pandemic, which accounted for $31 8 million in Q3 2021 up from $29 5 million in Q3 of 'twenty.

In terms of profit using.

Using our non-GAAP measures restaurant level operating profit margin improved to 19, 5% as compared to nine 9% in the same period last year and 16% in the third quarter of 2019.

Adjusted EBITDA increased to $17 million from $2 6 million last year, and $7 7 million comparable quarter of 2019, representing 118, 8% growth over that period.

These results paint a clear picture of the effectiveness of our continued strategic execution and award winning approach that have created a broad consumer appeal and established first watch as an undisputed leader in the daytime dining category.

Yeah.

Before I pass the mic to first what CFO Mel hope to elaborate further on our strong Q3 performance I would like to share a bit more of our brand story with you. Since this will be our only inaugural earnings call.

Hi, Chris Brunch and launch in a way that only first watch can.

We are the leaders of the daytime dining segment a segment that we played a large part in establishing and together with our small community of franchise partners. We operate 428 first watch restaurants in 28 states long term, we have the potential to open more than 2200 restaurants in the U S.

One key factor that makes our concept fairly unique is that our restaurants are open for just one shift a day from seven a M until 230 P. M. R. One shift one focus approach enables us to be the best at what we do by allowing us to really specialize and optimize our operations.

It helps us attract and retain employees, who share our passion for hospitality and craveable work life balance that's very hard to come by in this.

I want to reiterate that for a moment. The results were sharing today were achieved in $1 seven five our daily shift.

Let me tell you why this is so important or no night shifts ever proposition is a key recruiting differentiator and it drives high employee satisfaction and retention here.

Historically, our turnover has been about 20% to 30% lower than industry average life.

Likewise, our preference of promoting from within has led to exceptional tenure of operations leaders with our general managers, having been with US for an average of five years, our directors of operations 10 years, and our regional Vice Presidents and Vice Presidents of operations, having average tenure of 14 and 15 years respectively.

This has always been critical for our brand, but it's even more important today, helping us stay somewhat insulated from the staffing headwinds currently affecting the restaurant industry.

To that point, while we are not currently staffed at optimal levels, we have not faced the labor shortage crises that we've seen other concepts face in this environment, meaning we have not had to alter or reduce hours nor have we had to close on certain days due to lack of staff.

90% of our general managers, 100% of our directors of operations and 75% of our tenured hourly employees return following our Covid closure period, So we started and repositioned and many others have reported.