Florida is the company’s biggest market with 102 locations. (Texas is second biggest with 55, according to the prospectus.) That concentration offers another risk.
“If a catastrophe, such as a fire or extreme adverse weather conditions such as storms, floods, severe thunderstorms and hurricanes, were to occur at the distribution center that services the concentration of our restaurants located in Florida, we would be at immediate risk of product shortages because that distribution center supplies 30% of our company-owned restaurants as of Dec. 27, 2020, which collectively represented 32% of our restaurant sales for fiscal 2020,” the prospectus said.
About 41% of the company’s system-wide restaurants are in the southeast, which the company also identifies as a risk factor, as it could be “disproportionately affected by conditions in this geographic area.”
While First Watch doesn’t plan to expand into dinner, it did accelerate the addition of alcohol in its restaurants during COVID-19.
Alcohol is now offered in 244 restaurants and, in the fiscal second quarter of 2021, accounted for 3.6% of in-restaurant sales at company-owned restaurants.
“These incremental alcohol sales are highly profitable,” the company’s prospectus said. “More importantly, we remain confident in the long-term opportunity to innovate within this platform to further elevate the social occasion of breakfast, brunch and lunch.”
As more people have moved to the suburbs, where many First Watch restaurants are located, and work-from-home has increased, the company also sees an opportunity to grow its lunch business. Some 6% of First Watch’s weekday customers in 2019 purchased a lunch entrée.
First Watch had a net loss of $49.7 million in 2020, wider than the $45.5 million loss in 2019. Revenue totaled $342.4 million in 2020, down from $436.4 million the previous year.
First Watch is an emerging growth company, which means it does not have to make the same disclosures required of bigger public companies. A business remains an emerging growth company until it reaches a number of milestones, including annual revenue of more than $1.07 billion.
First Watch is based in Bradenton, Fla. and, in 2017, entered into a merger transaction with funds affiliated with or managed by private-equity firm Advent. Post-IPO, Advent is expected to own about 81% of First Watch’s outstanding common stock.
As of June 27, 2021, the company had $345.2 million of goodwill and $137.8 million of indefinite-lived intangible assets. A test for these two items is conducted on the first day of the fiscal fourth quarter each year. First Watch didn’t recognize impairment charges in 2020 but did have a non-cash impairment charge of $29 million in the fiscal second quarter of 2019.
First Watch’s debt as of June 27, 2021 was $288.8 million. The company intends to use the proceeds from the IPO to repay the borrowings from its senior credit facilities. The company does not intend to pay a dividend for the foreseeable future, and says that its ability to pay a dividend is restricted by the terms of its senior credit facilities.
Tomasso has served as director and CEO since Dec. 2019. He served in these roles for First Watch Restaurants, Inc., a wholly-owned subsidiary of the company, in the years leading up to 2019, and was chief marketing officer from Aug. 2006 to Dec. 2015.
Mel Hope has been chief financial officer since Dec. 2019.
Four of the company’s directors are also members of the Advent team. And Lisa Price, founder of hair and skincare company Carol’s Daughter , also sits on the board.
First Watch stock ended Monday at $21.48. The stock began trading on Oct. 1 after pricing at $18, the midpoint of the $17-to-$20 expected range.
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