Dutch Bros Inc.

TPAT. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patty Warren, Director of Investor Relations and Corporate Development. Please go ahead.

Good afternoon and welcome. I'm joined by Christine Brone, CEO and President, and Josh Gunzer, CFO. We issued our earnings press release for the quarter ended June 30, 2024, after the market closed today. The earnings press release, along with the supplemental information deck, have been posted to our investor relations website at investors.dutchroads.com. Please be aware that all statements and our prepared remarks and in response to your questions, other than those of historical fact, are forward-looking statements and are subject to risk, uncertainty, and assumptions that may cause actual results to differ materially. They are qualified by the cautionary statements in our earnings press release and the risk factors in our latest SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. We assume no obligation to update any forward-looking statements. We will also reference non-GAAP financial measures on today's call. As a reminder, non-GAAP measures are neither substitutes for nor superior to measures that are prepared under GAAP. Please review the reconciliation of non-GAAP measures to comparable GAAP results in our earnings press release. With that, I'd now like to turn the call over to Christine.

Thank you, Patty. Good afternoon, everyone. Our results demonstrate the long runway of growth that lies ahead for Dutch Bros. as we once again combined strong revenue growth with expanding profitability. During Q2, we drove a 30% revenue increase and a 34% adjusted EBITDA increase compared to the same quarter last year, resulting in $325 million of revenue and $65 million of adjusted EBITDA. We are very pleased with how our customers are responding to our recent innovations. Our expanding Dutch rewards program and our brand awareness building efforts. Given the intense external professional backdrop and a tough Q2 lap, our focus on delivering innovative products and incredible service is paying off. Same shop sales rose 4.1%, and AUVs were $2 million, which is in line with the record we posted last quarter. In Q2, we opened 36 new shops, marking the 12th consecutive quarter of 30 or more new shop openings. We also reached another milestone this quarter, having opened our 900th shop in Frisco, Texas. Despite an evolving and uncertain consumer environment, our exceptional first half results, including strong new shop performance, give us the confidence to raise both our revenue and adjusted EBITDA guidance for the year. Josh will share more context and detail on our financial results in a few minutes. But first, I'd like to walk you through an update on our business. We begin any discussion of Dutch Bros with our fundamental differentiator, our people. Our exceptional culture, crews, and service resonate with customers of all ages and backgrounds. Our talented broistas and the service they provide drive our growth and set us apart from competitors. Our people pipeline includes over 400 operator candidates with an average tenure of more than seven years. Each person in the pipeline is ready to lead a market as an operator. When these new operators get the call, we invest in their success and the success of the market by sending our experienced opening team. These teams work alongside our new operators to lay a strong cultural foundation and ensure our new Broistas are empowered to be highly successful. This powerful combination of experience, energy, and teamwork helps us consistently deliver an exceptional customer experience focused on speed, quality, and service. We continue to be pleased with our shop level turnover indicators, which are in line with our expectations. Our best people are staying and growing with us. The expansion of our support center in Arizona, which we announced earlier this year, remains on track, and we continue to hire great people to support our growth. We are eagerly awaiting the move into a larger permanent location in the first half of 2025. Our leadership team transition has been seamless. Josh Gunzer officially assumed his role as CFO earlier this quarter, while Charlie Gemley remains a strategic advisor. Sumi Ghosh, our president of operations, and Jess Elmquist, our chief people officer, have spent their first several months in the shop, learning our systems and processes. This experience is important as it gives our leaders a unique perspective on the business and helps inform our key initiatives. Sumi is taking his in-shop learnings and applying them to his initial focus areas of real estate and throughput. Jeff is focused on building on the strength of our people system. The remaining members of our senior leadership team have all spent time in the shops as well and are all certified Broistas, which we believe is critical in our ability to support the field as we grow. Last year, we outlined a multi-pronged plan to drive traffic, which includes an enhanced focus on innovation, increased paid advertising designed to build brand awareness, and more targeted rewards program efforts. Despite the macro environment noise and aggressive price promotion from many peers, we haven't felt the need to fundamentally adjust our strategy. We remain pleased with our progress and how our efforts are working together to drive momentum. Innovation is a key driver within the beverage market. We also believe innovation plays a foundational role in Dutchboro's next stage of growth by building sales layers and deepening our competitive moat through category-defining products. Earlier this year, we demonstrated our advancing innovation capabilities through the launch of boba and protein milk, which were both extremely successful. Our customers loved these products, and we decided to add them to the permanent menu. Our strawberry boba performed so well that we experienced product outages through much of April and May. I'm happy to report that by June, we restored supply across most of our system. In April, we brought back Mangonada Rebel and added two new drinks, Churro Freeze and Watermelon Fizz. With Mangonada and Churro Freeze, we maintain a dual focus on energy and coffee. With Watermelon Fizz, we highlight the breadth of our menu, which includes an array of refreshing soda, tea, and lemonade-based beverages. With our deep pantry of flavors and toppings, we give our customers tens of thousands of ways to enjoy their favorite drink. Paid advertising. We are beginning to see the impact of increased investment in paid advertising, particularly in newer markets with lower brand awareness. We were encouraged by the initial results, which were higher than our expectations. In these DMAs, where we have incrementally upsized paid advertising, sequential traffic growth is outpacing the system. Based on these results, we have decided to make further investments. Dutch Rewards is a cornerstone in our traffic driving strategy and allows us to interact directly with our customers. Through this communication channel, we introduce customers to new innovative products, communicate special promotions like surprise sticker days and merch drops, and incentivize visits across key customer segments, geographies, and day parts. In Q2, approximately 67% of our transactions are attributable to Dutch Rewards members. which we believe is truly incredible given the growth in our business and our status as a relative newcomer in many of our markets. We focused our promotional efforts in the Dutch Rewards channel and elected to not repeat several of our broader base promotions. We have found that our increasing sophistication in our Dutch Rewards program enables us to efficiently and effectively target our large existing customer base. That said, we believe broad-based promotions are particularly effective at introducing new customers to Dutch Bros, especially in new markets. We continue to make progress with our order ahead capabilities, and we remain on track with this initiative. We expanded the scope of the test to about 40 shops in Arizona, California, and Texas as of June 30th, and have rolled out the capability to approximately 200 shops as of the end of July. We are increasingly optimistic that mobile order capabilities will be available in a majority of our shops by the end of 2024. We are encouraged by some of the structural advantages we believe we enjoy with this channel, including our approximately 67% Dutch Rewards penetration starting point. Additionally, many of our shops have double drive-through setups that include an escape lane, which could be utilized for mobile order. After checking in, our mobile order customers can be directed to the right-hand lane where a runner can bring their drink if it is ready before the customer reaches the window. The customer can then escape using that open lane to their right, eliminating a potential bottleneck at the window. We already use this operational tactic in many of our locations. We also see an opportunity for mobile order to improve the utilization of our walk-up window, which currently makes up about 10% of our business. Early mobile order data suggests a majority of mobile order customers choose to use our walk-up window. Our existing kitchen display units are compatible with this system, leading to streamlined integration. Based on learnings from competitors, we recognize the importance of capacity planning in setting customer expectations. We intend to throttle orders where necessary to maintain high levels of customer service across our channels. That said, we believe many of our shops are capable of significantly higher throughput, given the volume of some of our most productive shops. These high throughput shops have the same footprint as our standard prototype, which makes up much of our existing portfolio. We are excited to continue learning from this rollout, and we look forward to sharing feedback on adoption and potential incrementality as we observe customer behavior over a longer period of time. Since our IPO in September 2021, New shop development has been a consistent bright spot for our business, having almost doubled our shop base from 503 to 912 as of the end of Q2 2024. We currently have nearly 200 shops in Texas, which is remarkable given the market opened a little over three years ago. We have learned a lot from our entrance into Texas. As a reminder, we have updated and recalibrated our models over the past 18 months. helping refine our approach to real estate. We are using these insights combined with an enhanced market planning effort to drive better revenue performance in new shops. As part of this work, we have removed sites from our pipeline that under our recalibrated modeling would not meet our investment objectives. We began these refinements in mid-2023 and have continued to reassess site quality of our pipeline regularly since then. Rapidly bringing forward learnings into the pipeline process has had two main impacts. First, we have begun to see stronger revenue performance in our portfolio of new shops, which is giving us the confidence to raise our total revenue guidance for the full year 2024. Second, as we have focused on higher AUV potential sites, it is now more likely that we will land towards the lower end of our development range of 150 to 165 new shops in 2024. As a reminder, we have opened 81 shops already through the first half of this year. Additionally, we are attempting to rebalance our pipeline back towards more capital efficient lease arrangements. It will take time for these refinements to make their way through the real estate pipeline, and we will likely begin seeing an impact in 2025. That said, we are encouraged by the improvements in new shop productivity, which are beginning to be felt now. Let me conclude with two items that relate to our corporate structuring. This quarter, affiliates of TSG consumer partners fell below the thresholds required to nominate a director to our board of directors, maintain elevated voting rights, and after the SEC waiting period, call for a registered offering under our registration rights agreement. TSG played a foundational role in preparing Dutch Bros to be a fast-growing, high-performing public company. On behalf of the entire Dutch Bros family, We would like to formally thank PSG for its support over these past six years. In Q2, we added two independent directors to our board of directors, G.J. Hart and Todd Pettigore. G.J. has extensive industry expertise and is presently the CEO of Red Robin and the former CEO of Texas Roadhouse, California Pizza Kitchen, and Torchy's Tacos. G.J. chairs our compensation committee, which is now independent. Todd also has extensive industry experience and was just appointed President and CEO of Papa John's and a member of Papa John's Board of Directors earlier this month. Previously, Todd served as the CEO of the Wendy's Company. He joined Wendy's in 2013 as Senior Vice President and Chief Financial Officer. Prior to his tenure at Wendy's, Todd served in various roles at Kelanova and Ford Motor Company. We look forward to G.J. and Todd's contributions in our boardroom as we navigate the next phase of our growth story. We are pleased with an excellent start to 2024, and we continue to build a strong foundation for growth. We have terrific customer engagement through our rewards program and are excited about opportunities in front of us to further accelerate this platform. We have top-tier growth. We delivered 30% year-over-year revenue growth in Q2 and yet another quarter of at least 30-plus new shop openings. We have excellent shop margins, delivering this top-tier growth profitably. We are well capitalized. We believe we have plenty of flexibility upon which to execute our growth plan and capture a considerable white space. Most importantly, we have great people, anchored by outstanding, engaged broistas and a strong pipeline of operators ready to grow with us. With that, I'll turn it over to Josh to review our financials and give more details on our guidance.