First Watch Restaurant Group, Inc.FWRG
First Watch Restaurant Group, Inc. Stock Compensation Disclosure
Stock-Based Compensation
Equity Plans
The Company has two compensation plans that provide for the granting of stock options and other share-based awards to key employees and non-employee members of the Board of Directors. The 2017 Omnibus Equity Incentive Plan (the “2017 Equity Plan”) and the 2021 Equity Incentive Plan (the “2021 Equity Plan”) provide for the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, stock appreciation rights and stock-based awards.
2021 Equity Plan
The number of shares of common stock reserved for issuance under the 2021 Equity Plan (“Share Reserve”) for Fiscal 2025, Fiscal 2024 and Fiscal 2023 was 7,630,128, 6,416,126, and 5,218,292, respectively.
The number of shares of common stock that may be issued under the 2021 Equity Plan will automatically increase on the first day of each fiscal year, beginning on December 26, 2022 and continuing for each fiscal year until, and including, the fiscal year ending on December 29, 2030, equal to the least of (i) 2.0% of the total number of shares of common stock actually issued and outstanding on the last day of the preceding fiscal year, (ii) a number of shares of common stock determined by the Board of Directors; and (iii) the number of shares of common stock equal to the Share Reserve. If any award granted under the 2021 Equity Plan is cancelled, expired, forfeited, or surrendered without consideration or otherwise terminated without delivery of the shares to the participant, then such unissued shares will be returned to the 2021 Equity Plan and be available for future awards under the 2021 Equity Plan. Shares that are withheld from any award in payment of the exercise, base or purchase price or taxes related to such an award, not issued or delivered as a result of the net settlement of any award, or repurchased by the Company on the open market with the proceeds of a stock option will be deemed to have been delivered and will not be available for future awards under the 2021 Equity Plan.
The non-qualified time-based option awards granted under the 2021 Equity Plan in Fiscal 2022 vest over a three-year requisite service period from the date of grant and expire 10 years after the grant date. Restricted stock units are granted at values equal to the market price of the Company’s common stock on the date of grant. Stock-based compensation expense for awards made under the 2021 Equity Plan is recognized on a straight-line recognition method over the requisite service period. There were no stock option awards granted under the 2021 Equity Plan after Fiscal 2022.
2017 Equity Plan
The 2017 Equity Plan authorizes stock-based awards to be granted for up to 6,138,240 shares of common stock. The awards granted under the 2017 Equity Plan consisted of non-qualified stock options that generally vest over a five-year requisite service period from the date of grant (the “time-based option awards”), as well as upon the occurrence of certain events and if certain market conditions were achieved (the “performance-based option awards”). Stock-based compensation expense related to the stock option awards issued under the 2017 Plan is recognized on an accelerated recognition method over the requisite service period. All stock options have an exercisable life of no more than 10 years from the date of grant. No awards were granted under the 2017 Equity Plan after Fiscal 2021, and the Company does not intend to grant any further awards under the 2017 Equity Plan.
Modification of Performance-Based Option Awards - 2017 Equity Plan
On August 31, 2021, the Company’s Board of Directors amended the 2017 Equity Plan such that the performance-based option awards that convert into time-based option awards upon an initial public offering no longer vested over a period of three years, but instead vested one-third (1/3rd) on each of the first two anniversaries of an initial public offering and one-third (1/3rd) on the 273rd day following the second anniversary of an initial public offering. This was accounted for as a modification, resulting in a new fair value for all the performance-based option awards using an option-pricing model as of the modification date.
On September 19, 2021, the Company’s Board of Directors modified performance-based option awards that contained a market condition granted under the 2017 Equity Plan, such that the vesting terms for one such tranche were amended to waive the market condition. Accordingly, upon the Company’s IPO, such tranche converted into time-based option awards and vested one-third (1/3rd) on each of the first two anniversaries of the Company’s IPO and one-third (1/3rd) on the 273rd day following the second anniversary of the Company’s IPO. This was accounted for as a modification resulting in a new fair value using the option-pricing model for such performance-based option awards as of the modification date.
On September 19, 2021, the Company’s Board of Directors modified the terms of performance-based option awards granted under the 2017 Equity Plan to the Company’s Chairman Emeritus. The modification accelerated the vesting period of the performance-based option awards that convert into time-based option awards upon the Company’s IPO such that they no longer vested one-third (1/3rd) on each of the first two anniversaries of the Company’s IPO and one-third (1/3rd) on the 273rd day following the second anniversary of the Company’s IPO, but instead vested on August 1, 2022. Additionally, the exercise period of these time-based and performance-based vested option awards was modified such that any vested option may be exercised at any time prior to the 10th anniversary of the original grant date. These actions were accounted for as modifications and resulted in an increase of $0.3 million to the fair value of these awards.
Upon the consummation of the Company’s IPO in October 2021, certain performance-based option awards converted into time-based option awards and stock compensation expense of $2.4 million was recognized in the fourth quarter of Fiscal 2021. The remaining expense is being recognized on an accelerated recognition method over the remaining service period. An immediate one-time charge of $5.6 million was recognized upon closing of the IPO, which included (i) the expense from the date of the modifications through the IPO date and (ii) the expense related to performance-based option awards for which the market condition was not satisfied upon the IPO.
Stock Options
The following table summarizes stock option activity for Fiscal 2025:
| NUMBER OF OPTIONS | WEIGHTED AVERAGE EXERCISE PRICE | AGGREGATE INTRINSIC VALUE (in thousands) | WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (in years) | ||||||||||||||||||||
Outstanding, December 29, 2024 | 3,701,017 | $ | 10.14 | $ | 31,676 | 4.1 | |||||||||||||||||
| Forfeited | (964) | $ | 12.58 | ||||||||||||||||||||
| Exercised | (122,679) | $ | 9.73 | ||||||||||||||||||||
Outstanding, December 28, 2025 | 3,577,374 | $ | 10.15 | $ | 20,614 | 3.2 | |||||||||||||||||
Exercisable, December 28, 2025 | 3,573,428 | $ | 10.15 | $ | 20,601 | 3.2 | |||||||||||||||||
The aggregate intrinsic value is based on the difference between the exercise price of the stock option and the closing price of the Company’s common stock on the Nasdaq Global Select Market on the last day of the trading period. The total intrinsic value of stock options exercised was $0.9 million, $6.6 million, and $5.7 million during Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively.
A summary of the non-vested stock option activity during Fiscal 2025 is as follows:
| NUMBER OF OPTIONS | WEIGHTED AVERAGE GRANT DATE FAIR VALUE | ||||||||||
Nonvested, December 29, 2024 | 324,245 | $ | 6.55 | ||||||||
| Vested | (319,336) | $ | 6.57 | ||||||||
| Forfeited | (963) | $ | 6.76 | ||||||||
Nonvested, December 28, 2025 | 3,946 | $ | 5.22 | ||||||||
The total grant date fair value of stock options that vested during Fiscal 2025, Fiscal 2024 and Fiscal 2023 was $2.1 million, $6.8 million and $7.1 million, respectively. There were no stock options granted after Fiscal 2022.
Fair Value of Stock Options
The Black-Scholes valuation model is used to estimate the fair value of stock option awards granted. The Company has not had sufficient historical stock option exercise activity and therefore the expected term of stock options granted is estimated using the simplified method, which represents the mid-point between the vesting period and the contractual term for each grant. The expected volatility of stock options is based on the historical volatilities of a set of publicly traded peer companies in a similar industry as the Company lacks company-specific historical or implied volatility information. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the expected term of the stock option award. The expected dividend yield is based on the fact that the Company has never paid cash dividends and does not have intentions of paying dividends in the foreseeable future.
Restricted Stock Units
The following table summarizes RSU activity for Fiscal 2025:
| RESTRICTED STOCK UNITS | WEIGHTED AVERAGE GRANT DATE FAIR VALUE | AGGREGATE INTRINSIC VALUE (in thousands) | |||||||||||||||
Outstanding, December 29, 2024 | 759,721 | $ | 20.67 | $ | 14,207 | ||||||||||||
| Granted | 1,572,044 | $ | 16.46 | ||||||||||||||
| Vested | (309,209) | $ | 19.30 | ||||||||||||||
| Forfeited | (11,639) | $ | 19.46 | ||||||||||||||
Outstanding, December 28, 2025 | 2,010,917 | $ | 17.60 | $ | 31,994 | ||||||||||||
Of the 1,572,044 RSUs granted in Fiscal 2025, 597,737 will vest ratably over a period of three years from the grant date, 65,364 will vest one year from the grant date, and the remaining 908,943 will vest four years from the grant date.
The total intrinsic value of restricted stock units that vested in Fiscal 2025 and Fiscal 2024 was $5.8 million and $4.7 million, respectively.
Stock-Based Compensation Expense
Stock-based compensation expense, net of amounts capitalized, was $10.8 million, $8.5 million and $7.6 million during Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. Capitalized stock-based compensation included in property, fixtures and equipment totaled $0.2 million during Fiscal 2025.
The total related income tax benefit for stock-based compensation expense was $0.3 million, $0.8 million and $0.6 million for Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively.
Cash received from stock options exercised was $1.2 million, $6.4 million and $5.8 million for Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively. The tax benefit realized from stock option exercises and vesting of restricted stock units was $1.5 million, $2.3 million and $1.6 million in Fiscal 2025, Fiscal 2024 and Fiscal 2023, respectively.
Unrecognized Stock-Based Compensation Expense
The following represents unrecognized stock-based compensation expense and the remaining weighted average vesting period as of December 28, 2025:
UNRECOGNIZED STOCK-BASED COMPENSATION EXPENSE (in thousands) | REMAINING WEIGHTED AVERAGE VESTING PERIOD (in years) | ||||||||||
| Stock options | $ | — | 0.1 | ||||||||
| Restricted stock units | $ | 25,882 | 2.5 | ||||||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.