Good afternoon, everyone. My name is Jeff Bernstein, and I'm the restaurant and food service distribution analyst here at Barclays. Hope everyone's staying dry today. Our next presenting company is First Watch. With us on stage from Bradenton, Florida, we have Mel Hope, their CFO. By way of background for those not familiar, First Watch is a breakfast, brunch, and lunch casual dining chain with 620 or so units across the U.S., with a company ownership mix of roughly 90%. That number continues to inch higher. They have a current 10%+ annual unit growth rate off of that 620. Management is confident in their long-term guidance for 2,000 U.S. system-wide units. A long runway to go. We want to thank First Watch very much for joining us. I have a number of questions for management, but then I will definitely pause. If there's any questions in the room, I will open it up to the floor. With that said, I want to thank First Watch and Mel for joining us today. Thanks. It's 79 degrees back in Sarasota. Oh, yeah? I'm taking a bullet for the team here. Sorry. I did have a few bigger picture questions we've been posing to a number of different companies that have gotten a lot of attention in recent months and quarters. The past quarter or two, there's been a lot of attention paid to the data that companies have in terms of their sales mix by different cohorts. And different segments, obviously, focus on different consumers. Wondering if you have the data, or do you secure the data, or do you pay any mind to the data of the younger versus older, or more or less affluent, or different ethnicities. It just seems like everyone's now focused more on their vulnerability to different subsegments of the consumer rather than the consumer more broadly. Just wondering how you think about that. First Watch typically over-indexes to sort of a higher-income customer. We do segment our data by different cohorts. Generally speaking, across all our cohorts, they're performing pretty similarly. We can specifically say on restaurants whose geographic location would be heavily Hispanic, for example, that there's no difference in their performance versus the rest of the system. I think as a result of our customer base, we typically don't, haven't experienced at least, that kind of pressure on any one group, at least across what we can see. That's great. The industry has gotten a lot of, well, questions on just we have to battle food away from home has to battle food at home every day. In the breakfast, brunch, lunch, but the earlier parts of the day, I think some investors think that you are more vulnerable versus others just because breakfast is not a meal that everyone eats out all the time. I'm just wondering how you think about the battle between food at home for the industry and specifically your segment of the industry. Right. It is certainly important to us because 70% of breakfast occasions are eaten at home. It is an easy meal to stay there for. We look at that as our biggest competition. Those occasions are where we have the greatest opportunity. The way that we combat that now is the way that we have combated it and won the war for decades. The company has been around for 43 years. We have everyday value on the menu. We try to be careful with our pricing. We have great service and great food. It is presented in a way that people want to take pictures of it and post it on Instagram. We think that is the way that we continue to win by being modest in our pricing, making sure that we are there every day for the customer. I think we've experienced long-term traffic growth at the company for decades. That's been a winning formula for us, and I think it'll continue. How do you think about the mix? When you think about your sales, breakfast, brunch, lunch, and weekday versus weekend, because I would think most of the eating out occasion on breakfast, brunch is on the weekend. How does your sales mix play out as you think about it? It's a little, it's a 45% weekday, 55% weekend, something like that is our typical mix. Might be a little bit different. Look, every weekend at our restaurant and most breakfast concepts would be, that's the Super Bowl. That's every weekend's bowl game for our restaurants. When we have shoulder periods or weekday breakfast, weekday brunch, when we see some softness, and we saw it in the first quarter this year when we saw maybe customers electing out of their breakfast occasion, we saw some softness on weekdays. The weekends have always remained strong. The peak periods are the peak periods in the breakfast contest. We have a very, we have a loyal customer base. I think people who have the tradition of eating breakfast and brunch out, we see a lot of a recurrence on those. Yep. I know we were involved in the IPO, I guess it was four or so years ago now. Four years. You've done a lot of work and a lot of meeting with investors. I'm just wondering, as you've gone past those few years and you went from a concept that most people probably hadn't heard of to now presumably getting more and more brand awareness, just wondering from an investor meeting, what's the thing that perhaps you're surprised that people don't fully appreciate or maybe you're misunderstood by and how that's progressed over the past few years? I'm glad you asked that. When we went public four years ago, we had 428 or so restaurants. Now we have almost 200 more restaurants. We've doubled our adjusted EBITDA during that time. We've grown the system by that 10% unit growth annually, plus we've acquired franchise restaurants. I think people miss our growth engine, the power of the growth engine. We've powered through different kinds of economies, through inflation, and the growth engine continues to work, just as it's worked for 43 years. I think the overhang that we heard a lot from customers, excuse me, from investors had to do with our private equity sponsors' ownership during that time. That ownership has now been liquidated. We don't have any private equity ownership at this point in terms of they're selling our stock. I think what I hope people focus on is just the consistent growth of the company and that powerful trend that we continue to observe. I mean, this is what winning looks like. And I want people to get that story. Yep. I know it's an interesting environment. Not everyone can say that. The topic of GLP-1s, just because it was quite topical a year or two ago, it then kind of faded. Now it seems like it's coming back with a vengeance. It's becoming more affordable for more and more people. Insurance is starting to cover it. It's going to be something you can swallow versus shots. I mean, how would you even measure the implications or the impact that could have on you or the industry more broadly? Is that something that you see as a major headwind in coming years? Yeah, we haven't seen it in our numbers. I guess I would say, and you implied this, that it's going to be hard for us to tease out what is the occasion or the consumer preference that comes out in our sales. I would say this: we are well positioned for the GLP customer. I think that that's what's going to win out. We have very protein-forward entrees. I think as people elect how to eat healthy or to conform their diets to their particular either health concerns or health needs, even drafting off that medication, I think that we're well positioned with a menu that allows them not only to have protein-forward kind of entrees, but also a lot of modifications available through our menu. They can choose. There's a lot of variability. Customers can choose what they want, and they can modify their entrees. I think people will grow more accustomed to doing that in our restaurant and others. I think we're well positioned to meet those needs for a customer. Being that we're less than a month away from the new year, I'm just curious, as you think about 2026, what are you most excited about for your business? Where is it maybe going to the next level, or what's something that you're most intrigued by as you look to next year? It is our growth, new restaurant growth for the company. Without question, the thing that we celebrate, the thing that provides for our staff to be promoted in restaurants, the new restaurant openings provide for us to meet new customers and to spread the news of our brand, to create more density in markets we operate in. New restaurants are kind of the lifeblood of how we grow. We celebrate each one. We celebrate the promotions around our employees who enjoy new responsibility in the restaurants and advancing their careers. Our investment in the restaurant means that we're investing in 50 or 60 employees in the restaurants. We love that sort of career advancement and expanding our workforce because we think that ultimately, those customer-facing people, the folks who run the restaurants, those are the star players in this drama. What's amazing is, as you were saying, that if you have 600 or so units and you're opening 10% per year, when you're opening up 60-plus stores a year, more than one a week, and you just said there's 60 employees. Yeah. I mean, that's 3,600 people a year. That's right. That's two levels. Today, we have between 17,000 and 18,000 employees. That kind of growth creates a lot of interesting new opportunities, but it gives us an opportunity to celebrate a lot of good news. Got it. In terms of some company-specific questions, breakfast, brunch, just wondering how you think about that segment versus lunch and dinner. I think of lunch and dinner as competing more with chains, whereas I think breakfast, brunch, you're competing more with diners and local bougie brunch-type concepts. I'm just wondering how you think about the competitive environment, especially in the current market with so much of a value emphasis. How do you think about your landscape? A lot of competition in our space is it's very fragmented. There are a lot of local restaurants that have a long-time reputation in the market, or it's the local breakfast place that's been there for decades. You have some regional players that might have a couple of dozen restaurants. There are very few large competitors that aren't regional in our particular breakfast, brunch, and lunch day part who do what we do on an elevated basis. What's important to us and the formula that has worked for us is we're there every day with a value. We've got great service, and our crews are well trained. We have not only value in the service, but the food is well prepared with high-quality ingredients, and it's served efficiently so that people can stay on the clock with themselves. Moreover, I think just our mass, given our scale, the ability to out-position the competition now where we're a national credit and developers have us on speed dial when they're merchandising a center and they need a concept that's going to open up their center with vibrant foot traffic early in the morning. I think all of those things help give us a little bit of a built-in advantage overall and helps. It's part of why we're leaning into so much development because I think we're going through the salad days at First Watch, and I think this is the time for us to stretch out the lead. I think about, like you said, I mean, so many of your stores go into new markets. I know you've talked about maybe a third into new markets. In those new markets, I would think there's already a local breakfast, brunch place that's already well loved by the community. When you go into these new markets, I mean, it seems like you're seeing tremendous success. I would think that there would be some pushback initially of, "Is a chain coming into our market? It's interesting. Every community, if you look on the newsstands, they'll have some local magazine that awards best places to eat in our community or best. We oftentimes, even though we're a national chain, we're in 32 different states now. Oftentimes, we find our way to best local breakfast in some community here and there. We love it when that happens, when we unseat the long-time competitor there. Yep. The comp growth, which obviously garners a lot of attention, I would say unit growth should garner more because it's a bigger driver, but obviously, comps garner all the focus. You did see a strong uptick in the third quarter. That was a pleasant surprise. There was positive traffic. Can you talk about the primary drivers of what you think drove that improvement and your ability to kind of sustain that momentum? We have been approaching our focus is mostly on the dining room, but we have enjoyed the experience this year of having our third-party delivery program. We sort of revisited some principles and our relationship with our purveyors on third-party delivery, which is about 10% of our sales early in the year. Those changes that we made, changes that they made in terms of our relationship have proven to be very effective in terms of driving occasions through that channel. At the same time, our dining rooms, which had also been experiencing the traffic compression last year that we in the industry experienced, that has been recovering all through the year as well so that we were nearly back to flat in our restaurants by quarter end. The combination of those two things has been a big driver of the lift that we enjoyed during the year in our traffic. Traffic is what we watch most closely. Right. And that 10%, that's 10% total to go, or that's 10% delivery and then. Just delivery. We have another 10% that's. Yeah, there's another 9% or 10% that is through our own channels, the to-go or take-out. You're not necessarily, I would think the concern would be, "I hope we don't lose our in-restaurant business." Adding this to-go and delivery, you believe to be primarily incremental, and it's not creating a different sensation in the restaurant. Yeah. The third-party delivery is we see it as an incremental occasion. It's something somebody wants the convenience of that. Our main focus and the First Watch full experience is in the dining room. It's enjoying that gracious service that we train our employees to give for them to experience the efficiency of eating in the dining room. We focus mostly on those transactions, and we're delighted for customers to use us in the third-party channel. We're delighted for them to use us in the to-go channel. The real emphasis on the company is understanding that we can't put the First Watch experience in a brown paper sack for them to take home. The in-restaurant experience is what we pride ourselves on. It's what we're trained for. It's what our employees love. That's really where our emphasis is. Frankly, it's easier to grow our sales when you're focused on 80% of the business that's done in those dining rooms versus the 20% outside the restaurants. The fact that 10% is not an insignificant number, that's through third-party. Importantly, you guys price that so that you're indifferent whether the customer, because I know a lot of people talk about the fees and whatnot. You're content one way or the other. You charge enough to cover and protect your margin regardless. We do try to protect our margin. It's not margin neutral. It's not as efficient at the margin. I have found over my years in the restaurant industry that telling your customers how they're supposed to use you is a dead end. It's an appealing way for our customers to use us. We're glad that it's a healthy channel for us. Right. As we look back over the past 12 months, I think pricing for the year was in kind of the 3.5% range. Yeah, the full-year carry, that's right. Full year. As we think about 2026, I think you normally kind of run in a 2-4% range. I'm sure you'd love to be at the low end of that in terms of being able to drive traffic. How do you think about the pricing power of the business as we look to 2026, as you think about protecting your margin? We know on a relative basis that we're a value compared to our competitors. I don't think we expect any we won't go away from the model that's worked for us for over four decades. The important thing for us is to you mentioned that 2-4% range. That's where we like to stay. We visit pricing about twice a year. We'll look at it. And by visit, I mean we don't always take it, but we analyze our menus and how good a job the CFO has done in predicting inflation. Then we adjust if we need to based on what we think is permanent-type adjustments in our costs. Inflation in wages, inflation in our commodities, and their availability all enter into that equation. We visit it once at the beginning of the year, once in the middle of the year. Yes, we always prefer to stay on the lower end of that because one of the important ways that we drive traffic is to be sure that we don't get out in front of our customer in terms of price and that we're content to defend the margin without taking full advantage of pricing elasticity in order to make sure that we're there every day. To the extent that that convinces them to come back another time or to bring another customer, that's really the way you win across decades, not just for a quarter or two. That was interesting to hear earlier in the day when we were talking that you mentioned this is not a cookie-cutter-type approach when you say, "Oh, it's 3.5% price." I mean, you've got markets that are running presumably a fair amount above that and a fair amount below that. There is a whole lot of specificity that you look at on a market-by-market basis and a product-by-product basis. Pricing is more nuanced than I tell people. It's not like laying down your menu and then multiplying times a figure to say, "What's our new price going to be?" We think about where the customers are, where the restaurants are. We think about where there might be gaps in the menu or things that we analyze the mix to see that we're not failing the customer in any one area or getting too far out in front of them. There is a lot more nuance to it than I think people always fully appreciate unless they've worked in the restaurant industry. Right. The driver of the top line being more the unit growth side of things, which you said you were excited about for next year, the 10% plus. Is that a number that makes you increasingly concerned as the base gets larger and larger, or do you feel like you have the ability to sustain that level for multiple years to come? We're going to be able to sustain that. I mean, we're not doing anything next year or the year after that's different from what we've done before. We've had years where we've converted more restaurants than that. I think there was one year where we converted 81 restaurants, including those that we built from the ground up. We had new restaurants plus conversions of restaurants that we had acquired from a former brand. Those, in some respects, by the way, are more challenging to convert than if we just build them and open them. Our pipeline is full. Next year's calendar, our developers are very data-driven. One of the ways they are able to deliver on that every year is by taking possession of the facilities sooner than maybe we used to in order to make sure that we're not at the mercy of a developer. We take possession of them. We build them out. We calendar them a year in advance or more. Our pipeline for next year and into 2027 is already getting booked. In this business, you kiss a lot of frogs. For every one restaurant we open, there's probably six or seven projects that we looked at and we said, "We can't do those." We have or we put them on a different time path, or they need to get further down the road in terms of the development of the trade area before we're willing to move in. Those sorts of projects are out there. To the extent that we have anything that falls out of bed, we have more that are ready to take their place so we can deliver. The fact that you're opening 60-plus in a year, and I know you're on the committee that approves these things. Do you look at five and choose one? Before they come to us, they've probably purged 9 out of 10 that would be rejected in the committee. By the time I get them and by the time Chris Tomasso, our CEO, are looking at them, it's only occasionally that we find one that we say, "You know what? We're not ready to go there." Or there's oftentimes we're still used to doing the things the way we used to. Sometimes Chris and a board member or Chris and I will go visit a new site to say, "We want to have eyes on before we open it there." Even at the size that we are, we have a very personal connection with every restaurant in the community that we're opening them in. Right. Can you talk about performance by region? Are there places that you've been pleasantly surprised that it's performing better or markets that perhaps didn't do as well? It's interesting you ask that because I get that question a lot. Because we're so data-driven, when we approve a site or when we project a new site, it's already conforming to what we believe are the successful criteria for the performance of the restaurants. The results are very predictable. Since we're not approving sites we don't want to be in, the restaurant in Orlando and the restaurant in Tampa, the restaurant in Nashville, the restaurant in Boston, the restaurant in Chicago, they all perform fairly predictably as long as we observe those criteria. It's a fairly consistent path to maturity. The place we do get surprised, and I was mentioning this to an investor earlier, the place we get surprised is occasionally we'll open a restaurant where we underestimate the reception that we're going to receive in the community. Either more people have experienced First Watch before, and we're looking forward to it, or the foot traffic is different than we expected, or it just has more of an appeal. We'll have one pop and surprise us with the outsized volumes versus the under-end. We have to be ready for those because that's our first First Watch occasion in many of those communities. Now we've started on new restaurants and new communities to staff up with even more people in the restaurant so that we don't disappoint on that first occasion. We tend to get surprised on the upside rather than the downside. From a dollar spend perspective, can you share just what is the cost to build and the returns you anticipate and kind of the financial metrics around this? Yeah. When we underwrite a restaurant, generally speaking, the average restaurant after tenant improvement dollars, so the landlord will give us some development dollars, generally the net number is about $1.75 million on a build. We look for first-year sales of about $2.2 million growing to about $2.6 million in the third year. At an 18%-20% margin, that'll pencil out to about a very similar IRR of about 18%-20%. They pathway to that pretty predictably. That's interesting that earlier I heard you talking about people just look at the blended restaurant margin and say 18%-20%, very impressive. In reality, when you look at it by class or whatnot, your stores that have been around a while, and I guess it's just the law of averages, can you share kind of the range that you see of the stores that have been around a few years and what they're achieving versus what maybe the new stores are doing? I think the range probably is, I mean, we've got some that probably do above 30% where they may have been there in a current lease environment for maybe 20 years, 25 years. Those are more the, those are great, and they're cash powerhouses for us. We love them. Maybe they're 3,300-3,500 sq ft, and they do great business, but they were designed to do a million two in revenue back then. They have a great restaurant-level operating profit margin. Probably the average across the legacy fleet would be maybe 22-23%, something like that. It's the newest units, no surprise, but the 60 you're opening this year and the 60 you opened last year where you're investing heavily to make sure the experience is right for the First Watch occasion. Yeah. They might be operating on a full year basis at a 15% or 16% restaurant-level operating profit. They're burdened by pre-opening costs where we're spending money in the restaurants but we're not or spending money for the restaurants, but we don't have sales yet out of the restaurants. They'll track to more mature performance within a year or so. As I think about what I think the biggest opportunity when I talk to people, a lot of people aren't as familiar with the brand as they might be with some of our other bigger brands. Marketing seems to be a big opportunity. You guys really turned it up perhaps a little bit, and you've been very pleased with the results thus far. Can you share maybe how you think about brand recognition and dollars, how much you want to spend this year and what you think about spending next year to drive brand awareness? As we've grown, we used to enjoy, and I think we still enjoy, a bit of a local appeal. There are many customers who do not even know that we are a chain. They discover us, and they go to friends, and they say, "Hey, we got a new local breakfast place that you got to see. They do a great job." There is a bit of that. We like that. We particularize every restaurant. We do not have a prototype in the sense of some brands where they are building the same facility every time. We go into a variety of facilities. We particularize it for the community with murals and that sort of thing that are reminiscent of something going on in the community or something for which the community is famous for. We participate in things in the community so that we're part of that community. We like that. As we've gotten larger, it's been harder to hang on to that absence of knowledge about a chain appeal. I do think that we enjoy a little bit more of our name recognition now. We also have the density, and we're operating in enough markets where marketing dollars can be efficiently spent in order to identify customers or to remind customers in a market of our presence. It has become more efficient for us given our size now and given our access to more data that we've developed and that's available to us in order to reach out to customers either through targeted marketing, social media, event-oriented around the restaurant in their neighborhood, or it helps us to identify customers who have a propensity to go out and eat breakfast anywhere or lapsed users or that sort of thing. More data has allowed us to be more efficient in our marketing efforts. That has been an important shift for us as we've moved from being a more juvenile company into a more we're behaving like a grown-up. Yep. Eventually, it had to happen for you, man. Do you share the dollar target, one year versus the next, or a percentage of sales? How do you think about what's the right level of the marketing dollars? We have not shared that yet. Perhaps one day we will. We are still learning. This is the first year. If you think about the marketing journey that we have been on, our company restaurants have always received marketing over time. Last year, we piloted an array of marketing pieces either from direct mail to connected TV to social media outreach or that sort of thing. We created a toolkit that we would then apply this year to about a third of the system. We unspooled a design around the things that were most effective in certain communities with certain density and in markets where the operations were ready to absorb additional business and absorb the kind of marketing campaigns we were doing. As we take those and we unspool them further into the system, I think we will continue to see what works best. I know it will probably fall not only into a cadence of doing it, but we're still learning and getting a read on what's been the effect of marketing. Is it frequency? Is it driving new visits, or is it driving repeat visits and that sort of thing? We still need a bigger cohort, particularly in the full-service restaurant industry. Your frequency is such that you have to have a pretty big cohort in order to have the depth of data in order to really make a selection or really draw a lot of conclusions. Got it. It was a third of the units this year that used that toolkit. Presumably, it's going to go forward next year as you expand it further. Yeah. I believe we've indicated that we're kind of growing into it. Just on commodities, most people like to talk to our lunch and dinner concepts. You have a different type commodity basket, and I know it was 6% inflation for the year 2025. I mean, I had to make sure I got it right. But between eggs and bacon and avocados and coffee. Those were the four. You're right. That's the perfect storm of 2025. It was. As we think about 2026, is there hope that there'll be some normalization, or will we be talking about a lower basket of inflation in 2026? You're talking to the guy who gets paid to worry about everything. I hope that it's going to be better. I honestly do. The avocados were more crop-related. The egg prices were related to avian influenza, and we haven't had the kind of resurgence in that yet this year that we saw coming into the year and that we saw during the first quarter. That one's kind of become an annual event. Last year's was particularly challenging. Coffee remains high. I'm hopeful that we see some sort of relief there. We get our coffee in a special program. We buy it in Colombia, but it's influenced by Brazil. Brazil sets the market for coffee. If Brazil has a good crop and they don't pass along a lot of tariff through their pricing, then perhaps we'll see some relief in the coffee as well. Got it. I want to pause for a moment before I pursue any additional questions and see if there's any questions from the audience. I see a gentleman over on the far left. I know we are being webcast, so I guess if we wait a moment. Hi. Thank you for the presentation. As you grow and a certain number of units that are being added incrementally grow every year, will you look to the capital markets for fundraising? Our principle that we followed fairly consistently is to let the operating restaurants provide for the cash to build our restaurants and to service the fleet. That is how we do it by design. Our borrowing thus far has been generally limited to our strategic acquisitions. We bought in a number of franchisees the last couple of years. We acquired another brand that we converted a few years ago. That is where our strategic borrowing has come from. For the most part, our plan is to have the operating cash generated by the legacy fleet provide for the production of new restaurants. Any other questions in the room? Okay. Lastly, I just wanted to touch on what you mentioned about franchise acquisitions because it really picked up over the past year or so. I am just wondering if you could just share what the strategy is behind it. Presumably, we are still talking about 10% new units a year, and then you are just changing the banner on some to be from a franchise unit to a company operating unit. What is the conversation like internally, and what is kind of the plan for the next few years as you think about the remaining franchise units? Right now, we have about 72 franchise restaurants remaining. It's really been over the last two and a half years that we bought in a lot of our franchised restaurants. We like the ownership model. I mean, frankly, those franchise restaurants are doing well. I don't think you distinguish much between a franchise restaurant and the company-owned restaurants. We have great franchisees. They operate great profitable restaurants. We acquired a number of very profitable restaurants in markets where the strategy was, one, we wanted to own them. Two, they're in markets that are attractive to us, and we wanted to be able to grow faster. It opens up. You're not just acquiring the restaurants. You're acquiring the ability to open our own restaurants in those markets. We do it at a pace that's a little bit faster than the franchisees, so it permits us to grow. They have created a great calling card in the markets too. A number of these would have a dozen or more restaurants in a market. Good operators have helped us to have a good calling card in those markets. When we open the new restaurants, there is a familiarity in the market with the brand, and that has been helpful. We like the ownership model. We like the returns on our restaurants. By owning them, we enjoy the returns associated with those. That does not mean there is not a place for franchising. We know how to do it. There may be some opportunities to do it in the future. Right now, our focus is on operating the company restaurants. We talk to our franchisees all the time, either on a range of issues. Some are willing to part with their restaurants now, and some aren't. We'll see what develops on that. 72 today, like in three to five years, could it be zero, or is it? My sense is it'll never be zero. Given the fact that we own all but 72 in a 620 restaurant system, we've got more skin in the game than they do. I can promise you that we're as influential as a franchisor as any out there. All right. We've reached our time limit, but we wanted to thank First Watch and specifically Mel for joining us. Thank you. They've got meetings throughout the day. Thank you all. Thank you all for taking your time with me and with us. I appreciate the opportunity. Thank you, everyone, for joining us.