Dutch Bros Inc.

Thank you for standing by and welcome to the Dutch Bros Inc. fourth quarter 2024 earnings conference call and webcast. This conference call and webcast is being recorded today, February 12th, 2025 at 5 p.m. Eastern time and is available for replay shortly after the call is concluded. Following the company's presentation, we'll open up the lines for questions and instructions. The queue up will be given at that time. I'd like to turn the conference over to Patty Warren, Dutch Bros Senior Director, Investor Relations and Capital Markets. 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 and year end of December 31st, 2024, after the market closed today. The earnings press release, along with a supplemental information deck, have been posted to our investor relations website at investors.dutchbros.com. Please be aware that all statements are prepared remarks, and in response to your questions, Other than those of historical fact are forward-looking statements, and they're subject to risks, uncertainties, 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 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. As a reminder, we will be hosting our inaugural Investor Day on March 27, 2025, in the Phoenix, Arizona market. During this event, our leadership team plans to discuss our competitive differentiators and growth plans. We also anticipate providing updates to our long-term financial plan. On today's call, we plan to discuss our performance in the fourth quarter of 2024 and provide guidance on certain key metrics for 2025. Following our prepared remarks, there will be a question and answer session. We would ask that questions please be focused on these topics as we plan to cover longer time horizon topics next month at our investor day. With that, I would like to now turn over the call to Christine.

Thank you, Patty. Good afternoon, everyone. Dutchboro's future has never looked brighter, and we saw that represented in our 2024 results. Revenue growth in 2024 was outstanding. We delivered 33% total revenue growth, driven by a healthy balance of 18% new shop growth with 151 new shop openings and 5.3% system same shop sales growth in the year. New shop performance is strong, and improved considerably throughout the year. We enter 2025 with heightened confidence in the size of the brand's white space and the ability of our development and operations teams to execute upon it. Adjusted EBITDA grew 44% in 2024, driven by strength in our four-wall P&L and continued adjusted SG&A leverage. We have made and will continue to make the investments in people and capabilities which we believe only compounds our competitive advantage. I am incredibly excited about the strength of our brand, the love from our customers, and our clear path forward. As we survey the industry landscape, we believe Dutch Bros is uniquely positioned and on trend with an emphasis on iced beverages, personalization, and speed. We see an increasing relevance of the customized energy occasion which has been core to our menu for over a decade. We also see the continued importance of genuine connection, embodied by our broistas and a cornerstone of Dutch Bros for the last 33 years. Zooming into Q4, we saw substantial momentum across the board. Our brand is resonating with customers. In Q4, we saw 6.9% same-shop sales growth, as well as our largest quarterly transaction growth since 2022. Company operated same shop sales grew 9.5%. We experienced our first full quarter of mobile order and are beginning to see the benefits to our business. In Q4, we returned our holiday favorite LTOs, hazelnut truffle mocha and candy cane mocha, offering our customers a spirited way of staying engaged during the holiday season. we saw the highest performance ever of our Candy Cane Mocha platform, where we sold almost 40% more total units than when we ran it last year. Our enhanced marketing efforts continue to build brand awareness and gain traction, and we are seeing great engagement and response in our Dutch Rewards program. Our real estate strategy is working. Once again, we saw strong new shop productivity as we have shifted our development focus and elevated our site selection process. And we continue to demonstrate remarkable consistency in our shop opening cadence with 32 new shops in the quarter. Our pipeline for 2025 is strong. Our efforts are translating to outstanding financial results. In the quarter, we drove a 35% revenue increase and a 41% adjusted EBITDA increase compared to the same quarter last year. System-wide AUVs were $2 million, in line with the record we posted earlier this year. This month, we are celebrating a major milestone as we open our 1,000th shop. We are extremely proud of our results, and I would like to take a moment to sincerely thank our entire team. Our Broista teams wake up early and stay up late to make a massive difference one cup at a time. And our 2024 results are a reflection of this effort during each shift in each interaction every day. I'd now like to spend some time walking through our key growth drivers, beginning with how we grow our people and scale our culture. Our people are the cornerstone of our strength. Our talented Broistas and the service they provide drive our growth, and separate us from competitors. One of the reasons we have chosen to grow primarily through a company-operated model is because we believe it enables us to scale our culture as we enter new markets. We make big investments in seeding our culture as we expand, and we are pleased with how this is translating into strong service. Our people pipeline includes more than 450 regional operator candidates. with an average tenure of more than seven years. For context, we had approximately 200 operator candidates in our pipeline at the end of 2021. It is important to note that in addition to almost doubling our shop count during this period, we also significantly expanded our operator candidate pipeline. We are able to attract, train, and retain great people and continue to build a strong foundation for growth for many years into the future. This approach also enables us to create compelling futures, providing opportunities for Broistas to grow with us. In 2024, our overall shop level turnover improved approximately five percentage points year over year. We are honored to be an employer of choice and blown away by the excitement of applicants seeking to join us as Broistas. In December, we had the opportunity to reinforce our culture by hosting our shop leadership at an event we called A Better World. Almost 3,000 of our field leaders, franchisees, and headquarters team were able to attend and experience this catalytic cultural event, many for the first time. The energy was electric, and the team left with a renewed sense of purpose and clarity of mission. In mid-December, Venky Krishnababu joined us as our Chief Technology and Information Officer. Previously, Binky served as Chief Technology Officer at Lululemon Athletica and brings nearly 30 years of experience leading transformational enterprise shaping strategies and a proven track record of creating business value through technology, innovation, and partnerships. I'll now shift to how we are growing our shop base and capturing our white space. We are executing our real estate strategy and are very energized by the results. New shop productivity continued to increase in Q4, which we believe was a result of enhanced market planning, as well as elevated paid ad spending in new markets. Once again, we delivered our shop development target in Q4, with 32 new shop openings, bringing total shop count to 982. For the year 2024, we opened 151 new shops, of which 128 our company operated. We have a strong 2025 pipeline. In the second half of 2024, we made investments in our development, construction, and market planning teams and continued elevating our site selection process. These investments, combined with our extensive white space and strong four-wall model, elevate our confidence in our pipeline in 2025 and position us to accelerate quarterly unit growth in the back half of this year. Now I'd like to discuss our efforts to grow transactions and develop sales layers. Early in 2024, we outlined a transaction-driving strategy focused on three foundational initiatives that we plan to use to jumpstart transaction growth. Enhanced focus on innovation, increased paid advertising designed to build brand awareness, and more targeted rewards program efforts. We are executing on all these elements, and we are seeing success. Transaction growth accelerated as we exited the year, reaching 2.3% for the system in Q4. Our efforts are working, and we believe we have considerable runway for further growth. Here is a brief update on the three foundational traffic driving initiatives. First, innovation. In the competitive beverage industry, we believe staying ahead of trends is critical. We utilize innovation to build sales layers and deepen our competitive mode through category-defining products. In the quarter, we returned the successful LTO offerings Candy Cane and Hazelnut Truffle Mocha, and added Jingle Nog and Winter Shimmer Rebel as seasonal offerings. Furthermore, we continued our strategy of utilizing promotional innovation to surprise and delight our customers with giveaways like the Passenger Princess Straw Topper and our custom holiday ornament. These were huge hits that drove both excitement and sales volume. We love doing these innovative promotions as it strengthens our brand loyalty and creates extra moments of connection with our customers. Second, paid advertising. It is becoming increasingly clear that our upsized paid advertising investments are having a positive impact on our business. We saw an opportunity to raise brand awareness in new markets, and we began increasing our digital ad spend. Those efforts have been successful. We have seen considerable improvements to both brand awareness and traffic. During the second half of 2024, we expanded this program to build greater awareness in mature markets. We are encouraged by what we are observing in these markets as well. And third Dutch Rewards. We continue to see exceptional traction in the Dutch Rewards program with a record 71% of transactions coming from Dutch Rewards members. This is an increase of over 500 basis points year over year. In the back half of 2024, we accelerated our segmentation efforts, which we believe will enable us to reach customers more efficiently and provide even more personalized and relevant offers. While we are still in the early innings, the responses we have seen to date and the opportunity we see in front of us are encouraging. Beyond these three foundational transaction drivers, we see a clear path forward with multi-year initiatives that layer on top of this foundation, including food and mobile order. We continue to be excited about mobile order, and here are a few program updates. As of December 31st, approximately 96% system and 99% company operated shops have mobile order functionality. Our customers are enthusiastically embracing the mobile order occasion. As of December 31st, our rewards customers have placed approximately 5.4 million mobile order transactions. mobile order continues to over-index in the relative rush of the morning, and in particular with coffee-based beverages. This gives us confidence that we are on the right track with our strategy to further unlock the morning day part with greater convenience. And finally, we believe mobile order contributed to the traffic outperformance we experienced in Q4. As of December 31st, approximately 8% of our channel mix was mobile order. representing a steady and deliberate increase quarter over quarter. We continue to observe that customers who use mobile order increase their frequency, and mobile order penetration is more than twice the level of our overall system and some of our newer markets. We believe that by placing the convenience of the digitized menu in the hands of our customers will bode well for us in newer markets, as it allows customers to explore and learn our brand, Last quarter, we announced that we began a limited food test. This initial test has been focused on understanding the optimal assortment and how an expanded food program interacts with our existing operations. Although the test is small, initial signs are encouraging and point towards the viability of an expanded program. As we consider a food program, I'd like to share our guardrails. First, Broista job satisfaction. As we expand their roles, we must consider how to do so in ways that continue to foster a fun and energetic work experience that assures we continue to attract and retain the very best people. Second, a targeted assortment focused on capturing the food attached opportunity and the potential incremental beverage opportunity while minimizing complexity. Third, no impact to throughput. We believe we have an opportunity to expand market share in the morning day part. We understand that many people seek the added convenience of a food pairing with their morning beverage choice. Food makes up less than 2% of our total sales, and we are likely missing morning beverage transactions from would-be customers who are not satisfied with our current food offerings. With the expansion of our food program, we are targeting these incremental beverage occasions and aim to compete more aggressively for these high-value, routinized occasions with a limited food offering that fulfills our customers' needs. In closing, we are incredibly well-positioned with a great brand and wonderful people. Momentum in the business is strong. We believe our runway is long and our path forward is clear. We have top-tier growth. In Q4, we delivered 35% year-over-year revenue growth and 32 new shop openings. We have multi-year visibility on key initiatives, including our core foundation of innovation, paid media, and Dutch rewards, and exciting growth opportunities with mobile order and food. Our real estate strategy is working, and we have seen another quarter of excellent new shop productivity. This, combined with our strong pipelines, gives us great confidence as we execute our unit growth plans. We have an incredibly strong brand that is resonating. I am blown away that as we reach the 1,000 shop milestone, we have customers in mile-long lines to experience those first smiles as we open our doors in new markets. 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.