Dutch Bros Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Although the request references 2022 Q4, this is an annual filing; it does not provide a complete standalone fourth-quarter income statement or cash-flow summary. Unless noted otherwise, financial amounts below are in U.S. dollars.
Business context
Dutch Bros operates and franchises drive-through beverage shops. At year-end it had 671 shops in 14 states: 396 company-operated and 275 franchised. More than 90% of business is conducted through drive-throughs. Management expects about 90% of annual new shop openings to be company-operated. The company reported two segments: Company-operated shops and Franchising and other.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $739.0 million | $497.9 million |
| Operating income (loss) | $(2.6) million | $(111.2) million |
| Consolidated net income (loss) | $(19.3) million | $(117.9) million |
| Net loss attributable to Dutch Bros Inc. | $(4.8) million | $(12.7) million |
| Diluted loss per share | $(0.09) | $(0.28) |
| Adjusted EBITDA, a non-GAAP measure | $91.2 million (12.3% of revenue) | $84.1 million (16.9%) |
| Cash from operating activities | $59.9 million | $80.4 million |
| Cash and cash equivalents at year-end | $20.2 million | $18.5 million |
Revenue increased 48.4%, principally reflecting shop growth. Company-operated shop revenue rose 58.4% to $639.7 million; Franchising and other revenue increased 5.5% to $99.3 million. Company-operated shop gross margin fell to 19.0% from 21.5%; segment contribution margin, a non-GAAP measure, declined to 24.6% from 25.5%. Systemwide same-shop sales grew 1.0%, versus 8.4% in FY2021. Systemwide average unit volume was $1.924 million, up from $1.850 million.
Investing cash outflow was $192.6 million, including $187.9 million of property and equipment purchases, largely supporting new shops. Financing activities provided $134.4 million. Year-end current assets were $82.3 million and current liabilities were $212.7 million. Management said cash, operating cash flow and credit-facility proceeds were adequate for debt service, leases and working capital for at least 12 months.
At year-end, term-loan borrowings were $98.1 million and revolving borrowings were $112.7 million; $137.3 million remained available on the revolving facility. The company also had substantial lease liabilities: $245.1 million for finance leases and $170.5 million for operating leases, measured at present value. Its Tax Receivable Agreement liability was $220.9 million. These obligations are distinct from the stated term and revolving borrowings.
Material changes and unusual items
- Shop count rose 24.7% year over year. The company opened 120 company-operated shops and 13 franchised shops, and reacquired five franchised shops.
- Company-operated shop gross margin contracted by 250 basis points. Management cited higher ingredient costs, operating expenses and wage requirements; menu price increases partly offset these pressures. Beverage, food and packaging costs rose to 26.9% of company-operated shop revenue from 25.3%.
- SG&A declined to $183.5 million from $264.5 million, primarily because FY2021 included substantial IPO-related equity compensation and other one-time costs. FY2022 still included $41.7 million of equity compensation and investments in people, processes and systems.
- Interest expense, net, increased to $18.0 million from $7.1 million, reflecting additional borrowing, finance leases and interest-rate activity. The company entered a $70 million interest-rate swap to fix the base rate at 2.67% on that notional amount through February 2027; the debt otherwise carries variable rates.
- In Q4, the company recognized $7.4 million of Dutch Rewards breakage revenue, including $4.9 million for pre-2022 points that expired at year-end and $2.5 million of estimated unredeemed 2022 points and rewards. This estimate depends on redemption and expiry assumptions.
- Prior-year figures were revised for an immaterial correction to sick-leave accrual accounting. The company also adopted the new lease accounting standard in 2022, changing balance-sheet presentation; prior-year lease figures were not restated.
Outlook, management commentary and risks
Management estimated FY2023 capital expenditures of $225 million to $250 million, primarily for new and existing shops, supply chain and corporate facilities. The Texas roasting facility was expected to require approximately $15 million to $20 million of 2023 investment, with operations anticipated in 2024. Management’s longer-term strategy targets 4,000 shops over 10–15 years; this is an aspiration, not a near-term forecast. Management expects inflation and minimum-wage pressures to continue and says gradual menu price increases may weigh on demand. No specific FY2023 revenue or earnings guidance is provided in the filing text.
- Commodity, packaging, construction and labor cost inflation could pressure margins; coffee and dairy costs increased significantly in 2022. Pricing may not fully offset cost increases.
- Growth depends on securing suitable drive-through sites, controlling construction costs, staffing new shops and developing new markets. New shops may take time to stabilize and could reduce sales at nearby locations.
- The business is geographically concentrated: approximately 80% of shops were in the Western United States. Supply disruptions, weather, competition, consumer spending and franchise-partner performance are additional risks.
- The company reported material weaknesses in financial-reporting controls over IT system-change management and Dutch Rewards breakage accounting. Management said no material misstatement was identified and described remediation efforts, but the auditor issued an adverse opinion on internal control over financial reporting. The auditor separately gave an unqualified opinion on the financial statements.
- The company reported no material legal proceedings. It was in compliance with credit-facility financial covenants at year-end. The filing identifies $1.6 million of franchisee lease guarantees and a $220.9 million TRA liability; TRA payments depend on future tax benefits and taxable income.
- Inflation, changes in consumer preferences, food safety, cybersecurity, regulation, lease commitments and the company’s multi-class voting structure are among the other disclosed risks.
Important facts for investors to verify
- How FY2023 shop openings, same-shop sales and new-shop returns compare with management’s growth plans, and whether expansion is affecting existing-shop sales.
- Whether pricing and operating efficiencies can offset ingredient, wage, occupancy and construction cost pressures without materially weakening demand or margins.
- Whether operating cash flow and available credit support the planned $225 million–$250 million of capital expenditures alongside debt service, lease obligations and working-capital needs.
- Progress in remediating the two reported control weaknesses, particularly controls over loyalty-program breakage estimates and IT changes.
- The assumptions behind Dutch Rewards breakage revenue and the future cash timing and amount of TRA payments.
- Current borrowings, variable-rate exposure, covenant compliance and the effect of long-term lease obligations on liquidity and leverage.