FIRST WATCH RESTAURANT GROUP, INC. 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 as of and for the fiscal year endedDecember 26, 2021 and notes included in our 2021 Form 10-K. As discussed in "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 below and those discussed in "Risk Factors" under Part II, Item 1A in this Form 10-Q and in our 2021 Form 10-K, including under "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Overview
First Watch is an award-winning Daytime Dining concept serving made-to-order breakfast, brunch and lunch using fresh ingredients. 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. InMarch 2022 , First Watch was awarded ADP's prestigious Culture at Work award. The Company is majority owned byAdvent International Corporation , one of the world's largest private-equity firms. OnOctober 1, 2021 , the Company's common stock began trading on Nasdaq under the ticker symbol "FWRG." The Company does not operate outside ofthe United States . The Company operates and franchises restaurants in 28 states under the "First Watch" trade name and as ofMarch 27, 2022 , the Company had 346 company-owned restaurants and 95 franchise-owned restaurants.
Recent Developments
Financial highlights for the thirteen weeks endedMarch 27, 2022 ("first quarter of 2022") as compared to the thirteen weeks endedMarch 28, 2021 ("first quarter of 2021") reflect the continued momentum of our strong operating performance and include the following: •Total revenues increased 36.1% to$173.1 million in the first quarter of 2022 from$127.2 million in the first quarter of 2021 •System-wide sales increased 35.6% to$214.1 million in the first quarter of 2022 from$158.0 million in the first quarter of 2021 •Same-restaurant sales growth of 27.2% (26.1% relative to the first quarter of 2019*) •Same-restaurant traffic growth of 21.9% (3.4% relative to the first quarter of 2019*) •Income from operations margin of 4.5% during the first quarter of 2022 compared to 3.1% in the first quarter of 2021 •Restaurant level operating profit margin** increased to 19.6% in the first quarter of 2022 from 17.5% in the first quarter of 2021 •Net income of$4.6 million , or$0.08 per diluted share, in the first quarter of 2022 compared to Net loss of$(2.0) million , or$(0.05) per diluted share, in the first quarter of 2021 •Adjusted EBITDA** increased to$19.4 million in the first quarter of 2022 from$13.0 million in the first quarter of 2021 •Opened 7 system-wide restaurants in 5 states resulting in a total of 441 system-wide restaurants (346 company-owned and 95 franchise-owned) across 28 states ___________________ * Comparison to the thirteen weeks endedMarch 31, 2019 ("first quarter of 2019") is presented for enhanced comparability due to the economic impact of COVID-19. ** See Non-GAAP Financial Measures section below. 16
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Key Performance Indicators
Throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations" we commonly discuss the following key operating metrics which 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 weeks ended March 27, 2022 and March 28,
2021 , there were 305 restaurants and 270 restaurants in our Comparable
Restaurant Base, respectively. 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.
Adjusted EBITDA: represents Net income (loss) 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 (loss), the most directly comparable measure in accordance with accounting principles generally accepted inthe United States of America ("GAAP"), to Adjusted EBITDA, included in the section Non-GAAP Financial Measures below.
Adjusted EBITDA Margin: represents Adjusted EBITDA as a percentage of total revenues. See Non-GAAP Financial Measures below for a reconciliation to 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 Measures below.
Restaurant Level Operating Profit Margin: represents Restaurant level operating profit as a percentage of restaurant sales. See Non-GAAP Financial Measures below for a reconciliation to the most directly comparable GAAP measure.
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Selected Operating Data
THIRTEEN WEEKS ENDED
MARCH 27, 2022 MARCH 28, 2021
System-wide sales (in thousands) $ 214,121 $ 157,964
System-wide restaurants 441 415
Company-owned 346 328
Franchise-owned 95 87
Same-restaurant sales growth 27.2 % 14.1 %
Same-restaurant traffic growth 21.9 % 2.2 %
Income from operations (in thousands) $ 7,760 $ 3,845
Income from operations margin 4.5 % 3.1 %
Restaurant level operating profit (in thousands) (1) $ 33,439 $ 21,924
Restaurant level operating profit margin (1) 19.6 % 17.5 %
Net income (loss) (in thousands) $ 4,640 $ (2,042)
Net income (loss) margin 2.7 % (1.6) %
Adjusted EBITDA (in thousands) (2) $ 19,364 $ 12,982
Adjusted EBITDA margin (2) 11.2 % 10.2 %
________________
(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 section below.
(2) Reconciliations from Net income (loss) and Net income (loss) 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 section below.
Same-Restaurant Sales Growth and Same-Restaurant Traffic Growth
Thirteen Weeks Ended Same-Restaurant Sales Growth Same-Restaurant Traffic Growth Comparable Restaurant Base
March 27, 2022 27.2 % 21.9 % 305
March 28, 2021 14.1 % 2.2 % 270
March 29, 2020 (10.7) % (14.2) % 212
March 31, 2019 6.3 % 3.0 % 168
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Results of Operations
Thirteen Weeks Ended
The following table summarizes our results of operations and the percentages of certain items in relation to Total revenues or Restaurant sales for the thirteen weeks endedMarch 27, 2022 andMarch 28, 2021 : THIRTEEN WEEKS ENDED (in thousands) MARCH 27, 2022 MARCH 28, 2021 Revenues Restaurant sales$ 170,669 98.6 %$ 125,366 98.6 % Franchise revenues 2,443 1.4 % 1,803 1.4 % Total revenues$ 173,112 100.0 %$ 127,169 100.0 % Operating costs and expenses Restaurant operating expenses (1) (exclusive of depreciation and amortization shown below): Food and beverage costs 39,403 23.1 % 26,916 21.5 % Labor and other related expenses 55,142 32.3 % 40,049 31.9 % Other restaurant operating expenses 27,317 16.0 % 22,020 17.6 % Occupancy expenses 14,383 8.4 % 13,301 10.6 % Pre-opening expenses 985 0.6 % 1,164 0.9 % General and administrative expenses 19,563 11.3 % 11,953 9.4 % Depreciation and amortization 8,223 4.8 % 7,786 6.1 % Impairments and loss on disposal of assets 79 - % 124 0.1 % Transaction expenses, net 257 0.1 % 11 - % Total operating costs and expenses 165,352 95.5 % 123,324 97.0 % Income from operations (1) 7,760 4.5 % 3,845 3.1 % Interest expense (1,006) (0.6) % (6,316) (5.0) % Other income, net 163 0.1 % 254 0.2 % Income (Loss) before income taxes 6,917 4.0 % (2,217) (1.7) % Income tax (expense) benefit (2,277) (1.3) % 175 0.1 %
Net income (loss) and total comprehensive income (loss)
2.7 %$ (2,042) (1.6) %
_____________
(1) As a percentage of restaurant sales.
Restaurant Sales
Restaurant sales represent the aggregate sales of food and beverages, net of
discounts, at company-owned restaurants. Restaurant sales in any period are
directly influenced by the number of operating weeks in the period, the number
of open restaurants, customer traffic and average check. Average check growth is
driven by our menu price increases and changes to our menu mix.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Restaurant sales:
In-restaurant dining sales $ 132,892 $ 87,131 52.5 %
Third-party delivery sales 21,026 20,754 1.3 %
Take-out sales 16,751 17,481 (4.2) %
Total Restaurant sales $ 170,669 $ 125,366 36.1 %
The increase in total restaurant sales during the thirteen weeks ended March 27,
2022 as compared to the same period in the prior year was primarily due to (i)
$44.3 million of higher restaurant sales from the Comparable Restaurant Base,
driven by same-restaurant traffic growth of 21.9%, menu price increases and
sustained off-premises sales, (ii) 20 NROs that have opened since March 28, 2021
and (iii) certain dining room restrictions imposed pursuant to state and local
government mandates during the thirteen weeks ended March 28, 2021 in response
to COVID-19.
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Franchise Revenues
Franchise revenues are comprised of sales-based royalty fees, system fund
contributions and the amortization of upfront initial franchise fees, which are
recognized as revenue on a straight-line basis over the term of the franchise
agreement. Franchise revenues in any period are directly influenced by the
number of open franchise-owned restaurants.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Franchise revenues:
Royalty and system fund contributions $ 2,379 $ 1,735 37.1 %
Initial fees 64 68 (5.9) %
Total Franchise revenues $ 2,443 $ 1,803 35.5 %
The increase in franchise revenues during the thirteen weeks ended March 27,
2022 as compared to the same period in the prior year was primarily driven by
the increase in sales from franchise-owned restaurants.
Food and Beverage Costs
The components of food and beverage costs at company-owned restaurants are variable by nature, change with sales volume, are impacted by product mix and are subject to increases or decreases in commodity costs.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Food and beverage costs $ 39,403 $ 26,916 46.4 %
As a percentage of restaurant sales 23.1 % 21.5 % 1.6 %
Food and beverage costs as a percent of restaurant sales increased during the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year primarily due to (i) higher prices for pork and avocados, partially offset by (ii) menu price increases. Food and beverage costs increased during the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year primarily as a result of (i) the increase in restaurant sales and (ii) higher prices across the market basket due to cost increases in certain commodities.
Management currently expects a continuation of cost pressures in our market basket for the balance of the year, with inflation of 10.0% to 13.0%, as well as increases in fuel surcharges associated with our deliveries.
Labor and Other Related Expenses
Labor and other related expenses are variable by nature and include hourly and
management wages, bonuses, payroll taxes, workers' compensation expense and
employee benefits. Factors that influence labor costs include minimum wage and
payroll tax legislation, health care costs, the number and performance of our
company-owned restaurants and increased competition for qualified staff.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Labor and other related expenses
37.7 % As a percentage of restaurant sales 32.3 % 31.9 %
0.4 %
Labor and other related expenses as a percentage of restaurant sales increased during the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year primarily as a result of (i) the increase in wages and staffing levels, partially offset by (ii) greater sales leverage driven by the increase in restaurant sales and (iii) rebates from our group health plan. The increase in labor and other related expenses during the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year was primarily due to (i) an increase in wages and staffing levels and (ii) 20 NROs that have opened sinceMarch 28, 2021 , partially offset by (iii) rebates from our group health plan. 20 -------------------------------------------------------------------------------- Table of Contents Labor and other related expenses have continued to experience volatility associated with the tight labor pools in the markets in which the Company operates and the dining room traffic recovery trends which have responded to the occurrences of new COVID-19 variants.
Other Restaurant Operating Expenses
Other restaurant operating expenses consist of marketing and advertising
expenses, utilities, insurance and other operating variable expenses incidental
to operating company-owned restaurants, such as operating supplies (including
paper products, menus and to-go supplies), credit card fees, repairs and
maintenance, and third-party delivery services fees.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Other restaurant operating expenses
24.1 % As a percentage of restaurant sales 16.0 % 17.6 %
(1.6) %
Other restaurant operating expenses as a percentage of restaurant sales during the thirteen weeks endedMarch 27, 2022 was lower than the same period in the prior year primarily due to leveraging in-restaurant dining sales. The increase in other restaurant operating expenses during the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year was mainly due to (i) an additional$2.3 million in operating supplies expense primarily driven by higher prices and the increase in restaurant sales, as well as (ii) an increase in credit card fees, utilities, repairs and maintenance and insurance expense primarily driven by the increase in restaurant sales. As a percentage of sales, other restaurant operating expenses are expected to trend higher than prior to COVID-19 due principally to the additional cost of to-go supplies associated with off-premises sales.
Occupancy Expenses
Occupancy expenses primarily consist of rent expense, property insurance, common area expenses and property taxes.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Occupancy expenses $ 14,383 $ 13,301 8.1 %
As a percentage of restaurant sales 8.4 % 10.6 % (2.2) %
As a percentage of restaurant sales, the decrease in occupancy expenses for the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year was primarily due to sales leverage driven by the increase in restaurant sales. The increase in occupancy expenses during the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year was primarily due to the increase in the number of company-owned restaurants and the number of leases that had commenced. Pre-opening Expenses Pre-opening expenses are costs incurred to open new company-owned restaurants. Pre-opening expenses include pre-opening rent expense, which is recognized during the period between the date of possession of the restaurant facility and the restaurant opening date. In addition, pre-opening expenses include manager salaries, recruiting expenses, employee payroll and training costs, which are recognized in the period in which the expense was incurred. Pre-opening expenses can fluctuate from period to period, based on the number and timing of new company-owned restaurant openings. THIRTEEN WEEKS ENDED (in thousands) MARCH 27, 2022 MARCH 28, 2021 Change Pre-opening expenses$ 985 $ 1,164 (15.4) % 21
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The decrease in pre-opening expenses during the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year was primarily due a lower number of NROs opened, as well as those expected to open, during the current period compared to the same period in the prior year.
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 and stock-based compensation. General and
administrative expenses are impacted by changes in our employee headcount and
costs related to strategic and growth initiatives. In preparation for and after
the consummation of the Company's initial public offering ("IPO") in October
2021 , we have incurred and we expect to incur in the future significant
additional legal, accounting and other expenses associated with being a public
company, including costs associated with our compliance with the Sarbanes-Oxley
Act.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
General and administrative expenses
63.7 %
The increase in general and administrative expenses during the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year was mainly due to (i)$2.2 million of stock-based compensation expense from certain stock option awards that converted into time-based stock option awards upon the Company's IPO, (ii) the increase of$1.3 million in compensation expense from wage increases and additional employee headcount to support growth, (iii) the additional$1.0 million in marketing spend, (iv) the increase of$1.0 million related to insurance expense and (v) the additional$0.6 million related to legal and accounting fees associated with being a public company.
Depreciation and Amortization
Depreciation and amortization consists of the depreciation of fixed assets, including leasehold improvements, fixtures and equipment and the amortization of definite-lived intangible assets, which are primarily comprised of franchise rights. Franchise rights includes rights which arose from the purchase price allocation in connection with the merger agreement through which the Company was acquired by funds affiliated with or managed byAdvent International Corporation inAugust 2017 as well as reacquired rights from our acquisitions of franchise-owned restaurants. THIRTEEN WEEKS ENDED (in thousands) MARCH 27, 2022 MARCH 28, 2021 Change Depreciation and amortization$ 8,223 $ 7,786 5.6 % The increase in depreciation and amortization during the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year was primarily due to incremental depreciation of capital expenditures associated with NROs.
Impairments and Loss on Disposal of Assets
Impairments and loss on disposal of assets include (i) the impairment of
long-lived assets and intangible assets where the carrying amount of the asset
is not recoverable and exceeds the fair value of the asset, (ii) the write-off
of the net book value of assets that have been retired or replaced in the normal
course of business and (iii) the write-off of the net book value of assets in
connection with restaurant closures.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Impairments and loss on disposal of assets $ 79 $
124 (36.3) %
There were no impairment losses recognized on intangible assets or fixed assets
during the thirteen weeks ended
22
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Transaction Expenses, Net
Transaction expenses, net include (i) 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 , (ii) gains or losses
associated with lease terminations, (iii) costs incurred in connection with the
acquisition of franchise-owned restaurants, (iv) costs incurred in connection
with the conversion of certain restaurants to company-owned restaurants
operating under the First Watch trade name and (v) costs related to restaurant
closures.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Transaction expenses, net $ 257 $ 11 n/m (1)
____________
(1) Not meaningful.
Transaction expenses, net primarily includes a termination fee in connection
with the closure of one company-owned restaurant during the thirteen weeks ended
March 27, 2022 .
Income from Operations
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Income from operations $ 7,760 $ 3,845 101.8 %
As a percentage of restaurant sales 4.5 % 3.1 % 1.4 %
Income from operations margin increased during the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year primarily due to (i) leveraging restaurant sales, (ii) menu price increases and (iii) rebates from our group health plan, partially offset by (iv) higher prices for pork and avocados, (v) the increase in restaurant-level wages and staffing and (vi) the increase in general and administrative expenses mainly due to additional stock-based compensation expense and insurance expense. Income from operations increased during the thirteen weeks endedMarch 27, 2022 as compared to the same period in the prior year mainly due to (i) the increase in total revenues, partially offset by (ii) the increase in operating costs and expenses driven by our restaurant growth, higher prices for certain commodities and supplies, as well as the increase in wages and staffing levels, in addition to (iii) the increase in general and administrative expenses mainly due to additional stock-based compensation expense, wage increases and additional employee headcount.
Interest Expense
Interest expense primarily consists of interest and fees on our outstanding debt and the amortization expense for debt discount and deferred issuance costs.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Interest expense $ 1,006 $ 6,316 (84.1) %
The decrease in interest expense during the thirteen weeks ended March 27, 2022
as compared to the same period in the prior year was primarily due to lower
outstanding debt and reduced interest rates from the new term loan A facility
("the New Term Facility") pursuant to our new credit agreement executed in
October 2021 , (the " New Credit Agreement").
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Other Income, Net
Other income, net includes items deemed to be non-operating based on
management's assessment of the nature of the item in relation to our core
operations.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Other income, net $ 163 $ 254 (35.8) %
Income Tax (Expense) Benefit
Income tax (expense) benefit primarily consists of various federal and state
taxes.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Income tax (expense) benefit $ (2,277) $ 175 n/m (1)
___________
(1) Not meaningful.
The effective income tax rate for the thirteen weeks ended March 27, 2022 was
32.9% as compared to 7.9% for the thirteen weeks ended March 28, 2021 . The
change in the effective income tax rates was primarily due to (i) forecasted
2022
pre-tax book income as compared to forecasted 2021 pre-tax book loss, (ii) the
change in the valuation allowance for federal and state deferred tax assets and
(iii) limitations on deductions of certain compensation.
The Company has a blended federal and state statutory rate of approximately
25.0%. The effective income tax rates for the thirteen weeks ended March 27,
2022 and March 28, 2021 were different than the blended federal and state
statutory rate primarily due to (i) the benefit of tax credits for FICA taxes on
certain employees' tips, (ii) the change in the valuation allowance for federal
and state deferred tax assets and (iii) limitations on deductions of certain
compensation.
Net Income (Loss)
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Net income (loss) $ 4,640 $ (2,042) n/m (1)
As a percentage of total revenues 2.7 % (1.6) % 4.3 %
___________
(1) Not meaningful.
Net income margin was 2.7% during the thirteen weeks ended March 27, 2022 as
compared to Net loss margin of (1.6)% during the same period in the prior year
primarily due to (i) the increase in income from operations and (ii) the
reduction in interest expense, partially offset by (iii) income tax expense.
Net income for the thirteen weeks ended March 27, 2022 as compared to Net loss
for the thirteen weeks ended March 28, 2021 was primarily due to (i) the
increase in income from operations and (ii) the reduction in interest expense,
partially offset by (iii) income tax expense.
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Restaurant Level Operating Profit and Restaurant level Operating Profit Margin
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Restaurant level operating profit $ 33,439 $ 21,924 52.5 %
Restaurant level operating profit margin 19.6 % 17.5 % 2.1 %
Restaurant level operating profit margin during the thirteen weeks endedMarch 27, 2022 increased as compared to the same period in the prior year primarily due to (i) leveraging restaurant sales, (ii) menu price increases and (iii) rebates from our group health plan, partially offset by (iv) higher prices for pork and avocados and (v) the increase in wages and staffing. Restaurant level operating profit for the thirteen weeks endedMarch 27, 2022 increased as compared to the same period in the prior year mainly due to (i) the increase in same-restaurant sales growth, driven by same-restaurant traffic growth, menu price increases, and sustained of off-premises sales, (ii) 20 NROs that have opened sinceMarch 28, 2021 and (iii) rebates from our group health plan, partially offset by (iv) higher prices for certain commodities and supplies and (iv) the increase in wages.
Adjusted EBITDA and Adjusted EBITDA Margin
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021 Change
Adjusted EBITDA $ 19,364 $ 12,982 49.2 %
Adjusted EBITDA margin 11.2 % 10.2 % 1.0 %
Adjusted EBITDA margin increased during the thirteen weeks ended March 27, 2022
as compared to the same period in the prior year primarily due to (i) the
increase in restaurant level operating profit, partially offset by (ii) the
increase in general and administrate expenses mainly due to additional insurance
expense.
The increase in Adjusted EBITDA for the thirteen weeks ended March 27, 2022 as
compared to the same period in the prior year was primarily due to (i) the
increase in restaurant level operating profit, partially offset by (ii) the
increase in general and administrative expenses mainly due to wage increases and
additional employee headcount.
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Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA margin - The following table reconciles Net
income (loss) and Net income (loss) margin, the most directly comparable GAAP
measures to Adjusted EBITDA and Adjusted EBITDA margin for the periods
indicated:
.
THIRTEEN WEEKS ENDED
(in thousands) MARCH 27, 2022 MARCH 28, 2021
Net income (loss) $ 4,640 $ (2,042)
Depreciation and amortization 8,223 7,786
Interest expense 1,006 6,316
Income taxes 2,277 (175)
EBITDA 16,146 11,885
IPO-readiness and strategic transition costs (1) 450 479
Stock-based compensation (2) 2,294 129
Recruiting and relocation costs (3) 76 41
Impairments and loss on disposal of assets (4) 79 124
Transaction expenses, net (5) 257 11
COVID-19 related charges (6) - 48
Severance costs (7) 62 265
Adjusted EBITDA $ 19,364 $ 12,982
Total revenues $ 173,112 $ 127,169
Net income (loss) margin 2.7 % (1.6) %
Adjusted EBITDA margin 11.2 % 10.2 %
Additional information
Deferred rent expense (income) (8) $ 580 $ (999)
_____________________________
(1) Represents costs related to the assessment and redesign of our systems and
processes. In 2021, the costs also include information technology support and
external professional service costs incurred in connection with IPO-readiness
efforts. 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 which is recorded
within General and administrative expenses on the Consolidated Statements of
Operations and Comprehensive Income (Loss).
(3) Represents costs incurred for hiring qualified individuals as we assessed
the redesign of our systems and processes. These costs are recorded within
General and administrative expenses on the Consolidated Statements of Operations
and Comprehensive Income (Loss).
(4) 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.
(5) Represents costs related to restaurant closures.
(6) Represents costs incurred in connection with the economic impact of the
COVID-19 pandemic.
(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).
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Restaurant level operating profit and Restaurant level operating profit margin - The following table reconciles Income (Loss) from operations and Income (Loss) from operations margin, the most comparable GAAP measures to Restaurant level operating profit and Restaurant level operating profit margin for the periods indicated:
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